Q4 2022 American Software Inc Earnings Call
Im pleased to report that during the fourth quarter, we again achieved strong double digit revenue growth and our supply chain management segment and for the company as a whole.
This was our third consecutive quarter of double digit revenue growth, which was driven by the double digit revenue growth in our supply chain management segment in each quarter of fiscal 2022.
Our stock strong topline performance was accompanied by Cigna.
Significant expansion in our adjusted EBITDA margin as we gained efficiency from the cloud growth and achieved very high utilization rates across all of our services segments. We.
We had not anticipated the accelerated level of license revenue in the fourth quarter, an anomaly in our recent history, but are pleased that our clients are continuing to invest in their supply chains by extending their partnership with us regardless of the licensing model that best suits their current needs and skills.
We anticipate continued revenue growth in fiscal year 'twenty three with the continued growth in our cloud business and a healthy backlog of project work.
In spite of a very competitive labor market, especially in the supply chain and technical space. We are continuing to expand our team across all aspects of the business with.
We plan to repeat this pace of hiring to fulfill the needs of the expected growth in the years ahead.
Between our growth investments and the inflationary pressures from which none of us are immune.
EBIT expansion will be tempered in the quarter and year ahead, as we continue to invest for employee retention.
Spanning the team and a return of in person client meetings and marketing events demanding a higher level of travel.
The lingering impact of the pandemic continuation of major world events inflationary pressures and chatter of a potential recession have extended the fragmented working environments business uncertainty and the frenzied activities of our clients as they address their short term supply chain issues.
Staffing shortages in the supply chain and it organizations continue to impact the timing of contract approvals as clients grapple with how to implement a project while struggling with day to day operations. However, we continue to see a steady improvement in our pipeline conversion.
Our strong close rate in the fourth quarter has pushed our project backlog to unprecedented levels and extended our RPM.
In spite of some progress due to our prescriptive approach and staff augmentation efforts, we are mindful that new disruptions labor challenges and the potential recessionary pressures may cause some rockiness and project timing in the quarters ahead.
Overall, our pipeline continues to increase driven by the need for our clients to holistically manage their supply chains, and a sustainable and economically resilient way.
The need for rapid decision, making has never been more in demand. So we remain confident that between a larger opportunity set and improved execution. We are poised for a strong year ahead.
Our team is focused on serving existing clients delivering on our implementation commitments.
And bringing new companies into our client community.
More efficiently than ever before.
The continued increase in our services backlog, we're relying more and more on our Si partners to assist in the delivery, which puts a little downward pressure on the professional services revenue growth, but increases our reach and sphere of influence.
The summer months are always a little trough year for billable hours, but in the longer view, we still anticipate continued high utilization rates across all services teams, which will deliver year over year growth and consistently strong margins in the supply chain consulting services business in the year ahead.
During the fourth quarter, we welcomed 40 clients and completed subscription or license fee transactions in nine countries, reflecting our strong global presence.
We also are pleased to see the continued growth in our recurring revenue stream of cloud services and maintenance.
<unk> represented approximately 62% of total revenues in fiscal 2022.
This was driven by the 26% increase in cloud services HCV, we saw in the fourth quarter when compared to last year's fourth quarter.
With the increase in new subscription contracts and the continued stability of our cloud and on Prem client community. We expect to see recurring revenue as a percent of total revenue continued to rise.
With the current level of recurring revenue, we feel the timing is right to provide guidance on our financial expectations in the year ahead.
As we look forward, we anticipate total revenues of $132 5 million to $135 million, including total recurring revenues of $86 5 million to $89 million.
With the aforementioned revenue and our investments in future growth.
Anticipate adjusted EBITDA to come in between 16 and $18 million.
Moving forward, we plan to update our annual guidance each quarter to provide the investment community with a clear view into our progress against these goals.
As our recurring revenue guidance incorporates our assumptions for cloud services.
And as our primary focus for long term growth perspective, we will no longer be reporting our cloud services, ACB metric, which tends to be lumpy on a quarterly basis simply based on the variance of a few days or weeks timing of contract execution, which can skew the perception of how our business is <unk>.
Performing.
To be clear our outlook for fiscal 2023 does assume that we will add more net new ATV than we did in fiscal 2022.
In summary, we're pleased with the fourth quarter and year end results and expect to extend the performance improvements of our financial model and the fiscal year ahead.
We remain intently focused on executing against our growing pipeline and look forward to reporting our progress next quarter.
Our mission of making our clients more successful year after year is paying off and client retention and expansion as we introduce innovative capabilities for managing sustainable supply chains that attract new clients to our community of partners.
At this time I will turn the call over to Vince who will provide the details on our financial results. Thank you Allen.
So revenues for the fourth quarter came in at $34 6 million an increase of 21%.
Last year's quarter of $28 six that was driven a lot by subscription fees, which increased 37% year over year to 11 1 million, while software license revenue increased 153% to $3 1 million compared with $1 2 million same period last year.
Included in our license revenues were several transactions with existing customers, putting one seven figure deal. We continue to see a vast majority of our existing customers expand in the cloud and we expect license revenue to revert back to a more typical quarterly cadence of approximately $5 million a quarter.
Our cloud services annual contract value or HCV increased 26% to $48 2 million and that's compared to $38 three.
<unk> 3 million in the same period last year. So we added $2 9 million in net new <unk> during the quarter and 26% of the net new ACD was from new customers.
So looking at our professional services and other revenue also increased 16% to $11 $7 million from $10 1 million in same period a year ago.
Year over year increase reflects a 24% increase in our it consulting business unit. The proven method due to timing of project work and an 11% increase in our supply chain unit.
Our maintenance revenue declined 5% year over year to eight 8 million, reflecting a normal falloff rate for this quarter.
Total recurring revenues comprised of subscription and maintenance fees, representing 57% of our total revenues in the fourth quarter compared to 60% in the same period last year and this decline is due unusually high level of license fees in the current quarter.
Looking at gross margin it increased to 62% for the current quarter compared to 58% in the same period last year, our subscription fee gross margin increased to 70 compared to <unk>, 61% in the same period last year, and that's primarily due to increased subscription revenues and lower amortization of cap software expense, excluding the noncash amortization.
<unk> of cap software expenses 366000 in the fourth quarter, our subscription gross margin would have been 73% and thats versus 70% last year.
With the amortization of cap software being 686000 in the prior year period.
Our license fee margin was 84% compared to 67% last year, and that's primarily due to higher license fee revenue.
Our services margin decreased to 33 compared to 36 last year, primarily due to lower utilization rates at our supply chain business unit, partially offset by higher rates at our it staffing business.
Our maintenance margin was 83% for the fourth quarter compared to 79% in the same period last year.
Our gross R&D expenses were 12% of total revenues for the current period compared to 15% in the same period last year.
Our sales and marketing expenses were 16% of revenues for the current quarter compared to 18% in the prior year period, and our G&A expenses were 18% of total revenues in the current quarter compared to 19% in the same period last year.
In addition to high or excuse me in addition to net.
Additional accruals are variable and stock option incentive compensation and higher incremental insurance recruiting and audit fees costs caused the G&A expenses to go up compared to last year.
On a GAAP basis, our operating income increased to 186% to $5 5 million this quarter compared to $1 9 million same period last year net income increased 17% to $3 six of our earnings diluted share of <unk> 10, compared to net income of $3, one or <unk>.
Per diluted share last year.
On an adjusted basis.
Excludes noncash amortization of intangible expense related acquisitions and stock based compensation expense adjusted operating income increased to 151% to $6 6 million compared to $2 6 million in the same period last year adjusted EBITDA increased to 101% to $7 5 million compared to three 7% same period.
Last year and adjusted net income increased 22% to $4 4 million or adjusted earnings per diluted share of <unk> 13 in the fourth quarter and that compares to adjusted net income of $3 6 million or adjusted earnings diluted share of <unk> 11 in the same period last year.
Our international revenues this quarter were approximately 16% of total revenues for the current quarter compared to 15% in the same period last year.
So looking at the full fiscal year 'twenty two our total revenues increased 14% to 127 6 million.
That's due to a 446% increase in subscription fees to $42 1 million and an 80% increase in license fees to $5 5 million and a 10% increase in services, partially offset by 8% decline in our maintenance revenues adjusted operating income for fiscal 'twenty, two was $17 3 million representing.
Operating margin of 14% and that compares to $7 7 million or seven 7% operating margin last year, adjusted EBITDA increased 7% to $21 3 million and that compares to $12 5 million a year ago, representing adjusted EBITDA margin of 17%.
Adjusted net income totaled $16 million or <unk> 47 per diluted share and thats up from $10 8 million or <unk> 33 per diluted share diluted share in the same period last year.
We exited the quarter with the remaining performance obligation or RPE O, which we referred to as backlog as of $134 million and this representing a year over year increase of 16%.
Strong growth in <unk> reflects bookings over the past 12 months at an increased.
The increased duration of our cloud arrangements from our customers continue to make longer term commitments to our platform.
Taking looking at the balance sheet our finance.
<unk> financial position remains strong with cash and investments of approximately $127 5 million at the end of the quarter and this is an increase of $22 9 million compared to the same period last year and during the quarter, we paid $3 7 million in dividends.
Our days sales outstanding as of April 30, 22 was 62 days.
For the current period and that compares to 85 days in the same period last year. This decrease was primarily due to timing of billing and improved collections on delayed collections when compared to last year.
And as Alan mentioned earlier, our mix of recurring revenue continues to rise providing us with greater visibility in our financial model. So as a result, we believe the time is right to provide annual guidance.
Which we will update quarterly.
So for fiscal 'twenty, three we anticipate revenue in the range of $132 5 million to $135 million included in this is recurring revenue, which is $86 5 million.
<unk> hundred $89 million range.
On our recurring revenue.
Our revenue guidance and this implies a 10% to 13% year over year growth in those in recurring revenues.
Given the heightened macro uncertainty our outlook takes into account the potential for elongated sales cycles, which could limit the amount of revenue we can recognize this fiscal year.
That said, we saw gradual improvements in our close rates throughout fiscal 'twenty, two and we have not experienced a pullback in activity. Thus far. Additionally, we continue to assume only modest levels of churn in our forecast consistent with historical norms.
The adjusted EBITDA, we are guiding to 16 million to $18 million range, which reflects planned head count expansion across the company to support our growth aspirations.
Higher compensation to retain talent and increased travel and marketing expenses as we returned to more normal levels of in person events.
Ashley and at this time, we'd like to turn the call over to questions.
At this time, if you would like to ask a question. Please press star and one touch 10 telephone you may carry a question at any time by pressing the pound key once again to ask a question. Please press star one and our Touchtone telephone.
For a moment I will ask questions to queue.
We will take our first question from Matt Phipps with William Blair.
Please go ahead.
Okay. Thanks. Thank.
Taking my questions guys wanted to just start on the macro a bit so.
Vince you just commented that.
<unk> seen a gradual improving close rates throughout fiscal 'twenty, two and then it seems like that remained consistent in the fourth quarter.
Conversations changed at all with your customers in terms of how they are.
Thinking about purchasing as you enter fiscal 'twenty three.
Alan here. Thank you for the question, it's a good one.
Have not really changed at this point, we're seeing a continued eagerness to address some of the challenges that they've been facing over the last couple of years and we continue to face supply chain today.
<unk> come in the interruptions I think.
Currently and historically as I've been at this for the last 22 years.
When we see the potential of a recession.
People understand that to be just one more of those disruptions or change in the profile of the way the demands are flowing in wood product sale, which ones might not sell so they're eager to keep going at this point, but.
You probably picked up on some of the comments. We made were just cognizant of the fact that that that news is just starting to unfold and may impact. The year ahead. We just started on the new year and we just want to make sure we share our collective thinking with you guys as we anticipate the year in front of us.
Got it and I think some retailers have had challenges with having the sort of right product assortment in stock is has that driven any demand or additional interest in your products as I believe that's an area that you guys can help also.
Both retailers and <unk>.
CPG companies address.
Yes for sure.
Sure Matt that's very true of this the whole concept of forecasting as are our primary area of expertise in where we stand out in the marketplace and we couldnt, we couldnt imagine a better a better opportunity for forecasting right now as we can all imagine.
<unk> retail stores and retail channels, whether they're online delivery are really preparing right now for the Christmas season hard to imagine when the Sun is coming out and starting to get hot here.
Northern <unk>.
Hemisphere, but.
That's the reality so that's a long term view, it's complicated view and Thats our area of expertise. So that's one of the key areas Thats driving it I think they feel like they can do a better job with the forecast. They can do a better job of managing the supply chain and be more reactive to.
Consumer demand so you're spot on with where we are the level of urgency is playing out today.
Got it and with the investments in fiscal 'twenty three I appreciate theres, some increased travel and as well as retention expenses in there, but what about from a.
Growth or hiring investments where are those directed towards.
Yes, it really all areas of the business, we want to continue to expand in our R&D organization. So the team is making moves there we've actually been been blessed with a bit of a shift in our strategy moving to some lower cost areas, where we can get access to talent willing and interested in coming onboard with us right now so it's.
Actually even though we're improving head count we're managing costs in a pretty effective way in that in that area, but we've got a lot of great ideas, we want to execute on for product capability and organic growth. There. So we're going to continue to invest there we still see the pipeline growing and we have more opportunities coming we see an increase in inquiries.
He's coming to us.
So we need to be able to address that from a sales and marketing standpoint. So we're going to continue to invest in sales and marketing and then of course.
Even though we built a great Si channel and we're offloading more and more work to our Si partners.
They can't fulfill all the demand as well we don't anticipate they can in the in the year ahead. So we're continuing to invest in our services business to make sure. We've got the right mix of.
Of talent that we need to augment what they can provide they can't provide all the services that we provide to our clients. So we're we're collaborating with them what talent that they have where can they expand and we're going to make sure. We continue to invest in bringing the Taliban that will augment their abilities and capabilities.
Continue to be able to deliver on these project expectations from our clients. So I think the quick answer is.
There isn't really an area of our organization that that's not expanding except for maybe Vince as we sit here in the room with me.
HR and finance is not an area we have to invest deeply in we've got a great team in place today and that's probably the one area, we don't need any additional services.
Sure.
Great last one for me just if I look at the guidance.
So should.
Should we expect the maintenance component to decline in fiscal 'twenty three at a somewhat similar rate that we've seen over the past two years and then.
So I think that would imply that your subscription revenue growth could be over 20% in fiscal 'twenty three is that the right way to think about it.
Yes.
It's a good way to look at it we don't know exactly how that will play out although we have made.
Some substantial.
Vestments in client retention.
And one of the areas, we'll continue to see some maintenance decline and I think a bit of an acceleration will be around the cloud conversions were in the traditional one item that is maintenance, we will see some of some of our clients more more than we have in the past.
Move to the cloud so there is a bit of a conversion factor in there but.
But right now we're seeing.
We're seeing our retention rate on maintenance.
Back up with the lofty levels, we had pre pandemic, so we're comfortable with that level, but thats still.
Existing churn in that number so that net.
The traditional historic levels is a good way to model that.
Got it thanks, guys appreciate it.
Thank you Sir.
We will now take our next question from Matthew <unk> from Maxim Group. Please go ahead.
Hey, congrats on the strong quarter and thanks for taking my questions.
Maybe firstly now that the subscription business has scaled up quite a bit.
The last couple of years, how are you thinking about.
Subscription margins over the intermediate term.
Where can you get them too and I guess, what are you learning as you get to this point in terms of.
The opportunities to continue driving that higher.
Yes, Matthew this is Vince so yes, we grew the margins nicely from compared to last year from 61% to 70%.
We've kind of the way we're thinking about it is we're trying to be a little bit conservative on the growth of that margin, but we do think by the back half of fiscal 'twenty three we'll be on the higher side of the <unk> like 70, 576% and eventually.
Possibly two years from now be closer to approaching 80%.
Perfect.
Then I think you just talked about conversions from maintenance to service.
What kind of uplift.
Uplifts I'm, sorry uplift are you anticipating on the revenue line.
As that cycle played out and I guess as a follow up to that.
I think you discussed significant investment in customer retention. So are those conversations seating food conversion.
Opportunities or is that independent.
Are they are very tightly like great great. Great question. Matthew This is Alan.
So on a like for like conversion, which is.
It happens, but not the predominance of it but on a like for like conversion, we typically see about a two five times revenue lift.
That of course comes with a lot of the incremental services that we're providing the client with some margin points on each one of those but.
We're better at it were more efficient at it.
More quickly able to put up the releases and get the new features in front of them from the user community.
Were better at security than they typically are so theres a lot of great aspects of it and our clients are seeing time and time again that thats a good ROI for them along with a lot of incremental value. So two five times is probably a good model for that.
More times than not though what's interesting is that is that that comes with an expansion of footprint from our clients.
So at that point, it's kind of all bets off depending on how much more they are adding as part of that.
As part of that project, but they could easily then see three four or five times revenue lift.
When you when Youre doing a non like for like more expanded scale.
Related to the pace of conversions and what drives the conversions. It's all over the map I mean, the like for likes when they occur in some of the things I pointed out a few minutes ago.
Just want to get out of the it business is the simplest one.
They are struggling with their resource pool, and they want to offload to us as a partner with them in their supply chain.
They see that they are lagging behind and they can't keep up and they know we're going to do better or they're concerned or struggling around any of the security issues related to it.
Platforms today.
Know that the environment, we have is safe and secure and well administered day in and day out so that can be a driver, but most oftentimes, it's driven by value opportunity.
The desire to expand the footprint to pick up some new capabilities that theyre struggling with to.
To consolidate off some legacy tools and come to a single platform supply chain planning driving when looking at the platform view for us. So those are all the things that are really driving the discussion around cloud conversions and.
All aspects of that are continuing to push more and more clients towards the conversion level. So I think in the year ahead will probably double the number of conversions we've done in the past which has been fairly modest.
And as you look out two to three years that pace is only going to continue to increase so.
We'll see.
We're really not in spite of what we saw in the fourth quarter.
We didn't bring any new clients into a perpetual environment. The license transactions, we did with all with existing clients, but we see those those numbers even declining in more and more cloud revenue coming forward. So hopefully Matthew I picked up the answer to both of your questions in there maybe added a little extra color to it.
No. Thank you that was it that was excellent.
Colors, all I'll pass it along thank you.
Thank you so much.
We will now take our next question from Andrew <unk> with Sidoti. Please go ahead.
Hi, Thank you for taking my question and congratulations on the great.
Great quarter and year.
So I'm just I'm just curious about that.
Got it. Thank you could you give us some color on the deal delays have been talking about with his passing China, just not the customer's hot.
Trending now.
How do you see that play out in this year.
Andre could you repeat that question for me it was a little bit.
Muscle I didn't completely catch the question.
Okay I'm sorry.
You've been talking before about some deal delays.
He is the staffing to or did it just wanted to just add to your customers.
Do you see that developing now picking up pace or is that an issue at your customers.
Yes.
Yeah, Great question. So thank you for that one as well.
The more recent term we're seeing.
Less delays than we did kind of mid pandemic at first we saw just shock factor of the pandemic. The first year first six months of the pandemic was the Shockwave of moving away then they got into staffing shortages and people people struggled with had.
Having enough people, we've seen a little bit less of that as we came into this calendar year and the end of our fiscal year, but we still have a few projects that are that are in lingering. There. In fact, we had a couple of projects that just even though the contracted they just didnt get going on the project itself and that they are picking up steam again now so.
Less less prevalent than it was say six months ago, but not nonexistent yet and.
We're seeing the ability to attract more talent, we're seeing more of our clients clients being able to attract the talent they need.
And we've got gotten much crisper and our ability to do staff augmentation and help them in ways to get projects going so we've been able to tamp that down a bit but it's not gone yet which is why we brought the topic still back up and that's the reality of what we're facing today.
Okay. Thank you and then the ACB added $2 9 million in the fourth quarter.
Which is sort of the target.
One 4 million, but you alluded to that being kind of lumping you lumped report on that anymore.
That created a misperception can you just elaborate on the Lumpiness and that's created an ACB.
Yes.
As noted in your comments you picked up on it exactly we had a higher level of license fee transactions in the fourth quarter than we had anticipated at the beginning.
As well as compared to historical trends again, those were all with existing clients.
Nothing new from.
From a license fee standpoint licensing model standpoint that that came into the fourth quarter.
But.
What we had seen in the past is that even existing clients move more to the cloud the transactions. We did in the fourth quarter were dominated more by clients who are doing a very good job of administering the applications in their environment and as they continue to look for expansion they felt comfortable continuing to do so and.
We still are of a mind that.
Extending the relationship with clients is the right move and we don't want to put artificial barriers up to them in making decisions to move forward with us. So once they declared their their perspective that they wanted to to continue their license transaction with us and manage it on premise for themselves.
We quickly agreed to that and wanted to really get down to how do we get them going in the next phase of their journey with us. So it was more about the next phase of the journey than trying to influence the direction of one place or the other.
But we are we are quite insistent that we've got a client that is not doing a good job of administering their applications were very persistent and moving them to the cloud. So that we can ensure that their success rate would stay high.
So I don't think we will see that in the future.
I think we will go back to where we were maybe in first second and third quarter, which is below 1 million license fees.
That's what we've got in our thinking as we go forward.
Okay. Thank you and then one last one is is there anything to call out geographically.
Yeah.
Nothing extraordinary.
<unk>.
Maybe an emerging trend that's worthy noteworthy.
If you look at the supply chain market outside of US if you look at us and all of our peers $55, 60% of the supply chain.
Expenditure and the planning supply chain planning arena is in the North American marketplace 25, 30% of the spend is in Western Europe , and then the rest is spread around the world, which doesn't leave a whole lot. If you do that math.
That's pretty close to our revenue picture as well.
If you look at our recurring results on a quarter to quarter basis long term trend.
But what is interesting is that the Asia market is starting to pick up a bit we're making some investments out there we're expanding our team we brought on some new talent, we brought some new leadership into Asia.
We're expanding our channels to go into that market I think the reality is kicking in and even in Asia is that.
Traditionally the reason, it's been fairly light and expenditures they tend to bias towards staff labor.
<unk> put some more bodies on the job that you can get the job done the reality of today's marketplace is you cant staffing up you've hit the point of.
Of diminishing returns, where the amount of staff doesn't make it better and in fact, it probably starting to decline their performance. If you put enough people in the room, you can't make a decision about where to go to lunch. So managing your supply chain with the bigger staff is even more complicated so.
They are starting to realize that and making investments in supply chain planning applications and thus our investments out there. So I think in the longer term it will take a while to see that really bear out in the numbers, but in the longer term, we're going to see Asia. The Asia Pac in particular would be a higher percentage of our revenue streams.
Okay. Thank you and I'll talk to me.
Very good. Thank you so much for joining us and thanks for the questions.
And we will take our next question from Zach Cummins with B Riley <unk> Securities. Please go ahead.
Thanks, Allan and Vince Congrats on a solid quarter and thanks for taking my questions.
One of the key points I wanted to touch on that really.
<unk> already been asked but Allen can you just go a little bit deeper into the mix of the pipeline right now give us a little more color on the number of transformational deals that youre seeing in the pipeline and maybe even a little bit more about the inbound interest that you're getting from customers for your solutions.
Yeah, I would say that the predominance of the pipeline right now is focused on transformational activity.
Coming a little bit of a flavor mix piece.
People are there.
We're serious about platform they are serious about rapid decision making.
They're very serious about automation so the investments we've made in AI and.
Self learning system self operating systems prescriptive recommendations being driven out of the application. So that they can act and move quickly on those are all critical flavors of of what's going on in these transformational projects.
With the.
The pace of things changing with the lack of labor or turnover and labor labor people.
Labor for us in the supply chain space.
The ability to have walking knowledge and be dependent on walking knowledge has become.
A critical factor for our clients. They just don't have that expertise sitting at the at the desk anymore. So they're virtually all transformational.
But but.
In all cases, there really in almost all cases, they look at it and say where is the where's the critical factor. They want they want success quickly they need value they need to address some of the challenges other parsing out the projects in phases.
We've got many of these transformational projects we're into phase two three and four right now with our clients.
Many of the ones that were starting on phase one heavy phase two three and four that are completely lined out and ready to go.
But they want to keep an acute focus on the most important thing that they need to address today and they want a return on investment within six months, which is an area of expertise for us. So it's continuing to attract the noise that we're putting out in the marketplace about the successes with clients and what's happening.
Continuing to spread organically around the world.
Just the number of inquiries I think in general because people are addressing supply chain challenges and then the investments we've made with our Si community has continued to spread the word our name is becoming more prominent out there through there.
Dialog that theyre, having and thats, attracting people to us as well so.
So we continue to invest in our team to make sure we can capture that opportunity and pulled it from interest to pipeline into project.
And the multiple phases that are coming.
Exactly again, hopefully hopefully I'll hit the points of your question if not.
We'll go we'll go a little deeper no no that's perfect. Thanks Alan.
I know in the last couple of quarters, you've highlighted some improving execution from our sales team and a variety of factors, including some delays with deal closings in.
Litany of different macro factors presents some challenges, but can you talk about some of the successes that <unk> seen in driving the better execution and maybe some areas where you can drive even further improvement in the coming quarters.
Yes, I think there is.
Been investing in the team and we've got some maturity on the team now that is that is very strong and we've been talking about prescriptive models of how that works great value for our clients.
That takes a little while to get that messaging well articulated so that the clients can prospective clients can understand what we are talking about and as we continue to build the case studies with the.
Current clients actually executing in that model and seeing the true results of that happen come to bear the speed at which they are getting applications up and running and garnering value and the value of the phased approach where they can get a quick return.
On investments and move to phase III, we move to phase III moved to phase four successfully.
That messaging is strong and we got clients speaking on our behalf on why that's worked and where the value proposition is so all of those things helped to build confidence in and in the area of making these strategic investments, particularly in transformational investments are prospective clients are sitting there with a.
They are really nervous they're going to make a pretty strategic change in their way they operate their business. They want to have confidence that that's all going to go well and that we're not going to disrupt their business. So our momentum our success our clients speaking on our behalf all helped to build that confidence level and.
Let's just go a little bit quicker getting people to pull the trigger and get started on the project.
Understood.
Final question could be geared towards either you Alan or maybe Vince can chime in a little bit as well, but continue to see the cash balance really building on the balance sheet.
How are you thinking about potential M&A opportunities in a seemingly more favorable environment.
Other aspects of capital allocation potentially I know the company already pay the dividend, but any sort of commentary on that would be great.
Well.
Zach you hit on a really favorite topic of mine so.
First of all Youre right.
Do distribute through the dividend, we think the current dividend level is fair and appropriate. We obviously are covering that dividend from from operational cash flow and we think that thats a good level there wed love to make the acquisitions come through.
I guess.
None of US wanted to see the stock market pullback except for from this aspect the.
The valuations of the of the potential companies that we could tuck in and our operations became much more realistic.
So I can say we're in the market, we're working hard to find the right ones that are a fit.
We've got a criteria that.
A couple of criteria that we look at for that one is it is it a fair valuation we can get a rapid return on investment on behalf of our investing community and our shareholders. So that's an important factor, but most important is there is there an opportunity to extend our footprint. So we can take it back to our current clients help them with current.
Challenges accelerate the revenue gains from our from an acquisition.
We will reverse that the other way, where we take our current applications and go back to the client clients that are potential acquired company has and sell into them as well. So we are there we think that thats still the best use of our cash and we're hard at work to see if we can pull off a couple of those in the years ahead.
Here too we've.
We've done it.
Done.
Five of them. During my tenure of 20 years, they've all been very successful we hope to find the right ones that will allow us to extend that success rate.
Understood. That's helpful. Thanks for taking my questions and best of luck in the coming quarter.
Thank you very much thank you for joining us.
And it appears that we have no further questions at this time I will now turn the program back over to our presenters.
Ashwin. Thank you so much for helping with the call today for all of those present on the call. We thank you for your participation with us and time and attention. This evening and we look forward to speaking with you again in the quarter ahead have a nice evening.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
Yes.