Feb 25, 2016
Executives
Vincent Klinges - Chief Financial Officer Michael Edenfield - Chief Executive Officer
Analysts
Zach Cummins - B. Riley & Company
Operator
Good day, ladies and gentlemen and welcome to today's program. Today’s program maybe recorded.
At this time, all lines are in a listen-only mode. [Operator Instructions] It is now my pleasure to turn today’s program over to Vincent Klinges, Chief Financial Officer for American Software Incorporated.
Please go ahead, sir.
Vincent Klinges
Good afternoon, and welcome to American Software's third quarter 2016 earnings conference call. 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 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 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 effective 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 Mike Edenfield, CEO of American Software.
Michael Edenfield
Thanks, Vince. Fiscal year 2016 continues to gain momentum across all revenue streams.
During the third quarter we encouraged license revenue by 16% and total revenues by 5%, which increased operating earnings by 6% compared to the same period of the prior year. With more customers leveraging our cloud services and SaaS offerings, we are pleased to report significant quarter-over-quarter increases in cloud services annual contract value.
As more company seek to decrease cost and leverage global suppliers and manufacturing partners, the task of managing the supply chain gross exponentially with each partner and each channel. In order to keep pace, achieve new visibility, our customers are seeking the comprehensive supply chain and retail planning solutions and our product portfolio which provides the ability to reduce cost, optimize sourcing and production and improve our Omni channel performance.
Some notable new and existing customers, placing orders with the company in the third quarter include AdvancePierre Foods, Andis Company, Barbeques Galore, Games Workshop, Husqvarna, Caribou Coffee, Nutrabolt, Sinochem International in Australia, The Aldo Group, The Echo Design Group, Town & Country Linen Corporation, and Xcel Brands. During the third quarter, software agreements were signed with customers located in the following 10 countries: Australia, Canada, Denmark, The Dominican Republic, Finland, Mexico, Sweden, Tunisia, it was a new country for us, the United Kingdom, and the United States.
I’ll turn it over to Vince to go through the detailed numbers.
Vincent Klinges
Thanks Mike. Comparing the third quarter of fiscal 2016 and the same period last year, total revenues for the quarter increased 5% to $27.1 million compared to $25.8 million same quarter last year.
Primarily due to this increase with license fees which increased 16% to $5 million compared to $4.3 million in the same period last year. In the third quarter we also closed two additional perpetual license fee deals for 800,000 in license fee revenue that due to revenue recognition rules we are required to spread over the life with the contract period since they had cloud services inside the contracts.
Services and other revenues increased 1% to $11.8 million for the current quarter compared to the same period last year. Services revenue decreased 60% at the proven method which is our IT consulting business as a result of the large project with one customer that ended at the beginning of the third quarter.
We are continuing to develop future project with this customer and hope to replace that revenue in the future. Offsetting these declines with Logility which increased 35% due to increased implementation project work, from an increased license fees in recent quarters and the increasing cloud services.
Services revenue would have increased by 24% if you exclude the IT consulting business decline. At the end of the quarter we increased our cloud services Annual Contract Value or ACV which includes SaaS and managed services revenue, a 142% to $3.3 million compared to $1.4 million this time last year.
Maintenance revenues also increased 4% to $10.2 million compared to $9.8 million and that’s primarily due to additional license fees. Looking at our gross margins was 50% for growth of current period in the prior year quarter.
License fee margin increased to 63% for the current quarter compared to 54% same period last year and that’s due to increased license fees. Services margin was 22% for the current quarter compared to 25% in the prior year, then that was due to lower margins at our IT solutions business and our ERP business unit.
Our maintenance margin was 76% for the current quarter and that compares to 78% last year. Operating expenses, gross R&D expenses for 14% of total revenues for the current period and that compares to 13% in the prior year.
As a percentage of revenue sales and marketing expenses were 19% revenues compared to 18% the prior year. G&A expenses were 10% of the total revenues for the current period when compared to 12% in the prior year quarter.
It is primarily lowered due to withholding tax credit of 637,000 for the current quarter, and this is a partial catch-up credit from prior years. We expect this credit to be approximately 400,000 annually going forward in the next fiscal years.
Our operating income increased 6% to $2.5 million for this quarter compared to $2.4 million the same quarter last year. Adjusted EBITDA which excludes stock based compensation increased 2% to $4.3 million this quarter compared to $4.2 million in the same period last year.
So, our GAAP net income was $2.1 million or earnings per diluted share $0.7 compared to net income of $2.8 million or $0.10 earnings per diluted shares last year. Adjusted net income was $1.8 million or adjusted diluting share of $0.6 for the third quarter and that compares the net income of $2 million or adjusted earnings per diluted share of $0.7.
These adjusted numbers exclude the amortization of intangible expense related to acquisitions, stock based compensation expense and discreet tax adjustments in both periods. Looking at international revenue this quarter they were 19% of total revenues for the current quarter compared to 15% the prior year quarter.
Looking at the year-to-date numbers as of January 31, 2016, the same period last year overall revenues increased 13% to $85 million compared to $75.3 million. License fees increased 32% year-to-date to $15.5 million compared to $11.7 million.
Services revenues also increased 14% to $39.1 million compared to $34.4 million last year. Maintenance revenues increased 5% year-to-date to $30.4 million and that compares to $29.1 million last year.
The overall gross margin year-to-date was up to 52% compared to 51%. License fee margin increased to 63% compared to 53% last year due to license fee increases.
Service margins were 27% year-to-date for current period and the same period last year, and our maintenance margin was 77% year-to-date compared to 78% same period last year. Looking at the balance sheet for the year, we have a strong cash and investments of – excuse me, hang on a second.
Yeah, excuse me, overall financial position the company remain strong with cash investments of $74.3 million and no debt. During the quarter we distributed approximately $2.9 million of shareholder dividend.
Other aspects of the balance sheet were – excuse me. Other aspects of the balance sheet, we have – bills receivables is $16.7 million and unbilled is $3.9 million for total AR of $20.7 million.
Differed revenues are $27.7 million for current and long-term differed revenues are about $700,000. Our shareholder equity is $94.2 million that compares to$92.9 million at the end of April.
At this time, I’d like to turn the call over to questions. Hey Mike, we like to take questions.
Operator
I’m very sorry for the delay. I am afraid we had some technical difficulty there.
[Operator Instructions] We’ll go first to Kevin Liu with B. Riley & Company.
Your line is open.
Zach Cummins
Hi, good afternoon. This is Zach Cummins in for Kevin today.
So first question is, so with the macro uncertainty and market volatility since the beginning of the year, does that raise any concerns going forward? And also will this have any impact on your sales cycle?
Michael Edenfield
Well, this is Mike Edenfield. We have not had any real deals postponed with the macro uncertainty.
It hasn’t really affected us yet. So we still have a good pipeline and we’re excited about where always things are going but obviously it does have a little – plan a little doubt in back of your mind but in general, things are going really well.
We’ve got an excellent pipeline for the fourth quarter.
Zach Cummins
All right, awesome that’s really helpful. So, and adding on to that, so since you mentioned your pipeline, can you give me a little more color in terms of large deals and kind of the pipeline for your retail optimization product?
Michael Edenfield
Well, sure. In the fourth quarter we have multiple large perpetual deals that we are selected on and negotiations, and that doesn’t mean we’ll get them but we were in good shape with them so far.
And then we also have some very exciting staff opportunities, including one real big one. So I think we’ve got a chance to really finish strong.
Retail, we’ve gotten a little traction there but not as much as we would like but I think in the near future we’re going to be doing better on that. We’ve gotten a lot of affiliate from customers and industry people and we just need to get the word out better.
Zach Cummins
All right, understood. So and final question from me, can you possibly give us an update on the progress of your rollout with your SaaS platform with Sanofi?
Michael Edenfield
Yes, yes. We got three of their subsidiaries use in production and I think they’re paying about $16,500 a month for those.
And so it’s still very early and they have – I can’t remember exactly how many subsidiaries they have but it could be very, very big.
Zach Cummins
Great, thank you.
Operator
[Operator Instructions] And at this time there are no further questions in queue.
Michael Edenfield
Thank you for participating and we look forward to talking to you later.
Operator
And thank you for joining us today ladies and gentlemen. This does conclude today’s program.
We certainly appreciate everyone’s participation. You may disconnect at any time.