Dec 3, 2014
Executives
Vince Klinges - CFO Mike Edenfield - CEO
Analysts
Kevin Liu - B. Riley & Co.
Matthew Galinko - Sidoti & Co.
Operator
Good day and welcome to the Second Quarter Fiscal Year 2015 Preliminary Results Conference Call. [Operator Instructions] And please note, today's call is being recorded.
It is now my pleasure to turn the conference over to American Software's CFO, Vince Klinges. Please go ahead.
Vince Klinges
Good afternoon. On the call with me are Jim Edenfield, the Executive Chairman of American Software, and Mike Edenfield, the CEO of American Software.
To begin, I'd 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 qualified 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 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 timing, availability and market acceptance of these products and services, the effective competitive product 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 Mike.
Mike Edenfield
Thanks, Vince. The company started the second quarter with a backlog and sales opportunities that was expected to yield a number of new customers and very positive license fee revenue results.
However, a number of opportunities were delayed for a variety of reasons, but mostly extended capital approval cycles with our customers. The good news is that those opportunities are still in our pipeline and we have continued to add others.
For the third and fourth quarters, we expect to improve our closure rate and have a good chance of ending our 2015 fiscal year with improved results over fiscal 2014. We've also made progress with our MID Retail acquisition.
If you recall, MID Retail has great products but did not have a sales or marketing organization. We've hired some retail sales consultants and trained our sales force on our new retail software products.
We have built a pipeline of opportunities and are receiving good feedback from the prospective customers. I'd like to turn the call back over to Vince for the details of the quarter.
Vince Klinges
Thanks, Mike. Comparing the second quarter of fiscal 2015 with the same period last year, total revenues for the quarter decreased 9% to $24.6 million, and that compares to $26.9 million in the same quarter last year.
License fees decreased 51% to $3 million compared to $6.2 million for the same period last year. Services and other revenues increased 1% to $11.8 million for the current quarter, and that compares to the same period last year.
Services revenues decreased at NGC 10% as a result of lower license fees in recent periods and the [indiscernible] decreased 8% as a result of timing of project work. This decrease was offset by a 20% increase at Logility due to increased implementation project work from increased license fees in the recent quarters and services from the recent MID Retail acquisition.
Maintenance revenues increased 8% to $9.8 million, and that's compared to $9.1 million the same period last year, and that's increased -- increase is due to license fees increasing in recent quarters and also improved retention, and then maintenance revenue from the recent MID Retail acquisition added about $250,000 to the current quarter. Looking at gross margins, the overall gross margin was 49% from the current quarter, and that compares to 58% to the same period last year.
License fee margin decreased to 41% for the current quarter, and that compares to 81% in the same period last year, and that's due to higher software amortization expense, by approximately $900,000, as a result of the beginning of the amortization of the Voyager 8.5 project at the end of the fourth quarter of last year, and also due to lower license fees. Services margin increased to 28% for the current quarter, compared to 30% in the prior-year quarter.
And that's due to timing of revenue recognition of some deferred revenue services implementation work that we're working on. Maintenance margin was 78% for the current and prior-year quarter.
Looking at operating expenses, our gross R&D expenses were 14% of total revenues, and that's up from -- compared to 11% the same quarter last year. And this increase is primarily due to the MID Retail acquisition which added about $420,000 to the current quarter R&D expense.
As a percentage of revenue, sales and marketing expenses were 19% of revenue for the current and prior-year quarter. G&A expenses were 13% of total revenues for the current quarter, compared to 11% the same quarter of last year, and that's primarily due to MID Retail expense.
Operating income decreased 74% to $1.4 million for this quarter, compared to $5.4 million for the same quarter last year. The operating results were impacted by several items, such as lower license fees, the effective MID Retail operating loss of approximately $600,000 for the current quarter, and the increase in software amortization of approximately $900,000, the timing of capitalized R&D efforts resulting in lower capitalization by about $260,000 when compared to last year, and also deferring about $200,000 of services revenue related to a Voyager implementation that's predicated on acceptance work.
Adjusted EBITDA, which excludes stock-based compensation, decreased 48% to $3.2 million this quarter, and that compares to $6.2 million the same period last year. GAAP net income was $1.2 million, or earnings per diluted share of $0.04, and that compares to net income of $3.7 million or $0.13 for earnings per diluted share for the same period last year.
Adjusted net income was $1.8 million or adjusted earnings per diluted share of $0.06, and that compares to net income of $4 million or adjusted earnings per share of $0.14 for the same period last year. And these adjusted numbers exclude the impact of the MID Retail acquisition, the amortization of intangibles related to other acquisitions, and then stock-based compensation expense.
International revenues this quarter were approximately 17% of total revenues for the current and prior-year quarter. Looking at the full year, total revenues year to date decreased 2% to $49.4 million compared to $50.3 million.
License fees year to date were $7.4 million compared to $9.4 million the same period last year. Services revenues year to date are $22.8 million year to date, compared to $22.9 million.
Maintenance revenues year to date are $19.3 million, compared to $17.9 million. Looking at costs year to date, the overall gross margin was 51%, compared to 55% year to date.
License fee margins were 53%, compared to 75% last year. And services margins were 28%, compared to 29% last year.
And our maintenance margin was at 78% year to date, and that's the same as last year. Looking at the operating expenses, our gross R&D expenses were 14% of total revenues for the six months ended October 31st, 2014, and that compares to 11% for the same period last year.
As a percentage of total revenues, sales and marketing expenses were 19% for both the current and prior-year period. G&A expenses were 13% of total revenue year to date, compared to 12%.
So our operating income year to date was $3.5 million, compared to operating income of $7.8 million last year. Adjusted EBITDA year to date was $7.2 million, compared to $9.9 million same period last year.
Our GAAP net income was $2.7 million year to date or $0.09 earnings per diluted share. That compares to a net income of $5.3 million or $0.19 earnings per diluted share last year.
Our adjusted net income year to date was $3.8 million or adjusted diluted share of $0.13, compared to net income of $5.9 million or earnings per diluted share of $0.21 for the same period last year. International revenues year to date for this -- year to date for this year and last year were approximately 17%.
Looking at the balance sheet now, the financial position of the company remained strong, with cash investments of approximately $69.5 million at the end of October 31st, 2014. During the second quarter of fiscal 2015, the company repurchased approximately 87,000 shares, for approximately $780,000.
And we also paid $2.8 million in dividends. Other aspects of the balance sheet, the billed receivables were $13.5 million, unbilled was $2.9 million, for a total of $16.5 million of account receivables.
Our deferred revenues current are actually $24 million. Deferred revenues long term are approximately $0.5 million.
Shareholder equity is $90.3 million. Our current ratio is 2.4 as of October 31st, 2014, and that compares to $2.8 million the same period last year.
And our days sales outstanding as of October 31st, 2014 was approximately 61 days, versus 58 days for the same period last year, and that's due to timing of sales and the rate of [ph] collections. At this time I'd like to turn the call over to questions.
Operator
[Operator Instructions] We'll take our first question from Kevin Liu with B. Riley.
Please go ahead.
Kevin Liu - B. Riley & Co.
Thank you for taking my questions. I guess first off, just I know you mentioned there were a lot of [indiscernible] that hurt the quarter.
But I guess when we think about the context of you having that pipeline to grow versus last year, mainly license revenues this quarter coming in below the first quarter, just wondering if you can add a little bit more color as to why the slippage was that significant. Were you depending on a handful of large deals that just didn't close, were there other issues from the sales execution standpoint that you could call out, or do you feel like it's purely a macro issue?
Mike Edenfield
We just didn't get the approvals from the customers, we're selected and our sponsors were going to do the project, and they're having to jump through more hoops, it seems like, to get approval. So --
Kevin Liu - B. Riley & Co.
Okay.
Mike Edenfield
Yeah.
Kevin Liu - B. Riley & Co.
And what about with respect to your optimism that the next few quarters could be a bit better, I understand the deals are still there, but have you seen signs that these approvals are trying to make their way up the chain, and is there any optimism that you have that there could be the normal calendar year end-budget flush [ph] that could help you guys on the license side?
Mike Edenfield
Yeah. Usually December helps us if it's a calendar company, right?
And then also we get sort of a double-close type situation because our third quarter ends in January and companies try to take advantage of that sometimes. So we've got two catalysts potentially to move along.
So -- but nobody is -- they're still working on it and nobody said you're not going to have to get this one or that one or this one. And so it's just really, you know, we're very pregnant right now.
I mean we have a huge, huge deals that really are ready to pop. And that's why we're optimistic about it.
Kevin Liu - B. Riley & Co.
Got it. And just with respect to the MID Retail pipeline that you started.
Are these opportunities that you've also gotten signed off and just haven't gone the final approvals or are these earlier-stage, would be more of a contributor to the next fiscal year?
Mike Edenfield
Some are early, but some we think we will have this fiscal year, yes.
Kevin Liu - B. Riley & Co.
All right. That's all I have for now.
Thanks.
Mike Edenfield
Thank you.
Operator
Thank you. We'll take our next question from Matthew Galinko with Sidoti.
Please go ahead.
Matthew Galinko - Sidoti & Co.
Hey, thanks for taking my question. Just a couple for you.
I guess the first quick one is, how much do you have on the repurchase authorization here?
Vince Klinges
Well, Matt, this is Vince. We have a little over a million shares to buy back on the stock repurchase program.
Matthew Galinko - Sidoti & Co.
Got you. And then I guess as it pertains to some of the delays, are you seeing any opportunity to push customers more towards the staff end of things to help get them over the finish line or do you see that as being sort of a potential asset in clearing some of that pipeline a little bit more easily, if you will?
Mike Edenfield
Well, actually we've done some of that, but actually that's more of a delight, because then you -- then they can just go, you know, they just go month to month, and if they don't like it, they cancel. So actually the evaluation goes longer.
Matthew Galinko - Sidoti & Co.
Got you.
Mike Edenfield
Some of our transactions are SaaS, but we want them to commit to through years.
Matthew Galinko - Sidoti & Co.
Got you. So I mean, can you get them into a long-term contract on SaaS or is it just, you know?
Mike Edenfield
We can -- most of our SaaS proposals are through years.
Matthew Galinko - Sidoti & Co.
Got you. All right, that's all I've got.
Operator
And it appears we have no further questions at this time.
Mike Edenfield
Thank you for being on the call, and we look forward to discussing next quarter. Thank you.