ReposiTrak, Inc. — Call Transcript 2026

Greetings, and welcome to the ReposiTrak Fiscal Second Quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jeff Stanlis with FNK IR. Please go ahead, sir. Thank you, operator, and good afternoon, everyone. Thank you for joining us today for the ReposiTrak Fiscal Second Quarter 2026 conference 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, and actual results may differ materially. Such risks are 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. 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 we will discuss 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 would now like to turn the call over to John Merrill. John, the call is yours. Thanks, Jeff, and good afternoon, everyone. As we reach the midpoint of fiscal 2026, it's important to reiterate our long-term strategy and provide performance metrics against those milestones. First, our goal was to convert all revenue streams largely to SaaS recurring revenue. Since 2020, we have converted over $7 million in one-time revenue to recurring SaaS and increased our recurring revenue from 62% of total revenue to over 98%. We have done this while simultaneously overcoming $2 million in the elimination of high-touch, low-margin opportunities in order to make way for traceability. Next, pay down debt, keep expenses in check, and increase contribution margin. Since 2020, we have paid off over $6 million in bank debt and reduced annual operating expenses from roughly $19 million-$16 million. Meanwhile, we have grown our net margin from 8% to north of 30% during the same period. Third, drive cash and return capital to shareholders. Since 2020, we have increased net cash by a 16% compounded annual growth rate. Net cash means total cash on the balance sheet, less bank debt and leases. We've grown net cash from $13.7 million in 2020 to almost $29 million in 2025. Simultaneously, we have bought back over 2.2 million shares of common stock, redeemed 640,000 shares of preferred stock, and increased the common stock dividend now 3x by 10% each time over the previous three years. Finally, given our strong cash flow generation, we have invested heavily in our business. This quarter, the investments in our business involved three key initiatives. First, we continue to invest in our products, responding to customer pain points with new solutions. We're confident that these solutions will improve tracking accuracy and reduce operating costs for any customer with a warehouse. Touchless Traceability fits perfectly with our ReposiTrak Traceability Network solution, creating a comprehensive method for delivering end-to-end traceability. Second, we filed for two patents in the last few weeks, one for Touchless Traceability and a second for innovative method for identifying and automatically correcting errors in the data we integrate for customers. ReposiTrak has not been shy about patenting our innovations. We have a portfolio of nine U.S. patents, and we are confident we will ultimately secure both these patents that are now in process. These patents serve as yet another moat around our business. Randy will add more color on Touchless Traceability and the patents in his section. The inventions involved in these two patents and our innovation in general, continues to revolutionize the industry. We have carefully observed what others in the space envision to address issues like traceability, and we know what has worked and what doesn't. We are confident that as our competitors recognize the optimal path forward, they will discover that we have patented the process and systems that make the correct approach possible. Third, we continue to invest in our systems and core software stack, adding artificial intelligence and modernized features, and setting us up for improved operational efficiency. Randy talked about this last quarter, and we do not anticipate meaningful increase in our cash expenses or capital expenditures related to this initiative. Let's get to the numbers. Second fiscal quarter revenue increased 7% from $5.5 million-$5.9 million. Total operating expenses for the quarter were down 2%, inclusive of investment in RTN, including wizard onboarding tools, more cybersecurity costs, database license fees, and other direct costs associated with development. We've reached the point where an incremental revenue does not require significant incremental expenses to support our growth. SG&A costs for the quarter were up 5% due to higher commissions and direct costs associated with higher revenues, increased insurance premiums, and increases in employee benefit costs. Income from operations was up 34% to $1.8 million versus $1.4 million. GAAP net income for the second fiscal quarter of 2026 was $1.7 million, up 9% versus $1.6 million last year. As previously communicated, the company is at the end of the benefit period from utilized and expiring net operating losses for both federal and state income tax. Accordingly, it is reasonable to assume a 20% effective tax rate going forward. GAAP net income to common shareholders increased 13% to $1.6 million from $1.5 million. Earnings per share for the quarter was $0.09 basic and diluted. This is based on 18.2 million basic shares outstanding and 19.1 million shares diluted, resulting in a year-over-year EPS growth of 13% when factoring in higher income taxes. Total cash increased to $28.7 million from $28.6 million at June 30, and the company continues to have 0 bank debt. Fiscal 2026 year-to-date total revenue increased 8% from $10.9 million-$11.8 million. Total operating expenses for the fiscal year to date were $8.1 million, versus $8.1 million for the same period last year, essentially flat. Income from operations was up 31% for the fiscal year to date, $3.7 million versus $2.8 million. GAAP net income increased 9% from $3.2 million-$3.5 million. GAAP net income to common shareholders increased 13% from $3 million in fiscal 2025 to $3.4 million in the year-to-date period in fiscal 2026. Fiscal 2026 year-to-date earnings per share was $0.19 basic and $0.18 diluted. This is a 13% increase when compared to $0.17 basic and $0.16 diluted for the same period last year. We are experiencing growth in all lines of business. While traditional sales of one service to solve one problem is growing, our cross-selling initiatives are delivering continued momentum. Again, our strategy has not changed. First and foremost, take exceptional care of the customer and execute flawlessly. Next, grow recurring revenue, increase profitability even faster, use cash to buy back common stock, redeem the preferred, and do it with no bank debt. At the same time, return capital to shareholders through a growing cash dividend. Finally, we have and will continue to build cash on the balance sheet, close to $29 million as of December 31, 2025. Continuing to bolster our balance sheet maintains our customers' confidence in our ability to be a durable partner in an otherwise uncertain economic time. Common stock buyback. During the second quarter of fiscal 2026, the company repurchased roughly 80,000 common shares for a total of $1.1 million, an average of $13.75 per share. Since inception, the company has repurchased and canceled 2.22 million common shares for $14.5 million at an average price of $6.52 per common share. The company has approximately $6.7 million remaining of the $21 million total common share buyback authorization, as approved by the board of directors and shareholders as of December 31, 2025. The company holds no treasury stock. Common shares are repurchased and simultaneously canceled. Preferred stock redemption. During the second quarter of fiscal 2026, the company also redeemed 70,000 preferred shares at the stated redemption price of $10.70 per share, for a total of $750,000. Since inception, the company has redeemed approximately 642,000 shares of preferred stock at the stated redemption price of $10.70 per share, for a total of $6.9 million. We have 196,000 preferred shares left to redeem, for a total of $2.1 million. At the current rate of redemption of $750,000 a quarter, I maintain our goal to redeem all the remaining preferred shares issued and outstanding on or before December of 2026, if not earlier. The quarterly dividend. On December 19, 2025, the board declared a quarterly dividend of $0.02 per share to shareholders of record as of December 31, 2025, payable on or about February 14, 2026. This represents the third 10% increase in the company's dividend since the dividend was established in September 2022. Subsequent dividends will be paid within 45 days of each fiscal quarter end. From time to time, the board will evaluate our capital allocation strategy, making appropriate adjustments based on the approach most beneficial to all shareholders at that time. Our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half in the bank. 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. ReposiTrak had an eventful quarter. Some of that shows in our numbers, but much of what we accomplished was behind the scenes. While we're delivering profitable growth from each of our solutions, we continue to add to the moat around our business, specifically the traceability business. The ReposiTrak Traceability Network, or RTN, is already the industry leader. The queue to join our network is much larger than our current installed base, and each new supplier, distributor, or retailer adds to the network effect of our RTN solution. It's fair to say, and we've said it before, that traceability for most suppliers is much more difficult than anyone imagined. The difficulty affects suppliers and therefore ultimately impacts everyone upstream, downstream in the supply chain. It currently takes longer than we'd hoped to work with suppliers to get them up to speed and consistently able to provide the information they need to be able to do traceability. I'll elaborate on this in just a minute.... Remember that no one has ever done traceability before. It's a new thing, it's a new activity, and it's one that requires complex process changes for everyone involved in the supply chain, end-to-end. As I mentioned, the primary issue with traceability continues to be the consistent accuracy of supplier data. The error rate in data we initially receive from suppliers, especially small suppliers, is somewhere between 50% and 70%. In case it isn't obvious, if a supplier has inaccurate data, that data propagates through the supply chain. The grower's bad data becomes the distributor's bad data, which becomes the wholesaler's bad data, which becomes the retailer's bad data. That bad data becomes even worse if additional errors are introduced on another link in the supply chain, making the information even less reliable, if not completely unusable. So now the question is: how do you fix an error? Since the errors ripple through many, many systems, it's more difficult than you can imagine. Each company will have to manually fix its records, conceivably hundreds or thousands of error fixes every day. This is ultimately the Achilles heel of track and trace, bad data. Imagine the challenge this presents for a small family grower, most of whom don't even have an IT department. Now, imagine the challenge for a large distributor, taking in thousands of shipments daily, each with a high error rate. Now, imagine how a large retailer will think about this if they need to hire dozens of employees just to trace down all of these different errors. It's just not going to happen. It would be cost prohibitive. Here's what's even stranger: most people who are trying to think about traceability have no idea that this error problem even exists. The errors are not obvious and require knowledge and skill to detect, much less to correct. For the most part, people who think about traceability are simply relying on something that's called Electronic Data Interchange, or EDI, to gather their data, and they're making the assumption that the data they're getting from suppliers is valid. Any approach, any approach that relies on EDI alone to track data through the system is not detecting or validating for erroneous data. We've invested heavily over the years, and remember, this is not our first rodeo with supplier data, and we know that the data quality is poor at best. But you have to be able to detect the errors to know that. Bad data is a disease that's difficult to detect, but actually eats away at the core of traceability. Our competitor's approach to traceability has to go one of two ways. The first way is to trust the data, believing that EDI gives you accurate data. We've already said that it doesn't. All EDI does is to check the format and structure of data, but does not validate the accuracy. Doesn't even check. EDI is just the envelope. It's sort of like the post office. It only deals with the outside of the envelope, the size, does it have the right postage, does it have a zip code? Not the contents of the envelope. We, on the other hand, deal with the content inside the envelope, which is a fundamentally different idea, and the only one that ultimately leads to good data. Alternatively, the second approach expects the retailer or distributor to scan each and every case and have electronic data in addition, when something comes into the warehouse or goes out of the warehouse, that's a non-starter economically. ReposiTrak has developed what might well be the only inexpensive and accurate way to do traceability. We use our artificial intelligence tools to do this. It's extraordinarily robust and has the advantage that it not only identifies the errors, but it's able to correct them without bothering the supplier that created the data in the first place. This process is self-learning, and as a result, we're getting better and better all the time at finding the errors. We have over 500 error detection algorithms in our arsenal, and we're growing the detection parameters day by day. Even more importantly, we can then correct most of them automatically and in near real-time. This detect and correct process saves the grower money, and the wholesaler sees a similar benefit, and the distribution center. And by the time the shipments and the data reach the retailer, the data is much, much, much, much cleaner. This error detection and correction process is a major time and money saver for our customers and produces an enormously more accurate data flow. We enable compliance with the FDA regulations and simultaneously reduce costs for our customers, keeping food safe from the farm to the table. Nobody else can say that. We recently filed for two critical patents to secure our approach in what we call Touchless Traceability. We're confident these patents will create another wide and durable moat around the business. We needed to begin the patent protection process before we initiated sales, and that's been a bit of a short-term headwind. But our Touchless Traceability creates the most comprehensive end-to-end solution for traceability in the industry. Keep in mind that by year-end, the FDA deadline will be getting very close, so we expect the acceleration of onboarding and interest in our solution. We're ready, and our patents position us well. But we're not just a traceability company. We continue to grow our industry-leading compliance and supply chain offerings, even as we expand our RTN. Our focus over the past few quarters on cross-selling is now generating significant traction, especially in our supply chain business. Success with one solution opens the door to adding another solution and so on and so forth. Since our software is built on a common platform, and the process of gathering data is similar across all the different functions, adding additional solutions is efficient for both our customers and for us. All of this ties back to why we remain confident in the future, even as AI impacts the SaaS industry. Companies that offer software but don't have proprietary data or proprietary process improvements are at risk from AI. That's obvious. If a problem is just an IT problem solved by software, well, then theoretically, businesses can create their own software using AI. But ReposiTrak is much, much more than just software. Software is just a delivery vehicle and only a part of the solution. In the short term, the AI craze may serve as a modest headwind for our business. Yes, AI will give the false impression to some companies that they can do it on their own. In the long term, AI cannot solve the problems that we solve for customers, and the value we provide will become even clearer. This trend also aligns well with our recent focus on smaller customers, as well as our IP strategy. The hubris of thinking you can develop all of your own software is primarily a big company obsession, not a small company obsession. Defending the inventions we've created around processes and data cleaning will further benefit our business in the long term. As I mentioned, the looming deadline from the FDA will be only 18 months away by the calendar year-end. That will naturally accelerate the need for traceability implementations. That said, while we're investing in our business in the form of code refreshes, cross-selling initiatives, development, and patent work for our Touchless Traceability, we're also reducing our operating expenses. That we were able to lower our operating expenses while increasing revenue is a testament to the industry-leading revenue per employee that we maintain. Efficiency is a key selling point of what we provide to our customers, and we mirror this focus on our own internal operations. Moreover, our transition to a SaaS model has reached the point where we no longer need to aggressively invest in our own infrastructure to support our scale. Incremental revenue is disproportionately falling to the bottom line, and our contribution margin continues to increase. It's all part of the model. So with that, I'd like to now open the call for questions. Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, and we'll pause for just a moment while we poll for questions. We'll take a question from Thomas Forte with Maxim Group. Great. So John, Randy, congrats on the quarter. I have four, but as always, depending on your answers to these, I might have more. Randy, I have one warm-up question, and then I have three real humdingers. So the boring warm-up question, John, I think you said, or it was Randy, that in fiscal 2025, traceability was only 8% of total revenue. Is there a more recent data point, on how much total revenue is coming from traceability? Who you aiming that at? Yeah. Go ahead, John. I mean, I would say it's between 8% and 10%, but it's, it's hard because there's cross-selling. Okay. All right, so then, Randy, I'll take the bait. Can AI improve the accuracy of traceability data? Well, the way we use AI and have for a long time, it's really been part of what we do for many years, it absolutely does. The concept of LLMs, however, which is the current rage with AI, is a bit misleading. In other words, you have to detect what's wrong and how it got wrong to be able to fix it. There's three steps. I'm sorry, let me back up and see if I can make this clearer than I have. Most people who will try and do traceability will not even see that they have errors. It's not detectable by looking at it. You actually have to have a deep database to check every field in every record and determine whether or not in the context of that record, is it a correct reference? So it's a little bit, as I mentioned earlier, it's a little like the post office. You could have a note. Let's say you sent a note to me, and that note said, "Randy, I now believe that the Earth is flat." Okay, now you take that little note, and you put it in an envelope, you lick it, put a stamp on it, and take it to the post office. That's like EDI. Here's what the post office does, though. The post office looks at the size of the envelope and says, "Okay, that's a legal-size envelope. It has enough postage." It weighs it and checks the postage, and then it says, "It's got a zip code. Good to go." That's what EDI does. It's just the transport mechanism. Meanwhile, inside your envelope is an untrue statement. The Earth is not flat, and therefore, it's not detectable in the context of EDI. We detect it. We've tested hundreds and hundreds, actually, since we have 2 million records now. We've tested about every combination and permutation of type of error that you can imagine. So step one is, can you see the errors? And AI can help us with that. But here's where we've gone, because we realize what a problem the errors themselves are. If every day you were a supplier and you sent out 1,000 files, and as we found, half of those are erroneous, half of them are erroneous, and we sent you a message and said, "Here's the 500 files that are wrong, fix them," you would have to hire an army. Everybody would hire everyone they could find to check for errors and fix it. So we've developed a way, again, with AI, to not just detect the errors, but in essence, autocorrect them. So we're a little bit like spell check and autocorrection, and that's an enormous difference. And our system is AI-based, but doesn't in any way rely on what today's people would call a large language model. It's different. It's AI for sure, but it's not large language model. Sorry, long-winded answer, but hopefully it was complete. No, I appreciated the EDI and the post office comparison. All right, so then, All right, so is there any impact to ReposiTrak from MAHA? Well, in a way, in a way, yes. Longer term, especially. Let's talk about what MAHA is. MAHA and organic are really a similar idea. Organic is an idea that lays on top of food safety, where people think if they eat organic food, it is healthier for them. MAHA sits on top of all of that and says, "In general, you should eat food that is healthy," whatever that would be, whole foods, not foods that have been ultra-processed, without food colorings, et cetera. All of that lays on top of a looming problem, which is, according to Gallup, there's been a long-term decline in the U.S. in terms of the public's belief in food safety. So almost every year, people are believing less and less about the safety of food. So in a sense, what happens is MAHA, organic, et cetera, are causing people to worry more and more about the safety of what they eat. All of that awareness around safety is good for us because it means that the economic cost, the brand equity cost to a retailer who makes a mistake is tremendous. So MAHA impacts us by virtue of increasing people's awareness of the issue of safety of food. It's really that simple. All right, so this would be my most related question to that one. So you've talked in the last couple of quarters about traceability on a by ingredients basis. So if I go to Stew Leonard's and I buy prepared foods, can you-- any update on thoughts there? Well, we actually are capable of doing that. In other words, companies can sign up with us and determine, if you will, at a shipment level, at a product level, do they have issues. But they can also use our system for specifications around ingredients. So within our system, you could say, "Wait a minute, if red dye number three is a problem, let me search all of the items that I sell that have red dye number three in it." And that's an interesting problem because traceability, and the reason I'll come back to it in a minute, the FDA has designated certain products, like products that contain nut butters, as being on their Food Traceability List. But you have to think about that for a moment. There's not a retail chain in the country that can tell you the products it has on the shelf that contain a nut butter. Have no idea. Literally, no idea, because retailers don't maintain a list of ingredients, and they just can't track them. Strangely enough, within our system, we have the capability of doing that. So over time, what we suspect happens is people move from being oriented toward the product, and from the product, they'll drop down to the ingredient. We're fully capable of doing that today. All right, and then this is one of those questions where I have no idea what your answer is. So these are fun ones. All right. Does food inflation have a direct or indirect impact on your business? And I have three specific examples: cocoa, coffee, and beef. The answer is indirectly, they do. To the extent that we are in a period where increasing costs to the supermarket, the inputs, can't be passed on to the consumer, inevitably, supermarkets and everybody in that space has a margin squeeze, in which case, every element of cost, potentially including us, is something that they will look at. So inflation without the ability to pass it on is problematic in general, and it's certainly something that we think about. We haven't seen anything over the very short term, but that doesn't mean that it couldn't be something that pops itself up in the future. ... Excellent. All right, two more. This one I'll direct toward John. So John, you talked about investment spending, but I'm trying to understand how that showed up in your results, because you've talked about how it seems that you reduced the amount of CapEx required. So where, where does that investment spending, where do I see that in the P&L? So you would spend more in development, less in sales and marketing, but some of those things cover in both categories. So, because we spent less in marketing, but some of those people were utilized in development, you have to look at the totality of the expenses. You can't look at necessarily the line items. So in aggregate, our spending is less. It's just more targeted resource spending. As we said before, as traceability becomes more top of mind, our laser focus is to spread the word on the marketing side. But obviously, you know, we've done a lot as far as the marketing and the messaging, and we've now shifted it towards the development. To follow up- You're not gonna see it in line. You're not gonna see it in necessarily the line items. You have to look at the totality of the expenses. Yep. Thanks for that clarification. Are you capitalizing any of those costs? There's some costs that with the patent now, but it's a de minimis number. Okay. And then last question, unless you answer in a way that inspires me to ask one more. Current thoughts on strategic M&A? I mean, look, Randy and I see things every month, but we have so much on our plate right now, it's a distraction. You know, reemphasizing our stack and our code base and traceability. You know, remember what Randy said, you know, while it may seem like it's, you know, two years out, at the end of this year, traceability is gonna be right around the corner. We've got plenty on our plate to keep us busy, but, you know, of course, if the right opportunity came around, yes, we're inquisitive, but we have plenty on our plate at this moment. It. Unless, Randy, you got a different opinion. Yeah. John, let me add something to that. As we take a look at the next 12 months, it is extremely likely that there will be, again, a flood of need and interest, et cetera, around traceability. Why? We think it takes a full two-plus years to get your entire supplier base traceability ready and capable. We know that because we've been doing it. As I said, we already have nearly 2 million records, and as far as I know, we are the only firm that is actually, You can come look at it, doing end-to-end traceability. We are tracking products going from a supplier into a distribution center, into a retail store, and we create all of those records. We're doing it. It's the real deal. It's pretty amazing. We haven't tooted our own horn very much about that, but we will. But here's the issue: as people think about traceability, what they're going to be realizing very quickly was that they've now used up the runway that the FDA gave people when they gave them 30 months. It's now closer than it was, and by the end of this year, you'll be at what we think is the, "Oh my God, you're at a cliff," the 18-month mark. We don't think anybody that has hundreds of suppliers can be ready in 18 months. We think it takes a full two years. But people will shorten that and imagine that 18 months is the magic number. So as this year progresses, and I'd guess sometime in the summer, early fall, the world will once again wake up and go, "Yes, traceability. Whoops, we need to get going." So we're really more in the mood of preparing for that than we are thinking about being acquisitive at the current moment. Excellent. Thanks, Randy. Thanks, John. Thank you. Thanks, Tom. Thank you. That will conclude the question and answer session. I would now like to turn the floor back to Randy Fields for closing remarks. Okay, well, we appreciate everybody taking the time this afternoon. Not much more to say. Have a good one. Talk to you soon. Take care. Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Speaker 3: Greetings, and welcome to the ReposiTrak Fiscal Second Quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jeff Stanlis with FNK IR. Please go ahead, sir. Greetings, and welcome to the ReposiTrak Fiscal Second Quarter 2026 earnings conference call. greetings and welcome to the repositrak fiscal second quarter 2026 earnings conference call At this time, all participants are in a listen-only mode. at this time all participants are in a listen-only mode A question-and-answer session will follow the formal presentation. a question-and-answer session will follow the formal presentation If anyone should require operator assistance, please press star zero on your telephone keypad. if anyone should require operator assistance please press star zero on your telephone keypad As a reminder, this conference is being recorded. as a reminder this conference is being recorded It is now my pleasure to introduce Jeff Stanlis with FNK IR. it is now my pleasure to introduce jeff stanlis with fnk ir Please go ahead, sir. please go ahead sir

Speaker 1: Thank you, operator, and good afternoon, everyone. Thank you for joining us today for the ReposiTrak Fiscal Second Quarter 2026 conference 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, and actual results may differ materially. Such risks are 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. ReposiTrak does not assume any obligation to update information contained in this conference call. Thank you, operator, and good afternoon, everyone. thank you operator and good afternoon everyone Thank you for joining us today for the ReposiTrak Fiscal Second Quarter 2026 conference call. thank you for joining us today for the repositrak fiscal second quarter 2026 conference call Hosting the call today are Randy Fields, ReposiTrak's Chairman and CEO, and John Merrill, ReposiTrak's CFO. 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. 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. forward-looking statements are statements that are not subject to historical facts Such forward-looking statements are based upon current beliefs and expectations. such forward-looking statements are based upon current beliefs and expectations ReposiTrak's remarks are subject to risks and uncertainties, and actual results may differ materially. repositrak's remarks are subject to risks and uncertainties and actual results may differ materially Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. such risks are 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. 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. 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 we will discuss 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 would now like to turn the call over to John Merrill. John, the call is yours. Shortly after the market closed today, the company issued a press release overviewing the financial results that we will discuss on today's call. shortly after the market closed today the company issued a press release overviewing the financial results that we will discuss on today's call Investors can visit the Investor Relations section of the company's website at repositrak.com to access this press release. 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 would now like to turn the call over to John Merrill. with all that said i would now like to turn the call over to john merrill John, the call is yours. john the call is yours

Speaker 2: Thanks, Jeff, and good afternoon, everyone. As we reach the midpoint of fiscal 2026, it's important to reiterate our long-term strategy and provide performance metrics against those milestones. First, our goal was to convert all revenue streams largely to SaaS recurring revenue. Since 2020, we have converted over $7 million in one-time revenue to recurring SaaS and increased our recurring revenue from 62% of total revenue to over 98%. We have done this while simultaneously overcoming $2 million in the elimination of high-touch, low-margin opportunities in order to make way for traceability. Next, pay down debt, keep expenses in check, and increase contribution margin. Since 2020, we have paid off over $6 million in bank debt and reduced annual operating expenses from roughly $19 million-$16 million. Thanks, Jeff, and good afternoon, everyone. thanks jeff and good afternoon everyone As we reach the midpoint of fiscal 2026, it's important to reiterate our long-term strategy and provide performance metrics against those milestones. as we reach the midpoint of fiscal 2026 it's important to reiterate our long-term strategy and provide performance metrics against those milestones First, our goal was to convert all revenue streams largely to SaaS recurring revenue. first our goal was to convert all revenue streams largely to saas recurring revenue Since 2020, we have converted over $7 million in one-time revenue to recurring SaaS and increased our recurring revenue from 62% of total revenue to over 98%. since 2020 we have converted over $7 million in one-time revenue to recurring saas and increased our recurring revenue from 62% of total revenue to over 98% We have done this while simultaneously overcoming $2 million in the elimination of high-touch, low-margin opportunities in order to make way for traceability. we have done this while simultaneously overcoming $2 million in the elimination of high-touch low-margin opportunities in order to make way for traceability Next, pay down debt, keep expenses in check, and increase contribution margin. next pay down debt keep expenses in check and increase contribution margin Since 2020, we have paid off over $6 million in bank debt and reduced annual operating expenses from roughly $19 million - $16 million. since 2020 we have paid off over $6 million in bank debt and reduced annual operating expenses from roughly $19 million - $16 million Meanwhile, we have grown our net margin from 8% to north of 30% during the same period. Third, drive cash and return capital to shareholders. Since 2020, we have increased net cash by a 16% compounded annual growth rate. Net cash means total cash on the balance sheet, less bank debt and leases. We've grown net cash from $13.7 million in 2020 to almost $29 million in 2025. Simultaneously, we have bought back over 2.2 million shares of common stock, redeemed 640,000 shares of preferred stock, and increased the common stock dividend now 3x by 10% each time over the previous three years. Finally, given our strong cash flow generation, we have invested heavily in our business. This quarter, the investments in our business involved three key initiatives. Meanwhile, we have grown our net margin from 8% to north of 30% during the same period. meanwhile we have grown our net margin from 8% to north of 30% during the same period Third, drive cash and return capital to shareholders. third drive cash and return capital to shareholders Since 2020, we have increased net cash by a 16% compounded annual growth rate. since 2020 we have increased net cash by a 16% compounded annual growth rate Net cash means total cash on the balance sheet, less bank debt and leases. net cash means total cash on the balance sheet less bank debt and leases We've grown net cash from $13.7 million in 2020 to almost $29 million in 2025. we've grown net cash from $13.7 million in 2020 to almost $29 million in 2025 Simultaneously, we have bought back over 2.2 million shares of common stock, redeemed 640,000 shares of preferred stock, and increased the common stock dividend now 3x by 10% each time over the previous three years. simultaneously we have bought back over 2.2 million shares of common stock redeemed 640,000 shares of preferred stock and increased the common stock dividend now 3x by 10% each time over the previous three years Finally, given our strong cash flow generation, we have invested heavily in our business. finally given our strong cash flow generation we have invested heavily in our business This quarter, the investments in our business involved three key initiatives. this quarter the investments in our business involved three key initiatives First, we continue to invest in our products, responding to customer pain points with new solutions. We're confident that these solutions will improve tracking accuracy and reduce operating costs for any customer with a warehouse. Touchless Traceability fits perfectly with our ReposiTrak Traceability Network solution, creating a comprehensive method for delivering end-to-end traceability. Second, we filed for two patents in the last few weeks, one for Touchless Traceability and a second for innovative method for identifying and automatically correcting errors in the data we integrate for customers. ReposiTrak has not been shy about patenting our innovations. We have a portfolio of nine U.S. patents, and we are confident we will ultimately secure both these patents that are now in process. These patents serve as yet another moat around our business. Randy will add more color on Touchless Traceability and the patents in his section. First, we continue to invest in our products, responding to customer pain points with new solutions. first we continue to invest in our products responding to customer pain points with new solutions We're confident that these solutions will improve tracking accuracy and reduce operating costs for any customer with a warehouse. we're confident that these solutions will improve tracking accuracy and reduce operating costs for any customer with a warehouse Touchless Traceability fits perfectly with our ReposiTrak Traceability Network solution, creating a comprehensive method for delivering end-to-end traceability. touchless traceability fits perfectly with our repositrak traceability network solution creating a comprehensive method for delivering end-to-end traceability Second, we filed for two patents in the last few weeks, one for Touchless Traceability and a second for innovative method for identifying and automatically correcting errors in the data we integrate for customers. second we filed for two patents in the last few weeks one for touchless traceability and a second for innovative method for identifying and automatically correcting errors in the data we integrate for customers ReposiTrak has not been shy about patenting our innovations. repositrak has not been shy about patenting our innovations We have a portfolio of nine U.S. patents, and we are confident we will ultimately secure both these patents that are now in process. we have a portfolio of nine u.s patents and we are confident we will ultimately secure both these patents that are now in process These patents serve as yet another moat around our business. these patents serve as yet another moat around our business Randy will add more color on Touchless Traceability and the patents in his section. randy will add more color on touchless traceability and the patents in his section The inventions involved in these two patents and our innovation in general, continues to revolutionize the industry. We have carefully observed what others in the space envision to address issues like traceability, and we know what has worked and what doesn't. We are confident that as our competitors recognize the optimal path forward, they will discover that we have patented the process and systems that make the correct approach possible. Third, we continue to invest in our systems and core software stack, adding artificial intelligence and modernized features, and setting us up for improved operational efficiency. Randy talked about this last quarter, and we do not anticipate meaningful increase in our cash expenses or capital expenditures related to this initiative. Let's get to the numbers. Second fiscal quarter revenue increased 7% from $5.5 million-$5.9 million. The inventions involved in these two patents and our innovation in general, continues to revolutionize the industry. the inventions involved in these two patents and our innovation in general continues to revolutionize the industry We have carefully observed what others in the space envision to address issues like traceability, and we know what has worked and what doesn't. we have carefully observed what others in the space envision to address issues like traceability and we know what has worked and what doesn't We are confident that as our competitors recognize the optimal path forward, they will discover that we have patented the process and systems that make the correct approach possible. we are confident that as our competitors recognize the optimal path forward they will discover that we have patented the process and systems that make the correct approach possible Third, we continue to invest in our systems and core software stack, adding artificial intelligence and modernized features, and setting us up for improved operational efficiency. third we continue to invest in our systems and core software stack adding artificial intelligence and modernized features and setting us up for improved operational efficiency Randy talked about this last quarter, and we do not anticipate meaningful increase in our cash expenses or capital expenditures related to this initiative. randy talked about this last quarter and we do not anticipate meaningful increase in our cash expenses or capital expenditures related to this initiative Let's get to the numbers. let's get to the numbers Second fiscal quarter revenue increased 7% from $5.5 million - $5.9 million. second fiscal quarter revenue increased 7% from $5.5 million - $5.9 million Total operating expenses for the quarter were down 2%, inclusive of investment in RTN, including wizard onboarding tools, more cybersecurity costs, database license fees, and other direct costs associated with development. We've reached the point where an incremental revenue does not require significant incremental expenses to support our growth. SG&A costs for the quarter were up 5% due to higher commissions and direct costs associated with higher revenues, increased insurance premiums, and increases in employee benefit costs. Income from operations was up 34% to $1.8 million versus $1.4 million. GAAP net income for the second fiscal quarter of 2026 was $1.7 million, up 9% versus $1.6 million last year. Total operating expenses for the quarter were down 2%, inclusive of investment in RTN, including wizard onboarding tools, more cybersecurity costs, database license fees, and other direct costs associated with development. total operating expenses for the quarter were down 2% inclusive of investment in rtn including wizard onboarding tools more cybersecurity costs database license fees and other direct costs associated with development We've reached the point where an incremental revenue does not require significant incremental expenses to support our growth. we've reached the point where an incremental revenue does not require significant incremental expenses to support our growth SG&A costs for the quarter were up 5% due to higher commissions and direct costs associated with higher revenues, increased insurance premiums, and increases in employee benefit costs. sg&a costs for the quarter were up 5% due to higher commissions and direct costs associated with higher revenues increased insurance premiums and increases in employee benefit costs Income from operations was up 34% to $1.8 million versus $1.4 million. income from operations was up 34% to $1.8 million versus $1.4 million GAAP net income for the second fiscal quarter of 2026 was $1.7 million, up 9% versus $1.6 million last year. gaap net income for the second fiscal quarter of 2026 was $1.7 million up 9% versus $1.6 million last year As previously communicated, the company is at the end of the benefit period from utilized and expiring net operating losses for both federal and state income tax. Accordingly, it is reasonable to assume a 20% effective tax rate going forward. GAAP net income to common shareholders increased 13% to $1.6 million from $1.5 million. Earnings per share for the quarter was $0.09 basic and diluted. This is based on 18.2 million basic shares outstanding and 19.1 million shares diluted, resulting in a year-over-year EPS growth of 13% when factoring in higher income taxes. Total cash increased to $28.7 million from $28.6 million at June 30, and the company continues to have 0 bank debt. As previously communicated, the company is at the end of the benefit period from utilized and expiring net operating losses for both federal and state income tax. as previously communicated the company is at the end of the benefit period from utilized and expiring net operating losses for both federal and state income tax Accordingly, it is reasonable to assume a 20% effective tax rate going forward. accordingly it is reasonable to assume a 20% effective tax rate going forward GAAP net income to common shareholders increased 13% to $1.6 million from $1.5 million. gaap net income to common shareholders increased 13% to $1.6 million from $1.5 million Earnings per share for the quarter was $0.09 basic and diluted. earnings per share for the quarter was $0.09 basic and diluted This is based on 18.2 million basic shares outstanding and 19.1 million shares diluted, resulting in a year-over-year EPS growth of 13% when factoring in higher income taxes. this is based on 18.2 million basic shares outstanding and 19.1 million shares diluted resulting in a year-over-year eps growth of 13% when factoring in higher income taxes Total cash increased to $28.7 million from $28.6 million at June 30, and the company continues to have 0 bank debt. total cash increased to $28.7 million from $28.6 million at june 30 and the company continues to have 0 bank debt Fiscal 2026 year-to-date total revenue increased 8% from $10.9 million-$11.8 million. Total operating expenses for the fiscal year to date were $8.1 million, versus $8.1 million for the same period last year, essentially flat. Income from operations was up 31% for the fiscal year to date, $3.7 million versus $2.8 million. GAAP net income increased 9% from $3.2 million-$3.5 million. GAAP net income to common shareholders increased 13% from $3 million in fiscal 2025 to $3.4 million in the year-to-date period in fiscal 2026. Fiscal 2026 year-to-date earnings per share was $0.19 basic and $0.18 diluted. Fiscal 2026 year-to-date total revenue increased 8% from $10.9 million- $11.8 million. fiscal 2026 year-to-date total revenue increased 8% from $10.9 million- $11.8 million Total operating expenses for the fiscal year to date were $8.1 million, versus $8.1 million for the same period last year, essentially flat. total operating expenses for the fiscal year to date were $8.1 million versus $8.1 million for the same period last year essentially flat Income from operations was up 31% for the fiscal year to date, $3.7 million versus $2.8 million. income from operations was up 31% for the fiscal year to date $3.7 million versus $2.8 million GAAP net income increased 9% from $3.2 million- $3.5 million. gaap net income increased 9% from $3.2 million- $3.5 million GAAP net income to common shareholders increased 13% from $3 million in fiscal 2025 to $3.4 million in the year-to-date period in fiscal 2026. gaap net income to common shareholders increased 13% from $3 million in fiscal 2025 to $3.4 million in the year-to-date period in fiscal 2026 Fiscal 2026 year-to-date earnings per share was $0.19 basic and $0.18 diluted. fiscal 2026 year-to-date earnings per share was $0.19 basic and $0.18 diluted This is a 13% increase when compared to $0.17 basic and $0.16 diluted for the same period last year. We are experiencing growth in all lines of business. While traditional sales of one service to solve one problem is growing, our cross-selling initiatives are delivering continued momentum. Again, our strategy has not changed. First and foremost, take exceptional care of the customer and execute flawlessly. Next, grow recurring revenue, increase profitability even faster, use cash to buy back common stock, redeem the preferred, and do it with no bank debt. At the same time, return capital to shareholders through a growing cash dividend. Finally, we have and will continue to build cash on the balance sheet, close to $29 million as of December 31, 2025. This is a 13% increase when compared to $0.17 basic and $0.16 diluted for the same period last year. this is a 13% increase when compared to $0.17 basic and $0.16 diluted for the same period last year We are experiencing growth in all lines of business. we are experiencing growth in all lines of business While traditional sales of one service to solve one problem is growing, our cross-selling initiatives are delivering continued momentum. while traditional sales of one service to solve one problem is growing our cross-selling initiatives are delivering continued momentum Again, our strategy has not changed. again our strategy has not changed First and foremost, take exceptional care of the customer and execute flawlessly. first and foremost take exceptional care of the customer and execute flawlessly Next, grow recurring revenue, increase profitability even faster, use cash to buy back common stock, redeem the preferred, and do it with no bank debt. next grow recurring revenue increase profitability even faster use cash to buy back common stock redeem the preferred and do it with no bank debt At the same time, return capital to shareholders through a growing cash dividend. at the same time return capital to shareholders through a growing cash dividend Finally, we have and will continue to build cash on the balance sheet, close to $29 million as of December 31, 2025. finally we have and will continue to build cash on the balance sheet close to $29 million as of december 31 2025 Continuing to bolster our balance sheet maintains our customers' confidence in our ability to be a durable partner in an otherwise uncertain economic time. Common stock buyback. During the second quarter of fiscal 2026, the company repurchased roughly 80,000 common shares for a total of $1.1 million, an average of $13.75 per share. Since inception, the company has repurchased and canceled 2.22 million common shares for $14.5 million at an average price of $6.52 per common share. The company has approximately $6.7 million remaining of the $21 million total common share buyback authorization, as approved by the board of directors and shareholders as of December 31, 2025. The company holds no treasury stock. Common shares are repurchased and simultaneously canceled. Preferred stock redemption. Continuing to bolster our balance sheet maintains our customers' confidence in our ability to be a durable partner in an otherwise uncertain economic time. continuing to bolster our balance sheet maintains our customers' confidence in our ability to be a durable partner in an otherwise uncertain economic time Common stock buyback. common stock buyback During the second quarter of fiscal 2026, the company repurchased roughly 80,000 common shares for a total of $1.1 million, an average of $13.75 per share. during the second quarter of fiscal 2026 the company repurchased roughly 80,000 common shares for a total of $1.1 million an average of $13.75 per share Since inception, the company has repurchased and canceled 2.22 million common shares for $14.5 million at an average price of $6.52 per common share. since inception the company has repurchased and canceled 2.22 million common shares for $14.5 million at an average price of $6.52 per common share The company has approximately $6.7 million remaining of the $21 million total common share buyback authorization, as approved by the board of directors and shareholders as of December 31, 2025. the company has approximately $6.7 million remaining of the $21 million total common share buyback authorization as approved by the board of directors and shareholders as of december 31 2025 The company holds no treasury stock. the company holds no treasury stock Common shares are repurchased and simultaneously canceled. common shares are repurchased and simultaneously canceled Preferred stock redemption. preferred stock redemption During the second quarter of fiscal 2026, the company also redeemed 70,000 preferred shares at the stated redemption price of $10.70 per share, for a total of $750,000. Since inception, the company has redeemed approximately 642,000 shares of preferred stock at the stated redemption price of $10.70 per share, for a total of $6.9 million. We have 196,000 preferred shares left to redeem, for a total of $2.1 million. At the current rate of redemption of $750,000 a quarter, I maintain our goal to redeem all the remaining preferred shares issued and outstanding on or before December of 2026, if not earlier. The quarterly dividend. During the second quarter of fiscal 2026, the company also redeemed 70,000 preferred shares at the stated redemption price of $10.70 per share, for a total of $750,000. during the second quarter of fiscal 2026 the company also redeemed 70,000 preferred shares at the stated redemption price of $10.70 per share for a total of $750,000 Since inception, the company has redeemed approximately 642,000 shares of preferred stock at the stated redemption price of $10.70 per share, for a total of $6.9 million. since inception the company has redeemed approximately 642,000 shares of preferred stock at the stated redemption price of $10.70 per share for a total of $6.9 million We have 196,000 preferred shares left to redeem, for a total of $2.1 million. we have 196,000 preferred shares left to redeem for a total of $2.1 million At the current rate of redemption of $750,000 a quarter, I maintain our goal to redeem all the remaining preferred shares issued and outstanding on or before December of 2026, if not earlier. at the current rate of redemption of $750,000 a quarter i maintain our goal to redeem all the remaining preferred shares issued and outstanding on or before december of 2026 if not earlier The quarterly dividend. the quarterly dividend On December 19, 2025, the board declared a quarterly dividend of $0.02 per share to shareholders of record as of December 31, 2025, payable on or about February 14, 2026. This represents the third 10% increase in the company's dividend since the dividend was established in September 2022. Subsequent dividends will be paid within 45 days of each fiscal quarter end. From time to time, the board will evaluate our capital allocation strategy, making appropriate adjustments based on the approach most beneficial to all shareholders at that time. Our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half in the bank. That's all I have today. Thanks, everyone, for your time. At this point, I'll pass the call over to Randy. Randy? On December 19, 2025, the board declared a quarterly dividend of $0.02 per share to shareholders of record as of December 31, 2025, payable on or about February 14, 2026. on december 19 2025 the board declared a quarterly dividend of $0.02 per share to shareholders of record as of december 31 2025 payable on or about february 14 2026 This represents the third 10% increase in the company's dividend since the dividend was established in September 2022. this represents the third 10% increase in the company's dividend since the dividend was established in september 2022 Subsequent dividends will be paid within 45 days of each fiscal quarter end. subsequent dividends will be paid within 45 days of each fiscal quarter end From time to time, the board will evaluate our capital allocation strategy, making appropriate adjustments based on the approach most beneficial to all shareholders at that time. from time to time the board will evaluate our capital allocation strategy making appropriate adjustments based on the approach most beneficial to all shareholders at that time Our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half in the bank. our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half in the bank That's all I have today. that's all i have today Thanks, everyone, for your time. thanks everyone for your time At this point, I'll pass the call over to Randy. at this point i'll pass the call over to randy Randy? randy

Speaker 4: Thanks, John. ReposiTrak had an eventful quarter. Some of that shows in our numbers, but much of what we accomplished was behind the scenes. While we're delivering profitable growth from each of our solutions, we continue to add to the moat around our business, specifically the traceability business. The ReposiTrak Traceability Network, or RTN, is already the industry leader. The queue to join our network is much larger than our current installed base, and each new supplier, distributor, or retailer adds to the network effect of our RTN solution. It's fair to say, and we've said it before, that traceability for most suppliers is much more difficult than anyone imagined. The difficulty affects suppliers and therefore ultimately impacts everyone upstream, downstream in the supply chain. Thanks, John. thanks john ReposiTrak had an eventful quarter. repositrak had an eventful quarter Some of that shows in our numbers, but much of what we accomplished was behind the scenes. some of that shows in our numbers but much of what we accomplished was behind the scenes While we're delivering profitable growth from each of our solutions, we continue to add to the moat around our business, specifically the traceability business. while we're delivering profitable growth from each of our solutions we continue to add to the moat around our business specifically the traceability business The ReposiTrak Traceability Network, or RTN, is already the industry leader. the repositrak traceability network or rtn is already the industry leader The queue to join our network is much larger than our current installed base, and each new supplier, distributor, or retailer adds to the network effect of our RTN solution. the queue to join our network is much larger than our current installed base and each new supplier distributor or retailer adds to the network effect of our rtn solution It's fair to say, and we've said it before, that traceability for most suppliers is much more difficult than anyone imagined. it's fair to say and we've said it before that traceability for most suppliers is much more difficult than anyone imagined The difficulty affects suppliers and therefore ultimately impacts everyone upstream, downstream in the supply chain. the difficulty affects suppliers and therefore ultimately impacts everyone upstream downstream in the supply chain It currently takes longer than we'd hoped to work with suppliers to get them up to speed and consistently able to provide the information they need to be able to do traceability. I'll elaborate on this in just a minute.... Remember that no one has ever done traceability before. It's a new thing, it's a new activity, and it's one that requires complex process changes for everyone involved in the supply chain, end-to-end. As I mentioned, the primary issue with traceability continues to be the consistent accuracy of supplier data. The error rate in data we initially receive from suppliers, especially small suppliers, is somewhere between 50% and 70%. In case it isn't obvious, if a supplier has inaccurate data, that data propagates through the supply chain. The grower's bad data becomes the distributor's bad data, which becomes the wholesaler's bad data, which becomes the retailer's bad data. It currently takes longer than we'd hoped to work with suppliers to get them up to speed and consistently able to provide the information they need to be able to do traceability. it currently takes longer than we'd hoped to work with suppliers to get them up to speed and consistently able to provide the information they need to be able to do traceability I'll elaborate on this in just a minute.... i'll elaborate on this in just a minute Remember that no one has ever done traceability before. remember that no one has ever done traceability before It's a new thing, it's a new activity, and it's one that requires complex process changes for everyone involved in the supply chain, end-to-end. it's a new thing it's a new activity and it's one that requires complex process changes for everyone involved in the supply chain end-to-end As I mentioned, the primary issue with traceability continues to be the consistent accuracy of supplier data. as i mentioned the primary issue with traceability continues to be the consistent accuracy of supplier data The error rate in data we initially receive from suppliers, especially small suppliers, is somewhere between 50% and 70%. the error rate in data we initially receive from suppliers especially small suppliers is somewhere between 50% and 70% In case it isn't obvious, if a supplier has inaccurate data, that data propagates through the supply chain. in case it isn't obvious if a supplier has inaccurate data that data propagates through the supply chain The grower's bad data becomes the distributor's bad data, which becomes the wholesaler's bad data, which becomes the retailer's bad data. the grower's bad data becomes the distributor's bad data which becomes the wholesaler's bad data which becomes the retailer's bad data That bad data becomes even worse if additional errors are introduced on another link in the supply chain, making the information even less reliable, if not completely unusable. So now the question is: how do you fix an error? Since the errors ripple through many, many systems, it's more difficult than you can imagine. Each company will have to manually fix its records, conceivably hundreds or thousands of error fixes every day. This is ultimately the Achilles heel of track and trace, bad data. Imagine the challenge this presents for a small family grower, most of whom don't even have an IT department. Now, imagine the challenge for a large distributor, taking in thousands of shipments daily, each with a high error rate. Now, imagine how a large retailer will think about this if they need to hire dozens of employees just to trace down all of these different errors. That bad data becomes even worse if additional errors are introduced on another link in the supply chain, making the information even less reliable, if not completely unusable. that bad data becomes even worse if additional errors are introduced on another link in the supply chain making the information even less reliable if not completely unusable So now the question is: how do you fix an error? so now the question is how do you fix an error Since the errors ripple through many, many systems, it's more difficult than you can imagine. since the errors ripple through many many systems it's more difficult than you can imagine Each company will have to manually fix its records, conceivably hundreds or thousands of error fixes every day. each company will have to manually fix its records conceivably hundreds or thousands of error fixes every day This is ultimately the Achilles heel of track and trace, bad data. this is ultimately the achilles heel of track and trace bad data Imagine the challenge this presents for a small family grower, most of whom don't even have an IT department. imagine the challenge this presents for a small family grower most of whom don't even have an it department Now, imagine the challenge for a large distributor, taking in thousands of shipments daily, each with a high error rate. now imagine the challenge for a large distributor taking in thousands of shipments daily each with a high error rate Now, imagine how a large retailer will think about this if they need to hire dozens of employees just to trace down all of these different errors. now imagine how a large retailer will think about this if they need to hire dozens of employees just to trace down all of these different errors It's just not going to happen. It would be cost prohibitive. Here's what's even stranger: most people who are trying to think about traceability have no idea that this error problem even exists. The errors are not obvious and require knowledge and skill to detect, much less to correct. For the most part, people who think about traceability are simply relying on something that's called Electronic Data Interchange, or EDI, to gather their data, and they're making the assumption that the data they're getting from suppliers is valid. Any approach, any approach that relies on EDI alone to track data through the system is not detecting or validating for erroneous data. We've invested heavily over the years, and remember, this is not our first rodeo with supplier data, and we know that the data quality is poor at best. It's just not going to happen. it's just not going to happen It would be cost prohibitive. it would be cost prohibitive Here's what's even stranger: most people who are trying to think about traceability have no idea that this error problem even exists. here's what's even stranger most people who are trying to think about traceability have no idea that this error problem even exists The errors are not obvious and require knowledge and skill to detect, much less to correct. the errors are not obvious and require knowledge and skill to detect much less to correct For the most part, people who think about traceability are simply relying on something that's called Electronic Data Interchange, or EDI, to gather their data, and they're making the assumption that the data they're getting from suppliers is valid. for the most part people who think about traceability are simply relying on something that's called electronic data interchange or edi to gather their data and they're making the assumption that the data they're getting from suppliers is valid Any approach, any approach that relies on EDI alone to track data through the system is not detecting or validating for erroneous data. any approach any approach that relies on edi alone to track data through the system is not detecting or validating for erroneous data We've invested heavily over the years, and remember, this is not our first rodeo with supplier data, and we know that the data quality is poor at best. we've invested heavily over the years and remember this is not our first rodeo with supplier data and we know that the data quality is poor at best But you have to be able to detect the errors to know that. Bad data is a disease that's difficult to detect, but actually eats away at the core of traceability. Our competitor's approach to traceability has to go one of two ways. The first way is to trust the data, believing that EDI gives you accurate data. We've already said that it doesn't. All EDI does is to check the format and structure of data, but does not validate the accuracy. Doesn't even check. EDI is just the envelope. It's sort of like the post office. It only deals with the outside of the envelope, the size, does it have the right postage, does it have a zip code? Not the contents of the envelope. But you have to be able to detect the errors to know that. but you have to be able to detect the errors to know that Bad data is a disease that's difficult to detect, but actually eats away at the core of traceability. bad data is a disease that's difficult to detect but actually eats away at the core of traceability Our competitor's approach to traceability has to go one of two ways. our competitor's approach to traceability has to go one of two ways The first way is to trust the data, believing that EDI gives you accurate data. the first way is to trust the data believing that edi gives you accurate data We've already said that it doesn't. we've already said that it doesn't All EDI does is to check the format and structure of data, but does not validate the accuracy. all edi does is to check the format and structure of data but does not validate the accuracy Doesn't even check. doesn't even check EDI is just the envelope. edi is just the envelope It's sort of like the post office. it's sort of like the post office It only deals with the outside of the envelope, the size, does it have the right postage, does it have a zip code? it only deals with the outside of the envelope the size does it have the right postage does it have a zip code Not the contents of the envelope. not the contents of the envelope We, on the other hand, deal with the content inside the envelope, which is a fundamentally different idea, and the only one that ultimately leads to good data. Alternatively, the second approach expects the retailer or distributor to scan each and every case and have electronic data in addition, when something comes into the warehouse or goes out of the warehouse, that's a non-starter economically. ReposiTrak has developed what might well be the only inexpensive and accurate way to do traceability. We use our artificial intelligence tools to do this. It's extraordinarily robust and has the advantage that it not only identifies the errors, but it's able to correct them without bothering the supplier that created the data in the first place. This process is self-learning, and as a result, we're getting better and better all the time at finding the errors. We, on the other hand, deal with the content inside the envelope, which is a fundamentally different idea, and the only one that ultimately leads to good data. we on the other hand deal with the content inside the envelope which is a fundamentally different idea and the only one that ultimately leads to good data Alternatively, the second approach expects the retailer or distributor to scan each and every case and have electronic data in addition, when something comes into the warehouse or goes out of the warehouse, that's a non-starter economically. alternatively the second approach expects the retailer or distributor to scan each and every case and have electronic data in addition when something comes into the warehouse or goes out of the warehouse that's a non-starter economically ReposiTrak has developed what might well be the only inexpensive and accurate way to do traceability. repositrak has developed what might well be the only inexpensive and accurate way to do traceability We use our artificial intelligence tools to do this. we use our artificial intelligence tools to do this It's extraordinarily robust and has the advantage that it not only identifies the errors, but it's able to correct them without bothering the supplier that created the data in the first place. it's extraordinarily robust and has the advantage that it not only identifies the errors but it's able to correct them without bothering the supplier that created the data in the first place This process is self-learning, and as a result, we're getting better and better all the time at finding the errors. this process is self-learning and as a result we're getting better and better all the time at finding the errors We have over 500 error detection algorithms in our arsenal, and we're growing the detection parameters day by day. Even more importantly, we can then correct most of them automatically and in near real-time. This detect and correct process saves the grower money, and the wholesaler sees a similar benefit, and the distribution center. And by the time the shipments and the data reach the retailer, the data is much, much, much, much cleaner. This error detection and correction process is a major time and money saver for our customers and produces an enormously more accurate data flow. We enable compliance with the FDA regulations and simultaneously reduce costs for our customers, keeping food safe from the farm to the table. Nobody else can say that. We recently filed for two critical patents to secure our approach in what we call Touchless Traceability. We have over 500 error detection algorithms in our arsenal, and we're growing the detection parameters day by day. we have over 500 error detection algorithms in our arsenal and we're growing the detection parameters day by day Even more importantly, we can then correct most of them automatically and in near real-time. even more importantly we can then correct most of them automatically and in near real-time This detect and correct process saves the grower money, and the wholesaler sees a similar benefit, and the distribution center. this detect and correct process saves the grower money and the wholesaler sees a similar benefit and the distribution center And by the time the shipments and the data reach the retailer, the data is much, much, much, much cleaner. and by the time the shipments and the data reach the retailer the data is much much much much cleaner This error detection and correction process is a major time and money saver for our customers and produces an enormously more accurate data flow. this error detection and correction process is a major time and money saver for our customers and produces an enormously more accurate data flow We enable compliance with the FDA regulations and simultaneously reduce costs for our customers, keeping food safe from the farm to the table. we enable compliance with the fda regulations and simultaneously reduce costs for our customers keeping food safe from the farm to the table Nobody else can say that. nobody else can say that We recently filed for two critical patents to secure our approach in what we call Touchless Traceability. we recently filed for two critical patents to secure our approach in what we call touchless traceability We're confident these patents will create another wide and durable moat around the business. We needed to begin the patent protection process before we initiated sales, and that's been a bit of a short-term headwind. But our Touchless Traceability creates the most comprehensive end-to-end solution for traceability in the industry. Keep in mind that by year-end, the FDA deadline will be getting very close, so we expect the acceleration of onboarding and interest in our solution. We're ready, and our patents position us well. But we're not just a traceability company. We continue to grow our industry-leading compliance and supply chain offerings, even as we expand our RTN. Our focus over the past few quarters on cross-selling is now generating significant traction, especially in our supply chain business. Success with one solution opens the door to adding another solution and so on and so forth. We're confident these patents will create another wide and durable moat around the business. we're confident these patents will create another wide and durable moat around the business We needed to begin the patent protection process before we initiated sales, and that's been a bit of a short-term headwind. we needed to begin the patent protection process before we initiated sales and that's been a bit of a short-term headwind But our Touchless Traceability creates the most comprehensive end-to-end solution for traceability in the industry. but our touchless traceability creates the most comprehensive end-to-end solution for traceability in the industry Keep in mind that by year-end, the FDA deadline will be getting very close, so we expect the acceleration of onboarding and interest in our solution. keep in mind that by year-end the fda deadline will be getting very close so we expect the acceleration of onboarding and interest in our solution We're ready, and our patents position us well. we're ready and our patents position us well But we're not just a traceability company. but we're not just a traceability company We continue to grow our industry-leading compliance and supply chain offerings, even as we expand our RTN. we continue to grow our industry-leading compliance and supply chain offerings even as we expand our rtn Our focus over the past few quarters on cross-selling is now generating significant traction, especially in our supply chain business. our focus over the past few quarters on cross-selling is now generating significant traction especially in our supply chain business Success with one solution opens the door to adding another solution and so on and so forth. success with one solution opens the door to adding another solution and so on and so forth Since our software is built on a common platform, and the process of gathering data is similar across all the different functions, adding additional solutions is efficient for both our customers and for us. All of this ties back to why we remain confident in the future, even as AI impacts the SaaS industry. Companies that offer software but don't have proprietary data or proprietary process improvements are at risk from AI. That's obvious. If a problem is just an IT problem solved by software, well, then theoretically, businesses can create their own software using AI. But ReposiTrak is much, much more than just software. Software is just a delivery vehicle and only a part of the solution. In the short term, the AI craze may serve as a modest headwind for our business. Since our software is built on a common platform, and the process of gathering data is similar across all the different functions, adding additional solutions is efficient for both our customers and for us. since our software is built on a common platform and the process of gathering data is similar across all the different functions adding additional solutions is efficient for both our customers and for us All of this ties back to why we remain confident in the future, even as AI impacts the SaaS industry. all of this ties back to why we remain confident in the future even as ai impacts the saas industry Companies that offer software but don't have proprietary data or proprietary process improvements are at risk from AI. companies that offer software but don't have proprietary data or proprietary process improvements are at risk from ai That's obvious. that's obvious If a problem is just an IT problem solved by software, well, then theoretically, businesses can create their own software using AI. if a problem is just an it problem solved by software well then theoretically businesses can create their own software using ai But ReposiTrak is much, much more than just software. but repositrak is much much more than just software Software is just a delivery vehicle and only a part of the solution. software is just a delivery vehicle and only a part of the solution In the short term, the AI craze may serve as a modest headwind for our business. in the short term the ai craze may serve as a modest headwind for our business Yes, AI will give the false impression to some companies that they can do it on their own. In the long term, AI cannot solve the problems that we solve for customers, and the value we provide will become even clearer. This trend also aligns well with our recent focus on smaller customers, as well as our IP strategy. The hubris of thinking you can develop all of your own software is primarily a big company obsession, not a small company obsession. Defending the inventions we've created around processes and data cleaning will further benefit our business in the long term. As I mentioned, the looming deadline from the FDA will be only 18 months away by the calendar year-end. That will naturally accelerate the need for traceability implementations. Yes, AI will give the false impression to some companies that they can do it on their own. yes ai will give the false impression to some companies that they can do it on their own In the long term, AI cannot solve the problems that we solve for customers, and the value we provide will become even clearer. in the long term ai cannot solve the problems that we solve for customers and the value we provide will become even clearer This trend also aligns well with our recent focus on smaller customers, as well as our IP strategy. this trend also aligns well with our recent focus on smaller customers as well as our ip strategy The hubris of thinking you can develop all of your own software is primarily a big company obsession, not a small company obsession. the hubris of thinking you can develop all of your own software is primarily a big company obsession not a small company obsession Defending the inventions we've created around processes and data cleaning will further benefit our business in the long term. defending the inventions we've created around processes and data cleaning will further benefit our business in the long term As I mentioned, the looming deadline from the FDA will be only 18 months away by the calendar year-end. as i mentioned the looming deadline from the fda will be only 18 months away by the calendar year-end That will naturally accelerate the need for traceability implementations. that will naturally accelerate the need for traceability implementations That said, while we're investing in our business in the form of code refreshes, cross-selling initiatives, development, and patent work for our Touchless Traceability, we're also reducing our operating expenses. That we were able to lower our operating expenses while increasing revenue is a testament to the industry-leading revenue per employee that we maintain. Efficiency is a key selling point of what we provide to our customers, and we mirror this focus on our own internal operations. Moreover, our transition to a SaaS model has reached the point where we no longer need to aggressively invest in our own infrastructure to support our scale. Incremental revenue is disproportionately falling to the bottom line, and our contribution margin continues to increase. It's all part of the model. So with that, I'd like to now open the call for questions. Operator? That said, while we're investing in our business in the form of code refreshes, cross-selling initiatives, development, and patent work for our Touchless Traceability, we're also reducing our operating expenses. that said while we're investing in our business in the form of code refreshes cross-selling initiatives development and patent work for our touchless traceability we're also reducing our operating expenses That we were able to lower our operating expenses while increasing revenue is a testament to the industry-leading revenue per employee that we maintain. that we were able to lower our operating expenses while increasing revenue is a testament to the industry-leading revenue per employee that we maintain Efficiency is a key selling point of what we provide to our customers, and we mirror this focus on our own internal operations. efficiency is a key selling point of what we provide to our customers and we mirror this focus on our own internal operations Moreover, our transition to a SaaS model has reached the point where we no longer need to aggressively invest in our own infrastructure to support our scale. moreover our transition to a saas model has reached the point where we no longer need to aggressively invest in our own infrastructure to support our scale Incremental revenue is disproportionately falling to the bottom line, and our contribution margin continues to increase. incremental revenue is disproportionately falling to the bottom line and our contribution margin continues to increase It's all part of the model. it's all part of the model So with that, I'd like to now open the call for questions. so with that i'd like to now open the call for questions Operator? operator

Speaker 3: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, and we'll pause for just a moment while we poll for questions. We'll take a question from Thomas Forte with Maxim Group. Thank you. thank you We will now be conducting a question and answer session. we will now be conducting a question and answer session If you would like to ask a question, please press star one on your telephone keypad. if you would like to ask a question please press star one on your telephone keypad A confirmation tone will indicate your line is in the question queue. a confirmation tone will indicate your line is in the question queue You may press star two to remove yourself from the queue. you may press star two to remove yourself from the queue For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, and we'll pause for just a moment while we poll for questions. for participants using speaker equipment it may be necessary to pick up the handset before pressing the star keys and we'll pause for just a moment while we poll for questions We'll take a question from Thomas Forte with Maxim Group. we'll take a question from thomas forte with maxim group

Speaker 5: Great. So John, Randy, congrats on the quarter. I have four, but as always, depending on your answers to these, I might have more. Randy, I have one warm-up question, and then I have three real humdingers. So the boring warm-up question, John, I think you said, or it was Randy, that in fiscal 2025, traceability was only 8% of total revenue. Is there a more recent data point, on how much total revenue is coming from traceability? Great. great So John, Randy, congrats on the quarter. so john randy congrats on the quarter I have four, but as always, depending on your answers to these, I might have more. i have four but as always depending on your answers to these i might have more Randy, I have one warm-up question, and then I have three real humdingers. randy i have one warm-up question and then i have three real humdingers So the boring warm-up question, John, I think you said, or it was Randy, that in fiscal 2025, traceability was only 8% of total revenue. so the boring warm-up question john i think you said or it was randy that in fiscal 2025 traceability was only 8% of total revenue Is there a more recent data point, on how much total revenue is coming from traceability? is there a more recent data point on how much total revenue is coming from traceability

Speaker 2: Who you aiming that at? Yeah. Who you aiming that at? who you aiming that at Yeah. yeah

Speaker 5: Go ahead, John. Go ahead, John. go ahead john

Speaker 2: I mean, I would say it's between 8% and 10%, but it's, it's hard because there's cross-selling. I mean, I would say it's between 8% and 10%, but it's, it's hard because there's cross-selling. i mean i would say it's between 8% and 10% but it's it's hard because there's cross-selling

Speaker 5: Okay. All right, so then, Randy, I'll take the bait. Can AI improve the accuracy of traceability data? Okay. okay All right, so then, Randy, I'll take the bait. all right so then randy i'll take the bait Can AI improve the accuracy of traceability data? can ai improve the accuracy of traceability data

Speaker 4: Well, the way we use AI and have for a long time, it's really been part of what we do for many years, it absolutely does. The concept of LLMs, however, which is the current rage with AI, is a bit misleading. In other words, you have to detect what's wrong and how it got wrong to be able to fix it. There's three steps. I'm sorry, let me back up and see if I can make this clearer than I have. Most people who will try and do traceability will not even see that they have errors. It's not detectable by looking at it. You actually have to have a deep database to check every field in every record and determine whether or not in the context of that record, is it a correct reference? Well, the way we use AI and have for a long time, it's really been part of what we do for many years, it absolutely does. well the way we use ai and have for a long time it's really been part of what we do for many years it absolutely does The concept of LLMs, however, which is the current rage with AI, is a bit misleading. the concept of llms however which is the current rage with ai is a bit misleading In other words, you have to detect what's wrong and how it got wrong to be able to fix it. in other words you have to detect what's wrong and how it got wrong to be able to fix it There's three steps. there's three steps I'm sorry, let me back up and see if I can make this clearer than I have. i'm sorry let me back up and see if i can make this clearer than i have Most people who will try and do traceability will not even see that they have errors. most people who will try and do traceability will not even see that they have errors It's not detectable by looking at it. it's not detectable by looking at it You actually have to have a deep database to check every field in every record and determine whether or not in the context of that record, is it a correct reference? you actually have to have a deep database to check every field in every record and determine whether or not in the context of that record is it a correct reference So it's a little bit, as I mentioned earlier, it's a little like the post office. You could have a note. Let's say you sent a note to me, and that note said, "Randy, I now believe that the Earth is flat." Okay, now you take that little note, and you put it in an envelope, you lick it, put a stamp on it, and take it to the post office. That's like EDI. Here's what the post office does, though. The post office looks at the size of the envelope and says, "Okay, that's a legal-size envelope. It has enough postage." It weighs it and checks the postage, and then it says, "It's got a zip code. Good to go." That's what EDI does. It's just the transport mechanism. Meanwhile, inside your envelope is an untrue statement. So it's a little bit, as I mentioned earlier, it's a little like the post office. so it's a little bit as i mentioned earlier it's a little like the post office You could have a note. you could have a note Let's say you sent a note to me, and that note said, "Randy, I now believe that the Earth is flat." Okay, now you take that little note, and you put it in an envelope, you lick it, put a stamp on it, and take it to the post office. let's say you sent a note to me and that note said "randy i now believe that the earth is flat." okay now you take that little note and you put it in an envelope you lick it put a stamp on it and take it to the post office That's like EDI. that's like edi Here's what the post office does, though. here's what the post office does though The post office looks at the size of the envelope and says, "Okay, that's a legal-size envelope. the post office looks at the size of the envelope and says "okay that's a legal-size envelope It has enough postage." It weighs it and checks the postage, and then it says, "It's got a zip code. it has enough postage." it weighs it and checks the postage and then it says "it's got a zip code Good to go." That's what EDI does. good to go." that's what edi does It's just the transport mechanism. it's just the transport mechanism Meanwhile, inside your envelope is an untrue statement. meanwhile inside your envelope is an untrue statement The Earth is not flat, and therefore, it's not detectable in the context of EDI. We detect it. We've tested hundreds and hundreds, actually, since we have 2 million records now. We've tested about every combination and permutation of type of error that you can imagine. So step one is, can you see the errors? And AI can help us with that. But here's where we've gone, because we realize what a problem the errors themselves are. If every day you were a supplier and you sent out 1,000 files, and as we found, half of those are erroneous, half of them are erroneous, and we sent you a message and said, "Here's the 500 files that are wrong, fix them," you would have to hire an army. Everybody would hire everyone they could find to check for errors and fix it. The Earth is not flat, and therefore, it's not detectable in the context of EDI. the earth is not flat and therefore it's not detectable in the context of edi We detect it. we detect it We've tested hundreds and hundreds, actually, since we have 2 million records now. we've tested hundreds and hundreds actually since we have 2 million records now We've tested about every combination and permutation of type of error that you can imagine. we've tested about every combination and permutation of type of error that you can imagine So step one is, can you see the errors? so step one is can you see the errors And AI can help us with that. and ai can help us with that But here's where we've gone, because we realize what a problem the errors themselves are. but here's where we've gone because we realize what a problem the errors themselves are If every day you were a supplier and you sent out 1,000 files, and as we found, half of those are erroneous, half of them are erroneous, and we sent you a message and said, "Here's the 500 files that are wrong, fix them," you would have to hire an army. if every day you were a supplier and you sent out 1,000 files and as we found half of those are erroneous half of them are erroneous and we sent you a message and said "here's the 500 files that are wrong fix them," you would have to hire an army Everybody would hire everyone they could find to check for errors and fix it. everybody would hire everyone they could find to check for errors and fix it So we've developed a way, again, with AI, to not just detect the errors, but in essence, autocorrect them. So we're a little bit like spell check and autocorrection, and that's an enormous difference. And our system is AI-based, but doesn't in any way rely on what today's people would call a large language model. It's different. It's AI for sure, but it's not large language model. Sorry, long-winded answer, but hopefully it was complete. So we've developed a way, again, with AI, to not just detect the errors, but in essence, autocorrect them. so we've developed a way again with ai to not just detect the errors but in essence autocorrect them So we're a little bit like spell check and autocorrection, and that's an enormous difference. so we're a little bit like spell check and autocorrection and that's an enormous difference And our system is AI-based, but doesn't in any way rely on what today's people would call a large language model. and our system is ai-based but doesn't in any way rely on what today's people would call a large language model It's different. it's different It's AI for sure, but it's not large language model. it's ai for sure but it's not large language model Sorry, long-winded answer, but hopefully it was complete. sorry long-winded answer but hopefully it was complete

Speaker 5: No, I appreciated the EDI and the post office comparison. All right, so then, All right, so is there any impact to ReposiTrak from MAHA? No, I appreciated the EDI and the post office comparison. no i appreciated the edi and the post office comparison All right, so then, All right, so is there any impact to ReposiTrak from MAHA? all right so then all right so is there any impact to repositrak from maha

Speaker 4: Well, in a way, in a way, yes. Longer term, especially. Let's talk about what MAHA is. MAHA and organic are really a similar idea. Organic is an idea that lays on top of food safety, where people think if they eat organic food, it is healthier for them. MAHA sits on top of all of that and says, "In general, you should eat food that is healthy," whatever that would be, whole foods, not foods that have been ultra-processed, without food colorings, et cetera. All of that lays on top of a looming problem, which is, according to Gallup, there's been a long-term decline in the U.S. in terms of the public's belief in food safety. So almost every year, people are believing less and less about the safety of food. Well, in a way, in a way, yes. well in a way in a way yes Longer term, especially. longer term especially Let's talk about what MAHA is. let's talk about what maha is MAHA and organic are really a similar idea. maha and organic are really a similar idea Organic is an idea that lays on top of food safety, where people think if they eat organic food, it is healthier for them. organic is an idea that lays on top of food safety where people think if they eat organic food it is healthier for them MAHA sits on top of all of that and says, "In general, you should eat food that is healthy," whatever that would be, whole foods, not foods that have been ultra-processed, without food colorings, et cetera. maha sits on top of all of that and says "in general you should eat food that is healthy," whatever that would be whole foods not foods that have been ultra-processed without food colorings et cetera All of that lays on top of a looming problem, which is, according to Gallup, there's been a long-term decline in the U.S. in terms of the public's belief in food safety. all of that lays on top of a looming problem which is according to gallup there's been a long-term decline in the u.s in terms of the public's belief in food safety So almost every year, people are believing less and less about the safety of food. so almost every year people are believing less and less about the safety of food So in a sense, what happens is MAHA, organic, et cetera, are causing people to worry more and more about the safety of what they eat. All of that awareness around safety is good for us because it means that the economic cost, the brand equity cost to a retailer who makes a mistake is tremendous. So MAHA impacts us by virtue of increasing people's awareness of the issue of safety of food. It's really that simple. So in a sense, what happens is MAHA, organic, et cetera, are causing people to worry more and more about the safety of what they eat. so in a sense what happens is maha organic et cetera are causing people to worry more and more about the safety of what they eat All of that awareness around safety is good for us because it means that the economic cost, the brand equity cost to a retailer who makes a mistake is tremendous. all of that awareness around safety is good for us because it means that the economic cost the brand equity cost to a retailer who makes a mistake is tremendous So MAHA impacts us by virtue of increasing people's awareness of the issue of safety of food. so maha impacts us by virtue of increasing people's awareness of the issue of safety of food It's really that simple. it's really that simple

Speaker 5: All right, so this would be my most related question to that one. So you've talked in the last couple of quarters about traceability on a by ingredients basis. So if I go to Stew Leonard's and I buy prepared foods, can you-- any update on thoughts there? All right, so this would be my most related question to that one. all right so this would be my most related question to that one So you've talked in the last couple of quarters about traceability on a by ingredients basis. so you've talked in the last couple of quarters about traceability on a by ingredients basis So if I go to Stew Leonard's and I buy prepared foods, can you-- any update on thoughts there? so if i go to stew leonard's and i buy prepared foods can you-- any update on thoughts there

Speaker 4: Well, we actually are capable of doing that. In other words, companies can sign up with us and determine, if you will, at a shipment level, at a product level, do they have issues. But they can also use our system for specifications around ingredients. So within our system, you could say, "Wait a minute, if red dye number three is a problem, let me search all of the items that I sell that have red dye number three in it." And that's an interesting problem because traceability, and the reason I'll come back to it in a minute, the FDA has designated certain products, like products that contain nut butters, as being on their Food Traceability List. But you have to think about that for a moment. Well, we actually are capable of doing that. well we actually are capable of doing that In other words, companies can sign up with us and determine, if you will, at a shipment level, at a product level, do they have issues. in other words companies can sign up with us and determine if you will at a shipment level at a product level do they have issues But they can also use our system for specifications around ingredients. but they can also use our system for specifications around ingredients So within our system, you could say, "Wait a minute, if red dye number three is a problem, let me search all of the items that I sell that have red dye number three in it." And that's an interesting problem because traceability, and the reason I'll come back to it in a minute, the FDA has designated certain products, like products that contain nut butters, as being on their Food Traceability List. so within our system you could say "wait a minute if red dye number three is a problem let me search all of the items that i sell that have red dye number three in it." and that's an interesting problem because traceability and the reason i'll come back to it in a minute the fda has designated certain products like products that contain nut butters as being on their food traceability list But you have to think about that for a moment. but you have to think about that for a moment There's not a retail chain in the country that can tell you the products it has on the shelf that contain a nut butter. Have no idea. Literally, no idea, because retailers don't maintain a list of ingredients, and they just can't track them. Strangely enough, within our system, we have the capability of doing that. So over time, what we suspect happens is people move from being oriented toward the product, and from the product, they'll drop down to the ingredient. We're fully capable of doing that today. There's not a retail chain in the country that can tell you the products it has on the shelf that contain a nut butter. there's not a retail chain in the country that can tell you the products it has on the shelf that contain a nut butter Have no idea. have no idea Literally, no idea, because retailers don't maintain a list of ingredients, and they just can't track them. literally no idea because retailers don't maintain a list of ingredients and they just can't track them Strangely enough, within our system, we have the capability of doing that. strangely enough within our system we have the capability of doing that So over time, what we suspect happens is people move from being oriented toward the product, and from the product, they'll drop down to the ingredient. so over time what we suspect happens is people move from being oriented toward the product and from the product they'll drop down to the ingredient We're fully capable of doing that today. we're fully capable of doing that today

Speaker 5: All right, and then this is one of those questions where I have no idea what your answer is. So these are fun ones. All right. Does food inflation have a direct or indirect impact on your business? And I have three specific examples: cocoa, coffee, and beef. All right, and then this is one of those questions where I have no idea what your answer is. all right and then this is one of those questions where i have no idea what your answer is So these are fun ones. so these are fun ones All right. all right Does food inflation have a direct or indirect impact on your business? does food inflation have a direct or indirect impact on your business And I have three specific examples: cocoa, coffee, and beef. and i have three specific examples cocoa coffee and beef

Speaker 4: The answer is indirectly, they do. To the extent that we are in a period where increasing costs to the supermarket, the inputs, can't be passed on to the consumer, inevitably, supermarkets and everybody in that space has a margin squeeze, in which case, every element of cost, potentially including us, is something that they will look at. So inflation without the ability to pass it on is problematic in general, and it's certainly something that we think about. We haven't seen anything over the very short term, but that doesn't mean that it couldn't be something that pops itself up in the future. The answer is indirectly, they do. the answer is indirectly they do To the extent that we are in a period where increasing costs to the supermarket, the inputs, can't be passed on to the consumer, inevitably, supermarkets and everybody in that space has a margin squeeze, in which case, every element of cost, potentially including us, is something that they will look at. to the extent that we are in a period where increasing costs to the supermarket the inputs can't be passed on to the consumer inevitably supermarkets and everybody in that space has a margin squeeze in which case every element of cost potentially including us is something that they will look at So inflation without the ability to pass it on is problematic in general, and it's certainly something that we think about. so inflation without the ability to pass it on is problematic in general and it's certainly something that we think about We haven't seen anything over the very short term, but that doesn't mean that it couldn't be something that pops itself up in the future. we haven't seen anything over the very short term but that doesn't mean that it couldn't be something that pops itself up in the future

Speaker 5: ... Excellent. All right, two more. This one I'll direct toward John. So John, you talked about investment spending, but I'm trying to understand how that showed up in your results, because you've talked about how it seems that you reduced the amount of CapEx required. So where, where does that investment spending, where do I see that in the P&L? ... Excellent. excellent All right, two more. all right two more This one I'll direct toward John. this one i'll direct toward john So John, you talked about investment spending, but I'm trying to understand how that showed up in your results, because you've talked about how it seems that you reduced the amount of CapEx required. so john you talked about investment spending but i'm trying to understand how that showed up in your results because you've talked about how it seems that you reduced the amount of capex required So where, where does that investment spending, where do I see that in the P&L? so where where does that investment spending where do i see that in the p&l

Speaker 2: So you would spend more in development, less in sales and marketing, but some of those things cover in both categories. So, because we spent less in marketing, but some of those people were utilized in development, you have to look at the totality of the expenses. You can't look at necessarily the line items. So in aggregate, our spending is less. It's just more targeted resource spending. As we said before, as traceability becomes more top of mind, our laser focus is to spread the word on the marketing side. But obviously, you know, we've done a lot as far as the marketing and the messaging, and we've now shifted it towards the development. So you would spend more in development, less in sales and marketing, but some of those things cover in both categories. so you would spend more in development less in sales and marketing but some of those things cover in both categories So, because we spent less in marketing, but some of those people were utilized in development, you have to look at the totality of the expenses. so because we spent less in marketing but some of those people were utilized in development you have to look at the totality of the expenses You can't look at necessarily the line items. you can't look at necessarily the line items So in aggregate, our spending is less. so in aggregate our spending is less It's just more targeted resource spending. it's just more targeted resource spending As we said before, as traceability becomes more top of mind, our laser focus is to spread the word on the marketing side. as we said before as traceability becomes more top of mind our laser focus is to spread the word on the marketing side But obviously, you know, we've done a lot as far as the marketing and the messaging, and we've now shifted it towards the development. but obviously you know we've done a lot as far as the marketing and the messaging and we've now shifted it towards the development

Speaker 5: To follow up- To follow up- to follow up-

Speaker 2: You're not gonna see it in line. You're not gonna see it in necessarily the line items. You have to look at the totality of the expenses. You're not gonna see it in line. you're not gonna see it in line You're not gonna see it in necessarily the line items. you're not gonna see it in necessarily the line items You have to look at the totality of the expenses. you have to look at the totality of the expenses

Speaker 5: Yep. Thanks for that clarification. Are you capitalizing any of those costs? Yep. yep Thanks for that clarification. thanks for that clarification Are you capitalizing any of those costs? are you capitalizing any of those costs

Speaker 2: There's some costs that with the patent now, but it's a de minimis number. There's some costs that with the patent now, but it's a de minimis number. there's some costs that with the patent now but it's a de minimis number

Speaker 5: Okay. And then last question, unless you answer in a way that inspires me to ask one more. Current thoughts on strategic M&A? Okay. okay And then last question, unless you answer in a way that inspires me to ask one more. and then last question unless you answer in a way that inspires me to ask one more Current thoughts on strategic M&A? current thoughts on strategic m&a

Speaker 2: I mean, look, Randy and I see things every month, but we have so much on our plate right now, it's a distraction. You know, reemphasizing our stack and our code base and traceability. You know, remember what Randy said, you know, while it may seem like it's, you know, two years out, at the end of this year, traceability is gonna be right around the corner. We've got plenty on our plate to keep us busy, but, you know, of course, if the right opportunity came around, yes, we're inquisitive, but we have plenty on our plate at this moment. It. Unless, Randy, you got a different opinion. I mean, look, Randy and I see things every month, but we have so much on our plate right now, it's a distraction. i mean look randy and i see things every month but we have so much on our plate right now it's a distraction You know, reemphasizing our stack and our code base and traceability. you know reemphasizing our stack and our code base and traceability You know, remember what Randy said, you know, while it may seem like it's, you know, two years out, at the end of this year, traceability is gonna be right around the corner. you know remember what randy said you know while it may seem like it's you know two years out at the end of this year traceability is gonna be right around the corner We've got plenty on our plate to keep us busy, but, you know, of course, if the right opportunity came around, yes, we're inquisitive, but we have plenty on our plate at this moment. we've got plenty on our plate to keep us busy but you know of course if the right opportunity came around yes we're inquisitive but we have plenty on our plate at this moment It. it Unless, Randy, you got a different opinion. unless randy you got a different opinion

Speaker 4: Yeah. John, let me add something to that. As we take a look at the next 12 months, it is extremely likely that there will be, again, a flood of need and interest, et cetera, around traceability. Why? We think it takes a full two-plus years to get your entire supplier base traceability ready and capable. We know that because we've been doing it. As I said, we already have nearly 2 million records, and as far as I know, we are the only firm that is actually, You can come look at it, doing end-to-end traceability. We are tracking products going from a supplier into a distribution center, into a retail store, and we create all of those records. We're doing it. It's the real deal. It's pretty amazing. We haven't tooted our own horn very much about that, but we will. Yeah. yeah John, let me add something to that. john let me add something to that As we take a look at the next 12 months, it is extremely likely that there will be, again, a flood of need and interest, et cetera, around traceability. as we take a look at the next 12 months it is extremely likely that there will be again a flood of need and interest et cetera around traceability Why? why We think it takes a full two-plus years to get your entire supplier base traceability ready and capable. we think it takes a full two-plus years to get your entire supplier base traceability ready and capable We know that because we've been doing it. we know that because we've been doing it As I said, we already have nearly 2 million records, and as far as I know, we are the only firm that is actually, You can come look at it, doing end-to-end traceability. as i said we already have nearly 2 million records and as far as i know we are the only firm that is actually you can come look at it doing end-to-end traceability We are tracking products going from a supplier into a distribution center, into a retail store, and we create all of those records. we are tracking products going from a supplier into a distribution center into a retail store and we create all of those records We're doing it. we're doing it It's the real deal. it's the real deal It's pretty amazing. it's pretty amazing We haven't tooted our own horn very much about that, but we will. we haven't tooted our own horn very much about that but we will But here's the issue: as people think about traceability, what they're going to be realizing very quickly was that they've now used up the runway that the FDA gave people when they gave them 30 months. It's now closer than it was, and by the end of this year, you'll be at what we think is the, "Oh my God, you're at a cliff," the 18-month mark. We don't think anybody that has hundreds of suppliers can be ready in 18 months. We think it takes a full two years. But people will shorten that and imagine that 18 months is the magic number. So as this year progresses, and I'd guess sometime in the summer, early fall, the world will once again wake up and go, "Yes, traceability. But here's the issue: as people think about traceability, what they're going to be realizing very quickly was that they've now used up the runway that the FDA gave people when they gave them 30 months. but here's the issue as people think about traceability what they're going to be realizing very quickly was that they've now used up the runway that the fda gave people when they gave them 30 months It's now closer than it was, and by the end of this year, you'll be at what we think is the, "Oh my God, you're at a cliff," the 18-month mark. it's now closer than it was and by the end of this year you'll be at what we think is the "oh my god you're at a cliff," the 18-month mark We don't think anybody that has hundreds of suppliers can be ready in 18 months. we don't think anybody that has hundreds of suppliers can be ready in 18 months We think it takes a full two years. we think it takes a full two years But people will shorten that and imagine that 18 months is the magic number. but people will shorten that and imagine that 18 months is the magic number So as this year progresses, and I'd guess sometime in the summer, early fall, the world will once again wake up and go, "Yes, traceability. so as this year progresses and i'd guess sometime in the summer early fall the world will once again wake up and go "yes traceability Whoops, we need to get going." So we're really more in the mood of preparing for that than we are thinking about being acquisitive at the current moment. Whoops, we need to get going." So we're really more in the mood of preparing for that than we are thinking about being acquisitive at the current moment. whoops we need to get going." so we're really more in the mood of preparing for that than we are thinking about being acquisitive at the current moment

Speaker 5: Excellent. Thanks, Randy. Thanks, John. Excellent. excellent Thanks, Randy. thanks randy Thanks, John. thanks john

Speaker 4: Thank you. Thank you. thank you

Speaker 2: Thanks, Tom. Thanks, Tom. thanks tom

Speaker 3: Thank you. That will conclude the question and answer session. I would now like to turn the floor back to Randy Fields for closing remarks. Thank you. thank you That will conclude the question and answer session. that will conclude the question and answer session I would now like to turn the floor back to Randy Fields for closing remarks. i would now like to turn the floor back to randy fields for closing remarks

Speaker 4: Okay, well, we appreciate everybody taking the time this afternoon. Not much more to say. Have a good one. Talk to you soon. Take care. Okay, well, we appreciate everybody taking the time this afternoon. okay well we appreciate everybody taking the time this afternoon Not much more to say. not much more to say Have a good one. have a good one Talk to you soon. talk to you soon Take care. take care

Speaker 3: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Thank you. thank you This does conclude today's teleconference. this does conclude today's teleconference We thank you for your participation. we thank you for your participation You may disconnect your lines at this time. you may disconnect your lines at this time