American Software(US:AMSWA)2023-02-26 15:41Financial Data and Key Metrics Changes - Total revenues for Q3 2023 were $31 million, a decrease of 4% compared to $32.4 million in the same period last year [11] - Subscription fees increased by 20% year-over-year to $13 million, while professional services and other revenues decreased by 27% to $8.4 million [11][12] - Adjusted EBITDA decreased by 6% to $5 million from $5.3 million last year, while adjusted net income increased by 18% to $4.5 million [16][18] Business Line Data and Key Metrics Changes - Subscription revenue growth was 20% year-over-year, contributing to 70% of total revenue, up from 62% in the same period last year [6][12] - Professional services revenue saw a significant decline, particularly in IT consulting, which decreased by 39% [12] - Maintenance revenues declined by 5% year-over-year to $8.6 million [12] Market Data and Key Metrics Changes - International revenues accounted for approximately 20% of total revenues, compared to 16% in the same period last year [16] - The backlog, referred to as remaining performance obligation, was $119 million, down 8% compared to the prior year due to shorter contract durations [18] Company Strategy and Development Direction - The company plans to leverage service delivery partners for ongoing and new projects to create a more profitable and flexible model [7] - Despite the economic uncertainty, the company sees a large growing market opportunity for its supply chain solutions [10] - The company is making adjustments to its fiscal year guidance, lowering revenue expectations due to reduced professional services [9][20] Management's Comments on Operating Environment and Future Outlook - Management noted that existing customers are scrutinizing costs, leading to longer collection times and elongated sales cycles [8] - There is confidence in customer relationships, with no uptick in churn observed so far [10] - Management expects project activity to recover, indicating that the worst period for professional services may be behind them [25] Other Important Information - The company maintained its prior adjusted EBITDA expectations of $18 million to $20 million despite the revenue outlook adjustment [10][20] - Cash and investments stood at approximately $105 million at the end of the quarter, with dividends of $3.7 million paid during the quarter [19] Q&A Session Summary Question: Insights on elongation of sales cycles - Management indicated that the selection process remains consistent, but final approvals are taking longer due to conservative spending by customers [22][23] Question: Expectations for professional services recovery - Management believes the worst is behind them, attributing the decline to seasonal factors and a focus on financial performance during the holiday period [25] Question: Update on M&A pipeline - The company is actively engaged in due diligence for potential M&A opportunities, with a number of prospects being considered [27] Question: Mechanics of maintaining EBITDA guidance despite revenue changes - Management explained that a higher mix of subscription revenue, which is a higher margin business, and conservative hiring practices contributed to maintaining EBITDA guidance [30][31] Question: Update on subscription margins and outlook - Management anticipates subscription margins to trend towards the mid-70s as the business scales up [33] Question: Hiring environment and talent acquisition - Management noted an improvement in the recruitment environment, with more candidates available, although labor costs have not significantly decreased [36] Question: Customer challenges in the current environment - Retailers are experiencing challenges, but overall, the company is not seeing outright cancellations or churn [38]