Q3 2024 American Software Inc Earnings Call

Operator: www.americansoftware.com Please stand by; your program is about to begin. If you need assistance on today's call, please press star zero. Hello, and welcome to the third quarter fiscal year 2024 earnings results conference. At this time, all parties are in a listen-only mode. Later, you will have an opportunity to ask questions. To ask a question, press star and 1 on your phone keypad.

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[music].

Hello, and welcome to the third quarter of fiscal year 2024 earnings results conference. At this time all parties are in a listen only mode. Later, you will have an opportunity to ask questions to ask a question press star and one on your phone keypad again that is star one if you would like to ask a question to remove yourself from the queue Press Star too. Please note that this call.

Operator: Again, that is star 1 if you would like to ask a question. To remove yourself from the queue, press star 2. Please note that this call is being recorded, and I will be standing by should you need anything. I would now like to turn the conference over to Vince Klinges, CFO of American Software.

Is being recorded and I won't be standing by should you need anything I would now like to turn the conference over to Vince Clink as CFO of American software. Please begin.

Thank you and good afternoon, everyone and welcome to American software is third quarter of fiscal 2024, earning call with me on the call is Allendale, President and CEO of American software.

Vincent C. Klinges: Thank you. Good afternoon, everyone, and welcome to American Software's third quarter fiscal 2024 earnings call. With me on the call is Alan Dow, president and CEO of American Software. Alan will provide some opening remarks, and then I will review the numbers. But first, our safe harbor statement.

<unk> will provide some opening remarks and then it will review the numbers, but first our safe Harbor statement.

Vincent C. Klinges: This conference call may contain forward-looking statements, including statements regarding, among other things, our business strategy and growth strategy. However, 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 such forward-looking statement. There are a number of factors that could cause actual results to differ materially from those anticipated by statements made on this call.

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 our subject to a number of risks and uncertainties, some of which cannot be predicted or quantified or <unk>.

And our control the future developments in actual results could differ materially from those set forth in contemplated by or underlying the forward looking statements.

There are a number of risks.

Factors that could cause the actual results to differ materially from those anticipated by statements made on this call. Such factors include but are not limited to changes and uncertainty in general economic conditions the growth rate of the market for our products and services.

Vincent C. Klinges: 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, and the timely availability and market acceptance of these products and services. The effective 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.

The timely availability and market acceptance of these products and services, the effective 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'd like to turn the call over to Alan for opening remarks.

Alan Dow: At this time, I'd like to turn the call over to Alan for opening remarks. Thank you, Vince. Good afternoon, everyone, and thank you for joining us today.

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

Alan Dow: Our third quarter was one of the busiest periods we've seen in the last year and a half, particularly as we entered into the new calendar year. Our clients and prospects are re-engaging on transformational supply chain initiatives that have been in the works for some time, and while we continue to experience some delays in the larger deals, the demand environment appears to be improving. Against this backdrop, our third quarter results were in line with our expectations, and we remain on track to deliver the fiscal year 2024 guidance we provided last quarter. Before I review the third quarter results in more detail, I'd like to provide an update on the integration of Garvis, which we've rebranded as Demand AI Plus, and represents the next generation demand intelligence platform.

Our third quarter was one of the busiest periods, we've seen in the last year and a half, particularly as we entered into the new calendar year.

Our clients and prospects or read engaging and transformational supply chain initiatives that have been in the works for some time and while we continue to experience some delays in the larger deals the demand environment appears to be improving.

Against the back this backdrop, our third quarter results were in line with our expectations and we remain on track to deliver the fiscal year 2024 guidance, we provided last quarter.

Before reviewed the third quarter results in more detail I would like to provide an update on the integration of Garbus, which we've rebranded as demand AI plus and represents the next generation demand intelligence platform or.

Alan Dow: Our teams have been fully integrated, and we're actively collaborating on both sales opportunities and our product roadmap. From a go-to-market perspective, we've continued to leverage pilots to gain access to new strategic accounts. However, the primary emphasis with both new prospects and our existing client community is to drive towards the rapid deployment of Demand AI Plus into full production use as quickly as possible.

Our teams have been fully integrated and we're actively collaborating on both sales opportunities and our product roadmap.

From a go to market perspective, we've continued to leverage pilots to gain access to new strategic accounts. However, the primary emphasis with both new prospects and our existing client community is to drive towards rapid deployment of demand AI plus into full production use as quickly as possible.

Alan Dow: We expect to close several longer-term engagements in the fourth quarter, which resulted from winding down the previous pilot engagements and converting them to long-term contracts with broader production deployment. In addition, our pipeline of lifts and shifts has increased dramatically as we continue to drive awareness of our AI-native demand forecasting capabilities and the first production-worthy use of generative AI capabilities to streamline decision-making for supply chain planning across our client community. In fact, we've already seen some existing agility accounts at.DemandAI+. Juan is a rapid-growing U.S.-based coffee brand with a highly-promoted product line.

We expect to close several longer term engagements in the fourth quarter, which resulted from winding down the previous pilot engagements and converting them to long term contracts with broader production deployments and.

In addition, our pipeline of lifting shifts has increased dramatically as we continued to drive awareness of our native demand forecasting capabilities and the first production worthy use of generative AI capabilities to streamline decision, making for supply chain planning it crossed our client community and.

In fact, we've already seen some existing agility accounts of dot demand AI plus.

One is a rapid growing U S based coffee brand with a highly promoted product line.

Alan Dow: The DAI Plus solution will help them better manage the spikes in demand they often experience and determine the most cost-effective promotions to profitably grow their company. We are encouraged by this early success and believe that Demand AI Plus will play a critical role in the migration of our existing clients to the cloud in the coming years. Turning back to our third quarter results, we're pleased to see another sequential uptick in our backlog as our clients and prospects began to reengage on previously stalled initiatives. Our revenues largely tracked our internal expectations, but we note that the declines in our maintenance and service revenues, respectively, were exacerbated by the divestiture of our transportation group and the lower utilization during the holiday period. From a profit standpoint, our adjusted EBITDA margin held steady on a sequential basis despite the inclusion of Garvis' expenses for the full quarter and some additions to our product development.

Plus solution will help them better manage the spikes in demand they often experience and determined the most cost effective promotions to profitably grow their company.

We are encouraged by this early success and believe that demand AI plus will play a critical role in the migration of our existing clients to the cloud in the coming years.

Turning back to our third quarter results were pleased to see another sequential uptick in our backlog as our clients and prospects began to reengage on previously.

Initiatives.

Our revenues largely tracked our internal expectations, but we note that the declines in our maintenance and service revenues, respectively were exacerbated by the divestiture of our transportation group and the lower utilization during the holiday periods.

From a profit standpoint, our adjusted EBITDA margin held steady on a sequential basis. Despite the inclusion of Garbus as expenses.

For the full quarter and some additions to our product development team.

Alan Dow: Overall, we continue to see signs of improvement in the demand environment. We have a robust pipeline for entering Q4, leaving us poised for a strong finish to our fiscal year. Our guidance for fiscal 2024 remains unchanged, and we continue to expect to see recurring revenue between $85 million and $88 million, adjusted EBITDA between $14.5 and $16 million, and total revenue between $100 million and $104 million. Given our performance to date, though, we anticipate reaching at least the midpoint on these respective guidance ranges. Finally, I want to provide an update on other initiatives that have been discussed previously. We bought back over $5 million in stock during the third quarter and have now repurchased all of the shares remaining under our prior authorization. Yesterday, we announced that our co-founder, executive chairman, and treasurer, Jim Edenfield, retired from the board, as well as his role as the company's treasurer.

Overall, we continue to see signs of improvement in the demand environment, we have a robust pipeline for entering queue for leaving us poised for a strong finish to our fiscal year.

Our guidance for fiscal 2024 remains unchanged and we continue to expect to see recurring revenue between $85 million and $88 million adjusted EBITDA between 14, and a half and $16 million in total revenue between $100 million to $104 million.

Given our performance to date, though we anticipate reaching at least the mid point on these respective guidance ranges.

Finally, I want to provide an update on other initiatives that have been discussed previously.

We bought back over $5 million in stock during the third quarter and have now repurchased all of the shares remaining under our prior authorization.

Yesterday, we announced that are cofounder executive chairman and Treasurer, Jim Edenfield retired from the board as well as his role as the company's treasurer.

Alan Dow: After over 50 years of leadership for the company, Jim was not only a steadfast leader for our company, which we'll be forever grateful, but he was also a visionary for our industry as a whole. We appreciate Jim's willingness to continue as an advisor to our board and to me. Jim Miller, who has been our board member since 2002, accepted the role as chairman and, along with other board members, will guide us through the strategic initiatives we had previously laid out. Furthermore, in regards to our dual-class structure, we remain engaged with our Class B shareholder to consider various options. Jim's retirement has no impact on the previously announced time frame for that work.

After over 50 years of leadership for the company.

Jim.

It was not only a steadfast leader of our company.

Which will be forever grateful, but he was also a visionary for our industry as a whole. We appreciate gyms willingness to continue as an advisor to our board and to me.

Jim Miller, who has been our board member since 2000 22002.

Accepted the role as chairman and along with other board members will guide us through its strategic initiatives, we had previously laid out.

Furthermore, in regards to our do class structure, we remain engaged with our class b shareholder to consider various options gyms retirement has no impact on the previously announced timeframe for that work.

Vincent C. Klinges: At this time, I'll turn the call over to Vince, who will provide details of our financial results. Thanks, Alan. Before I discuss our results in more detail, I want to remind everyone that due to the divestiture in the second quarter of our IT Staffing Business Unit, the Proven Method, our financial statements have been re-cast to show the Proven Method as a discontinuing operation. So, our discussion of the current and comparable periods will focus only on the continuing operations from this point on. The total revenues for the third quarter came in at $25.5 million, a decrease of 7% from $27.4 million in the same period last year, and that was primarily due to lower revenues from professional services and maintenance. Our subscription fees increased 9% year-over-year to $14.1 million from $13 million in the same period last year.

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

Thanks, Thanks, Alan before I discuss our results in more detail I.

I want to remind everyone that due to the divestiture in the second quarter of our staffing business unit. The proven method our financial statements have been ranked cast to show with a proven method is discontinuing operations.

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

The total revenues for the third quarter came in at $25 $5 million, a decrease of 7% from 2007 $4 million. The same period last year, and it's primarily due to lower revenues from professional services and maintenance or subscription fees increased 9% year over year to $14 $1 million from $13 million in the same period last year.

Our software license revenue was three and that compares to a million dollars.

Vincent C. Klinges: Our software license revenue was $0.3, and that compares to $1 million in the prior year period. Our professional services and other revenues decreased 28% to $3.4 million from $4.8 million in the same period a year ago, and that's reflecting lower utilization during our holiday period and our decision to offload more services to our SI partners. Our maintenance revenues declined 11% year-over-year to $7.7 million, reflecting the normal fall-off rate for the quarter, as well as the divestiture of our transportation group, which reduced our maintenance revenues by approximately $250,000 for the quarter.

$1 million in the prior year period are professional services and other revenues decreased 28% to $3.4 million from $4 eight main Saint period, a year ago, and that's reflecting lower utilization during the holiday period in our decision to off load more services to Rsi partners.

Our maintenance revenues declined 11%.

Year over year $277 million, reflecting the normal falloff right.

For the quarter as well as divestiture of our transportation group, which reduce our maintenance revenues by approximately $250000 for the quarter.

Vincent C. Klinges: Our total recurring revenues, comprised of both subscription and maintenance fees, represented 86% of our total revenues for the third quarter, and that's up from 79% in the same period last year. Our gross margin was 64% for the current period, compared to 66% in the same period last year. Our subscription fee margin was 65% in the current period compared to 69% in the same period last year. But if you exclude the non-cash amortization of a tangible expense of $1.1 million, our subscription gross margin was 72% in both the current and prior year periods. The amortization of a tangible expense was $425,000 in the same period last year.

Total recurring revenues comprised of both subscription and maintenance fees represented 86% of our total revenues for the third quarter and that's up from 79% in the same period last year.

Gross margin was 64% for the current period compared to 66% in the same period last year.

Our subscription fee margin was 65% in the current period compared to 69% in the same period last year, but if you exclude the non-cash amortization of tangible expensive one $1 million or subscription gross margin was 72% in both the current and prior year period, the amortization of intangible expense was 425.

In the same period last year.

Vincent C. Klinges: The license fee margin was 80% compared to 65% in the same period last year. However, our gross margins for services decreased to 21% from 26% last year due to lower revenues, primarily from a dramatically quieter holiday period. Our maintenance margin was 81% for both the current and prior year period. Our gross R&D expenses were 18% of total revenues for the current period, and that compares to 16% in the same period last year, as we filled open rolls during the quarter and had a full quarter of expenses from our acquisition of Garvis. Our sales and marketing expenses were 20% of revenues for the current period, and that compares to 18% in the same period last year. Our G&A expenses were 23% of total revenues for the current quarter, and that compares to 21% last year. On a gap basis, our operating income was $0.8 million for this quarter, compared to $2.7 million for the same period last year, primarily due to lower revenues and also costs related to the Garbis Act.

Licensee margin was 80% compared to 65% in the same period last year.

Our gross margins for services decrease too.

21% from 26% last year due to lower lower revenues, primarily from a dramatically acquired quieter holiday period. This year.

Our maintenance margin was 81% for both the current and prior year period or gross R&D expenses were 18% of total revenues for the current period and that compares to 16% in the same period last year as we filled open roles during the quarter and had a full quarter of expenses from our acquisition of Garver's.

Our sales and marketing expenses were 20% of revenues for the current period that compares to 18% in the same period last year.

G&A expenses were 23% of total revenues for the current quarter and that compares to 21% last year.

On a gap basis are operating income was point $8 million for this quarter compares a 2.7 in the same period last year, primarily due to lower revenues and also the costs related to the golf Garbus acquisition.

Vincent C. Klinges: Our net income was $4.1 million, and our earnings per diluted share of $0.12 compared to net income of $3.2 or $0.09 per diluted share, including a net income gain of $1.4 million related to the sale of our transportation. On an adjusted basis, which excludes non-cash amortization of intangible expenses related to acquisitions and stock-based compensation expense, our adjusted operating expenses were $3.6 million, and that compares to $4.3 million for Our adjusted EBITDA was $4 million, and that compares to $4.8 million in the same period last year. An adjusted net income of $6.4 million, or adjusted earnings for looted share of $0.19 for the third quarter, and that compares to adjusted net income of $4.4 or $0.13 in the same period last year.

<unk> net income was $4 $1 million or earnings diluted share of 12 compared to net income of 3.2 or nine per diluted share, including a net income gain of one point.

4 million related to the sale of our transportation group.

On an adjusted basis, which excludes non-cash amortization of intangible expenses related to acquisitions and stock based compensation expense are adjusted operating expenses.

Was $3.6 million in that compares to $4.3 million Saint period last year, our adjusted EBITDA was $4 million and that compares to four eight Saint period last year, and adjusted net income of $6 $4 million or adjusted earnings diluted share of 19 for the third quarter and that compares to adjusted net income of four.

Four or 13th in the same period last year.

Vincent C. Klinges: Looking at international revenues, this quarter was approximately 22% of revenues, that's up from 20% last year. Our remaining performance obligation, we exited the quarter with RPO, or what we call our backlog, of $119 million. Looking at our balance sheet, our financial position remains strong with total and cash investments of $78.2 million at the end of the quarter. During the quarter, we paid $3.8 million in dividends and repurchased over a half million shares at a total cost of $5.4 million.

Looking at International revenues. This quarter was approximately 22% of revenues that compare adds up from 20% last year.

Remaining performance obligation, we exited the quarter with Arpaio or what we call is backlog of $119 million.

Looking at our balance sheet, our financial position remains strong with total in cash investments of $78 $2 million at the end of the quarter.

During the quarter, we paid $3 8 million of dividends and repurchased over a half million shares at a total cost of five $4 million.

Vincent C. Klinges: Our day sales outstanding at the end of January 31st, 2024 was 86 days, and that is down from 101 days in the same period last year. Turning to the 2024 outlook, our guidance remains, as Alan said, our guidance remains unchanged and reflects only our continuing operation, and we believe we will achieve the midpoint of these ranges is the most likely scenario given our year-to-date performance. So we anticipate revenues in the range of $100 to $104 million, including recurring revenue of $85 to $88 million, and adjusted EBITDA of $14.5 to $16 million. At this time, I'd like to turn the call over to any questions. If you'd like to ask a question, press star 1 on your phone keypad. It is star 1 if you'd like to ask a question. To remove yourself from the queue, press star 2, www.americansoftware.com. And our first question comes from Willow Miller. Hi, I'm Willa Miller. I'm from Matt Pfau.

Our days sales outstanding at the end of January 31, 2024 was 86 days and that is down from 101 days the same period last year.

Turning to the.

2024 outlook or guidance remains as Allen said, our guidance remains unchanged and reflects only are continuing operation and we believe we will achieve the midpoint of these ranges is the most likely scenario given our year to date performance.

So we anticipate revenues in the range of $100 million to $104 million, including recurring revenue in 85% to $88 million and adjusted EBITDA, We anticipate and arrange a 14.5% to $16 million.

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

Okay.

If you'd like to ask a question press star one on your phone keypad is star one if you'd like to ask a question to remove yourself from the queue Press star too.

And our first question comes from Willow Miller.

Hi, Angela <unk>, thanks for taking our questions. So starting off how are sales cycles dear today, it sounds like they're improving on similar to last quarter and are there any changes on how customers are thinking about budget check 20th 24.

Willow Miller: Thanks for taking our questions. So starting off, how are sales cycles here to date? It sounds like they're improving, similar to last quarter. And are there any changes in how customers are thinking about budgets for 2024? Willow, thank you for joining us and for asking the questions.

Well, thank you for joining us and thank you for the questions.

Sales cycles are still <unk>.

Alan Dow: The sales cycles are still extended beyond where they were in years past. It's really the scrutiny on budgets and whatnot, but we are seeing them start to break loose now, so big as we move forward. You know, the time has already passed on many of those projects, and we're trying to get them up and running now, but as we're anticipating with the energy in the market right now, that as we get into later in the spring and into the summer, we'll have seen those sales cycles start to close up In regards to the budget, very encouraging. There is much more activity going on this time of year than we were coming into the holiday season, say six months ago. Things have really picked up, and we're quite excited about the growth in our pipeline that we're seeing now as a result of that, so a really positive trend for the future. Gotcha, that's helpful. And just one last question.

Extended beyond.

Beyond where they were in.

Years passed.

It's really the scrutiny on budgets and whatnot, but we are seeing them start to break loose now so big as we move forward. The time has already passed on many of those projects and we're trying to get them up and running now but.

As we're anticipating with the energy and the market right now that as we get into the later in the spring and into the summer that will have seen those seals cycle start to close up now because people are moving a little bit more quickly.

Regards to budget very encouraging.

Much more activity going on this time period than we were coming.

Coming into the holiday season say six months ago.

Things have really picked up and we're quite excited about the growth in our pipeline that we're seeing now as a result of that so.

Really positive trend for the future.

Gotcha, that's helpful and just one last question. So early next month, you will need a press release about adding July capability, which already so just wanted to know what the goal is here to stay competitive keep up to date with technology or is it to monetize that longer time.

Alan Dow: So earlier this month, you released a press release about adding Gen-I capabilities to Ligility. So just wanted to know what the goal is here. Is it to stay competitive and keep up to date with technology, or is it to monetize it longer term if there's enough value added to customers? It's a tremendous value add, actually. And it's a leapfrog.

Parents value added to customers.

Tremendous value add actually and it's a leapfrog we were first to market with production ready capabilities around generative AI.

Alan Dow: We were first to market with production-ready capabilities around generative AI. That generative AI, many of us are familiar with when we talk to our phone or maybe talk to our car, get directions, and that sort of thing; it's a similar technology. We're applying it specifically to supply chain planning.

Generative AI with many of us are familiar when we.

Talk to our phone or maybe talk to our car and get directions and that sort of thing. It's a similar technology, we're applying it specifically to the supply chain planning.

Alan Dow: At its beginning stages, at its lowest level, what generative AI brings is more insights more quickly to a broader community, so the ability to make decisions faster comes as a result of it. Some of the same information you could get by pounding on the keyboard, you can get through the same method, but it's much more intuitive, much easier, and it opens up the insights that are possible through our system to a much broader audience. So it's more inclusive around the decision-making and strategic decisions that need to be made around the applications. We look at generative AI in four phases.

Edits.

It's beginning stages at its lowest level.

Generative AI brings us more insights more quickly to a broader community. So the ability to make decisions faster come as a result of it some of the same information you could get by.

Pounding on the keyboard you can get through the same method, but it is much more intuitive much easier and it opens up the insights that are are capable through our system to a much broader audience. So it's more inclusive around the decision, making strategic decisions that need to be made around the the applications. We look at generative AI in four phases.

Alan Dow: The first phase is insights, and that's kind of the phase we're in now, where people are really starting to get their arms around it. Phase two will be directed activity, and we're starting to introduce that into the platform today. Directed activity helps now when a user can issue a command or request an action.

The first phase is insights and that's going to those things were in now.

Where people are really starting to get their arms around it phase two will be directed activity, we're starting to introduce that into the platform. Today directed activity helps now it where a user can issue a command or request inaction.

Alan Dow: After that, we move to more autonomous capabilities. We have autonomous capabilities today, but they are directed through generative AI capabilities and ultimately really starting to automate many more things through user interaction. And so that would be stage four. Stage one is available today. Stage two is coming to the marketplace, and really starting to come into play, and stage three and four are a little horizon-oriented. So it will be breakthrough technology that will radically change the way people use supply chain planning applications. Yeah, that's a helpful color.

After that we move to more autonomous capabilities, we have autonomy capabilities today, but directed through the generative AI capabilities and ultimately really starting to automate many more things through user interaction and so that'd be stage four.

Stage, one is available today stage two is coming to the marketplace really starting to come into play in stage, three and four little horizon oriented. So it will be breakthrough technology that will radically change the way people use supply chain planning applications.

Gotcha, that's helpful color. Thanks for taking my questions.

Matthew Pfau: Thanks for taking my question. Thank you. Our next question comes from Matthew Galinko. Hey, congrats on the quarter and thanks for taking my questions. I think you touched on transformational deals beginning to move again. So can you, Ed?

[noise]. Thank you. Our next question comes from Matthew <unk>.

Hey.

Congrats on the corner and thanks for taking my questions.

I think you touched on transformational deals beginning to move again, so can you.

Alan Dow: A little bit more color on, um, just how quickly they're moving along. Um, and what do you expect them to do, you know, any to get across the finish line, uh, in the next, you know, four quarters or so, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and Yeah, I think confidence, Matthew, thank you for the question. First of all, confidence in the economy stabilizing. Every day you wake up, it swings one way or the other, but one way or the other, interest rates are going to go down, then they're going to stabilize, and they're going up. But overall, what we're seeing, what we're hearing people talk about our clients, our prospects talk about, is a stabilization around their business and continued improvement going forward.

Add a little bit more color on.

Just how quickly they're moving along and where do you expect foods too.

I need to get across the finish line.

In the next four quarters or and you know what what do you think specifically.

Contributed to them.

Starting to move again.

Yes, I think confidence Matthew Thank you for the question first of all confidence in the the economy Stabilising.

Every day, you wake up and swings one by one way or the other you know interest rates are going to go down and then they're going to stabilize and they are going up but.

Overall, what we're seeing what we're hearing people talk about our clients or prospects talk about is a stabilization around their business and continued improvement going forward.

Alan Dow: So their willingness to commit to a bigger investment, willing to put more resources at the table to accomplish more is really what's stimulating the need for a transformational project that hasn't changed. But their nervousness about the kind of investment it takes to call to really tackle something like that. They were very anxious about that. So they the pace had slowed.

So their willingness to commit to a bigger.

Bigger investment.

Willing to put more resources at the table to accomplish more is really what stimulating the need for a transformational project hasn't changed but their nervousness about.

The kind of investment it takes to to to really tackle something like that.

They were very anxious about that so the pace had slowed so yes, we are seeing an uptick we see more of those those projects coming into the pipeline and over the next four quarters, certainly we anticipate that they will come to fruition and we'll get started on those projects start implementing them and.

Alan Dow: So yes, we're seeing an uptick; we see more of those projects coming into the pipeline. And over the next four quarters, certainly, we anticipate that they'll come to fruition, and we'll get started on those projects, start implementing them, and get more and more of that activity going. So nice add-ons, nice lift and shift capability, nice, you know, several capabilities projects going on, but then these transformational ones kicking in will help us in the long term as well. Thank you. And in the follow-up, you just mentioned lift and shift, and I think you said that it accelerated.

And get more and more of that activity going so.

Nice add ons, nice lift and shift capability nice.

Several capabilities projects going on but then these transformational ones kicking and will help us in the long term as well.

Thank you and <unk> follow up that you just mentioned lift and shift and I think you said that.

It accelerated.

Alan Dow: Again, you know, is that partially just confidence in your customers coming back, or is there some element of your new AI approach and sort of cloud native app that is opening more opportunities to shift legacy to kind of premise to cloud, and, you know, just maybe talk a little bit about that. Yeah, there's really three things that are driving it right now.

Again that isn't that partially just confidence in your customers coming back in or is there some element of your.

I approach and.

Sort of cloud native.

That you know.

Opening more opportunities to.

To shift legacy to kind of premise to cloud.

Just maybe talk a little bit about that.

Yeah.

There's really three things that are driving it right now.

Alan Dow: The predominance of it is the new capabilities we brought to the market, including DAI+ and Demand AI+, which bring new capabilities that are only available in the cloud. So that's been an incentive for more and more clients to look at that and say it's time. So that's probably representing half of that growth, just the new capabilities that are available, the Ingenerative AI capabilities only available in the cloud. Out of the remaining 50%, another 25% is the budget that we just talked about. People now have the – they wanted to move, they wanted to get an update, they wanted to get some new technology but now have access to funds, so that's probably helped to stimulate another quarter of the overall pipeline growth. The other quarter is coming from the continued exposure to risk that our clients have in housing their own applications in the data environment. It's quite shocking the number of those incidents that have come about in the marketplace, not necessarily directly against our applications but in their IT data center, which has given them a lot of heartburn.

Predominance of it is the new capabilities, we brought to the market, including dji plus demand AI, plus bringing new capabilities that.

There are only available in the clouds, so that's been an incentive.

For more and more clients to look at that and say it's time.

So this is probably representing half of that growth.

Just the new capabilities that are available and generative AI capabilities only available in the cloud.

Out of the remaining 50% another 25% is the budget that we just talked about people now have the they wanted to move they wanted to get an update they wanted to get some new technology, but now have access to funds. So that's probably helped to stimulate another quarter of the overall pipeline grow.

<unk>.

The other quarter is coming from the continued exposure to risk that our clients have in housing their own <unk>.

Applications and the data environment.

Shocking the number of those incidents that have.

Come about in the marketplace not necessarily directly against our applications, but in their data center, which gave him a lot of heartburn.

Alan Dow: And so more and more of that is coming to the table now where clients are basically saying, we need to be out of this business. We need to have professional management, a more robust data center, better administration, and stay up to date, and that's stimulating some of the demand as well. Thank you.

And so so more and more of that is coming to the table now where clients are basically saying we need to be out of this business. We need to have professional management of better robot more robust data center better administration and stay up to date and Thats stimulating some of the demand as well.

Thank you.

[noise]. Thank you. Our next question comes from on your soda from.

Anya Soderstrom: Our next question comes from Anya Soderstrom. Hi, thank you for taking my questions and congratulations on the good progress in the quarter. I'm just curious, with you saying the deals have been starting to lose value, but you say the larger deals are taking longer. How should we think about fiscal 2025 and beyond in terms of that? Should we, could we expect revenue growth to accelerate helped by those larger deals coming through now? Yeah, it's early in that phase now. It's only February, but fiscal 25 for us starts in May and runs out for another 12 after that.

Hi, and thank you for taking my questions and congratulations on <unk>.

I'm, just curious and with that is paying them to.

The gas has been starting to lift off but you said it largely DSO taking longer how should we think about that he's got.

I'm 25, and beyond that comes from that and it should be because they expect their revenue real tech celebrate helped by those details coming to our.

Yeah we're.

It's early in that phase now, it's it's only February but for fiscal twenty-five for US starts in May and runs out for another 12 after that.

Alan Dow: But we're anticipating the same thing for you. We're seeing budgets that are freeing up. We're seeing that people are serious about it. Many clients are on a calendar year, so they are now just getting access to those budgets and kicking off projects in anticipation of launching them and starting spending in calendar year 2024, which would predominantly fall into our fiscal year 2025.

But we're anticipating the same thing on you we are seeing the budgets that are freeing up we're seeing that.

People are serious about it many clients are on a calendar year. So they are now just getting access to those budgets and kicking off the projects in anticipation of of launching them in starting spending in calendar year, 2024, which would predominantly fall into our fiscal year 2025, So we're quite bullish.

Alan Dow: So we're quite bullish about it. We think that the momentum is coming around as we anticipated for the spring and into the summer and are looking forward to a robust year, a very busy year ahead of us. Okay, thank you.

We think that the momentum is coming around as we anticipated for the spring and into the summer and are looking forward to a robust year, a very busy year ahead of us.

Okay. Thank you I I think that's it again AI and you said that will cut out in the fresh faced they're going into the second.

Alan Dow: And in terms of Gen AI, you said that we're kind of in the first phase; they're going into the second out of four phases. Do you think that might be a roadblock in terms of the sales cycle? Your customer wants to wait and see how that turns out before they make any decisions? No, I don't think so. It's such a novel and unique capability that people are clamoring for it. It's a natural progression anyway.

So do you think that might be a <unk>.

This sounds like already a customer wants to wait and see how that turns out before they make any decisions.

No I don't think so it's so it's such a novel and unique capability that people are clamoring for it.

As a natural progression any way what we're seeing in the marketplaces that.

Alan Dow: What we're seeing in the marketplace is that with the excitement, there's a little bit of fear and concern. You know, one of the things we've done very successfully is to put a wrapper around it to give them assurance that, you know, our generative AI within our application is not going to be out surfing the worldwide web and coming up with risky factors around that sort of thing or or exposing their data in any way to the outside world. So we've given our clients confidence around that. Now they want to get started. They want to get a feel for what this means.

With the excitement, there's a little bit of fear and concern one of the things. We've done very successfully is to is to put a wrap around it to give them assurance that.

Generative AI within our application is not going to be out surfing, the the worldwide web and coming up with <unk>.

Risky factors around that sort of thing or exposing their data in any way to the outside world. So.

So we've we've given we have given our clients confidence around that now they want to get started they want to get a feel for what this means.

Alan Dow: Build momentum and build credibility and trust, and then be willing to take the next step. So the evolution of the technology and the ability for people to absorb it and really understand it, appreciate it, and build trust are going in lockstep. So we don't anticipate any delay in deals because of the evolution of this technology now. Okay, thank you. And I'm sorry if you mentioned this, but you said you exhausted the authorized buyback program. Did you approve a new one, or do you expect that to be approved, or how are you thinking about buybacks going forward? We haven't made any decisions about what to do next.

Build momentum and build credibility and trust and then be willing to take the next step so.

The evolution of the technology and the ability for people to absorb it and really understand and appreciate and build the trust is going in lock step. So we don't anticipate any delay in deals because of the evolution of this technology now.

Okay. Thank you and you mentioned it.

<unk> the authorized buy back program did you.

Digital proofing, your one or do you expect that today.

I was thinking about <unk>.

We haven't made any decision about what to do next.

Alan Dow: We just completed that right as the holidays were coming together and wrapped up the last one that had been approved for many years now. We had the ability to make that buyback happen. So we'll take that up in the new fiscal year and consider all possibilities. As we said, we're still sitting on a healthy balance sheet with cash available just short of $80 million.

We just completed that right is the holidays were coming together and.

And wrapped up the last the last one that had been.

Then on the approved for many years now we have the availability to make that buyback happen.

So we will take that up in the new fiscal year and consider all possibilities as we as we said we're still sitting on.

A healthy balance sheet with cash available just short of $80 million and.

Alan Dow: And in the new fiscal year, we'll make some decisions about how best to deploy that. Okay, and as a follow-up to that, what do you see in the M&A market now? Yeah, interesting market. It's kind of mixed right now about what's out there.

You will in the new year, a new fiscal year will make some decisions about how best to deploy it up.

Okay and I suppose after that what did you see a man the named Mark at now.

Mmm interesting market, it's kind of mixed right now of what's out there. There is some interesting things we would be.

Alan Dow: There are some interesting things we would be, we would, we would take an eye to, but we don't we don't have any specific announcements around at this time. We've not exited that market. We're still interested. We're still engaged.

We would we would taken I too.

But.

We don't we don't have any any specific announcements around at this time, we have not exited that market. We're still interested we're still engaged in when we find the right thing and get.

Alan Dow: And when we find the right thing and get a mutual agreement on that, we'll make some announcements about that next move. Okay, thank you. That was all for me. Thank you, www.americansoftware.com.

A mutual agreement on that will make some announcements about that next move.

Okay. Thank you that was all for me.

Alright, Thank you on your.

Thank you. Our next question comes from Zack Cummings.

Zach Cummins: Our next question comes from Zach Cummins. Yes. Hi Alan. Hi Vincent.

Yes, Hi, Alan Hi, handset, thanks for taking my questions.

Zach Cummins: Thanks for taking my questions. Alan, I was curious in terms of your go-to-market strategy with Garbus, now rebranded as Demand. AI, I mean, can you talk about just the progression of going through these initial pilots?

Alan I'm just curious in terms of your go to market strategy with garbage now now rebranded as demand a I mean can you talk about just a progression going through these initial pilots and it and it sounds like some of these are on the verge of committing to pretty substantial upside and longer term contract. So you get a sense of.

Zach Cummins: And it sounds like some of these are on the verge of committing to pretty substantial upsizes and longer-term contracts. So you get a sense of the potential uplift you can see if you're able to sign kind of a full longer-term contract with Demand.AI with some of these new prospects.

The potential uplift you can see if if you're able to sign a full longer term contract with demand AI with with some of these new prospects.

Yeah. So.

Alan Dow: Yeah, so at the point of acquisition of Garvis, that team was very successfully building a book of clients and getting momentum and proof points with the product in the marketplace using the pilot strategy, very effective from a startup standpoint. What we're seeing is many of those pilots that have already matured to the point where we are actively engaged in finalizing contracts for the long term, pretty substantial upside in those opportunities when we convert those to long terms because the pilots weren't weren't really built to manage the entire enterprise; they were maybe a product line or a few product lines or segmented division of the business or maybe a regional area or something of that nature. So the upside on it, Zack, as you said, is quite significant.

At the point of acquisition of Garbus that team was was very successfully building.

A book of clients and getting momentum and proof points with the product in the marketplace using the pilot strategy very effective from a startup standpoint.

What we're seeing as many of those pilots had already matured to the point, where we are actively engaged in finalizing con.

Contracts for the long term us pretty substantial upside and those those opportunities when we convert those too long.

Long term because the pilots.

<unk> built to manage the entire enterprise they were maybe a product line or a few product lines are segment of division of the business or maybe a regional area or something of that nature. So the upside on it.

Is that because you said is quite significant.

Alan Dow: And in coming about, we anticipate that we'll have some of those transactions completed in our fourth quarter, more of them coming on the heels of that in the first quarter. Some of those clients are substantial, complex, and can be difficult to negotiate contracts with. So we just really got engaged with them at the beginning, at the end of the calendar year last year, and at the beginning of this year, rolling up our sleeves and diving in. So we're quite excited about that. We've retained that model; we see it's quite effective. Many clients, particularly larger companies that have significant investments, maybe in any ARP enterprise, like an SAP or something like that, are hesitant to bring new applications in.

And.

And coming about we anticipate that we will have some of those transactions completed at our fourth quarter more of them coming on the heels of that in the first quarter. Some of those clients are substantial complex can be difficult to negotiate contracts with so we just really got engaged with them at the beginning.

At the end of the calendar year last year beginning of this year enrolling.

Rolling up our sleeves and diving in so we're quite excited about that we've retained that model. We see it's quite effective many clients particular larger companies that have significant investments maybe in in any ERP enterprise like an essay P or something like that are hesitant to bring new applications. In so this is proving to be.

Alan Dow: So this is proving to be a good model to penetrate the account, get some proof points, build momentum, and then grow it from within. So we like the model. But we are only doing so when there's a clear opportunity to develop a long-term relationship. We're not in the business of running pilots for extended periods of time.

Good model.

Penetrate into the account get some proof points build momentum and then and then grow it from within.

So we'd like to model, but we are we are only doing so when there's a clear opportunity to develop a long term relationship we're not in the business of running pilots for an extended period of time. So we're really looking that as a as a strategy. So yeah.

Alan Dow: So we're really looking at that as a strategy. So yes, we see that as a whole new market and channel and approach to the market go to market for us, something we've never done before. But we've learned from that team that came in from Garvis, and we were seeing some advantages in keeping that model in place.

Yes, we see that as a.

A whole new market and channel and approach to the market go to market for us something we've ever done before.

But we've learned from that team that came in from Garbus, and we were seeing some advantages and keeping that model in place.

Got it that's that's great to hear it and encouraging on that project substantially since here some longer term opportunities.

Alan Dow: That's great to hear and encouraging on that front to potentially secure some longer-term opportunities. The final question for me, Alan, is really around the pipeline. Can you give us a sense of the size of the pipeline versus maybe where you were a year ago going into this point and kind of give us a little bit of understanding of the mix of lift and shift opportunities versus completely new engagements within that pipeline? Yeah, I would say growth.

Final question for me Allen is just really around the pipeline can you give us a sense of the size of the pipeline versus maybe where you were a year ago going into this point and kind of give us a little bit of understanding of the mix of lift and shift opportunities versus completely new engagements within that pipeline.

Yes, I would see the growth where there's really three areas that are that are driving the pipeline. One is the lifting shift that we referenced it's representing about a third of the new opportunities that are coming into the pipeline.

Alan Dow: Well, there are really three areas that are driving the pipeline. One is the lift and shift that we referenced. It represents about a third of the new opportunities that are coming into the pipeline. The other is to extend the relationship with existing clients. So, those that are already in the cloud, we're adding new functionality, expanding to new regions, new user communities, new product lines, something along those, or similar to that nature. So, it's an extension of what we currently have. As I mentioned in my earlier talk, for example, we had Demand AI Plus sold to an existing client that was already in the cloud.

The other is to extend the relationship with existing clients.

Those that are already in the cloud.

That we are adding new functionality expanding to new regions.

New user communities, new new product lines, something along those neat alone that nature. So it's an extension of what we currently have as I mentioned in my earlier.

Talk.

For example, we had.

Demand AI plus sold to an existing client that was already in the cloud so as an extension to their footprint.

Alan Dow: So, it was an extension of their footprint. And then, of course, the new clients that are coming in, those opportunities are typically larger by a factor of two or three times, you know, an add-on or a lift and shift. So, those, it doesn't take a lot of those to add to the pipeline, so but it's roughly three equal parts that are helping us build the pipeline. If we look at our pipeline over where we were this time last year, we're up about 40%. So, it's pretty substantial. So, we're seeing, and we're seeing growth in our pipeline month after month after month. We've been seeing that for the last three or four months now. So, it's quite encouraging. It wasn't just one pop and then running off of that.

And then of course, the new clients that are coming in those those opportunities are typically.

Larger by a factor of two or three times and add on our list and shift.

So those it doesn't take a lot of those to add to the pipeline. So, but it's roughly three equal parts that are helping us build build pipeline.

If we look at our pipeline over where we were this time last year were up about 40%. So it's pretty <unk> pretty substantial so it's.

We're seeing we're seeing a growth in our pipeline month after month after month, we've been seeing that for the last three or four months now so it's quite.

Quite encouraging it wasn't just one pop and then we are running off of that it's continuing to grow every month as we March forward.

Alan Dow: It's continuing to grow every month as we march forward. Well, sounds great, and best of luck in your fiscal 4Q. Thank you very much. Thank you for joining us today. Thank you. As a quick reminder, if you'd like to ask a question, you may press star 1 now. There are no additional questions at this time. I'd like to now turn it back to our presenters for any closing remarks. All right. Well, thank you all for joining us today. We really appreciate the time you spent with us. Some great questions. Thank you for those as well. And we look forward to chatting with you again someday in the near future. Have a good afternoon. Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect. www.americansoftware.com

Got it well sounds great and best of luck.

And your physical <unk>.

Thank you very much thank you for joining us today.

Thank you to take a reminder, if you'd like to ask a question you May press Star one now.

Yeah, no additional questions at this time like an afternoon. It back at present case for any closing remarks.

Alright, well. Thank you all for joining US today, we really appreciate the time you spent with US some great questions. Thank you for those as well and we look forward to chatting with you again someday in the near future have a good afternoon.

Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.

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