Greetings, and welcome to the ReposiTrak Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rob Fink with FNK IR. Mr. Fink, you may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for the ReposiTrak fiscal first quarter earnings call. Hosting the call today are Randy Fields, ReposiTrak's Chairman and CEO; and John Merrill, ReposiTrak's CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts. Such forward-looking statements are based upon current beliefs and expectations. ReposiTrak’s remarks are subject to risks and uncertainties, which actual results may differ materially. Such risks are discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risks. ReposiTrak does not assume any obligation to update information contained in this conference call. Shortly after the market closed today, the company issued a press release overviewing the financial results that will be discussed on today's call. Investors can visit the Investor Relations section of the company's website at repositrak.com to access this press release. With all that said, I'd now like to turn the call over to John Merrill. John, the call is yours.

Thanks, Rob, and good afternoon, everyone. As you know, we communicated just a short time ago, our fiscal 2024 results. Since then, our strategy has not changed and our September financial results further validate our long-term strategy. Many of you have asked me when we will see the hockey stick in traceability revenue. As we've always said, we will add customers at a governed pace, regardless of opportunity, deadline, product, service, or short-term expectations. We will never trade speed for flawless execution, that will never happen. As you know, food contamination is front page news almost daily: E. coli, diarrhea, and salmonella. Eggs, deli meat, basil, cheeses, and even frozen waffles and pancakes, just to name a few. Household names such as McDonald's, Boar’s Head, Trader Joe's, and BrucePac have all been affected. Big or small, no company is immune to the risk of food contamination. ReposiTrak’s suite of food safety applications to address these issues is unmatched. However, it is a complex, multi-step process. There's a discovery phase to establish FDA requirements and help a supplier identify what and where the required data lives. Remember, as we communicated before, more than 70% of suppliers do not even have an IT department. Then there is an evaluation phase whereby we investigate how we can assist them in extracting the required data. Data is collected in files and various emails, written manually or stored in one of the supplier's several systems. Then there is an implementation phase whereby the data needs to be extracted routinely, stored, and forwarded along the supply chain accurately and in accordance with the FSMA 204 requirements. It's not a one-size-fits-all. It is complex, but that's what we excel in. While traceability is top of mind, all of our lines of business deliver a significant customer advantage to make food safer, discovery, supply chain, and compliance, which includes traceability. We have over 100 years of combined management and board experience in the supply chain and food distribution space. While delivering food safety solutions, our operating philosophy is quite simple: delivering superior solutions at the lowest price with perfect execution; increasing recurring revenue in all lines of business; rationalizing revenue expansion with cost, and expanding margins, these include gross margins, operating, and net margins; growing net income, growing EPS, and driving cash balance even faster, returning capital to shareholders. It's a very simple set of concepts, but this requires flawless execution without losing sight of the objectives: making food safer. Our cash balances continue to reach record levels: $25.8 million cash in the bank as of the September quarter. Bear in mind, this is net of the over $20 million in capital returned to shareholders through a growing common stock cash dividend, the redemption of preferred and common shares, and paying off all bank debt since we instituted our capital allocation strategy only a few short years ago. This performance comes as we invest significantly in sales, marketing, and automation tools to drive the onboarding of traceability customers. The contribution from traceability is only just beginning to impact our overall revenue results and that contribution continues to accelerate in conjunction with consistent growth and compliance in supply chain offerings. I remain confident that traceability growth and our legacy services will double our annual recurring revenue run rate over the next several years, maintaining 80% gross margins, driving higher earnings per share and increased operating cash flow. Let's get to the September numbers. For the first quarter fiscal 2025, total revenue was up 8% to $5.4 million versus $5.1 million. Recurring revenue increased 6% from $5 million to just under $5.4 million. This was the result of higher subscription revenue and setup fees due to the increased number of suppliers onboarded during the quarter. Recurring revenue was 98% of total revenue. The decrease from 99% to 98% from the June quarter was a result of higher setup fees due to the higher number of supplier onboardings, which by nature are not recurring. Operating expenses increased 3% to $4 million versus $3.9 million. The increase in OpEx expenses was the result of the ongoing investment in the development of automation tools and investment in sales and marketing. Income from operations increased 23% from $1.2 million to $1.5 million. GAAP net income increased 21% to $1.7 million versus $1.4 million. GAAP net income to common shareholders increased 26% from $1.2 million to $1.6 million in fiscal 2025. Basic earnings per share were $0.09 per common share, compared to $0.07 per share last year. During the quarter, our cash generation permitted us to redeem another 70,000 shares of preferred stock at the $10.7 redemption price for just under $750,000. We continue to reiterate our goal to redeem and retire all the preferred shares in the next two years. As we communicated previously, we have paid off all bank debt. Given our strong balance sheet and consistent cash generation, we chose not to renew the $10 million line of credit with the bank. The long-term liabilities we currently maintain are capital leases, which have allowed us to scale investing in storage redundancy systems and upgrades to existing processing capabilities as our needs grow. This performance comes as just 6% of our total revenue is coming from traceability. We expect the contribution from traceability will increase sequentially throughout fiscal 2025, continuing to accelerate as we approach the January 2026 FDA deadline. Customers already in the queue to be onboarded over the next 18 months represent more than $10 million in additional annual recurring revenue or ARR. Obviously, over that same time period, we anticipate adding many more customers to this queue. We continue to automate and facilitate a faster but moderated enrollment process with a continued goal of improving efficiency. We are getting better and better at this, improving our pace at onboarding suppliers every day. In summary, our strategy remains very simple: First, we take great care of the customer— as they grow, we grow. Second, we will grow recurring revenue balancing cost with opportunity. Third, we will manage cost with long-term opportunity. These initiatives will increase net income and EPS. We generated $1.9 million in cash from operations during the quarter. This is an increase of 23% from the same time period last year. We will continue to utilize our cash flow to stay away from debt, buy back common and preferred stock, and increase the common dividend as cash flow grows. The Board continues to evaluate our capital allocation strategy and may adjust the different capital levers, whichever lever is more favorable to shareholders at that time. We’ve increased the cash dividend now twice since the Board of Directors authorized a cash dividend just a short time ago. That's all I have today. Thanks, everyone for your time. At this point, I'll pass the call over to Randy. Randy?

Thanks, John. It's really just been a short time since we’ve reported our fiscal fourth quarter results, but since then, tracing all foods, not just FSMA 204 has significantly expanded. Why? Two major catalysts have exerted pressure along with the approaching deadline. A significant consumer confidence drop in food safety and major retailers moving forward and going past the FDA list has been primary. The bottom line is that our confidence that traceability will double the size of our company in the next three years or so. More importantly, it will permanently alter the food industry in a good way, grows stronger by the day. Let me add a little color to the catalysts that I've mentioned. First, Wal-Mart and Target have now joined Kroger in announcing that all food suppliers, not just those providing FSMA Rule 204 products, but all food products will need to provide end-to-end traceability information on or before the January 2026 deadline or products may be refused, think about that, refused at the distributor or the store—full stop. Second, cost and simplicity. Why in a world would you try and separate Rule 204 products from regular products, expand the labor cost, and confuse all of your operations? It's easier just to have one process. Third, this whole issue of food safety—retailers facing highly publicized recalls made possible by traceability is critical to their business. They will represent more than just a marketing message; food safety will become a differentiator for retailers. Three of the largest retailers have now arrived at the same conclusion. One process for everything. It's not surprising that Kroger, Wal-Mart, and Target have determined that maintaining two processes—one for the so-called Rule 204 products and one for everything else—is simply not practical. While it may not look perfect, overall, we're very comfortable that we've made the right decisions on the basis of the right strategy to position for everything being tracked and traced; it'll make for a better world. What does this mean for suppliers? Well, if they want to stay in business, it's pretty simple. They will almost certainly need to comply with market-determined traceability requirements, not just FDA requirements. Supplying data in an acceptable format upstream and downstream as products move through the supply chain. To be clear, these three big retailers are not our clients, but many of their suppliers are ReposiTrak clients. ReposiTrak enables suppliers to provide data to those who need to receive it, including major retailers like Kroger, Wal-Mart, and Target, just to name a few. More importantly, this is becoming a massive signal to all suppliers that traceability is not optional; it's the way business will be done. It's a mandate. The second major new catalyst was a series of terrible recalls. We've all heard about the listeria outbreaks at Boar’s Head, BrucePac, and Treehouse; just naming a few that have led to dozens dead and potentially hundreds sick. This situation is precisely why the FDA traceability was put in place. Product contamination represents a significant risk for retailers and their brands, costing them customers, legal fees, and reputation. Being able to respond quickly by identifying and isolating potentially problematic products is essential to their business—and it's only possible with traceability. Without detailed traceability, you're throwing the proverbial baby out with the bathwater, meaning that every time there's a contamination issue, you empty your shelves of the product because you have no visibility to a specific lot or batch code that was affected. The ReposiTrak traceability in every respect continues to exceed our expectations. The size and scope of the market continue to grow, in some cases, frankly exponentially from what we were anticipating. Given the expansion of these three top food retailers to trace all food products, our hope that the timeline will be extended by the FDA is becoming less relevant every day. As we keep saying, traceability is no longer a regulatory issue; it’s a market competitive issue, which is a much stronger pressure from the market perspective. We don't see the election of a President Trump as a risk to traceability at this point. It's too far along and too important to major retailers who are dealing with life and death. We continue to hope the deadline is somehow pushed out so the industry has time to adapt, but we don't anticipate any risk from political change. To be clear, major retailers are pulling the timeline in even more aggressively than the FDA pushed the timeline of January 2026. The FDA is unlikely to change those timelines independently that were set by major retailers. As more retailers join the early adopters, the FDA's role in driving timing will continue to diminish. Meanwhile, we have and will continue to fine-tune our automation tools to drive more efficiency and hence cost savings from our scaling. It's actually become a daily activity of ours to focus on changes to our onboarding automation to scale it even faster by making it easier for our customers to self-implement. Remember, there are hundreds of thousands of facilities that will have to learn to do traceability; a brand new activity they've never done before and it has to be implemented with a high degree of automation. Our team is the best—literally, I’m not just saying this. We can observe and make changes on a daily basis and have new releases daily to continue improving our process. It's an obsession of ours. This tuning effort is part of our culture and will persist for years. In compliance management, we've improved our productivity literally by a factor of 10 and I suspect we're going to get the same kind of result with our automation for traceability onboarding. Our pace of onboarding continues to get faster and faster; in fact, it’s really kind of fun to watch daily. The result is even more than John and I expected in this short period of time. We told you before that it would be picking up—boy! Is it picking up? Our focus is and always has been on the needs of our customers, and that will never change. Traceability is a new process for suppliers and wholesalers and presents a new operational challenge as well. Our goal is to provide the solution and do it at a price point that encourages widespread industry adoption. This obviously enables us to capture further market share. We have a business model that is structurally profitable. We've priced the ReposiTrak traceability initiative in line with historical gross margins for our compliance and other offerings, but honestly, it's considered cheap by the user community—just what we want. It's perceived as cheap to them and profitable to us. We've recognized that there would be add-on services that will drive additional revenue for end customers and for us—providing tangible value, not just for our customers but earnings for the shareholders. I’ll add more detail to this likely in our next earnings call, but bringing these services to market too soon complicates the story, and we are heads down now bringing on thousands upon thousands of suppliers for traceability. Demand for additional customers to join the RTN is not abating, but actually accelerating. We currently have 4,000 companies representing approximately 5,000 facilities that are being actively enrolled by our retail and wholesale customers, and we’re adding more every day. It'll take 18 to 24 months to onboard these suppliers and have them all generating revenue. Those 4,000 suppliers that are in hand today and are being required to enroll by their hubs represent about $10 million more or less in incremental, annualized revenue over the next 24 months. But while we're onboarding those 4,000, we should certainly add at least that number again to the list, effectively enabling us to double the size of the company as we've been saying over the next few years. In the first fiscal quarter of 2025, traceability contributed 6% of recurring revenue. We expect this contribution to accelerate throughout the fiscal year, both in terms of recurring revenue and as a percentage of our consolidated revenue; our monthly onboarding is growing rapidly. In terms of the so-called inflection point, it's fair to say we are inflected. Over the next year, both the pressure of market forces and continued automation will likely reduce the conversion time from signing the hub to generating revenue from suppliers. We are getting better and better every day. While it is clear our urgent focus is on traceability, our compliance and supply chain businesses continue to grow. Our 8% growth in the first fiscal quarter was due to growth in virtually every part of our business. We continue to believe that we can double our annual revenue run rate within the next few years. However, our growth must be managed; otherwise, we will short change or confuse our existing customers or perform less than our normal superb work for them. In other words, currently, we find ourselves constrained on growth, not by demand but by the view that management holds that each and every implementation must be handled perfectly. We will not sacrifice quality for speed—not now, not ever. Our business model ensures simultaneously delivering success to our customers and consistent growing profitability to our shareholders. If you look at our financial results, that’s self-evident. Operating income was up 23%. Our net income was up 21% and our net income to common shareholders was up 26%, all of that on 8% revenue growth. Frankly, John and I don't see any reason why that phenomenon will not continue. This enables us to return more and more capital to shareholders. As we announced on the September call, the Board approved another 10% increase for the quarterly cash dividend to about $7.26 per share per year. As we continue with our capital allocation strategy announced a few years ago, we've redeemed preferred shares, common shares, paid off bank debt, increased the common dividend twice, and still have $25 million in cash in the bank. We have plenty more work to do, but I am incredibly proud of what the team has done so far. We obviously feel very good about where we are and how we're positioned for the future. So, with that, I'd now like to open the call for questions. Operator?

Thank you. Our first question comes from Thomas Forte with Maxim Group. Please go ahead with your question.

Great. So first off, Randy and John, congrats on the quarter. My initial list has five questions, but depending on your answers, I might add one or two. So the first question I'll go one at a time. Randy, are Wal-Mart, Target and Kroger setting the industry standard or are smaller food retailers unable to follow suit?

Well, my guess is that, given those three companies have really smart leadership, they saw an opening based on what was happening in the area of food safety. I think they decided to claim the high ground. The question is, can smaller companies compete? And the answer is yes, if they use us. I don't mean that to sound arrogant. If they utilize us, they certainly can be at least competitive. But this just changes the landscape. Think of the marketing advantage of being able to say, 'Everything you buy from us, we'll be able to trace back to its origin. If something happens, we'll be pronto; we’ll get the product off the shelf and make it a safer environment.' I think competitively, it’s better to do that than say, 'Hey, our food might kill you, but it's cheaper.' I don't see that. So I think the answer really is that the big guys have established what the market basics are going to be in terms of how to compete, and everybody else over time will have to find a way to do the same thing.

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

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

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

Well, there's certainly tremendous opportunities in the non-retail food space, including restaurants and convenience stores where people buy food. However, we see those markets as substantially smaller compared to retail food business. So we’ll inevitably be in those areas by virtue of the suppliers we work with. For example, if you buy products from Kraft, those could end up being bought and sold in a retail food channel or in a restaurant. So, the supplier crossover is high, which means inevitably, we will be doing business in those industry segments as well. We just don't see them as having the same potential outright. Importantly, it's critical for us to keep our heads down. I want to be cautious how I say this. We need to be focused on the customer experience. Something to remember is, there's almost nothing our company has done historically that wasn't aimed at improving the current state. For instance, with compliance management, did we invent the idea of a compliance manager? Nope. But we certainly developed a technology that was superior by the standards of the market. And that's why we're so dominant in that compliance management space. Almost everything we've done—supply chain, forecasting, ordering—has existed. But no one has done traceability before. It's never been done. So, it's a space that we are, to a certain extent, inventing, and subsequently helping people get on board in doing traceability. This is a new activity they’ve never done before and it has to be implemented with a high degree of automation. Our business model allows us to provide a simpler way for customers to adopt traceability.

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

You mean, in terms of compliance and supply chain?

Yeah. Was one product in particular?

Pretty much 50/50. They are complementary, so it's pretty much 50/50.

Okay, so you're saying that all the business that wasn't traceability has performed well as a group. There were no outliers?

No, no.

Okay good. And then, capital allocation. I apologize if this sounds greedy, but you're paying off the preferred. You have a quarterly dividend, and you've historically bought back shares. Under what conditions would we have a situation where you would pay off the preferred and buy back the common?

I don't think our strategy has changed. It is take half the cash from operations, put half in the bank and buy back either common or preferred or increase the dividend. I think we continue to redeem the preferred, and that will not change. We've been redeeming, call it $750,000 each quarter for the last four to five quarters, and I don’t expect that to change. We just increased the dividend. We have no debt. And obviously, once the preferred is bought back, we would resume the common buyback or increase the dividend. Our capital allocation strategy won’t change. With the cash generation we have, it’s not a bad problem to have. We’ve solved many of the issues that other companies face with debt or complicated capital structures. So I don’t believe that will change over the next two to three years. If you look at the mathematics, if you doubled the size of the company from a revenue standpoint and recurring revenue, you’d have no debt, you’ve paid off the preferred, and you are either expanding or returning more capital to shareholders.

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

Except for—I’ve always said it takes $12 million to run the place. With an increase in revenue, you've got more commissions and there are payroll taxes associated with it. We did invest, as you’ve seen, in sales and marketing; that’s not an expense, but an investment for the future. As the education increases and traceability becomes a household name, I expect we’ll get back to the pre-education time. But absent variable costs associated with sales, I maintain the same estimate: $12 million to run this place. Take the accounting of bad debt and stock comp out of it, and it's the same. I don't expect it to grow materially—will it be up before up 10% in revenue? It grows, too; I think that’s reasonable.

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

What does that mean? What do you mean? Revenue margin?

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

Well, there's probably - let me interject go ahead.

We may never be done with that, meaning, as a company, we think it's important that our customers experience success with us and that we experience success with them. That makes for a good relationship. Over time, it's possible that if we change our offerings, we'll sunset other services. We're brave enough to decide it’s no longer a good fit for the customer as we go in different directions. We’ve been good at what I call pruning the business for the advantage of the customer. This enables us to focus on fewer things, execute them more brilliantly with a higher level of automation, ultimately improving the margins across the business. We don’t have any plans now to do anything different; we love where we currently are. As we continue to see improvement and the inflection point appears in the numbers, we feel better about where we are. However, we're brave enough to say if a year from now it turns out we have some area of the business that doesn't look to have a future, we will sunset it. It's just our nature. Pruning is a good thing.

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

Yes. The way we approach scaling activity is that it's not a people problem; it's a process problem. Now, I don't know that that's universally true in the world, but for us, it's always true. When we’re trying to scale something—from doing one a week to one a minute—we see that as the goal. We assemble our best and brightest people—it's a significant proportion of our total team—and we document every single step to get it done. We work backward from the result and build a tool that leads the customer through that process, just like a human would. We have to tune it. We keep having meetings called 'the baby is ugly' to talk about getting the wizard better. We start from a pretty negative perspective: 'Our baby is ugly; we accept it.' But the fact is, we know it can be made prettier; it doesn’t have to stay as is. Every day, we come up with little things that can change what we're doing and get us to an extremely high level of automation. So, one day, we believe we will have hundreds of thousands of users in traceability—not 5,000, not 10,000, not 50,000, but hundreds of thousands. To get from here to there, we could hire a plethora of people, but what we want is to scale the process without adding employees. We know it's a different approach, but it's better for the customer and better for our company. Did that address your question? That part of it is AI, but not all of it.

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

We don't think so—not at this point. And the reason is, even if it could, we've got what I call an intersectionality problem, meaning, suppose we buy something; it takes us a year to integrate it. It distracts us, and in a year from now, we would have tripled our onboarding without doing anything else. We're already that good at what we do. We cannot afford the risk to distract from our current trajectory for the sake of moving faster. We think we can do it effectively the way we are going. It’s important to maintain focus. The solutions we have are integral to the applications we offer, and they provide us with a competitive advantage. I’m sorry, I’m not touting; we are really good at this.

Are you successfully taking away my desire to ask another one or need?

I'm sorry.

Thank you, Randy. Thank you, John.

Thank you.

Thanks Tom.

We have reached the end of the question and answer session. Now, I would like to hand the call back to Randy Fields for his closing comments.

Operator, thank you. John, thank you. We really feel very good about where we are. We're happy to ask questions as they come up. So, it’s time to fasten your seatbelts. Everyone buckle up. Thank you.

Thanks everybody.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.