Park City Group Inc (PCYG) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Park City Group third-quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Dave Mossberg, Investor Relations representative for Park City Group. Sir, you may begin.

Thank you, Matt. Before we begin, we will be referring to today's earnings release, which can be downloaded from the Investor Relations page of the Company's website at www.parkcitygroup.com. The conference call could contain forward-looking statements about Park City Group within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current belief and expectation of Park City Group's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements.

Such risks are more fully discussed in the Company's filings with the Securities and Exchange Commission. This information set forth herein should be considered in light of such risks. Park City Group does not assume any obligation to update the information contained in this conference call.

Throughout today's conference call, we may be referring to both GAAP and non-GAAP financial results, including the terms free cash flow, EBITDA, adjusted EBITDA, net income, and earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are a useful financial measure for the Company, primarily because of the significant non-cash charges in our operating statement. There's also a reconciliation of the non-GAAP results in the earnings release and on the Investor Relations section of the website.

Our speakers today will be Randy Fields, Park City Group's Chairman and CEO; and Dave Colbert, Park City Group's CFO. Dave?

Thanks, Dave. Got a lot of Daves here. Good afternoon, everyone, and thank you for joining us on the call today. My remarks will cover our consolidated operating results for our third fiscal quarter ended March 31. I'll also comment on certain cash flow and balance sheet items, and then I'll turn the call over to Randy for his comments.

For the third quarter, subscription revenue was in line with our internal expectations and increased 11% year over year, and 7% sequentially from our second fiscal quarter. Our subscription revenue was $1.7 million and reflects the addition of 21 new supplier contracts and 2 new additional retail hubs.

Subscription revenue represented 68% of total revenue during the third quarter, up from 52% a year ago. For the 9 months ended March 31, subscription revenue was 62% of total revenue versus 54% a year ago. Growth in subscription revenue was offset by a decline in our other revenue category, in particular, our license revenue, which resulted in a 16% year-over-year decline in total revenue.

Investors should keep in mind that we've made a strategic decision to focus on building our subscription-based recurring revenue and de-emphasize our one-time license revenue model. Given the one-time nature of license and professional service revenue, the revenue trend from these categories can fluctuate significantly from quarter to quarter especially as large projects are started or completed.

This was the case again in the third quarter as license revenue decreased by $440,000 due to a nonrecurring license sale of several patents that occurred in the prior year. This portion of our patent portfolio was deemed not critical to the long-term success of the Company.

Over time, as our recurring subscription revenue grows, fluctuations in these other revenue categories will have less effect on our overall results. It is important to note that due to customer demand for the subscription-based model, the transition away from license revenue is happening faster than we had anticipated.

The acceleration of subscription revenue will affect our revenue and earnings in two ways. First, our growth rate. License sale represents large, one-time investments for our customers. So instead of recognizing the entire one-time license revenue into period it was implemented, we recognize subscription revenue ratably over the course of the multi-year period. As such, revenue will build over a longer period of time.

Second, the subscription model creates a long-term and highly profitable recurring revenue stream, which will give greater earnings consistency and visibility. Overall, we feel the subscription model provides superior economics and returns.

Moving on to operating expenses, here in the third quarter. Total operating expenses were $2.7 million, relatively unchanged from the same time last year and up $175,000 sequentially from the second quarter.

We are no longer capitalizing certain software development expenses for products that we have now commercialized, which accounted for approximately half of the sequential increase. The remaining portion of the sequential increase was related to one-time IT charges and sales and marketing activities related to the implementation of our first Mega Hub.

Headcount as of today is 63. Our present staff is comprised of 19 software developers, 14 sales, 22 software service, customer support and IT, and 8 accounting and administrative employees. Of the 63 total headcount, 8 are located in India.

Touching quickly on profitability, during the third quarter, the Company has reported a GAAP net loss applicable to common shareholders of $451,000 compared to a net income of $42,000 from the prior year.

Our non-GAAP basis, which excludes certain non-cash expenses, the net loss applicable to common shareholders was $35,000, which was an $85,000 improvement from the same period a year ago.

On a non-GAAP per share basis, we broke even versus a loss of $0.01 per share during the year-ago quarter.

Now I'll address our cash flows and financial position. As of March 31, 2011, the Company had a cash balance of approximately $1.3 million. Our debt balance was $3.9 million, a decrease of $430,000 from June 30, 2010.

Last quarter, we introduced free cash flow as a financial metric, which is operating cash flow less capital expenditures, and capitalized software expense. As we entered into the next phase of growth in our Company, we expect to generate increasing cash flows and believe this metric will be useful for investors to track our progress.

During the third quarter, our free cash flow increased to $251,000 versus a cash outflow of $98,000 during the same period a year ago. This $350,000 improvement in free cash flow was largely due to the improvement of our adjusted non-GAAP net income, which excluded certain non-cash expenses.

Overall, our balance sheet is improving and should continue to improve throughout the remainder of our fiscal and calendar year. We'll continue to use our cash flow to pay down debt. And we anticipate that we'll be in a net cash position by the end of this calendar year.

That concludes my review of the financials for the third quarter. And at this point, I'll turn this call over to Randy. Randy?

Thank you, David. Thanks, everybody, for spending time with us this afternoon. Let me see if I can give you some highlights for the third quarter and some peeks into what we see as to where we are and our opportunities.

We obviously felt very good about how the quarter went. The continued growth in subscription revenue is critical to us. Equally importantly, we continue to add additional hubs. We are now up to 30. And if you remember, we said the plan is really to add 8 to 10 per year. We're right on that target.

We also, as Dave mentioned, we've got 21 contracted connections in the last quarter. And we ended with about 670 in our factored pipeline as a backlog of connections to be achieved.

I think the most important thing that we did in the quarter that we've been talking about all year was to substantially complete what we're calling our scaling initiatives that gives us a platform for the kind of operating leverage and margins that as a business we would like to deliver to you as shareholders. And I'll speak to that in a minute or two.

I think equally importantly is the acceleration of free cash flow year over year. And obviously, we anticipate that that number will continue to accelerate going forward. And that is obviously one of the measures of the success of what we've done, both this year and the platform that we're building for scaling.

Indeed, as Dave mentioned, we will be looking to continue to strengthen our balance sheet from cash flow, and we're certainly in the debt-paydown mode. And as Dave mentioned, we would like to have, by the end of this year, the wonderful position of being net cash in relation to our debt.

Excellent success in the last quarter. I think maybe the best measure are not the measures that necessarily we give to Wall Street, it's what we call internally our business measures. And our business measures really relate to how are we doing for our customers. In the very long run, it may be a bit old-fashioned. But the fact of the matter is, in the long run, our growth depends on the increased profitability of the customers that we serve. So as you know, you've heard this in every conference call, we're terribly focused on making sure that what our customers get from us is a terrific level of service and a terrific economic result.

Let's go back to the scaling initiatives, a little bit about where we were and where we are. As you know, in the best year in our history, historically, we did just short of 100, call it 99 connections in a single year. We did that with a staff that was about 15 people working over the course of 12 months. And the objective really now is to make sure that all of that technology that we put in place during the course of this year works.

And by works, what we mean is, that we should be able to achieve our objective of 75 to 100 connections, but do that now, in fact, not with 15 people, but instead with just 2 people achieving that effort. That's the kind of scaling activity that produces a much higher level of operating cash flow and operating income, than otherwise it will be possible.

I've mentioned that we are still adding to our account executive staff so that we can properly service the customers that we're bringing to the door. That's just as important as the technology that we provide to them since they are the gateway, if you will, to additional levels of customer success.

In the course of the current fiscal year, starting last July, we've had 4 net new account managers added. And we're on a continued hiring program so that, hopefully, by the end of the next fiscal year, we should be pretty fully staffed in that whole account executive arena for us.

We mentioned early in the fiscal year that in the fourth quarter, that's the one we're in, that we would like to begin the implementation of our first Mega Hub. I think we've announced that in fact that is taking place today. That will contribute significantly to the 75 or 100 connections that we want to make this quarter. The fact of the matter is that this retailer is, by and large, in southern states like Kentucky, Alabama, Virginia, and Tennessee. And in the last couple of weeks, as you know, they've had a little bit of weather difficulty there. So the fact of the matter is it's going a little bit slower than we'd like but at this point, it feels like we'll get caught up.

So we still feel like we're in a very good shape to achieve that 75 to 100 connections this quarter. We're in the middle of what we call that paper chase since the automation is done, just tracking down the whos and talking to the people and bringing the connections on board. I think you'll see some names that are nationally recognized, consumer packaged goods' names added to our customer list in the current quarter as part of those 75 wins, and they are very exciting names, indeed.

The reality for us in terms of our ability to do this is we feel very comfortable with the scaling initiatives, have produced the kind of technological breakthroughs that we were looking for, and now as we bring customers on, we'll just have to monitor the quality of the result and be certain that we provide the level of service that our customers have come to expect from us. If you remember in the long run, our objective is our customers experience economic success. From that economic success, customers want to expand their relationship with us. From those expansions of our economic relationship, our P&L gets better. But the driver is how well we do for our customers.

I think an interesting measure of that is in the last quarter, I think almost half of the total connections that we got were connections that came from existing customers who had us connect them to other hubs. So the fact of the matter is that the proof is in the pudding, our customers are seeing the economic benefit of what we're doing, and they are adding to their portfolio of connections with us. That is probably the best possible news we could get.

We announced, if you remember last quarter, our Food Safety initiative and I explained that it would take some time for that to achieve any level of economic result, and that we would have to determine the level of market interest. I can say at this point that the level of market interest in that activity is higher than I would have guessed and that we're actively engaged in conversations with several retail centric organizations to engage with us on some basis. So that seems to be going better than we had planned. And that certainly is a very interesting opportunity for us, and frankly, the whole retail food industry.

A little bit about what to look for going forward, I think it's important to remember that the way the revenue build for the Company occurs is sort of something that we refer to internally as dollar stacking; meaning, when we do connections this quarter, there's a small services piece, a small license piece that shows up as revenue in the quarter. But the fact of the matter is the bulk of the subscription revenue from any given connection in any given quarter doesn't really show up until the next full quarter. So that's true going forward.

So if we do -- pick your number -- 75 to 100 connections this quarter, our top-line growth will show up this quarter. And then next quarter, you will see our subscription revenue go up. As we add additional connections next quarter then the following quarter, you'll start to stack those dollars. So you get the subscription revenue from the connections that take place in this quarter, plus you get the connections that take place in the next quarter, and so on and so forth through the year. So we would expect and hope that over the course of the next year, as we continue to monitor our success of adding our connections, being sure the quality is right, that you'll see subscription revenue then continuing to grow.

I think from how the outlook is, we're feeling very, very good about the opportunity. The market size for us continues to expand. And our success to date in getting both new hubs and new suppliers and new connections continues. Our market reputation is excellent and that's certainly helping us to achieve some additional sales and revenue growth.

So over the course of the next year, what we'd expect is we want to continue to add the 8 to 10 additional hubs. We certainly have the capacity now, we believe, and we'll be comfortable with that by the end of this quarter. We have the capacity to do 75 to 100 connections a quarter. That doesn't mean that we'll do 75 to 100 every quarter. It means some will be more, some will be less, but on average, what we'd like to do is a goal -- understand, this is a goal next year -- is to do several hundred connections next year, up from something north of 100 in the course of this fiscal year.

The outlook from a balance sheet perspective for us is excellent. Earnings per share growth is excellent. One of the things that we've worked hard to achieve with our scaling initiatives is this idea of operating and economic leverage. That is to say that a modest growth in top line from this point forward will produce a highly-magnified result at the bottom line. And that's the kind of business model that we've wanted to build. We know that our strength ultimately comes from our internally-generated cash flow, and the net of that for shareholders should be, hopefully, amply rewarded by the stock market.

Okay. I think that's about all that I wanted to comment on. I guess at this point, I'm going to turn it back to Dave Mossberg who will open it up for questions.

Matt, can you poll for questions, please?

Michael Taglich, Taglich Brothers.

Randy, would you give an indication based on what you've installed at the end of the March quarter, what that means for subscription revenues in the coming quarter? And give us some guidance about where you think you'd be by the end of the summer from a subscription revenue standpoint?

We don't give guidance, but I think what we can comfortably say is that in each of the next several quarters, you're going to see an increase in revenue at the total top line. You'll see increase in revenue at the subscription line. And that increase should be an accelerating increase over the course of the next year.

So where in the beginning of the year, we were looking at 9 and now 11, it is reasonable to assume that that number should begin to accelerate, assuming -- and as I say, that's the only assumption is that our success with our customers that the economic level of what they see continues to be achieved.

So the kinds of data points I think people should be looking at are the connections that we make in any given quarter. I think that's a number that people should be following. That will become a more important metric after we've shaken down our systems and feel comfortable this quarter. That will become a very important metric.

Another important data point will be the number of hubs and whatnot that we bring in. I think another really critical point for us is, at the end of the day, that subscription revenue growth which follows from success in the first two things. So I know I was vague. It was deliberate. But I think all of us are going to be pretty pleased with the numbers that we see in the next several quarters.

So subscription revenue in Q1 was [$1.55 million]?

Right.

And went $50,000 in Q2 to [$1.6 million], and was up $100,000 in Q3 quarter over quarter?

Right. Remember, and this is not an excuse, but you do have the factor in those weird one-time losses that came from the consolidation of the industry and the bankruptcy of a retailer -- (multiple speakers) that was about almost another $100,000.

So the fact is, as we look at it, we're very pleased internally, and what's good is even though now the growth rate is accelerating, that the level of customer -- how do we put this? The customer satisfaction with what we're doing that is measured by the economic opportunities that we're uncovering is growing. So that should lead to an accelerated success going forward.

What were the numbers Q1, Q2, Q3 -- just to make life simple for me -- in new customers and/or hubs added?

I'm not sure I understand the question.

Basically, you're up $150,000 in revenue over 9 months from Q1 to Q3, and --

Some of that -- I see, the question really relates to the timing of when somebody that you signed up becomes revenue. So for example, a retailer -- we have 2 retailers last year, who after they had contracted with us, it took almost 9 months to get them to the point technically that they could do the connections and whatnot.

So there's certainly a delay which can vary from a month to 9 months that we've experienced from when a hub signs up to when it actually generates revenue and ditto on the side of a connection, a connection may not go live for several months after it has, in fact, been agreed to. So much of that is totally out of our control. It's really just up to where we are in the project list from the retailer.

So we're bringing them up at a rate that the retailer is comfortable with and that produces for the retailer the right kinds of information that they can consider actionable. So I think the issue that you're looking at is if you sign somebody this quarter, do they produce revenue this quarter? And the answer to that, unfortunately, is they may or they may not. It really -- it's a deal by deal issue. It's not structural for us. Some may be right away and some may take months.

Now the bankruptcy, the customer who went bankrupt, were they $100,000 in subscriptions per quarter or a year?

(Inaudible - microphone inaccessible)

It was $100,000 a quarter in total that was lost.

And that was subscription revenue?

Yes.

This is the customer that filed for bankruptcy and the others (multiple speakers).

And two of our customers, three -- two of our customers merged producing one customer at a lower rate. So those two losses totaled about $100,000 per quarter.

Is that subscription or maintenance revenue that went away?

That's subscription. One of the other things that this raises, it is interesting. And has me, more, on the one hand, more optimistic than I was before but a little bit more nervous looking further out is the market is increasingly willing to deal with a SaaS company.

In a few cases, we've had the Company say, unless we'll sell them the technology on a license basis, they won't do business. But that's becoming much rarer than it was two years ago. To me it's startling that that's been the case. So I don't know what the cause of that is, why it's somewhat easier to sell stuff on a Software-as-a-Service basis than it was two years ago. But I have to tell you that every forecast I would have made and didn't make was wrong on the basis of how much licensing you would have to do. So it's easier now to move to a Software-as-a-Service model than it was historically.

In a couple of our segments, we unfortunately compete with people in our supply chain stuff that are license models. So in some ways, we're noncompetitive if we force the Software-as-a-Service model on a customer that doesn't want to do it. But in general, we're having way more success than I ever could have imagined at getting people to do Software-as-a-Service as opposed to license.

All right. Now you had said about a year ago you're hoping to do about a $1 share pretax in 2012. Now you're going to not hit -- because you're doing more subscriptions and less software licensing, you're not going to hit that number. And correct me if I'm wrong, we were talking about doing maybe -- was it 2.5 million less in licenses versus that number?

The original number, it's actually closer to 7 million. It's between 6 million and 8 million of our original lookout for next year was licensing revenue that's very likely not to happen.

And that's -- because it's going to be replaced with $2.5 million in subscription revenue?

No, the actual way you run it is we basically get about one-fifth on a subscription basis of what you would get on a licensing basis. We're looking for about a 5-year concept since the lifecycle of a customer, internally -- and correct me if I'm wrong, Dave, this is a very tentative number -- I think our longevity with our customers is over 7 years. So we think doing a one-fifth kind of argument given a 7-year life of customer is a pretty reasonable assumption.

So, for us, it's much better to do it this way than the licensing approach. And hopefully, the market doesn't turn in a few years as capital were freely available in the market.

But when you sell license, you typically get about $0.18 on a $1 as a licensing fee or as a maintenance, right?

Between $0.10 and $0.20 is kind of the market, yes.

Right. So if you're really calling it dollar for dollar, you'd be at $0.35, $0.40.

Well, when a customer does business with you, he does this on an all-in. So you end up paying for that in the license. He's taking a look at his total cost of ownership, so he'd roll it up and he has one number and you divide that like we would -- 5 -- then that's how we would amortize it.

Right. But typically, if you're selling a piece of software, and you're getting $0.18 on a $1 of maintenance plus the $5 upfront. If you're just [rendering] out from $0.20 on a $1, you only had $0.02 on $1.

No.

Where am I wrong here?

Well, you're wrong because we would take -- let's suppose a license is $100,000. And over 5 years, he would be paying you some percentage -- let's pick a number -- 10% for maintenance. So we would say the total cost of that over 5 years is $150,000. And you would divide that $150,000, if you will, by the 5-year recoup. That's how a customer --

Were you guys billing out licensing at a 10% maintenance or an 18%?

We had some at 6% and some at 18%.

(Inaudible - microphone inaccessible)

Yes.

(Inaudible - microphone inaccessible)

Actually, our maintenance percentages were typically quite low compared to others.

So if you had to run an average, Dave or Randy, what would that number be?

Historical, I'm going to guess, it's 11 as I remember but I certainly could be wrong with that. But I'm not off by a lot. It was nowhere near 18, all-in. For us as a company, it was -- in our legacy, our oldest ones, were at 6% and 7%, some even lower. Some were even lower.

When do you think we see the hockey stick up in subscription revenue based on the installations?

Over the course of next 12 months, you will see a hockey stick, as we think of a hockey stick.

Okay.

Okay. Thank you.

Thanks.

(Operator Instructions). Michael Fox, Park City Capital.

Good morning, guys. I hope you can hear me, I'm on a cell phone in an airport, but congratulations on getting all scaled up. I wanted to ask you, it seems like for the last couple years, the growth, I guess you guys had been deciding to grow a little bit not as fast as you could have because you wanted to scale up and do it correctly. Now it sounds like you're at the point where you're pretty scaled up. So can you talk about, I guess, the demand and you see over the next 12 months kind of the -- how many -- how did you think -- I know you'd say typically 10 hubs, looking out over the next few quarters, do you have a bunch of hubs teed up that are about ready and you can sign them up kind of whenever you want? Or will they be spaced kind of evenly throughout the year? Can you talk about that a little bit?

Well if the world worked perfectly, which it doesn't, we would bring in about two per quarter. So we brought in two last quarter. We're going to bring in, I think, I'm quite confident, we'll bring in two this quarter. And hopefully -- those customers have different startup points. So some want to get started, I mean, for example -- I have to be careful how I phrase this, let me think. I guess I can say it, this is public, yes -- is this considered public? I don't know. We'll file a transcript, FD.

But from a reality perspective, we have somebody that is a recent sign-up that is extremely focused. They're very small, small hub again. They are extremely interested in getting going quickly. That's just their preference. So they will go quickly. We have others that are going slowly.

We don't control that. That's really a function of the retailer once they've signed up. So the goal is just to sign up two per quarter in the ideal world. Then you begin the implementation process, that they experience success. As the connections experience success, then it begins to grow in terms of numbers of connections, references, and selling additional product in.

Here's a concrete example of exactly what we're looking for. Last fall, we signed up a retail hub. We began the implementation of the retail hub. I think the opportunity economically became clearer to this company. They said, we want to be the Mega Hub that you start with. They've started on that, and that is identifying some enormous economic opportunities for them. And then most interestingly, they immediately went and said, we have trouble with our computer-aided ordering, maybe we can fix some of these problems if you assist us with computer-aided ordering.

So here's a case where, in less than a year, a hub went from a retail hub to a Mega Hub, to a trial of our computer-aided ordering in less than a 12-month period. I absolutely do not anticipate that that's the way very many of them will go, but they can. This one was an extraordinary -- and they will be a great referential base for us because it's a very well thought of retailer.

So that's how you want them to go. We have enough teed up, and I think, Mike, if you take a look at the backlog that we've announced -- no, I apologize, not backlog but the pipeline. That continues to grow would suggest that there's some gating going on, and now we're going to take a bite out of it this quarter, get a bunch of these guys up and running, watch it carefully, be sure that the new people that we're bringing on -- remember, we have about 200 customers. So if we bring on what we would like to bring on this quarter, we will increase our named customer base by almost 50% in the three-month period of time. That means there's training that we have to do, explanation that we have to do, and additional focus to be sure that they get the economic result that they want, why they signed up.

And from that, straight business flows. So again, we're just very measured. I know everybody would like us to pull the stops out, but our gate has to do with the quality of service we deliver to our customer, pure and simple.

The Board of Directors of this Company is composed of some of the best-known names around. They are personally involved. They help us a lot. And none of us want to deliver a poor customer result. So the focus here is on how well we do for the customers. And so far, we're all very pleased with that.

So I think that's the ideal case, 2 per quarter. They get started within three to six months from when they've signed up. We add 8 to 10 spokes to them in the course of a year. They take a look at that and they go, wow, let's go the next year and add 25 or 30. Wow, that's great, let's add more, and so on and so forth. That's the ideal world, but that's the model we've worked from, but that doesn't mean that's how every retailer behave.

Great, great. And then at what point does the 75 to 100 -- I imagine as you get more hubs, it kind of steps up from there. I mean, how many quarters out do we think about 75 to 100 as no longer average, the average has stepped up to something bigger?

Yes, I understand the question. My goal -- this is a goal, not guidance. But the goal is that we're going to do it like this for about 6 months. We're going to check in and be sure that our customers are being as successful as we want them to be. If that's the case, then that gives us room to grow faster. But we'll continue to do this for some time. At each step of growth, I think it's critical that any business examine how is the customer faring.

Here's the way to think about it. Our customers do not care about our revenue growth. They don't care. You know what they care about? Their economic result from having hired us. So if we are right, that in the long run the value of this Company depends on customers that are thrilled with the results we've produced for them, if that's a true statement -- and I sure think that it is -- then the gate on our growth is our ability to deliver at that quality of service to the existing customers.

And here's what's happening. We're expanding our capacity to deliver on that service. And so now, it's reasonable that stockholders -- and I'm certainly a stockholder -- all of us should now expect that we've added to our capacity and now it should grow more rapidly. We'll continue to do that, step by step. And over time, I'm certain you will see much higher revenue, much higher bottom line, and much higher number of customers who will carry the flag for us, and that's really the business' objective.

Great. Thanks a lot. Thanks for all the detail.

We're feeling very good about where we are from doing this. There's still things to be learned in this area I call the paper chase and whatnot. And we've got to get better yet at the customer service thing, but we're feeling very good about our technologies and our scaling and the infrastructure in the business.

Thanks a lot. Thanks for all the detail.

Travel safely.

[Brad Grasage], GoshawK.

Hi, good afternoon, guys. Could you talk about -- it looks like you added about six program software developers to the employee base this quarter. Can you talk about that in relation to the scaling initiative? Were they brought on to help get the systems ready for the scaling initiative or is that a different issue?

No. Actually, we didn't -- so there must be some mix-up on the numbers. I don't think net, we added any developers. Sometimes we -- (multiple speakers)

So it was in India? You guys net out the India employees? Okay.

Yes, that's right. It's because, technically, they are contractors.

I got you.

But we treat them as employees as the headcount.

Yes. So going forward, I'm going to start to put them in the employee headcount because that's exactly how we're viewing them, but really, they're not.

(multiple speakers)

The bulk of the headcount this year -- in fact, I think all of it -- is in account management, where there was net 4 --

One in network IT.

Yes. We added one person to our operations group.

Okay. I got you. Okay, thank you very much.

Yes. So the scaling stuff was done internally, in essence. We didn't have to hire people to do that. It was really just our own people thinking of what the obstacles were to the scaling. Thank you for the question.

(Operator Instructions). And gentlemen, at this time, I'm showing no further questions in the queue.

Thanks, everyone, for joining us on the call. If you have any questions, feel free to give us a call.

Thank you, guys.

Thank you.

Good bye.