Logility Supply Chain Solutions Inc (LGTY) 2004 Q1 法說會逐字稿

Good day. All sites are now on the conference line in a listen only mode. I would be happy to turn the program over to the Chief Financial Officer of American Software Inc., Mr. Victor Klinges. Go ahead, please.

Good morning. On the call with me is Jim Edenfield, CEO of American Software, Michael Edenfield, CEO at Logility, Jeffrey Coombs, Executive Vice President of USA Inc. To begin I'd like to remind you 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 maturely from those set forth or contemplated by or underlying these 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 in general economic conditions, 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 the irregular 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 Michael Edenfield.

Good morning, everyone. Yesterday [indiscernible] close of the market we reported our financial results for the first-quarter of fiscal year 2004 which ended on July 31st. We're pleased we've been able to report 10 consecutive profitable quarters within a challenging operating environment. In regard to the current operating environment, there's little tangible evidence that customers have actually begun to increase their capital budgets and new technology. However any significant increase could bode well for both our top and bottom line. American Software currently has all the ingredients to experience a solid profitable growth for when the economic turnaround occurs. These ingredients include a large and diversified customer base which is satisfied, and will give us good references, our record of profitability during a downmarket which lends an aura of continuity, credibility, and stability -- which are important to companies seeking a software partner. Our products are state of the art and our research and development follows an achievable vision of the future. Our employees are both highly skilled and highly motivated. We believe both Logility and NewGeneration are poised to grow particularly if market conditions improve. And, finally, we have a strong balance sheet with approximately 63 million in cash and investments and no debt.

During the quarter contracts were obtained from -- among others -- Alberta Culver Co., Joseph A. Banks, Caton, Kellwood Co., SSA Global Technologies, VF Corp. and another leading manufacturer of brand and apparel, which represented a healthy mix of new and existing customers.

Regarding Logility's first-quarter results while Logility met or exceeded our expectations on maintenance and services revenue we're somewhat disappointed with the license fee revenue. In the first-quarter Logility did secure business from a number of notable new and existing customers including Alberta Culver, Caton SSA Global Technologies and the leading manufacturer of branded apparel that I mentioned earlier. Alberta Culver is a new customer who licensed the transportation planning and management system. The apparel company previously mentioned is a new account of (indiscernible) license our supplies and planning systems continues the significant momentum Logility has in the apparel industry.

SSA licensed our supply chain planning projects to one of their existing customers and that will [indiscernible] maintenance and services revenue for Logility as well as the license fees.

Logility's cost management efforts continue to be successful with total cost for the first-quarter (indiscernible) approximately 17 percent compared tot he first-quarter last year. Logility had operating earnings for the first-quarter of 324,000 as compared to an operating loss of about 280,000 for the same period last year, which represents a good improvement over last year.

Logility also continues to have a strong balance sheet in cash and investments of approximately 27 million, and no debt.

Looking forward to the remainder in the fiscal year, as we mentioned earlier, we see no significant change in the buying patterns in our marketplace. Capital spending still appears to be restricted. We do continue to see some significant industry consolidation activity and that's changing our competitive landscape and we believe consolidation will continue and will be healthy for our marketplace and American Software in the long term.

In conclusion, based on what we see in the marketplace our objectives for the remainder of fiscal year 2004 will be to continue to maintain profitability, strengthen our balance sheet and grow license fees -- all which will continue to improve our strong position relative to our competition when the economy rebounds.

Now I will turn the discussion back to Vince for a detailed review of the first-quarter financial results.

Thanks. Mike. Taking a look at the first-quarter of '04, compared to the same quarter last year, total revenues for the quarter were 13.1 million compared to 14.6 million from the same quarter last year -- license fees were 2.6 million compared to 3 million last year. Services and other revenues were 5.8 million compared to 6.5 million. Those revenues were lower due primarily to the lower services revenue in the ERP area.

Maintenance revenues were 4.6 million compared to 5.1 primarily due to lower ERP maintenance renewals. [indiscernible] our cost gross margin was 52 percent for both the current quarter and the same quarter last year. License fee margin was 61 percent this quarter compared to 65 percent last year. Services margins were 32 percent this quarter compared to 30 percent. The maintenance margin this quarter was same as same as last year this time at 73 percent.

Take a look at operating expenses -- our gross R&D expenses were 15 percent of total revenues -- as a percentage of revenues sales and marketing expenses were 23 percent revenues or 3 million this quarter. That was changed slightly from 21 percent the same quarter last year. G&A (ph) expenses were 2.2 million. Operating income was 420,000 this quarter compared to operating income of 778,000 same quarter last year.

Our EBITDA was roughly about $1 million compared to 1.3 for the same period last year. Our net income was 1.1 for this quarter or earnings per diluted share of five cents and that compares to net income of 1.5 or earnings per share of six cents and the prior year results included a gain from the sale of our [indiscernible] approximately 462,000 or two cents earnings per diluted share.

Our international revenue for this quarter were approximately 9 percent of total revenues compared to 7 percent same quarter last year. Taking a look at the balance sheet, our financial position remains strong with cash investments of approximately 62.7 million at the end of the quarter, and no debt.

Cash increased 2.1 million, sequentially, from the end of the previous quarter and approximately 5.3 million compared to the end of July 31, '02. Just taking a look at the other elements of the balance sheet our bill in accounts receivable of 6.6 are unbilled at 2.9. Working capital is 56.5, deferred revenues are 10.5, and our stockholder equity is 74.8.

Our current ratio is 4.6 and our day sales outstanding is approximately 71 days. At this time, I'd like to turn the call back to the moderator for Q&A.

[Operator Instructions] Patrick Flavin (ph) of Flavin, Blayton (ph), Inc.

A question for you -- I guess -- Vince. On the other net category versus a loss of 158,000 last year you show 465 this year. Can you help us with what that is composed of?

There's 4 elements in there -- a combination of investment gains on our portfolio, rental income from a tenant we have here -- Amquest -- and we have currency exchange items in there and also a couple of miscellaneous things. That's [indiscernible] made of.

And the difference versus a year ago would have been what because presumably it was mostly investment [indiscernible]?

Partly, yes, partly that was -- last year was investment -- unrealized losses last year. But we also had lower rental income last year.

Okay and then the increase in the share base on a fully diluted basis by about 800,000 shares. Is that due simply to the depreciation and the stock?

Yes.

Okay. Thank you.

Mr. Mark Eller (ph), private investor.

Hi guys. A few questions. First of all, what do you suppose the difference is between you at this point in time and several software companies seem to be seeing things improving on the horizon. And retail seems to be doing better as well at this point as an industry. I was curious as to what your thoughts are and why you're not seeing any type of improvement during your segments?

As we look at our major competitors from a supply chain perspective, they're not seeing any improvement at all. Their revenues are (indiscernible) extremely rapidly and they're incurring for the most part significant losses and bleeding cash. So in our space, we just don't see the investment returning there. I'm not exactly sure specifically which companies you're talking about there, but from a supply chain perspective, we haven't really seen any increase in investment.

I guess what do you think it takes, then, for the improvement to really kick in? I guess most of the stuff [indiscernible] talking about are largely in the finance and the business side of things. In the retail side, those things seem to be picking up and it just seems to me that at some point that's got to kind of fall down to you guys.

Really what it will take is capital spending to increase in the manufacturing distribution sector for us to see a significant change. And everything I'm reading there's a lot of talk about that happening next year and some talk about it happening in the second half of this year, but primarily the markets we sell to mostly they're about the same this year as last year.

Okay. Secondly, do you anticipate on an annual basis, the dividend would be covered out of operating income?

This is Jim Edenfield. We decided on the initial rate of the dividend of six cents per share. We felt that that number was appropriate, based upon what we felt that we could accomplish going forward. And we certainly anticipated that we would be earning more than the dividend. And we also thought it was appropriate based upon our large cash reserves and what we had been earning per-share growth per quarter for the last year.

And my last question is, just to kind of get an idea of what you're thinking, and what the attitude is at the Company at this point in time which obviously we all knew there's a hockey stick involved in your business. And is the attitude of the Company that you would rather see orders just fall into a following quarter rather than sacrifice margin in order to get the revenue into an existing quarter?

I think our philosophy is that every quarter has -- it's kind of like ripe fruit. When fruit is ripe, you need to pick it. And one of the risks that we run in our business is that everything can be going really good on a sales cycle and then at the last minute, the prospective customer has some unexpected bad news that causes him to defer either temporarily or permanently. So our objective is to try to get the business whenever we can. That's not to say that we're going to price it so that is not a good deal. We would only price it in a way that was in the best interest of the Company. And so we don't do things necessarily looking at the quarter end.

If I could go back to your point on the retail. It is interesting that we have somewhat of a strategy to try to get more into retail. And some of the new business that we're getting is in the retail industry. For example, Jos. A. Banks that was mentioned earlier. So, some of our new orders are coming into the retail sector, but that's not a large enough percent of our business at the present time to have a large, overall impact.

Thank you very much and I really appreciate the dividend. That was a great move.

Wilson [indiscernible] of Southwell (ph) Partners.

Couple questions on Logility here. If my math is right, there's really a great fluctuation in gross margins in the three segments of revenues -- license service and maintenance. In other words gross margins and license revenues went from 44 percent last year to 14 percent this year. And the reverse occurred in service and others. What causes all that?

This is Vince Klinges. I think I can answer that. I will take the license fee component first. The cost of license fees are primarily fixed. That's where we amortize our development projects. So the margin would swing pretty wildly if our license fee revenue swings wildly. So that's what would cause that gross margin swing and as far as the gross margin and services, we had an unusual item last year where we were actually restructuring that business -- that area of our business, our services -- so we had some restructuring costs in that number so that's why it was fairly low. But we actually anticipate that margin to be kind of right around where it is right now.

So in modeling it, 52 percent is good in that segment and how about maintenance? What would that number be?

That's -- last year's maintenance gross margin for Logility maintenance was 84 percent and this quarter it was 84 percent. So that's real stable there.

Talk about the hockey stick that occurs. How much of your revenues are generated in the last month of the quarter, the last two weeks of the quarter?

Well, it's -- really the area we get the hockey stick [indiscernible] the license fees. And it depends. We had some quarters where we've had as much as 60, 70 percent going into the last month, but in general, we have at least 50 percent to go [indiscernible] the last month and sometimes even heavier than that. And then when you break that down, the bulk of that would typically go the last two weeks. And as you break that down, the bulk of that would probably go the last week, break that down the bulk of it will go to the last two days. So -- and a lot of that is the marketplace understands that the [indiscernible] public software companies [indiscernible] and they're driving it that way.

Right and there's little change occurring. I know [indiscernible] one across the board here. Help me with the cash here. You got a lot of cash in Logility. Can that be dividend up to the parent without a taxable event occurring?

That's our understanding.

Okay. So you have access to those funds?

The parent has access to those funds without a taxable event.

Yes obviously, the board of directors of Logility would have to approve that.

Thank you very much.

Jason Samm (ph) of [indiscernible].

Hi guys (indiscernible) -- quick questions. Can you -- in aggregate, how many new deals did you close in the quarter and average ASE and kind of give me a sense in terms of in general last quarter you did a few fairly large deals. Is there any of that opportunity still in the pipe in the near-term? And will any of that expected for the quarter and pushed out?

On aggregate, we did approximately 11 deals and that was where we described a deal as something significant if somebody just bought a few users or a change in technology platform [indiscernible] -- we're not counting those. So we did about 11 transactions across all the Company's significant transactions across the Company and we don't share the average selling price. We have it -- we get asked that just about every call. And we haven't provided that information for some time now. That causes us some problems when we are negotiating contracts sometimes -- we've had customers use that against us on some of our proposals. And the second part of your question was, do we have any big deals push out? We have some big deals in the pipeline and we, obviously, had some deals push out this quarter. But we didn't have any megadeals -- seven figure deals -- that we were counting on this quarter. They were more regular size deals -- several -- handful of those that pushed out on us.

Now just back to the 11 deals. Can you give me a sense in terms of were there any legacy deals involved? What percentage of them were Logility and [indiscernible]?

I think Logility and NGC had a little over half of them.

Okay. And in terms of the legacy business. Were there any new customers?

No. They were all existing customers.

Okay. So now in terms of the licensing deals for Logility. This is probably one of the worst quarters that you have, since the downturn started. In terms of -- can you talk a little bit about your current pipeline in terms of how that's looking? If the pipelines improve are customers taking longer given the current environment or are they pretty much hit or miss every quarter? Pretty much the environment is still the same and if that's the case, what can you do to try to get a little bit more consistency in getting the license fee improved going forward?

Well, if you look at our performance last year, the first half was substantially slower than the second half and our first quarter ends in July which is not a very active month. There's a lot of vacations going on in our customer base. And it's just hard to get things done in late June and July and even in August for that matter due to vacations so typically that's seasonally a weak point.

Our pipeline is clearly not as robust as we would like it to be, although we did have the deals to do a good bit better but a variety of things happened to those deals. One slipped out and we closed it already. Another has slipped down. And we think we will get it this calendar year -- they had some contention of resources. But they put this one on hold and then others -- we're not sure we will get them at all you know, we've done all the work to get them and thought we were going to get them at the beginning of the quarter. There's a variety of reasons why they're delaying. So there's no 1 thing -- in general you always have some of those in the pipeline but when your pipelines are thinner, something slips, it's much more a dramatic impact. Now in terms of looking forward, we don't see a major difference going into this quarter in our pipeline. We do see -- have seen a pickup in the lead activity here through our telemarketing programs and another program we have. And so, the pipeline is still [indiscernible] but that will probably be more of an impact on the second half of the year than on this quarter.

Okay. Great. Thank you.

Wyatt Carr (ph) of Sidler (ph) Companies. [indiscernible]

I'm asking about the -- you've got about 63 million in cash. You show that you bought about 25,000 shares back in the quarter. Is that correct?

Yes. About 25,000, Wyatt. Yes.

Do you plan -- you still got quite a bit of the buyback left? Do you intend to exercise that?

Well, there's no time frame on when we exercise it. I think that what is changed from the time that we were buying somewhat more aggressively is the fact that we have instituted the dividend. We would like to think that we can have guns and butter and, hopefully, we can. So I think that we probably will be from time to time [indiscernible] market transactions, repurchasing shares, but I think that, realistically, we do have to take into account the fact that we do have an aggressive dividend program underway now.

Okay. Thank you.

[Operator Instructions] Mark Plunkett (ph) of Atlas Capital.

Hi guys. Quick question -- just wondered if you could expand a little bit on the expectations for I guess the reselling channel and the relationship with SSA and has that met your expectations and what you're hoping to see there going forward?

Regarding SSA. On April 30th, they signed a contract with us. We talked about this on the last conference call. This is really an addendum to our existing agreement but basically when they committed to provide us $1 million of net license fee revenue for this fiscal year and then we -- there's a payment schedule for that throughout the year as well. But they actually sold a little bit more this quarter than the minimum payment that was due. So in terms of the schedule, we put out for them -- jointly with them, I should say -- they are slightly ahead of schedule.

They closed a very small order in Korea already this quarter -- very small -- for one of our products and they're working on a couple of good opportunities as well and if they close those they will be ahead of schedule again. So our objective was for them to -- for more than one reason -- exceed the million dollars and put us in a good position for renewal next year. And, hopefully, a higher renewal -- so far, we're on track.

Now, obviously, the million in our view is a minimum of what we would like to get but getting someone to sell your products is very hard work and requires them to very committed. We're seeing a lot of signs of that commitment -- the $1 million commitment [indiscernible]. We recently did a training session on the North American sales force and that went very well. So we're seeing a lot of good signs but on the other hand they're also very acquisitive, and that seems to distract the management team a good bit.

So that's one of the challenges we face is, how do we keep them focused on our relationship while they're acquiring all these other companies. I would say right now, we're pleased with it. And we would like it to be a lot better -- has a potential to be a heck of a lot better. They now have the latest acquisition of, I believe, over 16,000 customers that are targets for our products now. And we don't have to sell all 16,000 of them to have a very successful relationship.

Okay, thanks.

Wilson [indiscernible] of Southwell Partners.

You mentioned at the start of the call in your comments about objective for '03. Do you give you forward guidance and if you -- have you given forward guidance? And is there any forward guidance you want to give on this call?

No, we have not been giving forward guidance for some time now and we're not going to be giving any on this call.

Thank you.

We have a follow-up question from Jason Samm of Cybar (ph).

Just real quick. You mentioned that you have a couple of slipped deals last quarter. And since that closed already this quarter, now for the above average deals or -- and can any be taken into, can you read anything into that or that pretty much gives you a bit of a head start and we still got the traditional trend of putting less, trying to make the quarter at the end of the last two weeks?

None of them were -- they were all basically average deals. There were a handful but only one of them has actually closed and it's the only one of those that we anticipate closing this quarter. So I would think we would still have a traditional quarter in front of us.

Okay. And the one that you closed, was it Logility or NGC?

Logility.

And on the competitive front, any anecdotal evidence in terms of in any kind of bake off, how are you guys faring?

We fare well when we have [indiscernible]. Our issue is not whether we win or lose, it's getting the opportunity to compete more. And that's what we're really trying to focus on. It's -- we're working hard with our direct channel to get them in -- more engaged in more qualified opportunities and then if we can just increase that, we will be fine. And then, also, obviously the SSA channel -- that order they closed last quarter -- was no competition. That's a real opportunity there.

I think there will be some where they're competing on an installed base but a lot of them I think are just going to be able to go in and treat it as an add-on sale.

So SSA contributed to one deal last quarter? Or more than that?

One.

One deal, okay, and so far this quarter they've closed a deal already?

It's very minor.

Do you have any -- do you have any visibility into their sales channel at all? Do they give you any indication on what's near-term do you actually work -- do they use you aside from just reselling their product in any way whatsoever?

Yes, they use us. They do use us, still, to help sell the product in North America and in Europe. And we have a little visibility there. I wouldn't say it's as much visibility as we have in our own channel, but we still have some visibility. What's going on in Asia, we have very little visibility. Like the little order we got, we didn't know it was coming until they told us it was closed. And they did a deal in Asia last fiscal year as well and same situation -- we didn't know anything about it until it was closed.

Okay, thank you.

[Operator Instructions] It appears we have no further questions. I'll be happy to turn the program back over to our host for any concluding remarks.

Thank you all very much for your interest and support of Logility and we appreciate all the time you spent on the call and all the questions. And we look forward to having a successful quarter this quarter and see you on the next conference call.

This concludes our conference call for this morning. You may now disconnect your lines and thank you for participating.