American Software(US:AMSWA)2022-11-18 01:14Financial Data and Key Metrics Changes - Total revenues for Q2 FY '23 were $31.4 million, a 1% increase from $31.2 million in the same period last year, primarily driven by a 19% year-over-year increase in subscription fees to $12.3 million [11] - Professional services revenue decreased by 11% to $9.6 million from $10.8 million in the same period a year ago, reflecting a 1% decrease in the supply chain unit and a 20% decrease in the IT consulting business [11] - Adjusted EBITDA increased by 4% to $4.9 million from $4.8 million last year, while adjusted net income decreased by 21% to $3.3 million [15] Business Line Data and Key Metrics Changes - Subscription revenue grew by 19% year-over-year, contributing to 67% of total revenue, up from 63% in the same period last year [6][12] - Maintenance revenues declined by 5% year-over-year to $8.8 million, reflecting a normal falloff rate [12] - Professional services revenue decline was attributed to a pullback in IT consulting, which is sensitive to macroeconomic conditions [7] Market Data and Key Metrics Changes - International revenues accounted for approximately 19% of total revenues, up from 16% in the same period last year [15] - The company noted a moderation in pipeline expansion and delays in project start dates due to macroeconomic uncertainties [9] Company Strategy and Development Direction - The company is focusing on expanding its footprint through acquisitions, with plans to pursue at least one more strategic acquisition before the end of the fiscal year [8] - The management expressed confidence in the long-term need for transformative supply chain solutions, despite current market challenges [10] Management's Comments on Operating Environment and Future Outlook - Management adjusted fiscal year revenue guidance to between $125.5 million and $127.5 million, primarily due to a reduction in expectations for professional services [9] - The company expects recurring revenue to approach the low end of original guidance, between $85.5 million and $87.5 million [9] - Management remains optimistic about the market opportunity and anticipates a reacceleration of growth in the new year [10] Other Important Information - The company exited the quarter with remaining performance obligations (RPO) of $123 million, with total RPO relatively flat from the prior year [17] - Cash and investments at the end of the quarter were approximately $106.8 million, and the company paid $3.7 million in dividends during the quarter [17] Q&A Session Summary Question: Expectations for project movement after the holiday season - Management indicated confidence that projects would resume in January as clients are pausing due to the holiday season, not due to cancellations [22] Question: Reception of the Starboard acquisition - The reception has been strong, with new contracts already underway and a tripled pipeline since the acquisition [24] Question: Client staffing challenges and project delays - Staffing challenges persist, but delays are primarily due to project timing related to the holiday season [28] Question: Subscription pipeline and deal cycles - The subscription pipeline is steady, with expectations for increased activity after the holidays as clients finalize budgets [35] Question: Decline in the Proven Method business - The decline was due to project turnover without replenishment, but efforts are being made to expand the client base [39] Question: Subscription gross margin impacts - Some short-term adjustments in subscription gross margin were due to investments in hosting services, with expectations for improvement in subsequent quarters [41]