Park City Group Inc (PCYG) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Park City Group Fiscal Fourth Quarter and Full Year 2018 Earnings Call. Today's program is being recorded.

At this time, I would like to hand the conference over to Mr. Rob Fink, Hayden Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today. Hosting the call are Mr. Randy Fields, Park City Group CEO and Chairman; and Todd Mitchell, Park City Group CFO.

Before we begin, I would like to remind everyone that this call could contain forward-looking statements about Park City Group within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts. Such forward-looking statements are based on current beliefs and expectations of Park City Group's management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risks. Park City Group does not assume any obligation to update the information contained in this conference call. Shortly after the market closed today, the company issued a press release overviewing the financial results that it will discuss on today's call. Investors can visit the Investor Relations section of the company's website at parkcitygroup.com to access this news release. In addition, in our earnings release and on this call, we may refer to GAAP and non-GAAP financial results, including free cash flow, EBITDA, adjusted EBITDA and adjusted earnings per share, which are non-GAAP terms. We believe these non-GAAP terms are useful measures for the company primarily because of the significant noncash charges in its operating statement. Reconciliations of GAAP and non-GAAP results are in the earnings release and on the Investor Relations website.

With all that said, I'd now like to turn the call over to Todd. Todd, the call is yours.

Thank you, Rob. Good afternoon, everybody.

Fiscal 2018 was the year that we brought everything together. In the latter half of last year, fiscal 2017, we began to make strategic investments to bring new products and new services to market, to round out our offering. In fiscal 2018, our revenue trends grew progressively stronger and our growth and expenses steadily declined as we benefited from these initiatives. And as a result, our fiscal fourth quarter was a strong end to a solid year across the board.

That being said, the year was clearly headlined by the successful launch of MarketPlace. This is an entirely new offering that seamlessly leverages our converged ReposiTrak platform, benefiting from both our supply chain and compliance solutions. With MarketPlace, we can now help our customers with every aspect of their workflow across the supply chain, making us the only in end-to-end supply chain business that can help a retailer source that and transact with their suppliers.

And we're seeing the positive results of our efforts. We are deepening our relationships with the suppliers on our network. MarketPlace is changing the dynamic of our relationship with these suppliers. We're no longer just a mandated service in their eyes. We're a partner in helping them to grow their business.

Our Tier 2 Supplier HUB growth initiative is also deepening our compliance relationships with these suppliers. We're no longer just a way that they show their customers they're compliant. We're a partner in helping them make sure their own suppliers are compliant and in helping them complete the myriad of activities they need to become compliant themselves.

We're also deepening our relationships with retailers and wholesalers. MarketPlace is a solution to yet another challenge they face, helping them source new products faster and more efficiently from suppliers that they know are compliant. And at the same time, our successful compliance engagements are helping us establish a relationship with every one of our retailers or wholesaler suppliers and showing these retailers and wholesalers we have the resources to execute at scale. This, in turn, is leading to bigger mandates across our business.

I hope you noticed that today, after the end of the quarter, we announced, we had signed our largest compliance deal ever. This follows signing 3 supply chain deals during the quarter for scan-based trading that were very, very material in scale as well. In short, we are seeing greater interest across our entire product offering.

Looking at the numbers a little more closely. We're very pleased with our fiscal 2018 results, and we expect to see even better results in fiscal 2019.

Fourth quarter revenue grew 22% to $6.3 million. As a result, full year revenue grew 16% to $22 million. As I mentioned, fourth quarter growth was the highest of the year, and we feel good about our position going into fiscal 2019.

Top line growth for the year was driven by the scaling of MarketPlace in the second half of the year with approximately $1 million contribution to fiscal fourth quarter revenue and a record quarter in Supply Chain growth in the fiscal fourth quarter, which drove a record year for that business.

I also want to highlight, we saw strong growth in subscription revenues for both our Supply Chain and compliance businesses every quarter this year.

Looking to fiscal 2019, we expect revenue growth to continue to be in the solid double digits with the first caveat, we're still not a quarterly company, so there will be variability in our quarterly results. And as we've said, MarketPlace is transactional and is becoming quite large quite fast. So it could add variability to our quarterly results despite our growing reoccurring revenue base.

And the second caveat, our Tier 2 Supplier Growth HUBs are much smaller than our Tier 1 retail and wholesaler HUBs. So while we expect to do significant volumes from our growth initiative here, in aggregate, this will start up small and build progressively.

With regards to profitability, our fourth quarter net income rose 44% to $1.3 million, up from $883,000 a year, growing at twice the rate of revenue. This shows we are beginning to see the positive return from our investment initiatives. And this trend will only become more apparent in fiscal 2019. We are focused on growing profits above all else.

In that vein, expense growth continued to moderate in the fiscal fourth quarter. Total operating expenses rose just 17% to $5 million versus a 23% increase for the full year to $18.5 million.

We are investing where it will translate into profitable growth. We're supporting our new product initiatives. We're maintaining our high level of customer service, whether it be by scaling our Success Team or investing in the back office in internal automation. And while we talk of these investments in terms of driving revenue growth and operating leverage, what they're really designed to do is to drive customer success.

Looking at expenses by component. Cost of service increased 23% in the fourth quarter to $1.9 million for a 24% increase for the full year to $6.6 million. This increase from last year was primarily due to incremental expenses associated with MarketPlace and incremental expenses to develop new compliance applications.

Process service will continue to grow as we invest in our business. But the last quarter was a step up, so increases should moderate in fiscal 2019.

Sales and marketing rose 16% in the fiscal fourth quarter to $1.6 million for a 26% increase for the full year to $6.4 million. This increase from last year was primarily due to costs associated with building up the Success Team and giving them the tools they need to be successful. As we saw in the fiscal fourth quarter, we expect growth in these items to moderate -- to continue to moderate in fiscal 2019.

General and administrative rose 13% in the fiscal fourth quarter to $1.3 million for an 18% increase for the full year to $4.9 million. This increase from last year was primarily due to higher spending in back office and other enabling infrastructure. As with sales and marketing, we expect the growth of these items to moderate in fiscal 2019.

With regard to cash flow and liquidity, we ended the year with $14.9 million in total cash, up $900,000 from $14.1 million at the beginning of the year. This was against accelerated investment in MarketPlace, increased investment in the Success Team and enabling infrastructure and the redemption of $1 million in preferred equity.

Looking into the future, we feel good about the trends going into fiscal 2019. We expect to see continued double-digit growth in revenue, and we expect to see even faster growth in net income and cash flow. That being said, we will continue to focus on our customers. We believe we have the right product set. Now we need to take advantage of the opportunity in front of us. And to do this, we will continue to focus on execution.

We cannot say it enough. Execution is the key to our success. It's what drives an amazing level of customer retention. We have such high retention because of our focus on customer success because our customer success is the bedrock of our company.

If our customers are successful and they feel in relationship with us, they will want to buy more from us.

Thank you. I'm going to turn the call over to Randy now.

Thank you, Todd. Thank you, everybody. I'm -- my remarks today will be as scripted as the last few of them. But don't worry, there's plenty of time to ask questions at the end.

So obviously, we've just finished a milestone year for the company. And frankly, 2019 is poised to be an even more important year overall for us, for our customers and, frankly, for our shareholders. As we've noted before, our customers responding to multiple challenges in this environment include retailing. And this is creating some amazing opportunities for us. So I'm going to discuss several of these trends, which are impacting our customer set and our prospects set.

First, most importantly, perhaps, are changing expectations from consumers. And it would appear that consumers don't just want more varied product choices, they want organic, GMO, non-GMO, more locally sourced, et cetera. And that, therefore, is driving a high degree of product diversification pressure on retailers.

Consumers are also simultaneously demanding more in stock from this diverse and, for the retailer, more complex product set. So in other words consumers are making the job of retailers a harder job. They have to stock more items, more diversified, more locally sourced and keep them all in stock, tremendously difficult problem.

Secondly, retailers have to deal with what we perceive, and I think now the world perceives, as increasing risk and regulation in their supply chain. Interestingly, it's the consumer expectation that is driving that risk, meaning as you diversify your product set as a retailer to more and more suppliers, who are typically smaller and smaller, the risk around food safety, et cetera, is going up. So strangely enough, consumers wanting localization and product diversification are pushing retailers into a more and more risky position with regard to their supply chain. It's inherently more risky.

Now third, retailers are facing a growing regulatory and tort risk. In case you didn't notice, and this is not just in the Food Safety Modernization Act, which got us into the compliance business, but if you notice, last year was a record number of recalls. In other words, for whatever set of reasons, the world is becoming just a little bit less safe from the perspective of the kinds of foods and the quantity of foods that are making people sick and are having, therefore, to be taken off the shelf.

But here's another example, and this one, interestingly is socially pressed. Prop 65 in California. Prop 65, and I'll come back to explaining exactly what it is, has become an increasingly difficult problem for our customers and, therefore, a major opportunity for us.

Perhaps finally, we should be thinking about new technology, which is becoming more interesting, if you will, to the food business. This is an important dynamic because it would seem logical, and I'm sure it does seem logical to you, the businesses would always be looking for the next big thing to help them get a competitive edge but that's not been the case for the food industry historically. Remember, this is a risk-averse, low-margin, conservative industry. They don't want to do something until they see someone else do it first, almost a chicken-and-egg situation.

But Amazon's acquisition of Whole Foods has changed that. It's created a frightening problem for our customers and has created a huge catalyst for change in the industry because Amazon is showing them what they need to do. How? Well, Amazon is addressing the changing consumer demands. If you go on Amazon and look at the number of food items, it's staggering. It also offers, frankly, the consumer a wide variety of information about products, including are they there?

There is virtually no retailer in the United States that maintains a perpetual inventory that enables to know -- that enables them to know exactly what's on the shelf. If you've used any other food delivery services like Shipt, Instacart, et cetera, you've found frequently that an item that appears to be in stock, they call you or text you or whatever and explain that you'll need to substitute it if you want the order completed. The reality is, retailers have a difficult time with just knowing what they have on the shelf.

And finally, and this is really the critical element here, by acquiring Whole Foods, Amazon is taking the technology that it has at its spaces, putting it in brick-and-mortar so it's just down the street from your local grocer. That's creating an interesting sense of urgency in the industry.

But overall, that's what makes, for example, our MarketPlace so important. ReposiTrak MarketPlace, by the way, isn't just another offering in our product suite. I think it has a pretty reasonable chance of becoming the cornerstone of our entire ReposiTrak platform. And that enables our customers to move more rapidly, increase their product choice and localize their business and simultaneously manage their inventory with more agility.

Obviously, we think we're a lot more than simply the MarketPlace company in spite of how it's performing. We're clearly the industry leader in compliance and food safety management. I think it's noteworthy that we're now coming up to nearly 70,000 connections in the compliance arena. Our supply chain capabilities frankly are unrivaled in terms of addressing the needs of our customers, and I think that our total customer connections across all of the platform is something in access of 250,000. So we're at scale, and that's critically important to the kinds of customers that we're doing business with.

During the last 2 years, the team has worked enormously hard to converge to the Supply Chain and compliance businesses and launch MarketPlace simultaneously. This introduction of what we call a converged ReposiTrak platform is without a doubt and in the long run will be seen as the most important development in the company's history.

With the platform, we're now uniquely well suited to help our customers be successful as they face ever-increasing challenges in managing their supply chain. I'd like you to think about it this way: While others define supply chain as simply forecasting and ordering, we think supply chain is very, very, very different than that.

So here's how we would define supply chain. It's, one, sourcing suppliers. We do that. Two is vetting those suppliers to be sure that they are someone that a company should do business with. And then thirdly, it's that space that others consider to be the whole enchilada, if you will. It's transacting business with those retailers.

So we've begun getting new customers, interestingly, now from all 3 of those applications that we have: from MarketPlace, from our Compliance Management and from our Supply Chain business. Frankly, it's a bit of a surprise, but it's a nice one.

Our original vision was that compliance would tend to bring in all of the new customers, but now we're seeing that all 3 applications suites are attracting net new names to us. We're proud of that, and frankly, as long as we continue to execute it, should continue to be the case.

Well, a little bit on each of these product suites. Let's start with MarketPlace. First point I want to make is that MarketPlace is incremental on an already strong business. It's different than the other pieces of our business. Second thing I want to highlight is, although it's incremental, it's quickly becoming a big deal for us, and therefore, it's garnering a lot of focus internally and a lot of our resource.

I'm sure all of you also that -- the announcement that it achieved nearly $1 million of revenue in the fourth quarter. That certainly makes it our most successful product launch in history. In fact, just for comparison, it took our Compliance Management business 12 quarters to ramp to the point that it's a $1 million in quarterly revenue.

Interestingly, so far because we want to make sure our execution is absolutely brilliant as we expand the product, there's really only one buyer in the marketplace, currently. And that buyer is continuing to expand the use of the MarketPlace tool into other areas and product categories across their business.

I think in the long run and something to note is this makes MarketPlace by far the highest revenue per customer product in the whole portfolio. And that's why over time, if we're successful with it, it will become a very important part of our total business.

But while we're scaling MarketPlace, we do expect to add at least 2 new buyer HUBs, and that's our goal during fiscal 2019. So we're going to go, hopefully, between now and next June, from 1 to 3 buyers in the marketplace. But remember, as you've heard me say countless times, we want to scale it based on success, not just scale it.

So we're finding buyers with specific needs and then making sure we have suppliers in the marketplace that address those needs. The idea is as a dating service, if you will. We're trying to set up a win-win proposition on both sides of the transaction. Why? Well, it should be obvious. This approach creates happy, referenceable customers. Yay.

So we're confident that MarketPlace will be a significant growth contributor to fiscal '19, and frankly, it's the center of plate in terms of focus.

Although, I would be remiss not to remind you that MarketPlace is going to be seasonal so progress is unlikely to be linear, and it's not a finished initiative yet. We still have lots to do to make sure that our execution and how we manage that business continues to grow on the right track.

Now for those of you who remember, that's exactly what we did with the compliance business. In the first year with compliance, we did 200 connections with ReposiTrak compliant, and as you know, recently, we've done in a typical year 10,000 or more connections.

So we're really good at learning how to use scale of business from an execution perspective without in any way denigrating the quality of what we do.

Well, speaking of compliance, compliance continues to be a growth engine for the company. We're still seeing strong Tier 1, meaning retailer, wholesaler HUB growth.

We had the 3 new Tier 1 HUBs in the fiscal fourth quarter, and as we highlighted in the press release after the end of the quarter, we signed the largest deal for compliance that we've ever done before. This was a big win for us, obviously.

We're now seeing growth from 2 compliance initiatives, the Tier 2, our supplier HUB initiative, and the whole Prop 65 mandate. Let me address both of those things quickly.

With regards to Tier 2, our Supplier HUB growth initiative, after we have the Success Team focus on MarketPlace implementation, if you remember in the fiscal third quarter, we shifted more of their focus to Tier 2 upsells in fiscal fourth quarter, and that actually produced results quite quickly. We added as many supplier HUBs in fiscal 4Q as we did the entire fiscal year up to that point in time.

So with many, many thousands of suppliers already in our compliance network, this represents, in the long run, a huge opportunity within our existing book of business. We simply have to become more and more capable at delivering the sales message, the marketing message and converting them from the kind of user they are to now actually becoming what we call a Tier 2 or supplier HUB.

On the Prop 65 mandate. It's one of those amazing things. Prop 65 is a California -- where else would it be -- California regulation which requires retailers to get their suppliers to confirm that their products don't contain harmful elements, which means virtually every product has at least one of those. And ReposiTrak is a perfect solution for monitoring that kind of information.

So we're starting to get more and more incoming calls from retailers that weren't even on our prospect list, worried about the impact of Prop 65 on their business. So as a result, I'm confident that compliance will continue to be a significant growth contributor in our fiscal 2019 and beyond.

In terms of Supply Chain, as Todd mentioned, we had a record quarter in terms of Supply Chain growth, led to a record year for the business. And if you remember a couple of years ago, everybody's saying, "Well, what are you doing in the Supply Chain?" We said, "Don't worry. We tend to focus one product at a time so we don't overstress the system." And now we're seeing a terrific revival of interest, frankly, in both -- in our original product, which was scan-based trading.

And in case you don't know what scan-based trading is, it's really an application, if you will, or a business process that allows retailers to do consignment inventories so that they don't have to invest in the inventory, the supplier does. We help them track it, manage it, et cetera. We invented this process back in the '90s, we enabled retailers to, in essence, therefore, sell more but stock less.

It obviously can remove a significant amount of inventory from the books, improving the retailer's balance sheet, giving them more flexibility, and when you join it with our forecasting and ordering, wow, it simultaneously reduces inventory, but interestingly, we can increase sales by reducing out of stocks. So it's sort of a double-barreled shotgun.

During the quarter, we signed 2 deals with large retailers to adopt our scan-based trading platform. We inked a third deal with a large national supplier to execute scan-based trading across, I think was about, 14,000 customer locations. Very exciting because what this now shows, and this is important, is that all 3 of our application suites on the converged platform are attracting net new customers. In other words, we have 3 points of entry into the ReposiTrak suites of applications.

Now this is a slightly different take, but I think it's important for you to understand how we think about this. By having 3 distinct suites, we appeal to a broader range of prospective customers; we increase our upselling potential; but at the same time, we reduce our risk of being dependent on any single application or any typical competitor. Very important. We increase our attractiveness and simultaneously reduce the risk that just in case we had a problem in one segment of the business, it is not the only leg of the stool, if you will. Please try to remember that as we progress over the course of the next several years.

With the introduction of MarketPlace and our ReposiTrak converged platform, we have a service offering and now a sales structure that carries into the future. It's not mature yet. It's a work in progress, but it's coming along.

Our customers can use the ReposiTrak platform to contend with virtually any of the challenges that we talked about early in our call. That's why we ended the year on a strong note. It was the highest quarterly growth, and most importantly, net income grew twice as fast as revenue.

Our profitability is obviously important. We know that. It's important to you as an investor, but it's also important to our customers. More and more of our customers are large companies, and they want us to have staying power. So cash on our balance sheet and improved profitability is important to them as well as to you. And that's why we feel good about our position going into fiscal 2019.

We now have multiple drivers, all 3 of the application suites are working together. So think we it this way: We've got MarketPlace for sourcing, compliance for vetting and Supply Chain for transacting across the entire business.

As such, we should continue to see very strong earnings growth. We've largely completed the investment in new product introductions, but we still have some very exciting additions coming, I'm giving a little hint here, especially in the area of artificial intelligence.

We've been doing some interesting research around AI, and I think you'll see AI start to appear in a number of our applications, helping our customers in a dramatically different fashion than we've been able to. I hesitate to use the word revolutionize, but I think it's close to revolutionizing how we interact our customers in terms of what we can do. More on that obviously later, but we're reasonably close to actually piloting and testing some of these AI ideas.

We've largely completed the investment in our back-office automation. Although MarketPlace is still young, so obviously that's going to require some additional work.

But as Todd mentioned, fiscal 2019 again is going to be about execution. We have to continue, though, to tune our cross-selling abilities. We have to continue to improve our back-office management, and we have to continue to implement our supplier HUBs at an ever-accelerating rate. We've got to be faster and faster and better and better.

And we have to do that while continuing to generate superior results for our customers because, just as Todd said, if we continue to execute superbly, our customers will feel in relationship with us and if they do feel in relationship with us, they'll want to buy more from us.

The execution has been fabulous, and that's why I don't know, seriously, of any technology company with lower loss of customers or churn rate than we have. We really do deliver. We really deliver on our customer problems.

So our goal here really then is simple. It's to continue to execute superbly, continue to help our customers be successful and continue to build a highly profitable business. Tada. That's it. Questions?

(Operator Instructions) Up first is Ananda Baruah, Loop Capital.

I guess I have a few here, if I could. You guys did a good job, or you did like a really helpful job of kind of walking through the different legs of the stool and where you are right now within in the interplay between them. Could you drill down a little bit and just give us a sense of blocking and tackling perspective what you'll be focused on through the fall and then into '19? This is the first time you've had, let's say, you're kind of higher level, all 3 businesses, all 3 services, up-and-going at the same time. So how do you guys plan on mining those 3 together now? That would be helpful. And I have a couple of follow-ups.

So I think it's fair to say -- by the way, I think you should offer a prize for the first person that pronounces your name correctly. Sorry. I think the reality is that we're going to be focused, to a great extent, on what we call the Tier 2 HUB initiative. It's a learning for us, we're going to have to get skilled at it. It requires a different approach than we've taken before. So we're experimenting, and pretty soon, we'll have a business process, if you will, because I'm, by nature, process driven. We'll have a process that produces the result. That business over the next several years is very important to scale. So first, we have to learn how to do it, and the consequence will be we'll scale it. So Tier 2-ness, if we will, is a critically important initiative. Secondly -- in fact, it's a lot of my time, honestly. Secondly, focusing continually on MarketPlace. It's obviously going well. We're so pleased that the execution has just been great. There are still significant learnings in the back-office part of MarketPlace that we want to get better tuned, but I would say if you put those 2 initiatives to the top, that's a big piece of the focus inside the business.

Got it. And Randy, you made mention of the Tier 2 is going to be a strong focus of your time as well. What -- in what way? I guess, in what ways will it require your time and attention?

Well, we're moving from a service-centric organization. In fact, let me give you -- I want to -- I'm going to put a number out there. I'm not highly confident that it's going to be correct. But I think it's pretty close. But if I were to say that our churn rate last year, meaning of our loss of customers, was what, Todd, 2%?

Right around 2% in the compliance business.

It's just crazy. I mean, we are really, really good at doing this. So the business reality for us is that we've gone -- we're going to have to move from a service-centric organization to a more sale-centric organization with that group of people. So that takes some training and management and process. But it's coming along. So it takes time -- everything in this business takes time and focus if you care about execution. If all you care about is marketing and sales, it's actually pretty easy. But if you care about the customer experience, you better pay attention to the execution or you will pretty soon screw it up and lose your market reputation. So huge percentage of our time is internal on how we're executing with our existing customers. And that activity will take a lot, really will. But I'm pretty excited. Yes, last week has been pretty remarkable.

Got it. That's helpful. And then just a last one from me now I can see before I get back to the queue. How should we -- how would you -- I mean, you guys did a really great job on the margins this quarter, how would you like us to think about -- and you made mention on this call and then also on recent calls, about, upon getting the businesses stood up like they are now to potentially see pretty attractive incremental margins as they ramp. So given that you just put up a really nice and really solid margin this quarter, how would you like us to think about that for fiscal '19? Any -- I guess, any context would probably be helpful for us.

I think we expect to see pretty significant increase in net income in fiscal '19. Certainly, that net income will go much, much faster than revenue. We expect a good revenue trend. In terms of the revenue mix, I think, as we've talked before, that's what's going to drive kind of the margin mix. MarketPlace is, as we've said, dilutive to gross margin but accretive to net income. So ultimately, it will determine what our operating margin looks like, but the scale in which the revenues are growing there, and it is profitable, being said, is -- will be -- it will contribute to our net income.

It's running ahead -- so here's the best way to put it: It's running ahead of our expectations in terms of its contribution at the margin level to the business. Is that a fair statement?

To both revenue and margin.

Yes. So it's -- we're pleasantly surprised, which means we're going to double down on our management of it to make sure that we've got it right. And at this point, it's almost self-scaling. We've got a lot of interest from other people about how can they participate. So we know that when we get aggressive about bringing people into it that we should be able to. There won't be a sale cycle, but we can bring people into it. But it's doing better than we thought it would. It will never have the same margins as the rest of the business, but it will have very nice margins and contribute significantly to dollar profitability in the enterprise.

So I think whatever percentage of this mix, it is -- will ultimately determine our margins for the year. The rest of the business is largely going to piggy up -- piggyback off of investment that we made last year. I think that the core OpEx, excluding MarketPlace, is I'm not going to say flat but certainly will increase well below the growth in those businesses.

Our next question is from Tom Forte, D.A. Davidson.

I have 2 questions. One, can you walk through the fixed versus variable nature of your revenue for your 3 lines of business? And then number two, you've talked in the past about international expansion and potentially looking for a partner. Can you update us on your thoughts on international expansion as well? [Can you give that to me]?

I'll take the first question. So across our 3 application suites, compliance and Supply Chain are fundamentally subscription businesses with reoccurring revenue streams. That's not to say that they're 100% recurring revenue, but a large percentage of that revenue is reoccurring. It's growth that increases -- the faster they grow -- there's a certain amount we charge to bring customers online, and that's basically the only nonrecurring component. MarketPlace is transactional. And so I won't call it reoccurring. But what we've seen is that the way that we're scaling this business is not to let it scale randomly but instead to bring on a customer with a specific need and then suppliers that have products to satisfy that need. And so that mitigates some of the randomness to that transactional nature of that business because they're essentially buying for what we would call events, whether that event be a 6-month event or a weekend-long event. But that business is entirely transactional from a contractual perspective.

And the answer to the second part of your question, Tom. We've already established and announced a partner in the United Kingdom. And I'm envious of their prospect list. It's almost a who's who of U.K. and Continental Europe retailers. So we're starting to work through the list, making calls, and our fingers are crossed. And we're in search for partners in several other places in the world, and as we have transactional stuff to report, we certainly will. So we're pretty excited about that.

(Operator Instructions) And next is Walter Schenker, MAZ Partners.

Three questions, 2 are very short and one that's more interesting. A, or one, why do we have increased line of credit debt with the cash we have? It would seem we would -- there is a negative arbitrage there. Question 2, is the large new compliance contractor a retailer or a supplier? And then the interesting question, and at least from my standpoint, is you announced a large new 14,000 retailer -- supplier. How does one get retailers as a supplier? How do you force them to use this? I understand how a retailer can force it down. How does a supplier force it up?

Yes. That's interesting. Are you okay, Walter, if I answer them in reverse order?

Your company.

Yes. Okay. We are finding some large suppliers realizing that scan-based trading, where they own the inventory, they manage the inventory, the stock the store, the destock the store. Several large suppliers are coming to a very interesting conclusion, that scan-based trading in that circumstance is not a punishment, it's an advantage. So think of it this way: suppose you are a -- I'm making this up. Suppose you're delivering, let's call it, bread. Okay. So you're a bread supplier, and you have 2 retail stores a mile apart. One of the stores has 500 loaves of wheat bread that you put in. It's getting toward the end of the week, and you absolutely know they're not going to sell more than 100 loaves. Well, let me tell you the problem: You're about to literally eat it. So if you own the inventory instead of the retail store owns the inventory, guess what you can do? Take it out, move it and put it in the other stores that needs the inventory. So in other words, if you were a supplier, owning the inventory is not painful, it's an advantage. It's yours. Pick it up and move it. You don't have to check it into the back of the store. It saves you labor, gasoline and time. So you literally become more efficient in your route business simultaneously with having greater control. So we think, over time, a number of suppliers will recognize this is a great strategy. And it's pretty easy to go to the retailer and say, "Oh, by the way, you don't have to pay for my inventory until you sell it. It's here on consignment." So tell me what retailer would say no to that idea? Exactly none. They all love the idea. So it's a big thing. You'll see us constantly increasing our lines of credit, but you'll actually see the amount of debt outstanding at the end of the quarter, typically remaining about the same. So that's kind of not anything important. And the other question was?

Wholesaler or retailer.

Yes, the -- one of the big accounts that we've signed, some big retailers and recently also some wholesalers. So I don't want to be any more specific. I'm being evasive, can you tell, Walter? I don't want to talk more about it. But they'll be -- yes. There's more to that story than we have said so far, but more of that information will come out in the next few months.

And lastly, to allow you to be most evasive, double-digit sales ranges from 10% to 99%, are you willing to...

It would be somewhat less than 99%.

Okay.

I'm confident it will be less than 99%. I'm actually equally confident it'll be more than 10%.

Let me answer that. I'm confident that it will be at a level which you can still consider us a growth company.

It's for sure. For sure. And you'll -- And Walter, because I know you're one of those guys that sort of likes bottom line, it's really important that as a company for our customers and, frankly, for shareholders that we focus on the growth of the bottom line, and you will like that.

And ladies and gentlemen, at this time, there are no further questions, and that also does conclude our conference for today. Thank you all for your participation. You may now disconnect.