Logility Supply Chain Solutions Inc (LGTY) 2004 Q4 法說會逐字稿

I would like to turn the program over to one of your hosts today, Mr. Vince Klinges. Please go ahead.

Good morning. Welcome to American Software's fourth quarter fiscal '04 earnings call. To begin I would like to remind you that 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 risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

There are a number of factors that cause actual results to differ materially from those anticipated by the 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, timely availability and market acceptance of these products and services, the effective competitive products and pricing, 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 would like to turn the call over to Jim Edenfield, CEO of American Software.

Good morning, ladies and gentlemen. We are pleased to report our fourth quarter and fiscal year '04 results which ended on April 30. The fourth quarter marked our 13th consecutive profitable quarter under GAAP. We have reported three consecutive years of profitability under GAAP. The fourth quarter results were below our expectations but we are confident that we can do much better this quarter and in future quarters. Although we experienced an unexpected shortfall in license fees, it is reasonable to expect that the new year will be better. The economy is booming and it is reasonable to expect that this boom will result in increased expenditures for supply software in general, and for American Software in particular.

It is reasonable to expect that American Software will benefit in particular because we prepared for success during the tough economic years. A prime example of this preparation has been the broadening of the footprint of New Generation Computing from both a product scope standpoint and from a target industry standpoint. The product scope expansion includes two new products introduced by New Generation Computing during the fourth quarter, Internet Product Development Manager and REDHORSE, which combined with our global Internet Sourcing and Production System helps companies involved with design and production to increase speed to market, reduce cost, manage by exception, globally source products, and enhance workflow.

New target industries for New Generation include furniture manufacturing and distribution, footwear manufacturing and distribution, and retailing. During the year Logility announced the general availability of Logility Voyager Solutions 7.0, The latest release of Internet based products that support real-time global visibility of forecast, orders, inventories, deliveries and key performance indicators across the supply chain. Logility Voyager Solutions 7.0 helps companies reduce supply chain cost, optimize inventory investments, increase sales and improve customer service through innovative demand management, optimize supply chain planning, synchronize production, streamline warehouse and improve transportation management.

Logility also outlined plans to support radiofrequency identification commonly referred to as RFID, compliance across supply chain planning, warehouse and logistics products. Logility Voyager WarehousePRO will initially support RFID technology within the warehouse at the carton, pallet and container level to streamline the shipment of goods to retail customers and accelerate the receipt of products into distribution centers. Looking to the new year in general, we currently have all of the ingredients as a company to experience solid profitable growth as economic growth 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 the downmarket years just lends an aura of continuity and stability which are important to companies seeking a 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 and future order backlog as compared to this time last year. We have a strong balance sheet with approximately $66 million in cash and investments and no debt. As we go into a new year, we are prepared to facilitate growth by adding sales and marketing personnel as appropriate. We closely monitor pipelines by individual salesmen and use a capacity index 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 salesforce during each quarter this year. I would like to ask Vince to review the financial results and then our team would be happy to answer any questions which you may have.

Thanks Jim. Comparing the fourth quarter '04 to the same period last year, total revenues for the fourth quarter were 13.4 million compared to 15 million in the same quarter last year. License fee were 3 million compared to 3.4 million in the same quarter last year. Services and other revenues were 6.2 million compared to 6.8 million. That is lower due to license fees. Lower license fees in prior periods resulted in fewer software limitations (ph) this quarter and the fourth quarter of last year included 400,000 in hardware sales for one customer compared to an immaterial amount this quarter.

Maintenance revenues for the fourth quarter were 4.3 million compared to 4.9 million. That was lower primarily due to lower ERP maintenance renewal. Our gross margin was 51 percent for the quarter compared to 55 percent the same quarter last year. Our license fee margin was 64 compared to 69 percent due to lower software sales when compared to last year. Our services margin was 29 percent this quarter compared to 33 percent. Our maintenance margin this quarter was 73 percent compared to 75 percent and that is due to lower maintenance revenue. Taking a look at our operating expenses, our gross R&D expenses were 13 percent of total revenues for the quarter, the same as last year.

As a percentage of revenues, sales and marketing expenses were 22 percent of revenues or 3 million for the quarter compared to 20 percent for the same quarter last year. Our G&A expenses were 2.3 million, down 2 percent from last year and 18 percent of revenues compared to 16 percent, and that was higher due to lower revenues. Operating income was 500,000 this quarter compared to 1.6 million for the same quarter a year-ago, and we reported a non-cash impairment charge of 382,000 related to a minority investment write-down. Our EBITDA was 1.8 million compared to 2.9 million the same period last year. Our net income from continuing operations was 221,000 on earnings per diluted share of one penny for the fourth quarter and that compares to net income from continuing operations of 1.8 million or earnings per share of 8 cents for the same period last year.

International revenues this quarter were approximately 9 percent of total revenues compared to 6 percent in the same quarter last year. Taking a look at the full year, fiscal '04, compared to the same period last year, total revenues were down 8 percent to 54.7 million compared to 59.3 million for the same period last year. License fees were down one percent to 12.4 million compared to 12.5 million the same period last year, and services revenues were 24.4 million compared to 26.9 million, same period last year. Maintenance revenues were 17.9 million compared to 19.9 same period last year. And the overall gross margin was 53 percent in fiscal '04, the same as last year.

Maintenance margin was 74 percent when compared to 72 percent during the same period last year. Service margins were unchanged at 31 percent. License fee margins decreased slightly to 65 percent from 67 percent last year primarily due to higher software amortization costs during the current fiscal year. Operating expenses. Gross R&D expenses were unchanged at 14 percent of total revenues when compared to the same period last year. As a percentage of total revenue, sales and marketing expenses were 21 percent for fiscal '04 compared to 20 percent in fiscal '03. G&A expenses including bad debt reserves were 17 percent of revenues compared to 16 percent the same period last year, primarily due to lower revenues. Operating income for fiscal '04 was 4 million compared to 4.5 million last year.

Net income from continuing operations was 5.7 for fiscal '04 or 23 cents earnings per share compared to net income from continuing operations of 5.5 million or 24 cents earnings per share. International revenues for fiscal '04 were 4 million or approximately 7 percent of total revenues compared to 11 percent in fiscal '03. Looking at the balance sheet, our company's financial position remains strong with cash and short and long-term investments of approximately 66.4 million at the end of the quarter and cash investments increased by 5.8 million compared to the end of fiscal '03.

Also during the quarter we paid a quarterly dividend of 6 cents per share for a total of approximately 1.4 million, and also during the quarter Logility purchased approximately 30,000 shares back, for a total cost of 155,000 under the authorized stock buyback program. Other aspects of our balance sheet, our billed accounts receivable is 7.1 million, unbilled 2.5, our working capital is 59.7 million, our deferred revenues are 10.1 million and our stockholder equity is 76.5. Our current ratio is 4.7 and our Days Sales Outstanding at the end of the fourth quarter was 70 days compared to 68 days last year. At this time I would like to turn the call over to questions.

(OPERATOR INSTRUCTIONS). Patrick Slaven (ph).

Good morning Jim and Vince. Could you talk a little bit about the pipeline Jim in terms of its status versus the quarter before and where you think you stand?

I think you and Mike went over this pretty thoroughly in the Logility conference call yesterday, so I think he pretty well outlined the position as it related to Logility. I believe that American Software USA's pipeline is probably the same as it was this time -- did you say the quarter, the quarter right, the previous quarter?

Yes.

I think American Software's is probably -- USA, is probably about the same as it was this time last quarter. I think New Generation Computing is stronger and I think the proven method is stronger.

Okay. Could you talk a little bit about specifically New Generation and the new REDHORSE product and what you think that can do for the company?

One of the main things that it does is it provides an upgrade path for over 100 customers that have the predecessor system, and it also gives us an improved database capability which we think will make us more competitive in the marketplace going forward and it also more tightly integrates with the global sourcing system that we have. We also have some features in it that probably make it more desirable for the footwear industry.

That is an extension of the productline? I gather that you must be in the apparel business, by far the dominant factor?

There is not a lot of detailed data on that, but we believe that we have a very strong position there. I think that we must be getting a very large percent of the new business.

Finally Vince, I see that you took, for the quarter and the year, an income tax charge. Does that mean your NOLs are depleted?

No, Pat. We actually are going into fiscal '05 with approximately 12 million of NOLs. What that was, was an alternate minimum tax, AMT, so even corporations that have NOLs still have to pay an alternate tax.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). Jill Evans (ph).

Thank you very much. I actually was on the Logility call last night but I could not get in for a question. I was on the website. Just curious, on the weakness in Logility, you're saying it's taking customers longer to sign contracts than usual. Could you talk about some of the factors that you think are driving that? You talked about people doing some hardware, but do you think it's because of anything that has to do with RFID and they're putting off their decisions because they think things are going to be changing in the future, or are you seeing it in certain sectors? If you can kind of flush out a little bit more on what is driving the customers to hold back here?

What we have seen is there were economic reasons, up until recently, where corporate earnings are improving now, but we still see the approval process as being much tougher than it was in the past. We don't really think it's related to RFID or any of -- the fact that they are prioritizing anything different than that. We just think it is much harder to get capital expenditures for software through now. I think in the late '90s and early 2000, 2001, there was a lot of money spent on software and perhaps they did not get the return on investment they were expecting.

There was sort of a mentality then that they had to try to implement things as other people were doing it, and there was sort of a wave of hype that the marketplace got caught up into. A couple of things from that. People are more cautious and also there's a lot of software bought that they are still implementing before the bubble bursts. So I think all of those are factors that contribute to just a lot more caution. We're doing a lot more our ROI work to help our prospective customer justify the solution and that takes time as well, where in the past they did not need as much ROI work to get things through as they do now.

Do you feel that -- I guess like you said, the answer is going to be that if the company is making more profit, it's feeling more comfortable to spend some of the money here. I guess how do you -- I guess as you said, it can't hurt just by showing them the results but they still have to make the leap.

For example, a transaction we got in the quarter, was all set to go we thought and then all of a sudden they needed a more detailed ROI analysis and fortunately we poured a lot of resources into it to get it in a relatively short period of time, but it could have -- if we did not have the resources available to do it, it could have delayed the order for a month or two. So when we think we're all done, sometimes we find out there is another hurdle, or two or three or four in some cases.

And you were saying you are not feeling a picking up so far in this quarter either?

I would say it's about the same as it has been in the last two quarters.

Okay, so it's not getting any worse, so that's good. Then a question on the cash, I appreciate the penny increase in the dividend but it is still relatively small relative to your cash position. Can you give any comment there, for example why you are not paying a little bit more on the dividend?

I agree with you, it is relatively small relative to the cash position. Our board is probably approaching it from the standpoint that you can always increase the dividend, but it is sometimes difficult to -- it's very difficult to reduce them, not that we -- the last thing we want to do is ever be in a position where we have to reduce it. I think that having a large cash position is beneficial from a number of standpoints. Number one, it's certainly establishes us as a sound player when we are trying get a global project.

The prospects are very concerned that we're going to be around and that we are not going to be acquired by someone that they don't like. I think that having a large cash position helps our salesforce tremendously. Also, there is the possibility that we might want to do an acquisition at some point and we might want to do it with cash. We think there will be a lot of good things that can happen if you have a lot of cash. A lot of things can happen if you don't have much cash. So it seemed to us that a 16 2/3 percent increase in the dividend was good, and it still leaves us all the benefits of having a large cash hoard.

Well we'll take it and I do appreciate it. Thank you very much.

(OPERATOR INSTRUCTIONS). It appears we have no further questions.

Thank you very much for joining us on this conference call and we look forward to the next one. Hopefully we will have better news to report then. Thank you very much.

This does conclude today's teleconference. We thank you for participating and you may now disconnect your phone lines. Have a wonderful day.