Q1 2022 American Software Inc Earnings Call
Signing each quarter.
In regard to our first quarter results I am pleased to announce that we're off to a solid start on the fiscal year.
The market has stabilized which is evidenced by our growing pipeline increased <unk> and lower churn, while adding new contracts that continue to build our ACD and.
Services backlog.
The summer months are always a slow period, but our team continued to signed contracts and deliver on customer services like they have throughout the pandemic with a keen focus on serving existing customers delivering on our implementation commitments and bringing new companies into.
Our customer community.
Aside from the services were on plan or slightly ahead across all revenue and margin areas are first quarter services performance in our supply chain segment was impacted somewhat by the seasonally slow summer period, which resulted in continued increase in services backlog.
In particular.
The large.
Projects that we signed in Q4 got underway late in Q1 limiting their contribution to the quarter financial results, but setting the stage for a return to more positive growth in the services revenue over the remainder of the year.
With the growing backlog expanding partner network.
And continuing leverage of the more efficient virtual work environment, we expect to see the seasonally adjusted consulting services margin expand modestly in the coming quarters as well.
We're pleased to see the continued growth in our recurring revenue stream of cloud services and maintenance, which now represents approximately 60.
6% of total revenues compared to 61% in the same period last year.
That was driven by the 49% increase in cloud services ACD, we saw in the first quarter when compared to last year's first quarter.
With the increase in new project activity, which.
We are now virtually.
All subscription contracts and a return to the more traditional stability of our cloud and on Prem customer community. We expect to see the recurring revenue as a percent of total revenue continued to rise.
The steady increase in subscription revenue was also revealing the efficiency gains we expected in cloud.
Loud services as evidenced by the gross margin exceeding 75% in the first quarter.
With a very disciplined 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 pipelines during.
During the <unk>.
First quarter, we welcomed five new customers and completed subscription or license fee transactions in eight countries, reflecting our strong global presence.
We're seeing customers adopt a broader footprint of our platform to improve the speed and quality of decision, making that allows them to achieve the.
Agility and resiliency needed to thrive in this new economy.
In the first half of this calendar year, we've seen a resurgence of customers investing in transformational projects that is helping to drive our pipeline to higher levels. These.
These projects are driven by the need to holistically manage supply chain sustainably and in economics.
<unk> resilient way.
Based on these same observations Gartner predicted a trend to higher spending and supply chain planning solutions, and we're starting to see that trend emerge.
In summary, we're pleased with our first quarter results and overall performance of our team as we work hand in hand with our customers to.
Advocate the challenges presented by the pandemic.
The first quarter is a strong reflection of what we are capable of delivering to our customers and the potential for performance improvements of our financial model.
Our mission of making our customers more successful year after year is paying off in customer retention and expansion.
<unk> as we introduce innovative capabilities for managing sustainable supply chains.
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 for our customers in a time when they need it most.
At this time I will turn the call over to Vince.
<unk> will provide the details on our financial results.
Thanks, Alan for the first quarter of fiscal 2022 total revenues were $29.3 million, that's a 7% increase from $27.3 million in the same period last year, primarily driven by subscription fees, which increased.
54% year over year.
To $9.8 million.
While license the software license revenues were $5 million compared to $8 million last year.
And that's primarily due to the continued transition to the cloud services.
This is a service.
Our cloud ACB number increased 49% to.
One 9 million versus $27.5 million a year ago period, we added $2.5 million in net new <unk> during the quarter quarter, which includes one deal in excess of $1 million over 70% of our net new ACB was from new customers and similar similar to last quarter, our SaaS churn rate remained at levels.
<unk> is more consistent with our pre COVID-19 rate as Alan noted our pipeline of opportunities also increased leaving us well positioned to deliver strong ACB growth in fiscal 'twenty two and beyond.
Professional services and other revenues decreased 3% to $9.5 million from $9.8 million a year ago.
This year over year decline.
40% to 11% decrease in our TPM, our it consulting business unit due to timing of project work and that was partially offset by a 6% increase in our supply chain unit, our backlog of supply chain.
Implementations increased significantly due to the increase in ACB bookings in the recent quarters. So.
So we anticipate an uptick in services during the remaining quarters of fiscal 'twenty two.
Maintenance revenue declined 8% year over year to $9.5 million, reflecting our normal fall off right.
Total recurring revenues comprised of subscription and maintenance fees represented 66% of our total revenues for the first quarter and Thats up from.
From 61% in the same period last year.
So looking at gross margin was 58% during the current period versus 52% in the same period last year, our subscription subscription fee margin increased to 67% compared to 57% in the prior year period.
And Thats, primarily due to the increased subscription revenue and lower.
Patients have capitalized software expense, if you exclude the noncash amortization of cap software expense of 819000 for the first quarter. Our subscription gross margin would have been 75% versus 72% last year since the Ameren <unk> cap software was 959000.
In the prior year period.
Amyris.
Our license fee margin was 68% compared to 14% in the same period last year and Thats, primarily due to lower cost of amortization expense.
Amortization of cap software and lower var agent Commission expense.
Service margin increased to 26% from 20% last year.
Period due to the mix of revenue from our higher margin supply chain unit or.
Our maintenance margin was 79% compared to 83%.
Last year, and Thats, primarily due to lower revenue.
Our gross R&D expenses were 15% of total revenues for both the current and prior year period, our sales and marketing expenses were 21% of <unk>.
It's primarily.
The current period compared to 17% in the prior year periods and this year over year increase was due to increased marketing expenses.
Increase in variable compensation and the reorganization of some functional personnel from our business unit G&A role to sales.
Our G&A expenses were 15.
Revenues total revenues compared to 16% a year ago due to the reorganization reorganization of functional personnel that I just mentioned on a GAAP basis, our operating income increased 100% to $1.8 million for the current quarter and that can bear compares $2.9 million in the same period last year.
Net.
Percent of increased 45% to $2.9 million or earnings per diluted share of <unk> and that compares to net income of $2 million or <unk> <unk> in the same period last year.
On an adjusted basis, which excludes noncash amortization of intangible expense related to acquisition and stock based.
<unk> expense adjusted operating income increased 49% to $2.6 million and that's compared to $1.7 million in the same period last year adjusted EBITDA increased 18% to $3.7 million versus $3.1 million in the same period last year and our adjusted net income increased 28.
Income to $3.6 million or adjusted earnings per diluted share of <unk> 11 for the first quarter and that compares to adjusted net income of $2.8 million or adjusted earnings per diluted share of <unk> in the same period last year International revenues. This quarter were approximately 17% of revenues compared to 15% and as prior.
Percent period.
Our remaining performance obligation.
Exited the quarter with a backlog of 2000, excuse me $122 million and that represents a year over year increase of 63% the strong growth in <unk>, reflecting reflects record bookings in.
Prior year quarters, and an increase in the duration of our cloud agreements as customers continue to.
To make longer term commitments to our platform.
Our financial position remains strong with total cash and investments of approximately $108.1 million at the end of the quarter and this is an increase of approximately $15.1 million.
<unk> the same period last year, our days sales outstanding as of July 31, 2021 was 78 days for the current period and that compares to 88 days in the same period last year and this decrease primarily due to improved collections compared to last year.
And also during the quarter, we paid $3.6 million.
Compared to the <unk> at.
At this time I would like to turn the call over for questions.
At this time, if you would like to ask a question. Please press <unk>.
And one on your Touchtone phone.
You may withdraw your question at any time by pressing the pound key.
And once again for your question that is star.
One.
And we will take our first question from Matt. Please.
Please go ahead.
Hey, guys. Thanks for taking my question.
Alan I wanted to just follow up on.
What.
You are seeing in the business over the past month or so as some of the variance Delta Varian has started to pick up.
In the U S does that impacted purchasing decision or ability to close business sale.
First of all Matt Thanks for joining us.
Great.
Great question, we have not seen that emerge as a change I think the.
Probably one of the contributing factors as people had anticipated coming back to the office about this time September October with the announced dates.
So they were while the.
While the infection.
Churn rate has started to climb.
What's really happened is people are still working from home so really nothing changed over the over the prior periods. So the answer. The question is no. We haven't seen a change in the pattern. We can stay at this level and we don't go into economic shutdown like we did a year ago, then I don't anticipate that we will see that I think we.
Everyone's learned how to how to operate virtually so we're feeling good about the continued growth in the pipeline and our ability to close in.
What we really saw that was.
The summer vacation period was a little stronger than we anticipated people I think they were just exhausted and more not after the pandemic.
They went to the beach, so but they are back they are back from the beach and folks who are in school and back to work. So we're we're seeing momentum pick back up.
Got it great and then wanted to ask two questions on the transformational deals. So first of all in terms of the time, it's taking to close.
Close them is is it as you would've expected in your comments or just more about to get more regularity in closing those deals you just need more in the pipeline and then secondarily how are some of the current supply chain issues.
Impacting demand for transformational deals.
Yeah, I will reverse through those questions second one first we are definitely seeing more and more discussions coming up in projects getting initiated that are transformational in nature and.
Thats exciting news.
The close rates so on the first on the.
Our first question, Matt the close rates are in line with what we've seen over many years around these kind of projects.
One of the challenges that exist today that maybe didn't exist before or is just the ability to schedule people to get together, where you could get a huddle in the hallway to do the some of.
Some of the.
Yes.
Get consensus.
But a project of this nature has always had a high level of scrutiny.
So what we're seeing is the predictable nature of those is a little tricky.
They have good intentions, we have good intentions, everybody has worked hard to get.
Our project kicked off on a particular time period and then they hit a little extra due diligence process from time to time and that just takes one more cycle it might cost us weeks or a month or something like that but not six months not a year, but it's.
But a week or a month makes a difference if you're talking at the end of the quarter.
Sure sure understood.
Last one I wanted to ask about was on the traceability solution and just an update on what youre seeing there and I assume that would.
Be included in some of the corporate.
Responsibility.
Drivers that they use.
In your prepared remarks, yes for sure.
We're seeing an acceleration.
<unk> in that area around corporate responsibility and traceability.
Seeing it.
A handful of those opportunities are.
At any given time period or coming into the pipeline of standard.
Alone just tackling that issue, but we're also seeing embedded with these transformational projects, where that's an important criteria. They want to take into consideration. So it's a mix of of embedded in some of the more strategic opportunities and I guess, what I characterized before solving a particular business process area.
The street's ability would be in there.
Lots of discussion and lots of pipeline building a lot of discussion a lot of levels. What's interesting is we're driving some.
Some some introductions and tackling things like a few of these opportunities are the legal department is showing up in the call to talk.
About their compliance and how they're going to deliver on their expectations. So we're getting introduced the people we've never spoken before.
I guess, we spoke to the legal department and when it comes to the contract, but not around their business processes and things of that nature before so a lot of momentum building and we're starting to see money spend we've seen money spent and we're starting to see that really.
Accelerate now I think there was.
This is a maturing of that.
Of that area for people to get their arms around what kind of money they need to spend and how soon do they need to spend it in.
And how do they get on top of that we are we're continuing to dialogue with the U S. Customs for instance on how to address these.
These needs across the marketplace there is a.
Sincere interest there and the regulations are going to continue our perspective perspective. There is that the regulations are going to continue to tighten up and be more enforced and that could be a step change in those investments.
Great good to hear thanks for taking my questions.
Guys I appreciate it you got to have good afternoon, Matt.
And we will take our next question from Zach Cummins. Please go ahead.
Hi, Alan events, Thanks for taking my questions here.
Alan I know conversions are really a big team.
Over the last quarter I mean, it seems like the overall mix of ACB kind of shifted back to new customers here in this quarter, but can you give us a sense of the interest that youre still seeing from customers potentially making that lift and shift over to a subscription type of solution.
Yes for sure we had.
Ed.
We're seeing that continue to build momentum.
In the first quarter, we signed contracts with three existing customers to shift they werent.
They werent some of the largest ones that we've done but that just shows the continuing trend. So we're seeing more of those as we go forward.
Forward and.
In this particular quarter those three were PR lift and shift so no new functionality added so that's another interesting trend where in the past quarters, we were seeing.
Generally those projects were tied to adding some functionality doing something new and then.
Moving to the cloud as part of it.
The interesting twist when we look at the pipeline forward, we're seeing more and more of that coming into play. So we'll see that to continue to accelerate zac.
Understood that's helpful and in terms of the professional services side.
Obviously.
Summer vacation.
Period here, a little lighter than anticipated, but I mean with.
With the strong project backlog that you have right now I mean do you have the necessary capacity in place to kind of add.
It'll be the project load here in the coming quarters.
We do it.
Yeah, So first of all.
We saw growth in the <unk>.
Year over.
Per year from our supply chain business.
So that was positive we thought that we were going to get it even higher level of growth.
But we did have some of those projects.
That we had signed in the fourth quarter, we had as we all know we hit.
We had quite a few of those coming in as we got to the end of the fourth quarter.
They just didn't get going as fast as we anticipated it was related to the summer vacation issue that I've mentioned, a few minutes ago I guess it was a blessing that people took some time off but.
But it had an impact on those starts so we're up and running on those projects now we have added capacity we've hired into the team.
But more importantly, we have also.
<unk> added capacity through our partners, we've got additional <unk> that we've on boarded in training with and they are certified and ready to go to work and are working on some of the projects.
So in addition to the staff that we put on.
<unk> been able to onboard and train some folks so we have ample capacity at this.
Point to fulfill the anticipated demand and and we haven't given up yet on both hiring and Onboarding additional LSI capacity.
And continuing the certification process there.
Got it that's helpful and final question for me might be geared more towards then spud.
I am really strong subscription gross margin performance in the quarter.
I mean, how should we think about this as a sustainable rate going forward I know subscription growth.
Appears poised to grow at a pretty strong rate this year.
Leverage and can we see in the model.
And that subscription gross margin line.
Yes.
As we indicated last year, we did anticipate as we came into this year, we'd see a pick up on it.
So coming.
Coming in at roughly 75% after amortization of cap software, we do anticipate it staying at this level, maybe for a quarter or two and then start picking up a little bit more so but.
Approaching 80% maybe at the back half of this year.
Our early next.
And next year.
Understood well, thanks again for taking my questions and congrats on solid first quarter results.
Thanks for joining us.
Once more.
Historically your question that is star one.
I'll move next to Matthew <unk>. Please go ahead.
Yes.
Hi, good afternoon guidance. Thanks for taking my question I just had one for you.
Yeah.
Among the strategic deals Youre talking about I'm curious what you are displayed.
And then what the supply chain planning software and infrastructure and looks like that youre displacing or looking to this place.
A little bit of everything.
Matthew.
It's a variety of one of the probably one of the most prominent thing we were talking about just earlier today actually.
SAP is continuing to falter in the space.
Under deliver.
So turning.
Technical answering the questions what we find oftentimes as we're going in there and Theres a declared we're using SAP, but in reality of the users are using excel, so I'm not sure, which one I would declare I'm, replacing my replacing SAP.
At least the perception.
<unk> of SAP, but replacing excel in many ways.
But what we're finding is is that.
In these transformational projects in particular, we could be replacing four five different applications and thats one of the challenges that those those companies have is that is that it's not one seamless platform that they can use.
So as youre, making across the organization across their supply chain. So so what happens is they get a lot of latency and information flow.
Disparate teams that are trying to make decisions and not working from the same perspective and.
And that's causing some of the challenges that are that persist in the supply chain today. So.
For maybe.
Replacing any one of our competitors in the best of breed in some cases and then some of your ERP applications and spreadsheets and everything else all of them on robots. So it's generally not a one for one replacement in these kind of projects.
But the ERP systems are commonly being.
So as not fulfilling the need and being shoved aside in favor of.
A transformational project or a best of breed solution and in most cases legacy legacy platform applications that are out there that they are just consolidating onto a single platform now.
Great I appreciate the color.
Sure. Thank you.
Loving us I appreciate it.
And it does appear there are no further questions at this time don't once more that is star one.
No Matt.
And it appears.
For joining arnaud.
No questions at this time, alright, clearly thank you so much for hosting our call. This afternoon and helping us with that thank you all for participation and Matt Zack and Matthew we appreciate the questions. This afternoon, and we look forward to speaking with everyone again in three months have a great afternoon.
Okay.
Stephanie.
It does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
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