Repositrak, Inc. quarterly report, Q1 FY2020

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Business context and reporting period

Park City Group, Inc. (Nasdaq: PCYG), parent of ReposiTrak, provides SaaS-based marketplace, supplier compliance/food-safety, and supply-chain services. Its hub-and-spoke model typically serves retailers and wholesalers, whose suppliers also use the platform. This unaudited Form 10-Q covers the three months ended September 30, 2019—the company’s fiscal first quarter of FY2020—and compares results with the three months ended September 30, 2018.

Key financial metrics

  • Revenue: $4.80 million, down 19% from $5.94 million. Subscription and support revenue was $4.04 million; transaction-based revenue was $702,209; professional services was $57,340.
  • Profit and margins: Operating income was $141,218, versus $1.02 million; operating margin was approximately 2.9%, versus 17.1%. Net income was $178,351, versus $966,409. After $146,611 of preferred dividends, income applicable to common shareholders was $31,740; basic and diluted EPS each rounded to $0.00, versus $0.04.
  • Cash flow: Operating cash flow was $712,594, down 56% from $1.61 million. Investing activities used $353,706, primarily for equipment; financing activities used $672,868, including $517,360 for share repurchases and $146,611 of dividends paid. Cash declined $313,980 to $18.30 million.
  • Liquidity: Current assets were $25.87 million and current liabilities $8.62 million, yielding working capital of $17.25 million and a current ratio of approximately 3.0x. Management said existing cash and operating cash generation should fund operating and investment needs for at least 12 months.
  • Debt and leases: Lines of credit were $4.66 million; notes payable were approximately $1.14 million in total. The filing’s market-risk table reports total debt of $5.80 million, 80% variable-rate and 20% fixed-rate. Adoption of lease accounting added an $842,689 operating lease asset and corresponding liability.
  • Other balance-sheet items: Total assets were $53.09 million, total liabilities $10.22 million, and stockholders’ equity $42.87 million. Contract assets totaled $4.51 million; deferred revenue was $1.96 million.

Material changes versus the prior comparable period

  • Revenue fell $1.14 million, primarily because one-time transactional revenue in 2018 did not recur; subscription revenue increased and partially offset the decline.
  • Cost of services and product support rose 6% to $1.83 million, or 38% of revenue versus 29%. Management attributed the increase to Marketplace costs and information-security, licensing, and database-system needs.
  • Sales and marketing expense declined 26% to $1.41 million, while general and administrative expense rose 7% to $1.22 million. Depreciation and amortization increased 33% to $193,677, reflecting IT infrastructure, headquarters, and data-center investments.
  • Operating cash flow decreased by $894,198. The company cited lower revenue; changes in receivables, payables, accrued liabilities, and other working-capital items also affected the comparison.
  • Cash was down 2% from June 30, 2019. The company repurchased 79,955 shares during the quarter at an average $6.43 per share; $3.00 million remained under the $4.0 million, 24-month authorization at September 30.

Outlook, commentary, risks, and unusual items

  • No formal revenue or earnings guidance is provided. Management said it is emphasizing recurring subscriptions over one-time transactions, while acknowledging some customers will continue to require outright licenses.
  • Management expects cost of services to increase in amount and as a percentage of revenue as it invests in Marketplace. It expects sales and marketing and G&A to be relatively flat in absolute terms, with each declining as a percentage of revenue if its stated plans and efficiencies are realized.
  • Recent launches included InApp Pop Up and Online Chat, an Out of Stock Management solution, and an Automated Buy Process for supplier compliance subscriptions. The filing describes anticipated benefits but does not quantify expected financial contribution.
  • Series B and B-1 preferred shares accrue dividends at 7% if paid in cash or 9% if paid in additional shares; quarterly preferred dividends were $146,611. The preferred dividend burden reduced income attributable to common shareholders.
  • The company identified no additional risk factors beyond those in its FY2019 Form 10-K, no pending or threatened material legal proceeding, and no material off-balance-sheet arrangements. Results for the quarter are not necessarily indicative of the full fiscal year.

Important facts for investors to verify

  • Whether subscription growth can offset the loss of nonrecurring revenue and restore operating margins.
  • The sustainability and collectability of receivables and contract assets; the doubtful-account allowance increased to $272,345 from $145,825 at June 30, 2019.
  • Use of cash for repurchases and preferred dividends relative to investment needs, and the terms and variable-rate exposure of the $4.66 million credit line.
  • The timing and commercial uptake of recently launched products, given management’s expectation of rising Marketplace service costs.
  • The filing states disclosure controls were evaluated “as of March 31, 2019,” despite covering the quarter ended September 30, 2019; investors may wish to confirm the reported evaluation date.