Park City Group Inc. (NASDAQ:PCYG) Q4 2020 Earnings Conference Call - Final Transcript

Sep 28, 2020 • 04:15 pm ET

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Park City Group Inc. (NASDAQ:PCYG) Q4 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
John R. Merrill

supply chain products. Historically, those products have been sold as software recurring subscription revenue and approximately 4 million to 6 million in annual non-recurring one-time license and service revenue.

As we said in 2019, we made the decision to focus our efforts on transitioning non-recurring software revenue to recurring. As of June 30, 2020, 98% of our software business is now recurring revenue. To put that in perspective, in June 2019 and June 2018 the percentage of our software business that was recurring with 77% and 69% respectively. Transitioning was no easy feat.

Despite our efforts to eliminate all one-time software revenue as I have previously communicated there will always be a small portion of customers who will buy meaning license versus rent meaning subscription. However, now one-time software revenue in our business has been reduced to approximately $400,000 in fiscal 2020. The second revenue stream in our business is marketplace, which allows buyers and sellers to source hard to find things within our network of 20,000 embedded retailers and their suppliers.

Sometimes we act as the agent charging a nominal commission or fee, and other times, we are the principle whereby we buy, hold, and sell goods for a markup. As you know marketplace is largely transactional and inherently unpredictable. The size and scope of transactions can vary from quarter-to-quarter based on seasonality, buyer preferences, pricing, and the latest demand for those hard to find things. Because we sit between buyer and seller or margin whether as a market that's good for commission it's substantially less than what we get in the software side of the business.

As we have indicated before, gross margin on incremental revenue of our software business base is approximately 80% to 85%. Conversely marketplace is on average roughly 5%. While both the software and marketplace components of our business are difficult to separate from our business strategy and software suite, our overall offering to our customers is a combination of solutions that enable customers to be compliant, have more actionable visibility into their supply chain, simultaneously replacing vendors, diversifying product offerings, and sourcing hard to find items.

Why is this important, you may ask? For investors, this means that we now have a more predictable, profitable software business, which fully covers our fixed cost and recurring revenue has grown at double-digit rate. We also have a transactional business, marketplace, which is a challenging to predict contribute to lower margin yet adds incremental revenue while providing value to our customers, which facilitates cross sell.

I believe it is important to make this distinction with respect to our businesses. An obvious question, given the pandemic is, how has COVID-19 effected of the business and customers? COVID challenges have, in the short-term, elongated our sales cycle. Decision making has been delayed and some partners have needed extra time to pay. In my view, this is temporary and we will support our customers where we can, while they focus on stocking their shelves.

Nonetheless, the pandemic has reinforced