Business Context and Reporting Period
This is Park City Group, Inc.’s consolidated Form 10-K, filed September 12, 2019, for the fiscal year ended June 30, 2019—not a quarterly filing for 2018 Q4. Park City Group is the parent of ReposiTrak, Inc.; the filing reports their consolidated results. The business provides SaaS-based supply-chain, compliance, food-safety, and B2B marketplace services, primarily to retailers, wholesalers, and suppliers.
Financial Results and Liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $21.17 million | $22.04 million |
| Gross profit and margin | $15.34 million; 72.5% | $15.45 million; 70.1% |
| Operating income and margin | $3.99 million; 18.8% | $3.52 million; 16.0% |
| Net income | $3.90 million | $3.41 million |
| Net income applicable to common shareholders; diluted EPS | $3.32 million; $0.16 | $2.84 million; $0.14 |
| Cash from operating activities | $4.58 million | $2.18 million |
Cash and cash equivalents were $18.61 million at June 30, 2019, up $3.72 million year over year. Working capital was positive $17.75 million, versus $15.74 million; current assets were $26.55 million and current liabilities $8.80 million. Investing activities used $0.97 million, primarily reflecting property, equipment, office, and data-center investment; financing activities provided $0.11 million.
Debt included $4.66 million drawn on the revolving line of credit and $1.22 million of notes payable at year-end. The credit line matures December 31, 2019; its $6 million borrowing limit is subject to a requirement to maintain liquid assets equal to the outstanding balance and a senior funded debt-to-EBITDA ratio no greater than 2:1. Contractual capital-lease obligations totaled $1.34 million. Management said cash and projected operating cash flow should fund operations and debt service for at least 12 months.
Material Changes Versus Prior Year
- Revenue declined 4%, mainly from lower one-time license sales, related professional services, and Marketplace transaction revenue. Recurring subscription revenue and maintenance revenue increased, partly offsetting the decline.
- Cost of services and product support fell 11%; operating expenses overall decreased, while operating income rose about 13% and net income about 14%.
- Operating cash flow more than doubled, supported in part by improved collections and smaller working-capital outflows than in FY2018.
- Investing cash outflow increased by $0.65 million, including spending on office and data-center infrastructure. The company sold its 36% investment in a privately held company, recording a $0.15 million loss.
- The company repurchased 87,600 common shares for approximately $0.48 million under a newly authorized $4 million program; $3.52 million remained authorized at year-end.
Outlook, Risks, and Unusual Items
Management expects recurring subscription revenue to benefit from new customers, its Tier 2 initiative, Marketplace services, and cross-selling, but provides no quantified revenue or earnings guidance. Management expects service and product-support costs to rise as new services are introduced; sales and marketing expense to remain broadly flat in dollars; and general and administrative expense to increase in dollars, with both expense categories expected to decline as a percentage of revenue. These are expectations, not guarantees.
- Key risks include subscription renewals and customer retention, competition from larger vendors, product development and implementation execution, service outages or cyber incidents, and potential liability tied to food-safety or product-recall matters.
- Target accounted for approximately 8.5% of FY2019 revenue; one customer represented more than 10% of receivables at year-end.
- Preferred shares accrue dividends at 7% if paid in cash or 9% if paid in additional preferred shares. FY2019 preferred dividends were $0.59 million; the company does not anticipate common-stock dividends in the foreseeable future.
- The company reported no pending or threatened material legal proceedings. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
- ASC 606 was adopted July 1, 2018 using the modified retrospective method, with no opening balance adjustment and no material change to the timing of revenue recognition reported by the company.
Important Facts for Investors to Verify
- Confirm the intended period: this filing covers the year ended June 30, 2019, despite the request metadata referring to 2018 Q4.
- Review the credit-line maturity, covenant compliance, and refinancing or repayment arrangements after December 31, 2019.
- Assess whether recurring subscription growth can offset weakness in license and transaction-based revenue, and examine renewal and customer concentration trends.
- Reconcile debt and lease commitments, preferred dividend obligations, and the use of remaining share-repurchase authorization.
- Review the full financial statements and notes for contract assets, receivables, tax-loss carryforwards and valuation allowance, and remaining stock-based compensation obligations.