Park City Group, Inc. (parent of ReposiTrak, Inc.) — Form 10-Q
Period: Quarter and nine months ended March 31, 2018. The supplied period metadata says “2017 Q3,” but the filing identifies the period as fiscal 2018 third quarter; comparisons are with the periods ended March 31, 2017.
Business context
Park City Group provides cloud-based supply-chain, food-safety and compliance, and B2B marketplace services through its ReposiTrak subsidiary. Its hub-and-spoke model is primarily subscription-based, supplemented by professional services and, occasionally, software licenses. The filing is consolidated for Park City Group and subsidiaries.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2018: $5.28m; 2017: $4.75m | 2018: $15.72m; 2017: $13.75m |
| Operating income | 2018: $0.44m; 2017: $0.94m | 2018: $2.23m; 2017: $3.01m |
| Net income | 2018: $0.46m; 2017: $0.90m | 2018: $2.14m; 2017: $2.89m |
| Net income applicable to common shareholders | 2018: $0.31m; 2017: $0.70m | 2018: $1.71m; 2017: $2.31m |
| Diluted EPS | 2018: $0.02; 2017: $0.03 | 2018: $0.08; 2017: $0.11 |
- Revenue increased 11% for the quarter and 14% for the nine months. Operating income fell about 53% and 26%, respectively, as operating expenses grew faster than revenue.
- Cost of services and product support rose 34% for the quarter and 24% for the nine months. As a share of revenue, it increased to 34% from 28% for the quarter and to 30% from 27% for the nine months. Approximate operating margin declined to 8.3% from 19.8% for the quarter, and to 14.2% from 21.9% for the nine months.
- Nine-month operating cash flow was $1.77m, versus $1.96m a year earlier. Investing cash outflow was $0.32m; financing cash outflow was $0.69m. Cash increased $0.77m from June 30, 2017 to $14.83m.
- At March 31, 2018, current assets were $22.82m and current liabilities $8.30m, yielding working capital of $14.53m. Total liabilities were $9.95m. Debt was approximately $5.06m, including $3.23m drawn on lines of credit and $1.83m of notes payable. About 94% of the debt portfolio was variable-rate.
- Receivables, net, were $6.71m, up from $4.01m at June 30, 2017; the allowance for doubtful accounts increased to $0.58m from $0.39m.
Changes, outlook and other notable matters
- Management attributed revenue growth to expansion across services, particularly MarketPlace transaction fees and subscription revenue, including ReposiTrak. One-time consulting fees declined.
- Higher service costs reflected new MarketPlace offerings and expanded compliance capabilities. Sales and marketing expense rose with sales-team expansion; general and administrative expense increased amid Project 10x automation and process-optimization spending.
- Management expects revenue in subsequent periods to continue growing versus year-ago periods, citing MarketPlace rollout and subscription growth. It also expects the percentage increase in general and administrative expense to ease as Project 10x is completed. No quantified revenue or earnings guidance is provided.
- Management believes cash, short-term investments and operating cash generation are sufficient for at least the next 12 months. It reported no near-term plans for additional Series B-1 preferred redemptions.
- The company redeemed 93,457 Series B-1 preferred shares for approximately $1.0m in February 2018. Preferred dividends for the nine months were $0.43m, down from $0.58m; management cited the redemption and a move to cash dividend payments.
- Management reported no material pending or threatened legal proceeding and no material off-balance-sheet arrangements. It identified no new risk factors beyond those in its June 30, 2017 Form 10-K. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
- Adoption of ASC 606 was still under assessment; the company anticipated using the full retrospective method and had not yet quantified the impact. Management did not expect lease-accounting changes to have a material impact based on current commitments.
Key facts investors should verify
- Confirm the filing-period labeling: this is Park City Group’s fiscal third quarter of 2018, not 2017 Q3; ReposiTrak is a subsidiary, not the named registrant.
- Track whether subscription and MarketPlace growth continues and whether it translates into improved operating margins as launch and growth costs develop.
- Review receivable growth, collection trends, and bad-debt allowances, given the rise in receivables and allowance.
- Verify cash-flow performance and credit-line utilization, including exposure to variable interest rates.
- Check the eventual ASC 606 adoption impact and the costs and benefits of Project 10x.
- Assess preferred-stock dividend obligations, remaining Series B-1 shares, and any future redemption plans.