Park City Group, Inc. (including ReposiTrak, Inc.) — Form 10-Q
Reporting period: Fiscal second quarter and six months ended December 31, 2019. The filing is by Park City Group, ReposiTrak’s parent, and reports consolidated results. Filed February 10, 2020.
Business context
The company provides SaaS-based B2B e-commerce, supplier compliance and food-safety, and supply-chain management services, mainly to food retailers, wholesalers, and suppliers. Its “hub and spoke” model typically has retailers or wholesalers require their suppliers to use the platform.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Prior year | Six months ended Dec. 31, 2019 | Prior year |
|---|---|---|---|---|
| Revenue | $4.84 million | $5.57 million | $9.64 million | $11.51 million |
| Operating income | $629,000 | $1.68 million | $770,000 | $2.70 million |
| Net income | $663,000 | $1.69 million | $841,000 | $2.65 million |
| Net income attributable to common shareholders | $516,000 | $1.54 million | $548,000 | $2.36 million |
| Diluted earnings per share | $0.03 | $0.08 | $0.03 | $0.12 |
- Revenue declined 13% for the quarter and 16% for the six-month period. Management attributed the decline mainly to one-time transactional revenue in the prior-year periods that did not recur; professional services and MarketPlace revenue partly offset the decrease.
- Cost of services and product support rose 12% for the quarter and 8% year to date. It equaled 29% and 34% of revenue, respectively, versus 23% and 26% in the comparable periods. Management cited MarketPlace investment and information-security, licensing, and database-system costs.
- Operating income declined substantially as revenue fell and costs of services and product support and depreciation increased. Approximate operating margins were 13% versus 30% for the quarter and 8% versus 23% year to date.
- Six-month operating cash flow was $2.67 million, up 46% from $1.83 million, which management linked to collections, advance subscription payments, and lower cash operating expense. Investing cash outflow was $582,000; financing cash outflow was $1.73 million, including $1.36 million for common-stock repurchases.
Balance sheet, liquidity, and debt
- At December 31, 2019, cash was $18.97 million, working capital was $16.97 million, and current assets and liabilities were $26.44 million and $9.47 million, respectively.
- Total liabilities were $10.97 million. Debt comprised a $4.66 million line of credit and $1.07 million of notes payable and finance-lease obligations, or $5.73 million in total. The filing identifies 81% of debt as variable-rate and 19% as fixed-rate.
- The U.S. Bank line of credit was amended to extend its maturity to December 31, 2020; its default interest rate was increased to 5% per annum. Management said cash, short-term investments, and operating cash generation should fund operating and investment needs for at least 12 months.
- Working capital decreased $777,000 from June 30, 2019, primarily due to share repurchases. The company adopted the new lease standard effective July 1, 2019, recording an $843,000 operating right-of-use asset and corresponding lease liabilities.
Material changes, outlook, and risks
- For the six-month period, sales and marketing expense fell 6% and general and administrative expense fell 5%, while depreciation and amortization rose 44%. Other income improved year over year, principally due to higher interest income, partly offset by interest expense.
- Management is emphasizing recurring subscription revenue and reducing unnecessary non-recurring transactional sales. It expects cost of services to increase in absolute terms and as a percentage of revenue as MarketPlace investment continues. It expects sales and marketing expense to be relatively flat in absolute terms and G&A to remain flat, with both potentially declining as a share of revenue. These are expectations, not quantified earnings or revenue guidance.
- Recent product releases included InApp Pop Up and Online Chat, an Out of Stock Management solution, and an Automated Buy Process for supplier compliance subscriptions. Management described anticipated benefits but provided no quantified adoption or revenue outlook.
- The company reported no material pending or threatened legal proceedings, no additional risk factors beyond those in its 2019 Form 10-K, and no material changes to internal control over financial reporting. Management stated disclosure controls were effective. It reported no material off-balance-sheet arrangements.
- Preferred shares accrued $293,000 in dividends for the six months. Series B preferred dividends are payable at 7% in cash or 9% in additional preferred shares, at the company’s election. The company also extended the expiration dates of its outstanding warrants to March 2023.
Important facts for investors to verify
- Whether recurring subscription and MarketPlace growth can offset the loss of prior-period one-time revenue, and whether higher service costs continue to pressure margins.
- Customer collections, the increase in the doubtful-account allowance to $397,000 from $146,000 at June 30, and the $4.35 million contract-asset balance.
- Liquidity and refinancing plans for the $4.66 million credit line before its December 31, 2020 maturity, as well as exposure to variable interest rates.
- Preferred-stock dividend burden and the effect of future cash or in-kind dividend payments on common shareholders.
- Repurchase disclosures: the filing reports $1.36 million of buybacks in six-month cash flows and $2.16 million of remaining authorization; the quarterly share-repurchase table’s share-count entries appear inconsistent and merit confirmation.