Logility Supply Chain Solutions Inc (LGTY) 2004 Q2 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. I would now like to turn today's call over to Vincent Klinges, Chief Financial Officer. Go ahead, please.

Good morning. Welcome to the second-quarter fiscal '04 earnings call. To begin, I'd like to remind you that this conference 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 for those set forth in, contemplated by, or underlying the 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, the growth rate of the market for our products and services, the timely availability and market acceptance of these products and services, the effective competitive products and pricing, and the regular 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 Jim Edenfield, CEO of American Software.

Thank you, Vince. Good morning, ladies and gentlemen. Yesterday following the close of the market, we reported our financial results for the second quarter of fiscal year 2004 which ended on October 31st. We're very pleased that we have been able to report 11 consecutive profitable quarters within a challenging operating environment. Hopefully, the economic environment going forward will include increases in corporate capital expenditures commensurate with the growth of the overall economy. This positive view seems to be the consensus among leading economists. We believe that increases in our sales pipelines are confirming that this positive view will be the case for American Software. We currently have all the ingredients to experience solid profitable growth as the economy gains momentum. These ingredients include a large and diversified customer base which is satisfied and will give us excellent references; our record of profitability during a downmarket, lends an aura of continuity and stability, which are important to companies seeking a long-term software partner. Our products are state-of-the-art and our comprehensive research and development follows an achievable vision of the future. Our employees are both highly skilled, and highly motivated. Both Logility and New Generation are poised to achieve rapid growth. We are optimistic about the increases in future order backlog. We have a strong balance sheet. We have approximately $63 million in cash and investments and no debt.

During the quarter, contracts were obtained from among, others Avondale Mills, Cannondale Bicycle Corp., DaimlerChrysler, Gold Toe Brands, Ingram Micro, Komatsu America, National Center for Employment of the Disabled, Petroleos de Venezuela, Rockline Industries, Shaw Industries, and Tyler Pipe Company. This represented a healthy mix of new and existing customers. Some examples --Avondale Mills licensed components of the e-Intelliprise suite of enterprise resource planning and e-Forms which allows paper-based documents to be converted to electronic formats. Avondale Mills has been a longtime user of American Software's zSeries-based Purchasing and Materials Management Systems, which include Inventory Control, Requisitioning, Purchasing, Procurement Matching and Accounts Payable. Avondale's strategic direction was to move their applications to IBM's iSeries platform, which precipitated a software selection project.

The Venezuelan national oil company, PDVSA, one of the world's largest petroleum exports, exporting about 2.3 million barrels a day of crude and (ph) products, with about 1.5 million barrels per day market to the U.S., has licensed multiple copies of the iSeries ERP solutions for use in the PDVSA oil lubrication plants throughout Venezuela.

Tyler Pipe Company licensed RF Direct Connect, a software application which enabled bar-code readers and data collection devices to be directly connected to American Software's host ERP system for performing inventory production control transactions. Tyler Pipe selected RF Direct Connect in order to improve the productivity of warehousing personnel and to significantly reduce the data input transaction error rate. RF Direct Connect provides a means to perform transactions in real-time with editing and error-checking capabilities through the use of radio frequency devices.

The National Center for Employment of the Disabled, a manufacturer of chemical protection suits and battle dress uniforms, selected NGC's apparel management accounting system and the production software used in conjunction with Foxfire Technologies' Real-Time software control system. The software will enable the company to integrate business processes, distribution, finance production planning, administration, accounting, electronic data interchange, shop-floor control, incentive (ph) payroll and other functions at its multiple locations onto one PC-based system. In addition, the software will enable the company to perform real-time collection analysis and plant-level production data.

Rockline Industries, North America's largest supplier of coffee filters and private-label wipes, selected and deployed Logility Voyager Solutions to optimize transportation operations throughout the company. Rockline anticipates a minimum projected savings of 8 percent per month and overall reduced transportation costs as a result of its rapid seven-week implementation.

Farnell InOne, the international marketer and distributor of electronic components, maintenance, repair and operations (MRO) products and tailored services, upgraded to Logility Voyager Solutions Version 6.5. Logility Version 6.5 was live in less than one month, and will increase visibility between Farnell InOne and other Premier Farnell Group Companies, to enable increased visibility throughout its supply chain and exceptionally high levels of customer service.

Logility customers, Huhtamaki, one of the world's largest packaging companies, and Mercury Marine, a 1.6 billion global marine engine company, each made industry presentations on how Logility Voyager Solutions helped facilitate the sales and operations planning process to deliver greater visibility and quantifiable results across their entire businesses. Huhtamaki presented a UK-based consumer goods industry breakfast co-sponsored by IBM and Logility. Mercury Marine spoke at the APICS International Conference held in Las Vegas, Nevada.

Logility and Plan4Demand, a Pittsburgh-based consulting services firm specializing in supply chain management solutions, announced a business alliance to provide additional implementation of resources, customized best practices training, and prioritized business process improvement for the deployment of Logility Voyager Solutions. Plan4Demand and Logility will work together to help companies with distribution-intensive supply chains benefit from faster implementations and provide the capability to develop and deploy highly customized training, intangible tools for driving change management and ensuring maximum self-sufficiency.

We are prepared to facilitate growth by adding sales and marketing personnel as appropriate. We closely monitor pipelines by individual salesman in order to determine when and how many additional sales personnel to employ. Using this concept, we can rapidly take advantage of growth opportunities while maintaining tight cost controls. We anticipate further expansion of our sales force during the third quarter. I would like to ask Vince to review the financial results and then we will have the questions and answers.

Thanks, Jim. Just comparing the second quarter of '04 to the same period last year, our total revenues for the quarter were 13.5 million compared to 14.8 million for the same quarter last year. As Jim indicated, our licensees were up 11 percent to 2.9 compared to 2.6 last year. Services and other revenues were 6.1 million compared to 7.1 million. Our maintenance revenues were 4.5 million compared to 5 million, primarily due to lower ERP maintenance renewals.

Our gross margin increased to 55 percent for the quarter compared to 51 percent the same quarter last year. Our license fee margin was 61 percent this quarter compared to 68 percent due to increased software amortization expense when compared to last year. Our services margins were 37 percent this quarter compared to 33 percent, and our maintenance margin this quarter was 74 percent compared to 68 percent the same period last year. And these were up due to cost containment efforts.

Taking a look at the operating expenses, our gross R&D expenses were 14 percent of total revenues, the same as last year. And as a percentage of revenue, sales and marketing expenses were 19 percent of revenues or 2.6 million for the quarter, unchanged from 19 percent same quarter last year. G&A expenses were 2.1 million or down 4 percent from 2.2 million last year. Our operating income was up 39 percent to 1.6 million this quarter compared to an operating income of 1.2 million the same quarter last year. Our EBITDA was approximately 3 million this quarter compared to 2.4 million the same period last year. Income from continuing operations was 2.3 million; our earnings per diluted share of 9 cents for this quarter, compared to income from continuing operations of 1.6 million or earnings per share of 7 cents for the same period last year. Our international revenues this quarter were approximately 7 percent of total revenues compared to 11 percent the same quarter last year.

Taking a look at the six months ending October 31st, '03, total revenues year-to-date were 26.6 million compared to 29.3 million. License fees were 5.6 million, unchanged when compared to 5.6 million last year. Services revenues were 12 million year-to-date compared to 13.6 million. And maintenance revenues were 9.1 million compared to 10.1 million in the same period last year. Our overall gross margin increased to 53 percent compared to 52 percent for the six-month period, primarily due to an increase in our services margins, which were 34 percent compared to 31 percent in the same period last year, and our maintenance margins, which were 74 percent when compared to 70 percent. Our license fee margin decreased to 61 percent from 76 percent due to higher software amortization costs.

Taking a look at operating expenses, our gross R&D expenses were 15 percent of total revenues for the six-month period, unchanged when compared to last year. As a percentage of total revenue, sales and marketing expenses were 21 percent compared to 20 percent in the same period last year. G&A expenses, including bad debt reserves, were 17 percent of revenues compared to 16 percent in the same period last year. Operating income, year-to-date, is $2 million compared to operating income of 1.9 million last year. Our income from continuing operations was 3.4 million year-to-date or 14 cents earnings per share compared to income from continuing operations of 2.6 or 11 cents earnings per share.

Taking a look at the balance sheet, our financial position remains strong. We have cash and investments of 62.9 million at the end of the second quarter and no debt. We dispersed 1.4 million in dividends this quarter. We bought back approximately $500,000 under the American Software Logility stock buyback program. And we also paid our annual insurance premium. And even with all these disbursements, we actually increased cash sequentially 200,000 at the end of this quarter compared to last quarter, and approximately 5.6 million compared to the last year's numbers. Our current ratio is 4.7. Our days sales outstanding is 59 days.

At this time, I'd like to turn the call over to questions.

(OPERATOR INSTRUCTIONS). We will take our first question from Jill Evans with Alpine Mutual Funds. Go ahead.

Thank you. Good morning. Just a couple of questions -- when you look at the pipeline and you see it improving, can you give us a sense of where it is coming from? Is it certain industries that you are seeing picking up, certain areas of the economy that you can give us an idea?

We think it is picking up pretty much across the board. But for some time now, we found one hotspot is helping companies who are outsourcing their manufacturing to the lesser developed world. As they do more and more of that, they need more comprehensive management tools and controls to keep track of it.

Okay. Well that's good, because I'm sure that's a growing (indiscernible) going forward. And, also, can you talk a little bit about -- I guess you have this alliance with SSA, and I guess they are going to be selling your product. Can you kind of give us an update on the progress of that relationship?

This is Mike Edenfield, Jill. The relationship with SSA is making good progress. Their pipelines are, for our product sales, are also growing nicely. We did take some revenue in the past quarter from the SSA relationship, and we expect to take more revenue this quarter than we did last quarter.

So it is still a small percentage?

I don't know if I would call it small percentage. But it's not the majority of our revenues, certainly.

How would you kind of quantify the opportunities there?

I think we have a minimum commitment from them, and I think our opportunity is to try to, you know, increase that over time. So we've got someone, a resource, dedicated to doing that. And the opportunity there is fairly, at least on paper, fairly significant in that they've got I think, now, about 16,000 customers. And we are their supply chain planning system that they will marketing to those -- to that customer base. So if we can get any penetration at all under that base, it could be very interesting for us.

We're still in the early innings here, right?

Yes, we are.

All right. And the last question, this plan for demand. Can you explain a little bit more about what that is and what kind of impact it could have on the bottom line? Thanks.

Plan4Demand is a consulting company who specializes in supply chain management. And we, from time to time, enter into relationships with firms like this, to really try to increase our market presence. So they are out there calling on customers and have engagements with customers that don't know anything about Logility. So what we have done is we've entered into a relationship with them where appropriate, they would introduce us to their customer base, and where appropriate, we would introduce them to our customer base. And in some cases, we might actually jointly go after a customer together. So the purpose of it is to increase the number of customers we will get a chance to present our software to.

Okay. That's very interesting. Thank you.

Our next question comes from Patrick Flavin with Flavin Blake & Co. Go ahead.

Jim, could you fill us in a little bit more about New Generation Computing and particularly the ability of that offering to crosshatch, if you will, with the Logility offering?

Sure. The New Generation offering is a very exciting offering. They have the ability to help large companies and small companies, for that matter, do their global sourcing. And we essentially are selling most of these contracts in the -- to U.S. companies. And then the software is usually implemented in Hong Kong or wherever they have their Asian headquarters, and usually in the U.S. for their Latin American operations. And this is a product that has tremendous potential in terms of moving us up the value chain. For example, Logility -- I mean excuse me -- New Generation's order size has increased dramatically as they are selling to larger companies with many, many users. And so the initial license fee potential has gone up dramatically. And they began with this product in the apparel industry. But we believe that the product has application in every industry that is outsourcing manufacturing. So, we are looking to Logility to take that software and go beyond the apparel industry. And we've made several sales so far. And it looks like we've got tremendous potential there to take the product that was developed by New Generation and leverage it with the sales organization of Logility.

Okay. And at the present time, how much of New Generation's order flow is apparel? Is it all apparel now?

No. They're making good inroads in the retail industry. And we see a trend underway for private brand sales. If a retailer has their own brand, they are tending to want to take over that production now rather than go through another apparel assembler. So they would want, perhaps, to outsource direct to the factories in China and India and Mexico, wherever. And so they are setting up their own sourcing departments, and they need software for those departments. So we have a program to sell to these retail companies, and that has been very successful so far. And we anticipate that that is going to grow quite a bit going forward.

Thank you.

(OPERATOR INSTRUCTIONS). It looks as though we have no further questions at this time.

Thank you, very much, for participating in this conference call. And we look forward to talking to you this time next quarter if we don't talk to you before then.

This does conclude today's teleconference. You may now disconnect your lines and have a great day.