Logility Supply Chain Solutions Inc (LGTY) 2007 Q1 法說會逐字稿

Good day, all sites are now on line in a listen-only mode. Later on during the program there will be an opportunity to ask questions at which time you'll will instructed on how to do so. At this time I would like to turn it over to your speaker, Mr. Vincent Klinges, Chief Financial Officer of American Software. Mr. Klinges you may begin.

Good afternoon. Welcome to American Software's first quarter of fiscal '07 conference call. On the call with me is Jim Edenfield, CEO of American Software, Mike Edenfield, CEO of Logility, and Executive Vice President of American Software, and Jeff Coombs, Executive Vice President of ASI USA.

Again, I would like to remind you that this conference call may contain forward-looking statements including statements regarding, among others 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 can not be predicted or quantified and are beyond our control.

Future developments and actual results could differ materially from those set forth and 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 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 Mike Edenfield.

Thanks, Vince. Good afternoon everyone, thanks for participating on this call. We're very pleased to report American Software first quarter fiscal year 2007 results. The first quarter marked our 22nd consecutive quarter of profitability, and for the ninth consecutive quarter total revenues increased over those obtained in the previous year's quarter. The increase for first quarter revenues was 20% year-over-year of all three revenue streams providing double digit growth. Growth was lead by license fees of 27% growth as compared to first quarter last year. Maintenance revenue and services revenue also contributed strong growth with 16% and 21% increases respectively.

From an operating unit perspective new generation computing, the Proven Method and Logility all contributed to revenue growth in the first quarter. Operating earnings more than doubled for the second quarter in a row up 130% over the same period last year. Net earnings also rose substantially to approximately $1.25 million, an increase over last year of 22%. Adjusted net earnings, which exclude acquisition related expenses and stock option expenses grew 40% over adjusted debt earnings for the same period last year. The Company's balance sheet remains strong with cash and investments of approximately $64 million and no debt.

[Inaudible] new and existing customers placing orders in the first include 3M, central and eastern Europe, American Air Filter, Casual Mail, Foot Locker, Furniture Brands International, Heineken USA, Horizon Hobby, Yard and Consumer Products, Maggie London, Oneida, Sniders of Hanover, Tyco Healthcare from Singapore, Bonn Ton Stores and Via Intimate Apparel among others. We added 35 new customers in the first quarter, which is a new record. During the quarter software license agreements were signed with customers located all around the world and 12 countries including Australia, Canada, France, Germany, Hungary, India, New Zealand, Singapore, South Africa, the United Kingdom, the United States and Vietnam. We continue tobe encouraged by the number of new customers licensed in our products. New customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

New Generation Computing, a wholly owned subsidiary of the Company announced the expansion of it's operations to include locations in China that will provide local support for our USA customers and their supply chain partners. Chinese representatives of New Generation will provide professional services development and sales support in Shinzen, which is adjacent to Hong Kong, Shanghai and Sheon. Demand Management, a wholly owned subsidiary of Logility, SoftBrands Inc, a worldwide leader in enterprise software for manufacturers announced a partnership to provide end to end ERP and SCM solutions within market manufacturers. [Inaudible] Solutions provides unprecedented opportunities for small and mid-sized manufacturers to become more competitive to improve deficiencies in automated vender managed inventory and sales operations planning.

Demand Management received the SAP business one integration certification for forecast and demand planning further establishing the demand solution software suite for the globally available, fully integrated solution for SAP solution-based environments. The integration certification offers a built-in integration layer between SAP business one solutions and our demand solution products to ensure that information shared between the two systems is accurate and consistent in saving organizations financial time, money, and resources.

Logility also had an excellent first quarter. Strong sales performance generated quarterly revenues of approximately 9.6 million, and strong quarterly operating earnings of $1.2 million. Some of the key highlights for the quarter were 21% revenue growth compared to the same quarter last year, lead by license fees with 36% year-over-year growth.

As I have described on the call the past few quarters, a number of factors are contributing to our positive results, the combination of an improved economy with a continued globalization of the supply chain continues to drive demand for our products. Many companies have or are in the process of or will move some of or all of their sourcing offshore to Asia. While this transition certainly allows our customers to reduce their manufacturing and sourcing costs it puts significantly more pressure and less transparency on the supply chain process. [Inaudible] times are significantly longer, transportation costs are higher, and the cost of a mistake is much higher. Additional many of our customers sell to mass merchandisers such as Wal-Mart, Target, Home Depot and Lowe's and those companies are putting continual pressure on their suppliers to increase their bill rates, shrink [inaudible] 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.

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

Thanks, Mike. Comparing the first quarter of fiscal '07 with the same period last year our total revenues, as Mike indicated, increased 20% to 20.2 million compared to 16.8 million the same period last year. That was driven by license fees which increased 27% to 4.4 million, compared to 3.4 million for the same period last year and that's primary due to increases at our subsidiary, Logility, which increased their license fees by 36% compared to the same period last year.

Services and other revenues also increased 21% to 9.3 million due to increased implementation work this quarter, and also increase in our consulting services at our IT consulting business which grew 32% this quarter compared to the same period last year. Maintenance revenues also increased 16% to 6.5 million compared to 5.6 million primarily due to increases in Logility which increased 21% compared to the same period last year.

Taking a look at cost, the overall gross margin was 51% for the current and prior year quarter and license fee margin was 67% compared to 69% in the prior year and that decrease was-- that slight decrease was due to higher software amortization expense this quarter compared to the same period last year. Our services margin were the same at 28% for both periods, and our maintenance margin increased to 73% compared to 72% in the same quarter last year, and that's primarily due to increased maintenance revenue.

Taking a look at our operating expenses our gross R&D expenses were 11% of total revenues, that's down from 13% for the prior period and this is primarily due to higher revenues compared to the same period last year. As a percentage of revenue, sales and marketing expenses were 17% of revenues or 3.5 million for the quarter, and that compares to 19% for the same quarter last year. And again, that percentage is also down due to higher revenues. G&A expenses were 3.3 million or 16% of total revenues compared to 19% for the same quarter last year, and again that's also lower due to higher revenues.

Our operating income increased 130% to 1.7 million this quarter and that compares 729,000 for the same quarter a year ago. EBITDA was 2.3 million compared to 1.1 million for the same period last year. Our GAAP net income was 1.2 million or earnings per dilutes share of $0.05 per share that compares net income of one million or $0.04 earnings per share for the same period last year. Adjusted net income was 1.6 or adjusted earnings per diluted share of $0.06 for the first quarter and that compares to net income of 1.1 million or adjusted earnings per share of $0.04. The adjusted number excludes the amortization of our intangibles related to our DMI acquisition and also stock options compensation expense that we started expensing this quarter.

Taking a look at international revenues this quarter, they were approximately 10% of total revenues compared to 9% for the same quarter last year. Our balance sheet, looking at our balance sheet, the Company's financial position remains strong with cash and investments of approximately 63.9 million at the end of July '06 and no debt. This is a sequential increase to cash investments of 1.3 million and an increase of 6.2 million when compared to the same time last year. Other aspects of our balance sheet are build accounts receivables 10.5 or unbilled 3.7 for a total accounts receivable of 14.2 million. Our working capital is 55.8 million, deferred revenues are 15 million, and our shareholder equity is 79.3 million. Our current ratio of-- which is a measurement of liquidity is 3.3 million and our day sales outstanding as of the end of July 31, 2006, was approximately 64 days and that compares 72 days the same time last year.

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

[OPERATOR INSTRUCTIONS] Our first question comes from Harris Hall with Singular Research. Go ahead, please.

Congratulations, guys, on a good quarter.

Thanks, Harris.

Thank you.

Couple questions. You reported pretty much in line with what we projecting with the exception of a couple items. Interest income was lower than we expected, it dropped off somewhat significantly from last quarter, even though your cash balances are up. I know you had some unrealized gains or something last quarter. Was-- was that the difference?

Yes. Yes, Harris, that was the difference. We had unrealized gains in the fourth quarter of last year and we had unrealized losses this quarter because of the market activity on our equity portfolio.

All right. But you do expect that number to keep rising with your cash balances, right?

Yes, that's what we anticipate.

Okay. The other thing, your tax rate was a little bit higher than we had expected. We modeled out 38%, it came in at 42.1% if my math is right. Should we expect tax rate a little bit higher or closer to the statutory rate?

It's actually 39.7 to be exact on the effective rate. But the -- yes, it's a little higher than we anticipated because of the-- we're actually came into the year with 3.5 million of net operating losses, and we're burning through them pretty fast, so that changed a bit -- it tweaked the effective rate a little bit, and also our state effective rate went up a little bit.

Okay. And then just lastly, on the-- the license free gross margin, I know that-- that moves around with how much software amortization you have. If I remember correctly, that was based on kind of projects reaching a certain stage, and can you give us at least a little bit of guidance for the rest of '07? Do you think margins on that line will be more in line with Q1 or more in line with kind of the way they were last year?

I think they will be more in line with Q1 and slightly lower.

The-- the gross margins will be lower?

No-- I'm sorry the amortization of cap software.

So you think the gross margins for license fees will be a little higher than say 67% then, last three quarters?

Provided we continue to increase license fees, yes, they should be.

Okay. Great. Congrats again, I'll jump back in the queue.

Okay.

Thank you. Our next question comes from Patrick Flavin with Flavin, Blake & Co.

Good afternoon gents, once again, I concur. This is a nice earnings report.

Thank you.

Thank you.

Vince, on the-- on the tax issue, the amount expensed was non-cash; is that correct?

That's correct right now, Patrick. We still have-- we came into this fiscal year with 3.5 million of NOLs but they were stock option NOLs.

Right.

Which you don't get any benefit from a P&L point of view, but from a cash flow point of view you don't have to pay the taxes until you utilize them.

Is the 3.5 the actual tax amount or is that the pre-tax income --

We are currently experiencing technical difficulties. Your conference will continue in just one moment. Once again, we are currently experiencing technical difficulties. Your conference will resume in just one moment. The speakers have rejoined the conference. [OPERATOR INSTRUCTIONS] Our next question comes from the site of David Soetebier with J.M. Dutton, go ahead, please.

Good afternoon, gentlemen. I would like a little more detail on the non-Logility license business. With the sales offices now open in Japan-- excuse me, China. It looks like sales were 1 million versus 1 million; is that correct? And is that the new generations business or is that the American Software's traditional ERP business?

David, this is Vince, primarily the licenses came from New Generation Computing for this quarter. Is that what the question was?

Right.

Yes. And was there another part to that question, I'm sorry?

Well that's good enough, then. On the services side. I think you all said Proven Methods was up this quarter; is that correct?

That's correct.

And if so, what drove it?

Yes, that went up 32% year-over-year. And what drove that it was additional-- we picked up a couple of additional customers this quarter.

Then the last point, when might you all expect some sales from the SAP relationship?

Well, we're working with SAP, matter of fact they were here today, and we're planning a-- a regeneration campaign that they are going to pay for is my understanding, but as-- as I said on previous calls, it's-- it's going to take a lot of hard work, and take some time.

All right. Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Patrick Flavin with Flavin, Blake & Company. Go ahead, please.

Sorry, guys I got cut off earlier. Vince, the question that I had for you was on the tax loss carry forward is the 3.5 million the taxes payable or the pre-tax income subject to tax?

Pre-tax income subject to tax, that's gross number, Patrick.

So then you are going to be through it in the next quarter?

Yes.

Okay. And then it all becomes-- you actually have cash payments.

Most likely, yes--

Okay.

We hope so.

I understand. And then, Mike, could you give us a read on-- on the pipeline in terms of what activities is like? Clearly you're-- you're opening up over the last few quarters very nicely, but is the inflow into the pipeline as strong as the-- as the conversions?

Yes, the inflow has actually been stronger. The pipeline has grown steadily probably now for the last five quarters or so. So we have got the pipeline there. We have got a lot of activity. The issue is going to be, as it is every quarter, with our closure rates on the-- on the opportunities that we have.

Okay. But the point is that the-- that the pipeline is growing?

Yes.

Very good. Thank you.

Thank you. Our next question comes from Sam Rebotsky with SER Asset Management. Go ahead, please.

Good afternoon gents. I gut cut off, I hope they weren't answered, these questions, but good quarter, and as far as the other income, which is a about .5 million short, is that related to the trading losses or unrealized losses.

Yes, yes, Sam that's related to unrealized losses from our equity portfolio.

This is equity, not debt or government et cetera?

Right. It's equity.

Uh-huh. Okay. And it-- is it expected to fluctuate that way or is there any thoughts type of securities you are invested in, that they will fluctuate that way?

Historically-- this is Jim Edenfield, historically it has fluctuated and we probably were at somewhat of a down quarter when we were-- and we were comparing with last year, which was-- was an outstanding quarter.

Okay. Okay.

So .

Okay. And-- and I I don't know if you answered this question. Are-- are your increases in license fee, are you winning business from competitors or is-- is-- how would you attribute the increase in license revenues?

Well we're selling more customers.

But, are you taking it away from other customers or--

As I mentioned-- I don't know if you heard it, Sam, before we gut cut off, but we had a record number of new customers, so is that taking it from a competitor? Well, generally we had a competitor for every one of those deals. Maybe there were a couple that were competitors. In general a new customer-- unfortunately we don't get to compete a lot where there's no competition. I wish we could. So, yes, we're beating our competition in a lot of the cases. And then sometimes we're selling to our install base, but there's even can be competition within the install base sometimes.

Now it appears that you are getting more research coverage. I guess Logility put a report about-- Dutton put a report out on Logility, I'm not aware, does Dutton ever report on American Software also? And are you expecting to doing-- what are you planning to do to get more research coverage for the stock?

Yes. Dutton actually has a report on us out. And I believe there's going to be-- after we have this earnings call, there will be another report coming out.

Are you looking to get some other -- are you making attempts to get other research coverage?

Yes, I'm actively out there looking to get more coverage, yes.

Hopefully you'll continue the work you are doing, and I guess the market seemed to know about this good quarter and they moved up prior today so that's good. Hopefully you will continue.

Just to comment. I don't think the -- I hope the market didn't know that the quarter was good, because we didn't do anything to disclose that. I think the stock started moving up to the dividend increase--

No, I'm just talking about today. Whatever it is people-- whether they knew or didn't know, their gut told them it was going to be good.

Okay.

Okay?

All right.

All right. Good luck.

Thank you, Sam.

Thank you. At this time there are no further questions in queue, but if you would like to ask a question, please press star then 1 on your touchtone phone. We'll pause one moment for further questions to queue. It appears there are no further questions at this time, I'll turn it back over to Vincent Klinges for any closing marks.

Thank you very much for your time and your interest in American Software and we look forward to another successful quarter this quarter.