American Software(AMSWA) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q1 2020 was $27.4 million, unchanged from the prior year [4] - Subscription fees increased by 41% to $4.5 million compared to $3.2 million in the same period last year [5] - Software license revenues increased by 4% to $1.8 million from $1.7 million [5] - Overall gross margin improved to 56% from 54% in the prior-year quarter [7] - Operating income increased by 31% to $797,000 compared to $607,000 a year ago [9] - GAAP net income decreased by 17% to $1.2 million, with earnings per diluted share remaining at $0.04 [9] - Adjusted EBITDA increased by 24% to $3.5 million from $2.8 million [9] Business Line Data and Key Metrics Changes - Professional services and other revenues decreased by 8% to $10.1 million, primarily due to a decrease in the IT consulting business [5] - Maintenance revenues decreased by 4% to $11 million compared to $11.5 million [6] - The services margin increased to 27% from 21% due to a higher portion of professional services revenue from the supply chain business [8] Market Data and Key Metrics Changes - International revenues accounted for approximately 22% of total revenues, up from 20% in the prior-year quarter [10] - The annual contract value (ACV) for cloud services increased by approximately 54% to $20.3 million from $13.2 million [5][12] Company Strategy and Development Direction - The company is focusing on increasing recurring revenue streams, which represented 56% of total revenues, up from 46% in the prior year [6][12] - There is a strong preference for subscription contracts, with expectations that this will approach 60% by the end of the fiscal year [13] - The company aims to leverage digital supply chain solutions and advanced analytics to enhance customer supply chain agility [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving solid ACV growth in fiscal year 2020 and beyond, citing a marked improvement in close rates [11][12] - The company is optimistic about the transformational projects leveraging their digital supply chain solutions amid global trade uncertainties [14] Other Important Information - The company maintained a strong financial position with cash and investments of approximately $88 million [10] - The current ratio was 2.6, down from 2.8 in the prior year [10] Q&A Session Summary Question: What is driving the momentum in ACV growth and close rates? - Management indicated that a combination of new leadership in sales and market dynamics has positively impacted business momentum [18][19] Question: Is the interest in the subscription SaaS model coming from new customers or existing ones? - The majority of interest is from new customers and significant add-on projects for existing customers, with limited transfer from existing customers [20][21] Question: What is driving the decline in the professional services group? - The decline is primarily due to the IT consulting business, but the supply chain business has slightly increased, and backlog is expected to improve [30][31] Question: Will the impact on subscription gross margin from capitalized software be a one-time issue? - The allocation of capitalized software costs will continue to affect margins as the company sells more SaaS business [32][33]