American Software(AMSWA) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenues for Q2 2021 were $27.9 million, compared to$ 28.2 million in the same period last year [13] - Subscription fees increased 27% YoY to $7 million, while software license fees decreased 57% to$ 0.5 million [13] - Cloud services annual contract value (ACV) grew 33% YoY to $29.6 million [13] - Professional services and other revenues decreased 5% to$ 10.2 million, with a 23% decline in the supply chain unit partially offset by a 21% increase in IT consulting [14] - Maintenance revenues decreased 6% to $10.2 million [14] - Combined recurring revenue streams (maintenance and cloud services) represented 62% of total revenues, up from 58% YoY [15] - Operating income decreased 25% to$ 0.6 million, and adjusted EBITDA decreased 21% to $2.8 million [17] - GAAP net income decreased 61% to$ 0.7 million, or $0.02 per diluted share [17] Business Line Performance - Subscription revenue growth of 27% YoY reflects the company's transition to a cloud-first strategy [9][13] - Software license revenue decline of 57% is attributed to the shift towards SaaS and subscription models [13] - Professional services revenue was impacted by seasonality and slower project progress due to customer vacations and travel restrictions [14] - The supply chain unit backlog remains robust, but project delays were noted [14] Market Performance - International revenues accounted for 15% of total revenues, down from 19% YoY [18] - The company completed subscription or license fee transactions in nine countries, reflecting its global presence [11] Strategy and Industry Competition - The company's cloud-first strategy is paying off, with recurring revenue streams now representing 62% of total revenues [9] - The virtual work environment has provided flexibility, reducing the typical seasonal slowdown in Q3 [9] - The company held its first virtual customer conference, Disruption Rx, which stimulated collaboration and interest in new projects [8] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the upward trend of new projects in the second half of the fiscal year [10] - The company expects Q3 services revenue to remain relatively flat compared to Q2 due to strong implementation backlog and virtual work conditions [9] - Management highlighted the importance of agility and resiliency for customers in the new economy [11] Other Important Information - The company's financial position remains strong, with cash and investments of$ 94.6 million as of October 31, 2020 [21] - Days sales outstanding increased to 69 days, compared to 58 days in the same period last year [22] Q&A Session Summary Question: Feedback on the virtual customer conference and its impact on new leads and customer expansion - The virtual conference had a record turnout, with increased global participation and interest from prospective customers [24] - Existing customers showed accelerated interest in new projects, and the event stimulated pipeline activity [25][26] Question: Sales cycle trends during the pandemic - Larger transactions are seeing traditional or accelerated decision-making, but final approvals and contracting processes are taking longer [28] - Some projects have moved quickly through the sales cycle, completing in 3-4 months due to urgent customer needs [29] Question: Professional services utilization and Q3 seasonality - The virtual model is expected to reduce the typical seasonal slowdown in Q3, with customers more willing to work through the holidays [31] - Utilization rates are expected to remain strong, with less dramatic seasonality compared to previous years [32] Question: Sales and marketing spend and capacity - The company plans to continue growing its sales team, focusing on key roles to meet demand [35] - Pipelines are full, and the sales team is busy, indicating strong demand for the company's solutions [35] Question: Churn rate and customer financial distress - Churn has returned to pre-COVID levels, and management does not anticipate significant increases in the near term [39] - Customers are actively engaging with the company, and financial distress among customers appears to be stabilizing [39] Question: Impact of holiday season unpredictability on deal closures - The company expects a strong Q3 due to year-end budget utilization and new fiscal year budgets [42][43] - The need for supply chain planning solutions remains strong, with a positive outlook for deal closures in the second half of the fiscal year [44] Question: Decline in license fees and customer migration to cloud products - License fee transactions were with existing customers, and there is an acceleration of new capabilities being deployed in the cloud [46] - The company's cloud-first strategy is solidifying, with existing customers increasingly adopting cloud solutions for new projects [46]