ReposiTrak, Inc. (TRAK) Q3 2019 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today's Park City Group Fiscal 2019 Third Quarter Earnings Call. [Operator Instructions] Please note, today's call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Rob Fink of Hayden IR. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Park City Group's Fiscal 2019 Third Quarter Earnings Call. Hosting the call are Mr. Randy Fields, Park City Group's CEO and Chairman; and Todd Mitchell, Park City Group's CFO. Before we begin, I would like to remind everyone that this 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 subject to historical facts. Such forward-looking statements are based on current beliefs and expectations. Park City Group management -- and are subject to risks and uncertainties, which could cause actual results to differ from forward-looking statement. Such risks are 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 risk. Park City Group does not assume any obligation to update information contained in this conference call. Shortly after the market close today, the company issued a press release overviewing the financial results that we'll discuss on today's call. Investors can visit the investor relation section of the company's website at parkcitygroup.com to access this news release. In addition, in our earnings release, and on this call, we may refer to GAAP and non-GAAP financial results, including free cash flow, EBITDA, adjusted EBITDA and adjusted earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are useful measures for the company, primarily because of the significant non-cash charges in its operating statement. Reconciliations of GAAP and non-GAAP results are in the earnings release on the Investor Relations website. With all that said, I'd now like to turn the call over to Todd. Todd, the call is yours.

Thank you, Rob. Good afternoon, everybody. I want to begin the call by talking a little bit about our business model, and how we think about value creation. We define our business in terms of a network of connections between buyers and suppliers. Each of these connections represents an economic exchange between these two parties, which we're sitting in the middle of, and which we have the potential to monetize. We've talked about this; we referred to growing our network in terms of scale, growing the number of connections in our network. And scope, growing the number of ways we can monetize these connections. These are the metrics of value creation for us, and they are the way that we measure our success. Over the last few years, we've been focused upon growing the scale of our network. Our Compliance solution has been the primary driver of scale because of the number of connections it provides us. I'm pleased to say we now have over 84,000 compliance connections, up from 6,500 years ago. But we've also been just as intent on driving our Supply Chain connections and as a result, we now have 342,000 total connections across all of our applications and growth in Supply Chain connections is actually accelerating. And we've done this while never shifting our focus away from our customer success and growing the profitability of our business. Many of you have asked why revenue growth is not tracked with connection growth. Frankly, this is because our connection growth is proliferated. This comes with a striving our services deeper into the Supply Chain to smaller suppliers. And as our services are loosely priced based on the value of the economic change between the buyer and the seller, this has put downward pressure on our ASPs. This is not something that concerns us. We view all connections as strategic. We want to be in the middle of the economic exchange between every buyer and every seller in the supply chain because while we've been driving the scale of our network, we've also been developing capabilities that will increase the scope of what we do across our network and most of these new capabilities have a much higher ASP than the applications with which we are establishing the initial connections. This is what MarketPlace is all about. MarketPlace not only changes the dynamic of our relationships with the suppliers in our networks by transitioning us from a mandated service, they have no choice, but to pay for, to a service they want to pay for because it generates incremental revenue for them. The amount we can charge for generating this incremental revenue as a percentage of that revenue or the economic value of the connection between the buyer and the supplier is a multiple of what we can charge for our mandated service. Therefore, we believe it will ultimately drive a significant increase in our ASPs. And when this happens across the network of our scale, it will drive a significant increase in overall revenue. This is what you need to think about when thinking about how to value our company rather than current revenues or current earnings. How big is the network that we can create? With literally hundreds of thousands of participants in the U.S. supply chain for food, we see the potential for literally millions of connections. How much revenue can we generate par connection? As I just mentioned, with the applications that we've already developed, we see the potential for ASPs to be a multiple of their current levels. Moreover, by having an end-to-end solution for buyers, which helps a retailer or a wholesaler manage their relationships with their suppliers across the entire workflow of the supply chain from sourcing to vetting and then transacting with these suppliers efficiently, we've created a sustainable and highly defensive, self-reinforcing ecosystem, wherein the use of one of our application leads to the use of another and each application enhances the value of the other. In other words, ASPs will rise organically. And finally, how much profit can we generate from this activity? With our superior initial acquisition model, and our application all sitting on a single technology platform, with a single customer interface and a single sales relationship, we think this enterprise will be structurally very profitable and generate significant amounts of cash flow, put tremendous value creation and returns to our shareholders. Now let's look at the numbers for the quarter. Revenue, fiscal 3Q revenue was $5 million, down modestly from $5.3 million a year ago. Revenue for the quarter was held back by our focus on incrementing new use cases per MarketPlace, which also resulted in MarketPlace revenues being down year-over-year in the quarter. It's taking a little longer for MarketPlace revenues to scale than we expected. This is largely due to our own decision to resequence the rollout of use cases, specifically, to move ahead more aggressively with Similar Supplier and to hold back on some of the seasonal non-core category programs we'd emphasized in prior quarters. Nevertheless, underlying trends were more positive than they might appear at first glance. Recurring revenue for both Supply Chain and Compliance was up in the quarter and revenue for the fiscal year-to-date was up 5%, $16.5 million from $15.7 million a year ago. For the quarter, where I would instead have you focus is profitability and cash flow. First, net income. We generated net income in fiscal 3Q of $921,000, or $0.05 per share, up nearly three folds from $311,000 or $0.02 per share a year ago. This brought fiscal year-to-date net income to $3.3 million or $0.16 per share, nearly doubling from $1.7 million or $0.08 per share in that comparable period last fiscal year. Second, cash flow. Operating cash flow for the quarter was a record $1.65 million, up from $406,000 a year ago. As a result, free cash flow was $3.4 million fiscal year-to-date, more than doubling from $1.5 million in the comparable period a year ago. With a strong cash flow, we ended the quarter with a record $18.1 million in total cash, up from $14.8 million a year ago and $14.9 million at the end of fiscal 2018. These results show the benefit of our converge business plan. We're the only one that can offer an end-to-end solution across the entire workflow of the Supply Chain. As I said, our solutions are on a single technology platform, single customer interface and has a single sales relationship. Not only does this enhance our ability to provide excellent execution, it also creates tremendous amounts of operating leverage with regard to scaling our business. Let's look at the expense numbers in a little bit more detail. Cost of service. Cost of service fell 26% to $1.3 million in fiscal 3Q from $1.8 million a year ago. This translates to a growth margin of 73%. This decrease was primarily due to lower expenses associated with MarketPlace. Sales and marketing; sales and marketing fell 6% to $1.5 million in fiscal 3Q from $1.6 million a year ago. This reduction was due to cost savings associated with transitioning to our new Success Team model. Specifically, as the Success Team takes on a larger role, we've been able to shed expenses associated with our legacy sales model. General and administrative; G&A fell 21% to $1 million in fiscal 3Q from $1.3 million a year ago. This decrease was due to lower administrative cost and lower third-party consulting fees. With all of our operating cost components down year-over-year, total operating expenses fell 18% in fiscal 3Q to $4 million from $4.8 million a year ago. This translated to a GAAP operating margin in excess of 20%, up from 8% in the same quarter a year ago. I'd also highlight that below the line we're seeing some benefits from our growing cash balance and higher yield on that growing cash balance. A final note on cash and cash flow; I want to highlight the Board has decided to authorize a $4 million share buyback program. Remember, as we've always said, balance sheet strength is important to our customers. As such, we intend you to continue to grow our cash balance even as we execute this buyback program, which should give you an idea of how we view the strength of the company's capacity to generate positive cash flow going forward. I'm going to pass the call off to Randy to talk more about some of our operating initiatives.

Todd, thank you. I want to frame my comments in the context of those Todd made about how we view value creation. We're building a network of connections between buyers and suppliers. It's now the largest network of its kind in the world. The network is defined by its scale, how many connections we have in our network, and the network is also defined by a scope, how many applications we sell per connection. Our revenues is a function of those two measures. As such, MarketPlace is potentially the most significant product launch in the company's history. It is that because of its ability to increase the scope of our engagement across the entire network, and importantly, do that with very little additional touch. Over the last few years, we've been primarily focused and extremely successful in our view in driving the scale of our network. We now have 84,000 compliance facility connections and 342,000 total connections. As we announced today, we've now signed a very important partnership to make ReposiTrak the preferred food safety compliance platform in the U.K., thus expanding the scale of our network overseas. In fact, we expect that this will become revenue producing quite soon. The growth in the scale of our network has, obviously, been the driver of our profitability and generated the cash flow that we needed to build out the full platform. Before MarketPlace, our approach to developing this platform was sequential. We led the customers dictate the pace of the product adoption. We simply couldn't go back to our customers every single quarter with this shiny new object, they had to be ready and satisfied with the application they were using before they would listen to our new idea. MarketPlace will, we believe, give us the ability to break out of this sequential nature of our customer-constraint growth. The use of MarketPlace, if we are correct, will happen organically, without the need for account managers involvement in each additional transaction. So as MarketPlace evolves, our revenues will be able to grow at much less dependence on the level of touch we've provided to our customers up to this point in time. This year, we've been preparing to drive the scope of what we do across the network. And in fact, in the third quarter, we accomplished a lot. Specifically, we substantially reorganized the sales teams, we completed the move to a much larger facility, we increased the capacity of our data center significantly, and most importantly, we launched the third use case for MarketPlace. This third use case for MarketPlace is an application that we call Similar Supplier and it warrants more commentary. Before I talk to you about Similar Supplier though, let me recap Marketplace's use cases for you. Our first use case was sourcing products through retailers for non-core category. It was actually conceived by one of our largest customers and has not only worked, the customer loves it and continues to use it. We shifted resource away from this use case last quarter in order to launch to more supplier, but we'll come back to it as our focus allows. Our second use case is sourcing products to retailers when an existing supplier can't provide adequate product. We've got this use case up and running in the second quarter. In fact, it's working so well that we're getting follow-on orders and expansion from the first customer. We will also expand this application as focus allows. As I mentioned, we launched our third and most important use case, similar supplier, last quarter. Similar Supplier enables our retailer and wholesaler HUBs to use MarketPlace to search for replacement vendors from our entire database of compliant suppliers. Interestingly, this is the original use case for which we develop MarketPlace because of how neatly it complements our Compliance solution. It makes our Compliance serve at even more compelling. I also want to explain why Similar Supplier had to be launched at scale, why it couldn't have been phased in over time so we could focus more on net new customers. Simply put, our customers said, that there wasn't any point in launching Similar Supplier if it did not have a critical mass of suppliers to search from. By definition, buyers need sellers. You only have one chance to make a good first impression. As such, it was critically important that when we launched Similar Supplier that virtually every search by a buyer resulted in multiple supplier options. Getting Similar Supplier to scale required the focus of everyone on the team. Our development team had to roll out sophisticated search capabilities, our customers Success Team had to reach out to literally thousands of suppliers to help them add supplementary data about the products they sell. In refocusing though, we achieved truly an astounding success. We enrolled over 20,000 category participants in similar supplier, up from a few hundred at the beginning of the quarter. This resequencing of priorities resulted in the scaling of MarketPlace, other use cases being pushed out a little and our revenue for the quarter being a little lower than we would have liked, but it was unnecessary and temporary disruption and it positions us uniquely going forward, we'll soon begin to capitalize on the success. Remember, when we started ReposiTrak by way of comparison, it was years before we had 20,000 connections, and by comparison, we scaled to 20,000 participations for Similar Supplier in less than three months. We think this will prove to be a transformative change for our MarketPlace. We now have the largest database linking compliance suppliers in our products, allowing our HUBs to search for a compliant supplier virtually anything that they sell. I also want to emphasize that the monetization model, though, for Similar Supplier is still being explored and tested. We have a range of options we'll likely end up with a mix of revenue-producing programs. What are they? Well, one is an advertising base model. With this, we actually have several variants. Suppliers might pay us a fee to be certified as ReposiTrak compliant. Suppliers might pay to be given preferential placement at our search results, sort of Google-like. And suppliers might actually run adds on our search pages. Another option we are trying is our revenue share program. In this case, we would receive a portion of the revenue for commerce that we facilitate by introducing the replacement supplier to a retailer. We've already put the number of these agreements in place, and obviously, this method would if successful, by far be the largest revenue driver for us. In fact, just as an interesting side note, one of our suppliers is in the process of potentially doing business with two new retailers and nearly 2,300 stores added to his footprint. We facilitated this. He is thrilled, so are we. A third option, Similar Supplier might actually be used as the driver for cross-selling activity. We're exploring offering preferential search placement to suppliers that use our Compliance solution to become Tier 2 supplier HUBs. So lots of options, and over the next four to six quarters, we'll evaluate each of these options and determine the optimal path forward while we continue to generate tremendous profitability and cash flow from our core business. This weekend, I came across a much better way to express our strategy then I've been able to articulate in the past. It's a quote from Warren Buffett and from the Berkshire Hathaway shareholder meeting last week, here it is, so we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers that we want the moat widened every year. That doesn't necessarily mean that profit will be more this year than it was last year because it won't be sometimes. However, if the moat is widened every year, the business will do very well. This is actually been our focus, building moats around our businesses to protect us and to differentiate us from what historically has been a competitive space. We've built this moat by looking at where we were within the context of our customers' workflow across the Supply Chain and launching a solution that was immediately antecedent to that activity. So, for example, Compliance was the moat that we've built around our Supply Chain business because we recognized that before a buyer could transact efficiently with the supplier, they need to devet [ph] the supplier. And MarketPlace is the moat around the Compliance business because we recognized before a buyer could vet a potential supplier, they actually needed to find him. What better way to help our customers do this than by giving them a way to find new suppliers that we were pre-vetted by our Compliance solution. Simply put, we now have a moat around our business that lets us build out the scale and scope of our network of buyers and suppliers in a strategic and deliberate manner, all the while, generating very strong profits and cash flow. MarketPlace is the crowning achievement in our view of the strategy, but we're still very early on. Let we summarize, we told you Marketplace would be significant and it is. It has generated more revenue for us than any prior product launch in our history in the same period of time. We're still early in the process, and we have plenty of obstacles that lie ahead, but we're quite optimistic. We said we would add two new buyers before fiscal year end, and we've exceeded that goal. We now have six buyers in MarketPlace, two of which are new customers for us. Importantly, we now believe MarketPlace will actually continue to attract new customers, and therefore, actually drive, in our sense, what we call the scale of the network. We said we would explore various use cases, and we have. We introduced three new use cases, and we did all of this while tripling our profitability. We said MarketPlace would add variability to our quarterly revenue, and it has. And this is a function of the transactional nature of the business. This will continue to be the case until MarketPlace's adoption scales and it begins to diversify its own revenue contribution to the company. Over the next few quarters, we'll continue to drive MarketPlace forward, and because we have such a strong moat around our business, we're quite confident. We will do this in a strategic and deliberate manner so we maximize each of the component and continue to generate those profits and cash flow. To judge our progress in fiscal 2020, I would have you look at some of these things as measures: first, we will increase the number of participation to MarketPlace. By the end of fiscal 2020, we'd expect to have a dozen or more buyers using MarketPlace up from just a handful today; secondly, we'll see increased cross-selling and deeper penetration of existing services. By the end of 2020, we expect to see an increase in the revenue per existing connection. And as fiscal 2020 develops, much of our emphasis will be on expanding our footprint with our existing customers. It's important to note, by the way, that our company could literally double in size over the next few years by extending our existing customers use of our services. We will be focused on doing just that. And third, we'll be introducing some new monetization models for MarketPlace. Right now, as I mentioned, we're still exploring the monetization models, but by the end of 2020, we will have evaluated various monetization ideas, and we should have a clear path forward for how we'll generate profitable revenue from all of the use cases we end up supporting. We will also prioritize use cases in MarketPlace by the opportunity the each one present. Now for the short-term, we actually expect to see now an acceleration of our Supply Chain business, including a relationship that's new to us with one of the largest footprint retailers in the U.S. We expect that to be significantly revenue producing over the next several years. As we look to 2020, overall, overall, we expect our goal will be to drive the total networks scale to over 400,000 connections from its current 340,000, a large growth in a single year, but we're quite optimistic that it's possible for us to accomplish. But with the strategic and deliberate execution of our strategy, we'll continue to expand both the scale and the scope of the network of suppliers, accelerate revenue growth, all the while, generating significant profitability and cash flow and that in turn for sure, will enhance shareholder value. Okay. So now, I guess, we're open to some questions.

[Operator Instructions] Our first question comes from Thomas Forte with D.A. Davidson.

So I had two. Randy, you've talked in the past, or we've talked in the past about the fear of Amazon and how that's inspiring food retailers, and retailers, in general, the more warmly embraced technology and how that might be a catalyst for your sales. In the last quarter, they had their third significant price reduction in whole foods. So I wanted your updated thoughts on that? And then second, if you could circle back on MarketPlace. I think you made a comment about changing your strategy so you'll be less impacted on the near term basis based on the seasonality. Can you go through that one more time for me, please?

Okay. Just to voice test, because I had to change phones, can you hear me okay, Tom?

Absolutely. Yes.

Let's see in reverse order, let me go to your first question. Amazon is not so much through whole foods, but Amazon's existence is fundamentally changing that view the people have of technology. Let me tell you where we currently see the pressure, and we're responding to it and actually, the market response to what we're doing is pretty exciting. The advantage that Amazon has is in stock. Meaning that if you go to a typical supermarket today, you're going to find anywhere from 8% to 15% out of stocks. It hasn't improved in the last decade. But the advantage that Amazon has is if you're a shopper there, and I suspect you are, the fact is rarely do they have an out of stock. And now is they move to next date delivery, the concept of out of stock is going to become more important. Well, a major piece of what we do in our Supply Chain business is to help supermarket identify looming. Looming, meaning coming out of stocks, where they don't have enough on the shelf given the forecasted demand. Our specialty has been in the direct store delivery area, and nicely enough, we've retooled what we're doing, is really new marketing messages and our account management staff is now aggressively contacting our accounts and working with them on our out of stock stuff. We expect that this is going to give a nice shot in the arm to our Supply Chain business, and our current view in the current quarter is that Supply Chain is going to have an excellent quarter. It's resourced differently than MarketPlace and Compliance. So we can put the accelerator on there a little bit without impacting the rest of what we're doing. So Amazon is having a pretty extensive impact across the industry. But honestly, it's not through whole foods. Whole foods seems to have receded from people's minds in terms of the Amazon competitive threat. They have, however, and this is important, Amazon has announced that they intends to go deeper into brick-and-mortar retailing of groceries and it may intend, as it suggested, buying some small regional change around the country, not to add to whole foods, but an entirely different retail idea. If they do that, obviously, there's no way of knowing what the impact is, but I suspect that may be a bigger threat and galvanize the industry more than the whole foods acquisition did. Does that give you what you're looking for in whole foods? It's not pricing that whole food causes people concern, that's not an issue.

Yes.

Now -- yes, and then from a MarketPlace and seasonal, the so-called first use case that we have, which is working with retailers, with store-level ordering, promotional items, seasonal items, new items, et cetera, is highly dependent on seasonality, weather, things like that. But that's why people use us. So it's a very interesting use case and only it's scale with many users will it seize to be as transactional, impactful quarter-to-quarter as it is today. We did shift resource from that particular use case last quarter and moved it to what we think is the most important use case, which is what we're calling Similar Supplier. The second use case, by the way, is becoming more interesting, which is the one we mentioned last quarter, where one of our current customers, that was not a customer at the time, came to us and said, "We've got a product that is now sold out, our current supplier can't help us, can you help?" And literally, because of what we know about suppliers and compliance and their abilities, we were in touch with nearly 60, 6-0, suppliers of that product. They came back to us after we found the emergency product for them if you will. And now they've allowed us and I think we're just about complete with the order. They're going to have us be, in essence, their supplier for all of that product next year. So one small success led to an expansion of the relationship and we think that this is, again, an interesting niche for us to fill. To be clear, we never think about MarketPlace being a mainline market place. They're not going to buy crafts, macaroni and cheese inside our market. That's not the idea. We will always be the replacement vendor, the add-on vendor, the new idea, we will always operate at the periphery of any given retailers business. On the other hand, we think that the potential in that is enormous and that's why we devoting this much time, which is the scarce resource we have, time and focus on the activity. I think we mentioned, and here's the numbers to imagine. Now that we're at, call it, 84,000 facility level kinds of connection, here is what we can say definitively. Something around 15% to 30%, and we usually say 20% to 25% to narrow the range, 20% to 25% of the vendors choose or cannot become compliant. So what we think is; overtime, those vendors have to be replaced. This is an industry with a spend of around $700 billion a year. Even though many of those vendors are the smaller vendors, that spend is still likely somewhere in the 10% area. So that means something around $70 billion of spend is going to have to go from the incumbent suppliers that are non-compliant to a group of suppliers that are more compliant. We are targeting ourselves to be right in the middle of that shift. So we recognized that we're putting a lot of focus and energy on getting this part of our MarketPlace up and running. It's a tremendous adjunct to what we're doing for our Compliance Management business in and of itself because we're creating this problem of showing people the bad actors. But we think, even if it's not week-to-week or month-to-month, that this is the right place for us to focus and should result, ultimately, in a much larger business. Was that the answer, Tom?

Yes.

Our next question comes from Ananda Baruah with Loop Capital.

Thanks for all the details so far, it's really helpful. A few, if I could. Just Randy, quickly, could you go back to the sales force reorganization and just kind of, walk us through in a detailed fashion, what's the thinking behind it is? I know there are some comments in the press release, you made comments on the call but a little bit of the more -- of the deeper thinking? And then talk about specifically what was accomplished so far and what remained to be done? Then I have a couple more.

So we actually have a more complex business than it probably appears at the surface. When we described that, then you'll see how we've organize ourselves to -- I think, put ourselves in the middle of the customer flow. At the end of the day, we have customers who are retailers and wholesalers on the one hand, and suppliers on the other. Each of them is touched by one or more of our products, and our core belief is that every customer is to have a single point of contact into our business. That's almost an inviolate principle that if we have multiple people inside our company calling to a customer, each one showing him the shiny new object this week, we will make our customers crazy. They're busy, they're sequential in nature, they're risk-averse, they're slow, that's the characteristic of the industry. They want one throat to choke, as they say. They want one person to talk to for everything that we do for them. So we now have three different organizations; one organization touches the suppliers when they only do compliance with us, we call that group the Success Team. We have another group of people that only deal with HUBs, meaning retailers, wholesalers, or even suppliers that use us with their supply chain for any activity. So it could be a HUB that does Scan Based trading with us and it suppliers to Scan Based trading or replenishment, et cetera. There could also be a HUB managed by that group of account managers, as we call them, that just does compliance. And now we have, yet, a third group of people that we call partners, who are responsible for expanding our footprint with our existing customers and bringing in net new names. It's the first time we've been organized that way and each of these teams now has clearer responsibility without bugging customers and making them crazy. So it should have a pretty salutary impact on what we do. Once it's fully -- it's not fully operational yet, it's only been reorged in the last four to six weeks, but it's coming along nicely.

And I guess, just in your guys view, you mentioned that this is my term, but I guess, sort of friction or impact in the March quarter from the reorg? Do you believe that sort of, that impact of friction can be resolved during the June quarter? Or is the tail longer than that? Or could the tail be longer than that?

Well, the truth of the matter is that getting 20,000 participations at a category level, I mean, I just like everybody to please think, holy moly, you started out with a few hundred and a few months later you had 20,000 participations. That was Herculean in terms of effort. Everybody was scrambling to get it done. It's made us extremely proud of the effort. So we did the reorg at the same time that we were doing that. So it was all hands on deck, even yours truly was helping to move that mountain because it was gigantic. On the other hand, the feedback so far from the one or two beta users of Similar Supplier search are astounded. I mean, one, this just happened. One of the largest retailers in the U.S., in the top 5, is the customer of ours, was looking for Private label pasta, Private label pasta. And these guys are very sophisticated, it's one of the largest. And they came to us and said, "what have you got in your system?" And we gave them a list of names for Private label pasta. And the buyer was astounded. He said ,"my god," He said, "I've done a huge amount of research in this category." He said, "I said I've used Google, I've used every source I could find and there is at least 4 names on this list that I never would have thought off, this is tremendous." So that's the kind of -- response that we're looking for were a buyer can go in and get more options from an alternative or new vendor, if you will then he otherwise could get. So we're not at the end of -- remember, we're still putting a lot of focus on this. We've got to bring buyers in, get them used to using the beta kinds of buyers for now and there's no monetization in place. We're experimenting with monetization. So we recognized a lot of our focus will be on MarketPlace. And our the very short-term, it will not produce much incremental revenue. However, it is our future. We need to get to the point that we can make decision that MarketPlace is just an add-on to compliance or it becomes the center of our plate. And we need to get there as we know as quickly as we can. So this can't be a longer tail than the first part of this quarter as we get the reorg going. But they're starting to come together and coalesce. We're going out to our existing customer, big piece of our focus, as I said, for the next year is expanding the footprint of our existing customers, and I expect it will have some salutary impact, call that, cross-selling, is really what the term should be. I think we'll start to see some impact even in this quarter from that activity.

That's really helpful. I'm going to just ask one more and then I'll leave the floor for now. So just duck-tailing off of that, Randy. What can you tell us about how we should think about revenue cadence through the rest of the -- over the -- in the coming quarters? Maybe not through fiscal 2020, but maybe through calendar 2019?

Yes. I know that's how -- good questions. I love questions that don't have to do with how is this month going. As we now reorg the sales force, as we begin to move this particular use case of Similar Supplier to the market, meaning getting four, five or six actual users, that's going to take us a few months. Then we're going to have to come back and test the monetization ideas so that probably puts us into the first quarter of 2020 and that ought to begin to have a little bit of impact. That also begins to free up resource to go back to the other use cases in MarketPlace. So I would expect that the balance of this calendar year as opposed to fiscal year, we'll see certainly positive trends and certainly more positive trends then we've seen in the last couple of quarters internally. So the outlook is good, but we can't get our eyes off getting MarketPlace into the center of the plate. It's a bet. It's one that where we started it. I think I said, just like Compliance, it will either be a big deal or nothing. It increasingly looks like it's going to be a big deal, but we've got to do the experimentation on monetization. And I hope somebody will ask me a question about that because there's so many options of doing that. But it will begin to make an impact sometime in the course of this calendar year as opposed to fiscal year.

And then, so should we for -- and it sounds like you're saying Supply Chain, you expect, at least, to have sounds like a strong June quarter and then fill for Compliance, I guess, it's for the balance of the business, should we think about it -- I'm just trying to think about the seasonal trend, June quarter from March and then September quarter from June off of the March results. Should we think of -- it sounds like Supply Chain is going to be a little bit better than typical seasonal because there's a little bit of a lift there. Should we think of Compliance as being seasonal as well? I mean it seems...

Yes. In the case of Compliance, it's less the seasonality than the focus. Remember, it's the same team that does the MarketPlace activity and the Compliance activity. So as we can free up the resource, we can begin to bring new expansions into the fold, if you will, of Compliance. The area that concerns me the most that -- and we haven't cracked the codes the way I would like to because of this we had to push this off to the side, but we're coming back to now, is we want to rapidly increase the cadence of our Tier 2 sign-ups. I'm not satisfied with how we're doing there. I've -- we've got lots of focus on that right now. It's probably the number two focus in the business, Tier 2 HUBs. Remember, they're small, they don't make a big financial impact in any given quarter, but it is our future and we expect, over the next several years, to sign up, not just hundreds, but potentially thousands of these. So we've got to get the cadence moving and the -- what's the way to scale it up massively from where we are? That's probably my second biggest focus. So it's actually starting to work. The last week has been really interesting as we've been able to shift a little bit of resource to it, a lot of attention from senior management on it. So by the third quarter of the calendar year, first quarter of our next fiscal year, I want to see a big improvement in what we're doing in our Tier 2 HUBs. So I think we're pretty close to cracking the code, and I hope to have some fun reports about that in our next call.

I want one more follow-up to that point, then I'll get off here. So are you comfortable -- would you be comfortable with flatfish revenue for the June quarter after March and then you begin to get a little bit of lift in the second half of the year -- calendar, say from Tier 2, maybe in September and then, sort of, from more MarketPlace in the December quarter? Is that a fair way to think about it?

It sounds like you're asking me for guidance, Ananda. The answer is -- I know, I know -- I think the answer is, we're going to do the very best that we can without, in any way, impacting our customer success, and I'm not just using words here. But if we can get enough resource to go back to the other use cases of MarketPlace then we'll have a significant impact on the quarter for MarketPlace, otherwise, that impact won't happen until the third quarter. We're trying to play the long game here. We're trying to make absolutely sure that what we're doing can be well executed. So I don't know that we have a flattish or positive view of the quarter. It's not so much that, as the execution of what we're doing. So I'm not being that helpful, but it's not because I don't want to be.

Got it. I mean, that is helpful.

Well, I mean -- and then -- let me make an interesting point because we always are surprised at what we do, and we haven't done it before. When we said about, when our a customer said to us, not quite point blank, but when we showed them, Similar Supplier, somebody that had senior experience said something to us, that was pretty interesting. They said, years ago, a company called Ariba, that was ultimately purchased by SAP, attempted to have a MarketPlace, different than ours, but still a MarketPlace. And they said what happen was that they brought buyers to the table first and the buyers would go in and look for something call it household cleaning supplies and research they did came back empty. So they would try searching a couple of times or three times, say, well, to hell with this, there's nothing in here. So they said that ultimately failed because they didn't have suppliers. And when we heard that insight, we would, "oh my god, that's exactly right." So if you remember our original idea really was if we have the buyers, the sellers will come. And it turns out that was probably wrong and thank god we didn't go down that road very far. Because what we had concluded is, if we have the sellers, the buyers will come. So we've done this now with our customer advisory board, and when we showed it to them, and I'm not kidding, I mean we have audio to support this, the head of our customer advisory board, a very well-known retailer here in the U.S., first said, my god. He said, you did this so fast, this is really remarkable. But beyond that, this is an invaluable tool. So we've been working within the tune it up and make the search even more important, but we're on to something. I can't guarantee -- and my surprise was this, when we decided to go get suppliers, my thought was well maybe if we really all focus on at this quarter and push everything off to the side, maybe we can get up to 3,000 to 5,000 category participation, and we ended up at 20,000 -- we're actually now just I think, about 21,000, 20,000 category participation. You can search for virtually any category of anything, and we're going to bring you back some people to talk to. It's pretty remarkable. We sure as hell exceeded our own expectations about what we could do. The customers figured that -- looking at it now and we are going to encourage if they have to figure out how to get people to use it, day in day out. But without laying out too much of our competitive position here, we think we see the path to victory. It's going to take some time because you have to get people used to the idea of using us as the, I need a tomato paste supplier, where do I go? We're trying to get them not to go to Google and do tomato paste but go, "Oh, ReposiTrak, they've got the right guys here, tomato paste, oh my god, look at these." So -- and one other thing, let me -- I'm sorry, I don't mean to be long with it, but this is interesting. The more participations that we have, the greater the revenue opportunity. If you think about that. If you do a search right now and let's suppose, for the sake of argument, Ananda, we only had two tomato paste guys. You look for tomato paste and it brings back 2. How do I go to those two guys and charge them for positioning on search like Google does. I can't, they both show up on Page 1, right? So what we really needed was to go to the scale, and I think we're there, I think at 20,000, if you do, what we did this the other day, coffee. You want a coffee vendor? We'll give you 90 of them, 9-0 coffee guys, holy moly. So what does that mean? That means do you want to shop up Page 1? Take your checkbook out. You want to show up on Page 1? Use ReposiTrak as your Compliance Management system for your suppliers. And this is creating lots of opportunities because it exceeded our expectations and frankly we've got to figure out what are the different ways to make money from all of that. It's pretty exciting. It's very exciting right now. So -- but we're scrambling because we got to think about, "Wow! how do we get this monetized?" There's advertising, there's placement, there's use us and you show up at the top. There is revenue-sharing opportunity. I mentioned one of those in my remarks where we've already have taken coffee guys thankfully enough and rapidly growing coffee guy and he said, "look, I'll do Scan Based Trading with you, help me find more retailers." And we did. So we've got them negotiating now with 2,300 stores, I think. He's thrilled, we're thrilled. So it's starting to work. We just have to figure out all the monetization ideas and that takes focus and time. And I don't think I can speed it up but we're on it, we're on it.

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