TRAK ReposiTrak Inc

Nevada	001-34941	37-1454128
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

5282 South Commerce Drive, Suite D292, Murray, Utah 84107

(Address of principal executive offices)

(435) 645-2000

(Registrant’s Telephone Number)

Not Applicable

(Former name or address, if changed since last report)

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common stock, par value $0.01 per share	TRAK	New York Stock Exchange

Exhibit Number		Description
99.1		Press Release, dated September 30, 2024
99.2		Earnings Call Transcript
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	REPOSITRAK, INC.
Date: October 2, 2024	/s/ John Merrill
	John Merrill
	Chief Financial Officer

Exhibit 99.1

ReposiTrak Delivers Full-Year Revenue of $20.5 Million and Earnings Per Share of $0.30

 

Traceability On-Boarding Continues to Accelerate Company Increases Quarterly Common Dividend

 

SALT LAKE CITY - ReposiTrak (NYSE: TRAK), the world's largest food traceability and regulatory compliance network, built upon its proven inventory management and out-of-stock reduction SaaS platform, today announced financial results for the fourth fiscal quarter ("FQ4 2024") and full fiscal year ended June 30, 2024.

 

Full-Year Fiscal 2024 Financial Highlights:

 

●

Full-year total revenue increased 7% to $20.5 million from $19.1 million.

●

Recurring revenue increased 7%, net of the planned elimination of high-touch, low-opportunity revenue, to $20.4 million from $19.0 million.

●

Full-year operating expense increased 10% to $15.4 million from $14.0 million. Fiscal 2023 included approximately $1.4 million in an Employee Retention Credit ("ERC"), reducing general and administrative expense in fiscal 2023, which did not reoccur in fiscal 2024.

●

Full-year operating income was $5.0 million in fiscal 2024 from $5.1 million last year - essentially flat. Excluding the non-recurring ERC credit in fiscal 2023, operating income would have increased approximately $1.3 million year-over-year.

●

Full-year GAAP net income increased 7% to $5.9 million from $5.6 million last year. Excluding the non-recurring ERC credit in the third fiscal quarter last year, net income would have increased approximately $1.4 million year-over-year.

●

Full-year net income to common shareholders was $5.4 million, up 8% from $5.0 million last year. Excluding the non-recurring ERC credit in the prior fiscal year, net income to common shareholders would have increased approximately $1.4 million year-over-year.

●

Full-year basic EPS of $0.30, up 11% compared to $0.27 last year.

●

The Company finished the year with $25.2 million in cash and no bank debt.

●

ReposiTrak's Board of Directors approved a 10% increase to the Company's quarterly common stock dividend, beginning with the dividend payable to shareholders of record on December 31, 2024.

 

Fourth Quarter Financial Highlights:

 

●

Fourth quarter total revenue increased 8% to $5.2 million from $4.8 million.

●

Recurring revenue increased 7%, net of the planned elimination of high-touch, low-opportunity revenue, to $5.1 million from $4.8 million, representing effectively all of total revenue.

●

Quarterly operating expense increased 6% to $3.9 million from $3.6 million.

●

Quarterly operating income increased 13% to $1.3 million from $1.2 million last year.

●

Quarterly GAAP net income increased 15% to $1.6 million from $1.4 million last year.

●

Quarterly net income to common shareholders was $1.5 million, up 18% from $1.2 million last year.

●

Quarterly EPS of $0.08 compared to $0.07 in the prior year fourth fiscal quarter.

●

During the quarter, the Company redeemed 81,121 preferred shares for the stated redemption price of $10.70 per share for a total of $867,995.

 

Randall K. Fields, Chairman and CEO of ReposiTrak, commented, "Our strategic position and operational results of the ReposiTrak Traceability Network (RTN) continues to exceed our expectations. We are the traceability market leader. Our on-boarding pace is accelerating and, as a result, our revenue growth will follow suit over the next few quarters."

 

Fields continued, "In fiscal 2024, we grew every line of business, including compliance and scan-based trading, even as we focused our resources on traceability. We delivered full-year earnings per share of $0.30, generated net cash from operations of $7.0 million, and ended the fiscal year with more than $25 million cash in the bank, the highest level in our history. This profitability allowed us to return over $5.6 million in capital to shareholders this fiscal year through a growing cash dividend, the repurchase of common stock and the redemption of preferred stock."

 

 

Fourth Fiscal Quarter Financial Results (three months ended June 30, 2024, vs. three months ended June 30, 2023):

 

Total revenue was up 8% to $5.2 million as compared to $4.8 million in the prior-year fourth quarter. Total operating expense was $3.9 million, up 6% compared to $3.6 million last year. General and administrative expense increased by 4%. GAAP net income was $1.6 million compared to $1.4 million. Net income to common shareholders was $1.5 million, or $0.08 per diluted share, compared to $1.2 million, or $0.07 per diluted share.

 

Year-to-Date Financial Results (12 months ended June 30, 2024, vs. 12 months ended June 30, 2023):

 

Total revenue was up 7% to $20.5 million as compared to $19.1 million in the prior-year period. Total operating expense was $15.4 million, up 10% compared to $14.0 million last year. Last fiscal year included a non-recurring Employee Retention Credit benefit of approximately $1.4 million, reducing the year-ago operating expense. Inclusive of the impact of this credit in the year-ago quarter, GAAP net income was $6.0 million compared to $5.6 million. Net income to common shareholders was $5.4 million, or $0.30 per basic and $0.29 per diluted share, compared to $5.0 million, or $0.27 per basic and diluted share last year.

 

Return of Capital:

 

In the fourth quarter of fiscal 2024, the Company redeemed 81,121 preferred shares at the stated redemption price of $10.70 per share for a total of $867,995. To date, the Company has redeemed 221,307 shares of preferred stock for a total of $2.4 million. The remaining amount of the preferred share redemption is $6.6 million. As previously announced, the Company anticipates redeeming all of its preferred shares issued and outstanding over the next three years. In addition, the Company has approximately $8 million remaining of the $21 million total common share buyback authorization.

 

In September 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.015 per share ($0.06 per year). In November 2023, the Board of Directors approved a 10% increase in the quarterly cash dividend, to 6.6 cents per share annually, or 1.65 cents per share quarterly, commencing with the December 2023 dividend. On June 18, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.0165 per share, payable to shareholders of record on June 28, 2024. The cash dividends were paid to shareholders of record on or about August 12, 2024.

 

Balance Sheet:

 

The Company had $25.2 million in cash and cash equivalents at June 30, 2024, compared to $24.0 million at June 30, 2023. In March 2024, the Company chose not to renew its working line of credit. As of June 30, 2024, there were no balances due on the line of credit.

 

Conference Call:

 

The Company will host a conference call at 4:15 p.m. Eastern today to discuss the Company's results. The conference call will also be webcast and will be available via the investor relations section of the Company's website, www.parkcitygroup.com.

 

Participant Dial-In Numbers:

Date: Monday, September 30, 2024

Time: 4:15 p.m. ET (1:15 p.m. PT)

Toll-Free: 1-877-407-9716

Toll/International 1-201-493-6779

Conference ID: 13748737

 

Replay Dial-In Numbers:

Toll Free: 1-844-512-2921

Toll/International: 1-412-317-6671

Replay Start: Monday, September 30, 2024, 7:15 p.m. ET

Replay Expiry: Wednesday, October 30, 2024, at 11:59 p.m. ET

Replay Pin Number: 13748737

 

 

About ReposiTrak

 

ReposiTrak (NYSE:TRAK), formerly Park City Group, provides retailers, suppliers and wholesalers with a robust solution suite to help reduce risk and remain in compliance with regulatory requirements, enhance operational controls and increase sales with unrivaled brand protection. Consisting of three product families - food traceability, compliance and risk management and supply chain solutions - ReposiTrak's integrated, cloud-based applications are supported by an unparalleled team of experts. For more information, visit https://repositrak.com.

 

Forward-Looking Statement

 

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "if," "should" and "will" and similar expressions as they relate to ReposiTrak Inc., Park City Group d/b/a ReposiTrak, or Park City Group, Inc. ("ReposiTrak") are intended to identify such forward-looking statements. ReposiTrak may from time-to-time update these publicly announced projections, but it is not obligated to do so. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. For a discussion of such risks and uncertainties, see "Risk Factors" in ReposiTrak annual report on Form 10-K, its quarterly report on Form 10-Q, and its other reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

 

 

REPOSITRAK, INC.

Consolidated Balance Sheets

 

		June 30,				June 30,
		2024				2023
Assets
Current Assets
Cash		$	25,153,862			$	23,990,879
Receivables, net of allowance for doubtful accounts of $227,573 and $170,103 at June 30, 2024 and 2023, respectively			3,678,627				2,523,019
Contract asset – unbilled current portion			181,680				186,959
Prepaid expense and other current assets			285,998				573,763
Total Current Assets			29,300,167				27,274,620
Property and equipment, net			513,277				986,300
Other Assets:
Deposits and other assets			22,414				22,414
Prepaid expense – less current portion			2,609				36,282
Contract asset – unbilled long-term portion			108,052				108,052
Operating lease – right-of-use asset			250,306				310,796
Customer relationships			131,400				262,800
Goodwill			20,883,886				20,883,886
Capitalized software costs, net			384,621				698,281
Total Other Assets			21,783,288				22,322,511
Total Assets		$	51,596,732			$	50,583,431
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	265,086			$	431,387
Accrued liabilities			1,554,775				1,620,000
Contract liability – deferred revenue			2,441,234				1,903,001
Operating lease liability – current			64,076				58,771
Notes payable and financing leases – current			217,971				219,262
Total current liabilities			4,543,142				4,232,421
Long-term liabilities
Operating lease liability – less current portion			198,972				263,047
Notes payable and financing leases – less current portion			-				206,032
Total liabilities			4,742,114				4,701,500
Commitments and contingencies
Stockholders’ equity:
Preferred Stock; $0.01 par value, 30,000,000 shares authorized;
Series B Preferred, 700,000 shares authorized; 616,470 and 625,375 shares issued and outstanding at June 30, 2024 and 2023 respectively			6,165				6,254
Series B-1 Preferred, 550,000 shares authorized; 0 and 212,402 shares issued and outstanding at June 30, 2024 and 2023, respectively			-				2,124
Common Stock, $0.01 par value, 50,000,000 shares authorized; 18,234,893 and 18,309,051 issued and outstanding at June 30, 2024 and 2023, respectively			182,351				183,093
Additional paid-in capital			64,655,902				67,732,887
Accumulated other comprehensive loss			(27,390	)			-
Accumulated deficit			(17,962,410	)			(22,042,427	)
Total stockholders’ equity			46,854,618				45,881,931
Total liabilities and stockholders’ equity		$	51,596,732			$	50,583,431

 

 

REPOSITRAK, INC.

Consolidated Statements of Operations

 

		For the Years Ended
		June 30,
		2024				2023
Revenue		$	20,453,320			$	19,098,910
Operating expense:
Cost of revenue and product support			3,416,450				3,309,345
Sales and marketing			5,492,719				4,933,405
General and administrative			5,330,437				4,685,783
Depreciation and amortization			1,189,483				1,079,799
Total operating expense			15,429,089				14,008,332
Income from operations			5,024,231				5,090,578
Other income (expense):
Interest income			1,272,719				821,777
Interest expense			(28,166	)			(60,990	)
Unrealized gain (loss) on short term investments			63,997				(9,752	)
Other gain			-				70,047
Income before income taxes			6,332,781				5,911,660
(Provision) for income taxes			(374,491	)			(321,371	)
Net income			5,958,290				5,590,289
Dividends on Preferred Stock			(549,645	)			(586,444	)
Net income applicable to common shareholders		$	5,408,645			$	5,003,845
Weighted average shares, basic			18,202,000				18,406,000
Weighted average shares, diluted			18,931,000				18,766,000
Basic earnings per share		$	0.30			$	0.27
Diluted earnings per share		$	0.29			$	0.27
Comprehensive income:
Net income		$	5,958,290			$	5,590,289
Other comprehensive loss:
Unrealized loss on available-for-sale securities			(27,390	)			-
Total comprehensive income		$	5,930,900			$	5,590,289

 

 

REPOSITRAK, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

		For the Years Ended
		June 30,
		2024				2023
Cash flows from operating activities:
Net income		$	5,958,290			$	5,590,289
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,189,483				1,079,799
Amortization of operating right of use asset			60,490				57,716
Stock compensation expense			367,147				390,716
Bad debt expense			375,000				1,300,000
(Increase) decrease in:
Accounts receivables			(1,525,329	)			(195,345	)
Long-term receivables, prepaids and other assets			123,355				559,009
Increase (decrease) in:
Accounts payable			(166,301	)			(259,251	)
Operating lease liability			(58,770	)			(53,862	)
Accrued liabilities			102,803				43,090
Deferred revenue			538,233				347,858
Net cash provided by operating activities			6,964,401				8,860,019
Cash flows from investing activities:
Purchase of property and equipment			(73,317	)			(133,944	)
Capitalization of software development costs			-				(769,243	)
Purchase of marketable securities			(27,390	)			-
Net cash (used in) provided by investing activities			(100,707	)			(903,187	)
Cash flows from financing activities:
Net (decrease) in lines of credit			-				(2,590,907	)
Common stock buyback/retirement			(1,515,574	)			(1,309,323	)
Redemption of Series B-1 preferred			(2,367,996	)			-
Proceeds from employee stock plan			111,839				92,727
Dividends paid			(1,721,657	)			(1,414,912	)
Payments on notes payable and capital leases			(207,323	)			(204,486	)
Net cash used in financing activities			(5,700,711	)			(5,426,901	)
Net (decrease) increase in cash and cash equivalents			1,162,983				2,529,931
Cash and cash equivalents at beginning of period			23,990,879				21,460,948
Cash and cash equivalents at end of period		$	25,153,862			$	23,990,879
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes		$	332,222			$	296,484
Cash paid for interest		$	15,223			$	59,081
Cash paid for operating leases		$	73,291			$	71,157
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Common Stock to pay accrued liabilities		$	536,879			$	294,607
Dividends accrued on Preferred Stock		$	549,645			$	586,444

 

Exhibit 99.2

 

 

 

 

C O R P O R A T E P A R T I C I P A N T S

 

 

Rob Fink, Investor Relations, FNK IR

 

John Merrill, Chief Financial Officer

 

Randall Fields, Chairman & Chief Executive 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

 

 

Thomas Forte, Maxim Group

 

 

 

P R E S E N T A T I O N

Operator

 

Greetings, and welcome to the ReposiTrak Fiscal Fourth Quarter 2024 Earnings Call.

 

At this time, all participants are in a listen-only mode. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. A brief question-and-answer session will follow the formal presentation.

 

As a reminder, this call is being recorded.

 

I would now like to turn the call over to Rob Fink with FNK IR. Mr. Fink, you may begin.

 

Rob Fink

 

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for the ReposiTrak Fiscal Fourth Quarter Earnings call. Hosting the call today are Randy Fields, ReposiTrak's Chairman and CEO; and John Merrill, ReposiTrak's CFO.

 

Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak 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 current beliefs and expectations.

 

ReposiTrak’s remarks are subject to risks and uncertainties, which actual results may differ materially. Such risks are fully discussed in the Company's filings with the SEC. The information set forth herein should be considered in light of such risks. ReposiTrak 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 repositrak.com to access this press release.

 

With all that said, I'd now like to turn the call over to John. John, the call is yours.

 

John Merrill

 

Thanks, Rob, and good afternoon, everyone.

 

This was again a milestone year for ReposiTrak. As anticipated, we increased recurring revenue, delivered solid margins, grew net income and our EPS even faster. We added more cash to our balance sheet, now the highest in the Company's history. At the same time, we returned over $5.6 million in capital to shareholders through a growing common stock cash dividend, buyback and retirement of common shares and the redemption of preferred shares.

 

At the same time, we invested heavily in sales, marketing, cybersecurity and bolstered our development platform and expanded our implementation resources to further accelerate our traceability solution. We have entered fiscal 2025 with significant tailwinds and an enviable competitive position.

 

I believe we are, and will continue to be, the leader in traceability; doing it, not just talking about it. I believe traceability over the next three years will double our annual recurring revenue run rate at margins of 80% plus as we have historically delivered, yielding higher earnings per share and more operating cash flow, making us even more profitable than ever before.

 

We eliminated $1.4 million of high touch low opportunity revenue, which served as a drag on our actual comparative growth for the last 18 months. The decision may not have appeared logical or popular but necessary, and we are moving to a period of better year-over-year comparisons just as the traceability revenue continues to accelerate.

 

In fiscal 2024, revenue derived from our traceability solution represented 6% of total revenue or $1.2 million. I believe the decision to free up resources was proper, culling the herd will permit us to capitalize on and continue to accelerate, not just on the traceability opportunity, but our entire suite of solutions, generating higher levels of ARR, profitability and EPS as we scale.

 

I believe the numbers speak for themselves, so let's get right to it. Fourth quarter fiscal 2024 results are as follows: total revenue was up 8% for the June quarter, $5.2 million versus $4.8 million. Recurring revenue was essentially 100% of total revenue. Operating expenses increased 6%, $3.9 million versus $3.6 million.

 

GAAP net income increased 15%, $1.6 million versus $1.4 million. GAAP net income to common shareholders increased 18% from $1.2 million to $1.5 million in fiscal 2024. Earnings per share was $0.08 per share compared to $0.07 per share last year and we redeemed 81,000 shares of preferred stock at the $10.70 redemption price for just under $870,000.

 

Turning to the full fiscal year 2024 numbers. During fiscal 2024, total revenue was up 7% and recurring revenue was 99% of total revenue. Operating expenses increased 10%, reflecting investments in the ReposiTrak Traceability Network or RTN, cybersecurity and investment in sales and marketing with more participation in trade shows and focus on other awareness campaigns.

 

 

 

GAAP net income increased 7%, $5.9 million versus $5.6 million. GAAP net income to common shareholders increased 8%, $5.4 million versus $5 million. Earnings per share was $0.30 basic and $0.29 diluted. This is compared to $0.27 per share last year, both basic and diluted. During the fiscal year, we repurchased 177,000 common shares for a total of $1.5 million. We redeemed 220,000 preferred shares for the stated redemption price of $10.70 for a total of roughly $2.4 million.

 

We continue to reiterate our goal to redeem all the preferred shares in the remaining two years. Again, we hold no treasury stock. Stock is repurchased or redeemed and subsequently canceled. It doesn't matter if it's common or preferred. We fully paid off our line of credit and have no bank debt. We increased the quarterly common stock dividend and paid $1.7 million in cash dividends to common shareholders in fiscal 2024, and we have over $25 million cash in the bank.

 

Again, our financial performance of fiscal 2024 reflects a 6% revenue contribution from traceability, net of ongoing investments to bolster our position and net of sunsetting non-core revenue streams. We expect the contribution from traceability will increase sequentially quarter-by-quarter in fiscal 2025 and continue to accelerate as we move closer to the FDA deadline. It remains difficult to forecast the trajectory of enrollment as the FDA mandate requires a complex multistep process for enrolling suppliers.

 

There's a discovery period to establish FDA requirements of the supplier. We then have to explain the requirements that help suppliers identify what and where the acquired data lives. Data is collected in files and various e-mails written manually or live in one of the supplier's several systems and need to be extracted routinely and accurately. It is not a one size fits all. It's complex. However, that's where we excel. Randy will add more color in his commentary.

 

We continue to educate and automate everywhere we can to facilitate the enrollment process, making it faster and more efficient, that is the part of the increased expenses you were seeing. It's a learning process. I believe once suppliers and their parent hubs or retailers are enrolled and implemented the financial requirements to maintain the network are more in line with our compliance and supply chain offering.

 

I know we spent a lot of time talking about growth and traceability. Be clear, we are simultaneously laser focused on growth of the entire suite of solutions we provide. Compliance management, supply chain, discovery continued to deliver solid growth figures despite the elimination of high touch, low opportunity revenue. The same customers with the traceability problem also have a compliance and supply chain problem. The cross-sell opportunity is not lost on us.

 

In summary, our strategy remains very simple. Take care of the customer, grow recurring revenue, balancing cost with opportunity, traceability, supply chain and compliance offerings, manage costs with long-term opportunity, increase net income and EPS, continue the buy back of common and preferred stock, increase the common dividend and drive more cash.

 

Turning now to cash flow and cash balances. Total cash at June 30, 2024 was $25.2 million compared to $24 million at the end of fiscal year 2023. This was a record cash year for us even after paying off all bank debt and returning over $5.6 million in capital to shareholders on common stock buybacks, preferred stock redemption and cash dividends. For the fiscal year, we generated cash from operations of nearly $7 million. The Company has $8 million remaining on the $21 million total common stock buyback authorization.

 

As I said earlier, we have repurchased 220,000 preferred shares at a stated redemption price of $10.70 per share. The remaining amount of the preferred stock redemption is about $6.2 million, and we anticipate redeeming all of the preferred stock issued and outstanding over the next two years.

 

As we have said before, we will take at least half the annual cash generated from operations and return it to shareholders in the form of a dividend, buying back additional shares of common and preferred stock or increasing the dividend, whichever lever makes the most sense at that time. The other half goes in the bank and will be strategically used to fund initiatives, M&A, new products or otherwise.

 

 

 

 

The Board continues to evaluate our capital allocation strategy and may adjust the different capital levers, whichever lever is more favorable to shareholders at that time. As you may have seen in our earnings release today, the Board approved yet again another 10% increase in the quarterly common stock cash dividend starting with shareholders of record on December 31, 2024.

 

That's all I have today. Thanks, everyone, for your time. At this point, I'll pass the call over to Randy. Randy?

 

Randy Fields

 

Thanks, John.

 

Fiscal 2024 was another year of really important evolution for ReposiTrak. Here's just a partial list of what we got done.

 

We rebranded our business to align our corporate identity with our industry leading platform. We uplisted to the New York Stock Exchange. We increased our quarterly cash dividend, repurchased common shares and redeemed preferred shares. We returned more than $5.6 million to shareholders during the 2024 fiscal year through common stock purchases, redemption of preferred, and paying out cash dividends. At the same time, we further strengthened our already fortress balance sheet. We increased recurring revenues, grew net income and EPS even faster. We established the ReposiTrak traceability Network or RTN, as we call it, is the obvious choice to address the opportunity related to the FDA's Food Safety Modernization Act, Rule 204.

 

At the same time, we sun-setted certain high touch, low opportunity revenue lines to free up resources to better address our traceability solution long term, while still delivering 7% revenue growth. We secured industry endorsement, signed major retailers and wholesalers, added thousands of suppliers to our queue and established ReposiTrak as the thought leader in the space. It's an amazing beginning to the traceability journey that we're on. I'm extremely proud of the team for what we've accomplished.

 

Traceability continues to exceed our expectations in almost every way. The size of the market is larger than we initially expected. The pace of adoption is exceeding our expectations. And beyond traceability for grocery, there's many, many ancillary opportunities in food service, convenience stores, other verticals and some amazing add-on products that will be rolling out in 2025; more about that later, obviously.

 

Where are we? We currently have 4,000 companies and roughly 5,000 facilities that are being actively enrolled by our retail and wholesale customers, representing about $10 million of annual recurring revenue run rate for us in the next 12 months to 18 months. The current FDA deadline is January 2026. Importantly, traceability is actually becoming less and less a regulatory push and more and more a market competitive pull.

 

The recent spate of food safety issues that you've heard about is reinforcing and frankly, accelerating the demand for what we do. In fact, some large retailers and wholesalers are requiring all food suppliers, not just those on the FDA list, to do traceability. This obviously increases the total size of the market. But be clear, it's multiples of what we currently see.

 

As we've said, we'd welcome a delay in the January 2026 deadline would provide the industry additional time to meet the requirements. But to date, the FDA has not adjusted the timeline. Nevertheless, many retailers appear more eager to establish traceability even faster than the FDA mandates it. For us, that means more and it means faster. We adjusted quickly with compliance, and we'll do it again for traceability. We're fully prepared.

 

 

 

 

January 2026 is the current FDA drop dead date. Knowing this, retailers have dictated their own deadlines to get ahead of the line of procrastinators. Keep in mind that a retailer that doesn't require or meet the traceability requirements from its Rule 204 suppliers, owns the regulatory, legal and financial risk associated with the product. Retailers are taking the FDA really seriously for the obvious reason.

 

Given all the new stories about food illnesses, we're seeing lawyers that are actually advising customers to demand suppliers that are covered by Rule 204, either comply or stop accepting product from them. Obviously, there's an unrelenting pressure to get suppliers doing their part or the retailer is going to fire them.

 

As John pointed out, traceability contribute about 6% of our total revenue, about $1.2 million in fiscal 2024. This only reflects the portion of the suppliers that enrolled over the last 12 months to 14 months pro rata who've been enrolled provided the necessary data and are fully implemented and now being built.

 

As John stated, we're now accelerating rapidly and sequentially quarter-to-quarter, driven by the enrollment lines created by our hubs. For those of you who ask when the revenue ramp will begin, the answer is now. Our job is to manage it, smooth it and make sure that our customers are thrilled with how we handle them.

 

Let me explain the traceability enrollment process a little bit. As John alluded to, onboarding traceability suppliers is a complex multistep process. First, there's a discovery phase. We have to identify a hub supplier that’s broken into two categories: one, those directly or indirectly impacted by the law; and two, those suppliers that may not be governed by the FDA's mandate.

 

Next, over a period of time, the actual traceability enrollment rolls out. We work with the hub and reach out to each and every selected supplier, explain the requirements and help them identify what, where, etc., the required data that they have to provide lives. Many of the suppliers don't have the required information or at least not all of it.

 

There's no simple standardization of data collection. Some data is collected in files and e-mails, written out, etc. The files may be in more than one of the supplier systems and need to be extracted on a routine and accurate basis. It is complex, particularly, if you consider the fact that 70% of the suppliers don't even have an IT department or technology staff to assist. We navigate that.

 

We assist the supplier to understand what data is required, we collect it and set it up in our platform. We continue to advance our platform, which has resulted in increasing the speed at which we can be onboarding suppliers. Once connected, we can begin billing. The initial timeline was a year to 18 months, if you remember, from identifying the vendors to monthly revenue.

 

As of today, we've now cut that in half. The pressure of market forces, automation, the sheer number of hubs, the FDA adoption period is likely to reduce that time even more. The 4,000 suppliers that are required to enroll by their contracted hubs represents $10 million in annualized recurring revenue for us. Again, we can't project the trajectory of the full implementation. However, we believe quarter-by-quarter, you will see significant increases in our ARR.

 

The scale of the current market penetration by the way is very attractive to additional retailers, wholesalers and others, hubs, as we call them. Why? Well, because we have many—in some cases, most of their suppliers' already in ReposiTrak traceability network, that makes the job of getting them up and running in traceability even easier.

 

 

 

 

Our pipeline of additional retailers and wholesalers is very, very deep and will only add to the thousands of current suppliers being enrolled and onboarded. I'm not a tout, but we have an enviable competitive position, that's why we say everyone else is talking about traceability and we're doing it. Keep in mind that suppliers and others are likely to have multiple traceability type systems so it's not really a zero-sum game.

 

While traceability is our primary focus at the moment, our compliance and supply chain businesses are also growing, they augment traceability. While we are well positioned to provide traceability solutions, our customers still do have both compliance and supply chain problems that our suite of services can assist with.

 

Let me summarize. We will continue to take great care of our customers. The current enrollment will have the inevitable effect of increasing our current recurring revenue growth rate. We prefer a moderate growth rate, prioritizing execution and maximizing profitability over speed that could jeopardize our ability to deliver for our customers. We won't allow that.

 

We will continue to automate at every opportunity. We can still be better and faster so long as we maintain flawless execution. We'll continue to deploy our capital allocation strategy, continue to buy back stock, common and preferred, paying the dividend, increasing our cash balances to give our customers even more confidence.

 

Finally, as you may have seen in today's earnings press release, just as we did with the 10% increase in the common dividend in November of 2023, I'm proud to announce that the Board has again voted to increase the common stock dividend another 10%, starting with shareholders of record December 31, 2024.

 

Hopefully, from all of this, you can hear how optimistic and confident both John and I are. This is going to be an exciting next few years.

 

With that, I'd like to now open the call for questions. Operator?

 

Operator

 

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

 

Thank you. Our first question is from Thomas Forte with Maxim Group. Please proceed with your question.

 

Thomas Forte

 

Great. Thanks. First off, Randy and John, congrats on a fantastic quarter and year. Apologies in advance if anyone else is in the queue. I have six questions. I'll go one at a time. The first one is, have you finished adjusting your customer portfolio to remove high touch low margin ones or is that a permanent effort?

 

 

 

 

Randy Fields

 

Well, the answer to that is from where we are today, yes. However, if, in fact, there is more requirement on our part because of an influx of traceability, we have another layer of the onion that we can deal with. But at this point, we think where we want to be, but that's not to say that it's 100% certain that's where we'll stay.

 

Thomas Forte

 

Okay. Then you teased this, so I don't want to discuss the tease part; we’ll save that for future quarters. But can you give your current thoughts on adjacent regulated markets, restaurants, health care? Not to say the teased part on the call, but your efforts in restaurants and then your willingness to expand into health care?

 

Randy Fields

 

Well, what we do is obvious. We take a look at both the market size opportunity and the profitability that we can get from it. To a certain extent, follow-on products to the same customers are more profitable for us. There are some new follow-on products that I tease that will be available after the first of the year that are, from where we stand today, extraordinarily exciting.

 

The question is, we'll continue to push into other verticals. We are doing that. At the same time, we are bringing forward these products that will sit on top of our traceability, and we think make us extremely attractive to prospective customers. The not vague answer to your question is we're going to try and do both.

 

Thomas Forte

 

Okay. All right. Then next question is, can you give updates on your international efforts and the opportunity?

 

Randy Fields

 

Well, I think, unfortunately, we are so focused on the execution part of what we're doing today with thousands of suppliers that have to be onboarded. It's too much for us to imagine doing business outside the U.S. It is, however, extremely likely that whatever the U.S. platform that becomes most dominant over the next few years is, is likely to have the greatest opportunity outside the U.S., and we are sure that, that's us. Our approach, however, is much more likely to be in the form of ventures outside the U.S. rather than our execution with our own personnel.

 

Thomas Forte

 

Okay. Then I wanted to ask, on the capital allocation, the dividend increase for the regular quarterly dividend is fantastic. All the other things were fantastic. Would you ever consider a onetime dividend?

 

Randy Fields

 

John?

 

John Merrill

 

I don't think it's off the table, but I think, just as an investor, I would want to look at what line of sight quarter-to-quarter. I would much rather have the Board approve a dividend quarterly so to where people can count on that as opposed to some dividend in the future. Is it possible? Of course, it's possible, but I'd rather increase the quarterly dividend that gives line of sight to investors.

 

 

 

 

Thomas Forte

 

Okay. Then stated differently, John and Randy, if you had—if the pace of adoption far exceeded expectations and given your high level of contribution margin on an incremental dollar, if you just had a massive cash influx, what would you do with it, hypothetically?

 

John Merrill

 

Exactly what we're saying that we're doing. We would take at least half the cash from operations and return that in the form of redeeming the preferred, buying back the shares and increasing the dividend; that could also mean a special dividend. But to your point, you would have to look at that number of cash from operations and assume that we would at least take half of that. To your point, if we had a big influx, rapid sign-up and influx of cash, we would consider that as well. It's exactly what we're saying. It doesn't change anything.

 

Thomas Forte

 

I won't ask you a third question. All right. Randy, what are you doing today with artificial intelligence and how might your artificial intelligence related efforts improve your future top and bottom line?

 

Randy Fields

 

Well, most of the work that we do in AI is candidly directed toward our own people, how to allow them to make better decisions, do less what we call administrivia, moving paper and stuff around, and better able to focus on their customers. We have a couple of other ideas that we're pursuing aggressively that are AI based; as you know, we've been doing the AI stuff for many years. We think we have another couple of opportunities that could expand the spans of control of our people.

 

Again, we, I'd say, perhaps another double. In other words, we think we can double the size of the Company, but not have very additional people executing the workload that comes from a company double. It's moving along, and we think our customers benefit from having higher level people always interacting with them.

 

Thomas Forte

 

Okay. Then I apologize, John, if you gave this number on the call, but you're usually pretty specific on how much it costs to run the business. Can you give an updated number there?

 

John Merrill

 

It's the same thing. I've said it takes $12 million to run this place. I would say that's smooth, meaning that if we're investing in cybersecurity or front loading sales and marketing, getting out the trade shows, obviously that may go up or down. But I think as I put in my comments, that as we get stabilize and get to where we're onboarding fast or get better at it, I think, over the course of time, you'll look back at it and it will be that same type of percentage, the $12 million on the $20 million. I can't see it going above $18 million on $30 million or $35 million,. That's not a forecast. I just don't see what incremental expenses that we would have that are beyond where we're at, unless we're investing short term in sales, marketing, cybersecurity efforts.

 

 

 

 

Does that answer your question?

 

Thomas Forte

 

Yes. All right. Then I had my original question, then I have one new one. Can you give your current thoughts on M&A? You have a very strong balance sheet, you're executing at a very high level. I'm imagining you're getting presented opportunities often. What are your thoughts?

 

Randy Fields

 

Well, I think John and I have the same thought. We are as laser focused as we can be on the execution part of where we are. It is an enormous workload. If we take our eye off the ball to do an acquisition or god knows what else, we run the risk that will screw up our execution. If there's anything in the history of the Company where we've been flawless, it is in our execution. We are really operationally inclined. The team is magnificent and they're caring about customers, and that's why we do it.

 

The risk is, if we go to do an acquisition, we take our eye off the ball. Now that's not to say a year from now that it might not be different, but for now, staying focused on bringing in these 4,000. Remember, the 4,000 are where we are today, in the next month, the odds are pretty good. There'll be another hub in the next month, another hub. And each time a new hub comes in anywhere from a few hundred to 1,000 more suppliers enter that queue.

 

The 4,000 is just what we've got in our hot little hand. I would imagine that a year from now that number will be very significantly larger. It isn't worth the risk of screwing up that opportunity to do a deal.

 

Thomas Forte

 

All right. Then I want to ask you this directly. I was hoping that we could get an indirect answer for my questions, but I think this is really important. When I hear the prepared remarks and your answers to my questions, I'm hearing that you have a lot of confidence in hand, meaning that there are sometimes when you're hyper focused on an initiative, what it feels like, it's all hands on deck about initial initiatives. But this time, it really feels like to me that you're really confident. The comment you made was the ability to do compliance and supply chain to augment traceability. I'd like to understand what gives you that confidence.

 

Randy Fields

 

Well, the reality is, as we described it, we have customers with whom we are contracted that have now established requirements for their suppliers that number around 4,000 customers of ours that will be brought into the network. In other words, in our hot little hands as I like to say, we have around 4,000 suppliers, call it, 5,000 facilities that will be brought into the network over some reasonably close in period of time 12 months to 18 months. We can't screw that up.

 

A year ago, what we were hoping for was that all of the time and effort we've put into traceability get us to exactly where we are now. The difference that hopefully people are hearing is before we had a good feeling about where we were and what we do, that feeling has translated into contractual obligations that will drive the revenue of the business and the preeminence of ReposiTrak in the traceability scene that we were hoping for. It's a difference between hope and real.

 

Thomas Forte

 

Okay. I've exhausted my questions. Congrats again.

 

 

 

 

Randy Fields

 

Thank you.

 

John Merrill

 

Thanks, Tom.

 

Operator

 

Thank you. There are no further questions at this time. I would like to hand the floor back over to Randy Fields for any closing comments.

 

Randy Fields

 

Really nothing to say in closing. We're heads down getting the work done. We feel very, very good about where we are. We know there's going to be issues of absorption and whatnot. It's just the way it is, but we thank all of you for the support. Thank you guys for being on the call this afternoon and we'll be talking to you soon. John, thank you. Rob, thank you.

 

John Merrill

 

Thanks, everyone. Have a great day.

 

Operator

 

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

 

 

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Document And Entity Information	Sep. 30, 2024
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Pre-commencement Tender Offer	false
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Title of 12(b) Security	Common stock
Trading Symbol	TRAK
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