Logility Supply Chain Solutions Inc (LGTY) 2006 Q4 法說會逐字稿

Good day. All sites are now on the conference line. Later there will be an opportunity to ask questions during our Q&A segment. (OPERATOR INSTRUCTIONS). I will now turn it over to our moderator, Mr. Vincent Klinges, CFO of American Software. Go ahead please.

Good afternoon. Welcome to American Software's fourth quarter and fiscal year '06 conference call. On the call with me is Jim Edenfield, CEO of American Software; Mike Edenfield, Executive Vice President of American Software, and CEO of Logility.

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 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 from those set forth in, contemplated by, or underlying the forward-looking statements.

There are a number of factors that could cause these 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 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 would like to turn the call over to Mike Endenfield.

Good afternoon everyone. Thank you for participating on this call. We're very pleased to report the results of American Software's fourth quarter and fiscal year 2006, which ended on April 30.

The fourth quarter marked our 21st consecutive quarter of profitability. For the eighth consecutive quarter total revenues increased over those contained in the previous year's quarter. The increase for the fourth quarter revenues was 10% year-over-year. Growth was driven by license fees with 31% growth when compared to fourth quarter last year, and maintenance also grew nicely with 16% growth.

Operating earnings more than doubled in the quarter of 113% over the same period last year. Net earnings also rose substantially to approximately $1.2 million, an increase over last year of 97%.

Notable new and existing customers placing orders in the fourth quarter include, ARC International Cookware, Associated Hygienic Products, Basic American Foods, Behringer Holdings, Broan-Nutone, Corning Cable, Haggar Clothing, Intertape Polymer, Jacuzzi UK, Klaussner, Millipore, Manhattan Beachwear, New Breed, Parmalat South Africa, PDVSA, the Venezuelan oil company, Precision Twist Drill, Rafaella Apparel Group, Scanlan International, Shaw Industries and Tyler Pipe Company, among others.

We added 27 new customers in the fourth quarter. During the quarter software license agreements were signed with customers located in 14 different countries, including Australia, Belgium, Canada, China, Denmark, India, Ireland, Puerto Rico, Singapore, South Africa, Switzerland, Venezuela, the United Kingdom and the United States. We continue to be encouraged by the number of new customers licensing our products. New customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

For the full year revenues increased 19% led by strong licensing growth of 45%. Operating earnings were $6 million, an increase of 136% compared to the previous year. During the year we entered into license agreements with about 100 new customers and extended our relationship with an impressive number of existing customers. Software license agreements were signed with both new and existing customers located in 24 different countries.

The Company's balance sheet remains strong with cash and investments of approximately $63 million and no debt.

And now I would like to go into more detail on Logility's results. Logility had another great quarter. Strong sales performance generated record quarterly revenues of approximately $10.1 million, and strong quarterly operating earnings of $1.8 million. Some of the key highlights for the quarter were 34% revenue growth compared to the same quarter last year, with growth in all revenues streams led by license fees with 74% year-over-year growth.

We're also extremely pleased with Logility's full fiscal year results. For fiscal 2006 total annual revenues increased 50% over last year. All three revenue streams were up at least 11%. License fees for the year were $13.9 million, a 107% increase from last year. Our operating earnings for fiscal 2006 were a record $6 million, shattering Logility's previous record of $1.8 million.

Maintenance revenues were a record $17.6 million, which represent over 40% of total revenues for Logility.

Regarding our outlook for fiscal 2007 the first quarter the pipeline activity was better than it was at this time last year. And the first quarter has an opportunity to be as good or better than last year.

As I described on the call last quarter, a number of factors are contributing to our superior performance. A combination of an improved economy with the continued globalization of the supply chain is driving demand for our products and services. Many companies have, are in the process of, or will lose some of or all their sourcing offshore to Asia. While this transition certainly allows corporations to reduce their manufacturing sourcing costs, it puts significantly more pressure and less transparency on the supply chain process. Lead times are significantly longer, transportation costs are higher, and the cost of a mistake is much higher.

Many of our customers sell to mass merchandisers like Wal-Mart, Target, Home Depot and Lowe's, and those companies are putting continual pressure on their suppliers to increase their fill rates, shrink replenishment lead times and reduce costs. For these reasons we believe there will be continued investment in supply chain systems by companies in the markets we serve.

Our sales and marketing team continues to execute well. Closure rate and the pipeline both increased in fiscal 2006. We believe this is due to the economic and industry factors I just mentioned, as well as good execution in the field.

Our organizational and financial stability is clearly helping us establish relationships with customers and prospective customers, as compared to some of our competitors. Fiscal 2006 has illustrated the leverage we have in our business model. If we continue to grow our revenues, particularly license fees, our profits will continue to increase nicely over the long term.

We also continue to experience tangible revenue synergies from the Demand Management acquisition. The acquisition has broadened the presence of brand awareness of both Logility and Demand Management in the marketplace, and has provided lead referrals from one sales channel to the other, as well as upgrade opportunities and cross-selling of products.

In summary, fiscal 2006 was a superb year for American Software and Logility. Our business model is in excellent shape from a profit generating perspective, and we have expanded our ecosystem and coverage in the marketplace with the successful implementation of the Demand Management acquisition.

I would now like to turn the call over to Vince for a further review of the financial results.

I would like to take a look at the fourth quarter of fiscal '06 compared to the same period last year. Total revenues for the quarter, as Mike indicated, increased 10% to $20.5 million, and that compares to $18.6 million for the same quarter. And this is up primarily due to license fees which increased 31% to about $4.5 million compared to $3.4 million for the same period last year. And again that is primarily due to increases in Logility, which actually increased their license fees by 74% year-over-year.

Services and other revenues were $9.8 million for both periods. Maintenance revenues increased 16% to $6.2 million compared to $5.3 million, primarily due to increases in Logility which increased 23% when compared to the same period last year.

Taking a look at our gross margin, it was 49% for the current quarter and that compares to 51% for the same period last year. Our license fees margin was 71% compared to 70% for the same period. Services margins decreased to 24% this quarter compared to 32%, due to lower margins from our IT staffing business, which is more inside the mix of our services revenue. Maintenance margin increased to 74% compared to 71% for the same quarter last year. And that is due to increases in DMI and also Logility's increases of sales from prior quarters.

Looking at our operating expenses, our gross R&D expenses were 12% of total revenues, and that compares to 11% for the prior year. As a percentage of revenues, sales and marketing expenses were 17% of the revenues or $3.5 million for the quarter, and that compares to 18% for the same quarter last year. G&A expenses were $3.3 million or 16% of total revenues, and that compares to 18% for the same quarter last year. This percentage is lower primarily due to higher revenue.

Operating income increased 113% to $1.4 million this quarter. That compares to $640,000 in the same quarter a year ago. Our EBITDA was $2.5 million, and that compares to $1.6 million for the same period. GAAP net income was $1.2 million, or earnings per diluted share of $0.05 per share. That compares to net income of 603 -- $633,000 or $0.02 earnings per share for the same period last year.

Adjusted net income, which includes our amortization of intangibles at DMI a write-down of a minority investment at fair value, and a write-down of some [past] software was $1.4 million, or earnings per diluted share of $0.05. And that compares to the $1.4 million or $0.05 for the same period last year.

Looking at international revenues this quarter, they were approximately 10% of total revenues for American Software, and that compares to 11% same quarter last year.

Taking a look at the full year of fiscal year '06 compared to the same period last year our total revenues increased 19% to $76.6 million. And that compares to $64.5 million for fiscal '05. License fees increased 45% to $17.9 million compared to $12.3 million. Services also increased 6% to $34.7 million for the year, and maintenance revenues increased 24% to $24.1 million.

Taking a look at the overall gross margins for the full year, it was 52%, and that compares to 49% for fiscal '05. License fees margins increased to 77% from 66% due to higher license fees and lower amortization costs.

Services margins were 25% compared to 31% for the year. And that was lower due to the mix of our services revenue coming more from the IT staffing business, which has a lower gross margin.

Our maintenance margin was 73%, and that compares -- excuse me, 73% compared to 71%, an increase from last year. Taking a look at our operating expenses our gross R&D expenses were 12% of revenues for both fiscal '06 and '05. As a percentage of total revenues sales and marketing expenses were 18%, and that compares to 19% for the same period last year. And D&A expenses were 17% of revenues for both fiscal '06 and '05.

Operating income for '06 was $6 million, an increase of 136% compared to operating income of $2.5 million last year. Our GAAP net income was $5 million year-to-date for the full year. And that translates into a $0.20 earnings per share for the year. And that compares to net income of $3.3 million or $0.13 earnings per share in fiscal '05.

Looking at adjusted net income for the fiscal '06 it was $5.9 million, or earnings per diluted share of $0.24. That compares to adjusted net income of $4.3 million, or earnings per diluted share of $0.18.

International revenues for '06 were approximately 9% of total revenues, and that compares to 8% for the same period last year. Taking a look at the balance sheet our Company's financial position remains strong with cash and short-term and long-term investments of approximately $62.6 million at the end of April. And we have no debt.

Other aspects of our balance sheet -- our billed accounts receivable is a little over $11 million, our unbilled is $4.5 million, for a total of accounts receivable of $15.8 million. Our working capital is $54.6 million. Deferred revenues are $15.3 million. Our shareholder equity is $78.9 million. Our days sales outstanding at the end of April was 71 days, and that compares to 64 days at this time last year.

At this time I would like to turn the call over to any questions.

(OPERATOR INSTRUCTIONS). Harris Hall with Singular Research.

Congratulations on the quarter guys. A couple of questions. Was there a doubtful accounts charge this quarter?

What was the question?

Was there a doubtful accounts charge?

Actually, no. We actually -- for this quarter we actually reversed our estimate of some of our doubtful accounts from prior quarters due to improved collections.

Okay.

But for the full year our doubtful accounts is roughly flat actually.

Okay. And the license fee gross margins, is there some seasonality to that, or how else should we look at the sequential drop there?

What happened there was in the third quarter, which we indicated in the last -- the third quarter conference call was that due to the timing of when some projects were -- ended capitalization -- some amortization of projects had ended at the beginning of the third quarter, so we had lower cost of amortization for our capitalized projects. And then we announced in the early part of the fourth quarter release of Voyager 7.5, Logility's product, and we started amortizing that cost in the fourth quarter.

So to answer your question, I guess the amortization cost is going to be relatively flat to the fourth quarter's number.

The last question was any color on why service revenues are flat? What would you expect for service revenue growth in those (indiscernible)?

As we indicated in the third quarter, our mix was changing. In other words, we are having more IT staffing business inside of our services number. In fact, in the fourth quarter the staffing business was about 56% of our services revenue. And we indicated in our last conference call that the operating -- the gross margins on our services were going to be increasing. And they sequentially did go up a couple of basis points. We do anticipate that to improve in the future.

(OPERATOR INSTRUCTIONS). Patrick Flavin with Flavin, Blake & Co.

Good quarter. Vince, could you take us through the interest and other income in terms of composition again?

Sure. As you can see there we went from $885,000 in the fourth quarter compared to $214,000 the same quarter last year, about a 314% increase. The primary components of that is that our interest component, due to the fact that we're getting better yields on our money, is up about I would say about $150,000 compared to the same period last year.

We also have rental income due to the fact that we sublease some of our space here, facilities at American Software. That opened about $100,000. And then the other elements of it are a gain on -- an unrealized gain on our investments.

Okay. The tax rate at 38.8% for the quarter and effectively 38% for the year, you are effectively at a full tax rate now, Vince, right?

Yes, that is a full tax rate.

And your remaining NOL is how much? In other words you're charging it, but you're not paying it, right?

Right. What is happening is we have -- coming into fiscal '07 we have about $2 million to $3 million of remaining NOLs. But they are related to stock options, which means you can't expense them, so that is why we will get the benefit from a cash point of view in the early part of '07, but we have a full tax [set] number on our GAAP numbers.

Then presumably with fiscal '07 the NOLs will disappear.

We hope so.

Okay. Finally, could you take me through again your EBITDA numbers? You said $2.5 million for the quarter. Do you have the year ago quarter?

I'm sorry. I do have that. It is $2.5 million, and that compares to $1.6 million.

$1.6 million. And then for the year's?

Hold on a second. For the year it was about $9.8 million, and that compares to $6.7 million last year.

(OPERATOR INSTRUCTIONS). Patrick Flavin with Flavin, Blake & Co.

It appears Mr. Flavin has dropped off the line.

(OPERATOR INSTRUCTIONS).

It appears we have no more questions at this time. Do you have any closing remarks for the group?

Thank you very much for participating in this call, and your interest in American Software. And we look forward to the next conference call. Thank you.