Business context and reporting period
This Form 10-Q is for Park City Group, Inc. (NASDAQ: PCYG), the parent of wholly owned ReposiTrak, Inc. The metadata names ReposiTrak, but the filing reports consolidated Park City Group results. The quarter ended December 31, 2015 was the company’s second fiscal quarter of FY2016; the filing also reports the six months then ended. ReposiTrak was acquired on June 30, 2015, so the current-period results include it while the reported prior-year comparisons generally do not.
The company sells supply-chain software and subscriptions, consulting, and ReposiTrak food-safety, compliance, and product-traceability services.
Financial results and position
| Metric | Three months ended Dec. 31 | Six months ended Dec. 31 |
|---|---|---|
| Revenue | $3.54M, up 2% from $3.48M | $6.64M, down 3% from $6.81M |
| Operating income (loss) | $277K; prior-year loss $584K | Loss $148K; prior-year loss $1.02M |
| Net income (loss) | $281K; prior-year loss $541K | Loss $126K; prior-year loss $917K |
| Net income (loss) applicable to common shareholders | $111K; prior-year loss $695K | Loss $496K; prior-year loss $1.23M |
| Basic and diluted EPS | $0.01; prior-year $(0.04) | $(0.03); prior-year $(0.07) |
| Operating margin | 7.8%; prior-year (16.8%) | (2.2%); prior-year (15.0%) |
Operating margin is calculated from reported revenue and operating income (loss). Quarterly cost of services and product support fell 26%, sales and marketing fell 9%, and general and administrative expense fell 26%. For the six-month period, those expense categories declined 20%, 1%, and 20%, respectively. Preferred dividends were $171K for the quarter and $370K for six months, reducing income applicable to common shareholders.
- Cash flow: For six months, operating cash flow was $81K, versus $565K a year earlier; investing used $4.11M, principally reflecting purchases of marketable securities; financing provided $8K. Cash decreased $4.02M from the June 30 balance.
- Liquidity: At December 31, cash was $7.31M and short-term marketable securities were $3.97M. Working capital was $6.19M, up from $5.03M at June 30. Management said available cash, short-term investments, and operating cash generation should fund requirements for at least 12 months.
- Debt: Total debt was $2.96M, including a $2.50M line of credit. The debt portfolio was 92% variable-rate and 8% fixed-rate. Management intended to reduce indebtedness, including by using cash and projected operating cash flow.
- Other balance-sheet items: Total assets were $37.11M, including $20.88M of goodwill. Deferred revenue was $2.71M. The company recorded $36,992 of accumulated unrealized loss on available-for-sale corporate bonds.
Changes, outlook, and risks
Quarterly revenue increased modestly, while six-month revenue declined, largely because the acquisition eliminated intercompany ReposiTrak licensing and management fees. The company said growth in supply-chain subscriptions and new ReposiTrak supplier connections partly offset that effect. Lower employee-related costs and lower depreciation and amortization contributed to the improved operating results; capitalization of $77K of software development costs also reduced current-period expense.
Management expects revenue to increase in subsequent quarters as new ReposiTrak supplier connections generate recognized subscription revenue and supply-chain subscriptions grow. This is a qualitative expectation, not quantified guidance. Management also expected to meet operating, investment, and debt-service needs over the next 12 months, while noting that future capital requirements depend on growth, sales and marketing, research and development, and product acceptance.
Key risks include whether ReposiTrak adoption and expected acquisition benefits materialize; customer renewals and new subscription sales; competition and technology or service interruptions; cybersecurity and customer-data exposure; and the company’s history of losses and uncertainty about sustained profitability. Management reported no pending or threatened legal proceedings, no material changes in internal control during the period, and no off-balance-sheet arrangements reasonably likely to affect its financial condition. The filing presents no specific numerical revenue or earnings forecast.
Preferred dividends are a notable capital-allocation and dilution item: the company elected to pay dividends in kind, and the filing reports additional Series B-1 shares issued after quarter-end. The CEO controls FMI, which provided executive-management services; the company reported $52,450 payable to FMI at December 31.
Important facts for investors to verify
- Confirm the filing entity and period: Park City Group consolidated results for the quarter ended December 31, 2015, with ReposiTrak included after its June 2015 acquisition.
- Assess the durability of the quarterly return to operating income and the contrast with the six-month operating loss and common-shareholder loss.
- Track ReposiTrak supplier connections, subscription growth, renewals, and whether these translate into revenue and cash flow as management expects.
- Review cash burn, receivables, marketable-security liquidity and valuation, and progress toward reducing the $2.96M debt balance.
- Evaluate preferred dividend accruals and in-kind payments, related dilution, and the company’s related-party arrangements.
- Consider that goodwill is $20.88M and that the filing identifies acquisition performance and product adoption as risks.