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)

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 November 14, 2024
99.2		Earnings Call Transcript
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	REPOSITRAK, INC.
Date: November 18, 2024	/s/ John Merrill
	John Merrill
	Chief Financial Officer

Exhibit 99.1

 

ReposiTrak Delivers First Fiscal Quarter Revenue of $5.4 Million

and Earnings Per Share of $0.09

 

Traceability Onboarding Continues to Accelerate as Industry Recalls Drive Supplier Urgency

 

Salt Lake City, UT – November 14, 2024 –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 first fiscal quarter (“FQ1 2025”) ended September 30, 2024.

 

First Fiscal Quarter Financial Highlights:

 

	●	First quarter total revenue increased 8% to $5.4 million from $5.1 million.
	●	Recurring revenue increased 6%, reflecting non-recurring initial set-up fees for the rapidly increasing number of traceability customers onboarding to the system.
	●	Quarterly operating expense increased 3% to $4.0 million from $3.9 million.
	●	Quarterly operating income increased 23% to $1.5 million from $1.2 million last year.
	●	Quarterly GAAP net income increased 21% to $1.7 million from $1.4 million last year.
	●	Quarterly net income to common shareholders was $1.6 million, up 26% from $1.2 million last year.
	●	Quarterly EPS of $0.09 compared to $0.07 in the prior year first fiscal quarter.
	●	The Company finished the quarter with $25.8 million in cash and no bank debt.
	●	During the quarter, the Company redeemed 70,093 preferred shares for the stated redemption price of $10.70 per share for a total of $749,995.

 

 

Randall K. Fields, Chairman and CEO of ReposiTrak commented, “Traceability continues to exceed our expectations. The cadence of onboarding is accelerating, reaching a record level in the last month, driven by three significant catalysts. First, the recent spate of recalls due to deadly listeria, E. coli and other contaminations, is driving demands for improved food safety. Second, more and more major retailers, including the three largest in the U.S., are now requiring all food be traced, massively increasing the addressable market. And third, the FDA mandate deadline is rapidly approaching.”

 

“We are well-positioned to address the growing challenge of enabling the industry to meet the requirements,” continued Mr. Fields. “We continue to utilize automation to more efficiently collect the required data, but our commitment to our customers requires us to move at a measured pace to ensure accuracy. When fully onboarded, customers in-hand today are sufficient to increase our revenue by approximately 50%. We will continue to add to this pipeline as we approach the January, 2026 deadline.”

 

“We are confident that customers in-hand plus our pipeline will result in a doubling of our annual recurring revenue over the next three years,” concluded Mr. Fields. “This confidence is supported by our growing pipeline, the commitment from major retailers, including three of the largest food retailers in the United States, to expand traceability to the entire food supply chain.”

 

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

 

Total revenue was up 8% to $5.4 million as compared to $5.1 million in the prior-year first quarter. Total operating expense was $4.0 million, up 3% compared to $3.9 million last year. General and administrative expense increased by 1%. GAAP net income was $1.7 million compared to $1.4 million. Net income to common shareholders was $1.6 million, or $0.09 per basic and $0.08 per fully diluted share, compared to $1.2 million, or $0.07 per basic and fully diluted share.

 

 

Return of Capital:

 

In the first quarter of fiscal 2025, the Company redeemed 70,093 preferred shares at the stated redemption price of $10.70 per share for a total of $749,995. To date, the Company has redeemed 291,400 shares of preferred stock for a total of $3.1 million. The remaining amount of the preferred share redemption is $5.8 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.

 

On September 19, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.0165 per share ($0.066 per year), payable to shareholders of record on September 30, 2024, which was paid to shareholders of record on or about November 13, 2024. On September 30, 2024, the Board of Directors approved another 10% increase to ReposiTrak’ s quarterly dividend, to $0.01815 per quarter ($0.0726 per share annually) beginning with the dividend payable to shareholders of record on December 31, 2024. Subsequent dividends will be paid within 45 days of each fiscal quarter end.

 

Balance Sheet:

 

The Company had $25.8 million in cash and cash equivalents at September 30, 2024, compared to $25.2 million at June 30, 2024. Given the Company’s liquidity, the Company chose not to renew its working line of credit. The Company carries no bank debt.

 

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.repositrak.com.

 

Participant Dial-In Numbers:

Date: Thursday, November 14, 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: 13749798

 

Replay Dial-In Numbers:

Toll Free: 1-844-512-2921

Toll/International: 1-412-317-6671

Replay Start: Thursday, November 14, 2024, 7:15 p.m. ET

Replay Expiry: Saturday, December 14, 2024, at 11:59 PM ET

Replay Pin Number: 13749798

 

 

About ReposiTrak:

 

ReposiTrak (NYSE: TRAK) provides retailers, suppliers, food manufacturers 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, please 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.(“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.

 

Investor Relations Contact:

 

John Merrill, CFO

Investor-relations@repositrak.com

 

 

Or

 

FNK IR

Rob Fink

646.809.4048

rob@fnkir.com 

 

 

REPOSITRAK, INC.

Consolidated Condensed Balance Sheets (Unaudited)

 

		September 30,				June 30,
		2024				2024
Assets
Current Assets
Cash		$	25,790,206			$	25,153,862
Receivables, net of allowance for doubtful accounts of $215,480 and $227,573 at September 30, 2024 and June 30, 2024, respectively			3,297,932				3,678,627
Contract asset – unbilled current portion			671,763				181,680
Prepaid expense and other current assets			332,018				285,998
Total Current Assets			30,091,919				29,300,167
Property and equipment, net			675,721				513,277
Other Assets:
Deposits and other assets			22,414				22,414
Prepaid expense – less current portion			2,218				2,609
Contract asset – unbilled long-term portion			-				108,052
Operating lease – right-of-use asset			234,729				250,306
Customer relationships			98,550				131,400
Goodwill			20,883,886				20,883,886
Capitalized software costs, net			320,518				384,621
Total Other Assets			21,562,315				21,783,288
Total Assets		$	52,329,955			$	51,596,732
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	331,755			$	265,086
Accrued liabilities			1,286,725				1,554,775
Contract liability – deferred revenue			2,585,019				2,441,234
Operating lease liability – current			65,452				64,076
Notes payable and financing leases – current			188,425				217,971
Total current liabilities			4,457,376				4,543,142
Long-term liabilities
Operating lease liability – less current portion			182,085				198,972
Notes payable and financing leases – less current portion			165,735				-
Total liabilities			4,805,196				4,742,114
Commitments and contingencies
Stockholders’ equity:
Preferred Stock; $0.01 par value, 30,000,000 shares authorized;
Series B Preferred, 700,000 shares authorized; 546,377 and 616,470 shares issued and outstanding at September 30, 2024 and June 30, 2024, respectively			5,464				6,165
Common Stock, $0.01 par value, 50,000,000 shares authorized; 18,246,090 and 18,234,893 and issued and outstanding at September 30, 2024 and June 30, 2024, respectively			182,463				182,351
Additional paid-in capital			64,085,398				64,655,902
Accumulated other comprehensive loss			6,696				(27,390	)
Accumulated deficit			(16,755,262	)			(17,962,410	)
Total stockholders’ equity			47,524,759				46,854,618
Total liabilities and stockholders’ equity		$	52,329,955			$	51,596,732

 

 

REPOSITRAK, INC.

Consolidated Condensed Statements of Operations and Comprehensive Income (Unaudited)

 

		Three Months Ended
		September 30,
		2024				2023
Revenue		$	5,441,142			$	5,060,112
Operating expense:
Cost of revenue and product support			859,219				766,334
Sales and marketing			1,529,100				1,505,501
General and administrative			1,292,551				1,279,323
Depreciation and amortization			280,211				308,945
Total operating expense			3,961,081				3,860,103
Income from operations			1,480,061				1,200,009
Other income (expense):
Interest income			349,533				258,161
Interest expense			(10,172	)			(6,344	)
Unrealized gain (loss) on short term investments			(4,267	)			27,186
Income before income taxes			1,815,155				1,479,012
(Provision) for income taxes:			(150,000	)			(100,464	)
Net income			1,665,155				1,378,548
Dividends on preferred stock			(107,882	)			(146,611	)
Net income applicable to common shareholders		$	1,557,273			$	1,231,937
Weighted average shares, basic			18,244,000				18,225,000
Weighted average shares, diluted			19,102,000				18,839,000
Basic income per share		$	0.09			$	0.07
Diluted income per share		$	0.08			$	0.07
Comprehensive income:
Net income		$	1,665,155			$	1,378,548
Other comprehensive gain (loss):
Unrealized gain (loss) on available-for-sale securities			34,086				-
Total comprehensive income		$	1,699,241			$	1,378,548

 

 

REPOSITRAK, INC.

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

		Three Months Ended
		September 30,
		2024				2023
Cash flows from operating activities:
Net income		$	1,665,155			$	1,378,548
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			280,211				308,945
Amortization of operating right of use asset			15,577				14,829
Stock compensation expense			150,000				85,375
Bad debt expense			100,044				75,000
(Increase) decrease in:
Accounts receivables			(259,388	)			(547,809	)
Long-term receivables, prepaids and other assets			6,455				216,340
Increase (decrease) in:
Accounts payable			66,669				(116,499	)
Operating lease liability			(15,511	)			(57,164	)
Accrued liabilities			(284,097	)			(14,218	)
Deferred revenue			143,785				177,423
Net cash provided by operating activities			1,868,900				1,520,770
Cash flows from investing activities:
Sale of marketable securities			34,086				-
Net cash provided by investing activities			34,086				-
Cash flows from financing activities:
Common Stock buyback/retirement			-				(1,322,082	)
Redemption of Series B Preferred			(749,995	)			-
Proceeds from employee stock plan			59,852				57,743
Dividends paid			(422,954	)			(421,248	)
Payments on notes payable and capital leases			(153,545	)			(128,834	)
Net cash used in financing activities			(1,266,642	)			(1,814,421	)
Net increase (decrease) in cash and cash equivalents			636,344				(293,651	)
Cash and cash equivalents at beginning of period			25,153,862				23,990,879
Cash and cash equivalents at end of period		$	25,790,206			$	23,697,228
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	312,098			$	221,661
Cash paid for interest		$	2,005			$	2,329
Cash paid for operating leases		$	18,686			$	18,141
Supplemental disclosure of non-cash investing and financing activities:
Common stock to pay accrued liabilities		$	69,985			$	37,500
Dividends accrued on preferred stock		$	107,882			$	146,611
Right-of-use asset		$	289,734			$	-

 

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 First Quarter 2025 Earnings Conference Call.

 

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question at that time, please press star, one on your telephone keypad. As a reminder, this conference call is being recorded.

 

It is now my pleasure to introduce your host, 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 First 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 subject to 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 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. 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 Merrill. John, the call is yours.

 

John Merrill

 

Thanks, Rob, and good afternoon, everyone.

 

As you know, we communicated just a short time ago, our fiscal 2024 results. Since then, our strategy has not changed and our September financial results further validates our long-term strategy. Many of you have asked me when will we see the hockey stick and traceability revenue.

 

As we’ve always said, we will add customers at a governed pace, regardless of opportunity, deadline product, service or short-term expectations. We will never trade speed for flawless execution, never happen. As you know, food contamination is front page news, almost daily. E.coli with diarrhea, and salmonella. Eggs, deli, meat, basil, cheeses, and even frozen waffles and pancakes, just to name a few

 

Household names such as McDonald’s, Boar’s Head, Trader Joe’s, and BrucePac have all been affected. Big or small no company is immune to the risk of food contamination. ReposiTrak’s suite of food safety applications to address these issues is unmatched. However, it is a complex, multi-step process. There’s a discovery phase to establish FDA requirements and help a supplier identify what and where the required data lives.

 

Remember, as we communicated before, more than 70% of suppliers do not even have an IT department. Then there is an evaluation phase whereby we investigate how we can assist them in distracting the required data. Data is collected in files and various emails written manually or live in one of the suppliers several systems.

 

Then there is an implementation phase whereby the data needs to be extracted routinely, stored, and forged along the supply chain accurately and in accordance with the FSMA 204 requirements. It is not a one size fits all. It is Complex, but that’s what we excel.

 

While traceability is top of mind, all of our lines of business deliver a significant customer advantage to make food safer, discovery, supply chain and compliance, which includes traceability. We have over 100 years of combined management and board experience in the supply chain and food distribution space.

 

While delivering food safety solutions, our operating philosophy is quite simple: delivering superior solutions at the lowest price with perfect execution; increase recurring revenue in all lines of business; rationalize revenue expansion with cost, expand margins, these include gross margins, operating, and net margins; grow net income, grow EPS and drive cash balance even faster; return capital to shareholders. It’s a very simple set of concepts, but this requires flawless execution without losing sight of the objectives, making food safer,

 

Our cash balances continue to reach record levels; $25.8 million cash in the bank as of the September quarter. Bear in mind, this is net of the over $20 million in capital returned to shareholders through a growing common stock cash dividend, the redemption of preferred and common shares and paying off all bank debt since we instituted our capital allocation strategy only a few short years ago.

 

This performance comes as we invest significantly in sales, marketing, and automation tools to drive the onboarding of traceability customers. The contribution from traceability is only just beginning to impact our overall revenue results and that contribution continues to accelerate in conjunction with consistent growth and compliance in supply chain offerings.

 

 

 

 

I remain confident that traceability, growth and our legacy services will double our annual recurring revenue run rate over the next several years, maintaining 80% gross margins, driving higher earnings per share and increased operating cash flow.

 

Let’s get to the September numbers. For the first quarter fiscal 2025, total revenue was up 8%, $5.4 million versus $5.1 million. Recurring revenue increased 6% from $5 million to just under $5.4 million. This was the result of higher subscription revenue and setup fees due to the increased number of suppliers onboarded during the quarter.

 

Recurring revenue was 98% of total revenue. The decrease from 99% to 98% from the June quarter was a result of higher setup fees due to higher number of supplier onboards, which by nature are not recurring.

 

Operating expenses increased 3% to $4 million versus $3.9 million. The increase in OpEx expenses was the result of the ongoing investment in development of automation tools and investment in sales and marketing. Income from operations increased 23% from $1.2 million to $1.5 million. GAAP net income increased 21% to $1.7 million versus $1.4 million.

 

GAAP net income to common shareholders increased 26% from $1.2 million to $1.6 million in fiscal 2025. Basic earnings per share was $0.09 per common share, compared to $0.07 per share last year.

 

During the quarter, our cash generation permitted us to redeem another 70,000 shares of preferred stock at the $10.7% redemption price for just under $750,000. We continue to reiterate our goal to redeem and retire all the preferred shares in the next two years. As we communicated previously, we have paid off all bank debt. Given our strong balance sheet and consistent cash generation, we chose not to renew the $10 million line of credit with the bank.

 

The long-term liabilities we currently maintain are capital leases, which has allowed us to scale investing in storage redundancy systems and upgrades to existing processing capabilities as our needs grow.

 

This performance comes as just 6% of our total revenue is coming from traceability. We expect the contribution from traceability will increase sequentially throughout fiscal 2025 continuing to accelerate as we approach the January 2026 FDA deadline. Customers already in the queue to be onboarded over the next 18 months represents more than $10 million in additional annual recurring revenue or ARR.

 

Obviously, over that same time period, we anticipate adding many more customers to this queue. We continue to automate and facilitate a faster but moderated enrollment process with a continued goal of improving efficiency. We are getting better and better at this improving our pace at onboarding suppliers every day.

 

In summary, our strategy remains very simple. First, we take great care of the customer as they grow, we grow. Second, we will grow recurring revenue balancing cost with opportunity. Third, we will manage cost with long-term opportunity. These initiatives will increase net income and EPS.

 

We generated $1.9 million in cash from operations during the quarter. This is an increase of 23% from the same time period last year. We will continue to utilize our cash flow to stay away from debt buy that common and preferred stock and increase the common dividend as cash flow grows.

 

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. We’ve increased the cash dividend now twice since the Board of Directors authorized a cash dividend just a short time ago.

 

 

 

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.

 

It’s really just been a short time since we’ve reported our fiscal fourth quarter results, but since then, tracing all foods, not just FSMA 204 has significantly expanded. Why? Two major catalysts have exerted pressure along with the approaching deadline. A significant consumer confidence drop in food safety and major retailers moving forward and going past the FDA list has been primary.

 

The bottom line is that our confidence that traceability will double the size of our company in the next three years or so. More importantly, permanently alter the food industry and in a good way, grows stronger by the day.

 

Let me add a little color to the catalyst that I’ve mentioned. First, Wal-Mart and Target have now joined Kroger in announcing that all food suppliers, not just those providing FSMA Rule 204 products, but all food products will need to provide end-to-end traceability information on or before the January 2026 deadline or product may be refused, think about that, refused at the distributor or the store full stop.

 

Second, cost and simplicity. Why in a world would you try and separate Rule 204 products from regular products, expand the labor cost and confuse all of your operations? It’s easier just to have honestly one process.

 

And third, this whole issue of food safety, retailers facing obviously highly publicized recalls in food safety made possible by traceability is critical to their business. They will represent more than just a marketing message, food safety will become a differentiator for retailers.

 

Three of the largest retailers have now arrived at the same conclusion. One process, price it all. It’s not surprising that Kroger, Wal-Mart and Target have determined that maintaining two processes. One for the so-called Rule 204 products and one for everything else is simply not practical.

 

Well, let’s be a straight-line for everybody doing everything? Well, likely not. Rarely are things running in the straight-line. But overall, we’re very comfortable that we’ve made the right decisions on the basis of the right strategy to position for ultimately everything being tracked and traced, it’ll make for a better world.

 

What this means for suppliers? Well, if they want to stay in business, it’s pretty simple. They will almost certainly need to comply with traceability requirements, market determined requirements, not FDA requirements. Supplying data in an acceptable format upstream, downstream as product moves through the supply chain.

 

To be clear these three big retailers, they’re not our clients, but many of their suppliers are ReposiTrak clients. ReposiTrak enable suppliers to provide data to those who need to receive it, including major retailers, like, Kroger Wal-Mart and Target, just to name a few. More importantly, this is becoming a massive signal to all suppliers that traceability is not optional, it’s the way business will be done. It’s a mandate.

 

The second major new catalyst was a series of terrible recalls. We’ve all heard about the listeria outbreaks Boar’s Head, BrucePac Treehouse, just named a few, at least the dozen dead to many dozens hospitalized and potentially hundreds sick. This situation is precisely why the FDA traceability was put in place.

 

 

 

 

Product contamination represents a major risk for retailers and their brands costing them customers legal fees and reputation. Being able to respond quickly identifying and isolating potential problematic products is obviously essential to their business. It’s only possible with traceability.

 

Otherwise without detailed traceability, you’re throwing the proverbial baby out with the bath water, meaning that every time there’s a contamination issue, you empty your shells of the product as you have no visibility to a specific lot or batch code that was affected. The ReposiTrak traceability in every respect continues to exceed our expectations.

 

The size and scope of the market continues to grow, in some cases, frankly exponentially from what we were anticipating. Given the expansion of now three top food retailers to trace all food products, our hope that the timeline will be extended by the FDA is becoming less and less relevant every day. As we keep saying, traceability is no longer a regulatory issue, it’s a market competitive issue, which is a much stronger pressure from the market perspective.

 

We don’t see the election the President Trump has a risk to traceability at this point. It’s too far along, too important to major retailers who are dealing with life and death. We continue to hope the deadline is somehow pushed out so the industry has time to adapt, but we don’t anticipate any risk from political change. To be clear, major retailers are pulling the time line in even more aggressively than the FDA pushed the timeline of January 2026. The FDA is unlikely to change those timelines independently that were set by major retailers. As more retailers join the early adopters, the FDA’s role in driving timing will continue to diminish.

 

Meanwhile, we have and will continue to fine tune our automation tools to drive more efficiency and hence cost savings from our scaling. It’s actually become a daily activity of ours to focus on changes to our onboarding automation, the scale it even faster by making it easier and easier for our customers to self-implement.

 

Ultimately, remember there are hundreds of thousands of facilities that we’ll have to learn to do traceability. A brand new activity they’ve never done before and it has to be implemented with a high degree of automation. Our team is the best literally, I’m not just saying this. Our team is the best that it can be at observing and making changes on a daily basis and having new releases daily to continue to improve our process. It’s an obsession of ours.

 

This tuning effort is part of our culture and it’ll persist for years. In compliance management, we’ve improved our productivity by literally, seriously a factor of 10 and I suspect we’re going to get the same kind of result with our automation for traceability onboarding.

 

Our pace of onboarding continues to get faster and faster, in fact, it’s really kind of fun to watch daily, frankly, the result is even more than John and I expected in this short period of time. We told you before, that it would be picking up. Boy, is it picking up! First, our focus is and always has been on the needs of our customers. That’ll never change.

 

Traceability is a new process for suppliers and wholesalers and the new operational challenge, as well. Our goal is to provide the solution and do it at a price point that encourages widespread industry adoption. This obviously enables us to capture further market share.

 

We have a business model that is structurally profitable. We’ve priced the ReposiTrak traceability initiative, in line with historical gross margins for our compliance and other offerings, but honestly, it’s considered cheap by the user community, just what we want. Perceived as cheap to them and profitable to us.

 

 

 

 

Second, we’ve always recognized that there would be add-on services that will drive additional revenue for end-customer for us. That will provide tangible value, not just for our customer, but earnings for the shareholder. I’ll add more color to this likely in our next earnings call, but keep in mind bringing these services to market too soon complicates the story and we’re heads down now bringing on thousands upon thousands of suppliers for traceability.

 

Demand for additional customers to join the RTN is not abating, but actually accelerating We currently have 4,000 companies representing more or less we think 5,000 facilities that are being actively enrolled by our retail and wholesale customers, and adding more and more every day. It’ll take 18 to 24 months to onboard these suppliers and have them all generating revenue.

 

Those 4,000 suppliers that are in hand today that are being required to enroll by their hubs represents about $10 million more or less in incremental, annualized revenue over the next 24 months. But while we’re onboarding those 4,000, we should certainly add at least that number again to the list, effectively enabling us to double the size of the Company as we’ve been saying over the next few years.

 

In the first fiscal quarter of 2025, traceability contributed 6% of recurring revenue. We expect this contribution to accelerate throughout the fiscal year, both in terms of recurring revenue and as a percent of our consolidated revenue, our monthly onboarding is growing rapidly. When one thinks about the so-called inflection point, it’s fair to say, oh God, I love saying this, it’s fair to say we are inflected.

 

Over the next year, both the pressure of market forces continued automation in the absolute number of new hubs is likely to reduce the conversion time from signing the hub to generating revenue from suppliers. We are getting better and better every day, seriously, daily. While it is clear our urgent focus is on traceability, our compliance and supply chain businesses continue to grow.

 

Our 8% growth in the first fiscal quarter was due to growth in virtually every part of our business. We continue to believe that we can double our annual revenue run rate within the next few years. Our growth must be however managed, otherwise, we will short change or confuse our existing customers or do less than our normal superb work for them.

 

In other words, the current time, we find ourselves constrained on growth, not by demand but the View that management has and each and every implementation has to be handled perfectly. We will not sacrifice quality for speed, not now, not ever. Our business model is simple. It ensures simultaneously delivering success to our customers and consistent growing profitability to our shareholders.

 

If you look at our financial results that’s self-evident, Operating income was up 23%. Our net income up 21% and our net income to common shareholders up 26%, all of that on 8% revenue growth. Frankly, John and I don’t see any reason why that phenomenon will not continue. This enables us to return more and more capital to shareholders.

 

As we announced on the September call, the Board approved another 10% increase for quarterly cash dividend to what about $7.26 per share per year. As we continue with our capital allocation strategy announced a few years ago, we’ve redeemed preferred, common, paid off the bank debt, increased, the common dividend twice, and still have $25 million of cash in the bank.

 

We have lots more work to do, but I am incredibly proud of what the team has done so far. We obviously feel very, very good about where we are and how we’re positioned for the future.

 

 

 

 

So, with that, I’d now, like to open the call for questions. Operator?

 

Operator

 

Thank you.

 

At this time, we’ll 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.

 

Our first question comes from Thomas Forte with Maxim group. Please proceed with your question.

 

Thomas Forte

 

Great. First off, Randy and John congrats on the quarter. My initial list has five questions. But depending on your answers, I might add one or two. The first question I’ll go one at a time.

 

Randy, are Wal-Mart, Target and Kroger setting the industry standard or our smaller food retailers unable to follow suit?

 

Randy Fields

 

Well, my guess is that, given those three guys, those three companies have really smart leadership. They saw an opening based on what was happening in the area of food safety. I think they decided to claim the high ground. The question is, can smaller companies compete? And the answer is, yes, if they use us - and I don’t mean that to sound arrogant - if they use us they certainly can be at least competitive.

 

But, this just changes the landscape. Think of the marketing advantage of being able to say, everything you buy from us, everything you buy from us, we’ll be able to trace back to its origin. If something happens, we’ll be pronto. We’ll get the product off the shelf and make it a safer environment. I think competitively it’s better to do that then say, hey, our food might kill you, but it’s cheaper.

 

I don’t see that. I think the answer really is, the big guys have established what the market basics are going to be in terms of how to compete and everybody else over time will have to find a way to do the same thing.

 

Thomas Forte

 

Okay. Then you gave a lot of comments on this question. I’ll try to simplify, 6% of sales in the September quarter were traceability. What could it be in the year?

 

Randy Fields

 

Well, what you’re going to see, remember, I did say, it was so fun to say, we are inflicted. What that implies is that, maybe not every single quarter, but probably most quarters, the percentage of our business coming from traceability will be increasing. At some point in the next three years, you can fully expect that number goes to 50%. How do we get to that number? It’s pretty easy. It’s derivative. If we double our revenue and say year three, call it $40 million of revenue and we have our same $20 million base, that $20 million incremental is all coming from traceability. It’s perfectly reasonable to assume that half of our revenue in three years – two to three years will come from traceability and then the couple of years after that, it’ll probably go even higher.

 

 

 

 

Thomas Forte

 

Okay. Then, apologize some of these are repeats. Ones I like to ask every quarter. Your current thoughts on adjacent markets and then I consider restaurants, food adjacents and healthcare, regulatory adjacents.

 

Randy Fields

 

Well, there’s certainly tremendous opportunities in the non-retail food space and that includes restaurants, that includes all of those outlets, convenience stores, where people buy food. But we see those markets as substantially smaller - the way we go to market - then the retail food business. We’ll inevitably be in those areas by virtue of the fact that the suppliers that we work with sell to both segments.

 

For example, if you buy products from Kraft, those products could end up being bought and sold in a retail food channel or in a restaurant. The supplier crossover is very high, which means inevitably we will be doing business in those industry segments, as well.

 

We just don’t see them off the bat as having the same potential. And critically important, just critically important is for us to keep heads down. The, I want to be cautious how I say this be incredibly focused on the customer experience. Something to remember is, there’s almost nothing our company has done historically that wasn’t what I call improve on the current state. For example, when it came to compliance management, did we invent the idea of compliance manager? Nope. But we certainly developed a technology in a way of doing it that was superb by standards of the market. That’s why we’re so dominant in that compliance management space.

 

So, almost everything we’ve done, supply chain, forecasting, ordering has existed. But no one has done traceability before. It’s never been done. It’s a space that not only are we I’m going to call it inventing, not only are we incrementing how people think of it, but there’s a business reality that people have not done traceability before.

 

They have to figure out how do we get this into our workflow? How do we get it into our administration system? How do we give in billions of transactions? And by the way, there’s going to be a pick your number, $100 billion transactions that get recorded every year now, $100 billion.

 

It really doesn’t matter what error factor you would apply to that. Let’s suppose people are really terrific and the error factor is 2%. We’re talking about $20 million errors per year that have to be tracked down mandate corrected.

 

So, the reality is, this is not something this industry has ever done. To a certain extent, we’re having to deal with - I am going to call it the novel nature of it. We’re helping to allow these companies to experiment and ultimately come to grips with the fact that traceability is here to stay, but there are easy ways to do it.

 

So, this is a whole different thing that I think people imagine. There is no traceability that have been done to-date and now people everybody’s going to have to do it simultaneously. Hopefully, it doesn’t look like a goat rodeo, but there’s a certain element where people, oh, I’ll use the blockchain, blockchain my ass.

 

 

 

What we need to do is to find a simple easy way for people to do traceability. We certainly have that. The fact is that we’ll get more than our fair share in the market for helping people be able to track and trace their products.

 

It’s do or die. Seriously, it is do or die. Because if you don’t do traceability as a supplier, we weren’t kidding. Where companies are saying I can’t accept product from you. You can ship it. I just can’t accept it. This is a do or die situation. People are going to learn to do it, come hell or high water, and we want to be part of that.

 

Thomas Forte

 

Okay. I’m adding a question to my list. Maybe John can answer this one. How should we think of the composition of the growth of the 94% of revenue that wasn’t traceability?

 

John Merrill

 

You mean, in terms of compliance and supply chain?

 

Thomas Forte

 

Yeah. Was one product in particular?

 

John Merrill

 

Pretty much 50/50? They are complementary. It’s pretty much 50/50.

 

Thomas Forte

 

Okay. You’re saying that of the business that wasn’t a traceability, it’s performed well as a group. There were no outliers?

 

John Merrill

 

No, no.

 

Thomas Forte

 

Okay good. All right. Then, capital allocation, I apologize if this sounds greedy, but you’re paying off the preferred. You have a quarterly dividend and you’ve historically bought back shares. Under what conditions would we have an “and” situation where you would pay off the preferred and buyback the common?

 

John Merrill

 

I don’t think our strategy has changed. It is take half the cash from operations, put half in the bank and buy basically either common or preferred or increase the dividend. I think we continue to Redeem preferred that will not change. I think we’ve done now, call it $750,000 each quarter for the last, I don’t know four, five quarters. I don’t expect that to change. We just increase the dividend. We have no debt. Obviously, once the preferred is bought back, we would resume the common or increase the dividend.

 

 

 

 

The capital allocation strategy won’t change. Obviously, with the cash generation that we have, it’s not a bad problem to have. But we’ve solved a lot of a things that other companies have which are debt or a complicated cap structure. I don’t believe that will change over the next two to three years.

 

And if you look at the mathematics, it’s not a forecast, but if you double the size of the company, from a revenue standpoint and recurring revenue, then you have no debt. You’ve paid off the preferred. Obviously, you are doing either M&A, building even a more of a fortress balance sheet or you are returning more and more capital to shareholders.

 

Sorry for the longwinded answer. But at least Randy was longer than I was.

 

Thomas Forte

 

So, all right. John, I don’t know if I heard the number from you. Do you like to give the number on the cost of running the business? Has that changed?

 

John Merrill

 

Except for—I’ve always said it takes $12 million to run the place. Well, obviously, with an increase in revenue, you’ve got more commission. There is payroll taxes that go along with it. We did invest as you’ve seen in the sales and marketing, that’s not a—that’s an investment for the future, but obviously as the education increases and traceability is a household name, we—I can’t tell you how much we have spent in terms of time and dollars educating people on traceability.

 

As that awareness grows, then our expenditures on sales and marketing, and I would say I would go back to kind of the pre-education time. But absent variable costs associated with sales, I maintain the same thing. Fix $12 million to run this place. Take the accounting of bad debt and stock comp out of it. It’s the same amount. I don’t expect it to grow materially. Will it be up before up 10% in revenue, it grows, 2%, I think that’s reasonable.

 

Thomas Forte

 

All right, and I’m trying to think of the way to phrase this other than the firing the customer away. Can you give your updated thoughts on the efforts you’ve undertaken to make sure that all your customers are of the highest margin?

 

John Merrill

 

What does that mean? What do you mean? You mean, revenue margin?

 

Thomas Forte

 

Sorry, you John, you’ve been pretty explicit for I think the last, I don’t know, 12 to 18 months about turning out of some customers where you weren’t getting as favorable margins. I didn’t hear that in your prepared remarks, so I just - I don’t know if that means you’re done, done or what does that mean?

 

John Merrill

 

Well there’s probably, yes let me interject go ahead.

 

 

 

 

Randy Fields

 

We may never be done with that meaning, as a company, we think it’s important that our customers experience us successfully, and that we experience them successfully. That makes for a relationship. Over time, it’s possible that if we change our offerings, etc., we sunset other services, we’re brave enough to say, it’s no longer a good fit for the customer.

 

Over the years, we’ve been, I think pretty good about what I call pruning the business to the advantage of the customer, meaning we’re leaving you behind because we’re going in the different direction. Then secondarily, from a focus perspective, and I know this is hard for Wall Street, by staying focused on fewer things executed hopefully, more brilliantly with a higher level of automation, we actually net improve the margins across the business.

 

We don’t have any plans now to do anything. We love where we currently are. You’re going to see this, I love this word, we be inflected. As the inflection starts to show up more and more in the numbers, we feel better and better about where we are. But we’re brave enough. Tom, if a year from now it turns out we have some area of the business that doesn’t look to have a future, we will sunset it. It’s just our nature. Pruning is a good thing.

 

Thomas Forte

 

Okay. Right. I remember pruning for next quarter. All right. Then, you like to use the word automation a lot. I’m going to use the sexier word AI. Can I get your quarterly update on your AI efforts?

 

Randy Fields

 

Yes. Yes. The way we approach a scaling activity is that it’s not a people problem, it’s a process problem. Now, I don’t know that that’s universally true in the world, but for us, it’s always true that when we’re trying to scale something go from doing one a week to one a minute, when we see that as the goal.

 

We assemble our literally our best and brightest the highest-level people in our company, you’ll be flabbergasted, that the size of the team. It’s a significant proportion of our total team. We pull apart the process. We document every single step to get it done. We work backwards from what’s the result and where are we today?

 

And we dissect that. Then we build a tool that leads the customer through that process just as if a human were doing it. Maybe we’re not as smart as we ought to be, but I can tell you that every time we do that, we have to tune it. Literally, I wasn’t kidding with my remarks, when I said today, we talked about our wizard being introduced nine months ago, year ago, whenever it was. It’s out there in the wild.

 

And wow, most companies would say, oh, look at this, you’ve gone from just a few to dozens per day or 100 or 200 a week. But, that’s not how we think. How we think is every day, every single day, have that team meet, digest what we’re doing, figure out what’s wrong in the wizard. In fact, you’ll get a kick out of this.

 

Guess what we call the meetings to talk about getting the wizard better. We call it the baby is ugly. We start from a pretty negative perspective, our baby is ugly, we accept that. It can be - the baby can be way prettier than the baby is today. But you have to start from it ain’t great, it’s only pretty good. Day by day, we come up with little things that can change what we’re doing to get to an extremely high level of automation.

 

So, just if you were wishing and hoping and thinking about the future, we think one day - this is not a forecast - one day we will have hundreds of thousands of users in traceability. Not 5,000, not 10,000, not 50,000, hundreds of thousands. To get from here to there, we could - I suppose you’d hire a grundle of people, you’d end unemployment in India or some place.

 

 

 

But, what you want is to do it extraordinarily profitably on the one hand but have each customer had an experience. That at the end of it, they say, wow, that was easy. That was easy. Because easy doesn’t seem to exist in today’s world. Conceptually, we keep focusing on the automation tools. We’re not adding people to the process, because for us nine women in a room for a month do not equal a baby.

 

We want a process that can be run by a customer, managed by a customer to lead to exquisite results. It’s a different way of being in the world. That’s why, we don’t know, but let’s say three years from now we’re doing 40 million or 50 million a year. One question you would ask is, well, how many more people do you need to do that? The answer is, I don’t know, handful. Five, it maybe six. We will not be scaling the people, we will be scaling the process. I know it’s a different approach. But it’s better for the customer. It’s definitely better for the customer. That’s why we do it that way.

 

Did that—part of that part of that is AI, but not all of it.

 

Thomas Forte

 

Okay. One last question and if you answer in a way that I want to ask another one. Can you give your current thoughts on strategic M&A? But I want to add a layer to it. Could you acquire a business to accelerate your onboarding efforts?

 

Randy Fields

 

We don’t think so. Not at this point. The reason is, even if it could, we’ve got what I call, intersectionality problem, meaning, suppose we buy something, it takes us a year to integrate it. It distracts us, but a year from now it triples us. We’re going to triple and we’re going to triple our onboarding in a year without doing anything else.

 

In other words, it might get in the way. We can’t take the risk. That’s really kind of where we are. We cannot take the risk. We can afford the risk, obviously. But, it’s not worth the risk to the shareholders and more importantly, the customers to try and do more faster by buying a company that says, they’ll help us.

 

We’re as good at this as anybody in the planet. Seriously, we’re already that good. But now I want to go to a whole different level of good. I think we know how to do that. We’ve done it before. We did it in our compliance management. Year one in compliance management, we had five people and we did 200 connections. The next year, we had 10 people and we did 2,500 connections. The year after that, we had ten people and we did 10,000 connections.

 

We get scaling. Whoa, do we get scaling? But it requires automation, not people. Another company couldn’t really bring us a set of tools. Our tools are integral to the applications we have. It’s part of our competitive advantage, is this amazing development environment that lets us build things quickly and effectively to deploy on behalf of our customers. I’m sorry, I’m not touting, just really good at this.

 

Thomas Forte

 

All right, you successfully take away my desire to ask another question or need?

 

Randy Fields

 

I’m sorry.

 

 

 

 

Thomas Forte

 

Thank you. Randy. Thank you, John.

 

Randy Fields

 

Thank you.

 

John Merrill

 

Thanks Tom.

 

Rob Fink

 

Thanks Tom.

 

Operator

 

As a reminder, if you would like to ask a question, please press star, one on your telephone keypad. One moment please while we poll for questions.

 

We have reached the end of the question-and-answer session. At this point, I’d like to turn the call back over to Randy Fields for closing comments.

 

Randy Fields

 

Operator, thank you. John, thank you. We really feel very good about where we are. We’re happy to answer any questions as they come up. But we’re at the fasten your seatbelts point. Everybody buckle up. Thank you.

 

John Merrill

 

Thanks everybody.

 

Operator

 

This concludes today’s conference. You may disconnect your lines at this time. We thank you for your participation.

 

 

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