American Software, Inc. (AMSWA) on Q4 2021 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to today’s Fourth Quarter and Fiscal Year 2021 Preliminary Financial Results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note that this call may be recorded. It is now my pleasure to turn today’s program over to Vincent Klinges, CFO of American Software.
Vincent Klinges: Thank you, Amy. Good afternoon, everyone, and welcome to American Software’s Fourth Quarter 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, 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.
Allan Dow: Thank you, Vince. As the number of individuals obtaining the coronavirus vaccines continue to escalate through the spring, business leaders’ confidence grew and project activity took off. As we all know, globally, we’re not out of the woods yet in regards to this catastrophic impact of this virus. So, we want to encourage everyone to stay strong and diligent. We can now see a path to a more normal environment, and that end of this -- and the end of this tragic event is within reach. As an organization, we’ve been blessed with good health, and the diversity of our team has allowed us to serve our customers well throughout the pandemic. Having achieved a phenomenal level of vaccination across our team, we’ve now shifted back toward in-person meetings internally and in some cases, externally as well. We anticipate that by fall, we’ll have entered into the new post-pandemic work structure. The pandemic and the ensuing global crisis heightened the awareness of the overall supply chain responsibilities for brands, retailers and producers. I characterize these responsibilities into three categories: economically sound delivery of goods to consumers and brand producers, including an appropriate level of resiliency to the disruptions; the second, minimizing the environmental impact of the supply chain from raw material to consumer delivery; and the third leg, which, in my opinion is the most important, is the ethical treatment of workers around the world. We have decades of experience in enabling economically optimized resilient supply chains. In the past decade, we’ve incorporated environmental impact into decision-making, and we are now at the forefront of ensuring adherence to proper labor standards in alignment with the United States Customs and Border Protection regarding their latest regulations.
Vincent Klinges: Thanks, Allan. For the fourth quarter of fiscal in 2021, revenues were $28.6 million, down 2% from $29.3 million in the same period last year, as we continue to transition to the SaaS model. Subscription fees increased 28% year-over-year to $8.1 million, while license fees were $1.2 million compared to $1.1 million in the prior year. Although license fees were up slightly in the fourth quarter, which principally came from existing customers, we continue to expect declines over time, given our transition to the SaaS model. Near term, we anticipate our license revenues on a quarterly basis are likely to be closer to trend, which is about $0.5 million a quarter seen throughout the past year.
Operator: And we will take our first question from Matt Pfau. Please go ahead.
Matt Pfau: Hey, guys. Thanks for taking my question, and great quarter. First, I wanted to hit on the two deals that were with ACV in excess of $1 million. Maybe just some more detail around those. Were those new or existing customers? And what drove that large deal size? Then, when you look at the pipeline, are there other sort of similar-sized deals in there as well?
Vincent Klinges: Hey Matt, thank you for the question and complements. So, on the first half, both of those projects happen to be with existing customers. In both cases, they -- well, one was a lift and shift where we converted to the entire platform to the new environment, new cloud environment, and then added functionality. So, it was a substantial increase in the amount of functionality and breadth of capabilities. The other is what we’ve termed to be a greenfield application. So, the existing applications are going to stand alone, and we are looking at a complete new way of managing their supply chain and helping them not only with the platform but helping them with a new viewpoint, consulting and advising them on a new viewpoint on how to manage the supply chain in a whole new way in this marketplace. So, it’s a start over. And ultimately, in time, we’ll replace the current applications, but again, an uplift in amount of functionality as well. So both of those happen to be existing customers expanding the footprint this time around. And quite frankly, I forgot the second half of your question, Matt. So, if you wouldn’t mind to repeat the second half of the question, I’d be happy to answer that as well.
Matt Pfau: Yes, no problem. It was just around the pipeline. And are there other deals of this size in the pipeline? You did mention that deal size is increasing. So, just trying to sort of understand, are these outliers or is this sort of going to become more commonplace to have deals of this size?
Vincent Klinges: Yes. No assurance that we’ll get two or more done in any given quarter, but there are certainly a number more in the pipeline, the size of the transactions is starting to -- is continuing to increase. So, throughout this year -- last year, they were hard to come by just for that magnitude of investment. In the year ahead, we anticipate that maybe not every quarter, but consistently through the year ahead, we’ll have projects of this magnitude happening with us.
Matt Pfau: Great. And then, just in general, within your pipeline or I guess, if we look at the deals that closed this quarter, were these deals that had been in the pipeline for a while, and then, as economic outlook started to improve, they converted? And then, sort of where do your other deals in your pipeline stand from that perspective? I guess, obviously, you have two large deals that really made the sequential ACV net increase large this quarter. And I’m just trying to sort of figure out, as we sort of think about growth going forward, what sort of puts and takes this quarter we should think about when we’re thinking about future growth?
Allan Dow: Yes, good question. A real mix one of those two large projects had lingered for some time, and it took them a while to get there. And the second one actually accelerated pretty quickly through the entire process from a decision to go forward and make the investment to getting the contract in place. So, even in the large deals, we had the two ends of the spectrum, really. Overall, we’re seeing a pickup in the pace. However, right now, with the pandemic still in place and most people still working remotely, it is a bit of a challenge to get everything coordinated to get the approvals done. So, we haven’t seen a radical shift in the pace at which we can get from selection or even in commencement of the evaluation all the way to selection and contract, although we’re starting to see that pick up as well. So, we feel good about it. We did have a bit of carryover into the first quarter. We’ve made some good progress on the first quarter already. So, we’re seeing that -- we didn’t clean up everything in the fourth quarter. There was some lingering. And we’re off and running on those projects already. So that -- we feel good about that as well. And -- but I think as the year progresses, I’m a little bit nervous about the summer. I happen to take some time off last week and we witnessed that there’s an awful lot of people out-taking vacation right now, including our family. So, I’m a bit wondering about the summer period, but overall this year, it’s really picking up.
Matt Pfau: Okay, great. And then, just last question for me. Obviously, there’s a lot of supply chain issues going on right now. And I think planning could be a key component of helping with some of those issues. But does that create any distractions within your customer base, or is it more of a net positive issues that are going on right now with people having shortages and difficulty managing their supply chain?
Allan Dow: Overall, it’s a net positive, Matt. Yes, it’s a good observation. There’s a couple of pockets where people are just in such a big state of distress that they’re having a hard time to focus, but that’s few and far between. I think, overall, people are seeing -- what did occur during the pandemic is people realize you can’t just outrun it. You’ve got to outplan it. You’ve got to think about where the bottlenecks are, you’ve got to be able to model those. And when the issues occur, you’ve got to be able to quickly assess what your options are and make decisions rapidly. Otherwise, you get outrun by your competition, and any options that may have been available to you are no longer available because you didn’t act fast enough. So, that has brought an acute awareness of the need for building what we call a digital model, being able to represent the physical supply chain electronically, simulate the possibilities, make a quick decision and act. You can’t outrun the challenges. You have to outplan the challenges. And that’s really where our expertise lies. So, the overall view is that the pandemic has heightened the awareness and brought to light the urgency of acting on these transformational projects and getting something in place, so that they know the next one’s coming. We don’t know what it is or what it’s going to be. But they know the next disruption is going to be there because they’ve always been there. And the customers are starting to make those investments.
Operator: And we will take our next question from Zach Cummins. Your line is open. Go ahead.
Zach Cummins: Hi, Allan and Vince. Congrats on the strong quarter. And thanks for taking my questions. I guess, Allan, what really has changed in the mind of some of your existing customers? I know really that from your perspective you haven’t been forcing these customers to shift over from an on-premise model to the cloud, but to see this magnitude of conversions. I mean, what is really changing there? Are you starting to incentivize customers to move over, or I’m just trying to get a sense of the dynamics that you’re seeing?
Allan Dow: Great question, Zach, and thank you for joining us. We’ve not shifted our thinking or any incentives in a way that would encourage them to do it from a financial standpoint, that we’ve offered any extra spiff or anything like that. It’s truly what’s happening is even our existing customers as well as they’re running the applications today, they realize that there’s more to be had that the current releases, they’re having a hard time keeping up with that we in many cases, as I mentioned about some of the two larger transactions, they’re adding functionality, and they want it all in one cohesive place that they have a single platform, and they know we can manage it better for them. So, that’s a view that’s really starting to drive the thinking. And as they go to extend the footprint, they just -- they move it to the cloud because they know it’s a better solution for them. We’re going to take better care of them. We’re going to keep them up-to-date more frequently, and they can get advantaged on the new technology that we’re making available on each new release. So, we’ve still not -- we don’t -- we’ve not and we don’t think we’re going to have to provide any special incentives, just the benefits associated with moving to our cloud environment and our value-added services has been enough to change that. So, in the past -- I’m probably giving you a little more answer than you asked for. But in the past, we were seeing a fairly low conversion rate, maybe one or two per quarter were converting from on-premise to the cloud. And we’re anticipating that this year ahead that we’re looking at three or four a quarter will probably be in the conversion rate that we should expect going forward. So, it’s still not a crazy number. It’s not half of our installed base converting, but it’s double what it was last year. I guess, you could look at it from that perspective.
Zach Cummins: Understood. That’s helpful. And then, in terms of your sales and marketing capacity, I mean, just given the demand that you’re seeing, do you feel like you have enough capacity in place right now? And kind of what is the approach when it comes to investing in headcount and your go-to-market approach?
Allan Dow: Yes. I think -- well, of course, we have two channels that we’ve talked about in the past. We’ve got our direct sales model, which is for large enterprises, organizations in North America and Europe. We think we’re in pretty good shape in that environment. We -- during the pandemic, we didn’t pull back. We continue to invest, and we expanded the team because we wanted to be ready, shovel-ready when we came out of the pandemic. So, we think we’re in a good position, at least for the first half, maybe able to carry us through the year. We’re going to really focus on the productivity of the team we have and make sure that we’re getting all the value. It takes some time to get them onboarded, and we’re there. They’re ready to go. They’re working hard. They’ve got pipeline. They’re generating results. In regards to our indirect channel, which gives us local presence through a value-added reseller network. We are continuing to expand capacity there. We’ve got segments of the globe that are really maturing from a supply chain standpoint, and they’re starting to look for solutions. So, we’re trying to fill that in. And we’ve got a few pockets where we need to expand coverage and get some more resource in place. So, we’ll probably -- over the next year, we’ll probably add about a handful more of strategic partners that are the value-added resellers. And then, I made mention of, of course, the expanding partner network from an implementation resource standpoint. As we look forward, we think that that channel will be able to fulfill at least half of the expanded service requirements that we have for the growing customer deployments. And that ecosystem builds on itself. I mean, number one, they’ve got resources for us that can help us implement and provide good guidance and support for customers, but they also are generating activity out in the marketplace, and they’ll fold that back in and bring those opportunities to us as well. So, that’s a double benefit from the standpoint of that partner network.
Zach Cummins: Got it. That’s helpful. And Allan, can you give us an update on the overall competitive environment? I mean, with Blue Yonder in the midst of being acquired, I was just wondering if you’ve seen any sort of changes in the dynamics of the environment?
Allan Dow: A couple of things that are probably most significant. One is really around the ERP players. We’re continuing to see the likes of Oracle and SAP and maybe even to some extent, to a lesser extent, these are not quite so prominent in our space, in four and some others. They just don’t have the depth of capability and breadth that’s necessary to fulfill the requirements of today’s supply chain projects. So, we’re continuing to see defections. Those who may have been acutely biased towards SAP, for instance, are making decisions to move away, and we’re picking up some business from that channel. So, that’s a continuing evolving competitive landscape. We’re not yet sure what will come about from the Blue Yonder being acquired or wholly acquired by Panasonic, where they picked up the rest of the company and own it all now. There’s one thing for sure though that there will be changes. And with those changes -- they know what those changes are, but we’re seeing a little bit of chaos out there in the marketplace. Our folks are just not sure what’s happening. And I think that will take a little time for it to settle out. So, we could have a window here where there’s some confusion around just what that strategy means.
Zach Cummins: Understood. And my final question is more of a financial one. I know you don’t provide formal guidance, but Vince, I was wondering if you could just give us a sense of I mean your overall targets for revenue growth and adjusted EBITDA margin as we progress in the upcoming years?
Vincent Klinges: Well, Zach, yes, as you know, we don’t give guidance, so. But generally, we’re hoping to grow to maybe the low double digits rates on the revenue side. And with that kind of growth, we should be able to get closer to maybe somewhere between 12% to 15% adjusted EBITDA percentages.
Operator: It does appear that we have no other further questions on the line.
Allan Dow: All right. Well, Amy, thank you for helping us today. Thank you all for joining us this afternoon on our fourth quarter and fiscal year earnings call. We’ll look forward to a further meeting with you again, if not before, then, at the next earnings call in three months. Thank you.
Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
