SEC Connect
Exhibit
99.2
Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
C O R P O R A T E P A R T I C I P A N T S
David Mossberg, Investor
Relations
Randall K. Fields, Chief Executive
Officer
Todd Mitchell, Chief Financial
Officer
C O N F E R E N C E C A L L P A R T I C I P A N T S
Joe Feller, Private
Investor
Will Hamilton, Manatuck
Hill
Steve Bell, Private
Investor
P R E S E N T A T I O N
Operator:
Ladies
and gentlemen, thank you for standing by. Good day and welcome to
the Park City Group Second Quarter 2017 Earnings Call.
Today’s call is being recorded.
At this
time, I would like to turn the conference over to Dave Mossberg,
Investor Relations. Please go ahead, sir.
David Mossberg:
Thank
you, Paula. Thanks everyone for your interest in Park City Group.
Before we begin, we will be referring to today’s earnings
release, which can be downloaded from the Investor Relations
section of the Company’s website at
parkcitygroup.com.
I also
want to remind everyone that this conference call could contain
forward-looking statements about Park City Group within the meaning
of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that are not historical
facts. Such forward-looking statements are based upon the current
beliefs and expectations of Park City Group’s management and
are subject to risks and uncertainties, which could cause actual
results to differ from the forward-looking statements.
Such
risks are more fully discussed in the Company’s filings with
the Securities and Exchange Commission. The information set forth
herein should be considered in light of such risks. Park City Group
does not assume any obligation to update the information contained
in this call.
Our
speakers today will be Mr. Randy Fields, Park City
Group’s Chairman and CEO, and Todd Mitchell, Park City
Group’s CFO. Todd?
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Todd Mitchell:
Thank
you, Dave. Good afternoon everybody. It was another great quarter
for us. Not only were we able to exceed our internal targets for
both revenue and profitability, both came in at record highs for
the company. We believe this clearly demonstrates, continued
strength in the business and the operating leverage inherent in our
business model.
Revenue,
fiscal 2Q revenues grew 35% to $4.8 million from $3.5 million a
year ago. This was the highest quarterly revenue ever and revenue
growth for the quarter was basically inline with 1Q level, despite
a much tougher year-over-year comparison.
Strong
top line continues to be driven by progressively stronger momentum
across our business. ReposiTrak is continuing to generate strong
growth due to both new customer wins and improvements in operating
process. And we are seeing strong demand for our vendor portal and
supply chain application, as we reap the benefit of past
investments and our new converged sales efforts.
Given
the momentum we saw in fiscal 2Q and continue to see, we are
confident that we will likely exceed the financial and operating
targets we articulated at the end of fiscal 2016.
Profitability,
fiscal 2Q net income was $1.38 million. This was 29% of total
revenue in the quarter and I would note, more than twice as much as
net income for all of fiscal 2016. It's also worth pointing out
when compared to net income of 281,000 in fiscal 2Q ‘16; we
converted $1.2 million in incremental revenue into a $1 million
plus swing in net income.
Some of
this clearly reflects our ability to leverage investments and
infrastructure, which we were just completing a year ago, and some
of it is an indication of the relatively high contribution margin
of our new application based business model. Looking out over the
remainder of fiscal 2017, we expect to generate profit margins at
or above this past quarter's level.
Expenses,
operating expenses were $3.4 million in fiscal 2Q, up about 4% when
compared to a year ago. This likely represents the lowest quarter
you will see this year, as operating expenses will climb a bit in
the back half for the year after. We are benefiting from technology
and infrastructure investments made a couple of years ago, and the
reorganization of our sales platform.
But
going forward, you will see us continue to invest in infrastructure
and implement process improvement where we believe it will continue
to translate into improved operating leverage.
By
component, cost of service increased 19% in fiscal 2Q to $1.2
million from $1 million a year ago. Within cost of service, overall
headcount was flat. The increase really reflected in investment in
infrastructure and technology support, as well as the
capitalization of some software development cost a year
ago.
Going
forward, we expect cost of service to increase at a modest pace in
relation to revenue growth and to continue to fall as a percentage
of revenue. To be more precise, I think last year's comparison for
this item was somewhat depressed. So the trend line for growth in
cost of services is probably closer to 15%, although it could be
higher depending on how fast we decide to pursue some opportunities
to expand our application offering.
Sales
and marketing, sales and marketing fell 17% in fiscal Q2 under $1.2
million from $1.4 million a year ago. This decline was due to the
convergence of the businesses and the shift to a lower cost sales
model.
Going
forward, we expect sales and marketing expense to continue to fall
as a percentage of revenue, as we look to benefit from increased
market awareness by ReposiTrak's strong value proposition and to
leverage our converge sales model across fewer, but larger deals.
That being said, total sales and marketing expenses likely arise
modestly off this past quarter's level, as we increased our
customer service and sales headcount.
General
and administrative rose 200,000 in fiscal 2Q to 938,000. This
increase included a laundry list of things. But the biggest
component about half of it was personnel and personal support
expenses.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
We also
saw an increase in expense on outside consultants, as we begin to
put together plan to upgrade our sales support and back office
infrastructures and we increased our bad debt accruals to reflect
our growing revenue base.
Going
forward, we expect general and administrative to stabilize as a
percentage of total revenue, while growing in absolute dollars as
we begin to execute on our plans to enhance our
infrastructure.
Cash
flow and liquidity, we ended 2Q '17 with $12.1 million in cash, up
from $11.4 million at the end of fiscal 2016. This increase in cash
reflects growing revenues and increased profitability.
Current
and long-term accounts receivable was up in absolute dollars,
although sequential increases our moderating. This reflects the
shift in emphasis at ReposiTrak. From a supplier paid model, which
has upfront payment and essentially no receivable to central
billing, which has a more normal collection cycle. Given how this
improves our productivity and customer adoption, we see this
investment in accounts receivable as important.
We ran
an analysis last week and the total value of ReposiTrak's
contracted business, that is the lifetime value of our central
billing agreement, most of which are multi-year and full year's
revenue from our supplier paid hubs at 100% penetration is close to
$25 million.
It’s
also worth noting, we've collected a $0.5 million in off cycle
receivables, just since the last quarter and we are confident in
cash flow trends should significantly accelerate in the second half
of the year, as revenue and profits grow, and we continue to refine
our operating practices. Building cash on the balance sheet is
important from a customer Opex perspective, so that remains a focus
of ours.
That
concludes my review of the financials for fiscal 2Q. I turn it over
to Randy now for qualitative.
Randall K. Fields
Hi,
everybody. There is lots to say although I think the numbers speak
for themselves and as a result of lots to say, I have prepared
written remarks. I know the most interesting things I tend to say
are off-the-cuff. So I'll be careful, but I think there is going to
be a lot of information over the next few minutes.
Fiscal
second quarter results obviously were building on the momentum that
we generated in the first quarter. Second quarter revenue was up
35% and revenue for the first half of 36% compared to a year ago.
At the risk of sounding like a broken record, once again we
generated record results for both revenue and bottom line
profitability.
Interestingly,
the second quarter did achieve one more of the five goals that we
set out for the year. We did have quarterly net income exceeding $1
million. As Todd mentioned, it was a record $1.4 million and it
certainly demonstrates our operating leverage. Feel good about our
balance sheet, its stronger. We obviously ended the quarter with
north of $12 million cash.
Couple
of things to note in terms of what generated the growth, we saw
growth in several of our new applications, including ReposiTrak and
the vendor portal, I know everybody is looking to the number I am
about to give, so pay attention here. We said that we wanted to end
2017 with 20,000 connections and yes; we did it in the second
quarter.
So,
we've exceeded our fiscal 2017 goal just half way through the year
and for perspective on that, I think it's interesting to note that
a couple of years ago it took us a year to do the same number of
connections that we now do on average per month. To say that I'm
proud of the team would be a grotesque understatement.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Incidentally,
I think it’s important to realize here that our approach to
speaking with investors is a little different than our IR people
would like us to have. So let frame this for a moment and I know
George is on the call. So George is going to probably send me a
nasty-gram after this.
Many
people believe that what we should do is to under promise and over
deliver and the problem with that is that we don't know what you
know and you don't know what we know and the inherent issue in that
is we're both pretending. So our approach is to say to investors,
this is how management sees things.
So
seriously it’s a beginning of this year when we thought very
hard about how we would do for the year, 20,000 connections at the
end of the year seem like a reasonable forecast based on the
information that we had. So we didn't sandbag we don't do that, we
tell you what we're actually thinking.
So it
is fair to say we certainly achieve the goal halfway through the
year. Obviously, it feels great and from where we are as we
mentioned in our last conference call, we now see our way to
hundreds of thousands of connections in the not too distant
future.
Our
momentum though doesn't just reflect the obvious to bringing on
connections. It really reflects some operational gains in our
ability to bring suppliers on board and here comes the important
word in the set, successful.
Now,
what we've done is to simplify the on boarding process, we've gone
to something that we call central billing with our hubs and this
does a number of things, it significantly accelerate the on
boarding of suppliers by removing much of the cost and complexity
of billing thousands of individuals suppliers in exchange for
billing the hub.
But
also central billing frankly is much more attractive to our
clients. It was the client idea in fact and that drives compliance
faster and it’s much simpler for everybody to
administrate.
So as a
company and in our culture we're constantly assessing our
processes, our technology, our infrastructure to see if we can do
it smarter, better, faster, cheaper, and we've made some huge
strides–I am going to come back to this in just a few
minutes.
In
terms of the account management team, we have continued to grow the
account management team, I'm really proud of the people based on
their tremendous job. We have very low turnover in that group and
their success with our customers it’s
outstanding.
Putting
it differently, we've now entered a very important virtuous cycle.
We are combining improved account management in our fixation and
customer success with internal automation and process
simplification and it’s proven to be a huge win. Here's
why.
We can
get suppliers on faster. We can get suppliers compliant faster.
This reduces the compliance risk of our hubs faster and it also
more rapidly embed us deeply into the hubs core business processes.
In other words, to shorten it, it's a win-win for
everybody.
We
continue to feel really good about ReposiTrak prospects going
forward, I'll cover the macro first then we'll talk about some new
applications that we're working on.
Industry
awareness about ReposiTrak is actually growing very rapidly right
now. I'm amazed with the increase in awareness of us over the
course of the last year. We see inbound phone calls, etc., meeting
people who say oh yes, we've heard about you. Obviously it says
that word is spreading and spreading in very positive
way.
This is
going beyond simply having some of the largest and most influential
leaders in the industry using us as hubs. It frankly represents a
testimony to how deeply we've been penetrating their supply-chain.
We are getting referrals from suppliers to their suppliers, hubs to
other hubs; the whole thing is really been terrific so
far.
Recently
at an industry conference and this I found very interesting. We
were the topic in three different committee meetings over the
course of 24 hours. Three different groups of people meeting on
different topics, were discussing ReposiTrak and what it
represented at an industry tool. So all of this when I netted out,
like we feel very confident about our prospects with accelerated
market touch. Yes, I did say accelerated.
Importantly,
longer-term we're continuing to develop a number of new
applications and we're doing this across our entire footprint. The
whole platform is seeing new and we think very significant and
long-term contributing application to our suite.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
For
example, the SQF database is now completely integrated with
ReposiTrak platform. This has taught us a lot frankly about
linkages between food safety and other compliance activities and
see why that’s important in a moment.
We have
successfully introduced and easily repurposed our quality
management system in the industry, it’s called QMS
application and that further increases our value proposition to
people whose interest is in food safety and quality of their
product and manufacture.
In each
area of our business, we're adding important new product, each
area, food safety, compliance management, and supply chain.
Longer-term and as you know, we're pretty long-term thinkers here.
That gives us a high degree of confidence that the out years will
have new revenue sources that we're introducing to the market in
the current year.
So
it’s important to understand really that ReposiTrak
isn’t just about food safety, ReposiTrak is becoming a
comprehensive compliant management platform that can be used for a
whole host of other activity.
We've
been getting questions from some of you about what, if any changes
might occur with the food safety modernization act due to the new
administration and how that might affect our business. I'd like to
point out that that’s been a big topic of discussion for many
companies in their conference calls, apparently one out of five
earnings calls so far this season.
The
topic of what the Trump administration means from a regulatory
perspective has come up. Candidly from what we've seen so far there
have been no changes and even if there were changes like
simplification, we actually believe it would be a net positive in
relation to our business. So let me give you a little more detail
on that.
First,
I need to give you some background on the FSMA. It is a law;
it’s not an executive order, which means it takes an act of
Congress to make change. Two, it was written by a republican
administration and it received very strong bipartisan
support.
Third,
it was made a law by a democratic administration with a republican
congress. It was negotiated with the industry. So unlike other
regulation in fact it’s supported by the industry. So in
general, I think it's safe to say people don't want unsafe
food.
Second,
the law and the regulation are actually only a part of what's
driving adoption of ReposiTrak. Indeed, I would note that somewhere
between 30% and 40% of all the suppliers on the system aren’t
food vendors at all, they supply other things, but still are
covered under ReposiTrak.
Some of
the other factors that we consider to be drivers of ReposiTrak
adoption in addition to the law, is company looking to protect
their brands, its not good frankly to be known as the company that
makes people stick, companies looking to avoid lawsuits from the
largest food retailer in the world, several food safety losses of
tens of million of dollars, everybody pays attention to
that.
Being
known for food safety is a point of competitive differentiation for
both retailers and food manufactures. How do we know that, well,
there is new company like Whole Foods or think of organic food in
general. Why do people pay up, the presumption is it’s
healthier and safer.
So it's
also reasonable to say that consumers are asking for safer food,
they’re demanding safer food. In addition, if you really
think through where does ReposiTrak fit into the food safety
modernization act, into regulation?
We are
the record keeper; we are the record keeper for tort and for
regulation. So no matter what changes some records still have to be
kept and we don't care whether its 10 records or 10,000
record.
The
reality is we are the record-keeping system, compliance management
system for any regulatory or tort problem. A big part of our value
proposition is that it's easy to adopt and given its very low price
point, it’s immaterial in relation to the benefits it
provides.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Next,
ReposiTrak is increasingly being viewed as the industry, all
encompassing risk management platform, not just about food and
safety. If there were changes, actually it might simplify the
regulation and make adoption of ReposiTrak even more
attractive.
We've
definitely seen over the last several years that people are so
confused by thousands of pages of regulation, that simplification
would certainly cause people to act more quickly and candidly in a
fashion to meet the higher levels of compliance.
Finally,
we haven't seen any change in the accelerated rate of adoption by
our customers. In fact, as you've seen from a result, it's going
faster, not slower. So, our pipeline continues to grow and I think
no matter how one analyzes the current administration stand on food
regulation, it’s not likely to impact us in an important
way.
To be
clear though, food safety is not to sole vehicle of growth for Park
City Group and for us in general. The integration of our two
businesses is nearly complete and it’s beginning to drive new
opportunity and it’s simultaneously is leveraging the
investment we made in ReposiTrak technology platform. Let me give
you an example.
We're
now capable of delivering our supply-chain services via the portal
infrastructure that was built for ReposiTrak. We call that the
vendor portal. What that means is that our customers have a single
platform in which they can begin to access all of our
applications.
That
leads to more suppliers signing up, more self-implementation and
more of our technology is being used by that supplier, including
expanded automated reporting, analytical capabilities our whole
raft of applications. I am very confident on the basis of the
interest that we see amongst our hubs and suppliers that
we’ll begin to see a more rapid adoption over the next
several years, with very broad suite of our application via this
end report.
Next
new product. Market place, we've expanded our pilot program with
one of the largest retailers in the world and increasing the number
of participants in the marketplace. It’s been an incredible
learning experience for us so far and I'm not going say anymore
because I’m afraid I’ll get too excited and probably
end up saying too much.
The 10X
project (phon) that the was referenced in Todd's call is perhaps
one of the more important things we're doing this year and I want
to talk a little bit about what the 10X project (phon) is. I have
Todd and our controller driving it and it is a very important
initiative from a whole variety of respects to both our customers
and for you as shareholders.
We have
finance, sales and development all working together to enhance the
platform and back office capabilities. Let me give you a concrete
example of how important it’s already been and what's likely
to happen in the future.
If you
remember, we said we can see our way to several hundred thousand
connections within a few years. But the last round of
infrastructure work is already had a very important impact that
shows up in our margins and productivity and our customers service.
Here’s a very specific example.
The
finance department had four people three years ago when we had less
than thousand economic relationships, doing everything around,
billing, closing the books, doing all of the public company stuff
etc.
We now
have in excess of 20,000 economic relationship and we still have
four people. That's what I call technology leverage. We want to do
the same thing as we increase in size by 10 times over the next few
years in terms of the economic relationships that were
maintained.
The
goal is to have little or no staff increases in our company outside
of sales and account management. The consequence of that is that it
keeps us lean; it keeps us nimble, while simultaneously staying
very close to our customers.
I think
its reasonable now because I yell about it internally. So often
teams embrace this philosophy of highly automated, highly scalable
in our culture and I think the benefits we felt not just by our
customers, but also to the shareholders. Let's talk about customer
service for a second.
It’s
tough to grow our company at 30% to 40% a year or even higher and
still be successful with customers. Our growth is exciting, but
we're not losing sight of why we exist at all, our customers. Our
upper limit on growth continues to be not market opportunity, but
maintaining our culture of customer success.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Here is
a couple of examples, I love giving these, I think of the them as
anecdotes of what we think. One of our supplier hubs, in other
words, a manufacturer using our technology was able to reduce its
staff and its compliance department from five to two over just a
very few months. Obviously the impact of ReposiTrak in terms of
their cost structure was very significant.
One of
the other things that we see happening it's very important, this
makes us very proud, is we're spotting and bringing the light
non-compliant suppliers more rapidly with a sense of collections
strategy and we're seeing hubs more importantly, getting much more
hard nosed about refusing to do business with non-compliant
suppliers. They are turning them off. So in a sense in a very small
way we think we're beginning to make as a company an overall
contribution to food safety in the country.
Our
outlook for the future, this is the part you’ve of all been
waiting for. We remain confident in our outlook for 2017. So far in
fiscal 2017 we have $9 million of revenue and $2 million of net
income. We expect growth of both; revenue, profitability and
especially cash flow to accelerate even more then they have,
(inaudible) I should probably shut up now, Todd is nodding his
head, (inaudible) yes okay, but I am going to go on
anyway.
We're
bringing a number of new very exciting products and services to the
market in this calendar year. In the long-term these new services
not short-term, but in the long-term, they provide significant
additional revenue in customer success opportunity. Longer term, we
do expect to continue to see years of 25% to 30% - 25 to 35%-top
line growth, some years it could possibly be higher.
We
expect the rapidly growing revenue base to support progressively
higher operating margins and cash flow and we are going to more
rapidly add cash to our balance sheet to provide comfort to our
growing list of larger customers that has been a significant shift
in the market place.
We are
engaged with talking to et cetera and establishing relationships
with much larger companies that we ever would have imagined to be
case. Our customers make long-term commitments to our platform, so
are being solid to more growth than ever.
So
let’s summarize. We set out five goals for fiscal 2017 on our
2016 year-end conference call. One, that we bring suppliers on
board much faster, did. We said we would see an acceleration in top
line growth, we have. We said that we would have our first $4
million revenue quarter, well, actually we had two of those, and we
said we'd have our first $1 million net income for the quarter, we
just did.
That
actually leaves only one of the five goals unmet after just half of
the year and that was to have our first $5 million revenue quarter,
well pretty confident that’s going to happen soon too. So
net-net, no pun intended, this is shaping up to be an inflection
point in a series of extraordinary years looking forward. The team
has done an amazing job and the truth is, I hope you guys are as
proud of them as I am.
That’s
it, questions?
Operator:
Thank
you, sir. And to signal for a question please press star, one on
your touchtone telephone. Also if you’re using a speakerphone
please make sure your mute button is turned off to allow your
signal to reach our equipment. Once again it is star, one at this
time for questions and we will pause to give everyone the
opportunity to signal.
First
we'll go to Joe Feller, Private Investor.
Joe Feller:
Hey,
Randy.
Randall K. Fields:
Yes,
sir.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Joe Feller:
Awesome
quarter.
Randall K. Fields:
Thank
you.
Joe Feller:
To
drill down a little bit, into your comments on the new
administration, the only thing that concerns me is piece of
legislation that’s been introduced into lower House of
Congress are called REINS.
Randall K. Fields:
Yes,
very familiar with it.
Joe Feller:
Okay.
Number one, it’s a two part question, number one, would
impact the regulations around FSMA and for some of you investors to
explain the difference, the FSMA is a law that has got through the
executive branch to develop rules to bring companies into
compliance with the law, which as REINS progresses the existing
rules–or the potential, or the rules that have already been
issued by the FDA. So the first part of the question is, will
REINS) impact those rules.
The
second part of the question is, will REINS impact at all
ReposiTrak's relationship with the FDA and maybe you could explain
what that relationship is currently?
Randall K. Fields:
Got it.
Okay. Actually, there’s a teeny tiny part of the regulatory
stuff that REINS potentially impact as regard to FSMA was one of
the last rules promulgated and it’s totally meaningless in
the context of what we do.
So the
rest of FSMA is settled regulatory done, REINS really just goes
back, for all intents and purposes, a few months. But anything that
would be at OMB or other of financial ramifications of regulatory
environment would be problematic. But there isn't anything that
would impact it in REIN, no impact whatsoever.
Remember,
I personally–let me answer the second part, and I am going to
hitchhike off that if its okay, Joe. We don't have a direct
relationship with the FDA. I think it's fair to say we've had
sessions with them. If you can imagine as if was done by
it.
A
meeting was set up around what we do. We thought it would be with
the FDA and I believe there were 17 government agencies in the
phone call, 17 different government agencies–don't hold me to
the number, it could have been as many 24, but I remember 17,
different agencies touch food, it’s stunning.
So the
FDA is aware of it, we don't really want to get too close to
government, it’s the best way to put it; we're best off right
where we are. So we don't see any impact. I can tell you from a
industry insiders perspective, the industry really–it
wouldn’t care whether it was self regulated or regulated by
the FDA, remember we're only talking about part of it.
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Park
City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
The
other part of the industry is USDA, so the USDA touches all of the
proteins that people eat, FDA doesn’t deal with meat et
cetera, but to the most part, it really is a specialized group. So
there's whole bunch of agencies that touch this issue of food, food
safety, et cetera. We see nothing on the horizon, nothing, that
would cause people to stop record keeping.
The
best way to think about ReposiTrak is not how does the law impact
you, but what would cause people not to keep record. Our livelihood
depends on people wanting to keep records about their business. So
in the event of a lawsuit or regulatory examination or just an
inquiry, they have those records easily on file, and can reference
them quickly.
So we
just don't see any impact from regulatory change at this point. And
if we could wave a magic wand, we would and we try and simplify it
from 3000 pages to about 200 pages and that would speed adoption.
It would frankly make our life with people much easier, would be
good for our business. Thank you for the question Joe.
Joe Feller:
All
right. Thank you.
Operator:
Once
again it is star, one at this time for questions. Again we will
pause.
Next
we'll go to Will Hamilton with Manatuck Hill.
Will Hamilton:
Hey,
good afternoon, guys.
Randall K. Fields:
Hi,
there.
Will Hamilton:
Randy,
I appreciate the actual color in terms of guidance and outlook, I
was wondering if any chance you could provide us an update on how
many hubs you are in–I think you mentioned, more customers
and obviously we saw the fresh market news?
Randall K. Fields:
Yes.
I'm going to give you a number; I am going to wish that I didn't
because it just is not a terrific indicator.
Will Hamilton:
Is it,
okay.
Randall K. Fields:
But
here it is, the number is 33, but what's going to happen over the
next year is you have to think in terms of large and small hubs. If
it's a retailer or wholesaler, they typically drive around from a
few hundred to a few thousand suppliers. On the other hand, we're
seeing a much higher level and in future years this is definitely
the area of opportunity for us.
Suppliers
themselves becoming hubs for their suppliers, so a supplier goes
wait a minute, I love this thing. If I had my suppliers on it, I
give visibility to the retailer deeper into the supply chain. So
increasingly that hub number will not be a super
indicator.
So I
think, as we look at the back half of this year there is going to
be a number of new, large hubs for sure. We certainly think there
will be a number of smaller ones; it’s just not a very good
indicator. So that's probably more then anything else the reason we
didn’t pointed out, but I knew you ask it Will.
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City Group - Second Quarter 2017 Earnings Conference Call, February
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Will Hamilton:
Thank
you. Are we at a point though where suppliers already connected to
another retailer and then if a new retailer signs on and you've
already had the connection, so it's like two X right from the get
go.
Randall K. Fields:
Yes,
that’s actually a really good question. I don't know the
exact percentages, but I'm guessing now that 40%, maybe 50% of the
suppliers connected to a hub literally just make a check mark and
offer up new documentation that would correspond to that new hubs
specific requirement, in other words, that more and more of our
business is indeed already on the system. So they are getting up to
speed is simpler and faster. I think is that question you were
asking?
Will Hamilton:
Yes.
Randall K. Fields:
Yes, I
think it’s around 40. It probably never goes higher than 60
or 70 because there are so many local suppliers, right, there is
this horrible movement in America toward localization of supply
chain, which means that that if you are in–I’m picking,
I’m making this up, you are in some place in Massachusetts
you are going to have 200 local farmers as suppliers if there are
retailers there, that wouldn't be suppliers to anybody else in the
system in California for example.
So
there will always be a significant share of local, unique suppliers
as opposed to national footprint and even regional footprint kinds
of suppliers. But it’s about 40%. So it
goes–that’s why say we are now in this virtuous circle
where it's going faster, we simplified the business. We gone to
this idea of central billing with our retailers, everything now is
massively speeded up from where it was a couple years
ago.
But
most importantly, the compliance rates are going north and they are
going north faster than they used to so I think to your point since
more and more of our suppliers are experienced with us they know
what to do and they go faster, right.
Will Hamilton:
Right.
Okay.
Randall K. Fields:
Thank
you.
Will Hamilton:
Yes.
Just one question on the market place, is the larger retailer you
are working with right now in the food side or is that retailer
that may have then involved the supply chain side of things, and
can you expand a little bit on the economics for that business, is
this going to be a subscription or is it like a commission where
you go out to say low single digit growth, mid single digit
commission?
Randall K. Fields:
Yes. I
think during its first year of operation, there is little if any
revenue opportunity. We just want to get it scaled up quickly. The
first buyer in the system is fair to say, does food, but they also
do other stuff. So you wouldn't think of them as a grocery company
per se, is the best way of thinking about it, okay, but they sell
groceries. I am not trying to be too cutesy, I just can't name
them.
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City Group - Second Quarter 2017 Earnings Conference Call, February
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Will Hamilton:
Okay,
all right. Thank you, guys.
Randall K. Fields:
You
bet.
Operator:
As a
final reminder please press star, one at this time for any
questions. Again we will pause. Moving on, we'll go to Steve Bell,
Private Investor.
Steve Bell:
Great
quarter, Randy.
Randall K. Fields:
Thank
you, sir.
Steve Bell:
One
question, what do we have left available to us in NOL
carry-forwards?
Randall K. Fields:
I think
it’s like a $100 million, I don’t know, it’s a
big number Steve.
Steve Bell:
Okay.
In other words, we're covered for couple years at
least?
Randall K. Fields:
Yes, we
do not want to pay our fair share again, I guess, this is a right
way of putting it. I am sorry if that was a political
comment.
Steve Bell:
God
bless America.
Randall K. Fields:
Yes,
exactly. I think as we look out, and again, I want to give
managements view, so this isn’t a Wall Street view. Our
pipeline is growing significantly, meaning prospect calling us,
prospect interested, people who are deep into the sales cycle if
you will become hubs.
That
gives us pretty good visibility to what we need to do not can do,
but what we need to do to be sure that we are ready for this
substantial expansion of the business in terms of economic
relationship.
So the
most important thing that’s happened this year is not just
that we scaled it up, so we've done 10,000 or whatever number of
connections 8 or 10,000 in the last six months. That's interesting,
but what's important is the quality of those, the speed at which
they've come up, the customer perception of us et cetera is
extraordinary.
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City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
So my
focus is you know, Steve is I am more interested in the quality of
our result because I am still old-fashioned, old is the operative
word, enough to believe that if we do a great job for our customers
they will start talking about us. I can tell you–let me give
you two anecdotes in this conference we just attend.
First
of all in two of the three meetings, we had customers of ours doing
presentations about how good we were, talking about how we had
massively changed their compliance, et cetera. In one case, it got
to be almost a free-for-all because as one customer is talking
about us, we had two other customers saying yes, I use them too and
boy, they did this for me in insurance and so on and so
forth.
So
there is a high degree of excitement in our customer base about
what we do and although I think it's fair to say that what we do is
fairly prosaic, it's not sexy or amazing, but it's blocking and
tackling that every major business should do, our customers are
excited about working with us, our customers like us.
What
that means interestingly is–and this is almost on the edge of
weird, I was just in one of this, as you know I love being close to
the customer, it’s a mental illness of some sort of mine,
where I like to be in the room, I like to hear how we are
approaching our customers, I like the sales process and it keeps me
close to what I think the most important stakeholder in our
company, our customers have to say.
Our
customers without knowing what our other capabilities are, are
asking us for our other capabilities. I was just in a meeting with
one of our largest customers, in fact they might in terms of food
safety or ReposiTrak its fair to say they are our largest customer
and while I am in the room, they are asking us about other
capabilities, like our item management within our vendor portal,
can we get down to the item level with food safety, several of our
customers have asked about that, several of our customers have
asked about our ability to manage price changes for them. Several
said can you guys help us with the marketplace idea.
So
what's interesting is without any information about what we do,
customers are asking about our product set as it unfolds. So to me
that’s very exciting confirmatory sort of news about the
adoption cycle that we'll see in the next several years and because
we we've exceeded our own expectations–trust me not just Wall
Street, our own expectation about this year, it gives us
flexibility about the introduction of some new products that drives
revenue in the out years. So we can start sort of stacking dollars
and simultaneously satisfying this customer demand that we
see.
So I
know people think, Randy gets excited about this. I have to tell
you my excitement has reached new heights, we are really on the
right track. I think without laying out the whole vision over the
next several years, this is once again ours to loose, this is ours
to loose. I am sorry I didn’t mean to be so excited, I'll
shut up.
Steve Bell:
So
we'll use the NOL?
Randall K. Fields:
We'll
use the NOL.
Steve Bell:
Okay.
Great quarter again, thanks for all of your efforts. I greatly
appreciate it.
Randall K. Fields:
Thank
you. Thank you, guys for the support.
Operator:
There
are no further questions. I'll turn it back to our presenters for
any additional or closing comments.
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City Group - Second Quarter 2017 Earnings Conference Call, February
06, 2017
Todd Mitchell:
Thank
you all for your interest and our numbers are in the press release.
So please feel free to give us a call or email us if you have any
questions.
Randall K. Fields:
Didn’t
we say, that the second half of the year is going to be
better.
Todd Mitchell:
That’s
right.
Randall K. Fields:
Thank
you, guys. Thanks for taking the time.
Operator:
That
does conclude today's conference. We'd like to thank everyone for
their participation. You may now disconnect.
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