Park City Group, Inc. (including ReposiTrak) — Form 10-Q
Reporting period: Fiscal second quarter and six months ended December 31, 2020; comparable periods ended December 31, 2019. The filing is by Park City Group, ReposiTrak’s parent, and reports consolidated results.
Business context
The company provides SaaS-based B2B e-commerce, supply-chain management, compliance and food-safety services, primarily to food retailers, wholesalers and their suppliers. Its hub-and-spoke model typically has retailers or wholesalers engaging the company and requiring suppliers to use its services.
Financial performance and position
- Revenue: Q2 revenue was $5.17 million, up 7% year over year; six-month revenue was $10.40 million, up 8%. Growth in subscription and MarketPlace revenue was partly offset by approximately $410,000 of prior-year one-time revenue that did not recur. Six-month revenue was entirely North American: $8.14 million subscription and support, $2.14 million transaction-based, and $117,000 professional services.
- Profit and margins: Q2 operating income was $385,000 versus $629,000; net income was $1.62 million versus $663,000, and net income applicable to common shareholders was $1.48 million versus $516,000. Q2 diluted EPS was $0.08 versus $0.03. Six-month operating income was $1.02 million versus $770,000; net income was $2.18 million versus $841,000; diluted EPS was $0.10 versus $0.03. Q2 operating margin declined to about 7% from 13%; six-month operating margin rose to about 10% from 8%. Q2 cost of services rose to 40% of revenue from 29%, reducing the corresponding gross margin to about 60% from 71%.
- Unusual income item: Q2 and six-month results included a $1.10 million gain on debt extinguishment, a key contributor to higher net income. The filing does not identify the extinguished debt in the provided text.
- Cash flow: Six-month operating cash flow was $3.76 million, up 41% from $2.67 million. Investing cash use was $103,000 versus $582,000; financing cash use was $103,000 versus $1.73 million. Cash increased $3.55 million during the six months to $23.89 million.
- Liquidity and debt: Working capital was $19.90 million at December 31, up from $18.24 million at June 30. Current assets were $29.60 million and current liabilities $9.70 million. The balance sheet showed a $5.72 million line of credit, up from $4.66 million, and $10,000 of PPP loans; prior notes payable and most PPP loans had been paid or extinguished. The line of credit was variable-rate. Management said cash, short-term investments and operating cash generation should fund requirements for at least 12 months.
- Preferred dividends and equity: Preferred dividends were $147,000 for the quarter and $293,000 for six months, unchanged year over year. Series B and B-1 preferred shares carry 7% cash or 9% stock dividends, with payment form determined by the company. Common shares outstanding were 19.53 million at December 31.
Material changes, outlook and risks
- Q2 cost of services and product support increased 47%, primarily due to MarketPlace costs; management expects these costs to rise in amount and as a share of revenue as MarketPlace grows. Sales and marketing expense fell 17% in Q2 and 13% for six months, partly from lower travel, trade-show and contractor costs. General and administrative expense rose 10% in Q2, including higher bad-debt expense, insurance and legal costs.
- Management expects sales and marketing and general and administrative expenses to decline in subsequent periods, citing cost reductions, technology utilization and process efficiencies. These are expectations, not formal numerical guidance.
- In December 2020, the company launched a one-state pilot for government grant management and reporting. FoodSourceUSA, launched in July 2020, is intended to connect excess perishable food with food-insecure communities; the company was evaluating opportunities with states and federal agencies. The filing gives no quantified revenue outlook for either initiative.
- The company said COVID-19 had not materially adversely affected results through the six months ended December 31, 2020, but its future effects were uncertain. Management noted that restrictions and closures could affect its ability to sell and provide services and could materially harm business, financial condition and results.
- Other risks include variable-rate debt and interest-rate exposure, customer collections and bad-debt estimates, and valuation of goodwill and other long-lived assets. Management reported no material pending legal proceeding, no new risk factors beyond those in its prior Form 10-K, and no off-balance-sheet arrangements likely to have a material effect.
Important facts for investors to verify
- What debt was extinguished, what conditions produced the $1.10 million gain, and whether any comparable gains or costs recur.
- The line-of-credit balance, borrowing terms, covenants and availability; also confirm the remaining PPP loan status and the nature of the reported debt repayment/extinguishment.
- Whether MarketPlace and subscription growth can offset higher service costs and restore Q2 operating margins.
- Collections and bad-debt trends, given the increased allowance for doubtful accounts and Q2 increase in bad-debt expense.
- Commercial traction and expected economics of FoodSourceUSA and the government grant-management pilot, neither of which has quantified guidance in the filing.
- COVID-19 developments and the effect on customer activity, service delivery and future results.