Business context and reporting period
Park City Group, Inc. (NASDAQ: PCYG) is the parent of ReposiTrak, Inc., a SaaS provider of business-to-business commerce, supplier compliance and food-safety, and supply-chain management solutions. Its hub-and-spoke model serves retailers and wholesalers and their suppliers. This 10-K reports the fiscal year ended June 30, 2021, with fiscal 2020 as the comparison; it is not a quarterly filing.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $21.01 million | $20.04 million | +5% |
| Operating income | $2.89 million | $1.48 million | +$1.41 million |
| Net income | $4.12 million | $1.59 million | +$2.52 million |
| Net income applicable to common shareholders | $3.53 million | $1.01 million | — |
| Basic and diluted EPS | $0.18 | $0.05 | — |
| Cash from operating activities | $5.40 million | $4.20 million | +$1.21 million |
| Cash and cash equivalents at year-end | $24.07 million | $20.35 million | +$3.72 million |
Cost of revenue and product support was $6.88 million, or 33% of revenue, versus $7.00 million, or 35%, in FY2020. Operating margin was approximately 13.8%, compared with 7.4%. Net margin was approximately 19.6%, compared with 8.0%; FY2021 net income included a $1.11 million gain on debt extinguishment, so the year-over-year net-income increase was not solely operating-driven.
At June 30, 2021, working capital was $20.40 million, versus $18.24 million a year earlier. Current assets were $29.70 million and current liabilities $9.30 million. Total liabilities were $9.91 million. The company had a $6.00 million line-of-credit balance, up from $4.66 million, scheduled to mature December 31, 2021. The approximately $1.1 million PPP loan was forgiven in December 2020; equipment financing was paid off in August 2020. Operating lease obligations totaled $695,370. Management said existing cash and operating cash flow were expected to fund operations and investment needs for at least 12 months.
Cash used in investing was $318,873, including $147,140 for property and equipment and $171,733 of capitalized software costs. Cash used in financing was $1.36 million, including $1.31 million of share repurchases and $586,444 of preferred dividends, partly offset by a $1.34 million net increase in lines of credit. No dividends were paid on common stock. Gross profit margin was not explicitly stated; cost of revenue was reported as 33% of revenue.
Material changes versus the prior comparable period
- Revenue increased 5%: recurring subscription, support, and services revenue rose 11% to $17.73 million; Marketplace transaction revenue rose 11% to $3.24 million. Nonrecurring services and license revenue fell substantially, including the absence of prior-year license revenue.
- Operating expenses decreased to $18.11 million from $18.56 million. Sales and marketing fell 14% to $5.00 million; general and administrative expense rose 5% to $5.21 million, and depreciation and amortization rose 22% to $1.02 million.
- Other income rose to $1.30 million, chiefly reflecting the $1.11 million debt-extinguishment gain. Net income also benefited from higher operating income.
- Cash increased 18%, and operating cash flow increased 29%, according to the filing. The audited cash flow statements report FY2020 operating cash flow of $4.20 million.
- The company repurchased 211,008 shares in FY2021. The board resumed the buyback program in May 2021 and increased its authorization to $6 million; $2.05 million remained available at year-end.
Outlook, commentary, risks, and unusual items
No numeric revenue or earnings guidance is provided. Management expected the ReposiTrak Traceability Network, developed with the Food Traceability Leadership Consortium in response to proposed FDA food-traceability requirements, to launch in September 2021 and scale during fiscal 2022. This is a management expectation, not a reported result. ReposiTrak also launched Certificate of Analysis Automation and Active-QMS during the second half of FY2021.
Management said COVID-19 did not materially adversely affect FY2020 or FY2021 results, but highlighted uncertainty about future effects. Marketplace demand for hard-to-find goods, including personal protective equipment, increased during the pandemic; the company warned that PPE-related demand and associated Marketplace revenue could decline as the pandemic abates. It also noted that Marketplace costs may change.
Key disclosed risks include customer renewals and concentration, competition from larger providers, successful adoption of new products, service interruptions and cybersecurity incidents, possible litigation tied to food recalls or product liability, and dependence on founder and CEO Randall K. Fields. Target accounted for approximately 9.2% of FY2021 revenue. Two customers each represented more than 10% of receivables at year-end. The company reported no pending or threatened material legal proceedings and no material off-balance-sheet arrangements. The auditor issued an unqualified opinion; revenue recognition for multiple-element arrangements was identified as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Verify whether the $6.00 million line of credit was repaid, renewed, or refinanced before its December 31, 2021 maturity.
- Assess how much FY2021 profitability depended on the $1.11 million debt-extinguishment gain and pandemic-related Marketplace sales.
- Check subsequent adoption, rollout, and revenue contribution of the Traceability Network and the two manufacturing-focused products.
- Review customer concentration, receivables collectability, and the substantial FY2021 bad-debt expense of $1.06 million.
- Confirm preferred-stock dividend and redemption obligations, potential dilution from preferred shares, warrants, and equity awards, and the remaining buyback authorization.
- Reconcile an MD&A inconsistency: one passage gives FY2020 operating cash flow as $4.916 million, while the audited cash flow statements report $4.196 million.