Business context and reporting period
This is Park City Group, Inc.’s unaudited Form 10-Q for the quarter ended December 31, 2022—its fiscal 2023 second quarter. Park City Group is the parent of ReposiTrak, Inc.; the consolidated results cover their operating subsidiaries. The business provides SaaS-based B2B marketplace, supplier compliance and food-safety, and supply-chain management solutions, primarily to food retailers, wholesalers, and suppliers.
Financial performance and position
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Six months ended Dec. 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $4.75 million | $4.35 million | $9.47 million | $8.91 million |
| Operating income | $1.18 million | $0.96 million | $2.40 million | $2.12 million |
| Net income | $1.27 million | $0.87 million | $2.55 million | $1.82 million |
| Net income attributable to common shareholders | $1.12 million | $0.73 million | $2.26 million | $1.53 million |
| Diluted earnings per share | $0.06 | $0.04 | $0.12 | $0.08 |
- Quarterly revenue grew 9%; six-month revenue grew 6%. Recurring subscription, support, and services accounted for $4.74 million of quarterly revenue and $9.42 million for the six-month period.
- Quarterly operating margin was approximately 24.7%, compared with 22.0% a year earlier; six-month operating margin was approximately 25.4%, compared with 23.8%. Quarterly net margin was approximately 26.6% versus 20.0%; six-month net margin was approximately 26.9% versus 20.4%.
- Operating cash flow was $3.30 million for the six months, up from $3.06 million. Investing activities used $0.27 million; financing activities used $3.09 million. Cash declined by $0.06 million to $21.40 million.
- At December 31, current assets were $25.86 million and current liabilities were $4.01 million, with working capital of $21.85 million. Total liabilities were $4.59 million and stockholders’ equity was $44.26 million.
- The company reported $448,742 drawn on its line of credit, down from $2.59 million at June 30, 2022. It also reported $504,491 in financing-lease obligations and $349,508 in operating-lease obligations. The credit facility is a $10 million revolving line, scheduled to mature March 31, 2023.
Material changes versus prior period
- Revenue growth came from subscription, services, and other recurring revenue. Management said it is emphasizing recurring subscriptions over transactional revenue.
- Operating income and net income increased faster than revenue. Operating expenses rose overall, but cost of services and support declined as a share of revenue.
- Six-month net other income improved to $266,874 from a $210,340 expense in the prior period. Management cited an Employee Retention Tax Credit refund gain, higher interest income, and prior-period investment losses; the current period also included unrealized losses on short-term investments.
- Cash flow from operations increased 8%. Working capital rose $1.36 million, which management primarily attributed to lower liabilities following repayment of about $2.1 million of the line of credit.
- The company repurchased 109,600 shares in the quarter for approximately $552,000 and paid cash dividends. The repurchase program had $10.27 million remaining at quarter-end.
Outlook, risks, and notable items
- Management believes cash, short-term investments, and operating cash flow are sufficient to fund operations, debt obligations, and anticipated dividends for at least 12 months. It expects cash flow and working capital to increase, while noting that future capital needs depend on revenue growth, spending, and market acceptance.
- The FDA’s FSMA Section 204 food-traceability rule was finalized in November 2022. The company is developing traceability solutions and increasing related marketing investment; the filing describes a proposed two-year compliance period after the rule’s effective date.
- Management said geopolitical conflicts had not materially adversely affected results through the reporting period, but future effects remain uncertain. Interest-rate changes may affect investment income and fixed-income valuations; management did not expect a material near-term effect on net income.
- Series B and B-1 preferred stock carry annual dividends of 7% if paid in cash or 9% if paid in additional preferred shares. Preferred dividends were $146,611 for the quarter and $293,222 for six months.
- No additional risk factors, material pending legal proceedings, or off-balance-sheet arrangements were reported. Management assessed disclosure controls as effective and reported no material changes to internal control over financial reporting.
Investor verification points
- Confirm the revolving credit facility’s status, repayment, and refinancing or maturity arrangements ahead of its March 31, 2023 maturity; reconcile the reported remaining line balance with management’s discussion of paying down the facility.
- Review the nature and amount of the Employee Retention Tax Credit refund gain and the period-specific impact of investment gains and losses on earnings.
- Assess whether subscription growth continues and whether the company’s FSMA 204 traceability offering converts marketing investment into recurring revenue.
- Monitor recurring preferred dividends, common dividends, and repurchases alongside cash generation and liquidity.
- Review potential dilution: 1,108,805 warrants were outstanding at December 31, 2022, with a reported weighted-average remaining contractual life of 0.10 years.