Logility Supply Chain Solutions Inc (LGTY) 2008 Q1 法說會逐字稿

Welcome to today's teleconference. At this time, all participants are are in listen-only mode. This call may be recorded. I would now like to turn the call over to Vince Klinges, the CFO of American Software. Please go ahead.

Good afternoon, and welcome to American Software first quarter fiscal '08 conference call. On the call with me are Jim Edenfield, CEO of American Software; and 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 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 from 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 the market acceptance of these products and services, the effect of 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 would like to turn the call over to Mike Edenfield.

Good afternoon, everyone. Thank you for participating on this call. We are extremely pleased to report the results of American Software's first quarter fiscal year 2008 which ended on July 31. The first quarter marked our 26th consecutive quarter of profitability. For the 13th consecutive quarter total revenues increased over those obtained in the previous year's quarter. The increase for the first quarter revenues was 8% year-over-year. The highlight of the quarter from a revenue perspective was license fee growth of 17% compared to the first quarter last year.

Our earnings were very good. First quarter operating earnings were $2.5 million up 52% over the same period last year. Net earnings also rose substantially to approximately $2 million, an increase over first quarter last year of 57%.

Some notable new and existing customers placing orders in the first quarter include Barry Plastics, Case New Holland Australia, Johnson Diversity, Johnson Controls, Kenny Manufacturing, Marklands International, Parker-Hannefin, Polaris Industries, Tesco Corporation, VeriFone, and VWR International. We added 36 new customers in the first quarter. During the quarter software license agreements were signed with customers located in 13 different countries including Australia, Canada, China, Egypt, France, Germany, Ghana, Ireland, Russia, Saudi Arabia, South Africa, 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.

The Company's balance sheet remains strong with cash and investments of approximately $76 million and no debt. Logility had another outstanding quarter. For the first quarter revenue was $12 million, a 25% increase compared to the same quarter last year. All revenues streams contributed to growth led by license fees, with 42% year over year growth. Services also grew 42% year over year and maintenance was up 8% over last year. Operating earnings were $3 million, an increase of 143% over first quarter last year.

A number of factors are contributing to our good performance. The continued globalization of the supply chain is driving 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 corporations to reduce their manufacturing and sourcing cost to put significantly more pressure and less transparency on the supply chain process. Lead times are significantly longer, transportation costs are higher, and the cost of the state is greatly increased.

This is causing many of our prospective customers to focus on improving their sales and operation planning processes and systems. Additionally many of our customers sell to mass merchandisers like Wal-Mart, Target, Home Depot, and Lowe's and those companies continue to put pressure on their suppliers to increase their fill rates, strengthen 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 two-brand strategy continues to work for Logility. These brands demand solutions in Logility Voyager solutions, enable to us provide solutions across the entire spectrum of corporations ranging from Fortune 100 enterprises to very small companies. This substantially increases the market we can provide our supply chain solutions to.

Regarding our outlook for the second quarter of fiscal 2008 the second quarter has an opportunity to be as good or better than last year's second quarter. As we have discussed in the past our license fee revenue has been somewhat seasonal, the trend based on the last few years is approximately 40 to 45% of license fees coming in in the first half of the fiscal year and approximately 55 to 60% generated in the second half of the fiscal year. I'd now like to turn the call over to Vince for a detailed review of the financial results.

Thanks, Mike. Comparing the first quarter of fiscal '08 to the same period last year as Mike indicated, our total revenues increased to 8% to $21.7 million and that compares to $20.2 million the same quarter last year. Mostly driving license fees up, excuse me, the revenues up are license fees which increased 17% to $5.1 million compared to $4.4 million for the same period last year and that's primarily due to improved pipelines and close rates compared to the same period last year.

Services and other revenues also increased 6% to $9.8 million and that's due primarily to increased implementation work resulting from increased license fee sales in the prior quarters. As well as increased consulting services at our IT consulting business when compared to the same periods last year. Maintenance revenues increased 4% to $6.8 million when compared to $6.5 million primarily due to increases at Logility which increased 8% compared to the same period last year and those increases are due to increased license fees in the prior quarters.

Taking a look at costs our overall gross margin was 53% compared -- up from 51% the same quarter last year. Our license fee margin was 67% for both periods. Services margins increased to 30% compared to 28% in the same period and that's also due to increased implementation work, and also improved billing utilization rates. Our maintenance margin increased to 74% when compared to 73% for the same quarter last year and that's primarily due to increased maintenance revenue.

Looking at operating expenses our gross R&D expenses were 11% of total revenues for both the current and prior year quarter. As a percentage of revenue sales and marketing expenses were 16% of revenues or $3.4 million for the quarter, and that compares to 17% for the same quarter last year. G&A expenses were 16% of total revenues for both periods. So operating income increased 52% to $2.5 million for this quarter and that compares to $1.7 for the same quarter last year. Our EBITDA increased 25% to $3.6 million this quarter and that compares to $2.9 million for the same period last year. So our GAAP net income was $2 million, or earnings per diluted share of $0.07 and that compares to net income of $1.2 million or $0.05 earnings per share for the same quarter last year.

Our adjusted net income was $2.2 million or adjusted earnings per diluted share of $0.08 for the first quarter. That compares to net income of $1.6 million or adjusted earnings per share of $0.06 for the same period last year. And these adjusted numbers exclude the amortization of intangibles related to the DMI acquisition and stock based compensation expense.

International revenues this quarter and the same period last year were 10% of total revenues. Looking at our balance sheet our Company's financial position remains strong with cash and investments of approximately $75.6 million at the end of July 31, 2007, and no debt. This is a sequential increase to cash and investments of $2.8 million, an increase of $11.7 million when compared to the same time last year.

Other aspects of the balance sheet, our accounts receivable billed is $11.9, unbilled is $5.2 for a total of billed and unbilled accounts receivable of $17.1 million. Working capital is approximately $69 million. Deferred revenues are $16.2 million and our shareholder equities $88.1 million. Our current ratio is 3.6 versus 3.3 and our day sales outstanding as of the end of July 31, 2007 was approximately 71 days and that compares to 64 days last year. At this time, I would like to turn the questions over to -- excuse me, I'd like to turn the call over to questions. Jim, are you there?

Yes, I'm here. (OPERATOR INSTRUCTIONS) We'll take our first question from Drake Johnstone with Davenport & Company.

Hey, guys. A question I have is from quarter to quarter the gross margin level does seem to shift depending upon, I guess Logility, how much is direct sales versus indirect sales. I guess the question I would have, Mike, for you is, do you expect the second quarter to have a similar mix between direct and indirect at Logility?

I don't think it it will be dramatically different, if it is different.

And then another question is, the first quarter of 2008, it appears there was more of a sequential decline from the fourth quarter, if you look at fourth quarter '06 to first quarter '07, and I -- I guess the question there is -- looked like Logility looked like it performed well was that the legacy American Software business swinging maintenance and license in those two comparison periods?

We typically do have a decline between fourth quarter and first quarter so we expected that and that's as I mentioned earlier our license fees are seasonal. I don't think it was much more than it was last year because we're coming from a much larger number, at least as a percentage basis it wasn't much more. But, yes, the license fees in the American side of the business were not as strong as we would like. We do have a good solid forecast for second quarter, though. So we think we can catch up.

So if you have a good solid forecast for second quarter would you characterize the state of the supply chain industry as being at a similar level you saw last year?

Last year, hopefully based on investments and hard work we've been ding, we can do better than last year.

Okay. Thank you, guys.

We'll take our next question from Harris Hall with Singular Research. Please go ahead.

Thanks, guys. One question was why the big change in the growth rates between operating income and EBITDA? Was there a big swing in your depreciation amortization loss?

Harris, no, there actually wasn't much change. I think it's just the law of numbers. But the D&A was pretty much in line compared to last year.

I'm confused. How could your praying income be up 50% and EBITDA only up 20%?

The EBITDA number is fairly constant.

Yes. We had DNA of -- last year of $1.2 million, and it was about 1 million this year, comparatively. So it went down about $100,000 year-over-year.

And I know you guys have been trying to use the dual brand strategy. Have you had much success up-selling customers from the Demand Solutions to Logility?

Yes, we have. We had tangible success last quarter and the quarter before.

Care to identify any customers or you're not allowed to?

We're not allowed to.

Okay. And the accounts receivable are up a little bit higher than we expected. Is that just a function of recent license fees deals, or why was that growth (inaudible) sales?

Harris, I think that's just more of a function of the timing of when the deals closed. If they close toward the end of the quarter our AR goes up and therefore by function their D&O goes up. Last year at this time our license fees came in a little bit more even than they did this year. But a low 70s is well below industry norms, so we're pretty happy with the DSO number.

Lastly, on the maintenance, I know you guys have guided that we should expect to see a couple quarters lag on maintenance from license fees growth and I was just wondering, that seemed a little bit lighter than we expected at 4% growth, given the kind of license fee growth you've seen in the last three-quarters.

Well, Logility is up 8% year over year, I think what's happening is on the Legacy ERP piece of the business where we're a little lower than we anticipated, so that's kind of offsetting it. But we believe that it will be minimized going forward.

So is it you expect maintenance growth to -- I mean, if we're looking at estimating maintenance growth, should we look back two quarters, three-quarters, four quarters, or is there more -- is there too many moving pieces to look at it that way?

It's a little tough looking at it that way. But I -- using this current number, current quarter as the baseline, then using license fee forecast going forward is a good way to do it. With some slight fall-offs.

Okay, great. Thank you very much.

We'll take our next question from David Soetebier with J.M. Dutton.

Good afternoon, gentlemen, and congratulations on, well, two great quarters in a row on license fee sales. First question, you mentioned China as a new customer. I think that's the first time I recall China mentioned. Is that correct?

We've had a number of customers in China.

All right. I'll wake up. On the maintenance renewals then, just to clarify to continue with that last question, does everybody's maintenance contracts renew at the same time? Are these spread out evenly?

They're based on anniversary dates of when the customers sign license fees with us, so they're spread out.

Then with accounts receivable up, very strong license sales, would you like to make any comment on the backlog for license fees?

Generally we don't have, our deferred revenues is maintenance, not license fees. Usually occasionally we'll have some deferred revenue, but usually we work real hard to structure our contracts with good, clean contracts, we can make the revenue when we deliver the product.

My question was did you deplete your backlog?

You mean our pipeline?

Right.

No, we have about the same pipeline we had last quarter, maybe a little better. It will depend on how much we've closed.

All right, thank you.

We'll take our next question from Patrick Flavin with Flavin, Blake & Co.

Good afternoon, gents.

Patrick.

Your discussion of the lower than expected license fees for American Software only and maintenance and your comment that you saw the ability or you were hopeful of the ability to make that up in the next quarter, would seem to indicate that the pipeline is either more mature or bigger or -- can you address that issue?

Well, for American specifically they have a much better forecast for this quarter than they actually achieved last quarter. And it appears to be pretty solid. But obviously we have to go close to business. And that was what the comment was about.

Okay. But the pipeline in general, Mike, is it, as you said, it's -- I mean, is it -- well, on two issues, is it more mature, one, and two, is it -- is it bigger?

It's probably bigger than it was for second quarter last year, and it's probably about the same. It will depend on closure rates. If we close more deals, we'll do more. If we close, have exact same close percentages we'll be about where we were last quarter. If we close less, we'll do less. But we think we have a good opportunity to show decent growth again.

Okay. And finally, I realize there hasn't been much time transpired, but have you noticed any impact from the credit crunch of the last month or six weeks in terms of a willingness to engage you in a sales discussion and/or to close?

We haven't noticed any difference yet. It appears to us, and at least in our world, that the credit crunch is really more related to real estate, housing, and hasn't really affected the companies that we're dealing with for the most part. If we were trying to sell something to Home Depot we might see something. If we were trying to sell something to a construction material provider we might see something, but we haven't really seen that, and outside of those industries. So -- but like you said, it is early, but so far our activity is just as brisk as it was three months ago.

Good, let's hope it stays that way. Thanks.

(OPERATOR INSTRUCTIONS) We'll take our next question from Sam Rebotsky with SER Asset Management. Please go ahead.

Good afternoon, gentlemen. Good quarter, although maybe not as good as everybody would like it it to be. It appears that the second quarter last year saw revenue of 20 million [225] million, and with a pretax of 3 million [232], do we think besides, we sort of expect to beat those numbers. Do we think we would do better than this 21 million 722 of this first quarter also going into the second quarter?

Would you repeat the question, Sam?

Yes. What I'm trying to sort of address, we expect to do an improvement over the second quarter of last year. We expect to have a sequential improvement over the first quarter of the current year?

Yes, that's also possible. We tend to -- because the business is seasonal, we tend to focus more on the quarter a year ago, but obviously we'd like to improve every quarter on a straight line. Second quarter last year I think was about flat with what first quarter was last year in total revenue, and probably close to the same. Operating income, that may be a little different, but I'm not -- not too much. And I think, it will depend on what we do on the license fees. Our maintenance and our services should be at least as good as first quarter and hopefully better, so it will depend on the license fees again.

And I guess the fact -- presumably, you close contracts closer to the end of the last month of the quarter is that basically the way it sort of works, or?

Yes, we usually do -- the biggest month is usually the last month of the quarter.

Okay. Now, as far as the interest income of, a difference of [916,000] versus [605], is there anything significant that relates to that?

Sam, this is Vince. No. I think the function -- we have $11 million now, more than we did last year, so I think that's just a function of more yield. The yields are up, but also more cash.

And the quality of the assets you're holding is AAA?

Yes, absolutely.

Okay. And presumably you keep looking at acquisitions and things that sort of fit. Are you seeing much out there, or is it very expensive, or?

Yes, there's a lot out there, and we are looking as we've said before, we're pretty conservative, and we could have pulled the trigger on a number of transactions, but the price that it would have taken, we didn't think was appropriate. But we're still looking and trying to do one, but we want to do a good one.

Good luck.

Thank you.

And we have another question from Harris Hall with Singular Research.

Yes, if I heard you said you expect main service revenues as good as the first quarter?

Maybe a little better.

I mean, your service revenues in the first quarter was near your all-time high, right? 9.8 million.

Right. Yes.

So you really expect that level to be maintained. That's impressive. Okay. Just wanted to clarify. Thank you.

And it it appears that we have no further questions at this time.

All right. Well, thank you, everyone, for participating on the call, and your interest and support of American Software, and we look forward to having another good quarter and second quarter. Thank you.

This concludes today's conference call. You may disconnect at any time. Thank you, and have a great day.