Filing summary
Entity and period: The supplied filing is Park City Group, Inc.’s Form 10-Q, filed May 9, 2019, for the quarter ended March 31, 2019 (its fiscal third quarter) and nine months then ended. Park City Group is the parent of ReposiTrak, Inc. This is not a 2018 Q3 filing, despite the request metadata.
Business context and financial performance
The company provides SaaS-based B2B e-commerce, food safety and compliance, and supply-chain solutions, primarily to food retailers, wholesalers, and their suppliers.
- Quarter: Revenue was $5.01 million, down 5% year over year. Operating income rose to $1.02 million from $0.44 million; operating margin was approximately 20.3%, versus 8.3%. Net income was $1.07 million, and net income applicable to common shareholders was $0.92 million ($0.05 per basic and diluted share).
- Nine months: Revenue was $16.51 million, up 5%. Operating income was $3.72 million versus $2.23 million; operating margin was approximately 22.5%, versus 14.2%. Net income was $3.72 million, and income applicable to common shareholders was $3.28 million ($0.17 basic and $0.16 diluted per share).
- Cash flow: Nine-month operating cash flow was $3.48 million, compared with $1.77 million a year earlier. Investing activities used $44,000 and financing activities used $187,000. Cash increased to $18.15 million from $14.89 million at June 30, 2018.
- Liquidity and debt: Working capital was $18.01 million, compared with $15.74 million at June 30, 2018; current assets were $26.72 million and current liabilities $8.71 million. Debt totaled approximately $4.95 million, including $4.66 million drawn on the revolving line and $292,000 of notes payable.
- Margins and expenses: Cost of services and product support was 27% of quarterly revenue versus 34% a year earlier, and 26% for the nine-month period versus 30%. Lower operating expenses supported higher operating income despite the quarterly revenue decline.
Material changes and management commentary
- Quarterly revenue declined mainly because of lower MarketPlace transaction revenue and professional-services fees. Nine-month growth reflected higher recurring revenue and professional-services fees, partly offset by lower license and MarketPlace-related revenue.
- Management said it expects cost of services to rise in absolute terms and as a share of revenue as it invests in MarketPlace. It expected sales and marketing and general and administrative expenses to remain relatively flat in absolute terms in subsequent periods, potentially declining as a share of revenue.
- Bad-debt expense was higher year over year; the allowance for doubtful accounts was $419,000 at March 31, 2019, up from $153,000 at June 30, 2018.
- Management stated existing cash, short-term investments, and operating cash generation should fund operating and investment needs for at least 12 months. Actual results may differ, and the filing says interim results are not necessarily indicative of the full fiscal year.
Debt, commitments, risks, and unusual items
- In January 2019, the revolving facility was amended: maximum borrowing increased to $6.0 million, maturity extended to December 31, 2019, and pricing set at 1.75% plus the greater of zero or one-month LIBOR. The facility became unsecured, subject to maintaining liquid assets equal to the amount outstanding and a maximum senior funded debt-to-EBITDA ratio of 2:1.
- After quarter-end, on May 1, 2019, the company began a 48-month lease financed by the bank for approximately $1.269 million of data-center, IT, and facility-related costs. The lease bears 5% interest and requires monthly payments of approximately $29,097. Management expects depreciation as a share of revenue to increase, potentially materially, following the related investment.
- Preferred dividends were $440,000 for the nine months. Series B and B-1 preferred shares carry dividends of 7% if paid in cash or 9% if paid in additional preferred shares.
- The company reported no pending or threatened material legal proceeding, no additional risk factors beyond those in its latest Form 10-K, and no material off-balance-sheet arrangements. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Confirm the filing identity and fiscal period: the document is Park City Group’s quarter ended March 31, 2019, not a 2018 Q3 filing.
- Track MarketPlace transaction revenue and recurring-revenue growth, particularly given the quarterly revenue decline and management’s planned investment in MarketPlace.
- Monitor receivables, the rising doubtful-account allowance, and the extent to which reported earnings convert into operating cash flow.
- Review revolving-facility utilization, the liquidity and leverage covenants, and the December 2019 maturity, alongside the new lease payments and expected depreciation.
- Assess the effect of preferred dividends and potential dilution from outstanding warrants and restricted stock units on common shareholders.