Q1 2021 American Software Inc Earnings Call
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Good day, everyone and welcome to today's first quarter fiscal year 2021 financial results. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question that anytime by pressing the star and one on your Touchtone phone.
I will leave standing by for you should meet audio assistance and it is now my pleasure to turn todays conference over to Vincent Kleanthis, Chief Financial Officer of American software. Please go ahead.
Thank you Ryan.
Good afternoon, everyone and welcome to Americans offers first quarter fiscal 2021 earnings conference call on the call with me as Allendale, President and CEO of American software, Alan and I will for.
I will provide some opening remarks, and then I will review the numbers, but first I'd like to remind you that this conference call may contain forward looking statements, including statements regarding among other things our business strategy and growth strategy.
Any such forward looking statements speak only as of this date. These forward looking statements are based largely on our expectations that are subject to a number of risks and uncertainties some of which cannot be predicted or quantified or beyond our control future developments and actual results could differ materially from those.
Set forth in contemplated by or underlying the forward looking statements. There are number factors that could cause actual results to differ materially from those anticipated by statements made on this call.
Such factors include but are not limited to changes and uncertainty in general economic conditions the growth rate of the market for our products and services the timely availability in market acceptance of these products and services the effect of competitive products and pricing and other competitive pressures and the irregular and unpredictable pattern of revenues unless.
These risks and uncertainties there could be no assurance that the forward looking information will prove to be accurate at this time I'd like to turn the call over to Alan for opening remarks.
Thank you Vince.
As this pandemic continues beyond our initial expectations, we do know that many individuals families in companies have been adversely impacted.
I want to encourage everyone to stay strong we will prevail.
Personally and on behalf of the company I want to express our gratitude for all the frontline workers and first responders, who continue to work tirelessly to keep us all safe and healthy in these extraordinary times.
Furthermore, as an organization, we're pushing forward in our efforts to leverage the power of diversity within our team and to ensure equal rights for all of our teammates around our ecosystem and within our communities.
Our community Service Committee is continuing to explore ways that we can have an even bigger impact in our communities as we invest time personal monetary contributions and matching corporate bonds, we will push forward with our community service efforts to do our part to make the world a better place for all.
So we cannot condoned violence of any type.
Hope cold hope that our communities sooner rather than later, we'll find the path to peaceful resolution of the challenges faced in today's society.
In regards to our first quarter results I am pleased with how our team has remained focused on serving existing customers accelerating ongoing implementations and bringing new companies into our customer community.
We remained open in fully operational as a virtual organization throughout the pandemic to support the needs of our customers as they navigated the global crisis.
We continue to create new inspirational stories with our customers as they have managed on both ends of the spectrum from explosive growth for products in high demand to managing the staggering closing and reopening of bricks and mortar retail.
We continue to gain efficiency in every area of our business as we refine the operational activities through the new virtual world.
Following a strong services performance in our prior quarter, we experienced a more pronounced seasonal slowdown in some projects as the customers and our team members took a much needed break.
Using staycations in short trips to get away.
However, our implementation backlog remains strong in is continuing to grow.
Our services work remains 100% virtual so we're seeing a rapid rebound in project activities as schools have reopened in folks have returned to work.
Based on the seasonal nature of the services work and the backlog of project activities. We expect second quarter revenue trend higher than Q1 and anticipate the back end of our fiscal year to be very strong after working our way through the traditionally slow calendar year and holiday period.
We're pleased to see that our focus on the cloud first strategy is paying off where the recurring revenue stream of maintenance and cloud services now represents the pocs approximately 61% of total revenues Thats a milestone achievement.
Our subscription revenue in the first quarter grew 43% year over year and the growth in annual contract value for cloud services over the prior year period was 63.
36%.
We expect the percentage of recurring revenue to continue trending higher in the future based on the strong preference for subscription contracts.
We had a strong start to the first quarter, but as expected we had less access to people and saw sales cycles lengthen as we progressed into the summer.
Even so we delivered strong HCV growth on a gross basis, which was partially offset by an uptick in churn related to several customers facing economic hardships.
Sales activity is picking back up and we're continuing to see growth in our pipelines both in the number of opportunities and the size of the transactions, leaving us confident that we will see an upward trend in the second half of the fiscal year.
We welcomed five new customers in the first quarter and completed subscription or license fee transactions in five countries.
During the first quarter, we added three critical new leaders to our organization, who will help drive our growth.
First we were pleased to have Kevin akin to join our team to lead our research and development efforts.
Kevin brings a fresh perspective on agile development methodologies value driven innovation and a continuous learning approach to research.
Second Alex price joined to lead our reseller channel and partner alliances for the Americas.
Alex brings a wealth of experience in driving growth growth through a partner channel. So we're excited to have Alex on our team to help us accelerate our global sales.
And last but not least Sean rentals has joined us to lead our global marketing efforts.
Sean brings a wealth of supply chain experience and is a career marketing professional.
We have great confidence that Sean will help expand the brand awareness of our company across the globe and have a material impact on achieving our growth objectives.
Looking forward, we're continuing to see an uptick in the transformational projects as we see a transition from a CFO driven supply chain to the CEO driven supply chain, where our customers adopt our platform to radically improved the speed and quality of decision, making that allows them to achieve the agility.
And resiliency needed to thrive in this new economy.
In summary, we are pleased by our progress as we strive for continued success to deliver exceptional value for customers in this new digital world.
We will continue to focus on making our customers more successful as we look to expand our relationship and introduce new and innovative services.
We're confident that we can continue to grow both revenue and profitability in the years ahead and are proud to be delivering incremental benefits to our customers in a time when they need at most.
At this time I'll turn the call over to Vince who will provide the details on our financial results. This thanks, Alan comparing the first quarter fiscal 2021 to the same period last year total revenues were 27.3 million.
Impair to 27.4 million in the same period last year subscription free fees increased to 47% to 6.3 million for the quarter as compared to 4.5 in the same period last year, while a software license revenues decreased 56% 2.8 million.
Fair to 1.8 van prior year again, showing the transition to the cloud.
Our cloud services annual contract value increased by approximately 36% to 27.6 million for the current quarter compared to 20.2 million same period last year as Alan mentioned, our reported HCV was negatively impacted by the loss of several customers that experienced significant financial challenges among the <unk> co.
19 outbreak.
On a gross margin basis excuse me on a gross basis, our new HCV increased by more than $2 million, an encouraging sign given that we approach levels seen on average prior to the pandemic and we did so during our seasonally slowest quarter.
With sales activity ramping back up in churn rates moderating as we move forward, we remain optimistic that our HCV trajectory will reflect an upward trend in the back half of our fiscal year.
Looking at professional services that decreased 3% at 9.8 million.
Compared to the prior year of 10.1 man.
And that was due to a 17% decrease in our supply chain management unit.
Mostly offset by a 15% increase in our consulting business as a result of timing of project work. We note that our backlog of supply chain management implementations remains robust, but several projects progress more slowly than anticipated as the quarter.
Hi, Scott as you got greater number of employees and customers took vacation time. Additionally restrictions on travel also reduced the amount of pass through reimbursements, we had recognized historically to zero.
Maintenance revenues decreased 6% to 10.3 million compared to 11 million stemming from the normal fall off rate and lower levels of new perpetual license revenues.
So our combined recurring revenue streams of maintenance and cloud services were up 61%.
Total revenues.
For the current quarter compared to 56% in the same period last year and we believe this trend is to a higher percentage in recurring revenues as we transitioned to cloud revenue model.
Taking a look at costs overall gross margin was 52% and the current period compared to 53% in the same period last year, our licensee margin was 14% for the current quarter compared to 22% in the same period last year, and that's primarily due to lower license fee revenue.
Our subscription fee margins increased to 57% compared to 52% in the same period last year and that's primarily due to increase in subscription revenue and when you exclude the non cash allocation of amortization of cap software of approximately $1 million in the quarter.
The the subscription gross margin would have been 772% and that compares to 69% in the same periods last year, which included approximately 800000 of amortization of cap software.
Our services margin.
Decreased to 20% compared to 27% the same period last year and that's due to a higher mix of professional services revenues coming from our lower margin TPM I'd staffing business unit as well as a lower utilization of our supply chain management unit due to seasonality.
Our maintenance margin was 83% for the current and prior year period looking at operating expenses. A total gross R&D expenses were 16% of total revenues for the period compared to 17% last same period last year as a percentage of revenue sales and marketing expenses were 17% of revenues for the current period compared to 20% in.
Same.
Period last year, and that's primarily lower due to lower travel and marketing costs, partially offset by higher salary expense from increased head count.
Our DNA expenses were 16% of total revenues for the current period compared to 18% in the same period last year, our operating income increased 11% 2.9 million this quarter compared to 0.8, the same period last year, adjusted EBITDA, which excludes stock based compensation decreased 11% to 3.1 may enter the car.
Quarter compared to 3.5 in same period last year.
Our GAAP net income increased 77% to 2 million.
For our earnings per diluted share of six cents for the current period compared to net income of 1.2 or four cents per diluted earnings per diluted share. Adjusted net income was 2.8 or adjusted earnings per diluted share of nine cents for the current quarter and that compares to 2.1 and adjusted earnings per diluted share of six cents the same.
Period last year and these adjusted numbers exclude amortization of intangible expenses related acquisitions and stock based compensation expense.
Our international revenues this quarter were approximately 15% of total revenues.
At this current quarter compared to 22% in same period last year looking at the balance sheet, a companys financial position remains strong with cash and investments of approximately 93 million.
And that which increased 5 million or the same period last year.
And during the current current quarter repaid 3.5 million and dividends other aspects of the balance sheet. We had build accounts receivable to 24.4 million unbilled of 2 million.
Deferred revenues of 32.5 million and shareholder equity of 120 million.
Our current ratio increased to 2.8 as of July 30, Onest 2020.
Compared to 2.6, the same period last year.
Our days sales outstanding as of July 30, Onest 2020 was 88 days for the current quarter that compares to 68 days in the same period last year and that's due to delays and some payments due to the pandemic.
At this time I'd like to turn the call over to questions.
[noise] if he would like to ask a question. Please press the star.
And one on your Touchtone phone.
And you May withdraw your question anytime by pressing the pound key.
We will take a question from.
Matt Pfau. Please go ahead.
Hi, guys. Thanks for taking my question.
Alan was just sort of wondering if you could give us a little bit more detail on how the pipeline has trended. So if I go back last quarter. You commentary was there was a bit of a slowdown in late March and April and then things trended back up and now it seems like maybe there is another slow period due to vacations, but then maybe.
Greetings and proved again, so maybe just give us a little bit more detail on how the the pipelines trend data and then what gives you.
Confidence going into the back half of your fiscal year.
Yes.
Matt first of all thank you for joining us and good question.
We are continuing to see them the pipeline grow in fact.
I looked at it with the team just a few days ago. When we're we're trending to a high point over the last.
Last several quarters like I think we went back maybe seven quarters to see where we were we were peaking up across that whole time period. So we feel good about that and as I mentioned in the earlier commentary not only do we see the total volume of the of the pipeline. The dollar value of the total volume that way, but the number of transactions in the size of the.
Transactions the average transaction value was up as well so is it bodes well for the future.
We are we're feeling good about that were also feeling good that.
Really and just in the last.
A couple of weeks, we've seen the activity pick back up with it and I can only attributed to the fact that people did did come back and schools have started to reopen at least across the southern part of the United States and.
Many of the European communities are back from their holiday periods, as well and and just the volume of activities really picked up so we feel we feel good about it in the pipelines growing and we're actively engaged in a number of contract discussions.
Got it.
You know and then as a are you thinking about your customer base and exposure to retail CPG, obviously theres.
You know broad range of performance.
Within that customer base in terms of how their businesses are doing and you mentioned there was.
You know to customers that that churned in a quarter that impacted the CV growth as you look across.
Your customer base, and obviously still difficult to predict given the macro but but I guess, what's your sense about the.
Hi, guys higher than normal churn.
That we've had over the past few quarters or are we kind of at the end of this now or is this going to persist for a.
A few more quarters as we figure things out here.
I think Vince Vince and I personally have been very engaged in that dialogue about.
Customers that risk and particularly those that are communicated to us.
Or those who are not communicating at all and those were some of the ones that we identified that we did have trouble with.
We see that as an anomaly this quarter was a little bigger than even last quarter. The last quarter was up a little bit from the from history.
But as we look forward into this quarter, we think it's right back on on normal trend. So we don't think this is a pattern that we will persist.
But you know, we we can't predict how long the pandemic will run and just what kind of impact will have on it but the strong companies even in the industries that are hurt our we've got several of them that are actually progressing new projects with us. So given that there are engaging in that kind of activity, we feel good that they'll they'll abide by their.
Since and pay their bills and stay strong and continue to invest so we think there's oh, we think there's a few anomalies out there Matt and of course, we could get another surprise or two but we don't see that I'd say.
Catastrophic trend that we're worried about or or anyone should worry about at this point.
Got it last question for me, obviously announced a number of a new.
New hires this past quarter.
Maybe just some more detail on what sort of drove that is it you know opportunistic just sort of a coincidence any anything to call out there.
Well certainly the three that I mentioned in my earlier commentary were.
We are strategic in nature.
Two of those were replacements on that it folks that had vacated us a while ago and we took our time to find the right people that would really advance our cause and help us drive towards our longer term strategy as we look at a on a new market conditions out there today, you'll be in very.
Very centric around virtual in a digital world and new thinking about the way customers look at this I commented about a.
CEO driven supply chain versus a CFO driven supply chain and I've crack a smile on vinces face as a result, the bringing that up the CFO is as we all know are very focused on cost cutting and and managing cash and Ceos are about customer service and making sure that I can mitigate risk and I can operate effectively and take advantage of opportunity and thats.
A very different perspective that we've seen a significant shift in over the last couple of years actually and we believe that positions us even more positively. So we feel good about it the people we've hired will help us navigate through that and pursue this new market in a much more aggressive and effective way.
Well continue to make other investments that are opportunistic as we see the right people that are available for us, but those those three in particular were very strategic.
Great.
Thanks for taking my questions guys appreciate it.
You got a nice to chip to chat with you again that thanks for joining us.
Okay.
And we'll take your question from Zach Cummins. Please go ahead. Your line is open.
Hi, Good afternoon, Allen and then folks all as well at both you and thanks for taking my question.
Oh, I mean, Alan can you give us a sense.
How old deals are now progress say here in the last month. It seems like you ran into really a slow period towards the back half of Q1, but can you give us a sense of the performance so far through August.
Yeah happy to do that Zach. Thank you again, thank you for joining us.
We hit.
If we looked at Q4, we were early Q4 was tough that was when the pandemic first hit and then we had a pretty good run in the backend than a pretty good start to this this first quarter.
But then a really it was quite surprising.
Yes, I should have anticipated it I didn't I thought maybe that.
Folks working for home kind of felt like they were on vacation anyway.
Reality is not when you look at it it's a it's still working in the stressful and I'm glad that our team members as well as our customers did take a break and.
The larger transactions, where we saw the different sac.
I think the more traditional type of engagements that flow stayed pretty well, which helped us achieve the numbers that we did get but what we saw some of the larger more transformational projects. They take a higher level approval more people are putting their fingers on them. They are more strategic and just coordinating amongst all the people.
It need to be involved in that decision, making and approval process became very difficult as the as the summer season was getting into full swing now they're back we have more.
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<unk> million dollar plus opportunities that we're pursuing right now than we've had.
In a very very long time, maybe maybe since my engagement here at the company. So it just those people are back in a working on it and we feel good about what's happening.
Understood. That's that's helpful and in terms of the chicken churn that you saw during this quarter.
I mean was this related to any specific vertical or any sort of color you can provide around that that give us a sense of maybe somewhat more challenging to aspects as we look at the model over the next few quarters.
Yeah, we had I think a handful of customers that we we unfortunately weren't able to continue with just because of their financial condition or in a couple of cases, where they just for a load the number of people, which is related to financial as well.
And then if they don't know people to use an application there's no point in having one so.
They were for the most part majority of them. We're in the apparel space, which has been just devastated by this pandemic people. They missed they missed two or three seasons quite frankly, and most of now have turned their attention too.
What they can see salvage out of the holiday period and more importantly, there. They are looking towards next year quite frankly.
So the majority were there, but there were some infrastructure there was one one in particular infrastructure electronic infrastructure company that too was also struggling in this marketplace.
As some of the major investments slowed down they too are struggling or they just didn't have the resources to work on a on a more strategic application that was not one of our day to day operational ones, but more strategic and that kind of fell apart there, but for the most part consumer goods and apparel centric.
Understood. That's that's helpful and then.
I guess with everybody, we're moving more towards our remote model, having this more hybrid approach as we move forward have you seen any uptick in interest from the existing base to potentially moving over to the cloud at a faster pace.
Yeah, we are seeing as that gets good good observation.
We're seeing that people want to mitigate the risk of of operating the systems themselves.
And then more more more more push over there we've as we've stated before we're not out aggressively trying to.
Force people in that direction will accommodate what makes most sense for our customer.
But as they as they expressed interest in shifting that we're embracing it we can provide them a better level of service. We've got teams that are working collaboratively across that and we can pull our resources and be very effective out. It. So we are seeing an uptick in that area and I think will I think we'll see that trend continue.
Understood and then just final question for me on the supply chain management professional services team is it sounds like.
Many of those projects, where we're just taking a brief pause with with many people on vacation but.
How are you thinking about that business and moving towards the second half of the year. It sounds like more of these projects are back online and to that point.
How should we think about the margin profile as we move forward with you utilizing a fully remote model now it seems like you may lose a little bit of pass through revenue that comes from traveling but should we see a better overall margin from that group going forward.
Yeah, I think that that pass through revenue will help that by itself will help and then the utilization rate is picked back up pretty dramatically and as we see the utilization rate pick up the margin picks up with it. We chose me. These are these are valuable resources that have deep knowledge about our industry about the way the customers.
Work and operate these systems that about our products specifically so.
You know first for a short blip in when people go on vacation you don't caught them you hang on to Oems, but that it impacts through utilization or margin rates, but there are back in and low. We went through we went through an exercise just a few weeks ago and as we looked out we can see the back half the year, we don't have enough resources today to fill out our.
What we think might be the hit in the back half of the year. So as we progress through the fall we'll be looking at you know the kind of all the holiday period as a a renewed a reassessment of our staffing and making sure that we've got adequate resources to fulfill the needs on the and the second half of the fiscal year. So we think it will be much stronger in a much better utilization.
Onboarding is a little tough you know when you get someone in it takes us a few months immediate sometimes it's a few weeks to get them starting to be billable, but to get them fully utilize it usually takes a few months. So you get a bit of a blip. When you do that but I think thats, what I said the third quarter is going to be real strong on both revenue and utilization and then we get the seasonality hit and then.
He should be in good shape, and the and the latter half of the of the fiscal year as well.
Understood. That's helpful. Thanks, again for taking my questions and best of luck as we move forward from here.
Zach Thanks for joining us.
And if we do not have any further questions at this time.
Alright, well. Thank you all for joining US we appreciate your attention this afternoon and look forward to.
Catching up with any view again in the in the days ahead. So.
Have a good to have a good evening. Thank you.
This concludes today's program. Thank you for your participation you may disconnect at any time.
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