Logility Supply Chain Solutions Inc (LGTY) 2008 Q3 法說會逐字稿

Welcome to today's teleconference. At this time, all participants are in a listen-only mode. Later we will have an opportunity to ask questions during our Q&A session. Please note this call may be recorded. I would now like to tun turn the call over to Mr. Vince Klinges, CFO of American Software.

Good afternoon, welcome to American Software third quarter fiscal '08 conference 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, this 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 or 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 involve 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 projects and services, the timely availability in a market acceptance of these products and services, the effective competitive product and pricing and the regular pattern of revenues. In light of these risks and uncertainties, there can be no assurance the forward-looking information will prove to be accurate. At this time, I would like to turn it over to Mike Edenfield, Executive Vice President of America Software and CEO of Logilility.

Thanks, Vince. Good afternoon and thanks for participating on this call. I have comments on the third quarter and year-to-date results. Vince will review the details on the financial results and then we will take your questions.

The third quarter marked American Software's 28th consecutive quarter of profitability and for the 15th consecutive quarter total revenues increased over those attained in the previous year's quarter. The increase for third quarter revenue was 3% year-over-year; however, license fees were lower than we expected and as a result so were earnings. This resulted from a short fall in Logilility's license fee revenues, primarily due to a number of evaluations taking longer then we anticipated. Third quarter operating earnings were $1.6 million though they would have been much higher except for a one-time non-cash write down of capitalized software development cost of $1.2 million.

We did add 25 new customers in the third quarter, some of the notable new and existing customers placing orders in the third quarter include Arch Chemicals, Bob's Furniture, Caremark International, Ellery Homestyles, GST Autoleather, Hartmarx Corporation, Huhtamaki LTD, Johnson Diversey Japan, PPG Industries Europe, Puma, RG Barry, Unilever, and Yurman Design. During the quarter softness license agreements were signed with customers located in 14 countries including Australia, Canada, China, Ireland and Italy, Japan, Norway, Pakistan, Singapore, South Africa, Sweden, Switzerland, United Kingdom and United States.

The company's balance sheet remains strong with cash and investments of over $ 75 million and no debt. Year-to-date results show revenues up 9% over last year and operating earnings up 7%. Year-to-date operating earnings were impacted substantially by the same $1.2 million write down of cap software that I mentioned earlier.

Regarding our outlook for the fourth quarter of fiscal 2008, we have enough deals in the pipeline to have a very good quarter; however, Logilility close rate must improve in order to increase our license fee revenues as compared to third quarter.

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

Thanks, Mike. Taking looking at the third quarter of fiscal '08 revenue compared to last year, it was up 3% to 22.1 million and that compares to 21.5 million the same quarter last year. License fees decreased 24% to 4.3 million compared to 5.7 for the same period last year primarily due to several significant license fee deals being delayed into later quarters. Services and other revenues increased 24%, 10.6 million due to increased implementation work particularly IT Consulting business, the proven method which grew 33% and Logilility, which grew 9% when compared to the prior year period. Maintenance revenues decreased slightly to 1% to 7.1 million compared to 7.2 million primarily due to Q3 last year we had several maintenance catch up payments from customers that increased that amount last year.

Excluding a 1.2 million non-cash write down of cap software development cost, the overall gross margin was 52% compared to 57% in the same quarter last year. License fees margin was 68% compared to 75% in the prior year quarter, due to decreased in license fees. Our services margins increased to 32% compared to 30% for the same period last year and that's due to increased services revenue and billing utilizations improvement in all business units. Our maintenance margin decreased to 73% compared to 75% same quarter last year primarily due to lower license fees in the quarter.

Taking a look at operating expenses our gross R&D were 10% of total revenues compared to 11% for the same time last year and this percentage is lower due to slightly lower expenses and higher revenues when compared to last year. As a percentage of revenue, sales and marketing expenses were 19% of revenues or 4.1 million for the quarter and that compares to 17% in the same quarter last year and this percentage is higher due to the increased head count in marketing costs.

G&A expenses were 2.8 million or 13% of total revenues and that compares to 17% in the same period last year. This specific percentage is lower due to variable compensation costs and timing of audit and other Sarbanes Oxley cost when compared to the same period last year. Our operating income decreased to 47% to 1.6 million for the quarter compared to 3 million for the same quarter a year ago, excluding the 1.2 million write down of cap software. The adjusted operating income was 2.8 or 7% lower than the same period last year. Our EBITDA was 3.7 million compared to 4.0 million last year, and our GAAP net income decreased 55% to 1.1 million. Our earnings per diluted share are $0.04 compared to 2.5 or $0.10 earnings per share the same period last year.

Adjusted net income which excluding the amortization of intangibles stock option compensation expense and a write down of cap software was 2.2 million or adjusted earnings per diluted share of $0.08 for the third quarter, and that compares to a adjusted net income of 2.7 or adjusted diluted per share earnings of $0.10 for the same period last year. International revenues this quarter were approximately 9% of total revenues and that compares to 13% in the same quarter last year.

At this time I would like to look at the year-to-date numbers, nine months ended January 31, '08, compared to the same period last year, total revenues increased 9% to 67.4 million and that compares to 61.9 million. License fees decreased 1% to 14.3 million compared today 14.4 million the same approximate period last year. Services revenues increased 18% to 32 million year-to-date compared to 27.1. Maintenance revenues year-to-date increased 4% to 21.1 million and that compares to 20.3 million last year.

Looking at the gross margin, for the nine month period was 51%, compared to 53% same period last year. Our license fee margin decreased slightly to 68 from 69 last year. Services margins were 30% for both periods and our maintenance margin increased slight to [74%] year-to-date, compared to 73% for the same period last year. Looking at operating expenses year-to-date, gross R&D expenses were 11% of total revenue for both the current year and last year-to-date numbers as a percentage of total revenue sales and marketing expenses were 17%. Both for the nine months ended January 31, '08 and the same period last year. G&A expenses were 14% of revenue compared to 17% for the same period last year. That's lower due to lower variable compensation cost and timing of audit and other Sarbanes Oxley costs.

So our operating income year-to-date increased 7% to 6.9 million and that compares to 6.4 million last year, excluding the 1.2 million write down of cap software the adjusted operating income was 8.1 million or 26% higher than the same period last year. EBITDA year-to-date increased 14% to 11.1 million, compared to 9.7 million the same period last year. Our GAAP net income was 5.6 million year-to-date or $0.21 earnings per diluted share and that compares to net income of 5.6 or $0.22 earnings per diluted share last year. On an adjusted net income basis year-to-date was 6.9 million or earnings per diluted share of $0.26 and that compares to adjusted net income of 6.1 million or earnings per diluted share of $0.24 for the same period last year.

Year-to-date, our international revenues are 9% of total revenues and that compares to 11% the same period last year. Taking a look at our balance sheet the Company's financial position remains strong with cash and investments of approximately 74.9 million at the end of January 31, 2008 with no debt. And this is an increase to cash investments of approximately 5 million when compared to the same period last year.

Other aspects of our balance sheet are our-- accounts receivable is 12.6 million, unbilled 4.8 for a total accounts receivable of 17.4, working capital is 70.7 million, our deferred revenues are 15.4 million and our shareholder equity is 88.2 million. Our current ratio is 3.8 and that compares to 3.2 last year. Days sales out standing as of JAnuary 31, 2008 increased slightly to 72 days compared to 68 days this time last year.

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

(OPERATOR INSTRUCTIONS). Our first question comes from Drake Johnstone of Davenport & Company.

Hey guys.

Hey.

The question I have for you, Mike you indicated there may be a number of deals at Logilility that were delayed so I guess the question I have is, I mean, so probably toward if end of the quarter you had the discussions with those clients and they didn't sign the deal. I mean, I mean, did they give you indications that, that they were delaying the order? I mean did you get a sense of -- I mean what's your gut feeling of the chances of signing them in the next quarter or is it 50/50 or do you have any sense of that.

Well, it depends on the deal, and it is pretty varied situations. We did hear a couple where they said they don't have the money right now. So I think we could probably attribute that to the economy. Not a lot that specifically said that but a couple said that.

We also had a couple of our larger deals that we were really counting on delayed and one of those is still possible for this quarter. But we think one reason it delayed is we are still competing for it. I think earlier last quarter we thought we were competing but well ahead of the competition. So that is I think delayed for some competitive reasons and then they had, they're moving extremely slowly as well. So, then another one they were having some problems with what they told us they were having some problems with their customer facing systems and they had to put all of their IT resources on that for the next 90 days, this was right at the end of the quarter when we thought we were going to get the order. That one will probable out this quarter as well.

So most of them are still in the pipeline. A lot of them-- a couple of them we have actually closed some smaller ones, in February. But some are are pushing out further for a variety of stated reasons.

Okay. Thank you.

Thank you our next question comes from Jackson Spears of Capstone. Go go ahead, please.

Tom, can you giver us some flavor further about how the pipeline looks going forward? Do you see any softness since the end of the quarter where some people now are saying we want to post pone the six months due to economic or other variables?

Well, we heard a little bit of that last quarter. We haven't heard it yet this quart . So we did carry a lot of deals over and we did bring in some what we think are good new deals. So the pipeline, if you just look at the numbers is actually pretty good. Now, what time will tell is when will we have a better close rate than we had before. But we definitely from a numbers perspective have enough numbers to have a pretty darn good quarter. But if we had the same close rate we had last quarter, we won't have, we will have a quarter more like the quarter we had obviously.

So we are working real hard to, to push these people, push these perspective customers to sign agreements and find out sooner do they really have the budget they told us they had or are they still going to go get it and then get us surprise at the end of the sales cycle that they can't get it. So, right now I would say the pipeline is actually from a pure numbers perspective larger, but we will see what the close rate is.

You indicated that one of your perspective clients a larger deal that pricing--- or competition was an issue. Is that beginning to become more of an where your competition is cutting price to put pressure on the market or more access to close sales?

Actually no, the competitive market is the same. I was bringing up the competition as maybe that's why they were delaying but they should have made a decision by now and should of signed a contract with somebody by now. I don't know why it is taking so long on that particular one but that's just an example. There wasn't any one answer or one opinion as to what was going on with the deals that deferred. It was sort of across the board although it seems like with so many of them deferring maybe budgets are harder to free up. That may be why they're taking longer.

Could you give us some color on the interest income account? I was surprised it was where it was. Is there any other variables that might have affected it?

Well, the part of our investment portfolio that we have equity roughly around 9 to, it ranges between 7 and 9 million we obviously this quarter the market went down so our portfolio was affected by that. So we had unrealized loss this quarter.

So what was the (inaudible) unrealized loss?

Around 850,000.

Thank you, sir. And going forward, I notice you wrote off some capitalized software. Is that problem now behind you? Is there any other software you need to write off?

No, we don't anticipate any further write downs of cap software at this time, but we still, the product related to is still very viable product and we are trying to sale it. It is more of a GAAP adjustment.

Thank you, sir.

Thank you. Our next question comes from David Soetebier of Dutton and Associates Go ahead, please.

Good afternoon, gentlemen. I would also like more detail on the software sale, could you give us a little color on demand for the Voyager product versus the DMI? Was it, it looks like maybe DMI might have been a little softer this quarter and the international area, the 9%, that's the lowest number we have seen in a while. What changed there?

I think the international question first. I think what happened there is the proven method had such a good quarter, increased 33% compared to the same time last year. That's kind of. That's a domestic most of the earnings revenues are coming domestically. So that diluted the percentage as far as international. But we have been, at the Company we have been roughly kind of bouncing around between 9 to 13% every quarter. So it goes up and down based on which business unit does the best.

With regards to Voyager versus Demand Solutions, Demand Solutions had a little growth in the quarter, Voyager was down.

All right. Thank you.

Thank you. Our next question comes from Patrick Flavin of Flavin Blake & Company..

Good afternoon, gent.

Hi, pat.

Could you talk about the software write down extensively if there's an impairment what's it related to?

Pat, at this time we don't want to disclose the actual product because we are actually trying to sale it. It is a very viable product for GAAP reasons you have to -- likely hood of selling the product. So we took a write down for it.

Okay. So you wrote it down but you have got it for sale?

No, no, no, it is not for sale as in selling it to another company. We are trying to license the product to perspective customers.

Okay. But, you have written in effect this is an impairment of value; right?

Yes.

Okay. Thank you.

Thank you. Our next question comes from Sam Rebotsky of SER Asset. Go ahead please.

Good afternoon, gentlemen. As far as the interest income was there any kind of subprime or any kind of lower quality of any of your assets or the deep market valuations based on interest rates or something else must be reduced.

No, it is just related to if market on an equity portfolio. It is either all normal, larger mid-equity. The first two quarters this year we were up pretty nicely so we just reversed a bit of that in the third quarter.

Okay. Now as far as the cost of revenues the license revenue, would you sort of compare the 1,386 million versus the 1,415 million and your license income sort of came down more substantially. Should there not be more of a correlation, the expense to the income?

About half of that cost is fixed related to amortization of cap software so that doesn't move whether license go up or not. So that's a bit of it , the other component of it is the commissions we pay the bars for (inaudible) demand management and they had a demand manage had a year-over-year comparatively had a slightly up quarter on licensing. That's you see that impact there.

Okay. And I guess, the sort of slow down in the closing was that toward the end of the quarter or was that in the beginning or how does that, or is that on a month to month basis? How did it generally start to play out, the slowness of closings?

Generally third quarter we see closing activity at the the calendar year and then some carry-over from there to early in the month and then early in the new year, early in the month of January and then, and then a lot in January particularly late in January. So, we were disappointed with the end of December. But nothing really went away so we just figured we were going to have a heck of a January and as it'd turned out we did not.

So I guess, so it, and as far as American Software compared to Logilility. The closings were the same, no slow down there.

No, American Software did okay. They have a smaller license target they were shooting for and they made it. New Generation had a very good quarter.

Is the Logilility product a higher price product? Is that anything reputable to the --

Yes, the Voyager brand is in particular higher priced product.

So they have to go through more layers to get approval on things or is that --

Yes. Yes.

All right. Well, good luck.

Thank you.

Thank you.

And we appear to have no further questions at this time.

Thanks to everyone for participating in this call and your interest in American Software. We will work hard to have much better results next quarter. Thank you.

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