American Software, Inc. (AMSWA) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone, and welcome to today's Second Quarter Fiscal Year 2021 Preliminary Financial Results Call. It is now my pleasure to turn today's program over to; Vince Klinges, CFO of American Software. Please go ahead.
Vince Klinges: Thank you, Jamie, and good afternoon, everyone, and welcome to American Software's Second Quarter of Fiscal 2021 Earnings Call. On the call with me is; Allan Dow, President and CEO of American Software. Allan will provide some opening remarks, and then I will review the numbers. But first, I'd to remind you that 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.
Allan Dow: Thank you, Vince. As we all continue to grapple with the level of uncertainty regarding the pandemic and a contentious political arena, we know that many individuals, families and companies have been adversely impacted. But we want to encourage everyone to stay strong. Personally, and on behalf of the company, I want to express our gratitude to all the frontline workers in first responders, who continue to work tirelessly to keep us all safe and healthy as we battle through the resurging health crisis and the emotional and financial roller coaster, we've experienced this year. As an organization, we've been blessed with good health, and the diversity of our team has allowed us to make balanced decisions about how we serve our customers well while maintaining a safe and productive work environment. In regard to our second quarter results, I am pleased with how our team has remained focused on serving existing customers, accelerating ongoing implementations and bringing new companies into our customer community. We generated solid net new ACV growth. And as expected, our churn rate returned to the nominal levels we have seen historically. We held our first ever virtual customer conference named Disruption Rx in October, where it was amazing to hear so many inspirational stories about how our customers have leveraged our team members' insights to unleash the power of our solution platform. Our customers have dealt with both ends of the spectrum for managing explosive growth for products and high demand to mitigating the staggered impact this pandemic has had on the bricks-and-mortar retail. We had a global record turnout for this event, which has stimulated a tremendous amount of collaboration across the customer community. This, in turn, is driving more success as well as creating incremental interest in new projects with existing customers and new prospects.
Vince Klinges: Thanks, Allan. Comparing the second quarter of fiscal 2021 to the same period last year, total revenues were 29 -- excuse me -- $27.9 million for the current quarter, and that compares to $28.2 million in the same period last year. As Allan mentioned, our subscription fees increased 27% to $7 million for the quarter, and that compares to $5.5 million in the same period last year. While our software license decreased 57% to $0.5 million for the current quarter compared to $1 million the prior year period.
Operator: Our first question comes from Zach Cummins. Your line is open.
Zach Cummins: Yeah. Hi. Good afternoon, Allan and Vince. Thanks for taking my questions. And nice to see the bounce back here in the ACV number in the quarter. Allan, I was just curious, first off, just get some of your feedback from your virtual customer conference at Disruption RX. I mean, can you talk about any of the follow-through, you've seen in terms of potential new customer lead and even expansion of business with your existing customer base?
Allan Dow: Sure thing. Yeah. It was a tremendous event. As I said, we had a record turnout, about three times what we had seen in the past in the physical events. And of course, it's a little easier to participate when it's virtual than it is to have to get on an airplane and travel even in the best of times. But we were excited about that, and it allowed us also to engage a much more global community. We traditionally have held the event in North America, because of the predominance of customers being here in North America. But this is a much more balanced event. We also had a record turnout for prospective customers, people who aren't currently using the applications, but participated and the theme of the event was around managing – managing around the disruption, and disruptions in general, not just the current ones that we've been experiencing.
Zach Cummins: Understood. That's helpful. And then to that point, I was going to be curious as to what you've seen in terms of sales cycles. I know, some other players in the supply chain planning space have highlighted some longer sales cycles in some instances, due to the pandemic. I was just curious, what you've seen in terms of sales cycles here in recent months?
Allan Dow: Yeah, great question, Zach. It's – and there's two prongs to it. First of all, particularly on larger transactions, we're seeing probably traditional, maybe even accelerated cycles getting to a decision and getting to the point where we start engaging around the contract in the final approvals. It's the contracting process and final approvals that we're seeing are running a little bit longer than history. And I truly attribute that to just the ability to get people attention. The focus team that's working on the project, that's going to work on the project, that's living with the challenges that they face in their supply chain without having to the capabilities we offer. They're really excited. They're engaged. They're making decisions quickly. It's at higher level when you get to the legal and financial process of getting the approval, that's been a bit challenging. The flip side of it is, for a couple of quarters in a row now, we've had opportunities that bubbled up and actually got all the way to contracting kick off in a very short cycle, like three to four months, and we had not historically seen that and that was -- those projects -- I mean, there's only a few in each case in each quarter, but that's been an interesting model where people have really the need to do something quickly, and they've acted quickly, and they moved all the way through engagement, review decision, contracting and getting an implementation going. So, it's been kind of amazing to see how quick people can work when they are really motivated.
Zach Cummins: Understood. That's helpful. And then in terms of professional services, I mean, especially on the supply chain management side, I know still a few struggles there with people being on vacation here, but can you speak to some of the utilization rates? And I believe Q3 tends to be seasonally slower, but it sounds like that could likely not be the case this year just given your full virtual model?
Allan Dow: Yes, we truly believe that. We're seeing that -- we're not that far from the holidays as hard as that is to believe, but we're seeing the project plans that are laying out where people are pushing a little harder and continuing to work. I think just the nature of not having to travel, people are willing to take that extra day or partial week and actually do some productive work. So, we do anticipate -- we'll see how it plays out, but we do anticipate that it won't be as dramatic as it was in the past, when our consultants were getting on an airplane and flying out and the clients had to come to the office or in many cases, travel as well. When you hit the holiday week, they just didn't want to do that, and they basically put the project in suspension. So, we think there's a -- there'll be some degree of seasonality to it, but not as dramatic as in the past. We came out of the summer, was -- on the last call, we had talked about that. I think, Zach, you may have been to want to ask the question, but we saw a slowdown in the summer that we had not anticipated just because people went on brake. It kind of felt like we were on brake, but the reality is people were under a lot of pressure. Given what we've been through. And they did take a break that slowed down. We got back and get back to pretty good speed. We had some churn in projects where we were ending projects and restarting some new ones that had come in so we had a little turnover in teens getting on to the new projects. So, it didn't come back quite as strong as we had hoped here in the second quarter with the lingering holidays and starting up some new projects. But we think it will be strong into the holidays. So, I do -- as I said earlier, I do think it will be relatively flat to Q2 based on what we can deliver.
Zach Cummins: Understood, that's helpful context. And then just final question for me. I was just curious on your plans for sales and marketing spend in the coming quarters. I know you brought in some pretty key new talent in August, but how are you feeling in terms of sales capacity in place, just given all the demand that you're seeing right now?
Allan Dow: Yes, I think we still have room for growth. We're looking for some key individuals. When we find them, we'll bring them in. I don't think -- we're not in a position where we need to double down or do something any dramatic like that. But pipelines are full. The sales team members are busy. So we're looking specifically for a few key roles to get tilt as soon as we can find the right resources. It's a little challenging to get people on board and up to speed in this environment because you can't -- it's difficult to sit across the table and get people ramped up. But growth is still in our plans and we'll do it logically as we can and work our way through the holiday period here looking forward.
Zach Cummins: Great. That's helpful. Thanks again, Allan for taking my question and best of luck in the coming quarter. And hopefully you have an enjoyable holiday season.
A – Allan Dow: Yes, likewise Zach. Thank you for joining us again. Thank you.
Operator: Our next question comes from Matt Pfau. Your line is open.
Matt Pfau: Hey guys. Thanks for taking my question. Wanted to start off with churn and good do here that -- that returned to pre-COVID levels. And as you look out across the customer base, do you see any other customers that are in potential financial distress that could make this metric tick back up over the next several quarters, or do you think we're kind of in a state now where some of the more financially distressed customers have been flushed out and your expectation is kind of to be around this pre-COVID level going forward?
Allan Dow: Matt, Allan here. Yes, thanks. Again, thank you for joining us and great question. We don't have a crystal ball. But as we look at the customers that are out there today, they're active users, they're busy. They're engaging with us. They're working on it. So we can't make a prediction about their financial condition, although they're reporting, we can see that. But we think we're solid and we don't see a dramatic level of churn in the next quarter or so as we look out and that's about as much visibility as we can get as a couple of quarters out, probably at best. So we think this -- we think we've got it behind us. It looks promising. There's a lot of activity and acceleration out there. So we think we're in a pretty good position now relative to that churn rate settling.
Matt Pfau: Great. And one of the things you mentioned in terms of getting deals across the line or one of the challenges is getting people's attention and as we move into the holiday season here. It's obviously a higher level of unpredictability than normal, and that could potentially be a distraction. So how are you thinking about that in terms of its impact on your guys ability to close deals here in the current quarter that you're in. And then, I guess, the offset to that, too, is your software obviously helps with unpredictability and creating plans and adjusting them. So how do those 2 sort of dynamics impact you guys?
Allan Dow: So on the first one, I think what we're seeing is – well, the third quarter historically has been a positive one for us for a couple of reasons -- 3 reasons actually, that I always quote. Number one is, that you have end of the year money and to the extent that that's been budgeted and allocated. And then in most companies, it's a user or losing scenario. So companies, if they've got a commitment and they've progressed the project, they'll use that to leverage to get people's attention and move the ball forward. So we think that the December season, for instance, is quite a good one because that's that year-end money use or lose it situation. So we'll leverage that as best we can to move those opportunities through the final stages. Then the other nice piece you have is the beginning of the year with new money coming available. And those who have progressed projects, made the decisions, done a little legal work. As soon as they can get their hands on the budget in the new fiscal year, they have the ability then to put them to paper, sign it and put it on the books. So oftentimes, we'll see early in January. We've got a bit of bump there where people are all trued up, ready to go and ready to act on it. And then, of course, we have the end of the fiscal calendar for us, which is always a closing event for every software company. So we've got three trials at it. We think this year will look like a traditional model, where it will be strong for us from a deal closing standpoint. And we feel pretty good about that. Yes, and I'm with you on that. The need for applications is strong. We've got a lot of pipeline around the finalization of next fiscal year, next calendar year/fiscal year budgeting. A number of companies, a number of projects are queued up for that. They look good. So I'm feeling good about the supply chain market in general and our ability to execute in that market and people actually putting dollars to their need in the year ahead. So I think, as we've said several times, the second half for us, the second half of the fiscal year for us still looks quite good.
Matt Pfau: Got it. Okay. And then looking at the license fees in the quarter, it was a decent step down sequentially. And I guess my understanding from our prior conversations is that the majority of those license fees are sales to existing customers that were already using the licensed products. So that stepped down, is it is it just timing, or are you seeing more existing customers move over to the cloud product?
Allan Dow: Yes, we're not – at this point, we're not seeing a dramatic what we call lift and shift, where they move from an on-premise model over, but we are seeing all of the license fee transactions we did were worth existing customers, no new customers in the past quarter. We are seeing an acceleration, where existing customers extending their footprint actually put the new capabilities in the cloud. With an eye of potentially in the future, bringing everything together under the cloud. And then we still have maybe a small, minor uptick, a relatively small uptick in people that are doing a shift. So overall, I think we're seeing the solidification of the cloud-first strategy. In the minds of our – even our existing customers where anything new they do or if it's a new set of capabilities, they'll put it in the cloud-first perspective.
Matt Pfau: Great. That’s all I had guys. Thanks a lot for taking my questions.
Allan Dow: Thank you so much. Thanks. Have a good evening and again, thank you for joining us.
Operator: It appears we have no further questions at this time. I will now turn the program back over to Vince Klinges for closing remarks.
Allan Dow: Thank you, all. This is Allan, actually. But thank you all again for joining us. We appreciate your participation on our earnings call, and we look forward to speaking with you all again in the near future. Jamie, thank you for hosting.
Operator: This does conclude our call. Thank you for your participation. You may disconnect at any time.
