Q4 2021 American Software Inc Earnings Call
With decades of experience and enabling economically optimize resilient supply chains.
In the past decade, we've incorporated the environmental impact into decision, making and we are now at the forefront of ensuring adherence to proper labor standards in alignment with the United States Customs and.
Order protection regarding their latest regulations.
Through our customers, we're enabling sustainable supply chains, while simultaneously addressing these economic environmental and social responsibility imperatives in a whole new way.
Leveraging our unsurpassed experts.
<unk> and our solutions, we're enabling the necessary transformations that are required to meet today's consumer expectations.
In regard to our fourth quarter results I am pleased to announce that our team excelled.
Throughout the pandemic our team has remained focused on serving customers.
Delivering on our implementation commitments and.
And bringing new companies into our customer community around these transformative projects.
We generated a record level of net new ACB growth in the fourth quarter more than doubling our previous high for a quarter.
With the increase in.
New project activity and as we move beyond the pandemic related churn and returned to more traditional stable stability of our cloud and on Prem customers, we expect to see the rise on our recurring revenues accelerate.
In the fourth quarter, we saw our cloud services ACB grow by 45% when compared.
Share to last quarters fourth quarter last year's fourth quarter, which was comparable to the pre pandemic growth rates.
Included in this acceleration with an increasing number of cloud conversions.
Our existing on Prem customers switching to the cloud.
Which typically drives a significant uplift in the.
Overall recurring revenue from each converted customer as we layer in higher value added services.
Vince will provide more detail on the impact of this in our financial model in his commentary.
During the fourth quarter, we welcome 7 new customers and completed subscription or license fee transaction.
In 9 countries, reflecting our strong global presence.
In the fourth quarter services.
The services performance of our supply chain segment was in line with our strong growth expectations coming in at the highest level for the fiscal year.
We continue to drive more backlog for future.
Work, which is consuming most of the resource capacity, we have on hand, including a growing consumption of external capacity from a consulting partner channels.
As we move forward, we plan to add additional resources internally and allocate a greater share of implementation work to our partners.
With the growing backlog.
Log expanding partner network and continuing to leverage the more efficient virtual work environment, we expect to see the seasonally adjusted consulting services revenue and margin continue to grow in the coming quarters.
We're pleased to see the continued growth in our recurring revenue stream of cloud services and maintenance.
<unk>, which now represents approximately 60% of total revenues compared to 57% in the same period last year.
We expect the percentage of recurring revenue to continue trending higher in the future considering that subscription contracts represent virtually all of our new contract revenue.
With a very disciplined.
And approach and a focus on transformational type projects or sales activity is running at a strong pace and as a result, we're continuing to see growth in our pipeline both on the number of opportunities and the size of the transactions.
We're seeing customers, a doc to broader footprint of our platform to improve the speed.
<unk> and quality of decision, making that allows them to achieve the agility and resiliency needed to thrive in this new economy.
The new calendar year has shown a resurgence of customers investing in transformational projects that is helping to drive our pipeline from both the number of opportunities as well as average size. These projects.
And by the need to Holistically manage supply chain sustainably in an economically resilient way.
Based on these on the same observations late last year Gartner predicted spending in the supply chain planning solutions, where trend towards an industry, leading growth rate, which we're starting to see that.
That trend to March.
In summary, we're extremely pleased with the fourth quarter results and overall performance of our team throughout the fiscal year working hand in hand, with our customers as we navigated the challenges presented by the pandemic.
Fourth quarter is a strong reflection of what we're capable of delivering to our customers.
Our grid on the financial performance of our company.
Our mission of making our customers more successful year after year is paying off in customer retention and expansion as we introduce innovative capabilities for managing sustainable supply chains.
We are confident that we can continue to grow both revenue and profitability.
Ability in the years ahead and are proud to be delivering incremental benefits for our customers in a time when they need it most.
At this time I will turn the call over to Vince who will provide more details on our financial results.
Thanks Alan.
Fourth quarter of fiscal 2021 revenues were.
$28.6 million down 2% from $29.3 million on the same period last year as we continue to transition to the SaaS model subscription fees increased 28% year over year to $8.1 million, while our license fees were $1.2 million compared to $1.1 million in the prior year, although license fees.
We're up slightly in the fourth quarter, which principally came from existing customers. We continue to expect declines over time, given our transition to the SaaS model near term, we anticipate on license revenues on a quarterly basis are likely to be closer to trend, which is about half a million dollars a quarter seen throughout the past year.
Our.
<unk> cloud services, <unk> or annual contract value increased 45% to $38.3 million versus $26.4 million a year ago, we added $6.7 million on new HCV during the quarter, which was more than double our prior record and reflected the closure of 2 deals with ACD and.
$1 million.
Nearly half of our new net HCV was from new customers and which was similar to last quarter, our our SaaS churn rate remained at levels more consistent with our pre COVID-19 right.
As Alan noted our pipeline of opportunities has also increased leaving us well positioned.
<unk> to deliver strong ACB growth in fiscal 'twenty, 2 and beyond.
Professional services and other revenues decreased 13% to $10.1 million from $11.5 million a year ago. The year over year decline reflects a 13% decrease in our supply chain.
Unit.
And on an 11% decrease.
<unk> TPM on it consulting business unit due to timing of project work. We note that restrictions on travel reduce the amount of pass through reimbursement and our supply chain services revenue to zero from $2 million last year on a sequential basis services revenue did increase 6% and Thats primarily.
Primarily attributed to a 13% increase in our supply chain unit, our backlog of supply chain.
Implementations increased significantly due to the increase in ACD bookings this quarter. So we anticipate an uptick in services in the fiscal 'twenty 2.
Maintenance revenue declined 12% year over year to $9.
<unk> and <unk> and this is reflecting up higher than normal fall off rate for this quarter.
But if you exclude the company's converting from on Prem maintenance to the cloud the decline would have been about 8%, which is more consistent with our mid single digit decline we've had historically seen as.
Q4 <unk>.
The bookings also included a large.
Conversion deal. So we expect the declines in our maintenance revenue to remain elevated in the near term. However, as we typically see a 2 and a 2 and a half.
Ex uplift in maintenance revenue.
Once the company shifts to subscription.
Subscription, we expect a commensurate acceleration of our subscription revenue growth.
Total recurring revenues comprised of subscription and maintenance fees together represented 6% of total revenues in Q4, and that's up from 57% in the same period last year. Our gross margin was 58% for the current period versus 54.
At the same period last year, and Thats, primarily due to increase of our subscription fee margin to 61% compared to 57% in the prior year and that's primarily due to increased subscription revenues and lower amortization of cap software expense and excluded excluding the noncash amortization of capitalized software expense of 6.
4 from 86000 in Q4, our subscription margin would have been 70% and that compares to 72% last year, where the amortization of cap software was 994000 in the prior year period.
License fee margin was 67% compared to 22% in the same period last year and Thats primarily due.
<unk> hundred license fees and lower cost of amortization expense.
And our agent commissions.
Our services margin increased to 36% from 31% last year and Thats due to a higher mix of revenue coming from our higher margin supply chain business unit.
Our maintenance margin was 79% compared to 80.
Due to a higher percentage a year ago, and that's primarily due to lower revenue.
Looking at gross margins.
Excuse me gross R&D expenses were 15% of total revenue for both the current and prior year period, our capitalized R&D expenses totaled 16000 net was down from 473000 in the same period last year.
83, which is reflecting our transition to the cloud and adopting an agile development process. So we do not expect any material caps R&D cap software going forward.
Sales and marketing expenses were 18% of revenues for the current period and that compares to 820% in the same period last year the year over year decline in absolute.
As continue to reflect a reduction of travel and marketing expenses due to the Covid pandemic.
G&A expenses were 19% of total revenues compared to 16% a year ago, and thats, primarily due to timing of recurrent recording some variable compensation.
On a GAAP basis, our operating income increased 20% to $1.9 million.
Dollars quarter and that compares to $1.6 from the same period last year, our net income increased 460% to $3.1 million or earnings per diluted share of <unk> compared to net income of $5 million.
<unk> <unk> earnings per diluted share last year on an adjusted basis, which excludes non cash amortization of intangibles.
<unk> related to acquisitions and stock based compensation expense adjusted operating income increased 8% to $2.6 million compared to $2.4 on the same period last year.
Adjusted EBITDA was 3.7% or down 4% from $3.9 same period last year and adjusted net income.
<unk> was $3.6 or adjusted earnings per diluted share of <unk> 11 in the fourth quarter and that compares to adjusted net income of $1.3 or adjusted earnings per diluted share of <unk> from the same period last year.
International revenues this quarter were approximately 15% of total revenues compared to 17% on the prior year quarter.
Taking a look at the full year fiscal <unk>.
2021, total revenues declined 4%.
Year over year to $111 million.
$111.4 million to be exact.
As a 31%.
Increase of subscription fees to.
$9 million was offset by lower license fee services and maintenance revenues.
Adjusted operating income for the year was $7.6 million, representing an operating margin of 7% and that's down from $9.7 million or 8% operating margin last year adjusted EBITDA was $12.5.
Versus $16.1 in the same period last year and adjusted net income totaled $10.8 million or <unk> 33.
<unk> per diluted share and that's up from $9.9 or <unk> 31.
Earnings per diluted share in the same period last year.
We exited the fourth quarter with remaining performance obligation.
<unk> 28 of our Po, which we refer to as backlog of $116 million and that represents a year over year increase of 51% the strong growth growth in <unk> reflects our recording.
Record bookings for the quarter and an increase in the duration of our cloud agreements as customers continue to.
<unk> per term commitments on our platform.
Taking a look at our balance sheet, our financial position remains strong with total cash and investments of approximately $104.7 million at the end of the quarter, an increase of approximately $10 million compared to the same period last year. Our day sales outstanding as of April 31, 2021 was 80.
While days.
For the current period and that compares to 78 days in the same period last year.
The increase was primarily due to the increase in bookings at the end of the quarter.
During the quarter, we paid $3.6 million of dividends.
And at this time I'd like to turn the call over to questions Amy.
Sure.
85 currently at this time, if you would like to ask a question. Please press star 1 on your Touchtone phone line.
Remove yourself from the queue at any time by pressing the pound.
Again that is star 1.
Questions.
We'll pause a moment to allow questions.
And we will take our first question from Matt. So your line is open. Please go ahead.
Hey, guys. Thanks for taking my question and great quarter.
I just wanted to hit on the 2 deals.
That were with <unk> in excess of 1 million, maybe just some more detail around those.
New or existing customers and what drove that large deal size and then when you look at the pipeline are there other sort of similar sized deals in there as well.
Hey, Matt. Thank you for the question.
Were those.
Complements so on the on the first half.
Both of those projects happen to be with existing customers and in both cases.
The 1 was a lift and shift where we converted to the entire platform to the new environment, New cloud environment.
And then added functionality. So it was a substantial increase in the amount of functionality and breadth of capabilities.
What we've turned to be a greenfield application. So the existing applications are going to stand alone and we are looking at a complete new way of managing their supply chain and helping them not only.
The the platform, but helping them with a new viewpoint of consulting and advising them on a new viewpoint on how to manage the supply chain in a whole new way in this marketplace. So its a start over and ultimately in time will replace the current applications, but.
Again, an uplift in the amount of functionality as.
With so both of those happen to be existing.
Customers expanding the footprint this time around and.
Quite frankly, I forgot the second half of your question, Matt. So if you wouldn't mind to repeat the second half of the question I'd be happy to answer that as well.
Yes, no problem. It was just around the pipeline and are there other deals of this size on the pipeline.
Well <unk> mentioned that deal sizes, increasing so just trying to.
Sort of understand or are these outliers or.
Is it sort of going to become more commonplace to have deals of this size.
No assurance that we'll get 2 or more done on any given quarter, but there are certainly are.
A number more in the pipeline.
The size of the transactions is starting to is continuing to increase so throughout this year last year. They were hard to come by just for that magnitude of.
Investment in.
In the year ahead, we anticipate that maybe not every quarter, but consistently through the year ahead, we will we will have.
Projects of this magnitude.
With us.
Great and then just in general within your pipeline or I guess, if we look at the deals that closed. This quarter were these deals that had been in the pipeline for a while and then.
Economic outlook started to improve they converted.
Happening sort of where do you other deals in your pipeline stand from from that perspective, I guess, obviously you have 2 large deal debt.
Really.
Nate.
Sequential HCV net increase of large this quarter and I'm, just trying to sort of figure out as we sort of think about growth going forward.
And what sort of puts and takes this quarter, we should think about when we're thinking about future growth.
Good good question on real mix.
1 on 1 of the 1 of those 2 large projects had had lingered for some time and it took them a while to get there and the second 1 actually accelerated pretty quickly.
Through the entire process from a decision to go forward to make the investment to.
To getting a contract in place so even in the large deals we have.
The 2 ends of the spectrum really.
Overall, we are seeing a pickup in the pace however, right.
Right now with the pandemic still in place.
And most people still working remotely it is a bit of a challenge to get everything coordinated to get the approvals done.
So we haven't seen a radical shift in the pace at which we can get from selection or EBIT and commencement of the evaluation all the way to selection and contract. Although we're starting to see that pick up as well. So we feel good about.
We did have a bit of carryover into the first quarter. We've made some good progress on the first quarter already so.
So we're seeing that.
We didn't we didn't clean up everything in the fourth quarter. There was some some lingering and we're often running on those projects already so we feel good about that as well and but I think as the year progresses.
From a little bit nervous about the summer happen to take some time off last week.
We witnessed that theres, an awful lot of people out taking vacation right now, including our family. So I'm a bit wondering about the summer period, but overall this year is really picking up.
Okay, Great and then.
Last question from me.
Obviously, there's a lot of supply chain issues going on right now and you know I think planning could be a key component of helping with some of those issues.
But does that create any distractions within your customer base or is it is it more of a.
Just net positive the issues that are going on right now with people, having shortages and difficulty managing their supply chain.
Overall, it's a net positive Matt yes, it's a good observation.
There's a couple of profit pockets, where people are just on such a big state of distress that theyre, having a hard time.
And our focus, but thats few and far between I think.
Overall people are seeing.
What did occur during the pandemic because people realize you can't just outrun it you've got on our planet you've got to think about where the bottlenecks are you've got to be able to model those on when the issues.
Issues occur you've got to be able to quickly assess what your options.
<unk> can make decisions rapidly otherwise you get outrun by your competition in any any options that may have been available to you are no longer available because you didn't act fast enough. So that has brought an acute awareness of the of the need for building, what we call a digital model of being able to represent the physical supply chain electronically stimulate.
Simulate the possibilities make a quick decision and act.
Can you can't outrun the challenges you have to our plan the challenges and that's really where our expertise lies so.
Overall view is that the pandemic has heightened the awareness and brought to light the urgency of acting on these transformation.
Formation on projects and getting something in place so that they know the next 1 is coming we don't know what it is or what it's going to be.
But they know they know the next disruption is going to be there because they've always been there.
And with the.
The customers are starting to make those investments.
Great. Thanks, guys appreciate it.
Thank you Matt.
Once again, if you would like to ask a question. Please press the star and the 1 on your Touchtone phone.
And we will take our next question from Zach Cummins. Your line is open go ahead.
Hi, Alan events, congrats on the strong quarter and.
Thanks for taking my questions.
I guess, Alan what really has changed in the mind of some of your existing customers I know really.
From your perspective, you havent been forcing these customers to shift over from an on premise model to the cloud, but but to see this magnitude of conversion.
I mean, what is really changing there or are you starting to incentivize customers to move over or I'm, just trying to get a sense of the dynamics that youre seeing.
Great question, Zach and thank you for joining us.
We have not we've not shifted our thinking or any incentives in a way that would encourage them to do.
It from our financial financial standpoint that we have.
Offered any extra spiff or anything like that it's truly what's happening is the even our existing customers as well as theyre running the applications today, they realize that there's more to be had debt. The current releases, they're having a hard time keeping up with that.
In many cases as I mentioned about some of the 2 larger transactions they are adding functionality and they want it all in 1 cohesive place. So if they have a single platform and I know, we can manage it better for them. So thats a view, that's really starting to drive the thinking and as they go to extend the footprint.
They move it to the cloud because they know it's a better solution for them, we're going to take better care of them, we're going to keep them up to date more frequently and they can get advantaged on on the new technology that we're making available on each new release.
So we've still not.
We don't think we have not and we don't think we're going to have to provide any special incentives.
Just the benefits associated with moving to our cloud environment in our value added services, there's been enough to change that so in the past from giving you a little more answer than you asked for but in the past we were seeing.
Fairly low conversion rate, maybe 1 or 2 per quarter.
We're converting from on premise.
The cloud.
We're anticipating that this year ahead that we're looking at 3 or 4 quarter will probably be in the conversion rate that we should expect going forward. So.
Still not a crazy number.
It's not half of our installed base converting but it's but it's double what it was last year I guess you could look at it from that perspective.
I understand that's helpful. And then in terms of year on year sales and marketing capacity I mean, just given the demand that you're seeing do you feel like you have enough capacity in place right now and kind of what is the approach when it comes to investing in head count and your go to market approach.
Yes, I think.
Well of course, we have 2 channels that we've talked about.
Past, we've got are our direct sales model, which is for large enterprises organizations in North American Europe.
We think we're in pretty good shape in that environment. We during the pandemic, we didnt pullback, we continued to invest and we expanded the team because we wanted to be ready shovel ready and when we came out of the pandemic. So.
And I think we're in a good position at least for the first half maybe maybe it will carry us through the year.
We're going to really focus on the productivity of the team we have and make sure that we're getting all the value. It takes some time to get them on boarded and where they are they are ready to go they are working hard they've got pipeline there.
They are generating results in.
In regards to our indirect channel, which gives us local presence through a value added reseller network, we are continuing to expand capacity there.
What segments of the globe that are really maturing from a supply chain standpoint, and they are starting to to look for solutions. So we're trying to fill that in and we got a few pockets where we need to.
Expand coverage and get some more resource in place so it will probably.
Over the next year, we will probably add about.
A handful more of strategic partners that are the value added resellers.
And then I made mention of course, the expanding partner network from an implementation resource standpoint.
As we look forward, we think that debt that channel will be able to fulfill at least half of the expanded service requirements that we have for the growing customer deployments.
And that ecosystem builds on itself from a number 1 they've got resources for us that can help us implement and provide good guidance and support for customers, but they.
We're generating activity out in the marketplace and they will they will pull that back in and bring those opportunities to us as well so thats.
A double benefit from the standpoint of that partner and partner network.
Got it that's helpful and Alan can you give us an update on on the overall competitive environment I mean, it's blue yonder in the midst of being acquired.
Also I was wondering if you've seen any sort of changes in the dynamics of the environment.
A couple of things that are probably most significant.
1 is really around the ERP players, we're continuing to see.
The likes of Oracle and SAP.
And maybe it's even to some extent from lessor.
Lesser extent, because they're not quite so prominent in our space and for and some others. They just don't have the depth of capability.
And Brett that's necessary to fulfill the requirements of today's supply chain projects. So we're continuing to see defections those who may have been.
Acutely biased towards SAP for instance.
Does share are making decisions to move away and we're picking up some business from that channel. So that's a continuing evolving competitive landscape.
We're not yet sure what will come about from the buoy under being being acquired wholly acquired by Panasonic, where they picked up the rest of the company on an owned.
And so now there is 1 thing for sure, though that there'll be changes and what those changes. They know what those changes are but we're seeing a little bit of chaos out there in the marketplace or folks are just not sure what's happening.
I think that will take a little time for it to settle out so we could have a window here, where there is some confusion around just what that strategy.
Means.
Understood and my final question is more of a financial on I know you don't provide formal guidance, but Vince I was wondering if you could just give us a sense of I mean.
On your overall targets for revenue growth and adjusted EBITDA margin as we progress in the upcoming years.
Yes.
As you know, we don't give guidance, but generally we are hoping to grow.
2 to maybe the low double digits rates on the revenue side and with that with that kind of growth, we should be able to get closer to maybe.
Somewhere between.
12% to 15%.
EBITDA percentages.
Helpful. Thank you well, thanks again, guys for taking my questions and congrats again on the strong quarter.
Zach.
It does appear that we have no other further questions.
On the line.
Alright, well Amy Thank you for helping US today. Thank you all for joining US this afternoon on our fourth quarter and fiscal year earnings call. We look forward to.
Further meeting with you again.
Not before then at the next earnings call in 3 months. Thank you.
This does conclude today's program. Thank you for your.
Your participation you may disconnect at any time.
Okay.
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