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MAMS > SEC Filings for MAMS > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for MAM SOFTWARE GROUP, INC.

Form 10-Q for MAM SOFTWARE GROUP, INC.


7-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

This filing contains a number of forward-looking statements which reflect management's current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," "anticipate," "estimate," "may," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

For a more complete understanding of our industry, the drivers of our business and our current period results, you should read the following Management's Discussion and Analysis of Financial Condition and Results of Operation in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2013 and our other filings with the SEC.

Company Overview

MAM Software Group, Inc. ("MAM," the "Company," "we," "our," or "us") is a leading provider of integrated information management solutions and services and a leading provider of cloud-based software solutions for the automotive aftermarket sector. The Company conducts its businesses through wholly owned subsidiaries with operations in Europe and North America. MAM Software Ltd. ("MAM Ltd.") is based in Tankersley, Barnsley, United Kingdom ("U.K.") and MAM Software, Inc. ("MAM US") has offices in the United States ("U.S.") in Allentown, Pennsylvania. As of April 10, 2013, MAM Software, Inc. merged with Aftersoft Network, N.A., Inc. and Aftersoft Network, N.A., Inc. changed its name to MAM Software, Inc. Prior to the merger, Aftersoft Network, N.A., had one wholly owned subsidiary (i) MAM Software, Inc. and two inactive wholly owned subsidiaries, (ii) AFS Warehouse Distribution Management, Inc., and (iii) AFS Tire Management, Inc., which are all based in Allentown, Pennsylvania. MAM has offices in Allentown, Pennsylvania.

The Company is a leading global provider of on-premise and cloud-based business management solution for the auto parts, tires and vertical distribution industries. We have a broad line of software solutions and services to address the information technology (IT) needs of virtually every significant sector of the automotive aftermarket in the United Kingdom and North America and are seeking to leverage this position into new industry verticals and new geographies around the world. At present, most of our customers in the U.K. have our software installed on-premise. For customers who prefer not to physically acquire the software and hardware, most of our software applications can be delivered as Software as a Service (SaaS), which utilizes the cloud. We provide professional IT services to our customers, including software and hardware installation, data conversion, training, and, at times, product modifications. We also provide continuing customer support services to ensure product performance and reliability, which provides us with long-term customer relationships and a significant base of recurring maintenance revenue.

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Our Markets

MAM Software Group, Inc. provides software, information and related services to businesses engaged in the automotive aftermarket in the U.S., Canada, U.K. and Ireland. The automotive aftermarket consists of businesses associated with the life cycle of a motor vehicle from when the original manufacturer's warranty expires to when the vehicle is scrapped. Products sold by businesses engaged in this market include the parts, tires and auto services required to maintain and improve the performance or appeal of a vehicle throughout its useful life. The Company aims to meet the business needs of customers who are involved in the maintenance and repair of automobiles and light trucks in three key segments of the automotive aftermarket, namely parts, tires and auto service.

The Company's customer base consists of wholesale parts and tire distributors, retailers, franchisees, cooperatives, auto service chains and single location auto service businesses with high customer service expectations and complex commercial relationships.

In the U.K. and Ireland, the Company also provides management solutions to business involved in the wholesale of construction materials. These vertical markets include plumbing, building, lumber, and electrical wholesale distribution companies.

Market Dynamics & Opportunities

We believe that the largest single issue facing the automotive aftermarket at this time is the constraint of credit within the U.S. and U.K. markets that is forcing automobile owners to retain their existing automobiles far longer than they may have previously planned. This phenomenon is forcing owners to seek out more economic ways of maintaining their vehicles, and we believe this presents an opportunity to the Company. The need for consumers to maintain their vehicles longer requires service suppliers to offer a wide range of services at highly competitive prices. We believe that this can be achieved only by those businesses that are able to efficiently manage their businesses and find methods to reduce costs without affecting service levels, which may best be done through investments in 'up to date' management information systems, specifically those designed for the automotive market. However, we have recently noticed that some businesses wishing to invest in new management systems are also finding their access to credit reduced. The unavailability of credit for businesses may have a detrimental effect on our revenues if customers are unable to identify adequate resources necessary to fund purchases. As a means to addressing the lack of availability of credit for customers or potential customers, we have introduced Autopart Online which is a 'rental' or Software as a Service (SaaS) version of Autopart. Autopart Online does not require the customer to purchase hardware and software licenses upfront, they simply 'rent' the infrastructure and purchase the professional services required to implement the system. We believe that by removing the capital investment associated with Autopart, we will see an increase in interest in our Autopart Online solution.

Our Products and Services

The Company's business management systems, information products and online services permit our customers to manage their critical day-to-day business operations through automated point-of-sale, information (content) products, inventory management, purchasing, general accounting and customer relationship management.

We provide professional IT services to our customers, including software and hardware installation, data conversion, training, and, at times, product modifications. We also provide continuing customer support services to ensure product performance and reliability, which provides us with long-term customer relationships and a significant base of recurring maintenance revenue.

Our Technologies

Our solutions are available as both 'on-premise' applications (sold via the traditional perpetual licensing model) and 'cloud' solutions that are delivered as a service over the Internet on a subscription basis.

Many of our business management applications are now available as Software as a Service (SaaS), where software and associated data is centrally hosted in the cloud. Depending on the complexity of the application, MAM SaaS solutions are deployed using 'cloud hosting' or 'web application' technology:

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SaaS cloud hosting - single tenants accessing fully-managed virtual servers via thin client (terminal services) connections (e.g., Autopart Online); or

SaaS web application - multiple tenants accessing a dedicated website using a standard web browser (e.g., Autowork Online).

Our catalog information is also available in the cloud as Data as a Service (DaaS). We centrally host and maintain the data, which is accessed by users via a desktop application, web application or integrated into their B2C website. Many of our applications offer integration with third-party vendors as a service, commonly known as Integration Platform as a Service (iPaaS). These services include: technical repair information; vehicle registration data (VRM); auto parts catalog data; zip code lookup; Internet EDI; website integration services; and mobile app connectivity.

Our Revenues

Our revenue and income is derived primarily from the sale of software, data, services and support. In the U.K., we also earn a percentage of our revenue and income from the sale of hardware systems to clients. During the three and nine months ended March 31, 2014, we generated revenues of $7,868,000 and $22,791,000 with a net income of $659,000 and $1,744,000 with 72% of these revenues coming from the U.K. market.

The Company's revenues are derived from the following:

The sale of business management systems comprised of proprietary software applications, implementation and training;

Providing subscription-based services, including software support and maintenance, and online services for a fee;

Delivering our business management software as a service, commonly known as SaaS;

Delivering our catalogue information as a service, commonly known as DaaS; and

Enabling integration between systems and third-party vendors as a service, commonly known as iPaaS.

Our Strategies

To date, our management has identified five areas that it believes we need to focus on. The first area is the continued growth of revenues derived from delivering our business management SaaS. To date, our Autowork Online service & repair solution and our Autopart Online distributor & retailer solution, are being delivered in this manner. Both products have been developed by MAM Ltd., our U.K. subsidiary, under the 'cloud' computing model. This is where software solutions are made available to end-users via the Internet and does not require them to purchase the software directly but 'rent' it over a fixed period of time. Our management believes that this will be a rapidly growing market for the U.K. as businesses continue to look for ways of reducing capital expenditures while maintaining levels of service. Autowork Online was launched in 2010 and as of March 31, 2014, we had 3,061 subscribers of this service. The product has just been localized and released into the U.S. market. Autopart Online was launched in August 2011, and as of March 31, 2014, we had 769 end-users subscribing to this service.

The second area of focus is the sales and marketing strategy within the U.S. market. Our management believes that continued investment in this key area is required to help the development of the MAM brand.

During the nine months ended March 31, 2014, the Company added one sales associate and one marketing person to its staff. During the twelve months ended June 30, 2013, the Company added two sales associates and two marketing personnel to its staff.

The third area of focus relates to the launch in April 2014 of our information service, Autocat+ in the U.S. Autocat+ is an auto parts catalog that uses the DaaS distribution model. MAM Software Ltd. centrally hosts and maintains the data, which is accessed by users via MAM's business management software, a standalone desktop application, or web application. Data can also be 'consumed' via a web-based service for integration into business-to-consumer websites. Information in Autocat+ is maintained through an automatic verification and standardization process, with updates published daily.

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In the U.K., there are approximately 11,400 end-users (warehouse distributors, parts stores and auto service providers) who use our information products, for which a monthly or annual subscription fee is charged. Our management believes that launching a U.S. version of Autocat+ will help to sell our business management software solutions.

The fourth area is within the U.K. market as we are continually working to sustain the levels of growth in the U.K. business by focusing on certain vertical markets, which share common dynamics to that of the automotive market. We have developed a reputation of high levels of service and knowledge within the automotive market; and are now working on replicating this reputation in these additional vertical markets. Our management intends to carefully monitor this expansion.

The fifth area is the continued investment in research and development that will allow us to deliver innovative new solutions and modules in support of the previous four key areas. During the nine months ended March 31, 2014, we announced the U.S. version of our Autocat+ catalog solution and launched our CarSide electronic vehicle health check (eVHC) mobile app. We also announced a new app for field sales representatives and an eBay module that will make it easier for Autopart users to add parts listings to the eBay marketplaces in the U.K.

Our Progress

At present, most of our customers in the U.K. have our software installed on-premise. However, market acceptance of cloud computing for mission-critical enterprise applications has become increasingly common in recent years since software can be delivered cost-effectively, reliably, and securely to businesses over the Internet without the need for these businesses to purchase supporting software and hardware for an on-premise system or the need to keep IT people on staff to monitor and upgrade such a system.

We introduced our first subscription-based service solution over the Internet in 2005 in the U.K., and we began marketing our first cloud system to customers in North America in 2013. Since that time, we have significantly expanded our cloud-based offerings and are offering customers that maintain on-premise installations significant incentives to move to our cloud-computing model. While transitioning our U.K. customers to a cloud computing model results in a decrease in our up-front revenue recognition, we believe that this is a necessary transition and is in the best interests of our customers and our own long-term business prospects as an increasing number of our customers in the U.K. are looking for solutions that are highly functional, easy to use, configurable, and fast.

Our cloud model is based on Microsoft .Net, HTML5 and SQL technologies that provides both open and secure platform with support for user experiences on both desktop and mobile devices. Our customers that have moved away from traditional on-premise software to our cloud-based service applications benefit by substantially reducing the complexity typical of on-premise software implementations, customizations, and upgrades. Through cloud computing, we supply and manage the hardware, infrastructure, ongoing maintenance, and backup services for our customers. We install the latest version of our software for our customers, thereby reducing their need to buy and maintain their own IT resources. As a part of our cloud-based model, we will provide installation, training, and support services to our customers. In the North American market we have a smaller customer base and by offering a cloud-based solution will prove to be an important part of our strategic growth. We anticipate that this solution will positively impact the marketplace and ultimately increase our market share within North America.

Impact of Currency Exchange Rate

Our net revenues derived from sales in currencies other than the U.S. dollar was 73% and 72% for the three and nine month periods ended March 31, 2014, respectively, as compared to 70% and 71% for the corresponding periods in 2013. As the U.S. dollar becomes weaker in relation to the Great Britain Pound ("GBP"), as it has recently done, our revenue and income, which is reported in U.S. dollars, is positively impacted. Changes in the currency values occur regularly and in some instances may have a significant effect on our results of operations.

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Income and expenses of our MAM Ltd. subsidiary are translated at the average exchange rate for the period. During the three and nine month periods ended March 31, 2014, the exchange rate for MAM's operating results was US$1.6072 per GBP1, compared with US$1.5797 per GBP1 for the three and nine month periods ended March 31, 2013.

Assets and liabilities of our MAM Ltd. subsidiary are translated into U.S. dollars at the period-end exchange rates. The exchange rate used for translating our MAM Ltd. subsidiary was U.S. $1.6637 per 1GBP at March 31, 2014 and U.S. $1.5208 per 1GBP at June 30, 2013.

Currency translation gain and (loss) adjustments are accumulated as a separate component of stockholders' equity, which totaled $89,000 and $(529,000) for the three months ended March 31, 2014 and 2013, respectively, and $924,000 and $(233,000) for the nine months ended March 31, 2014 and 2013, respectively.

As of March 31, 2014, we had a backlog of unfilled orders of business management systems of $1,980,000 compared to a backlog of $1,705,000 at March 31, 2013. We expect to fill approximately 65% of such backlog during the next six months.

Results of Operations

Our results of operations for the three and nine months ended March 31, 2014 compared with the three and nine months ended March 31, 2013 were as follows:

Revenues. Revenues were $7,868,000 and $22,791,000 for the three and nine months ended March 31, 2014, respectively, an increase of 15.2% and 13.6%, respectively, compared with revenues of $6,825,000 and $20,062,000 for the three and nine months ended March 31, 2013, respectively. The exchange rate in the U.S. dollar vs. GBP had a slightly positive effect on reported revenues from our U.K. operations.

Revenues were $7,868,000 for the three months ended March 31, 2014 an increase of $1,043,000 or 15.3% compared with revenues of $6,825,000 for the three months ended March 31, 2013. Revenues from our U.K. operations were 3,453,000GBP for the three months ended March 31, 2014; an increase of 385,000GBP or 12.5%, compared with revenues of 3,068,000GBP for the three months ended March 31, 2013. The U.S. dollar denominated revenue was $5,706,000 for 2014 as compared to $4,772,000 during 2013, an increase of $934,000 or 19.6%. For the three months ended March 31, 2014, U.K. recurring revenues increased 244,000GBP or 10.7% to 2,515,000GBP from 2,271,000GBP and system sales increased 141,000GBP or 17.7% to 938,000GBP from 797,000GBP. The increase in recurring revenues is primarily the result of increased sales of our Autopart Online product. Revenues from our U.S. operations were $2,162,000, for the three months ended March 31, 2014, an increase of $109,000 or 5.3% compared with revenues of $2,053,000 for the three months ended March 31, 2013. For the three months ended March 31, 2014, U.S. recurring revenue increased $118,000 or 9.1% to $1,417,000 from $1,299,000 and system sales decreased $9,000 or 1.2% to $746,000 from $755,000 when compared with the three months ended March 31, 2013.

Revenues were $22,791,000 for the nine months ended March 31, 2014, an increase of $2,729,000 or 13.6%, compared with revenues of $20,062,000 for the nine months ended March 31, 2013. For the nine months ended March 31, 2014, recurring revenues increased $1,891,000 or 13.3% to $16,101,000 from $14,210,000 and system sales increased $838,000 or 14.3% to $6,690,000 from $5,852,000. Revenues from our U.K. operations were 10,192,000GBP for the nine months ended March 31, 2014, an increase of 1,352,000GBP or 15.3%, compared with revenues of 8,840,000GBP for the nine months ended March 31, 2013. The U.S. dollar denominated revenue was $16,381,000 for 2014 as compared to $13,965,000 during 2013, which is an increase of $2,416,000 or 17.3%. For the nine months ended March 31, 2014, U.K. recurring revenues increased 724,000GBP or 10.9% to 7,371,000GBP from 6,647,000GBP and systems sales increased 628,000GBP or 28.6% from 2,193,000GBP to 2,821,000GBP. The increase in recurring revenues is primarily the result of increased sales of our Autopart Online product. Revenues for our U.S. operations were $6,410,000 for the nine months ended March 31, 2014; an increase of $313,000 or 5.1% compared with revenues of $6,098,000 for the nine months ended March 31, 2013. For the nine months ended March 31, 2014, U.S. recurring revenue increased $545,000 or 14.7% to $4,254,000 from $3,709,000 and system sales decreased $231,000 or 9.7% to $2,157,000 from $2,388,000 when compared with the nine months ended March 31, 2013.

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Cost of Revenues. Total cost of revenues for the three and nine months ended March 31, 2014, were $3,595,000 and $10,298,000, respectively, compared with $2,907,000 and $8,443,000, for the same periods of March 31, 2013, respectively. The increase in cost of revenues for the three months ended March 31, 2014 was 23.7% or $688,000, when compared to the three months ended March 31, 2013. Our U.K. operations experienced an increase of 213,000GBP from 1,254,000GBP to 1,467,000GBP for three months ended March 31, 2014 when compared to 2013. The U.S. dollar denominated increase was $474,000. The U.S. operations experienced an increase of $214,000 for the three months ended March 31, 2014 when compared to the three months ended March 31, 2013.

The increase in the cost of revenues for the nine months was 22.0% or $1,855,000. Our U.K. operations experienced an increase of 622,000GBP from 3,684,000GBP to 4,306,000GBP and resulted in a U.S. dollar denominated increase of $1,101,000 or 18.9% vs. 2013. Our U.S. operations experienced an increase of $753,000, compared to last year. The increased costs are directly related to the increase in revenue and from additional costs for salaries and related expenses as we continue to invest for the future.

Gross Profit. Gross profit increased $355,000 or 9.1% to $4,273,000 for the three months ended March 31, 2014, from $3,918,000 for the three months ended March 31, 2013. Gross profit increased $874,000 or 7.5% to $12,493,000 for the nine months ended March 31, 2014, from $11,619,000 for the nine months ended March 31, 2013. The increase in gross profit was the result of increased recurring revenue and perpetual license revenue when compared to last year.

Operating Expenses. The following tables set forth, for the periods indicated, our operating expenses and the variance thereof:

                                   For the Three Months
                                      Ended March 31,
                                       2014            2013       Variance $       Variance %
Research and development        $   998,000     $   850,000     $    148,000             17.4 %
Sales and marketing               1,087,000         810,000          277,000             34.2 %
General and administrative        1,081,000         919,000          162,000             17.6 %
Depreciation and amortization       251,000         285,000          (34,000 )          -11.9 %
Total Operating Expenses        $ 3,417,000     $ 2,864,000     $    553,000             19.3 %




                                    For the Nine Months
                                      Ended March 31,
                                        2014            2013      Variance $       Variance %
Research and development        $  2,749,000     $ 2,555,000     $   194,000              7.6 %
Sales and marketing                3,400,000       2,443,000         957,000             39.2 %
General and administrative         3,316,000       2,747,000         569,000             20.7 %
Depreciation and amortization        766,000         859,000         (93,000 )          -10.8 %
Total Operating Expenses        $ 10,231,000     $ 8,604,000     $ 1,627,000             18.9 %

For the three months ended March 31, 2014, operating expenses increased by $553,000, or 19.3% when compared with the three months ended March 31, 2013. For the nine months ended March 31, 2014, operating expenses increased by $1,627,000 or 18.9% compared with the nine months ended March 31, 2013. This is due to the following:

Research and Development Expenses. Research and development expenses increased by $148,000 or 17.4% for the three month period ended March 31, 2014 and increased by $194,000 or 7.6% for the nine month period ended March 31, 2014, compared to the same periods in the prior fiscal year. The increase for the three and nine month periods ended March 31, 2014 is primarily a result of an increase in the number of personnel working on customer development projects and development of new products, all being done in the U.K.

Sales and Marketing Expenses. Sales and marketing expenses increased by $277,000 or 34.2% during the three months ended March 31, 2014 as compared with the same period in 2013 and increased by $957,000 or 39.2% for the nine months ended March 31, 2014 compared with the nine months ended March 31, 2013. This increase is primarily due to an increase in trade show activities, advertising, and the investment in new sales personnel and related sales expenses. Currently, there are now dedicated sales personnel for the tire market, trader and other vertical markets in the U.K. business unit.

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General and Administrative Expenses. General and administrative expenses increased by $162,000 or 17.6% to $1,081,000 for the three months ended March 31, 2014 as compared to $919,000 for the same period in 2013. The increased expenses were primarily the result of additional salaries and benefits for administrative staff in the U.K and U.S. business units. Additional expenses were in the U.S. included $30,000 in additional officers' equity compensation, additional payroll expenses of $79,000 in the U.S. business unit, which included the expenses for the president of North America, $9,000 of NASDAQ listing costs, $26,000 more in officers' compensation and approximately $20,000 of additional software license costs, all compared to the three months ended March 31, 2013. For the nine months ended March 31, 2014, general and administrative expenses increased by $569,000 or 20.7% to $3,316,000 as compared to $2,747,000 for the same period in 2013. The increased expenses were primarily the result of additional salaries and benefits for administration staff in the U.K and U.S. business units. Additional expenses were in the U.S., with $60,000 more in officers' equity compensation, additional payroll expenses of $140,000, which included the expenses for the president of North America, an additional $22,000 for NASDAQ listing costs, $27,000 more in officer's compensation and approximately $170,000 of additional software license costs, all compared to 2013.

Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $34,000, or 11.9%, and $93,000, or 10.8%, for the three and nine month . . .

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