Business context and reporting period
Park City Group, Inc., the parent company of ReposiTrak, Inc., filed this unaudited Form 10-Q for the quarter and six months ended December 31, 2017 (fiscal Q2 and first half of fiscal 2018). Its cloud-based compliance, supply-chain and B2B marketplace platform primarily earns recurring supplier subscription revenue through a retailer/distributor “hub and spoke” model.
Financial performance
| Metric | Three months ended Dec. 31, 2017 | Year-over-year | Six months ended Dec. 31, 2017 | Year-over-year |
|---|---|---|---|---|
| Revenue | $5.72 million | Up 20% | $10.44 million | Up 16% |
| Operating income | $1.37 million | Down 1% | $1.79 million | Down 13% |
| Net income | $1.35 million | Down 2% | $1.68 million | Down 16% |
| Net income attributable to common shareholders | $1.19 million | Up less than 1% | $1.40 million | Down 13% |
| Basic and diluted EPS | $0.06 | Unchanged | $0.07 | Down from $0.08 |
- Operating margin was approximately 24% for the quarter versus 29% a year earlier, and 17% for the six months versus 23%. Cost of services remained 25% of quarterly revenue and 27% of six-month revenue.
- Operating expenses rose faster than sales in several areas: quarterly sales and marketing expense increased 40%, general and administrative expense 22%, and depreciation and amortization 45%. Management cited sales-team expansion, marketing, process automation, new product introductions and growth-supporting fixed-asset purchases.
- Cash provided by operations was $1.37 million for the six months, versus $0.38 million in the prior-year period. Investing used $0.29 million, primarily for fixed assets and capitalized software; financing used $0.32 million, including dividends.
- Cash was $14.82 million at December 31, up from $14.05 million at June 30, 2017. Working capital was $13.73 million; current assets were $21.47 million and current liabilities $7.74 million.
- Total debt was reported as $5.06 million, including $2.85 million drawn on lines of credit and approximately $2.21 million of notes payable. The filing says 93% of debt was variable-rate and 7% fixed-rate. Notes payable alone were $2.21 million at period-end.
- Total assets were $47.87 million and total liabilities $9.71 million at December 31, 2017. Goodwill was $20.88 million.
Material changes and management commentary
- Revenue growth reflected expansion across services, particularly supply-chain revenue, and incremental MarketPlace revenue. Management attributed higher service costs to new products and expanded compliance capabilities.
- Sales and marketing spending increased to expand the sales team and support advertising, trade shows and promotions. General and administrative costs rose with software and professional fees related to automation and process optimization.
- Management said cash, short-term investments and operating cash generation should be sufficient for operating and investment needs for at least the next 12 months. Future capital needs depend on revenue growth, sales and marketing expansion, research and development spending, and market acceptance.
- No numerical revenue or earnings guidance was provided. Management stated it expected working capital to increase in subsequent periods, while noting there could be no assurance.
Risks, contingencies and unusual items
- After quarter-end, the company redeemed 93,457 Series B-1 preferred shares for an aggregate $1.0 million on February 7, 2018; 212,402 shares remained outstanding. Series B and B-1 preferred shares carry dividends of 7% if paid in cash or 9% if paid in additional shares.
- The company reported no pending or threatened material legal proceeding and no off-balance-sheet arrangements reasonably likely to affect its financial condition or results. It identified no new risk factors beyond those in its June 30, 2017 Form 10-K.
- The company was assessing the impact of ASC 606 revenue recognition and anticipated full retrospective adoption; the impact had not yet been determined. It reported no material expected impact from the new lease standard based on current commitments.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether revenue growth, particularly from MarketPlace and supply-chain services, translates into improved operating margins as sales and product-development costs rise.
- Receivables increased by $1.85 million from June 30, 2017, and the allowance for doubtful accounts increased to $0.48 million; monitor collections and bad-debt expense.
- Confirm the cash and balance-sheet effects of the post-quarter $1.0 million preferred-share redemption, and the remaining preferred dividend obligations.
- Assess exposure to variable interest rates and the company’s ability to sustain operating cash generation while funding growth and dividends.
- Monitor the company’s finalized ASC 606 adoption analysis and any resulting changes to reported revenue or prior-period comparability.
- The filing is by Park City Group, Inc., not a standalone ReposiTrak filing; it reported 19,638,174 common shares outstanding as of February 7, 2018.