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Majesco Limited (MJCO)
Q4 2020 Earnings Call
May 28, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for standing by. This is the conference operator. Welcome to the Majesco Fiscal 2020 Fourth Quarter Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Stan Berger, Investor Relations. Please go ahead.
Stan Berger -- Investor Relations
Thank you, Steve. Thank you everyone and good afternoon. A complete disclosure of our results can be found on our press release that was issued today after the market closed. As a reminder, the replay of today's call will be available on our website shortly after its conclusion.
During today's call, we will make statements related to our business that maybe considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. At times in our prepared comments or responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics [Phonetic] of our business or quarterly results. Please be advised that this additional detail maybe one-time in nature and we may or may not provide an update in the future. Also during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release that was issued today after the market close.
Hosting the call today are Adam Elster, Majesco's CEO and Wayne Locke, CFO. At this time, I will turn the call over to Adam. Adam, please go ahead.
Adam Elster -- Chief Executive Officer
Thank you, Stan. I appreciate it. I want to start today's call by expressing my sincere gratitude to all first responders, healthcare employees and frontline workers for their brave sacrifice and also to share our thoughts and prayers with those who have lost loved ones during the COVID-19 crisis. We are living in unique times, times none of us experienced before. And I want to be very clear when I say that our Number 1 priority is to protect the health and safety of our employees, customers, partners and the communities in which we operate. We are an early adopter of the work from home transition and all Majesco's global employees have been operating remotely since March 16. Throughout this period, we have successfully managed all customer expectations while ensuring our business continuity, seamless focus and commitment to projects and services.
Overall, during the year, we have made a significant fundamental shift in our operations performance and long-term strategy, which gives us confidence to capture long-term growth opportunities. While it's premature difficult for us to predict the business impact due to the unprecedented environment caused by the COVID-19 pandemic, most businesses have had to increasingly rely on technology to support their operation through the crisis regardless of the industry.
Prior to the crisis, many insurers believe that they had more time to adjust to the slow and steady pace of change and adoption of new technology. However, we believe customers are likely to reallocate current and new investment as a result of the COVID-19 crisis. They will likely shift focus and move to cloud and digital experience platforms, automation, efficiency and modernization. These potential trends may provide further benefit to Majesco in the future as our cloud platform provides insurance carriers with more flexibility, scalability, and a variable cost model that supports their current and future needs. Over the near-term however, we do believe some deals we are expecting to close in the first quarter might get delayed into the second.
Overall, industry trends continued to support our cloud-based product strategy and I am more excited than ever about the opportunity ahead, the future of Majesco, and the insurance industry despite the near-term challenges caused by the COVID-19 crisis. Our relentless focus on delivering innovation and customer success has fueled our growth and solidified our leadership position. One year ago, we launched our new strategy in focus areas for the Company. Looking back, we see areas that exceeded expectations, some where we should have invested more and a few that will just need more time to develop. With any business strategy, it is the sum of all of the parts that matter and we are very pleased with our fiscal '20 results.
Fiscal '20 was a record year for Majesco demonstrating the success of our product-based strategy. P&C and L&A carriers of all sizes are turning to Majesco to partner with us on their digital transformation journey. The positive momentum in our business has resulted in nearly 35% year-over-year increase in our subscription revenue. The tenure of our new and expanded leadership team continues to increase. And I am pleased with the strong operational platform we are creating allowing us to successfully navigate near-term challenges of the COVID-19 crisis.
We ended the year with no debt and a record cash balance of $51.4 million, demonstrating the strong cash generation potential of our model and for the year, we produced $17.7 million of operating cash flow. In addition, profitability continues to benefit from the growing mix of product revenue combined with ongoing enhancements to our operating model to improve efficiency. During the year, we experienced an increase in total revenue, product revenue, adjusted EBITDA, cash and a total number of overall customers. Product license, subscription and maintenance revenue is up 33% over FY '19 and now represents 42.2% of our total revenue.
Total services revenue was down as we exited some legacy unprofitable on-premise businesses. From a weighted average perspective, this was a key factor in our 3.6% total revenue growth. At the same time, the improved overall mix of revenue enabled our adjusted EBITDA to increase to $18 million compared to $17 million last year. From a new sales perspective, we had another very strong year for new customers, new lines of businesses, and new modules across the board. Our 12-month backlog has increased every quarter for the past six quarters, 13.3% over the previous year and 8% over the past three months to $109.8 million.
Moving forward, we will be transitioning from our previous 12-month rolling backlog metric to a total backlog number. Now, acquisitions are an important part of our growth strategy. And during Q4, we announced the acquisition of InsPro. We are excited to welcome them to the Majesco team. Their organization aligns very well with our strategy, focus, and culture. Our solid performance and financial position allows us to proceed with the acquisition even during these unprecedented times. Equally important is industry recognition of our cloud products. Investment in our products is now being recognized by all industry analysts. Our P&C Core Suite was recognized as a leader in the Magic Quadrant and Best-in-Class Vendor in the Aite Matrix. Likewise, our L&A and Group Core Suite was recognized as Visionary in the Gartner Magic Quadrant and best-in-class in the AIM report.
Now, one of the questions I have been asked since the first day I joined Majesco is when will the MetLife go live with the IBM Majesco L&A group platform? And I am pleased to be able to say that we went live with the first phase of the project a few weeks ago. It has been an incredible partnership and we feel it will set a new bar for group benefits technology. Another critical component of our strategy is to invest heavily in partner relationships. This is typical of all software companies, but was not part of Majesco's legacy DNA. Everyone knew about our relationship with IBM and the MetLife project, but that's where it ended. A year ago, most system integrators did not even want to meet with us as they considered us a competitor. We have made significant progress transitioning Majesco into a product Company. And today, we have successfully built relationships with Capgemini, PwC, Deloitte, EY, KPMG and Microsoft. Each is in its own individual stage of maturity, but this is key to our future growth. The partners' impact, reach, and scale are undeniable and have been a growth driver to software companies for many years. We will be no different.
Another major initiative for us in FY '20 was to replace our internal legacy systems and process. We have spent years showing the insurance companies how critical it is to replace their own legacy systems and adapt to the modern world. So it's time to take our own advice. We went live with Oracle Cloud HCM in February and live with NetSuite in April. These systems provide us with real-time data and the ability to make agile business decision. They will also help in the fundamental shift in our operational performance and allow us to begin sharing new data externally. Our business transition to a market-leading cloud product Company over the past several years is evident in our fiscal '20 results. We remain very confident in our strategy, committed to its execution, and believe we have the right platform in place to handle the near-term challenges associated with COVID-19, while continuing to pursue long-term growth opportunity. Please stay safe and healthy. And thank you for your time.
And with that, I will turn the call over to Wayne.
Wayne Locke -- Chief Financial Officer
Thank you, Adam and good evening to everyone. Majesco's transition to a product-focused Company successfully continued through the fourth quarter of fiscal 2020. And I am pleased to summarize our financial results as we continued to experience positive revenue and profitability trends across key performance metrics of the business.
Leading things off, our total revenue for the fourth quarter was $37.9 million, generating an adjusted EBITDA of $5.1 million. Total number of cloud customers is now 55, generating cloud-based revenue for the fourth quarter of $15.7 million and comprised 41.4% of its total revenue for the quarter. Cloud subscription revenue for the fourth quarter grew 43% year-over-year and 34.8% for the full year ended March 31, 2020 year-over-year. As a percentage of revenue, the cloud subscription revenue stood at 17% in Q4 fiscal 2020 compared to 12.1% in Q4 last year. Majesco's 12-month order backlog as of March 31, 2020 was $109.8 million, up 13.3% from the $96.9 million reported on March 31, 2019.
Now, for some specifics on the financials for the fourth quarter of fiscal 2020. First, the revenue detail. Revenue for the fourth quarter ended March 31, 2020 was $37.9 million, up 1.9% year-over-year. The increase in revenue was primarily on account of higher subscription revenues with projects going live and new business additions in P&C. Revenue for the full year ended March 31, 2020 was $146.4 million, up 3.6% year-over-year. The increase in revenue during the full year ended March 31, 2020 was on account of the growth in the North American business with significant increase in product revenue.
Total cloud revenue for the fourth quarter of fiscal 2020 was $15.7 million, representing 41.4% of total revenue as compared to $16.3 million, representing 44% of revenue during the same period last year. Total cloud revenue for the full year ended March 31, 2020 was $59 million, representing 40.3% of total revenue as compared to $56.8 million, representing 40.2% of revenue during the same period last year.
Cloud subscription revenue grew 43% from $4.5 million in the fourth quarter of fiscal 2019 to $6.4 million in the fourth quarter of fiscal 2020. As a percentage of revenue, cloud subscription was 17% in Q4 fiscal 2020 compared to 12.1% in Q4 last year. Cloud subscription revenue grew 34.8% from $16.4 million in the full year ended March 31, 2019 to $22.1 million in the full year ended March 31, 2020. As a percentage of revenue, cloud subscription was 15.1% in the year ended March 31, 2020, compared to 11.6% in the same period last year. Total licensed cloud subscription and maintenance revenue and constituting product revenue was $16.2 million for Q4 fiscal 2020, which increased 25.7% year-over-year and represented 42.8% of total revenue in Q4 of fiscal 2020 as compared to $12.9 million, representing 34.8% for Q4 of fiscal 2019.
Total product revenue was $51.8 million for the full-year ended March 31, 2020, representing 42.2% of total revenue, up 33.2% from the full-year ended March 31, 2019. Our geographic mix of revenues for North America, EMEA, and APAC represented 89.8%, 6.2% and 4% respectively for Q4 2020, and 85.4%, 8.4% and 6.2% respectively for Q4 2019, demonstrating continued growth in the North America business. In terms of our business split, P&C represented 81.4%, Life & Annuity represented 18.2%, and non-insurance was 0.4% of our Q4 2020 total revenue, and 68.2%, 31.2% and 46% respectively for Q4 2019. The decrease in Life & Annuity business as a percentage of revenue was due to reduction in implementation revenue as a major customer prepared to go live in this current fiscal year.
Turning to profitability and other expenses. During the fourth quarter ended March 31, 2020, gross margins were 48.1% as compared to 48.5% in the quarter ended March 31, 2019. The additional margins from growing product revenues was somewhat mitigated by inflationary impact of the business, investments made to scale the business, and challenges in international segments of the business. During the full-year ended March 31, 2020, gross margins were 48.9% as compared to 48.7% for the same period ended March 31, 2019. SG&A for the fourth quarter of fiscal 2020 was $10.6 million compared to $10.7 million for the fourth quarter of fiscal 2019. SG&A for the full-year ended March 31, 2020 was $42.3 million compared to $39.7 million for the full-year ended March 31, 2019. The increase in selling and general expenses was driven by one-time expenses related to our customer conference, investment in the operations of the Company in the form of new IT systems, appointment of new auditors and tax consultants, as well as the year-to-date impact of the new management roles, providing bandwidth created in the Company.
Product development expenses for the fourth quarter of 2020 were $4.5 million as compared to $5 million for the fourth quarter 2019. This is in line with our product road map as we continue to enhance our cloud and digital offering and rationalize our foot in product development in the international market. Product development expenses for the full year ended March 31, 2020 was $19.1 million as compared to $19.4 million for the full-year ended March 31, 2019. The continued investment is maturing our product for being sold more as out of the box solution. Adjusted EBITDA for the fourth quarter ended March 31, 2020 was $5.1 million or 13.5% of revenue as compared to an adjusted EBITDA of $4.4 million or 11.9% during the fourth quarter ended March 31, 2020. This increase is directly related to higher revenue and better operating leverage. Adjusted EBITDA for the full-year ended March 31, 2020 increased to $18 million or 12.3% of revenue as compared to an adjusted EBITDA of $17 million or 12% during the full-year ended March 31, 2019.
Net income for Q4 fiscal 2020 was $3.6 million or $0.08 per diluted share as compared to net income of $1.2 million or $0.03 per diluted share in the same period last year. Net income for the full-year ended March 31, 2020 increased to $9.7 million or $0.21 per diluted share as compared to net income of $6.7 million or $0.16 per diluted share in the same period last year.
Majesco's balance sheet as of March 31, 2020 remains strong and debt free. The Company is generating cash sufficient to fund operations with a total cash, cash equivalents and short-term investments of $51.4 million as of March 31, 2020 compared to a cash, cash equivalents and short-term investments of $39.4 million at March 31, 2019. The 12-month executable order backlog increased 13.3% to $109.8 million compared to $96.9 million at March 31, 2019. Overall, the quarter and year-to-date financials demonstrate strong results across all key metrics, including revenue growth in key product lines, customer acquisition, cloud-based metrics, margin expansion, order backlog growth, and positive operating cash flow.
Now, I will pass it back to the operator to open the call for questions. Thank you very much and we appreciate your continued interest in Majesco.
Questions and Answers:
Operator
[Operator Instructions]
Adam Elster -- Chief Executive Officer
All right, Steve, if we have no questions in the queue, I will wrap it up for everyone. I want to thank you for your interest. Again, we're very happy of our FY '20 year. In addition to us posting the results, we'll also be posting a new investor presentation that we made available as well, and we appreciate your interest and look forward to talking to you in the future. Thank you very much.
Operator
Sorry, we do have one late question in the queue. It's Milton Aronowitz with Wells Fargo Advisors. Please go ahead.
Adam Elster -- Chief Executive Officer
Sure.
Operator
Milton, your line is live.
Milton Aronowitz -- Wells Fargo Advisors -- Analyst
First of all, congratulations. You had a good year.
Adam Elster -- Chief Executive Officer
Thank you, Milton.
Milton Aronowitz -- Wells Fargo Advisors -- Analyst
Second, I have a two-part question. Number one, with your enhanced balance sheet and your relationship with IBM, do you see other marquee -- business relationships with other marquee companies similar to MetLife? And also, do you have any forecast from what the MetLife contract might mean in the following years or so?
Adam Elster -- Chief Executive Officer
Yeah. So, we are not giving guidance on the MetLife contracted sales, but as a relation to IBM, we've had a pipeline that's been building over the last year with IBM and another bunch of Tier 1 insurance company that have been looking at a similar offering to MetLife. And as you can imagine for most of them, the number one is question is when MetLife can go live. So we've had a backlog of pipeline that's been building, we now believe that with the go live that that pipeline will start to accelerate and we are hoping to see that impact in the back half of this year.
Milton Aronowitz -- Wells Fargo Advisors -- Analyst
Great. Thank you very much and continued growth.
Adam Elster -- Chief Executive Officer
Thanks, Milton. Appreciate it.
Operator
Thank you. This concludes the question-and-answer session. I would like to turn the conference back over to Stan Berger for any closing remarks.
Stan Berger -- Investor Relations
I think you mean you want to talk it over -- send it over to Adam. Adam, I think gave much of the closing remarks.
Adam Elster -- Chief Executive Officer
I appreciate everyone's interest and again, we are going to be posting also our investor -- our annual investor presentation, which goes through our strategy. Last year, we did an Investor Day, where we presented our strategy, our product road map and our financial execution, and we'll be posting an abbreviated version and update of that document from last year. So, be on the lookout for that and have a good evening everyone. Thank you very much.
Operator
[Operator Closing Remarks]
Duration: 25 minutes
Call participants:
Stan Berger -- Investor Relations
Adam Elster -- Chief Executive Officer
Wayne Locke -- Chief Financial Officer
Milton Aronowitz -- Wells Fargo Advisors -- Analyst
