Transcript of Interview:
Louis Basenese: Welcome to the latest episode of Mic’d Up with Louis Basenese. I’m Louis Basenese, and today I’m joined by Mr. Randy Fields. He’s the former cofounder of the world-famous Mrs. Fields Cookies, but now he’s running a cutting-edge technology company, the New York Stock Exchange-listed Park City Group (PCYG). Welcome today, Randy.
Randall Fields: Thank you, Lou. Nice to be with you.
LB: Hey listen, there are some market forces at work right now that I think make Park City really an exciting opportunity, and I want to make sure we get to those. But before we do, I want to make sure all our listeners understand precisely what Park City’s technology does, so do you mind just giving us an overview or filling us in right out of the gate?
RF: Yeah, let me try the what they call the elevator pitch. I’ll keep it to hopefully 30 seconds or so. Park City Group has a platform, as we call it, of technologies that enable our customers to quickly identify inventory issues in the food supply chain. So our focus primarily is on retailers and their suppliers, enabling them to see at the shelf when they have out-of-stocks, so that they can take all of the appropriate actions needed. And we can help them with that to be certain that their customers are well served. So we help reduce out-of-stocks; that makes sales go up. We help reduce overstocks; that means that their balance sheets get better and their costs go down. And we enable them to see their supply chain literally from the shelf all the way back to the factory floor. It’s a platform in which there’s been oh more or less about $150 million invested over the last 15 years. It’s proprietary in the sense of the total functionality that we offer, and it’s been extremely successful with both large and small retailers, large and small consumer package goods companies. So we’re very well thought of in what we call our industrial marketplace, meaning the people that we serve. Our brand promise to our customers is to enable them to sell more, stock less, and see everything. And I think it’s fair to say that we deliver on that brand promise.
LB: There ya go. A little more than 30 seconds but I think that it’s perfect.
LB: [Laughs] No. Hey listen, I know the natural question that people gotta be thinking is wait a minute, isn’t this already happening. When I go to the checkout and they scan an item, isn’t the computer already communicating to everyone [about] what’s in stock, out of stock?
RF: Yeah, that’s interesting. Most people I think believe that that’s the case, and to a certain extent that information is simply used differently than otherwise we imagine. Meaning it tracks transactions and it tracks costs. But for the most part, perpetual inventories don’t really exist in usable form in the supermarket industry, and there’s a whole bunch of reasons for that. So we enable retailers who otherwise can’t see their perpetual inventories, can’t see their out-of-stocks to do it. And I think everybody’s been reading of late of some of the largest retailers in the world, including Wal-Mart (WMT), that are having tremendous out-of-stock difficulties. So it’s great timing on our part to be helping our customers with that.
LB: Now I got to imagine this technology I mean the supply chain management, the visibility had to come from years of managing the supply chain at Mrs. Fields. A question, another one that I think people might want to know, is is it something that can be easily replicated, say if you know a tech heavyweight like IBM (IBM)came along and threw a ton of capital at it. Is it something that they could just knock off, or what’s unique to Park City’s technology?
RF: Well I think there’s two characteristics that make it unique. One is we already have a market reputation for being able to do this, and our customers read like a “Who’s-Who” of American retailing. So that’s step one, we already have a great market reputation. But secondly, I was being serious when I said there’s nearly $150 million, but more importantly about 15 years of consecutive development. And as I’m fond of saying, nine women in a room for a month do not make a baby.
RF: This is something that’s very complex. It requires lots and lots of effort, many, many mistakes over the years, and taking corrective action. So out of the box a comparable technology certainly would not perform the way that we do.
LB: Can you tell us about some of the recent engagements, some pilots or deals that have been announced?
RF: About 18 months ago, we were comfortable enough with our performance on the brand promise (sell more, stock less, see everything) that we decided that we could safely engage with the largest retailers, whereas historically we had primarily engaged with small- and medium-sized retailers, that we were ready. We were ready for the big leagues, ready for our debut on Broadway. So we began approaching some of the largest retailers in the world, and as luck would have it, we – originally, if you remember in some of our public presentations, that we would like to bring on one of those per year. We brought on one very large national footprint drug chain, and that was followed very quickly as a customer. And then followed very quickly by three tests. Those are not revenue-producing tests; they are simply a way that we can demonstrate to these other three very large national retailers. I think they have combined stores of I’m guessing it’s 20 to 25,000 stores on the tests that we’re doing, that we can do just what the brand promise says. Once again, to repeat it, sell more, stock less, and see everything.
LB: And I know the sensitivity of these discussions too and these deals, so you can’t reveal the identities, but you know for our listeners there’s not too many nationally –
RF: Yeah, I think it would – thank you, thanks for bailing me out of that one.
RF: I think the reality here is that these are names that everybody knows.
LB: Yeah. And over time can we expect those names to become public?
RF: Oh yeah absolutely.
RF: Yeah absolutely. We certainly should finish several of these tests within the current fiscal year that ends next June, and if we continue to perform the way historically we’ve performed for others, those names will be available. And the results should show up in our P&L as well as in our customers’ P&L.
LB: And I want to make a point here too, and it’s kind of come up just since we’ve been talking around it. You know, Park City is not anything close to a development stage company. You guys are in full-on commercialization. You’re booking revenues. You just came off of you know a record year for top-line sales, double-digit growth. This is really a business that’s ramping up on the merits of the retail sector, but there’s more opportunity here, right? I mean we kind of touched on the food safety, but can you tell us more about that?
RF: Well I think it’s fair to say that we currently are expanding in two different directions, both of which are exciting for us. We just talked about what we call our core business, which is this concept of reducing out-of-stocks, driving sales, and reducing costs to retailers and their suppliers. That is our core business, and with the large accounts that we’ve brought in, the next several years basically are more or less locked in. You know things are never 100% sure; that’s the nature of reality obviously. But the next several years are pretty much locked in from a continued record performance year after year. So that part of the business is doing very well. We’re staffing for it. It’s all goodness at this stage of the game, and we’re feeling very, very good about that. But as luck would have it, about 18 months ago, we began to explore another use for the very same technology. In other words, if you were to ask the question what does this technology do at its heart, it’s very good at tracking and tracing things through a supply chain. So we can watch the flow of goods into a factory. We can watch the flow of goods out of the factory as finished items. We can watch that inventory level as it moves to a distribution center and from a distribution center to a retail store. So think of it as this ability to track and trace things moving through the global supply chain.
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Well it turns out, and frankly this was not the original intention but has become a significant part of our business and I think a potentially explosive part of our business in the future. We were approached by an old friend of mine, Mike Leavitt, who used to be secretary of health and human services under George Bush, and therefore the FDA and all of its food safety people ultimately reported to him as the secretary. When he left government with the change in administration, he set up a consulting firm around sort of health strategies, which was under his purview, as well as food safety. We set up a partnership kind of arrangement – a collaboration is the best way to think about it. And that venture is called ReposiTrack. And the concept was to take our core technology, the very same thing that we used for other capabilities for our retailers and suppliers, and apply that technological solution against the problem of tracking and tracing food things as they move through the supply chain. And there couldn’t be a listener who virtually every week hears about one other little problem in the supply chain, whether it’s salmonella in chicken or cantaloupe that’s killing people, whatever it would be.
But what’s happened is, and this is the background of why it’s such an interesting opportunity, the supply chain for food is moving increasingly offshore. So for example, 80%-plus of the seafood that we eat comes from outside the United States. 65% or more of the vegetables come from outside the United States. A rapidly-growing percentage of canned goods. 75% of the ingredients in supplements, nutraceuticals that people take, come from outside the United States. So what’s happened is a higher and higher percentage of our food and ingestibles, supplements, drugs, etc., have been globalized. So they’re coming from places where inspection rates are lower, which means technically our risk is going up. And as that risk goes up, consumers are demanding more safety be built into the supply chain. Well government responded to that, and in January 2011, President Obama signed what’s called the Food Safety Modernization Act, FSMA. And that is so far proposed about 2,000 pages of additional regulation, more to come, that will – from a regulatory perspective – significantly tighten the controls and constraints on the food supply chain around the world. So there’s a crying need for an industry-based platform that would interoperate with all of the retailer systems and all of the supplier systems. Something that was if you will, agnostic about platform, software as a service kind of offering, that would enable people to track and trace products as they move through the supply chain.
LB: And that’s ReposiTrack, right?
LB: Yeah. And we had Rich McKeown and Jennifer McEntire from Leavitt on before, so you know we did go over some of the legislative forces at work. But I mean really to drive it home, I think you brought it up, it just came out this week that outbreak of Listeria in 2011 that killed 33 people, the owners of the cantaloupe farm in Colorado just got arrested. I mean this is – you know there’s a need for it. The regulatory environments changing where people are gonna be held accountable. Now, so ReposiTrack fits in there. Is this giving us the ability to see and contain these outbreaks quicker? I mean is that really the upside to what this –
RF: Exactly, exactly. This doesn’t prevent an outbreak. This doesn’t eliminate the pathogens. But what it should do when it’s used at its best is to reduce the time that it takes to figure out where did it come from and where did it go. Because once you’ve even identified the source of a problem (the plant, the farm), you now need to ask another question: Where did that product go? So you need – it takes time to go backwards and time to go forwards, and we should be able to reduce the amount of time that it takes to do that, and time is risk. Time is health. Time is life and death. So it’s a significant issue, and it’s one that’s received already some tremendous industry-related endorsements. We’ve made several announcements that I think should be of interest to people. We were endorsed and partnering with an organization called Rofta, which is one of the largest trades associations for food wholesalers, represents about 20% of the supermarket industry. We’ve partnered with one of the largest dairy associations. We’ve partnered with one of the largest trade associations for nutraceuticals.
LB: I want to drill down from the investing standpoint on ReposiTrack here. I don’t think many people understand this. This was a partnership formed about 18 months ago. Park City Group has been receiving you know basically some revenue for using that technology, but really it’s you have an option there, right? I mean if I understand the SEC filings right –
RF: Yeah. Yeah, exactly right. It’s fair to say that at this point, technically, ReposiTrack is a customer of Park City Group. We receive revenue from working with them; we are doing lots of work. It was a major focus of ours last year to obviously get that launched. It’s still an effort this year by definition, but it’ll contribute from a partnership perspective. I think we’ll see a change in the next several years in that relationship, and that’s the option that you spoke of.
RF: We have an option, and I can’t remember the exact exercise amount, but it’s certainly just a few hundred thousand dollars, as I remember, to purchase up to 75% of ReposiTrack. So assuming that ReposiTrack goes as we’re certainly hopeful that it does and there’s certainly a good indication that it will, then sometime in the next several years, we’ll exercise our option and ReposiTrack then would become in essence a subsidiary of Park City Group. So from an investment perspective, I guess it’s fair to say that Park City Group is ultimately very likely to become an owner of the food-safety platform.
LB: Yeah. And I don’t think people realize that you know you’ve got this great retail business, your core business that you talked about that’s growing double digits, and then you’ve got this option on food safety, which in itself – and I don’t want to misspeak here, so you know there are some numbers out there about the size of the food safety market. But if we just speak in the U.S., is this a billion-dollar opportunity not necessarily for Park City but just overall. Is it a five billion –
RF: Oh yeah it certainly – yeah, it’s certainly more than a billion-dollar-a-year opportunity here in the U.S.
RF: And it’s likely. I think it’s also fair, if one wanted to be strategic about it, the world has this problem. China has this problem. Brazil has this problem of food safety. All of the BRIC countries as they move toward more modern societies are experiencing difficulties with food safety, so why not the global leader, the United States, why wouldn’t it represent the platform that other countries could also utilize. So we think there’s a tremendous international opportunity for this as well
LB: Well listen, I do appreciate you giving us the rundown on everything, and I thank you for taking the time.
RF: You bet. Thank you.
LB: And to our listeners, you know here we have one of the market’s most compelling, in my opinion, small-cap companies that’s still flying under the radar of most analysts. And I say this after speaking with Randy and researching the opportunity for almost two years now. So you’ve got a high-margin software-as-a-service business with predictable recurring revenue streams. It’s enjoying solid growth, and it’s got this option on food safety, which is something I think we can all appreciate. So I encourage you to do your own due diligence. Check out Park City’s website at parkcitygroup.com. And we’ll be in touch hopefully before long with updates, Randy, if you don’t mind joining us again.
RF: Love to.