Business context and reporting period
Park City Group, Inc. filed this Form 10-Q for the quarter ended September 30, 2012, its first fiscal quarter of fiscal 2013. The filing describes the company as a SaaS provider of supply-chain software and services. ReposiTrak, Inc. is described as a related business formed with Levitt Partners; it is not the registrant named on this filing. The statements are unaudited and consolidated.
Financial performance and position
| Metric | Quarter ended September 30, 2012 | Comparable 2011 quarter |
|---|---|---|
| Revenue | $2.713 million | $2.579 million |
| Subscription revenue | $1.955 million | $1.742 million |
| Operating income (loss) | $247,825 | $(206,231) |
| Net income (loss) | $204,392 | $(279,721) |
| Net income (loss) applicable to common shareholders | $(5,588) | $(488,074) |
| Operating cash flow | $270,545 | $(56,058) |
- Revenue increased 5.2%; subscription revenue rose 12.2%, while other revenue fell 9.4% to $758,232. Operating margin was approximately 9.1%, compared with an operating loss in the prior-year quarter.
- Cost of services and product support was 39.8% of revenue, down from 44.2%. Operating expenses totaled $2.465 million, down from $2.786 million.
- Cash was $1.088 million at September 30, 2012, versus $1.106 million at June 30, 2012. Cash declined $17,789 during the quarter after $270,545 of operating cash inflow, $48,826 of investing outflow, and $239,508 of financing outflow.
- Working capital remained negative at $1.919 million, improved from negative $2.346 million at June 30. Current liabilities were $5.467 million and current assets were $3.548 million.
- Total debt was $2.610 million, including $1.200 million outstanding on lines of credit; debt was approximately 73.6% variable-rate and 26.4% fixed-rate. The balance sheet also reported $25,880 of current capital lease obligations.
- Preferred dividends of $209,980 exceeded quarterly net income, resulting in a small loss attributable to common shareholders. Basic and diluted loss per share was reported as $(0.00).
Material changes versus the prior comparable period
- Subscription growth reflected approximately $322,000 from new subscription customers and $175,000 from growth in existing subscriptions, partly offset by approximately $285,000 from customer non-renewals, including a significant retail client.
- Other revenue declined due principally to lower license revenue ($109,000), professional services revenue ($108,000), and maintenance revenue (net decrease of approximately $35,000), partly offset by revenue related to a ReposiTrak management agreement.
- Lower sales and marketing and general and administrative costs, as well as lower interest expense, contributed to the swing to positive operating and net income. Interest expense fell 40.9% to $43,433.
- Operating cash flow improved by $326,603 year over year. Financing cash outflow was substantially lower than in 2011, when the company made significant debt repayments.
Outlook, risks, contingencies, and unusual items
- Management expected revenue growth in fiscal 2013 and later periods from supplier connections to retailer customers, including a CVS service agreement, and anticipated future subscription payments from ReposiTrak for use of company technology. ReposiTrak had begun its first two implementations in August 2012. These are expectations, not reported results or formal quantified guidance.
- Management believed cash resources and projected operating cash flow would cover operations, capital spending, and debt service for at least the next 12 months, and expected to improve working capital and reduce debt. It also warned that there are no assurances; insufficient cash flow or inability to refinance or restructure debt could require additional financing, which might not be available on favorable terms or at all.
- A Series A preferred holder disputed the company’s calculation of whether the dividend rate should increase from 5% to 10%. Management disagreed with the holder’s method. Under the company’s pro forma calculation, the higher rate would increase quarterly Series A dividends by $90,693 and increase the common-shareholder loss to $96,281, or $(0.01) per share.
- The board authorized a common-stock repurchase program of up to $2.0 million over two years, contingent on redemption of Series A preferred stock. The program does not require purchases and may be changed or discontinued.
- The company reported no ongoing legal proceedings, no defaults upon senior securities, and no material changes to previously disclosed risk factors. 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 filing’s issuer and period: this is Park City Group’s quarter ended September 30, 2012, not a filing by ReposiTrak, Inc.
- Track subscription growth and renewals, particularly the impact of the significant retail customer non-renewal and the conversion of new ReposiTrak implementations into recurring revenue.
- Assess cash generation and the company’s ability to service and refinance debt given negative working capital and variable-rate exposure.
- Follow resolution of the Series A dividend-rate dispute and whether the preferred stock is redeemed, including the effect on common-shareholder returns and the conditional repurchase program.
- Note that the filing’s financial statements present quarterly results; despite a table-of-contents reference to nine-month statements, clear nine-month financial values are not provided in the supplied filing text.