ReposiTrak, Inc. Price & Performance (TRAK)

The information set forth herein should be considered in light of such risks. Positrac does not assume any obligation to update information contained in this conference call. Shortly after the market closed today, the company issued a press release overviewing the financial results that will be discussed on today's call. Investors can visit the Investor Relations section of the company's website at .com to access this press release. Release. With all that said, I'd now like to turn the call over to John. John, the call is yours. Thanks, Rob, and good afternoon, everyone. The second fiscal quarter represented another successful period of The growth in all lines of business including Traceability continues to deliver increases in top line revenue profitability and earnings per share and it's just beginning. Again, our financial strategy is quite simple. Take great care of the customer, execute perfectly, grow recurring revenue, increase profitability, use cash to buy back common stock redeem the preferred and do it with no bank debt. At the same time, return capital to shareholders through an increasing cash dividend. Meanwhile, we continue to build cash on the balance sheet, now $28,000,000 Yes, it's really that simple and Traceability results are just getting started.

Traceability continues to accelerate understandably as the January 26 deadline looms.

But more importantly, we are experiencing growth in all lines of business, traceability, compliance and supply chain. This is evident in our total revenue growth and increases in the deferred revenue line item on I don't want to get into the weeds, but obviously deferred revenue is an indicator particularly in a SaaS company. Since June 2024, our deferred revenue has grown 70% from $2,400,000 to $4,200,000 If that doesn't raise your investor eyebrow, it should. These are signed customers fully implemented and who have paid in full. These customers will add $1,700,000 of incremental subscription revenue over the next twelve months. Let me add some color. If you divide $1,700,000 by four quarters, that incremental revenue adds about $425,000 to each subsequent quarter going forward. That means our quarterly revenue run rate increases from $5,500,000 to roughly $6,000,000 per quarter, assuming no additional sales opportunities, which is [indiscernible] I'm not providing a forecast, it's just math. The conversion of this deferred revenue to recognized revenue over the next but but fiscal twenty twenty five as a whole.

Again, not a forecast, it's just math. While the revenue growth is coming along as anticipated, Randy and I are simultaneously focused on the contribution margin, profitability EPS and cash flow.

While our current 64% revenue contribution margin above six costs is a good start, we goal is to get closer to 80%. Meaning, for every dollar above the $12,000,000 in cash our goal is to deliver 80% plus profit on every dollar of incremental revenue. That is our goal. Many of you have asked if the current administration is good or bad for us.

Meaning what if they delay the traceability law As we have said before, a latter delay would be good for us. Instead of rushing to onboard thousands upon thousands of last minute holdouts, it will allow us to administer an orderly onboarding not at a hurried pace. The complexity is enormous and time helps us ensure success The government did the same thing with Sarbanes Oxley some years ago. We hope they adopt this same laddered compliance for small, medium and large companies for traceability. Like a financial strategy, our operational philosophy remains very simple. Provide customers with superior solutions, deliver our service at a reasonable price and execute perfectly. We solve complex business problems and our customers expect us to fix the issue and not complicate their business in the interim. This drives higher levels of customer success and satisfaction. As we have adopted internally, when our customers are successful, they buy more from us. Let's get to the quarterly numbers. For the second quarter of fiscal twenty twenty five, total revenue was up 7 percent $5,500,000 versus $5,100,000 Recurring revenue increased 5% to $5,400,000 Given the amount of one time setup fees earned during the quarter, the declined from 99% of total revenue to 98%.

Cost of revenue increased 3%, given increased in investment in developer resources to further expand our wizard. Self implementing automation platform to allow suppliers to onboard with little, if any, human interaction. Operating expenses increased 7% from $3,900,000 to $4,100,000 reflecting our ongoing investment in RTN, higher commissions due to higher revenue and increases in Sales and marketing expenses increased 15% as we continue to invest in marketing awareness of our solution suite of traceability, supply chain, and compliance.

And increased commissions and payroll taxes. G and A increased 2% This increase reflects higher benefit costs and other insurance increases that occurred during the quarter. Depreciation and amortization increased 2% reflecting purchases of technology equipment, for our newest data center that is located at Switch in Reno, Nevada a Tier five data center.

For the quarter ended 12/31/2024, GAAP net income in $1,600,000 up 7%.

GAAP net income to shareholders increased from $1,300,000 to $1,500,000 up 12%.

Earnings per share basic and diluted was $0.08 per common share and $0.08 per diluted share.

This compares to the same quarter last year of $0.07 earnings per share both base and diluted increase of 14% Let's turn to the fiscal year to date numbers. For the six months ended 12/31/2024, total revenue and from $10,000,000 to $11,000,000 Recurring revenue increased 6% to just under $11,000,000 Total operating expenses year to date were up 5% due to investment in RTN, increased employee benefit costs and investment in development of onboarding tools. SG and A costs were up $225,000 or 4% due to investments in RTN, higher commissions and higher employee benefit costs. Fiscal year to date increased 21% Basic earnings per share was $0,.17 per share and $0.6 diluted. Turning now to cash flow and cash balances. Cash on the balance sheet at Dec. 31, 2024 was $28,000,000 a 12% increase from June 30, 2024. Cash from operations year to date was $530,000,0.0 increase of 117% from the same period in 2023. The $28,000,000 cash on the balance sheet of Dec. 31, 2024 is after we redeemed $150,000,0.0 in preferred paid out $700,000 in common stock dividends, bought back $100,000 in common shares during the months ended Dec. 31, 2024. And we have no bank debt.

Since inception, we have redeemed 362000 preferred shares for a total of $390,000,0.0 The remaining amount available for preferred redemption is $510,000,0.0 At our current pace of redemption, we are confident redeeming all of the preferred out outstanding on or before September 2027. That's all I have today. Thanks everyone for your time. At this point, I'll turn the call over to Randy. [indiscernible] Thanks, John. The grocery industry is continuing to adopt end to end traceability.

As we've been saying for some time, the forces driving adoption of traceability are no longer just the FDA mandates, but also market force Retailers are embracing traceability as a solution to address risk, improve recalls and as a marketing tool to retain customers. While some retailers are going to continue to focus on the FDA regulatory Many retailers recognize that traceability is ultimately As evidenced by Kroger, Albertsons, Walmart and Target, over time we're also convinced retailers in the long run are not going to trace just a limited list, but they're going to trace These 2 different forces are working their way through the system. Certainly, it's true that many retailers are hesitant to commit traceability until they know what the current administration is going to do. But the sense of inevitability of traceability is sinking into our industry bit by bit. Slower is smoother, easier and more profitable for us. We would be surprised if there isn't some delay in terms of the FDA enforcement. We've spent the last two years advocating for some delay and we fully expect it. That delay does not, however, mean that traceability is going to go by the wayside. It's simply a recognition of the fact that the industry is still not as prepared as it needs to be at this point in time.

This timing is lined up exactly as we expected. And we've positioned ourselves as the go to solution to meet both the FDA demand and the market forces for tracing everything. We are already by far the largest operating traceability network in the world. It's pretty amazing if you actually think about it. Our scale is drawing the attention of the industry and of additional players that want to partner with us, but there'll be more about that later. For Repositrac, it's driving a growing base of recurring and deferred revenue. Given what we have in hand, we're anticipating accelerating to double digit revenue bringing the whole year up to our desired 10% to 20% growth of top line range. It's significant to note though that it's not just traceability driving our growth. Our core business and traceability are both growing. Think of what we do as having multiple doors of entry and traceability is simply 1 of those doors. The percentage of customers who are now onboarding through the automated wizard is but we have a lot more work to do. This automation initiative is key for us as critical to our ability to 5500 facilities that are being actively enrolled by our retail and wholesale customers It will take eighteen to twenty four months to onboard these suppliers.

And those 5500 facilities that we have in hand today are being required to enroll by their hubs represents nearly $10,000,000 in incremental over the next twenty four months or so. Simultaneously, the addressable market continues to grow and we continue to strengthen our competitive position. Let me give you an example. Last quarter, I spoke about the opportunity to help suppliers connect with non customer retailers. Kroger, Albertsons, Target, Walmart for example, have mandated that suppliers trace all food products and they're implementing this mandate well ahead of the FDA's deadline. These large retailers handle traceability internally as you'd expect. But they work with thousands of suppliers, many of whom are currently in or planning to join the ReposiTrak. Traceability network. That may not themselves be using us as their exclusive traceability portal. Once again, we're data agnostic. We are positioned as the universal translator for the industry connecting key data elements to nearly any traceability platform automatically and seamlessly additional market for us. We're positioning ourselves to take advantage of the fact that we are by far the largest database in the world for traceability data. This doesn't just give us a competitive advantage, it actually makes us attractive for others to partner with us.

For example, we recently partnered with UpShop, 1 of the leading providers store level receiving solutions and in store solutions. Every grocery store has some process to scan deliveries as they arrive inputting the data into the store systems. UpShop is 1 of the leaders in this space along with a handful of others. Retailers are requesting assistance from Up Shop and others to gather traceability oriented data as part of their own process. This is something beyond the normal scope for these companies and therefore partnering with Repositrac was an obvious solution. We expect additional partnerships as we expand as well as additional retailers and wholesalers signing up with us as a result of these partnerships. Because we are the largest database of supplier and other traceability This is a classic network effect with a size of the network itself attracts even more players who want to participate. As more retailers recognize that traceability is an inevitable part of in the grocery business, The FDA's role in driving timing will continue to diminish. So the likely pushback of the enforcement deadline by the would actually be welcome news for us.

As for Repositrac, our focus has always been and always will be on meeting the needs of our customers. For our retail customers, this means putting the solution in place that enables to meet their internal and external requirements without creating a burden or impacting their P and L. For distributors, this means deploying a solution that as much as possible works within their existing processes. For suppliers, this means creating the solution that's workable for smaller end rolling it out with as few headaches as possible and pricing it affordably. So far, there were positive Traceability Network or RTN is checking all of these boxes. As we've always said, when our customers do better, we do better. [indiscernible] as excited as we are about traceability, our core business is continuing to do well also. Our growth in the was due to growth in all parts of our business. We anticipate our accelerated growth in the second half of the year will also be a combination of growth in our core business as well as traceability. By design, we anticipate that our profitability will continue to outpace our revenue growth. Our business inherently drives cross selling. Me give you an example. 1 of our larger customers started with us doing compliance for a limited number of their suppliers for the traceability problem.

So they're doing traceability with us. Now this customer has come back with a significant expansion of their compliance scope. They're effectively doubling their compliance business with us. And this will inevitably lead to an expansion again of the traceability business. The 2 business lines are inherently connected in the eyes of the customer. And the result of that is that each time we do an expansion, it leads to additional expansions down the line. Importantly, we should all remember that we're not simply a traceability company. Our business model is simple. It enables consistent growing profitability, simultaneously delivering the results that our customers expect. This allows us to continue to return more and more capital to shareholders. As we continue with our capital allocation strategy, we've redeemed preferred We've redeemed common. We've paid off all our bank debt. We've increased the common dividend every year and we still have $28,000,000 of cash in the bank, up from just a few million dollars not too many years ago. In fact, it's important to keep in mind that our five year CAGR is 30% compounded for net income and earnings per share 43%. [indiscernible] pretty impressive. We know that. We have lots more work to do, but I'm certainly proud of what the team has accomplished so far.

Sure you can hear how confident we are about our future. So with that, I'd like to open it up now for questions. Operator?

Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Thomas Forte with Maxim Group.

Please proceed with your question.

Great. Thanks. So first off, Randy and John, congrats on the quarter.

I have several questions. I'll go 1 at a time.

But I have more questions than normal. So maybe we'll answer them a little more specifically. The first 1 is, Randy, I think you've given data points the last couple of calls about that quantify your ability to onboard customers faster? Can you provide an update on that?

Yes, that was really the comment that I made about the wizard. Which is what we call it I think objectively, we've made huge progress in that, meaning that a higher and higher percentage of our onboards are actually going through the wizard end to end. What we do is just keep looking at where people get stuck and fixing it. Seeing if we can determine what the problem really is and then making adjustments as needed. But It's right where we hoped it would be. And honestly, I'm guessing that a year from now, it will be so much a part of the business that 60% to 70% of the users come through get connected and need no assistance whatsoever. A lot of the assistance, it's important to remember, is a result of the fact that traceability is a new idea. In other words, it isn't that our wizard is new, it's that everything about traceability is new. So we're doing still a fair amount of getting connected to our network.

So we're maybe even we're right on track, maybe even a little ahead of where expected a year ago. I'm guessing a year from now, there'll be no need for questions about it because it'll be such a dominant part of how people get into [indiscernible] Okay. Thank you for that. John, can you help us how should we think about your fixed costs versus your variable costs?

Sorry, Tom, I was on mute.

I mean, I think that you could look at the fixed costs where and I'm these aren't accounting, so we're not talking about bad debt and all of that. It's cash cost, that's about 12,000,000 if you were to look at the incremental dollar, you're only talking about a de minimis amount of cost to go along with that primarily being commissions and the related taxes associated with that. So That's pretty much it. It's not any more complicated than that. So I've always said it takes $12,000,000 in cash to run this place absent stock comp, bad debt, whatnot. But on the incremental side, it's not like if we add another 500 suppliers or another $2,000,000 worth of revenue that there's more sales costs or I mean there's sales costs, but there's no development costs. And IT or admin, we're not adding anything. In fact, if you look at how many people we have today, 67, we've roughly had the same amount of people for the last three years. Does that answer your question?

Yes. And then I feel like this quarter and last quarter, You've talked about the success in all 3 business lines. Can you give a quick refresher on the relative contribution margin of the 3 business lines?

Pretty much the same. I mean, it's it's plus or minus 3% for the different ones. But supply chain compliance and traceability all generate basically the same margin. And it comes from the framework of how this company is built. It's not about all sorts of people and mid level managers and what we call it ministrivia. It is 1 to many. Fact, Randy said this yesterday is that nobody is constrained in our company by budget. If somebody needs something and they can show what the basically the return is, they get it. But we have our own developers, our own managers say, I don't want any more people. I've got what I need. So it comes from the culture too. I don't know if Randy wants to give any more color to that, but that's where it starts. So you're not going to see this rapid rise in expenses. Sure, we're investing in the wizard, we're investing in marketing, but you're not going to see this rapid rise in expenses as we we increase the top line. It doesn't matter where the revenue comes from. Randy calls them doors. You come in through compliance door leads to traceability.

Coming through supply chain that leads to traceability or compliance, and we're seeing it.

Yes. Let me small amount of color to that. When we say that we're investing in now fill in the blank, the wizard or some other piece of automation, That doesn't mean that we've added people to do it. What it really means is we take our development team and we focus them on that area. What we've done that's uniquely powerful and very few software companies can say this is we have 1 large application for everything that we do. Literally, it's 1 piece of technology It's not four, five or 10 by application. It's 1. Which means that all we're really doing is if you think of it as a car, we're saying, okay, well now let's tune the engine a little bit. Okay, got that done.

Now let's do something with the transmission. We don't have multiple cars, which most software companies have. It gives us an enormous advantage in terms of how we go forward in our cost structure. All we're really doing is refocusing the team on 1 thing or another. So that's why we have a fixed number of people in the business, tends not to go up very much at all. And our costs tend therefore to be relatively flat. There'll be small increments each year On the cash cost side of the business, but we're really a fixed cost business. For the most part.

Okay. And then nice second group of questions are a little more industry related. So I know historically you've helped food retailers with their efforts to be in stock. Is there anything you can help them do today to manage the current shortage in eggs?

Likely nothing because that's being driven by a phenomenon over which people have little, if any, control. What you're reading is true. It's driven by whole flocks of animals having to be euthanized because 1 of the animals ends up getting sick. The bird flu problem is it's been here now for years. And it's ubiquitous. It's almost everywhere. So people end up running around with chickens in hazmat suits and washing their veal prevent the disease. It's a very, very difficult problem, not easily solved, And in truth, there's not much we can do about it. In fact, there's essentially nothing because you can have a flock that's just fine today producing a million eggs a day and tomorrow 1 of the birds is sick, and they end up destroying, euthanizing the entire flock. It's a catastrophe for people in the business. So what I do is probably see if I could get some quail I'm sorry, There was I was just kidding. There isn't a there is no workaround to this. Really isn't.

Okay. So that helped me understand that very well and I appreciate that. So you talked a little in your prepared remarks about the implications of the second Trump term I had a related question on that.

So for the second half term, Is there an opportunity for you to help lead retailers navigate tariffs Well, the answer to that is yes. In many cases, we're dealing with the supply chain, the whole supply chain for a retailer. And for their suppliers. So where we get connected to the whole of it, it makes it easier for us to do forecasting and ordering and that kind of thing, which is really the best protection. So you're seeing not in the case of food yet, but in many other commodities, people are forward buying to avoid tariffs. Well, That's great. What's going to happen in a few months is you get that slowdown and that slowdown reflects itself at prices independent of the tariffs. So we think this is, God, I'm going to sound like [indiscernible] We think this is a relatively transient problem and that in some number of months, The pain that's being inflicted and confusion will be over. [indiscernible] it's just going to be unpleasant for the next few months, probably through June 0. Some number of some some month like that, June 0 or July 0.

Alright. So 2 of my next questions are should be my most fun ones. So how should we think about the implications of RFK Jr. Leading health and human services and his efforts to reform food and what that means for you.

Well, there's no way of knowing All we can do is to have a position, which is this. His primary interest appears to be what he I would call generally speaking [indiscernible] Oh, my God, how would you find a company that's more centered on this whole issue of food safety than us? We're it. Now, will he see let me start with some facts. So the first fact is from what he says, safety is his primary concern. [indiscernible] Where is that?

Now let's go on to do people know that? That's really more of the key.

It turns out we've talked to lots of people in Congress, dozens of congressional offices to find out kind of what they're thinking about food safety. And here it is. They all think that food is already tracked and traced. There's a stunning level of ignorance around the state of the industry. Almost everyone we talked to said, well, yeah, don't we do that already? And we go, no. Not even in the slightest. And go, my God, So it's going to take let's talk about what could happen.

It would take an act of Congress, a piece of legislation to stop and end traceability. Because it is the law. It's already the law it's already in the regulatory base. So it would take literally a change in our legal structure. Somebody would have to propose legislation and that would have to get through Congress to stop traceability. More likely would be a change in the appropriation process where somebody says, well, let's tell the FDA they need to slow down enforcement of traceability. Congress will signal or actually tell the FDA slow this down? It doesn't change the legal structure of traceability. People are still on the hook for it. It just changes the enforcement date. That the FDA will apply to Rule two zero four. We've said for two years, that won't matter in a few years because more and more companies have accepted traceability as inevitable. They're just going to go ahead and do it. So it creates a market force rather than a regulatory force. So I think as we look at this, RFK could be a big thing for us. We doubt that it will be held the hurtful to us. It could in fact be helpful to us.

Talking about food safety, talking about it, is beneficial to us because it's the space in which we live. We've all seen an enormous number of recalls over the last year. That's true. Food isn't becoming safer. And if you look at the last Gallup poll, Americans think of food safety about the same way they think of approval of Congress. They really are worried about the safety of the food that they eat, not the Kennedy idea of safety like it have red dye 40 in it?

It's like oh my God, is it just safe from the get go? So I think bringing attention to the problem of food safety is for us a good thing. Hopefully, hopefully, they will slow this down. Because you can't you can't go from doing hundreds to thousands in days. It's not good for us. It's not good for our customers. We would much rather see the whole thing spread out over a larger number of years. So we're expecting a two maybe even a three year, relief and that would be terribly beneficial for us. And our customers for that matter.

Okay. Boring 1. So current thoughts on capital allocation? Dividends buybacks and strategic M and A. It looks like in the quarter, you both redeemed preferred shares and bought back common shares in the same quarter?

And increased dividend. We did all of it. And put more cash on the balance sheet. There's no change to our capital allocation strategy in as John has said, we're sort of opportunistic about it. We look at it quarterly and decide where is the best lever, is the best lever to increase dividend? Is the best lever to do a stock buyback? What's the best lever? But in general, we still expect half the operating cash flow of the company to go on the balance sheet and ultimately the free cash to go on the balance sheet and then the rest somewhere between dividend and stock buyback.

No change. All right. So half of it. All right. This is the question I've started as my favorite and then I have 1 more after this unless you inspire me to ask more. So, alright, I'm 99.9% sure. This has no impact Repositrac, but Randy, I'd appreciate your thoughts on DeepSeq and any AI related implications for RepositTrack. Including if you're ramping your own CapEx to be more of AI? [indiscernible] No impact at all. We've been doing AI things for years. The fact that everybody in the world is talking about it We're not a follower. So AI is part of what we do. It will be an increasing part of what we do. But we tend to do it relatively inexpensively. We don't do funny bots. It's not that's now where we put our AI dollars It has nothing to do with our CapEx. It all falls within, as we've said, our CapEx year to year will typically be less than $1,000,000 So this will not change CapEx for us whatsoever.

Excellent. Last question then. So where are we today in your efforts to work with restaurants? I think there's a heightened interest found in e sorry, E. Coli breakout or outbreak at McDonald's rather?

Yes. Remember, they're not as lucrative for us as the grocery business because they have fewer suppliers. [indiscernible] I think we're close to having our first few food distributors come on board that work with the restaurant fast food, QSR, etcetera. So we're closer bringing a few of those on. I'm not as bullish about that part of the business as I am the rest of what we do just because of our business model.

All right. So point of clarification there. So it's not about the number of locations times the number of suppliers. Meaning if you had okay, so it is truly the hub and spoke is truly the number of suppliers.

Yes. Exactly. Large scale retailer has a [indiscernible] exactly. I mean, a typical grocery store when you look through all of how they get their product has call it at least 1000 suppliers, the corner grocery store, ultimately has 1000 suppliers. If you look at a large chain, let's say 1 of the largest pizza chain, 202 and they have 6000 locations. So the fact of the matter is for how we do what we do, where we are is a more lucrative place. For now.

Okay. Thank you for indulging me. Congrats again on the quarter. Of course.

Of course. Thanks, Tom. Thank you. And ladies and gentlemen, this does conclude today's conference.

Q question and answer session.

I'd like to turn the call back over to Chairman and CEO, Randy Fields for closing remarks.

Well, thanks everybody for joining us, taking the time I think if you said what's the most important takeaway it's that the book of business we have, the contracts we've gotten are hot little hands. Move through the revenue account in the second half of our year, we'll pull the full year up to something between 1020% year over year. So it will be kind of in the groove we like to be in. We feel really good about where we are. So hopefully, all of us will have an opportunity to enjoy the stock benefit of that. So thank you all. Thanks for spending the time. Talk to you soon.

Thank you. And this concludes today's conference. And you may disconnect your lines at this time.

Thank you for your participation.