Filing scope and business context
This is Park City Group, Inc.’s consolidated Form 10-Q for the quarter ended March 31, 2017 (fiscal 2017 third quarter), filed May 10, 2017—not standalone financial statements for ReposiTrak, Inc. ReposiTrak is a wholly owned subsidiary included in the consolidated results. The filing describes a SaaS business serving retailers, suppliers and distributors, including ReposiTrak’s supply-chain compliance services. The filing’s period differs from the request metadata’s “2016 Q3.”
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2017: $4.75 million; 2016: $3.58 million, up 33% | 2017: $13.75 million; 2016: $10.22 million, up 35% |
| Operating income | 2017: $0.94 million; 2016: $0.33 million | 2017: $3.01 million; 2016: $0.18 million |
| Net income | 2017: $0.90 million; 2016: $0.30 million | 2017: $2.89 million; 2016: $0.17 million |
| Net income (loss) applicable to common shareholders | 2017: $0.70 million; 2016: $0.12 million | 2017: $2.31 million; 2016: $(0.38) million |
| Basic / diluted EPS | 2017: $0.04 / $0.03; 2016: $0.01 / $0.01 | 2017: $0.12 / $0.11; 2016: $(0.02) / $(0.02) |
| Operating cash flow | Not presented separately for the quarter | 2017: $1.96 million; 2016: $0.20 million |
Cost of services and product support was 28% of revenue in the quarter versus 29% a year earlier, and 27% for the nine-month period versus 32%. Revenue less this cost was approximately 72% and 73% of revenue, respectively; this is not a separately reported gross margin. Operating margin was approximately 19.8% for the quarter and 21.9% year to date, compared with 9.3% and 1.8% in the prior-year periods.
At March 31, 2017, cash was $13.54 million, current assets $17.33 million, current liabilities $7.24 million and working capital $10.09 million. Total debt was $3.37 million, including a $2.63 million line of credit; cash exceeded reported debt. The current ratio was approximately 2.4. Total assets were $42.63 million and stockholders’ equity was $34.79 million.
For the nine months, investing activities used $0.34 million and financing activities provided $0.48 million; cash increased by $2.10 million. Bad debt expense was $0.23 million, and the allowance for receivables was $0.28 million at quarter-end.
Material changes and management commentary
- Management attributed revenue growth to new applications, including ReposiTrak and the Vendor Portal, customer additions, and faster supplier connections. Recurring subscriptions are the principal revenue source.
- Year-to-date sales and marketing expense fell 10%, while general and administrative expense rose 28%, reflecting higher headcount, bad debt and facility costs. Cost of services rose 16%.
- Working capital increased $2.74 million from June 30, 2016, principally due to higher cash and receivables and lower deferred revenue. The company reported cash of $13.54 million versus $11.44 million at June 30, 2016.
- Management said existing cash and operating funds should support operating and investment requirements for at least 12 months, and stated an intention to reduce debt using cash and projected operating cash flow. No quantified revenue or earnings guidance is provided.
- Debt was approximately 89% variable-rate at March 31, 2017. In April 2017, a new subsidiary purchased approximately $1.6 million of equipment financed by a bank note at 4.21%, maturing July 2021; this is a subsequent event, not included in the March 31 balance sheet.
Risks, contingencies and unusual items
- The filing identifies no additional risk factors beyond those in the fiscal 2016 Form 10-K. Management cautions that forward-looking statements are subject to risks and actual results may differ.
- The company reported no pending or threatened material legal proceedings and no material off-balance-sheet arrangements.
- Series B and Series B-1 preferred stock carries annual dividends of 7% if paid in cash or 9% if paid in additional preferred shares. Nine-month preferred dividends were $0.58 million, reducing income applicable to common shareholders.
- During the nine months, the company recorded $0.96 million of stock compensation and issued common stock valued at $0.77 million and preferred stock valued at $0.30 million to satisfy accrued liabilities. The filing also discloses related-party management services and preferred shares issued in satisfaction of a CEO bonus.
- Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the investment being analyzed is Park City Group’s consolidated business, rather than ReposiTrak on a standalone basis, and confirm the reporting period is fiscal Q3 2017.
- Assess whether revenue growth and supplier-connection gains continue, and how much growth comes from recurring subscriptions versus services.
- Review receivables quality, the increased bad debt expense and allowance, and the decline in deferred revenue.
- Verify the terms, availability and interest-rate exposure of the line of credit and other debt, and account for the April equipment financing.
- Consider preferred dividends, stock compensation, outstanding warrants and potential dilution when evaluating returns to common shareholders.