AMERICAN SOFTWARE DELIVERS SOLID FINANCIAL PERFORMANCE IN Q1 2024

American Software, a leading provider of supply chain management and business application software, reported its financial results for the first quarter of fiscal year 2024. The company saw a 1% increase in total revenue compared to the same period last year, driven by strong growth in subscription fees and professional services revenue.

Overview of Financial Performance

For the three months ended July 31, 2024, American Software reported total revenue of $26.2 million, up 1% from $25.9 million in the prior year period. This increase was primarily attributable to a 7% rise in subscription fees revenue and a 5% increase in professional services and other revenue, partially offset by declines in license (-17%) and maintenance (-11%) revenue.

The company’s gross margin improved to 67% in Q1 2024, up from 65% in the same quarter last year. This was driven by higher margins across all revenue streams, including a 13 percentage point increase in professional services and other gross margin. Operating income also grew by 33% year-over-year to $1.8 million.

However, net earnings from continuing operations declined 21% to $1.8 million, mainly due to a 40% decrease in other income and a 39% increase in income tax expense. Earnings from discontinued operations were negligible in the current quarter compared to $0.3 million in the prior year period.

Table 1: Financial Highlights ,,,Three Months Ended July 31,,,,,,,,,,,,,,, ,,,2024,,,,,,2023,,,,,,% Change,,, ,,,(in thousands),,,,,,,,,,,,,,, Total Revenue,,,$,26 192,,,,,$,25 901,,,,,1,,%, Gross Margin,,,$,17 468,,,,,67,,%,,,,$,16 857,,,,,65,,%, Operating Income,,,$,1 844,,,,,$,1 391,,,,,33,,%, Net Earnings from Continuing Operations,,,$,1 844,,,,,$,2 333,,,,,,(21),,%, Earnings from Discontinued Operations,,,$,—,,,,,$,300,,,,,nm,,,

Subscription Fees Drive Growth

Subscription fees, which accounted for 56% of total revenue in Q1 2024, grew 7% year-over-year to $14.8 million. This increase was primarily due to a higher number of subscription contracts, including those with a higher annual contract value, as well as an uptick in multi-year agreements. The company’s supply chain management (SCM) segment made up 100% of subscription fee revenue.

American Software’s direct sales channel provided 100% of license fee revenues in the quarter, as the company continues to see expanding user licenses and product sales through this channel. Gross margins on direct license sales remained strong at around 94%, while indirect channel margins improved to 57% from 56% in the prior year period.

Decline in License and Maintenance Revenue

License revenue declined 17% to $0.2 million in Q1 2024, mainly due to the ongoing shift from on-premise licensed software to the company’s cloud-based SaaS platform. The majority of current license fee revenue comes from additional users and expanded scope from existing on-premise clients.

Maintenance revenue also decreased 11% to $7.3 million, primarily attributable to normal client attrition and customers transitioning from on-premise support to the SaaS cloud platform. Maintenance revenue has historically had a direct relationship to license fee revenue, as licenses are the source of maintenance clients.

Professional Services Segment Sees Improvement

Professional services and other revenue grew 5% year-over-year to $3.9 million. This was driven by a 7% increase in the SCM segment’s professional services revenue, which offset a 13% decline in the Other segment. The company noted that professional services revenue tends to lag changes in license and subscription revenue by one to three quarters, as new licenses and subscriptions often involve implementation and consulting work in subsequent periods.

Gross margin on professional services and other revenue improved significantly, rising to 30% in Q1 2024 compared to 17% in the prior year quarter. This was primarily due to higher utilization of services staff and an improved revenue mix.

Expense Management and Operating Income

American Software maintained tight control over operating expenses, which increased only 1% year-over-year. Research and development costs rose 3%, while sales and marketing expenses were flat, and general and administrative costs remained unchanged.

As a result of the revenue growth and expense management, the company’s operating income increased 33% to $1.8 million in Q1 2024. The SCM segment was the primary driver of this improvement, with operating income rising 7%. The Other segment’s operating loss decreased by 1%.

Balance Sheet and Cash Flows

American Software ended the quarter with $92.0 million in cash, cash equivalents, and short-term investments, down from $114.9 million a year earlier. This decrease was primarily due to $8.2 million in net cash used during the quarter, driven by higher purchases of trading securities, a larger decrease in deferred revenue, and lower net earnings.

The company’s days sales outstanding in accounts receivable improved to 61 days as of July 31, 2024, compared to 76 days a year earlier. This reflects more timely billing and cash collections. American Software maintains a strong current ratio of 2.0 to 1, providing ample liquidity to fund operations.

Outlook and Opportunities

American Software sees several key opportunities and risks for its business going forward. On the positive side, the company believes there are opportunities for selective acquisitions or investments to expand its sales channels and product offerings. The company’s cloud-based supply chain management platform is also well-positioned to capitalize on the increasing demand for digital transformation and automation in enterprise supply chains.

However, the company remains dependent on the capital spending patterns of businesses, which can be influenced by broader economic conditions. There are also risks associated with integrating any future acquisitions, as well as the potential for competitors to develop technologies that are equivalent or superior to American Software’s offerings.

Overall, American Software delivered a solid financial performance in the first quarter of fiscal 2024, demonstrating the strength of its cloud-based supply chain management solutions and the company’s ability to manage costs effectively. With a strong balance sheet and growing demand for its products, American Software appears well-positioned to continue its positive momentum in the quarters ahead.