American Software, Inc. (AMSWA) on Q4 2022 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to today's Fourth Quarter and Fiscal Year '22 Financial Results. At this time, all participants are in a listen-only mode. Later, you have the opportunity to ask questions during the question-and-answer session. . It is now my pleasure to turn the conference over to Vincent Klinges, Chief Financial Officer. Please go ahead.
Vincent Klinges: Thank you, Ashton, and good afternoon, everyone, and welcome to American Software's Fourth Quarter Fiscal '22 Earnings Conference Call. On the call with me is Allan Dow, President, and CEO of American Software. Allan will provide some opening remarks, and then I'll review the numbers. But first, our safe harbor statement. 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 and 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 on 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 Allan for opening remarks.
Allan Dow: Thank you, Vince. I'm pleased to report that during the fourth quarter, we again achieved strong double-digit revenue growth in our Supply Chain Management segment and for the company as a whole. This was a third consecutive quarter of double-digit revenue growth, which was driven by the double-digit revenue growth in our Supply Chain Management segment in each quarter of fiscal 2022. Our strong top-line performance was accompanied by a significant expansion in our adjusted EBITDA margin as we gained efficiency from the cloud growth and achieved very high utilization rates across all of our services segments. We had not anticipated the accelerated level of license revenue in the fourth quarter and normally in our recent history, but are pleased that our clients are continuing to invest in their supply chains by extending their partnership with us regardless of the licensing model that best suits their current needs and skills. We anticipate continued revenue growth in fiscal year '23 with the continued growth in our cloud business and a healthy backlog of project work. In spite of a very competitive labor market, especially in the supply chain and technical space, we are continuing to expand our team across all aspects of the business. We plan to repeat this pace of hiring to fulfil the needs of the expected growth in the years ahead. Between our growth investments and inflationary pressures from which none of us are immune, EBITDA expansion will be tempered in the quarter and year ahead as we continue to invest for employee retention, expanding the team, and a return of in-person client meetings and marketing events, demanding a higher level of travel. The lingering impact of the pandemic, continuation of major world events, inflationary pressures, and chatter of a potential recession have extended the fragmented working environments, business uncertainty, and the frenzied activities of our clients as they address their short-term supply chain issues. Staffing shortages in the supply chain and IT organizations continue to impact the timing of contract approvals as clients grapple with how to implement a project while struggling with day-to-day operations. However, we continue to see a steady improvement in our pipeline conversion. Our strong close rate in the fourth quarter has pushed our project backlog to unprecedented levels and extended our RPO. In spite of some progress due to our prescriptive approach and staff augmentation efforts, we are mindful that new disruptions, labor challenges, and the potential recessionary pressures may cause some rockiness and project timing in the quarters ahead. Overall, our pipeline continues to increase, driven by the need for our clients to holistically manage their supply chains in a sustainable and economically resilient way. The need for rapid decision-making has never been more in demand. So we remain confident that between a larger opportunity set and improved execution, we are poised for a strong year ahead. Our team is focused on serving existing clients, delivering on our implementation commitments, and bringing new companies into our client community more efficiently than ever before. The continued increase in our services backlog, we are relying more and more on SI partners to assist in the delivery which puts a little downward pressure on the professional services revenue growth, but increases our reach and sphere of influence. The summer months are always a little choppier for billable hours, but in the longer view, we still anticipate continued high utilization rates across all services teams, which will deliver year-over-year growth and consistently strong margins in the supply chain consulting services business in the year ahead. During the fourth quarter, we welcomed four new clients and completed subscription or license fee transactions in nine countries, reflecting our strong global presence. We also are pleased to see the continued growth in our recurring revenue stream of cloud services and maintenance, which represented approximately 62% of total revenues in fiscal 2022. This was driven by the 26% increase in cloud services ACV we saw in the fourth quarter when compared to last year's fourth quarter. With the increase in new subscription contracts and the continued stability of our cloud and on-prem client community, we expect to see recurring revenue as a percent of total revenue continue to rise. With the current level of recurring revenue, we feel the timing is right to provide guidance on our financial expectations in the year ahead. As we look forward, we anticipate total revenues of $132.5 million to $135 million, including total recurring revenues of $86.5 million to $89 million. With the aforementioned revenue and our investments in future growth, we anticipate adjusted EBITDA to come in between 16 and $18 million. Moving forward, we plan to update our annual guidance each quarter to provide the investment community with a clear view into our progress against these goals. As our recurring revenue guidance incorporates our assumptions for cloud service ACV and is our primary focus for long-term growth perspective, we will no longer be reporting our cloud services ACV metric, which tends to be lumpy on a quarterly basis, simply based on the variance of a few days or weeks timing of contract execution, which can skew the perception of how our business is performing. To be clear, our outlook for fiscal 2023 does assume that we will add more net new ACV than we did in fiscal 2022. In summary, we're pleased with the fourth quarter and year-end results and expect to extend the performance improvements of our financial model in the fiscal year ahead. We remain intently focused on executing against our growing pipeline and look forward to reporting our progress next quarter. Our mission of making our clients more successful year after year is paying off in client retention and expansion as we introduce innovative capabilities for managing sustainable supply chains that attract new clients to our community of partners. At this time, I'll turn the call over to Vince, who will provide the details on our financial results.
Vincent Klinges: Thank you, Allan. So revenues for the fourth quarter came in at $34.6 million, an increase of 21% and from last year's quarter of 28.6%. That was driven a lot by subscription fees, which increased 37% year-over-year to $11.1 million, while software license revenue increased 153% to $3.1 million compared to $1.2 million same period last year. Included in the license revenues were several transactions with existing customers, including one seven-figure deal. We continue to see a vast majority of our existing customers expand in the cloud, and we expect license revenue to revert back to a more typical quarterly cadence of approximately $0.5 million a quarter. Our Cloud Services annual contract value, or ACV, increased 26% to $48.2 million, and that's compared to $38.3 million in the same period last year. So we added $2.9 million in net new ACV during the quarter and 26% of the net new ACV was from new customers. So looking at our professional services and other revenue, that also increased 16% to $11.7 million from $10.1 million same period a year ago. The year-over-year increase reflects a 24% increase in our IT consulting business unit, the Proven Method, due to timing of project work and an 11% increase in our Supply Chain unit. Our maintenance revenue declined 5% year-over-year to $8.8 million, reflecting a normal falloff rate for this quarter. Total recurring revenues comprised of subscription and maintenance fees representing 57% of our total revenues in the fourth quarter compared to 60% in the same period last year, and this decline is due to unusually high level of license fees in the current quarter. Looking at gross margin, it increased to 62% and for the current quarter compared to 58% in the same period last year. Our subscription fee gross margin increased to 70% compared to 61% in the same period last year, and that's primarily due to increased subscription revenues and lower amortization of cap software expense. Excluding the noncash amortization of cap software expense of $366,000 in the fourth quarter, our subscription gross margin would have been 73%, and that's versus 70% last year, with the amortization of cap software being $686,000 in the prior-year period. Our license fee margin was 84% compared to 67% last year, and that's primarily due to higher license fee revenue. Our services margin decreased to 33% compared to 36% last year, primarily due to lower utilization rates at our Supply Chain business unit, partially offset by higher rates at our IT staffing business. Our maintenance margin was 83% for the fourth quarter compared to 79% in the same period last year. Our gross R&D expenses were 12% of total revenues for the current period compared to 15% in the same period last year. Our sales and marketing expenses were 16% of revenues for the current quarter compared to 18% in the prior-year period. And our G&A expenses were 18% of total revenues in the current quarter compared to 19% in the same period last year. In addition to high -- in addition to net additional accruals of variable and stock option incentive compensation and higher incremental insurance recruiting and audit fees caused the G&A expenses to go up compared to last year. On a GAAP basis, our operating income increased 186% to $5.5 million this quarter compared to $1.9 million in the same period last year. Net income increased 17% to 3.6%, our earnings diluted share of $0.10 compared to net income of $0.31 or $0.09 per diluted share last year. On an adjusted basis, which excludes noncash amortization of intangible expense-related acquisitions and stock-based compensation expense, adjusted operating income increased to 151% to $6.6 million compared to $2.6 million in the same period last year. Adjusted EBITDA increased to 101% to $7.5 million compared to $3.7 million same period last year, and adjusted net income increased 22% to $4.4 million or adjusted earnings per diluted share of $0.13 in the fourth quarter, and that compares to adjusted net income of $3.6 million or adjusted earnings diluted share of $0.11 in the same period last year. Our international revenues this quarter were approximately 16% of total revenues for the current quarter compared to 50% in the same period last year. So looking at the full fiscal year '22, our total revenues increased 14% to $127.6 million; that's due to a 46% increase in subscription fees to $42.1 million and an 80% increase in license fees to $5.5 million, and a 10% increase in services, partially offset by an 8% decline in our maintenance revenues. Adjusted operating income for fiscal '22 was $17.3 million, representing an operating margin of 14%, and that compares to $7.7 million or 7% operating margin last year. Adjusted EBITDA increased 17% to $21.3 million, and that compares to $12.5 million a year ago, representing adjusted EBITDA margin of 17%. Adjusted net income totaled $16 million or $0.47 per diluted share, and that's up from $10.8 million or $0.33 per diluted share the same period last year. We exited the quarter with a remaining performance obligation, or RPO, which we refer to as backlog of $134 million, and this representing a year-over-year increase of 16%. Strong growth in RPO reflects bookings over the past 12 months and the increased duration of our cloud arrangements from our customers continue to make longer-term commitments to our platform. Taking -- looking at the balance sheet, our financial position remains strong with cash and investments of approximately $127.5 million at the end of the quarter, and this is an increase of $22.9 million compared to the same period last year. And during the quarter, we paid $3.7 million in dividends. Our days sales outstanding as of April 30, '22 was 62 days for the current period, and that compares to 85 days in the same period last year. This decrease is primarily due to timing of billing and improved collections on delayed collections when compared to last year. And as Allan mentioned earlier, our mix of recurring revenue continues to rise, providing us with greater visibility in our financial model. So as a result, we believe the time is right to provide annual guidance, which we will update quarterly. So for fiscal '23, we anticipate revenue in the range of $132.5 million to $135 million. Included in this is recurring revenue, which is $86.5 million to an $89 million range on our recurring revenue guidance, and this implies a 10% to 13% year-over-year growth in those -- in recurring revenues. Given the heightened macro uncertainty, our outlook takes into account the potential for elongated sales cycles, which could limit the amount of revenue we could recognize this fiscal year. That said, we saw gradual improvements in our close rates throughout fiscal '22, and we have not experienced a pullback in activity thus far. Additionally, we continue to assume only modest levels of churn in our forecast, consistent with historical norms. For the adjusted EBITDA, we are guiding to $16 million to $18 million range, which reflects planned headcount expansion across the company to support our growth aspirations, higher compensation to retain talent, and increased travel and marketing expenses as we return to more normal levels of in-person events. Ashton, at this time, we'd like to turn the call over to questions.
Operator: We will take our first question from Matthew Pfau with William Blair.
Matthew Pfau: Wanted to just start on the macro a bit. So Vince, you just commented that you've seen a gradual improvement close rates throughout fiscal '22, and it seems like that remained consistent in the fourth quarter. Have conversations changed at all with your customers in terms of how they're thinking about purchasing as you enter fiscal '23?
Allan Dow: Matt, Allan here. Thank you for the question. That's a good one. They have not really changed at this point. We're seeing a continued eagerness to address some of the challenges that they've been facing over the last couple of years, and we continue to face in supply chains today. These disruptions keep coming, the interruptions, I think currently and historically, as I've been at this for the last 22 years. When we see the potential of a recession, people understand that to be just in one more of those disruptions or change in the profile, the way the demands are flowing and which products sell, which ones might not sell. So they're eager to keep going at this point. But you probably picked up on some of the comments we made. We're just cognizant of the fact that, that news is just starting to unfold and may impact the year ahead. We just started on the new year. And -- we just want to make sure we share our collective thinking with you guys as we anticipate the year in front of us.
Matthew Pfau: Got it. I think some retailers have had challenges with having the sort of right product assortments in stock. Has that driven any demand or additional interest in your products as I believe that's an area that you guys can help both retailers and CPG companies address?
Allan Dow: Yes, for sure. For sure, Matt. That's very true. This -- the whole concept of forecasting is our primary area of expertise and where we stand out in the marketplace. And you couldn't imagine a better opportunity for forecasting right now as we can all imagine, retail stores and retail channels, whether they're online delivery are really preparing right now for the Christmas season. Hard to imagine when the Sun is coming out and is starting to get hot here in the Northern Hemisphere, but that's the reality. So it's a long-term view. It's a complicated view, and that's our area of expertise. So that's one of the key areas that's driving it. They feel like they can do a better job with the forecast. They can do a better job of managing the supply chain and be more reactive to consumer demand. So you're spot on with where the level of urgency is playing out today.
Matthew Pfau: Got it. And with the investments in fiscal '23, I appreciate there's some increased travel and as well as retention expenses in there. But what about from a growth or hiring investments? Where are those directed towards?
Allan Dow: Yes, really all areas of the business, we want to continue to expand in our R&D organization. So the team is making moves there. We've actually been blessed with a bit of a shift in our strategy, moving to some lower-cost areas where we can get access to talent that's willing and interested in coming on board with us right now. So it's actually even though we're improving headcount, we're managing costs in a pretty effective way in that area. But we've got a lot of great ideas we want to execute on from product capability and organic growth there. So we're going to continue to invest there. We still see the pipeline growing, and we have more opportunities coming. We see an increase in inquiries coming to us. So we need to be able to address that from a sales and marketing standpoint. So we're going to continue to invest in sales and marketing. And then, of course, even though we've built a great SI channel, and we're offloading more and more work to our SI partners, they can't fulfill all the demand as well. We don't anticipate they can in the year ahead. So we're continuing to invest in our services business to make sure we've got the right mix of talent that we need to augment what they can provide. They can't provide all the services that we provide to our clients. So we're collaborating with them, what talent do they have, where can they expand. And we're going to make sure we continue to invest in bringing the talent in that will augment their abilities and capabilities and continue to be able to deliver on these project expectations from our clients. So I think the quick answer is, there is really an area of an organization that's not expanding, except for maybe Vincent, he sitting here in the room with me, HR and finance is not an area we have to invest deeply and we've got a great team in place today, and that's probably the one area we don't need any additional services in.
Matthew Pfau: Great. Last one for me, just if I look at the guidance. So should we expect the maintenance component to decline in fiscal '23 at a somewhat similar rate that we've seen over the past two years? And then if so, I think that would imply that your subscription revenue growth would be over 20% in fiscal '23. Is that the right way to think about it?
Allan Dow: Yes. That's a good way to look at it. We don't know exactly how that will play in. Although we've made some substantial investments in client retention, and one of the areas we'll continue to see some maintenance decline, and I think a bit of an acceleration will be around the cloud conversions, where in the traditional line item that is maintenance, we'll see some of our clients more than we have in the past move to the cloud. So there is a bit of a conversion factor in there. But right now, we're seeing our retention rate on maintenance back up with the lofty levels we had pre-pandemic. So we're comfortable with that level, but that's still existing churn in that number. So that the traditional historical levels is a good way to model that.
Matthew Pfau: Got it... Appreciate it.
Operator: We will now take our next question from Matthew Galinko from Maxim Group.
Matthew Galinko: Congrats on the strong quarter. Maybe firstly, now that the subscription business has scaled up quite a bit over the last couple of years, how are you thinking about subscription margins over the, I guess, intermediate term? Where can you get them to? And I guess, what are you learning as you get to this point in terms of opportunities to continue driving that higher?
Vincent Klinges: Yes, Matthew, this is Vince. So yes, we grew the margins nicely from -- compared to last year from 61% to 70%. We kind of -- the way we're thinking about it is we're trying to be a little bit conservative on the growth of that margin. But we do think by the back half of fiscal '23, we'll be on the higher side of the 70s, like 75%, 76%. And eventually, possibly two years from now, be closer to approaching 80%.
Matthew Galinko: Perfect. And then I think you just talked about conversions from maintenance to service. What kind of uplift -- uplift -- I'm sorry, uplift are you anticipating on the revenue line as that cycle plays out? And I guess as a follow-up to that, I think you discussed significant investment in customer retention. So are those conversations feeding those conversion opportunities? Or is that independent?
Allan Dow: They're very tightly like -- great question, Matthew. This is Allan, by the way. So on a like-for-like conversion, which is -- it happens but not the predominance of it, but like for light conversion, we typically see about a 2.5x revenue lift. And that, of course, comes with a lot of the incremental services that we're providing the client with some margin points on each one of those. But we're better at it. We're more efficient at it. We're more quickly able to put up the releases and get the new features in front of them for the user community. We're better at security than they typically are. So there's a lot of great aspects of it. And our clients are seeing time and time again that, that's a good ROI for them, along with a lot of incremental value. So 2.5x is probably a good model for that. More times than not, though, what's interesting is that, that comes with an expansion of footprint from our clients -- so at that point, it's kind of all bets off depending on how much more they're adding as part of that project, but they could easily then see 3x, 4x, or 5x revenue lift when you're doing a non-like-for-like more expanded scale. Related to the pace of conversions and what drives the conversions, it's all over the map. I mean the like-for-likes when they occur in some of the things I pointed out a few minutes ago, they just want to get out of the IT business is the simplest one. They're struggling with their resource pool, and they want to offload to us as a partner with them and their supply chain. They see that they're lagging behind and they can't keep up and they know we're going to do better or they're concerned or struggling around any of the security issues related to IT platforms today, and they know that the environment we have is safe and secure and well-administered day in and day out. So that can be a driver. But most oftentimes, it's driven by value opportunity, the desire to expand the footprint to pick up some new capabilities that they're struggling with to consolidate off some legacy tools and come to a single platform, supply chain planning, driving, and looking at the platform view for us. So those are all the things that are really driving the discussion around cloud conversions. And all aspects of that are continuing to push more and more clients towards the conversion level. So I think in the year ahead, we'll probably double the number of conversions we've done in the past, which has been fairly modest. And then if you look out two or three years, that pace is only going to continue to increase. So we'll see -- in spite of what we saw in the fourth quarter, -- we didn't bring any new clients into a perpetual environment, the license transactions we did with all with the existing clients, but we see those numbers even declining and more and more cloud revenue coming forward. So hopefully, Matthew, I've picked up the answer to both of your questions in there. Maybe add a little extra color to it.
Matthew Galinko: No. That was excellent color. So I'll pass it along.
Operator: We will now take our next question from Anja Soderstrom with Sidoti.
Anja Soderstrom: Congratulations on the great quarter and year. So I'm just curious about the -- you sort of touched on it, but if you could give us some more color on the deal delays you've been talking about with the staffing shortages at your customers? How is that trending now? And how do you see that play out in this year?
Allan Dow: Andre, could you repeat that question for me? It was a little bit muffled. I didn't completely catch the question.
Anja Soderstrom: Okay. I'm sorry. Just on -- you've been talking before about some deal delays due to staffing shortages at your customers. How do you see that developing now? Is that picking up pace? Or is that still an issue at your customers?
Allan Dow: Yes, great question. So thank you for that one as well. Yes, we're -- the more recent term we're seeing less delays than we did kind of mid-pandemic -- at first, we saw just shock factor of the pandemic, the first year -- first six months of the pandemic was the shock wave of moving away, then they got into staffing shortages that people struggle with having enough people. We've seen a little bit less of that as we came into this calendar year and the end of our fiscal year. But we still have a few projects that are lingering there. In fact, we had a couple of projects that just -- even though they contracted, they just didn't get going on the project itself and that they're picking up steam again now. So less prevalent than it was, say, six months ago, but nonexistent yet. And we're seeing the ability to attract more talent. We're seeing more of our clients being able to attract the talent they need. And we've gotten much crisper at our ability to do staff augmentation and help them in ways to get projects going. So we've been able to tamp that down a bit. But it's not gone yet, which is why we brought that topic still back up and it's the reality of what we're facing today.
Anja Soderstrom: Okay. And then the ACV added $2.9 million in the fourth quarter which is a little bit short of the target of $3.4 million, but you alluded to that being kind of lumpy and you won't report on that anymore to create a misperception. Can you just elaborate on the lumpiness that's created in the ACV?
Allan Dow: Yes. We -- as noted in your comments, you picked up on it exactly. We had a higher level of license fee transactions in the fourth quarter than we had anticipated at the beginning as well as compared to historical trends. Those -- again, those were all with existing clients. There were nothing new from a license fee standpoint, a licensing model standpoint that came into the fourth quarter. But what we have seen in the past is that even existing clients move more to the cloud, the transactions we did in the fourth quarter were dominated more by clients who are doing a very good job of administering the applications in their environment. And as they continue to look for expansion, they felt comfortable continuing to do so. And we still are of a mind that extending the relationship with clients is the right move and that we don't want to put artificial barriers up to them and making decisions to move forward with us. So once they declare their perspective that they wanted to continue their license transaction with us and manage it on-premise for themselves. We quickly agreed to that and wanted to really get down to how do we get them going on the next phase of their journey with us. So it was more about the next phase of the journey than trying to influence their direction in one place or the other. But we are quite insistent if we've got a client that's not doing a good job of administering their applications, we're very persistent in moving them to the cloud so that we can ensure that their success rate will stay high. So I don't think we'll see that in the future. I think we'll go back to where we were maybe in the first, second, and third quarter, which is below $1 million in license fees. And I think that's what we've got in our thinking as we go forward.
Anja Soderstrom: Okay. And then one last one. Is there anything to call out geographically?
Allan Dow: Yes. Nothing extraordinary. But maybe an emerging trend that's worth noteworthy. If you look at the supply chain market outside of us, if you look at us and all of our peers, 55%, 60% of the supply chain expenditure and the planning arena, supply chain planning arena is in the North American marketplace, 25%, 30% of the spend is in Western Europe and then the rest is spread around the world, which doesn't leave a whole lot if you do that math. That's pretty close to our revenue picture as well. If you look at our recurring -- our results on a quarter-to-quarter basis, long-term trend. But what is interesting is that the Asia market is starting to pick up a bit. We're making some investments out there. We're expanding our team. We brought on some new talent. We brought some new leadership into Asia. We're expanding our channels to go into that market. I think the reality is kicking in and even in Asia is that -- which traditionally the reason it's been fairly light in expenditure is they tend to bias towards staff, labor, put some more bodies on the job and you can get the job done. The reality of today's marketplace is you can't -- staffing up, you hit the point of diminishing returns where the amount of staff doesn't make it better. And in fact, it's probably starting to decline their performance. If you put enough people in the room, you can't make a decision about where to go to lunch. So managing your supply chain with a bigger staff is even more complicated. So -- they are starting to realize that and making investments in supply chain planning applications and thus our investments out there. So I think in the longer term, it will take a while to see that really bear out in the numbers. But in the longer term, we're going to see Asia B -- Asia Pac B , in particular, to be a higher percentage of our revenue streams.
Anja Soderstrom: Okay, that works out for me.
Allan Dow: Very good. Thank you so much for joining us, and thanks for the questions.
Operator: And we will take our next question from Zachary Cummins with B. Riley Securities.
Zachary Cummins: Allan, congrats on a solid quarter. I know a lot of the key points I wanted to touch on have really already been asked. But Allan, can you just go a little bit deeper into the mix of the pipeline right now? Give us a little more color on the number of transformational deals that you're seeing in the pipeline and maybe even a little bit more about the inbound interest that you're getting from customers for your solutions?
Allan Dow: Yes. I would say that the predominance of the pipeline right now is focused on transformational activity. It's coming a little bit of a flavor mix. People are -- they're serious about platform, they're serious about rapid decision-making. They're very serious about automation. So the investments we've made in AI and self-learning systems, self-operating systems, prescriptive recommendations being driven out of the application so that they can act and move quickly on those are all critical flavors of what's going on in these transformational projects. With the pace of things changing with the lack of labor or turnover in labor people, the labor force in the supply chain space, the ability to have walking knowledge and be dependent on walking knowledge has become a critical factor for our clients. They just don't have that expertise sitting at the desk anymore. So they're virtually all transformational. But in all cases, they're really -- almost all cases, they look at it and say, where is the critical factor. They want -- they want success quickly. They need value. They need to address some of the challenges. So they're parsing out the projects and phases. We've got many of these transformational projects we're into Phase II, III, and IV right now with our clients. And many of the ones that we're starting on Phase I, have a Phase II, III and IV that are completely lined out and ready to go, but they want to keep an acute focus on the most important thing that they need to address today. And they want to return on investment within six months, which is an area of expertise for us. So it's continuing to attract the noise that we're putting out in the marketplace about the successes in clients and what's happening is continuing to spread organically around the world. Just the number of inquiries, I think, in general, I think these people are addressing supply chain challenges. And then the investments we've made with our SI community has continued to spread the word. Our name is becoming more prominent out there through their dialogue that they're having, and that's attracting people to us as well. So we continue to invest in our team to make sure we can capture on that opportunity and fold it from interest to pipeline into project and the multiple phases that are coming. Zach, again, hopefully, hopefully, I hit the point to your question. If not, we'll go a little deeper.
Zachary Cummins: No, no. That was perfect, Allan. And I know in the last couple of quarters, you've highlighted some improving execution from the sales team. I know a variety of factors, including some delays with deal closings and a litany of different macro factors present some challenges. But can you talk about some of the successes that you've seen in driving the better execution and maybe some areas where you can drive even further improvement in the coming quarters?
Allan Dow: Yes. I think there's -- we've been investing in the team, and we've got some maturity on the team now that is very strong. And we've been talking about prescriptive models of how that works at great value for our clients. It takes a little while to get that messaging well-articulated so that the clients can -- prospective clients can understand what we are talking about. And as we continue to build the case studies with current clients actually executing in that model and seeing the true results of that happen come to bear the speed at which they're getting applications up and running and garnering value, and the value of the phased approach where they can get a quick return, on investments and move to Phase II and move to Phase III, moved to Phase IV successfully, that messaging is strong, and we got clients speaking on our behalf on why that's worked and where the value proposition is. So all those things help to build confidence. And in the area of making these strategic investments, particularly in transformational investments, our prospective clients are sitting there with -- they're really nervous. They're going to make a pretty strategic change in their way they operate their business. They want to have confidence that that's all going to go well and that we're not going to disrupt their business. So our momentum, our success, our clients speaking on our behalf, all help to build that confidence level. And let's just go a little bit quicker at getting people to pull the trigger and get started on the project.
Zachary Cummins: Understood. And final question could be geared towards either you, Alan, or maybe Vince could chime in a little bit as well. But did you see the cash balance really building on the balance sheet, how are you thinking about potential M&A opportunities in a seemingly more favorable environment? And other aspects of capital allocation, potentially, I know the company already pays the dividend, but any sort of commentary on that would be great.
Allan Dow: Well, Zach, you hit on a really favorite topic of mine. So first of all, you're right, we do distribute through the dividend. We think that the current dividend level is fair and appropriate. We obviously are covering that dividend from operational cash flow, and we think that that's a good level there. We'd love to make the acquisitions come true. And I guess, none of us wanted to see the stock market pullback except for -- from this aspect, the valuations of the potential companies that we could tuck in and our operations became much more realistic. So I can say we're in the market. We're working hard to find the right ones that are fit. We've got a criteria that a couple of criteria that we look at for that one, is it a fair valuation. We can get a rapid return on investment on behalf of our investment community and our shareholders. So that's an important factor. But most important is there an opportunity to extend our footprint so we can take it back to our current clients, help them with current challenges, accelerate the revenue gains from an acquisition or reverse that the other way where we take our current applications and go back to the clients that potential acquired company has and sell into them as well. So we're there. We think that that's still the best use of our cash. And we're hard at work to see if we can pull off a couple of those in the years ahead here to add to it. We've done five of them during my tenure of 20 years. They've all been very successful. We hope to find the right ones that will allow us to extend that success rate.
Zachary Cummins: Understood. That's helpful. Best luck in the coming quarter. Thank you very much.
Operator: And it appears that we have no further questions at this time. I will now turn the program back over to our presenters.
Allan Dow: Ashton, thank you so much for helping with the call today, for all those present on the call, we thank you for your participation with us and time and attention this evening, and we look forward to speaking with you again in the quarter ahead. Have a nice evening.
Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.
