Q2 2024 American Software Inc Earnings Call

Okay.

Good day everyone and welcome to today's second quarter fiscal year 2024 preliminary earnings results call.

Good day, everyone and welcome to today's second quarter fiscal year 2024 preliminary earnings results call.

At this time, all participants are in a listen-only mode.

At this time all participants are in a listen only mode.

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Please note that this call is being recorded and that I will be standing by should you leave anyways.

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It is now my pleasure to turn today's program over to Vincent Clingas, CFO of American Software.

It is now my pleasure to turn today's program over Cuban cleanest CFO of American software.

Thank you Chelsea and good afternoon everyone and welcome to American software 2nd, quarter fiscal 2024 earnings call on the call with me is Alan Dow president and CEO of American software. Alan will provide some opening remarks and then I'll review the numbers. But 1st, our safe harbor statement.

Thank you Chelsea and good afternoon, everyone and welcome to American software second quarter fiscal 2024 earnings call on the call with me is Allan Dow President and CEO of American software Alan will provide some opening remarks, and then I'll review the numbers, but first our safe Harbor statement.

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 and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statement.

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 and are subject to a number of risks and uncertainties some of which cannot be predicted or quantified and are beyond our control future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward looking statements. There are a number of factors that could cause actual results.

There are a number of 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 in uncertainty in general economic conditions, the growth rate of the market for our products and services, and the growth

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 and market acceptance of these products and services the effective competitive products and pricing.

the timely availability and 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. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. At this time, I will turn the call over to Alan for opening remarks. Thank you, Vince.

And other competitive pressures and the irregular and unpredictable pattern of revenues in light of these risks and uncertainties. There can be no assurance that the forward looking information will prove to be accurate.

At this time I will turn the call over to Alan for opening remarks.

Thank you Vince good afternoon, everyone and thank you for joining us today.

Our second quarter was transformative in many respects and we believe we've laid the foundation for sustained growth and margin expansion over the long term.

Our second quarter was transformative in many respects and we believe we've laid the foundation for sustained growth and margin expansion over the long term.

First and foremost, we completed the acquisition of Garvis, a disruptive SaaS startup that developed an AI-native demand forecasting system, leveraging generative AI to enrich the user experience.

First and foremost we completed the acquisition of Garbus disruptive SaaS startup that developed an AI native demand forecasting system, leveraging generative AI to enrich the user experience.

We have rebranded the garvin product as demand AI, plus which is replace the current demand components within the Logility platform.

As many of you know logility invented supply chain statistical forecasting five decades ago, and we believe that demand AI plus is the next generation demand intelligence platform that will launch a new paradigm of supply chain planning.

The technology has already been validated with over 70 implementations, including deployments at some of the largest consumer goods package companies in the world.

The technology has already been validated with over 70 implementations, including deployments in some of the largest consumer goods package companies in the world.

With the inclusion of demand AI, plus we expect to increase our acquisition of new customers, particularly at the large strategic account level.

And to accelerate the pace of cloud conversions within our existing client community.

Since we completed the acquisition, we've signed contracts for a dozen new deployments of DAI Plus, including one of our existing Cloud clients who is now upgrading to DAI Plus.

Since we completed the acquisition, we've signed contracts for a dozen new deployments of DIY, plus including one of our existing cloud clients, who is now upgrading to <unk> plus.

While we have focused intently on identifying opportunities to extend the breadth and depth of our supply chain planning capabilities for the past several quarters, we've also evaluated our existing assets to ensure we can benefit fully from the investments we are making.

While we have focused intently on identifying opportunities to extend the breadth and depth of our supply chain planning capabilities for the past several quarters. We've also evaluated our existing assets to ensure we can benefit fully from the investments we are making.

In the second quarter, we're pleased to find a strategic fit for our IT staffing and consulting services business, and we completed the sale of the proven method in mid-September.

In the second quarter. We're pleased to finally, we were pleased to find a strategic fit for our staffing and consulting services business and we completed the sale of the proven method in mid September.

Subsequent to the quarter end, we also sold our transportation business.

Subsequent to quarter end, we also sold our transportation business. These.

These divestitures align our focus on being a pure play supply chain software leader and will reduce the volatility in our results while enhancing our growth and margin profile.

These divestitures align our focus on being a pure play supply chain software leader and will reduce the volatility in our results, while enhancing our growth and margin profile.

As we believe the actions we've taken will create significant shareholder value, we also implemented a share repurpose purchase program and we're active in buying back shares during Q2 with substantial success.

As we believe the actions we've taken will create significant shareholder value. We also implemented a share repurpose purchase program and were active in buying back shares during Q2 with substantial success.

Vince will provide some further details on this in his commentary. Next I'd like to review our second quarter results and provide an update on our current outlook for the year.

Vince will provide some further details on this in his commentary.

Next I'd like to review, our second quarter results and provide an update on our current outlook for the year.

Our second quarter results reflected slower activity as we experienced over the past year. However, we're encouraged to see several previously delayed opportunities finally cross the finish line, resulting in Booking's performance more akin to our strength we saw in the fourth quarter of the prior fiscal year.

Our second quarter results reflected slower activity as we experienced over the past year.

We're encouraged to see several previously delayed opportunities finally crossed the finish line, resulting in bookings performance more akin to our strength, we saw in the fourth quarter of the prior fiscal year.

As many of our deals closed late in the quarter, the improvement is not readily apparent in our reported results for Q2, but is reflected in the sequential uptick in our backlog.

As many of our deals closed late in the quarter. The improvement is not readily apparent in our reported results for Q2, but it is reflected in the sequential uptick in our backlog.

We remain cautiously optimistic that our clients and prospects are adapting to the economic headwinds that have delayed their investments in technology over the past year and we look forward to building upon our progress this quarter during our seasonally stronger second half.

We remain cautiously optimistic that our clients and prospects are adapting to the economic headwinds that have delayed their investments in technology over the past year and we look forward to building upon our progress this quarter during our seasonally stronger second half.

Our pipeline remains solid and is expanded as we continue to increase market awareness of our new demand AI POS solution.

Our pipeline remains solid and has expanded as we continue to increase market awareness of our new demand AI Pos solution.

As we look back on our first half performance we are.

We had a slow start to the year due to the ongoing economic uncertainty and our unusual seasonality.

Had a slow start to the year due to the ongoing economic uncertainty in our usual seasonality.

Our sales cadence improved as expected in Q2, but the timing of the deal closures limited the revenue we expected to recognize.

Our sales cadence improved as expected in Q2, but the timing of the deal closures limited the revenue we expected to recognize.

Our revised guidance outlook for fiscal 2024 therefore reflects the combined impact of our two business divestitures, the acquisition of GARVIS, and the real run rate based on the first half actual results.

Our revised guidance outlook for fiscal 2024, there. Therefore reflects the combined impact of our two business divestitures the acquisition of <unk> and the real run rate based on the first half actual results.

For fiscal 2024, we now expect recurring revenue to be between 85 million and 88 million.

For fiscal 2024, we now expect recurring revenue to be between $85 million and $88 million.

are adjusted to EBITDA to be between $14.5 million and $16 million, and total revenue to be between $100 million and $104 million.

Our adjusted EBITDA to be between $14 5 million and $16 million.

In total revenue to be between $100 million and $104 million.

Finally, I wanted to provide a brief update on our other initiatives we discussed during last quarter's call.

Finally, I wanted to provide a brief update on our other initiatives we discussed during last quarter's call.

Although buyer interest in our headquarters was high, the increase in interest rates has dampened the commercial real estate market, and we are no longer pursuing a sale of the property.

Although buyer interest in our headquarters was high the increase in interest rates has dampened the commercial real estate market and we are no longer pursuing a sale of the property.

We'll revisit that topic once the market conditions stabilize.

We will revisit that topic once the market conditions stabilize.

Finally, regarding our dual class structure, we remain engaged with our Class B shareholder to consider various options with the goal of completing this process by the end of our fiscal year as previously stated.

Finally regarding our dual class structure, we remain engaged with our class b shareholder to consider various options with the goal of completing this process by the end of our fiscal year as previously stated.

At this time, I'll turn the call over to Vince, who'll provide details on our financial results.

At this time I'll turn the call over to Vince who will provide details on our financial results. Thanks, Alan before I discuss our results in more detail I wanted to note that due to the divestiture of our it consulting business unit. The proven method our financial statements have been recast to show the proven method as discontinued operations in the second quarter.

Thanks, Alan. Before I discuss our results in more detail, I want to note that due to the divestiture of our IT consulting business unit, the proven method, our financial statements have been recast to show the proven method as discontinued operations.

In the second quarter of fiscal year 24, the proven method generated $1.7 million in revenue and $78,000 in adjusted EBITDA prior to the closing of the sale in September .

Fiscal year 'twenty for the proven method generated $1 7 million in revenue and 78000 adjusted EBITDA prior to the closing of the sale in September and.

And for the first half of the year of 24, it generated $4.9 million in revenue and $0.3 in adjusted EBITDA. Our discussion of the current and comparable periods will focus only on our continuing operations from this point.

And for the first half of the year of 24, it generated $4 $9 million in revenue and <unk> three in adjusted <unk> million dollars and adjusted EBITDA our.

Our discussion of the current and comparable periods will focus only on our continuing operations from this point.

So total revenues of $25.7 million decreased 6% to $27.3 compared to the same period last year. Our subscription fees increased 8% year-over-year to $13.4 million, but declined slightly from the prior.

So total revenues of $25 7 million decreased 6% to $27 three in the same period compared to the same period last year, a subscription license fees.

Fees increased 8% year over year to $13 4 million.

But declined slightly from the prior quarter recall recall that in Q1, we benefited from approximately <unk> 3 million in catch up revenue that did not reoccur in Q2 that along with our normal quarterly churn contributed to a sequential decrease in subscription fees as Alan mentioned, our bookings performance in Q2 as much.

Recall that in Q1, we benefited from approximately 0.3 million in catch-up revenue that did not reoccur in Q2. That along with our normal quarterly churn contributed to a sequential decrease in subscription fees.

As Alan mentioned, our bookings performance in Q2 was much improved from the prior quarter.

<unk> from the prior quarter.

With many of the deals closing late in the quarter, however, we were unable to recognize much of the revenue associated with it. We expect to see sequential growth in our subscription fees this quarter.

With many of the deals closing late in the quarter. However, we were unable to recognize much of the revenue associated with it.

We expect to see sequential growth in our subscription fees this quarter our.

Our license fee revenue came in at $0.2 million compared to $0.7 million in the prior year period. Our professional services and other revenues decreased 26% to $4 million from $5.4 million in the year-ago period, and that's reflecting longer sales cycles as we experienced over the past year and a conscious decision to offload more services to our SI partners.

Our license fee revenue came in at <unk> 2 million compared to <unk> <unk> seven in the prior year period, our professional services and other revenues decreased 26% to $4 million from $5 4 million in the year ago period, and thats, reflecting longer sales cycles as we experienced over the past year.

Conscious decision to offload more services to our Si partners.

Our maintenance revenue declined 8% year-over-year to $8.1 million, reflecting a normal fall-off rate this quarter. Our total recurring revenues comprised of subscription and maintenance fees represented 84% of total revenues in the second quarter, and that compares to 78% in the same period last year.

Our maintenance revenue declined 8% year over year to $8 $1 million, reflecting a normal fall off rate. This quarter. Our total recurring revenues comprised of subscription and maintenance fees represented 84% of total revenues in the second quarter and that compares to 78% in the same period last year.

Looking at gross margin was 64% for the current period compared to 66% in the prior year period. Our subscription fee margin was 66% in the current period compared to 67% in the prior year period.

Looking at gross margin was 64% for the current.

Period compared to 66% in the prior year period, our subscription fee margin was 66% in the current period compared to 67% in the prior year period, but if you exclude the non cash amortization intangibles of 767000 in the current quarter. The gross margin was 71% for both the current period.

But if you exclude the non-cash amortization intangibles of $767,000 in the current quarter, the gross margin was 71% for both the current period and the prior year period.

In the prior year period.

We had amortization of CAP software of 464,000 in the same period last year.

We had amortization of cap software of 464000 in the same period last year.

License fee margin was 59% compared to 86% in the same period last year. Services margin decreased to 29% from 36% in the last period and again due to lower revenues.

License fee margin was 50%, 59% compared to 86% in the same period last year.

Services margin decreased to 29% from 36% in the last period and again, thanks again due to lower revenues are.

Our maintenance margin was 79% for the current quarter, and that compares to 82% in the prior year period.

Our maintenance margin was 79% for the current quarter and that compares to 82% in the prior year period.

Gross R&D spend was 17% of total revenues for the current period, and that compares to 16% in the prior year period.

Gross R&D spend was 17% of total revenues for the current period and that compares to 16% in the prior year period.

Sales and marketing expenses were 21% of revenues for the current quarter, and that compares to 19% in the prior year period. G&A expenses were 21% of total revenues for the current quarter, and that is down from 22% in the last year period.

Sales and marketing expenses were 21% of revenues for the current quarter and that compares to 19% in the prior year period.

G&A expenses were 21% of total revenues for the current quarter and that is down from 22% in the last year period.

So on a gap basis, our operating income was $1.2 million this quarter compared to $2.6 in the same quarter a year ago, and that's primarily due to lower revenues and the cost related to Garvis acquisition of $1.2 million.

So on a GAAP basis, our operating income was $1 2 million this quarter compared to $2 six in the same quarter, a year ago, and Thats, primarily due to lower revenues and the costs related to <unk> acquisition of one.

of which 0.3 million were one-time charges and 0.5 million of intangible amortization costs.

Of which $3 million or one time charges and <unk> 5 million of intangible amortization costs.

Net income was $0.6 million, or earnings of a looted share of $0.2 compared to the net income of $0.1 or $0.6 in earnings compared to last year. On an adjusted basis, which excludes non-cash amortization of intangible expenses related to acquisition and stock-based compensation expense,

Net income was <unk> 6 million or earnings per diluted share of <unk> <unk> compared to net income of $1 nine or <unk> and earnings compared to last year.

On an adjusted basis, which excludes noncash amortization of intangible expenses related to acquisition and stock based compensation expense.

Adjusted operating income decreased 13% to 3.6 million compared to 4.2 million in the same period last year. Adjusted EBITDA decreased 13% to 4.1 from 4.7 in the same quarter last year. We note that the acquisition of garbage reduced our adjusted operating income and adjusted EBITDA in the second quarter of this year by approximately 700,000 of which, as I mentioned, 300 relates to non-recurring transaction costs.

Adjusted operating income decreased 13% to $3 6 million compared to $4 2 million in the same period last year, adjusted EBITDA decreased 13% to $4 one.

From $4 seven in the same quarter last year, we note that the acquisition of Garver's reduced our adjusted operating income and adjusted EBITDA in the second quarter of this year by approximately 700000 of which as I mentioned 300 relates to nonrecurring transaction costs.

So adjusted net income decreased 9% to $2.9 million or adjusted earnings beluded share of $0.8 for the second quarter and that compares to adjusted net income of $3.2 million or adjusted earnings beluded share of $0.9 in the same period last year.

So adjusted net income decreased 9% to $2 9 million or adjusted earnings diluted share of <unk> <unk> for the second quarter and that compares to adjusted net income of $3 2 million or adjusted earnings per diluted share of <unk> in the same period last year.

International revenues for this quarter was approximately 21% of total revenues compared to 19% last year. We exited this quarter with remaining performance obligation or RPO, which we refer to as backlog of 113 million. While our total RPO was down 8% from the prior year period due to the slowdown in bookings activity over the past year, we are pleased to see a return to sequential backlog growth this quarter.

International revenues for this quarter was approximately 21% of total revenues compared to 19, 19% last year.

We exited this quarter with remaining performance obligation or <unk>, which we referred to as backlog of $113 million.

While our total <unk> was down 8% from the prior year period.

Due to the slowdown in bookings activity over the past year. We are pleased to see a return to sequential backlog growth this quarter.

Also, during the quarter, as Alan mentioned, we repurchased our stock, approximately 431,000 shares under the stock buyback authorization for a total of 4.8 million in cash. Subsequently, to the end of the quarter, we purchased another 241,000 shares for 2.7 million.

Also during the quarter as Alan mentioned, we repurchased our stock approximately 431000 shares under the stock buyback authorization for a total of $4 8 million of cash subsequent to the end of the quarter. We purchased another 241000 shares for $2 7 million.

So we have approximately 274,000 shares remaining on the stock buyback program.

So we have approximately 274000 shares remaining on the stock buyback program.

Looking at our balance sheet, our financial position remains strong with cash and investments of approximately 83.9 million at the end of the quarter. During the quarter, we acquired Garvis for $225 million in cash and paid $3.8 million in dividends and repurchased approximately 430,000 shares for a total cost of $4.8 million.

Looking at our balance sheet, our financial position remains strong with cash and investments of approximately $83 9 million at the end of the quarter during the quarter, we acquired <unk> for $25 million in cash and paid $3 8 million in dividends and repurchased approximately 400.

30000 shares for a total cost of four.

$4 eight.

Our day sales outstanding was approximately 72 days for the current period. And that compares to 78 days in the same period last year.

Our days sales outstanding was approximately 72 days for the current period and that compares to 78 days in the Sun.

Same period last year.

Um, turning to the fiscal 24, um,

Turning to the fiscal 'twenty four.

outlook. Our guidance now reflects only our continuing operations. We note that the original outlook for the year included 15 million in revenue and assumed a mid-single-digit EBITDA margin for our discontinuing operation.

Outlook our guidance now reflects only our continuing operations. We note that the original outlook for the year included $15 million in revenue.

And assumed.

Mid single digit EBITDA margin for our discontinuing operations. So for fiscal year 'twenty four we anticipate revenue in the range of $100 million to $104 million, including recurring revenue of $85 to $88 million and for adjusted EBITDA, We anticipate a range of $14 five.

So for fiscal year 24, we anticipate revenue in the range of $100 million to $104 million, including recurring revenue of $85 to $88 million, and for adjusted EBITDA, we anticipate a range of $14.5 million or $16 million.

<unk> 5 million or $16 million.

Our revised outlook assumes the recent sale of our transportation solutions largely offsets the revenue contribution from the acquisition of Garvis. And we anticipate Garvis' impact on our Justi Bidata remains similar to Q2 level for the remainder of the year. We continue to expect Garvis to be accreted in the next 12 months. At this time, I'd like to turn it over to you.

Our revised outlook assumes the recent sale of our transportation solutions.

Largely offsets the revenue contribution from the acquisition of Gargis.

We anticipate <unk> impact on our adjusted EBITDA to remain similar to Q2 level for the remainder of the year.

We continue to expect to harvest to be accretive in the next 12 months.

At this time I would like to turn the call over to any questions.

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and our first question will come from Matt Faw.

And our first question will come from Matt fall.

Okay.

Hi, it's Karen from Matt. Thanks for taking our questions. First, can you add some color on the change to guidance and the impact from divestitures versus any macro expectations that may have changed?

Hi, Gary Hi, Pat on for Matt. Thanks for taking our question first.

First can you add some color on the change the guidance and the impact from divestitures versus any macro expectations that may have changed.

The majority of the adjustment is related to the divestitures, particularly on the revenue and the earnings hit is a fairly good piece of that.

The majority of the adjustment is related to the <unk>.

To the divestitures.

Particularly on the revenue and in the.

The earnings here is the big fairly good piece of that.

The.

Macro, there was an impact from the first half of the year, early first quarter that had a slight impact on the adjustment, but not as material as obviously the vestitures. So we wanted to make sure we got that reflected in the forward look.

Macro there was an impact from the first half of the year early first quarter that had a spike slight impact on the adjustment, but not as material as obviously the divestitures. So we wanted to make sure we got that reflected in the forward look.

about it. And then how are customers thinking about budgets for 2024? And did you see any worsening in sales cycles?

Got it.

And then how are customers thinking about budgets for 2024 and did you see any worsening in sales cycle.

It's mixed results, Karen, and thank you. Great question. We feel really good about the budgets coming together. Of course, budgets don't mean spend. There's two layers to that process. One is to get a budget in place first that anticipated spend, and then to get the actual release for funds as they approach and start to kick off the project.

It's mixed results Kieran. Thank you great question.

We feel really good about the budgets coming together of course budgets don't mean spend.

There's two layers to that process. One is one is to get a budget in place first that anticipated spend and then to get the actual release for funds.

They approach and start to kick off the project.

But we're encouraged by the amount of budgeting activities that's out there, the number of projects that are coming in, pipeline is looking more robust for next year. I think there's still a lot of sentiment in many of the industries around the consumer good space. Let's see how the year ends kind of sentiment. We're in that season now, of course, you know, the, you know, the, you know, the, you know, the, you know, the, you know,

But we're encouraged by the amount of budgeting activity that's out there the number of projects that are coming in our pipeline is looking more robust for next year. I think there is still a lot of sentiment in many of the industries around the consumer goods space, let's see how the year ends kind of sentiment.

We're in that season now of course.

The sales have kicked off about Black Friday will be next week. Within the next three or four weeks, companies will start to see what's happening and get a real sense of that. But we're encouraged in the anticipated spend for next year, so feel good about that. We've not seen a material change in the sales cycles, the timeframe. We actually have seen some projects get accelerated, which was a bit of a surprise in some areas.

The sales have kicked off Black Friday will be next week within the next three or four weeks companies will start to see what's happening and get a real sense of that.

But we're encouraged we're encouraged and the anticipated spend for next year. So feel good about that we've not seen a material change in the.

Sales cycles the timeframe.

We actually have seen some projects get accelerated which was a bit of a surprise in some areas.

where they know they're just going to need to make those investments. And this is the season to get started, get prepared, get projects organized, and then they kick into full swing after the holidays.

Where they know that we're just going to need to make those investments and this is the season to get started to get prepared.

Good projects organized and then they kick into full swing.

After the holidays.

You know, the supply chain part of it is, you know, kind of wrapping up. After you get past into December , the supply chain work is almost done. If it's not in the store by then, it's going to make it into the store, so.

The supply chain part of it is kind of wrapping up after you get past into December the supply chain work is almost done if it's not in the store by then but it's going to make it into the store so supply chain teams can refocus their energy then so.

supply chain teams can refocus their energy then, so mixed environment, but positive outlook for the future, Karen. Great question. Great. Thanks for taking my question.

Mixed environment, but the positive outlook for the future care and great question.

Great. Thanks for taking my question.

Youre welcome.

Thank you.

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And our next question will come from Zach Cummins.

Hi, good afternoon, Alan and Vince. Thanks for taking my questions. Can you provide a little more insight into the updated recurring revenue guidance that you gained for the year? Is that more so just the timing of deal closings that's impacting the revenue contribution we're going to see or any other assumptions that you're baking into there would be helpful?

Yes, hi, good afternoon, Allan and Vince Thanks for taking my question could.

Could you provide a little more insight into the updated recurring revenue guidance that you gave for the year is that more so just the timing of deal closings. That's impacting the revenue contribution we're going to see or any other assumptions that you are baking into there would be helpful.

Yeah, it is. A little bit from early in the year, but mostly the second quarter was really back and loaded. We were very, very busy right up to the finish line the last few days of the quarter, actually, that we're bringing those projects in. We've now kicked those projects off.

Yes. It is.

A little bit from early in the year, but mostly the second quarter was really backend loaded we were very very busy right up to the finish line in the last few days of the quarter actually.

That we're bringing those projects and we've now kick those projects off.

They were anxious even though the legal process and the procurement process.

They were anxious, even though the legal process and the procurement process delight them a bit they were anxious we were prepared and our teams hit the ground in fact.

Delayed them a bit, they were anxious. We were prepared and our teams hit the ground. In fact, you know, first in November , we were out on the street making those projects happen. So the revenue is up and flowing now. We're going to see a real positive impact on that. In our third quarter results, you'll see the full impact of those deals coming together for us. So we'll see, we're anticipating a real strong uplift in third quarter.

First in November we were out on the street, making those projects happen. So the revenues up and flowing now we're going to see a real positive impact on that in our third quarter results, you'll see the full impact of those deals coming together for us. So we will see we are anticipating a real strong uplift in third quarter.

Understood. That's helpful. And could you go a little deeper into some of the feedback you've gotten since you've acquired Garvis and started rolling it out to some of the existing customers in your base? It seems like a pretty great product to really accelerate the transition from some of your on-premise customers to the cloud. So just curious of the feedback so far and how you're thinking about using that as a tool for migrations within the existing base.

Understood that's helpful.

Could you go a little deeper into some of the feedback you've gotten since you've acquired garments and started rolling it out to some of the existing customers in your base. It seems like pretty great product and really accelerate the transition from some of your on premise customers to the cloud. So just curious what the feedback so far and how youre thinking about using that as a tool for.

Migrations within the existing base.

It's been phenomenal really, it's on a couple of fronts. Number one, the client reception has been exceptionally strong.

It's been phenomenal really it's.

On a couple of fronts number one the client reception has been exceptional exceptionally strong.

It's been a bit of a relief actually for some of our clients.

It's Ben.

A bit of a relief actually for some of our clients with all the buzz around AI and native AI and generative AI and.

you know, with all the buzz around AI and native AI and generative AI and, you know, we've got CEOs and CFOs that are telling our supply chain teams, yeah, they go out and find us some of that, whatever it is. They don't know what it is, but they got to go find it. And, you know, so our supporters in the client base are saying thank you for helping it make it easy for me because now it's inside the platform that I have today.

Yes, we got Ceos and Cfos that are tell on our supply chain teams year to go out and find us some of that whatever it is they don't know what it is but they've got to go find it and so our supporters in the client base are saying, thank you for helping them make it easy for me because now it's inside the platform that I have today and.

With an upgrade, an expansion, and maybe a lift and shift to the cloud, we can get what we need, what are

With an upgrade and expansion and maybe a lift and shift to the cloud we can get what we what our.

leadership team is asking for and we can bring it to the marketplace. The results have been phenomenal. The results, you know, we're seeing a 20 to 25, 30 percent improvement in forecast accuracy, which

Leadership team is asking for and we can bring it to the marketplace. The results have been phenomenal. The results, we're seeing the 20% to 25%, 30% improvement in forecast accuracy, which.

You know now translates for our clients into millions of dollars of savings

Now translates for our clients into millions of dollars of savings.

So it's been phenomenal and that's in comparison to our prior applications, our competitors' prior applications, Excel spreadsheets, anything in the marketplace we'll stand toe-to-toe with. So the results that our clients are achieving with the system itself has been phenomenal. The generative AI, the ability to have human interaction directly with the application, get insights from the application has been eye-opening, particularly for the executives.

It's been phenomenal and Thats in comparison to our prior applications our competitors prior applications Excel spreadsheets anything in the marketplace, we will stand toe to toe with so the results that our clients are achieving with the.

System itself has been phenomenal.

Degenerative AI the ability to have human interaction directly with the application.

Insights from the application has been eye opening particularly for the executives.

It's fun and exciting for the user community, but for the executives to be able to self-serve and get the kind of insights they need firsthand to make decisions about the direction of the supply chain has absolutely blown them away. We've got...

It's fun and exciting for the user community, but for the executives to be able to self serve and get the kind of insights they need.

First hand to make decisions about the direction of the supply chain is absolutely blown them away we've got.

We've got an executive leadership team that's come together, just really wanting to help us. They want to adopt and they want to help us drive the executives out there and it was a universal hand raising, you know, who wants to help us continue to proliferate this capability across the platform. It was just wildly exciting at the executive level. That's not at the user level. And as I mentioned in my earlier comment.

We've got an executive leadership team that's come together, just really wanted to help us they want to adopt and they want to help us drive the executives out there and who is a universal hand, raising who wants to help us continue to proliferate. This capability across the platform just wildly exciting at the executive level, that's not at the user level.

<unk>.

And as I mentioned in my earlier comments.

You know, we, we didn't have a lot of runway from the time we signed that contract and started to on board and we ended up with a dozen contract signed during the, during the quarter in less than a quarter, it was less than half of the quarter that we had available to us.

We didn't have a lot of runway from the time, we signed that contract as it started to onboard and we ended up with a dozen contract signed during the during the quarter.

In less than a quarter it was less than half of the quarter that we had available to us. So that was very exciting. So the reception in the marketplace has been strong and even the interest in <unk> and.

So that was very exciting. So the reception in the marketplace has been strong, and even the interest in the conversions. We got one nailed down already of an upgrade, and we've got many more lift and shift opportunities on the forefront for that application, just really stimulating that demand. If you can get a 20% forecasted error improvement, that pays for itself as far as the lift and shift goes. And lift and shift is.

And the conversions, we got one nail down already.

And on upgrade and we've got many more lift and shift opportunities on the forefront for that application just really stimulating that demand. If you can get a 20% forecast error improvement.

That pays for itself and as far as lift and shift goes and lift and shift is.

It's a little bit pricey, but it's value oriented now, so it's going to really accelerate that.

There is a little bit pricey, but its value oriented now so it's going to it's going to really accelerate that so probably a much longer answer than you expected maybe on that question, but thank you for the question. It was a good one.

I always appreciate it, Alan, and all the incremental color there, and just

Okay.

Always appreciate it Alan and all the incremental color there and just.

Yes.

Two more clarifying questions Vince when it comes to the guidance I think you said $15 million was assumed at the start of the year is that just related to the proven method or is that also to your most recent divestiture as well.

That actually was just the program method, so there was an additional May and May and a half.

That actually it was just a proven method. So there was an additional million dollars of half.

Got it and Thats helpful.

Got it. That's helpful. And then final question for me is obviously Garvis is a slight drag on margins here for the next couple of quarters, but just the remaining business, what's really the right way to think about just what the gross margin profile and the potential adjust the margin profile should be for your remaining business now?

Got it got it that's helpful. And then final question for me is obviously <unk> is a slight drag on margins here for the next couple of quarters, but.

Just the remaining business.

What's really the right way to think about just what the gross margin profile and the potential adjusted EBITDA margin profile should be for your remaining business now.

From a gross margin point of view, we do see incremental improvement in the subscription fees, but the overall gross margin has been hit by the decline in the services gross margin, but that should mitigate after, you know, in the back half of the year, we start to see that improve a little bit. And then with subscription margins improving a little bit, too, we should start to see a tick up on the overall gross margin, which means that should translate into adjusted EBITDA, Operating EBITDA.

From a gross margin point of view, we do see incremental improvement in the subscription fees, but.

Overall gross margin has been hit by the decline in the.

Services gross margin, but that should mitigate.

And then back half of the year, we'll start to see that improve a little bit.

And then with subscription margins, improving a little bit too if we should start to see a tick up on the overall gross margin, which means that should translate into.

Adjusted EBITDA.

Operating EBITDA of.

going from 15, right now it's about 14, 15, going up to 16, 17, 18, somewhere around there.

Going from 15, right now is about $14 15 going up to 16, 17 18 somewhere around there.

By the end of the year.

Got it. That's helpful. Well, thanks again for taking my questions, and best of luck with the rest of the quarter. Thank you, Zach. Have a good evening.

Got it that's helpful. Thanks, again for taking my questions and best of luck with the rest of the quarter.

Thank you Zach have a good evening.

Okay.

Yes.

Our next question will come from Anja Soderstrom.

Thank you for taking my question. So you know that you were very busy towards the end of the second quarter. How I have that time in the third quarter so far.

Alright, Thank you for taking my questions.

This is towards the end of the second quarter how has that.

10.

In the third quarter so far.

Well, we're pretty early in the third quarter, given that we've only got 15 days in so far, but we've got some progress already. We had a little bit of spillover from the second quarter into the third quarter already. It's a nice quarter. We actually, this is traditionally our strongest quarter on you.

Well, we're pretty early in the third quarter given that we've only got 15 days in so far but we've got some progress already we had a little bit of spillover from the second quarter into the third quarter already.

It's a nice quarter, we actually.

This is traditionally our strongest quarter on you.

We have essentially three closing events, milestones.

We have.

Essentially three closing events milestones we have.

We have the end of the calendar year where budget money is available, so people are scrambling right now if they want to get projects kicked off.

We have the end of the calendar year, where budget monies available. So people are scrambling right now if they want to get projects kicked off we have new money available coming into fiscal year, new fiscal year lining up with the calendar year. So early January and then we have the.

We have new money available coming in the fiscal new fiscal year lining up with a calendar year so early January and then we have the

The unnatural thing that the software companies have always done is that you always get business contracts signed at the end of a fiscal quarter. So that comes at the end of January for us. So that's always resulted in a strong third quarter for us. Almost every year, if you go back for 20 years that Vince and I have been kicking around here, we see the normal trend. It's not every year, but the majority of the year is third quarter is the best.

The unnatural thing that the software companies have always done is it.

You always get business contracts signed at the end of fiscal quarter. So that comes at the end of January for Us So thats.

Always resulted in a strong third quarter for us.

Almost every year. If you go back for 20 years that Vince and I have been kicking around here, we see that.

The normal trend, it's not every year, but the majority of the year as third quarter is the best and.

And so we're seeing some of that going on right now. We're seeing those projects get going. And we had quite a bit that spilled over from the quarter that we thought might have been closable in second quarter that spilled into third. And we've just seen an uptick in overall pipeline. From two aspects, one, the garbage acquisition we think has had a, we know. We have the measures for it. And so we're seeing some of that going on right now.

So we're seeing some of that going on right now, we're seeing those projects get going and.

We had we added we added quite a bit that spilled over from the quarter that we thought might have been closed in second quarter that spilled into third.

And we've seen an uptick in overall pipeline.

From two aspects one the Garbus acquisition, we think is that we know we have the measures Florida.

a pretty healthy impact on our overall pipeline and then just the new year start. So, we're up double-digit growth in our pipeline over where we were a quarter ago and probably a 20% plus increase over where we were last year at this time in overall pipelines. So, it's a pretty healthy environment we're sitting in, but now we just need the economy to shore up, strengthen up, and people willing to put money on the table and we'll get these projects rolling. Thank you very much.

Pretty healthy impact on our overall pipeline and then just the the new year start so we're up.

Double digit growth in our pipeline over where we were a quarter ago and probably.

20% plus increase over where we were last year at this time.

Overall pipeline, so it's a pretty healthy environment, we're sitting in.

Now, we just need we need the economy to shore up strengthen up and people willing to put money on the table and we will get these projects rolling.

Okay. Thank you that was all for me.

Alright, thank you so much. Have a good evening. Our next question will come from Matthew Galinko.

Alright. Thank you so much have a good evening.

Our next question will come from Matthew can leeco.

Hi, Thanks for taking my questions.

Given the the acquisition you announced this quarter and some of the investment in repurchases, can you just maybe revisit your thinking about capital allocation, particularly through the balance of the year is the M&A still.

Given the.

The acquisition, you announced this quarter and some of the investment and repurchases can you just maybe revisit youre thinking about capital allocation, particularly through the balance of the year is M&A still.

something you're thinking about or our buybacks kind of the priority for the foreseeable future.

Something youre thinking about or our buyback as kind of a priority for the foreseeable future.

Well, for the rest of the calendar year, we're going to run out of runway pretty quickly. We're allowing the buyback plan to continue at the current pace.

Well for the rest of the calendar year, we're going to run out of runway pretty quickly we're going to we're allowing the.

Buy back plan to continue.

At the current pace.

one who could project that by Christmas we'll have exhausted the current authorization. So we're going to let that one play out for sure.

One we could projected by Christmas will have exhausted the current authorization. So we're going to let that one play out for sure.

It was so close to the finish line on that. We couldn't take an action on it anyway until late next week. So that one will play out. We are still in the market for acquisitions, but we got quite consumed with the three transactions we had going on in the past quarter. So we haven't advanced anything that would be an immediate move.

There were so close to the finish line on that.

Couldnt taken action on in any way until late next week, so that one will play out.

We are still in the market for acquisitions, but we got quite consumed with let's say the three transactions, we had going on in the past quarter. So we havent advanced anything that would be an immediate move.

but we have some things in the works that we think are interesting, very early stage evaluations, so we haven't given up on acquisitions yet.

But we have some things in the works that we think are interesting very early stage evaluations. So we haven't we haven't given up on acquisitions yet.

But given the timeline to complete one, I wouldn't anticipate anything until the spring.

But given the timeline to complete one.

Anticipate anything until the spring.

So we're talking four months, five months, you know, now looking forward before we would get to completion on that.

So we're talking four months five months now.

Looking forward before we would get to a completion on that and.

And then as far as the rest of the capital allocation, the dividend at this point, we've taken no action on that. We'll continue with that. We have had a recent discussion that at some point we should put that back on the table and talk about it, but right now, conscious decision was to leave it at place as it is.

And then as far as the rest of the capital allocation the dividend at this point, we've taken no action on that we'll continue with that.

We have had a recent discussion that at some point, we should put that back on the table and talk about it but right now.

Conscious decision was to leave it in place as it is.

So that kind of recaps the whole capital allocation. Finish out what we got going on, continue as is with the dividend, and continue to search for nice acquisitions, tuck-in acquisitions that we could make sometime in the next six months probably.

So that kind of a recap the whole capital allocation finish out what we got going on continue.

Continue as is with the dividend and continue to search for.

Nice nice acquisitions tuck in acquisitions that we could make some time in the next six months probably.

All right, thank you. And my follow up is just want to understand your assumptions in building full year recurring guidance just.

Alright, Thank you and my follow up.

Okay.

I want to understand your assumptions.

Building full year recurring guidance.

um, given, you know, the activity through the first half of the year and particularly activity you're seeing late in the second quarter and some of the traction you're seeing with the acquired assets, how do you think about constructing that, that's for your recurring.

Given the activity through the first half of the year and particularly activity Youre seeing late in the second quarter.

And some of the traction youre seeing with the acquired assets how do you think about constructing that.

Full year recurring.

Yeah, Matthew, this has been, so I think the real issue was the fact that we had soft bit bookings in the beginning of the year, so that even though we're seeing a strong pick up in the bookings in the back after year, you don't get to take as much of the revenue, so that's why we're adjusting the recurring revenue to be a little bit more on the conservative side.

Okay.

Yes, Matthew this is Vince I think the real issue was the fact that we had soft bookings in the beginning of the year so that.

Even though we're seeing a strong pickup in the bookings in the back half of the year you don't get to take as much of the revenue. So that's why we are.

<unk> the recurring revenue to that to be a little bit more on the conservative side.

Yeah, sure. No, I understand that that component, but so I guess the other way of saying is that you have a very, you have similar activity in the end of.

Yes, sure no I understand.

That that component, but.

I guess the other way of saying is that you have a very.

You have similar activity in the end of.

that you had at the end of this pass quarter, recurse through, you know, the next quarter, quarter and a half, or, you know, is that the place, you know, we'd be in upside territory or just trying to understand what the, what the range, you know, what, what scenarios get you to the, you know, above the range or something along those.

That you had at the end of this past quarter recur through the next quarter quarter and a half.

Is that.

Place we'd be.

Be an upside territory or just trying to understand what the what.

What's the range.

What scenarios could you to the.

Above the range or.

Yes, something along those lines, yes, if we have the bookings earlier than we anticipated then yes, we could have some upside on the range absolutely. We're just trying to be conservative because.

Yeah, if we have the bookings earlier than we anticipate, then yes, we could have some upside on the range. Absolutely. We're just trying to be conservative because as we indicated, a lot of the bookings came at the last week of this quarter.

As we indicated a lot of the bookings came at the last week of this quarter. So if that happens next quarter, we won't be able to take any of the revenue for those deals in the third quarter.

So if that happens next quarter, we won't be able to take any of the revenue for those deals in the third quarter.

The fourth quarter bookings almost have no impact regardless of when you get them get them early or get them late They are they don't have much impact. Yeah, and of course fourth quarter has Less billing days than it anyways that has a nominal impact, but

The fourth quarter bookings almost have no impact.

Regardless of when you get them and them earlier get them late they are they don't have much impact.

And of course fourth quarter has.

Less billing days in it anyway, so that has a nominal impact but.

Alright, thank you.

Thank you.

And at this time, there are no further questions in the queue.

And at this time there are no further questions in the queue.

All right. Well, thank you all for participating today. We appreciate the time and joining us this evening for our earnings call. And Chelsea, thank you for hosting for us. You all have a good evening and we'll talk to you again soon.

Alright, well. Thank you all for participating today, we appreciate the time and joining US this evening for our earnings call in Chelsea. Thank you for hosting for US you all have a good evening and we'll talk again soon.

Sure.

Thank you ladies and gentlemen. This concludes today's program and we appreciate your participation. You may disconnect at any time.

Thank you ladies and gentlemen, this concludes today's program and we appreciate your participation.

You may disconnect at any time.

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