Sep 4, 2018
Executives
Vincent Klinges - Chief Financial Officer Allan Dow - President
Analysts
Kevin Liu - B. Riley FBR
Operator
Good day everyone and welcome to the First Quarter Year for 2019 Preliminary Results Call. 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. [Operator Instructions] Please keep in mind this call is being recorded.
It is now my pleasure to turn today’s call over to Vincent Klinges, CFO of American Software. Please go ahead, sir.
Vincent Klinges
Good afternoon, everyone and welcome to the American Software's first quarter of fiscal 2019 results. On the call with me is Allan Dow, President of American Software.
I will review the numbers and then Allan will give some remarks after that. But I would like 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.
Future developments and actual results could differ materially from those set forth in contemplated by or underlying in the forward-looking statements. There are number of factors that could cause actual results to differ materially from those anticipated by 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.
Comparing the first quarter of fiscal 2019 to the same period last year, our total revenues increased 2% to $27.4 million, compared to $26.9 million in the same quarter last year. License fees decreased 58% to $1.7 million, compared to $4 million for the quarter, while our subscription fees increased 96% to $3.2 million, compared to $1.6 million last year due to the increase in customer interest to deploy on the SaaS cloud environment.
Our cloud services ACV or Annual Contract Value increased by approximately 71% to $13.2 million for the current quarter, compared to $7.7 million for the same period last year. Total ACV is comprised of two components; the first one is SaaS ACV of $10.4 million which increased 93% compared to approximately $5.4 million during the same period last year; and other cloud services such as managed services and hosting, that also increased 20% to $2.8 million, compared to $2.3 million last year.
Looking at services and other revenues, that increased 6% to $11 million for the current quarter primarily due to increase in our projects at our IT Consulting segment. Maintenance revenues increased 6% to $11.5 million, compared to $10.8 million of last year due to increased license fees in recent periods and also due to the Halo acquisition.
Our combined recurring revenue streams of maintenance and cloud services were 54% of total revenues for the current quarter ended July 31, 2018, compared to 46% in the same period last year. Looking at costs, our overall gross margin was 50% for the current quarter and that compares to 57% in the prior year quarter.
License fee margin decreased to a negative 1% for the current quarter and that compares to 62% for the same period last year and that's due to lower license fees. Our subscription fee margin increased to 66%, compared to 58% in the same period last year due to increase in cloud service to cloud revenue streams.
Our services margin decreased to 21%, compared to 30% for the same period last year due to timing of some larger implementation projects that ended during the quarter and newer projects that not yet started and also due to increase in our services revenue coming from our lower IT consulting business unit. Our maintenance margin increased to 81% for the current quarter, compared to 79% in the same period last year and that’s primarily due to increased maintenance revenue.
Looking at our operating expenses, our gross R&D expenses were 17% of total revenues for the current period, compared to 14% in the same period last year and that’s primarily due to increased headcount from our Halo acquisition in the third quarter of fiscal 2018. As a percentage of revenue, sales and marketing expenses were 19% of revenues for the current and prior year periods.
G&A expenses were 15% of total revenues for the current period, that’s compared to 13% for the same period prior year. That’s primarily due to expenses related to the Halo acquisition and audit-related fees.
So our operating income decreased to 83% to $607,000 this quarter, compared to $3.6 million the same period a year ago. Our adjusted EBITDA which excludes stock-based compensation decreased 47% to $2.8 million this quarter, compared to $5.3 million the same period last year.
Our GAAP net income decreased 49% to $1.4 million or earnings per diluted share of $0.04 per share for the current quarter, compared to a net income of $2.7 million or $0.09 earnings per diluted share. Adjusted net income was $2.2 million or adjusted earnings per diluted share of $0.07 for the first quarter, compared to net income of $3.1 million or adjusted earnings per diluted share of $0.10 for the same period last year.
These adjusted numbers exclude amortization of intangible expenses related to acquisitions and stock-based compensation expense. International revenues for this quarter were approximately 20% of total revenues for the current and prior year quarter.
Looking at the balance sheet, our cash position and long-term investments remain strong with approximately $87.4 million at the end of July 31, 2018 and during the quarter we paid $3.4 million in dividends. Other aspects of our balance sheet, our billed accounts receivables was $13.7 million, unbilled $3.5 million for a total of $17.2 million.
Our deferred revenues were $29.5 million and our shareholder equity is $115 million. Our current ratio was 2.8 as of July 31, 2018 and that compares to 2.7 in the same period last year, and our days sales outstanding as of July 31, 2018 was 57 days, compared to 56 days in the same period last year.
At this time, I would like to turn the call over to Allan Dow.
Allan Dow
Thank you, Vince. We continued the transition to the Software-as-a-Service engagement model which was evidenced by the 96% growth in our subscription fees over the same period last year.
In fact, due to the continued growth in our cloud business for the first quarter report we began to break out our cloud services revenue as an independent line item on our P&L, which will provide more clarity on the continued growth of that revenue stream. We are very pleased that we have continued to achieve our financial objectives during this transition that is to continue growing revenue which grew by 2% and to remain profitable which we achieved $2.4 million in EBITDA in the quarter.
Overall, this is another good quarter. We are pleased that our teams’ achievements and their ability to flex to this new operating model so that we can deliver to the expectations of our customers.
Our recurring revenue streams of maintenance and cloud services represented 54% of total revenues in the first quarter, compared to the 46% in the same period of the prior year which we expect to continue trending higher in the future. We are pleased to report that we are on track with our business strategy built on uniquely delivering digital planning suite to enable our customers to manage their products from concept to customer achieving the increased visibility, digital planning and business expertise necessary to become part of the connected enterprise and migration towards an automated supply chain.
As Vince already indicated, our cash and investments at the end of the quarter were approximately $87 million, that was after distributing the $3.4 million in shareholder dividends. This gives us a strong foundation for our operating model and sufficient room for additional strategic investments in new products and service offerings to enhance the results our customers can achieve.
Looking forward, we are continuing to see an uptick in the manufacturing planning opportunities, which can be attributed to the increased factory capacity utilization in many segments. This is also driving increased interest in our supply chain management, strategic sourcing and vendor compliant solutions which is further stimulated by the new realities of a consumer-driven retail market.
Last week, we received some very good news when Gartner, the technology industry’s leading analyst firm published the Magic Quadrant for their analysis of vendors providing supply chain systems of record where both our Voyager and Demand Solutions brands were positioned in the leaders' quadrant. We believe our leadership recognition by Gartner supports our vision for delivering innovative solutions that help businesses mitigate risk, increase profitability and optimize their planning processes.
Furthermore, being positioned as the highest in the ability to execute is affirmation of our continued passion for customer success. In summary, we are pleased with the overall results from our first quarter as we work for continued success while closely monitoring the global economic conditions, so that we are prepared to assist our customers with managing through today’s uncertain trade challenges.
We continue to focus on our core purpose, which is to make our customers more successful and we’ll leverage our investments to help them achieve the supply chain competitive advantage. We are confident that we will continue to drive profitability – profitable growth during our transition to a SaaS engagement model and are proud to be delivering incremental benefits for our customers.
The results are exciting and continue to fuel our investments to maintain a leadership role in the supply chain and retail planning space. Miranda, at this time, we’d like to open the call for any questions.
Operator
[Operator Instructions] And it looks like we’ll take our first question from Kevin Liu with B. Riley FBR.
Please go ahead. Your line is open.
Kevin Liu
Hi, good afternoon. First question, I was wondering if you could just provide a little bit of perspective on how you feel the broader macro economy is impacting your business right now?
Specifically, GDP has obviously been good and you guys have highlighted that as a tailwind at the same time there are more kind of fears that a trade war could break out. So what are you seeing in terms of your customers’ buying behavior whether deal cycles are still moving along at the rate you progress, that sort of SaaS?
Thank you.
Allan Dow
Hey Kevin, this is Allan. I’ll take that question.
There is a lot of discussion about that. There is – folks are very nervous about that which is opening up the dialogue and continuing the dialogue.
I would say our close rates are consistent with what they’ve been in the last couple of quarters. But, we are conscious of that discussion and some of those concerns that are out there and just want to continue to reassure them that are actually our applications will help them through those challenges.
As the trade wars pick up, there is a potential where they have to shift their production and sourcing requirements and where they may be able to bring products from and we actually provide some great solutions to help them navigate their way through that. So, we are trying to reinforce that our solutions are probably the right thing to be investing in right now as opposed to any other places they can place their bets and invest their money.
Kevin Liu
Yes, it makes sense. And I realize that licenses are always going to be difficult to predict, especially when you are going through this transition to the cloud.
As you look at that $1.7 million number for the first quarter, do you attribute that more sort of just kind of normal seasonality or Q1 would kind of be the low point and you build from there? Or does the shift to cloud has a more pronounced impact and we could see that number fall further in subsequent quarters?
Allan Dow
You are right. The summer months are always tough.
We did a number of transactions, probably consistent with what we expected. There was a dramatic shift towards the Software-as-a-Service model though.
I wouldn’t say that that’s a complete indication of what we’ll see going forward. We are going to see some ups and downs in the balance between license contracts, perpetual license contracts in the Software-as-a-Service model as we go.
But what we unheard of that we’ll see quarters in the future that looks similar to this past quarter where the real push is towards the Software-as-a-Service model.
Kevin Liu
Got it. And just on the services, I think Vince mentioned that margins were a little depressed relative to prior periods that’s because some of the engagements that completed.
Can you give us a sense of what the backlog on services looks like and how quickly you think services returns to a kind of more historical margin levels?
Allan Dow
Yes, they’ve already started to pick back up again. It was kind of unique situation we were in when we had a number of large projects that we’re winding down as the summer months were kicking in and unfortunately people don’t want to start new projects.
It’s not so much on our side. I mean, we can help manage through that process and have the resources available if they wanted to start up.
But on the customer side, they were looking at more positioning towards post-vacation period to get projects restarted again or start their new projects that they were working on. So I think it was a bit of an anomaly in there.
We’ve already started to see people pick back up again and we’ve got the resources back on the street. So, backlog, it looks good.
It’s fairly strong and we should be able to show the continued growth momentum coming into the second quarter and beyond.
Kevin Liu
All right. Great.
And then, just lastly with the acquisition of Halo and kind of integration efforts there so far, are you starting to see kind of more cross-selling opportunity happen or are you still closing largely deals with Halo only? And then, just how do feel that could contribute to your overall revenue growth this year?
Allan Dow
Yes, we are seeing the consistent numbers for the standalone transactions that has Halo in them that that they were doing prior to the acquisition. But we are seeing a significant uptick in the number of transactions that have elements of the Halo solutions embedded into them and that’s filtering through the pipeline and we are starting to see that come together now.
So, you’ll continue to see that influence our results going forward.
Kevin Liu
Okay, great. Thank you for taking the questions.
Allan Dow
Sure. Thanks, Kevin.
Operator
[Operator Instructions] And it appears that we have no further questions over the phone at this time.
Allan Dow
Miranda, thank you very much. We’d like to thank everyone for joining us this evening and look forward to our conversations again in the near future.
Operator
This does conclude today's program. Thank you for your participation.
You may disconnect at any time and have a wonderful day.