Jun 21, 2012
Operator
Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, this call may be recorded.
It is now my pleasure to turn the conference over to Chief Financial Officer of American Software, Mr. Vince Klinges.
Go ahead please.
Vincent Klinges
Good afternoon, and welcome to American Software's Fourth Quarter Fiscal 2012 Earnings Conference Call.
Vincent Klinges
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 in, contemplated by or underlying the forward-looking statements.
Vincent Klinges
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 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.
Vincent Klinges
At this time, I'd like to turn the call over to Mike Edenfield, COO of American Software and CEO of Logility.
James Edenfield
Thanks, Vince. Good afternoon, everyone, and thank you for participating on the call.
I have some comments on the fourth quarter and annual results. Vince will review the details of the financial results for the quarter and year-to-date, and then we'll take your questions.
James Edenfield
American Software had another outstanding quarter as well as a terrific year. Fourth quarter revenue was almost $28 million, which is 11% growth year-over-year.
Services were very strong with 29% growth. While license fees in Q4 declined slightly compared to a very strong fourth quarter last year, it was still the largest quarter for license fees in the fiscal year as was maintenance and services revenues.
As you would expect, those revenue results paid off with 26% growth in operating income and earnings per share of $0.13. For the year, the financial highlights were 45% growth in license fees, accelerating growth in services and maintenance growth of 10%, which drove a 76% increase in operating earnings and an increase of cash and investments for the year of over $11 million, while increasing our investment in research and development and the professional services organization and the sales organization.
James Edenfield
21 new customers signed license agreements in the fourth quarter, which is the largest number of new customers in the last 3 years. Customers from 11 countries signed license agreements with American Software in the quarter.
These countries include Australia, Belgium, Canada, Germany, Mexico, the Netherlands, Singapore, South Africa, Sweden, the United Kingdom and the United States.
James Edenfield
Some of the notable new and existing customers included Art Van Furniture, Brightstar, Brownells, Coating Excellence, Denso, Ferguson Enterprises, GWA Bathrooms & Kitchens, Marquez Brothers International and Twin Disc.
James Edenfield
For fiscal year 2012, we added 86 new customers. We continue to be encouraged by the number of new customers licensing our products.
New customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.
James Edenfield
As we look at the first quarter in fiscal 2013, our pipeline remains strong. In fact, Logility's pipeline is up substantially for both the Voyager and Demand Solutions brands from this time last year.
James Edenfield
There is interest from our customer base, as well as new potential customers, and we have more large deals in the pipeline. Additionally, we had increased Logility's direct sales team from 11 account executives this time last year to 18 this year.
We also have increased the VAR channel to 50 partners from about 45 this time last year. Demand Solutions has also made good progress growing their pipeline from the Microsoft relationship.
It's up approximately 49%.
James Edenfield
Based on our pipeline and expanded sales capacity, we have the opportunity to increase license fee revenues as well as total revenues and income over the course of the fiscal year.
James Edenfield
I'd now like to turn the call over to Vince for a detailed review of the financial results for the fourth quarter and year-to-date results.
Vincent Klinges
Thank you, Mike. Taking a look at the fourth quarter of fiscal '12 compared to the same period last year, as Mike indicated, our total revenues increased 11% to $27.9 million compared to $25.2 million in the same quarter last year.
License fees decreased 9% to $7.3 million compared to $8 million for the same period last year. Services and other revenues increased 29% to $12.3 million for the current quarter, and that compares to $9.6 million for the same period last year.
That's due primarily to Logility, which increased 58% and also our ERP business, which increased 23% and our IT Consulting business, which increased 19% year-over-year.
Vincent Klinges
Maintenance revenues increased 9% to $8.4 million compared to $7.6 million, primarily due to increases in license fees this year. Looking at cost, our overall gross margin was 55% for the current and the same quarter last year.
License fee margin was 77% compared to 74% last year, and this increase is primarily due to a higher mix of software license fee revenue coming from our direct channel compared to last year.
Vincent Klinges
Our services margins increased to 29% compared to 23% for the same period last year, and that's due to increases in services revenue and also improved billing margins at Logility and IT Consulting sales -- our IT Consulting unit. Maintenance margins decreased slightly to 76% for the current quarter compared to 77% for the same period last year.
Vincent Klinges
Looking at operating expenses, our gross R&D expenses were 11% for our total revenues for the current quarter compared to 10% last year. As a percentage of revenues, sales and marketing expenses were 18% of revenues for the current quarter.
That compares to 20% last year. G&A expenses were down slightly to 12% of total revenues for the current quarter compared to 13% for the same quarter last year, and that's primarily due to higher revenues.
Operating income increased 26% to $4.6 million for this quarter and that compares to $3.6 million same quarter a year ago. Adjusted EBITDA, which excludes stock-based compensation expense, increased 20% to $6 million this quarter and that compares to $5 million in the same period last year.
GAAP net income increased 26% to $3.5 million or earnings per diluted share of $0.13 for the current quarter. That compares to $0.10 earnings per diluted share for the same period last year.
Adjusted net income increased 27% to $3.8 million or adjusted earnings per diluted share of $0.14 for the fourth quarter, and that compares to net income of $3 million or adjusted earnings per diluted share of $0.11 for the same period last year, and this -- the adjusted net income numbers exclude the amortization of intangibles expenses related to acquisitions and stock-based compensation expense.
Vincent Klinges
International revenues this quarter were approximately 15% of total revenues for this quarter and the same period last year.
Vincent Klinges
Now I'd like to look at the full year compared to last year. For the total revenues for the year increased 20% to $102.6 million compared to $85.6 million last year.
License fees increased 45% to $27.8 million compared to $19.2 million in the same period last year. Services revenues also increased 15% to $42.4 million.
That compares to $37 million last year. And our maintenance revenues also increase 10% to $32.4 million compared to $29.4 million last year.
Vincent Klinges
Looking at the costs for the year. The overall gross margin was 55% for the year.
That compares to 53% last year. That increased because of the -- our license fee margin increased to 74% compared to 70% last year.
Our services margins were up 27% compared to 26% last year. Our maintenance margins were 77% compared to 76% last year.
Vincent Klinges
Looking at operating expenses. Our gross R&D expenses were 11% of revenues for the year fiscal '12 compared to 12% for fiscal '11.
As a percentage of total revenue, sales and marketing expenses were 18% for the current year and last year. G&A expenses were 13% of revenues compared to 14% last year.
So our operating income for fiscal '12 increased 76% to $16.2 million compared to operating income of $9.2 million last year. Adjusted EBITDA for fiscal '12 increased 52% to $21.8 million compared to $14.3 million in the same period last year.
Our GAAP net income increased 54% to $11.3 million or $0.42 earnings per diluted share and that compares to net income of $7.4 million or $0.28 last year. So our adjusted net income for fiscal '12 was $12.5 million or earnings per diluted share of $0.46 compared to adjusted net income of $8.6 million or earnings per diluted share of $0.33 for the same period last year, and these adjusted numbers exclude the amortization of intangibles, stock-based compensation expense and severance expenses from last year.
Vincent Klinges
International revenues for fiscal '12 were approximately 16% of total revenues and that compares to 14% in the same period last year.
Vincent Klinges
Taking a look at the balance sheet. The company's financial position remains strong with cash in short and long-term investments of approximately $66.9 million at the end of April 30, 2012, and no debt.
The cash increased sequentially $5.3 million compared to January 31, 2012, and $11.5 million when compared to April 30, 2011, while the company paid approximately $9.6 million to shareholders during the year.
Vincent Klinges
Other aspects of the balance sheet. Our billed account receivables is $15.2 million.
Unbilled is $4.6 million for a total of $19.8 million. Deferred revenues are up to $19.4 million; shareholder equities, $83.0 million.
Our current ratio increased to 2.6% as of April 30, 2012, and that compares to 2.2% in the same period last year. And our day sales outstanding of April 30, 2012, was approximately 64 days, and that's down from 70 -- excuse me, 67 days last year.
At this time, I'd like to turn the call over to questions.
Operator
[Operator Instructions] And the first go to Dan Cummins with ThinkEquity.
Daniel Cummins
A couple of questions. I guess first, the year-over-year on license, obviously, breaks a trend line of approximately 4 to 5 quarters.
If you do what I presume to be normal seasonality and sort of an enterprise IT way, meaning down 15% or 20% quarter-on-quarter, you'll be down year-over-year on license in the July quarter. That's the first question.
Second question is, I guess for Jim, how do you feel about the -- not the year-over-year result, but the quarter-on-quarter result for your fiscal fourth quarter on license? And then just any follow-on color you can offer us incrementally on the margin with respect to the large deal environment out there.
It's sounded like you had a pretty good quarter in terms of adding new customers.
J. Edenfield
Dan, this is Mike Edenfield. I was pleased with the license fees.
Obviously, we wanted to do -- we wanted to beat last year, but last year was a monster quarter for us at that time, and we also had some pretty good license fee quarters throughout the year. So it wasn't like we had a -- we were back-end loaded on it.
And fourth quarter, if you look at it, was the best license fee quarter of the year for us, it just wasn't as good as the previous ones. So as that relates to first quarter, which I think was one of your questions, we haven't been following the normal pattern.
We might follow it this time, but we haven't had a normal pattern for a while. For example, our first quarter last year was very strong.
It could be very strong this year, and one of the reasons it could be strong is we have some big deals in the pipeline. We have more big deals, and I'm saying these are license fees of $1 million or more.
We have more than we have ever had in the pipeline. So we're excited about where we are, and our business is not linear necessarily.
It doesn't follow any specific pattern. It used to be more predictable in the old days, but now it's just, I guess with the economy going up and down as frequently as it seems to, it seems to have obliterated the normal patterns.
Daniel Cummins
And if I could just ask one follow-up. Was there anything notable in the funnel that you tried to close and for whatever reason didn't?
And halfway through the July quarter, did anything notable of that kind already close?
J. Edenfield
Nothing slipped last quarter that was a large deal, and we haven't closed a large deal yet this quarter.
Operator
[Operator Instructions] And we'll now go to Brian Murphy with Sidoti & Company.
Brian Murphy
Vince, I think you were running through the numbers pretty fast there. I think you said that the ERP segment was up 23%.
Was that consolidated segment revenue in ERP?
Vincent Klinges
Yes. That's our business unit, ERP, yes.
Brian Murphy
Okay. Over the past couple of quarters, I think the license sales from that segment had doubled.
Can you give us an idea if license revenue in the ERP segment was up again in the fourth quarter?
Vincent Klinges
Yes, hang on a second, the -- actually license fees were down 19% quarter-over-quarter.
Brian Murphy
19%, great. And from a profitability standpoint, was the ERP segment us much of a drag for the full year fiscal '12 as it was in fiscal '11?
Vincent Klinges
Yes, because -- primarily because we lost that large account in the first -- at the end of the first quarter last year, it was very profitable, the ERP segment. So we had the benefit of that last year, which we didn't have it this year.
So the answer's yes.
Brian Murphy
Got it. So with that kind of rolling off, what are the expectations for fiscal '13?
Do you think the ERP segment will be as much of a drag on profitability?
Vincent Klinges
It depends on how the performance of the New Generation Computing pieces of that business.
Brian Murphy
Okay. And with this big ramp in the sales headcount, Mike, I mean, you guys are pretty -- you typically pretty conservative with headcount additions.
So I'm guessing the pipeline you guys have must be pretty robust for you to make that kind of a step-up in distribution capacity. Can you give us a little bit more color there on that sales force expansion, maybe where you're getting these guys and how long you anticipate it will take for these guys to ramp up, just really anything would be helpful.
J. Edenfield
Sure. Well, to give you a specific metric, the pipeline is for, this is for Logility Voyager, which is the direct sales channel business unit.
The pipeline is double what it was this time last year, and we got all the same people that measure the pipeline and track the pipeline. We have a process.
This post month, when I saw it soaring up like that, I was skeptical. But the guy we have running sales is very methodical.
He's got a lot of processes and he follows them to a T. And he swears if anything, it's the same or maybe a little tougher to get something on the pipeline.
But that doesn't mean we'll close anything out of it, but the pipeline is definitely better, substantially better. So we were seeing that, for not quite as dramatic as it soared up recently, but we were seeing that, and we felt we needed more sales people.
We're missing opportunities, and so we started hiring. And then we found some good folks that used to work in supply chain before for competitors or other segments of the supply chain, that had been successful and so we kept hiring them, and we had a plan to try to get to 20 actually by the end of the year.
We're going to add 2 more as fast as we can, excuse me, by the end of last year. That was our earliest goal, so we're still going to hire a couple of more and then we're going to absorb them and see where we go from there.
Brian Murphy
Okay, sounds good. And so how are you thinking about top line growth versus profitability at this point?
J. Edenfield
Well, the good thing about our business if we can grow those license fees, we can invest. And how much we're making now, it doesn't appear to me that a few salesman is that much of an investment.
We've also hired a number of consultants over a longer span of time, but they are getting billable very quickly because of the projects we're selling. And they're generating money for us.
So that investment is a quick payback. We wouldn't hire them, if we couldn't get them billable.
And so I don't think it's going to hurt us as long as we sell a lot of new projects. If we don't sell new projects, obviously, we will be hurt whether we invested or not.
But we're going to sell some new projects this year.
Brian Murphy
Okay. Sorry, so and on the services side, I know sort of a Proven Method business had been growing.
I think it's up about 10% year-to-date, and I think it was above 14% last quarter. I mean, is most of the growth in the service line, in that business segment or is it also in Logility?
J. Edenfield
Well, I was specifically -- I should have made this clear, I apologize. I was specifically talking about the software side of -- so it's Logility.
And Proven Method is growing, too, but the software side services for Logility have really accelerated and those are higher margin services. So that's what I was focusing on in my comments.
Operator
[Operator Instructions] It appears we have no further questions at this time.
J. Edenfield
Thank you, everybody, for your interest in our company, and we look forward to talking to you more on the next conference call.