Good day, ladies and gentlemen and welcome to the Park City Group First Quarter 2016 Earnings Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Dave Mossberg, Park City Group’s Investor Relations representative. Please go ahead, sir.

Thank you, Catherine. Before we begin, we will be referring to today’s earnings release, which can be downloaded from the Investor Relations page of the company’s website, parkcitygroup.com. I would like 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 belief and expectations of Park City Group’s management and are subject to risks and uncertainties, which could cause actual results to differ from those 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 conference call. Throughout today’s conference call, we maybe referring to both GAAP and non-GAAP financial results, including the terms free cash flow, EBITDA, adjusted EBITDA, net debt, net income and earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are useful financial measure for our company, primarily because of the significant non-cash charges in our operating statement. There is a reconciliation of the non-GAAP results in the earnings release and on the Investor Relations section of the website. Our speakers today will be Randy Fields, Park City Group’s Chairman and CEO and Todd Mitchell, Park City Group’s CFO. I will now turn over the call to Randy.

Dave, thank you. Thanks everybody for joining us. Normally, as you know, I don’t take the first position. Normally, it’s our CFO, but I wanted to officially welcome Todd Mitchell, as our CFO to say that we are proud and in some ways, humbled that somebody of Todd’s, oh my god, I am going to give him a really big hit before he starts talking. But somebody of Todd’s stature on Wall Street is a terrific feather in our cap. He is making all the adjustments he need to, to have moved from New York City, oh my god, to Salt Lake City. So Todd, welcome. We are thrilled to have you. Your turn. Take it away.

Thank you, Randy. Good afternoon, everybody and thanks for joining us today. First, I also want to say how excited I am to be part of the team at Park City Group. I have looked at small cap growth companies for 20 years and I think rarely does one find such a perfect confluence of this company has a huge market opportunity. It’s got a very, very differentiated technology base and a highly, I think, scalable business model. And now that I am out here, I see a very committed and cohesive group of people working very hard. I think we truly have an extraordinary opportunity here. That being said, as for today’s call, we are going to otherwise follow our format as usual. First, I will give a brief overview of some of the fiscal first quarter results and then Randy will go over the operational highlights of the quarter and give an update on our major strategic initiatives and then we will go into Q&A. As I go over the financial results, I want to point out that I am going to be highlighting results on both a reported and a pro forma basis for the consolidation of ReposiTrak. We really think these pro forma results removes the fees we recognized as revenue last year and adds back ReposiTrak subscription revenue offer better apples-to-apples comparison to our results this year. So, that being said, total revenue grew 10% on a pro forma basis to $3.1 million in the quarter from $2.8 million last year. ReposiTrak subscription revenue was up over 300%. Supply chain subscription revenue was up over 12% and we saw a sharp decline in licensing revenue against a tough comp, which was expected. On a reported basis, total revenues declined about 7% to $3.1 million. This…

Normally, I am the person who speaks rapidly. You have set a whole new standard. And normally I don’t read this, but today I am going to read my remarks and that will force me to slow it down, so we will have a nice distinction between Todd and Randy in terms of speaking to speed. It was a very, very interesting quarter. We would love where we are headed. We like what we have accomplished, but I think I need to peel back just a little bit so that as investors, you can see all other things that were going on. It’s a little bit I would guess like a duck going across the pond might appear on top to become cool and collected but underneath, oh my god, are those feet moving. And this was an, oh my god, are those feet moving quarter. And then there is a couple of things I think a very important note from an investor perspective and certainly, things that have mattered to the management team. Then we talk about three things in terms of focus for the quarter. First, ReposiTrak obviously connections are accelerating, our pipeline is expanding significantly and we are implementing on a continuous basis how we do automation, what we can automate and how do we make the process of bringing – we call them connections to fruition. So our scalability continues to improve and we will see that in the subsequent quarters as well. Secondly, we are going to talk about something that we, for now call the portal. Trust me, the name is going to change, but for the moment, we call it a portal. And we are moving very aggressively to deploy this portal and the application strategy that’s inherent in it. There would be…

Catherine, can you open the floor for questions?

[Operator Instructions] And we will take a question from Joe Feller with ATW.

Hey, Randy. How are you?

Hi, how are you?

Good.

Thank you for coming to our meeting by the way.

You are welcome. And I will thank [indiscernible] for you too.

Good.

The first question I have with how well the Chipotle situation effect Park City Group?

That’s a really good question. We are frustrated that we have not yet been successful at penetrating food service. In many ways food service, if you look at food safety problems over the last several years are right in the center of a significant shallow. So we are trying to develop a strategy. We have not been successful so far. We are in conversations for a test of some sort, but I am just – I am personally disappointed we haven’t seen more in that whole area. But every time wanted these happens, it increases awareness that they have got at least as big of a problem as retail food. So we are trying, Joe. We are trying.

Well, that’s good news. Now and let me ask you another question, how many mega hubs in the core business are you in the process of on-boarding at this point?

We actually have – we have only done one, which is interesting. So far, we tried to – if you remember up until June, the two businesses were very separate. We were just managing – they were a customer, if you will. We were managing the distance between them. So we didn’t even approach Park City Group customers to bring them into ReposiTrak per se. Now we are beginning and so far we have one that a customer of both sides of our business and it’s pretty interesting. Meaning, it was – it’s a good sale. It’s a small retailer, relatively small. They might even be called medium. And because they already trusted us and they already knew us as business partners, we got access quickly. It was a very short sales cycle and I hope to do a hell of a job. So we are just now – again, because of the historical actual separation of these two companies, we are just now integrating kind of cross-selling opportunities as well.

I remember years ago that you – on one of your charts that you did in your presentations, you said it usually took 4 years to build out a hub. Now with this new portal and with your experience I remember at a meeting, we talked about CVS a little bit, how long will it take you to build out a hub these days?

It’s really if you think of what we now have, I am going to start calling them, in this call you heard me use the word application. Pretty soon, I am going to call them apps, because I think they are more like apps. If you imagine inside this hub, there will be multiple apps. Some of them will rollout to 1,000 suppliers, because they are so important to the hub. He will want every one of his suppliers on that app like tomorrow morning. So, some will rollout very quickly and be fully deployed, I am thinking, in matters of month. Others could take a couple of years. So, it’s about to become – you know me, I am not evasive, I am not trying to evade the question, but I think for months to years depending on which of the applications it is and that will determine the rollout. For food safety now, I would say if you have 1,000 suppliers, it’s going to take you two years of work to get your final list on and done. It’s about a 2-year rollout plan, maybe even a little bit longer, but it’s going to get more complex to explain this as we create this portal a foundation and we have multiple applications or apps within it. Each of them will have a differentiated time for rollout. I apologize to make it more complex than it already is.

Well, it is what it is, but thank you for your time.

You bet. Thank you.

Thank you. [Operator Instructions] And we will take a question from Steve Bell, Private Investor.

Good quarter, Randy.

Thanks, Steve.

Question for you and then a little question for Todd, on the pharmacy pilots, are those drug companies to hospitals or drug companies to their various pharmacy wholesalers or to clinics?

Yes.

Okay. So it’s all those areas that we are piloting?

Well, one area of pilot has already started is the pilot between a drug company and some of its distributors and so that’s step one. Another that we are hoping to get engaged in will be a company that works in hospitals, where it would use our technology around licensure and things like that. So, they are very different kinds of pilot, very different.

Okay. Both of these will – or will they be dealing principally much like ReposiTrak with the aspects of drug safety or will they be dealing also with the core aspect of Park City, see everything, sell more, stock less?

One of the problems in selling what we sell and you will see why the app strategy makes sense, if you go into somebody’s office and you take out your briefcase and you say, we have 27 different things we can do for you, it’s a bit overwhelming. So part of what our salespeople have to do is to try and find where does it hurt right now and then we have to keep going back and expanding the footprint. That’s at least how we think about it.

Okay. So, how many other pilots do you have underway over in the core business at Park City right now?

I can’t remember specifically, but it’s usually a couple. And I mentioned those six big projects that we are looking at, I think all of those will begin with pilots of some sort. That would be a rational thing to do.

Okay. Todd, I don’t know if you have this broke out, but what percent of the new revenue growth was from up-sell and what percent might be new customer growth?

Virtually all of the revenue growth in the quarter came from new customers in a sense that a large percentage of it was from ReposiTrak and all of that is new.

Although in the supply chain – in the supply chain business, to be fair, think of it as expansions of services with existing customers, if that makes sense.

Okay, okay. I appreciate both of you on the call. Todd, pleasure to have you, I will be in touch with you in the next couple of days after I threw some stuff.

Happy to take the call.

You bet.

Thanks, Steve.

Thank you. [Operator Instructions] And Ken Bodenstein, Private Investor, please go ahead.

I just have a comment and a rhetorical and hopefully a question Randy could answer. Randy has been promising $3 million in free cash flow for I don’t know how many years. How many years, Randy, that we were going to see annual cash flow of $3 million a year, and we never get that. What’s the problem?

Well, actually, I think if you look at the free cash flow last year, it was excellent. And I think if you think about where we have made investments, like in ReposiTrak, I would certainly hope that you have been around that you think investing in the food safety business was a great idea. It was. So, the answer is as you look forward to our numbers unless we in fact continue to find other opportunities, but we have got plenty in our plate. We have plenty of cash. And that means our cash balance, as Todd referred to, will continue to grow now throughout the year.

But Randy, you are missing the point. From an operational standpoint, an investor looks for free cash flow, not from cash on the balance sheet, but from operations. Where is the $3 million cash from all the hubs that were being put into place 5, 6 years ago?

Yes, I think if you take a look at what’s happened to our revenue over the last five or six years as it’s grown. What’s happened is that we have continued to grow the total size of the business, including the new ReposiTrak opening. So, I think the nature of the business is that we are all enhanced by having made the investments that we have made in food safety. I think we will all be enhanced by what we are doing in the portal strategy. And almost by definition that begins to reduce any expense growth that we would have had. So kind of whether one thinks it’s the right strategy or not, cash flow will continue to improve. And we are feeling as if so far the investments we have made have been just exactly right.

Thank you. And with no additional questions on the queue, I would like to turn the conference back over to management for any additional or closing remarks.

Obviously, we feel really good about the developments in the business. You are going to hear a repetition of this as we go forward, you will see more discussion of the portalization of what we are doing. You are going to see a very interesting change in terms of the size of the individual applications that we sell that will be easier for us to sell. We expect that they will propagate far more rapidly. And all of that will show up in a wonderful year from a revenue growth perspective as well as we think you will like what that does to our P&L here. So, all good times. Again, we are thrilled to have Todd around and it’s nice to have somebody that speaks actually faster than I do. So, if you have any questions, touch base with us and we appreciate everybody taking the afternoon.

Thank you. And ladies and gentlemen, once again, that does conclude today’s conference. Thank you all again for your participation.