Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Start Time: 17:02

End Time: 17:18

American Software, Inc. (NASDAQ:AMSWA)

F3Q2014 Earnings Conference Call

February 27, 2014 5:00 PM ET

Executives

Vince Klinges – Chief Financial Officer

J. Michael Edenfield – President and Chief Executive Officer

Analysts

Kevin Liu – B. Riley & Co. LLC

Operator

Good day, everyone and welcome to today’s program. At this time, all lines are in a listen-only mode. However, later in the program you will have the opportunity to register to ask your question. Today’s conference maybe recorded.

And at this time, it is my pleasure to turn the program over to Vince Klinges, CFO of American Software. Please go ahead, sir.

Vince Klinges

Thank you. Good afternoon. Welcome to American Software’s Third Quarter and Fiscal 2014 Earnings Conference Call. To begin, I’d like to remind you that 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 statements.

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 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 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’d like to turn the call over to Mike Edenfield, CEO of American Software.

J. Michael Edenfield

Thanks, Vince. Good afternoon, everyone, and thank you for participating in the call. I have some comments on the third quarter results and the business. Vince will review the details on the financial results and then we’ll take your questions.

American Software had a solid quarter. Our third quarter revenues were $24.4 million, which is an increase of 6% year-over-year. All three revenue streams increased in the quarter. License fees increased 2% year-over-year and quarterly maintenance revenues, which were recurring, increased 8% year-over-year. Operating income for the quarter was $3.5 million, an increase of 54% year-over-year as the company continued to be profitable for the 52nd quarter in a row.

Regarding customer news, 14 new customers signed license agreements in the third quarter. Some of the notable new and existing customers include ASICS America, Bodybuilding.com, Brightstar Corporation, Hostess, Jackson Family Wines, Party City Holdings, Signal Products, and Taylor Fresh Foods.

We had customers from 11 different countries signed license agreements with American Software in the quarter. Those countries include Australia, Canada, China, Denmark, France, Ireland, Sweden, the Czech Republic, United Arab Emirates, the United Kingdom, and the United States.

As we discussed last quarter, the market adoption of cloud services is changing American Software’s business model. Historically, we were primarily an on-premise perpetual license model with professional services and customer support. Customers are now adopting our cloud services such as hosting and managed services and we’re offering a SaaS option to meet our customers’ needs to help prioritize their supply chain initiatives. This may result in some revenues being spread over time depending on the type of contracts we enter into.

As you know, approximately $3 million of both revenue from last quarter has been spread over approximately three years. $1.1 million of this will be license fees we booked in the second quarter. Regarding our pipeline for the fourth quarter, it looks similar to the last couple of quarters. So far closed rates are good. We feel like we have an excellent quarter.

I’d now like to turn the call back over to Vince for a detailed review of the financial results for the quarter and year-to-date fiscal 2014.

Vince Klinges

Thanks Mike. Taking a look at total revenues for the quarter, as Mike indicated, has increased 6% to $24.4 million compared to $23.1 million the same quarter last year. That’s primarily due to license fees, which increased 2% to $5 million compared to $4.9 million for the same period last year.

Services and other revenues also increased 6% to $10.2 million for the current quarter and that compares to the same period last year.

Services revenues increased 13% at Logility due to increased implementation project work from recent license fee sales and would have been higher by over 2,000 since we deferred implementation work related to our recently booked cloud contracts that will be recognized over approximately three years. Also, services increased due to a 6% increase in our IT Consulting unit due to timing of project work and this was partially offset by a 7% decrease in our ERP business unit due to completion of a large project at New Generation Computing last year.

Maintenance revenues also increased 8% to $9.3 million. That compares to $8.6 million primarily due to an increased license fees in recent quarters and improved customer attention when compared to last year. Taking a look at cost, the overall gross margin was up to 57% for the current quarter and that compares to 52% the same quarter last year. License fees margins increased to 85% for the current period, compared to 64% the same period last year. That was primarily due to lower software amortization expense by $625,000 as a result of the completion of amortization of our Voyager product released at the end of the first quarter of 2014.

We expect amortization expense to increase in the fourth quarter of 2014 when the next major project is released. The decrease in cost of license fees is also due to a decrease in commissions as a result of lower license fees through our indirect warrant channel. Services margin was 24% for the current quarter compared to 23% from the same quarter last year due to higher services revenue. Our maintenance margin was 78% for both the current quarter and prior year compared to last year.

Looking at operating expenses, our gross R&D expenses were 13% of total revenues for both the current and the same quarter last year. As a percentage of revenue, sales and marketing expenses were 21% of revenues for the current and prior year period. G&A expenses were 12% of the total revenues for the current quarter compared to 11% the same quarter last year, primarily due to recovery of doubtful accounts in the prior year quarter.

Operating income increased 54% to $3.5 million for this quarter and that compares to $2.3.million for the same quarter a year ago. Adjusted EBITDA, which excludes stock-based compensation, was $4.4 million for this quarter and that compares to $3.7 million same period last year. GAAP net income increased 16% to $2.5 million or earnings per diluted share of $0.09 for this quarter compared to net income of $2.1 million or $0.08 earnings per diluted share for the same period last year.

Adjusted net income was $2.8 million or adjusted earnings per diluted share of $0.10 for the third quarter and that compares to $2.5 million or adjusted earnings per diluted share of $0.09 for the same quarter last year and these adjusted numbers exclude amortization of intangibles, expenses related to acquisitions and stock-based compensation expense.

International revenues for this quarter were 16% of total revenues for the current quarter and that compares to 17% for the same quarter last year. Looking at the nine months ended January 31, 2014, it’s compared to the same period last year. Year-to-date revenues decreased 1% to $74.7 million, compared to $75.3 million for the same period last year. Year-to-date license fees were $14.4 million. That compares to $15.5 million the same period last year.

Services revenues year-to-date are $33.1 million year-to-date compared to $34.4 million. Maintenance revenues year-to-date increased 7% to $27.2 million and that compares to $25.4 million.

Looking at cost for the year-to-date period, overall gross margin was 56% for the current period and that compares to 54% last year. License fee margin has increased to 78% from 70% last year. Services margins was 28% compared to 30% year-to-date last year and our maintenance margin was 78% for the current year-to-date compared to 77% the same period last year, that’s primarily due to higher maintenance revenue.

So looking at operating expenses our gross R&D expenses were 12% of total revenues for both the nine months periods ended January 31, 2014, and the same period last year, as a percentage of total revenue, sales and marketing expenses were 19% for both the current and prior year-to-date period.

G&A expenses were 12% of revenues for both the current and same period last year, so our operating income year-to-date increased 10% to $11.3 million and that compares to operating income of $10.2 million last year.

Adjusted EBITDA year-to-date was $14.3 million and that compares to $14.5 million same period last year. And GAAP net income was $7.8 million year-to-date or earnings per diluted share of $0.28, compared to net income of $7.3 million or $0.27 earnings per diluted share. Adjusted net income year-to-date was $8.7 million or earnings per diluted share of $0.31 and that compares to net income of $8.3 million or earnings per diluted share of $0.30 for the same period last year.

International revenues year-to-date were approximately 17% of total revenues, compared to 14% of the same period last year.

Taking a look at the balance sheet, the Company’s financial position remained strong with cash in short-term and long-term investments of approximately $74.5 million at the end of January 31, 2014. The Company increased cash and investments by approximately $16.8 million when compared to January 31, 2013.

Other aspects of balance sheet, accounts receivable is $14.1 million billed, unbilled is $4.0 million, for a total accounts receivable of $18.1 million. Deferred revenue current are approximately $22 million, deferred revenues long-term are approximately $740,000, so and our shareholder equity is over $90 million at this point.

Other aspects of balance sheet, our current ratio was 2.7 as of January 31, 2014, compared to 2.9 the same period last year. And our day sales outstanding as of January 31, 2014 was approximately 67 days versus 65 days the same period, and that’s primarily due to improved collections.

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

Question-and-Answer Session

Operator

(Operator Instructions) And we will go first to Kevin Liu with B. Riley & Company. Your line is open.

Kevin Liu – B. Riley & Co. LLC

Hi, good afternoon guys.

J. Michael Edenfield

Hi, Kevin.

Kevin Liu – B. Riley & Co. LLC

First question, just wanted to talk about kind of the growing demand you’re seeing for SaaS. Can you just talk a little bit about whether you close any such deals within the quarter, and then also what the pipeline looks like in terms of how it’s building more so in that direction.

J. Michael Edenfield

Well, from a pure SaaS perspective we didn’t close any. As we talked about last time, we are doing more of the cloud services, sort of the hybrid perpetual model and the SaaS model. So, we are hosting some customers, and we are managing, we are providing managed services to the cloud. But we haven’t actual done what we would call a pure SaaS deal, yes.

Kevin Liu – B. Riley & Co. LLC

Okay. And where there any of these I guess more hosted engagement signed this quarter event?

J. Michael Edenfield

Most of them were perpetual.

Kevin Liu – B. Riley & Co. LLC

Okay, got it. And then maybe if you could talk a little bit about the pipeline between Voyager and kind of demand switches, just wondering if you are seeing any sort of segregation between whether the high end or lower end customers are more interested in procuring solutions at this point.

J. Michael Edenfield

Well, I think Voyager the high end that has been more consistent generated a little bit more license revenue than the DS, the Demand Solutions brand. We need to get them, if we can get them both sitting on all cylinders that would be a very good thing and our results would be significantly better from a software license fee or subscription perspective as the case maybe.

I was at the Demand Solutions sales meeting and we turned over a good bit of a channel and I was impressed with the new VARs we have there, had a lot of experience in sell out this type of solutions at some of our competitors, for example, and so I think we got a good chance to start growing that channel and the revenues for that channel again.

Kevin Liu – B. Riley & Co. LLC

And could you comment a little bit about how long these newer VARs have actually been working with the Demand solutions product and when you would expect them to be able to get productive?

J. Michael Edenfield

Yes, we expect them to be productive now and but most of the new ones are have been with us anywhere from 8 months to a year.

Kevin Liu – B. Riley & Co. LLC

Got it. And just a hand full of questions left here. On the services side of things, I know last year you guys saw somewhere drop off, so was that shift was purely seasonality in terms of Q3 performance versus Q2, and I was just curious if they came in line with your expectations and what the backlog engagement looks like going forward?

Vince Klinges

Kevin, this is Vince. Yes, we actually did see the sequential drop, which is typical during holiday quarter for the third quarter for us. But what also did impact, again I indicated in my script is that we had to defer about $200,000 services revenue related to this cloud some of these cloud contracts, that will be spreading over three years, so that impacted this quarter a bit too.

Kevin Liu – B. Riley & Co. LLC

Got it, and was there any acquisition related contribution to the revenue line this quarter?

Vince Klinges

No.

Kevin Liu – B. Riley & Co. LLC

No. All right, and then just lastly the deferred revenues look like it come on pretty strong, I was wondering, if that was just a reflection of maybe the $3 million SaaS from the last quarter hitting the numbers this time – this quarter or is there was other stuff that would have driven the strength there?

J. Michael Edenfield

Some of it seasonality, lot of our annual maintenance customers get build in the third quarter, hope you’re comparing this sequentially that’s better, and also some of it due to this deferred of cloud services.

Kevin Liu – B. Riley & Co. LLC

Okay. Was that dealer deferred revenue base meaningful at all?

Vince Klinges

No, we only had a handful of customers.

Kevin Liu – B. Riley & Co. LLC

Got it. All right, I appreciate the time. Thank you so much.

J. Michael Edenfield

You’re welcome.

Operator

(Operator Instructions) And I’m showing no further questions at this time.

J. Michael Edenfield

Thank you everyone for participating in the call and we look forward to publishing great results next quarter, thank you.

Operator

And thank you for joining us today ladies and gentleman, this does conclude today’s program. We appreciate everyone’s participation and have a good evening.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: American Software's CEO Discusses F3Q2014 Results - Earnings Call Transcript
This Transcript
All Transcripts