Repositrak, Inc. quarterly report, Q2 FY2022

Business context and reporting period

This is Park City Group, Inc.’s Form 10-Q for the quarter ended December 31, 2021, its fiscal second quarter of 2022. Park City Group is the parent of ReposiTrak, Inc.; the consolidated business provides SaaS e-commerce, supplier compliance and food-safety, and supply-chain management services, mainly to food retailers, wholesalers, manufacturers, and suppliers. The filing is by Park City Group (Nasdaq: PCYG), not a standalone ReposiTrak filing.

Financial performance and position

• Quarterly revenue fell 16% year over year; six-month revenue fell 14%. Recurring subscription, support, and services revenue grew, but did not offset the decline in transaction-based Marketplace revenue.
• Cost of services and product support was 19% of revenue in both the quarter and six-month period, versus 40% and 39%, respectively, a year earlier. Operating margin was approximately 22% for the quarter and 24% for six months, compared with approximately 7% and 10% in the prior-year periods.
• Quarterly net income declined despite improved operating income, primarily because the prior-year quarter included a $1.10 million PPP loan forgiveness gain and the current quarter had unrealized investment losses and a loss on asset sales. Six-month results likewise compare against the prior-year PPP gain.
• At December 31, cash was $21.71 million, current assets $26.99 million, current liabilities $4.24 million, and working capital $22.76 million. The resulting current ratio was approximately 6.4. Total liabilities were $4.80 million, including $0.93 million drawn on the line of credit and operating lease liabilities.
• Six-month cash flows: operating activities provided $3.06 million; investing activities provided $1.36 million, mainly from $1.37 million of property and equipment sale proceeds; financing activities used $6.78 million, including a $5.07 million net reduction in credit-line borrowings and $1.47 million for common-stock repurchases. Cash declined $2.36 million from June 30.

Material changes versus prior comparable periods

• Marketplace transaction revenue was $22,701 for the quarter and $126,034 for six months, down from $1.03 million and $2.12 million, respectively, in the prior-year periods. The company attributed the comparison to elevated pandemic-era demand for hard-to-source items, including PPE, that did not recur at the same level.
• Recurring subscription, support, and services revenue increased to $4.30 million for the quarter and $8.71 million for six months, from $4.02 million and $8.02 million.
• Operating income increased to $0.96 million from $0.38 million for the quarter, and to $2.12 million from $1.02 million for six months, reflecting much lower Marketplace-related service costs alongside lower revenue.
• Cash and total assets declined from June 30, 2021, while total liabilities fell from $9.91 million to $4.80 million. The changes principally reflect repayment of the prior $6 million credit line and asset sales.
• The company repurchased 252,152 shares during the six months for approximately $1.47 million. Remaining repurchase authorization was approximately $10.58 million at December 31.

Outlook, risks, and notable items

• No numerical revenue or earnings guidance is provided. Management said existing cash and short-term investments, together with operating cash generation, should fund operations and investment needs for at least 12 months, and expects cash flow and working capital to increase. These are forward-looking expectations, not assurances.
• The October 2021 revolving credit agreement provides a $10 million facility maturing March 31, 2023; borrowings bear interest at 1.75% plus one-month LIBOR. Covenants include maintaining liquid assets at least equal to the amount drawn and a Senior Funded Debt-to-EBITDA ratio no greater than 3:1. The balance sheet reports $0.93 million drawn at December 31.
• Management highlighted uncertainty in future Marketplace/PPE demand and potential revenue swings as pandemic-related demand abates. It said COVID-19 had not materially adversely affected operations or results through the reported quarter but that future effects remained uncertain.
• New initiatives included an Audit Management product for manufacturers and expanded automated vendor vetting and onboarding capabilities. Management continues to emphasize recurring subscriptions over transactional revenue.
• Series B and B-1 preferred shares accrue dividends; preferred dividends were $146,611 for the quarter and $293,222 for six months. Management described the B-1 preferred as perpetual and without covenants; it carries a 7% cash or 9% paid-in-kind dividend rate.
• The filing reports no additional risk factors beyond those in the fiscal 2021 Form 10-K, no pending or threatened material legal proceeding in management’s view, and no material change in internal control over financial reporting. Disclosure controls were assessed as effective.

Important facts for investors to verify

• Whether recurring subscription growth can offset continued weakness or volatility in Marketplace transaction revenue.
• The sustainability of lower service costs and improved operating margins as revenue mix changes.
• Current and future credit-line draws, applicable LIBOR-based borrowing costs, and compliance with the facility’s liquidity and leverage covenants.
• The reported $0.93 million credit-line balance alongside the stated repayment and refinancing timeline, and the timing and use of the new $10 million facility.
• Cash and short-term investment composition, including exposure to market-value changes; the filing reports a $263,098 six-month unrealized loss on short-term investments.
• Preferred dividend obligations, remaining share-repurchase authorization, and the potential dilution from outstanding warrants and restricted stock units.