Park City Group Inc (PCYG) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day welcome to the Park City Group first-quarter 2017 earnings call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Dave Mossberg, investor relations. Please go ahead.

Thank you, Paula. Before we begin, we will be referring to today's earnings release, which can be downloaded from the investor relations section of the Company's website at parkcitygroup.com.

I also want to remind everyone that this conference call could contain forward-looking statements about Park City Group within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts.

Such forward-looking statements are based upon the current belief and 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 statement. Such risks are more fully discussed in the Company's filings with the Securities and Exchange Commission.

The information set forth herein should be considered in light of such risks. Park City Group does not assume any obligation to update the information contained in this call.

Our speakers today will be Randy Fields, Park City Group's Chairman and CEO; and Todd Mitchell, Park City Group's CFO.

Todd?

Good afternoon, everybody. It was a great quarter for us. Not only were we able to exceed our internal targets for both revenue and profitability, both came in at record highs for the Company. We believe this clearly demonstrates both acceleration in the business and the operating leverage inherent in our business model.

Revenue. Fiscal first-quarter revenue grew 36% to $4.2 million from $3.1 million a year ago. This was the highest quarterly revenue ever and the highest quarterly growth rate over. Record top-line results were driven by progressively stronger momentum at ReposiTrak. We believe we have passed an inflection point and it is becoming the increasingly dominant food safety platform.

Given the momentum that we saw in fiscal first quarter and continue to see, we are increasingly confident that we will not only meet but likely exceed the goals we articulated in our fiscal 2016 earnings call with regards to growth in both connection and total revenue.

Profitability. Fiscal first-quarter net income was $614,000. This was 15% of total revenue in the quarter, and I would note, nearly as high as the Company's net income for all of fiscal 2016. I also think it's worth pointing out that when compared to a loss of $407,000 in the first quarter of fiscal 2016, we turned $1.1 million in incremental revenue into a $1 million-plus swing in net income.

Some of this clearly reflects our ability to leverage investments in infrastructure, which we were just completing a year ago. And some of it is an indication of the relatively high contribution margin of our newer growth businesses. Looking out over the remainder of fiscal 2017, we continue to expect to see profitability scale materially.

Expenses. Total operating expenses were $3.5 million in the fiscal first quarter, flat with a year ago. By component, cost of services was basically flat in fiscal first quarter at $1.2 million. Within cost of services, there were no real material changes in the components. Headcount was flat. Infrastructure support was also unchanged. Going forward, we expect cost of services to increase at a modest pace in relation to revenue growth and to continue to fall as a percentage of total revenue.

Sales and marketing fell 17% in the first quarter to just under $1.2 million from $1.4 million a year ago. This improvement was due to lower costs in all components. This reflects both the shift in our overall business mix towards ReposiTrak and ReposiTrak's momentum being increasingly organically driven by its own network effect.

Going forward, we expect sales and marketing expense to continue to fall as a percentage of revenue as we transition our supply chain business model to lower-touch application sales. And as we expect to continue to benefit from increased market awareness about ReposiTrak's strong value proposition.

General and administrative expenses rose 32% in the first quarter to $1 million from about $770,000 a year ago. This increase included a laundry list of things. But the biggest component, about two-thirds of the total increase, was personnel and travel expenses, some of which was one-off and some of which was timing.

We also raised our bad debt accruals to keep in line with higher revenue levels. Going forward, we expect this number to stabilize in absolute dollars and fall as a percentage of total revenue. Lastly, D&A was $117,000 in the quarter, which was slightly lower than a year ago, which reflects replacing some aging equipment with operating [lists].

Cash, cash flow, and liquidity. We ended the first quarter with $11.4 million in cash. Cash flow trends will scale with profitability. And we continue to expect to generate positive free cash flow in fiscal 2017.

That concludes my review of the financials for the first quarter. Now I will turn the call over to Randy for some more exciting qualitative updates.

I don't know that mine are more exciting, Todd. But thank you. Okay, so first let's talk about this quarter's result, as it was a great quarter. And yes, it's going to be a great year.

The truth is all of us should be thanking the team because they executed literally beautifully. We continue to see at the level of our customers' results that our focus on taking care of them is in fact now paying off for us. They've done a wonderful job. So thank you to the whole team.

If you remember, we said at the end of fiscal 2016 that growth will accelerate significantly in fiscal 2017, and it has. And we also said profitability would scale materially, and it did. So our strong first-quarter results really were driven first and foremost by continued very strong momentum for ReposiTrak.

ReposiTrak's contribution to total revenue in the quarter was up several hundred percent from a year ago. This momentum was underpinned by several high-profile wins in the quarter, some of which included the best-known names in the industry from a retailer and wholesaler perspective.

This brought our total number of ReposiTrak hubs to about 31 from 15 about a year ago. Although, please note that going forward, as we go deeper and deeper into the supply chain that we will be adding more and more hubs, many of which will be smaller. So it means that the way to calculate how we are doing based on hubs will become less meaningful going forward.

We obviously feel really good about the prospect that ReposiTrak has looking out. We noted in our last call ReposiTrak has passed that inflection point with regard to both market acceptance as the industry standard and, frankly, its attractiveness to users of compliance-based products.

Industry concerns about food safety and compliance continue to rise that's creating a greater and greater sense of urgency among industry executives. It's important to note that the government remains terribly concerned about issues around food safety.

The Department of Justice continues to press on this. Note well that the criminal investigation into Dole and Chipotle continue. And DOJ has made it perfectly clear that they intend to prosecute companies that create food safety problems.

Just an observation and something that we see as we now scale into the thousands and thousands of connections between retailers, wholesalers, and suppliers. We're seeing a significant number of participants in the supply chain that either cannot or will not become compliant.

And we think this is a problem for the industry, and it may represent an interesting opportunity, ultimately, for us. We hope to monetize it. We will talk more about that toward the end of this fiscal year and into next year.

But overall, we continue to demonstrate to our customers that we are the only truly comprehensive, inexpensive -- underlining inexpensive -- and effective solution that deals with the kinds of problems that they face today. As a result, our pipeline of new hubs continues to grow.

Obviously, we are not satisfied. We're certainly not standing still. We are continuing to roll out new applications and features that further differentiate our offering and we believe definitely enhance our value proposition to our customers.

And we are aggressively expanding our offering deeper now into that supply chain. And I think we can very clearly see our path from where we are to an excess of 100,000 connections. But I'll come back to that in a little bit.

ReposiTrak, though, was not the only bright spot in the quarter. Growth in our supply chain business is also accelerating. Our goal of fully converging the two businesses is coming along, and the growth in revenue and supply chain reflects that success.

We continue to see super expansion opportunities for us across the business. In fact, several of our fastest-growing accounts are also our largest. Indeed, it's reasonable to say two of our very biggest accounts are going to grow in excess of 50% this year.

The clear implication is that we have plenty of headroom in our supply chain growth and convergence of the two businesses will provide lots of opportunities for us going forward. I think it's important that we remember that the more that Amazon pinches the world of physical retailing, the more attractive that our supply chain offerings become to those physical retailers.

So onto the outlook for the whole year. We're confident. We are excited about the year that remains. Although I think it's important to note that due to the 36% top-line growth in the first quarter, we are beginning to push to that point where we've got to make sure that we continue to deliver on our customer promise, enabling the kinds of success and results that we are used to delivering. So we're watching it ever more closely.

Remember, we have a deep cultural commitment to our customers' success. And honestly, that trumps -- sorry for the use of the word here -- that trumps everything else that we do. The other people in the room are laughing.

Okay. As I've said before about a billion times, we are not a quarterly company. Having said that, though, this year is going to be superb. We are confident that we will generate the highest level that we have ever seen in terms of our annual growth of revenue.

And importantly, we will see a continued market expansion as we leverage that infrastructure that we put in place over the last couple of years. It should definitely translate into double-digit net income margins and free cash flow continuing to accelerate going forward.

So now let's take a look further out. Let's get a five-year view, if we can. We are clearly capitalizing on ReposiTrak's momentum and we are going to implement a strategy to drive this five-year vision. ReposiTrak has become the dominant compliance platform in the food industry. Our market opportunity here is substantial, and we are moving aggressively to fine-tune our sales and marketing strategy to further capitalize on the opportunity.

I think it's important to note, since we've talked about this a lot, that we have now built a company that should scale relatively easily and quickly. We've done a lot. It's not that we can put this on automatic pilot; we pay a lot of attention to what we do and taking care of our customers. But I think, going forward, the scaling now will become both quicker and easier for us.

In addition, it's important to remember that the industry needs not just an effective solution for compliance management, but it also needs a low-cost and effective solution. And that's exactly what we are.

There are literally hundreds of thousands of suppliers and supply chain relationships that could be connected. And we now see a clear path to more than 100,000 connections in the not-too-distant future.

When I talk about 100,000, it's important to remember that just a couple of years ago, we were counting our connections first in the hundreds, then in the thousands. Now we are counting them in the tens of thousands and we have a view to hundreds of thousands.

I'm proud of the team for being able to execute against that kind of growth and simultaneously actually improving our customer results. My hat's off to them. They work hard, they are tremendous, and they produce an incredible result for our customers and now, we believe, for the shareholders.

ReposiTrak is obviously the core driver right now, but it's only part of our business strategy as we look out. As we indicated, our supply chain business is generating robust growth in its own right. And we remain confident that we can continue to grow overall revenues at a rapid pace for a prolonged period. And it's honestly constrained only by our ability to maintain our superb execution, focused on our customers' results.

Our growth should translate into significant margin expansion and even more rapid earnings growth. With this earnings growth, we expect much higher levels of free cash flow. And honestly, if you think about the importance of that, more cash on the balance sheet gives our customers ever more comfort. As we address larger and larger customers and they recognize they are making long-term commitments to us, additional cash on the balance sheet generated internally will be very important to them.

So if we go back and we review what we said at the end of 2016 when we looked at some goals for 2017, we set out five goals. Let's review them. We said we would bring suppliers on much faster. We said we would see an acceleration of top-line growth. We said we would have our first $4 million revenue quarter. We said we would have our first $5 million revenue quarter, and we would have our first $1 million net income quarter.

Well, as I count, it looks to me like we got three of the five done in the first quarter, and that ain't too bad. So obviously I think we can now say with a level of confidence that fiscal 2017 will see revenue growth in the range of 30%, and net income this year will be in the millions.

So we are excited about how we're doing. We hope you feel the same way. The team has done an enormously valuable job for the customers and, frankly, now for the shareholders. In short, it's a great time to be Park City Group.

Thank you. A few questions?

Paula, can you open the floor for questions, please.

(Operator Instructions) Andrew Gundlach, First Eagle.

Thanks for the upbeat comments. The quick question I have is with respect to the revenues in the quarter and the accounts receivables, can you just explain when you see that coming in as cash?

Yes. It is fair to say that the more business you do, as we are now with retailers -- notice we have made it a shift from wholesalers to retailers. Retail is a little slower-paced, so we're going to see a buildup in receivables. But that should, we would argue, peak along with the growth in revenues that we are getting. And so by the end of the year, it will unwind itself and come back to cash.

Got it. So do you see a -- the bigger-picture question is, as your business ramps, do you see yourselves needing to invest a larger historical percentage in receivables to match the growth or not?

I think at this point, it's fair to say that it's more likely to be one-time. And that by the end of this year, as we make a shift from wholesalers to retailers as the dominant growth engine, if you will, it's pretty much a one-time shift. So we don't see a need to keep investing in it.

Okay, great. Well, congratulations on the progress.

Will Hamilton, Manatuck Hill Partners.

I don't know if I missed this. But did you say how many connections you added for ReposiTrak?

No, but it's many thousands.

Many thousands.

Will, that's one of those numbers that's somewhere between -- I'm only kidding. No, we deliberately actually didn't say.

Okay. You are not going to continue providing that?

Well, we probably just won't do it quarterly. But what we did say was for the full year, if you remember, we were 10.

Right.

We said we'd roughly double so that by the end of the fiscal year, we would be at 20. And what Todd indicated was that we felt that that was now conservative number.

The reason for not doing it is because we are not a quarterly business. And I really don't want to take numbers for one quarter and then the next quarter is higher or lower. It just creates a poor metric, we think. So yes, we will be reporting on it. But we are well on our way to making sure that we are going to be north of adding 10,000 connections for the year.

Okay. Yes, I understand the quarterly guidance. It's just good to see you are maybe in a range where it's [setting] --

You can probably assume from our not mentioning it that it was higher than we expected and we just don't want to reset expectations yet. That's a reasonable interpretation of our not speaking to it.

Right. And what about in terms of breaking down the revenue between ReposiTrak and supply chain?

Yes. We are not going to be doing that and there's a whole bunch of customer-driven reasons for not doing it. So we are really just reporting from this point forward, especially since we're past that pro forma thing from last year of just reporting revenue. We will try and give some indications as to what it looks like, but we will not be breaking it out.

Will it be in the K, possibly?

No.

No? So not at all?

No.

All right. Last question -- just as it relates to gross margins; year over year up nicely. Sequentially, it's down just a little bit, but the uptick in -- is that mix between supply chain and ReposiTrak? I'm just wondering a little bit -- or is some investment in onboarding?

I think you won't like the answer to this. It's not even a number that internally we track. And the reason is it's an artifact of the accounting under GAAP is the best way to put it. Our business model is we are a largely fixed-cost business with a variable cost associated with sales and sales commissions. That's how we think about it.

So what happens from an accounting perspective is you are really apportioning costs against things like cost of goods sold and that. It's just -- I wish GAAP didn't work that way. I'm not sure that it's helpful.

So I think you should -- if I were an outsider looking in, we always try and say here's how management sees it. We really look at our expense line because it's so largely a fixed number.

And as I think Todd alluded to, that number through the year, although it was only up, I think, what, 1% over last year, it will climb during the year in dollars. But the growth rate of the top line is such that even though it will grow in dollars, it will fall as a percentage of sales. It's just a lousy metric. And it has nothing to do with us. It's really just how GAAP makes you do it.

Okay. Last question from me. You announced Albertsons, of course, which is a nice win. Is that a sign at all that you are starting to get the attention of some of these larger groceries versus in the past you were tackling some of the wholesalers before? And while that's still important, it also means we could expect some other large groceries to come onboard in the next six, nine months or whatever?

Well, let me put out a fact that we find internally very interesting. Because we are paid by the connection and we are paid roughly the same per connection, the truth is a large retailer might have marginally more connections than a midsize retailer, but it's not huge.

So let me give you an example. A large retailer might have 1,500, maybe 2,000 connection suppliers it does business with. But a medium-size retailer might have 80% or 85% of that number of connections. So going forward, the difference between a large retailer and a midsize retailer in terms of economic value to us won't be huge. It's pretty interesting.

And so it's not -- but here is what is important about someone like, let's say, an Albertsons is there are companies in the industry that you'd have to be an insider to to go, oh, they are thought leaders. They are more important than their size because people pay attention to what they do.

So we have been very successful with what I call thought leaders in the industry. We remain very close to the industry and the industry problems. So, although it's a great feather in our cap to get someone like, let's say, an Albertsons, economically the difference between an Albertsons and a midsize retailer is not enormous. So from a shareholder perspective, it's less important than it would appear.

Is that helpful? And I know that's your second last question. Do you have a third last question?

Yes. One more. Because we don't want to give too much love to ReposiTrak; you want to give little bit of love to the supply chain here. So just as you mentioned that accelerating growth there, are we talking midteens type growth? And would you just elaborate a little bit more what you are seeing in terms of the catalysts behind that? What is driving the reacceleration there?

Well, the largest driver, as I mentioned, is two of our largest accounts are going to grow at near a 50% annualized rate this year. So even very big accounts where you would think of us as relatively fully deployed we are finding more and more opportunities.

So I think -- I'm not sure how to say this. I feel badly that our supply chain business is a redheaded stepchild. And it's not fair and it's not reasonable and etc. It is now going to get tied more closely to the rest of our activities, including ReposiTrak, and that over time I think the two growth rates will converge. So it will speed up.

And you can't grow a company like ReposiTrak, as we are now, in the hundreds of percent per year. That will slow a bit in the outyears. But it is perfectly clear to me that supply chain is going to pick it up.

So it's doing wonderfully. We continue to execute, honestly, brilliantly. Brilliantly. We are really producing some tremendous results for our customers. And that's what enables us to continue to expand our footprint within even our largest account. So again, I'm proud of the team. They've done a hell of a job. And going forward, I think we will get more out of the supply chain business.

Okay, let's go on.

(Operator Instructions) Walter Schenker, MAZ Partners.

Randy, even you never suggest that you would be the only person in food safety, but expected there to be multiple competitors. Could you just give us some sense as you accelerate the growth and you pick up some big people such as an Albertsons how they, on a competitive basis, made a decision, whether it was a bake-off, whether there were two or three people with competing systems?

It doesn't have to be -- you don't have to name which account it is. But just a better sense on how your customers are making their decision?

Yes, that's interesting. Good, that's a terrific question. Let me tell you what I know, and this is completely full disclosure. We have been told by one, two, three, four of our largest customers not in terms of revenue to us but their actual scale in the marketplace.

So four of our largest customers have all said essentially the same thing, which is they examined every way they could think of to do what we do. And they all came back and said that we were in a league all by ourselves in terms of both capability and market reputation.

I'm kind of blown away by it. You love it when your team executes. You love it when they take care of your customers. But our customers really, really like -- in fact, I wish I could -- I got an email from one of our customers recently. And they had given a presentation on our behalf at a food safety show about ReposiTrak.

And now I'm going to -- I can't remember a direct quote, but I'm going to get as close as I can. I simply sent this man an email and said: Hey, thank you very much for speaking on our behalf. And he said: Randy, you should be extraordinarily proud of the team you have surrounded yourself with. They are absolutely extraordinary, like nothing I have ever seen before.

I was just blown away by it. But we hear that all the time. Our people are very good. What we do is very good. And I know it's upsetting that I can't give you better information. But I can just tell you the biggest guys in the industry, when they check us out, always come back with wow, you guys understate what you do. I've heard that repeatedly, too.

So we stay close to the industry. When we make mistakes, we are all over it. If there were our competitors out there, I think it's important to realize that we are still -- and here's something to think about that we believe to be true -- that we are very close.

And by the end of this fiscal year, I want to be able to say definitively that we have now gathered enough retailers and wholesalers into our corner that as you look down their pyramid supply chain that we will now be able to touch every supplier that distributes food, touches food, manufactures food, or grows food. Other than the few suppliers that are captive to a retailer, all of those will be in our direct chain.

So that's the road we are on. I'd like to be there by the end of this year; if not, certainly by the end of next year. So even if there is a competitor, this isn't the case -- please remember that if you have an alternative, let's say, DISH versus DirecTV, as an example, consumers pick one or the other.

But it's possible that -- I'm making this up -- Walmart will have a Walmart system. And if you are a supplier that supplies Albertsons and you supply Walmart, you will have to be on two systems.

And therefore, we will get every possible connection that we could get. But it's also possible that another system might also get some connections. It won't take away from our share. We will get every possible connection. So as long as we continue to focus obsessively on our customers, we will win. It's just that simple.

And therefore, since it's -- as you describe it, it's based on capability and service, you are not -- no one wants to pay more, and the monthly payment is fairly low. There's no reason to believe, at least for the foreseeable future, you will face margin pressure from competitive pricing?

Oh, no, definitely not. We priced -- it is fair to say we are priced very low, very inexpensive. And I think I said that already three times in my presentation this afternoon.

Because we understand this industry, we almost have a pact. It's not an explicit pact; it's an understanding pact that says this is a low-margin industry. It needs not just an effective solution; it needs a cost-effective solution, emphasis on cost. So we do this at very low rates.

And I would tell you, Walter, we have in many cases had to push back against the idea of, well, you could charge more than that. We actually have some people that are incredulous at how little we charge. For what we do and what we charge, it's a great value.

But the goal really is to avoid the industry having a point of view about us that they are expensive -- they are good, but they are expensive. That's killer. We want people to say they are very fair in what they charge and they are extraordinarily effective.

Good. Okay, thank you, Randy.

Jon Evans, SG Capital.

Can you just talk a little bit about the sequential increase in G&A and just how you guys think about that G&A line as you go forward?

Yes. Typically, we level up with our employees in the first quarter. And it can be a high OpEx quarter for us. And as I said, there were some one-time items there; there was some catch-up in travel expenses.

I think going forward, G&A will probably be flat. It could even be down. I don't think overall operating expenses will be down. But I think its component will become a smaller component of the overall mix in the coming quarters.

So when you say flat to down, you're talking, like, if I took your last year's annual numbers that it could be flat to down, G&A total dollars? Is that what you mean?

I was more thinking of flat to down sequentially over the coming quarters versus the first quarter, yes.

Okay, got it. And then the other question is you've talked about a $5 million revenue quarter this quarter. Can you just help us think about the seasonality? Is that the expectation for your fourth quarter, or -- because you do have some seasonality in the business, correct?

No. Actually, what we said was sometime during fiscal 2017, which ends in June, we would have -- we only have two things we have left to do to keep our goals for the year intact. One is to have a $5 million quarter, and the other is to have a $1 million net income quarter. So we haven't said which quarter that is.

And there is some seasonality in the business. So we are not terribly sequential. If you go back and look at history, you will see we're not terribly sequential. There is seasonality, and that's because retailers, of course, have a high degree of seasonality in their business. And therefore they tend not to start projects at certain times of the year.

So don't look for us to be sequential yet. In a year or two, we will be more sequential. But sometime this year, we are going to have a $5 million quarter and we will have a $1 million net income quarter sometime this year also.

And then just a last follow-up is I assume -- maybe this is the wrong assumption. But the timing of the Albertsons announcement that you have -- did you receive any revenues in the quarter from Albertsons? Or do you want to disclose that?

We tend not to talk about that. Let's talk a little bit, though -- you give me a good platform, and I hate to hitchhike on it, but I will. A number of our customers do not make announcements about working with us. And it's not about us; there are just some that don't see that they should.

We encourage people to do it because it helps them with the recruitment into their supply chain of their suppliers. So making a statement about food safety to your suppliers, if you are a retailer or a wholesaler, we think is a very important thing to do.

So it is fair to say we also will add hubs that will not show up in press releases. And that's maybe, I don't know, 25% or 30% of them just never show up because they just don't want to do press releases. Nothing personal, it's not us. They just have a general position about doing that.

Great. Thanks for the information.

Steve Bell, private investor.

Randy, Todd, congratulations on a great quarter. Randy, you mentioned the new apps and features that you've got coming here. Can you give us a little more color on what those might be, and in which -- ReposiTrak or of the legacy side?

Yes. All over. We've got -- you know what's interesting. When you have a vision of something, my life experiences, the vision tends to be a little fuzzy. It's not quite like follow the dots. It's better than that, but it's not fully filled in.

And we are -- let me give you an example of that. Three years ago, I never would have imagined that we would end up getting into the relationship that we are now in with SQF. There is a perfect example of something that now fits into the fold. And it wasn't part of the vision.

So I apologize that I'm being opaque here, because I try not to be. But Steve, it's all over. We've got some new things coming in food safety. We have some things that are -- we have two more things that are coming that I think have the potential to be larger than our food safety business, ultimately. We are just not talking about it yet.

Here's a little one, just an example. This is tiny, but important. We spend -- I don't know; I hope I've mentioned our customers 10 times so far. Here comes number 11.

Our customers really help us. And they help us not just because they are references for us and they talk about us, they help us because they give us new ideas. So we had two of our top people go visit one of our largest customers that has been around in ReposiTrak for 3 years now, 2 1/2, 3 years, one of our first.

They marched us around their warehouse, one of their warehouses. And while my guys are marching around, they see some dude with a baseball cap and a funny uniform walking around. And every 50, 100 feet he stops, bends over, looks at something, takes a picture.

So they said: What the hell is that? Actually, they didn't say that. Randy would have said that. They were probably nicer. They probably said something like, wow, I wonder what the gentleman is doing.

And what we found was that this guy is a full-time individual who goes around and inspects rodent traps and insect traps inside a food warehouse. Makes perfect sense, perfect sense.

So we figured out how to automate that. How do we take -- this company, seriously, every year uses 140,000 pieces of paper, 140,000 pieces of paper tracking -- and they do this. He opens up these traps, and if there's a little rodent in there -- remember, Randy is an animal welfare guy. So he sees some poor little rodent in there. He takes a mug shot of this rodent that has to be put on file along with some piece of paper. We are going to end all of that.

That's just one company and 140,000 pieces of paper?

One company, 140,000 pieces of paper.

And you would basically eliminate it or make it [so ritual].

All gone, all gone. And there are two full-time people doing this. We think that there's a potential for a productivity improvement there. So when we go out and we visit with customers and we say, where does it hurt? Sometimes the customer doesn't even know where they hurt because they are so used to doing what they do today. I assure you they never would have thought of, well, maybe we can automate this process.

But we came back from that visit with four or five ideas around safety that will significantly improve the productivity of our customer. Obviously, we will make money doing that. They will get a tremendous payback. And it can be sold to our other customers.

So our customers help us deepen the offering. We have a couple of pilots going right now and some new activities that I'm not going to talk about that have, we think, very significant upside. I think --

Timeline on the pilots? Would you guess 6 months, 12 months?

Oh, at least a year. These are really interesting big ideas. These are nontrivial. This is not like a new little app. This is like -- it's a big idea.

Okay. And I guess my last question would be you mentioned that in the legacy side of the business that it's growing as well. I'm wondering if you could give us some color as to perhaps what categories -- salty, dairy, produce. But what categories are showing the most activity currently?

It's everything. In fact, mostly what we are seeing is people are coming to us with why can't we do this category. One of our customers has come to us, and we are going to do beachwear. So there's no end to what we're doing on the supply chain side. We just need somebody that's willing to experiment with us, give us a chance to execute and see how we do.

But our hubs are increasingly innovative. They are increasingly willing to examine pretty fundamental business propositions about how they do business today. If we are right, Steve, if we are right, five years from now, retailers will be doing business very differently than they have been doing. And I think we are going to be right in the middle of that.

Okay. And the last thing --

And I'm deliberately ambiguous.

That's fine. I expect that from you. The last question I would have as far as the -- I know I mentioned this the last call. But possible new verticals? We have certainly talked about pharmacy before; you certainly mentioned transportation last quarter. Where might things in that general area be as far as new verticals?

Well, transportation is going to happen because retailers and wholesalers will have to track stuff around their drayage. So that just is going to happen. That will really not so much be --

[Progress] since our last report.

That won't so much be a new vertical for us as an extension of what we are doing. I've already mentioned that I continue to be disappointed in pharma, but we are working really hard on some interesting stuff in food service. And we will see. We have yet to land a big one, but that's not to say we are not trying.

Certainly.

Food service has a pretty interesting potential.

Gentleman, thank you. Great call and certainly great earnings.

And that will conclude our question-and-answer session. I'd like to turn it back to our presenters for any additional or closing comments.

Thank you all for listening. And we are available if anybody has any follow-up questions.

And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.