Logility Supply Chain Solutions Inc (LGTY) 2009 Q1 法說會逐字稿

Good day, and welcome to today's conference. Currently all participants are in listen-only mode and there will be an opportunity to ask questions during our Q&A session. Please note today's call may be recorded. At this time I would like to turn the call over to Mr. Vince Klinges, CFO of American Software. Please go ahead, sir.

Good afternoon, and welcome to American Software's first quarter fiscal '09 conference call. To begin I would like to remind you that this conference call may contain forward-looking statements including statements 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, quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in and contemplated by, or underlying the forward looking statements. There are a number of factors that can 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 effective competitive products and pricing and the irregular pattern of revenues. In light of these risks and uncertainties there can be no assuredness that the forward-looking information will prove to be accurate. At this time I would like to turn the call other to Mike Edenfield, Executive Vice President of American Software and CEO of Logility.

Thanks, Vince. Good afternoon, everyone, and thank you for participating on this call. I have some brief comments on the first quarter. Vince will review the details on the financial results for the quarter and then we will take your questions. The first quarter marked American Software's 30th consecutive quarter of profitability. Revenues were $19.2 million. Revenues were lower than we expected and as a result so were earnings. This resulted from a short fall in license fee revenues, primarily from Logility, and we believe license fees were impacted by economic conditions. First quarter operating were approximately $1.3 million. We did sign some good customers up, some notable new and existing customers placing orders in the first quarter include: the 3M company, Cody, (dama) Laboratories, Ivory International, Jerry Lee Entertainment, [Mire] Corporation, RG Berry, Room Store Furniture, Siemens Healthcare Diagnostics, [Barn] Foods and [Lens Group] North America. All in all we added 25 new customers in the first quarter.

During the quarter, we signed license agreements with customers located in seven different countries including: Australia, Canada, Japan, Uzbekistan, the Netherlands, the United Kingdom and the United States. We continue to be encouraged by the number of new customers licensing our products as they're a source of future source of future maintenance and implementation services revenue as well as being excellent projects for additional product sales. As we look forward to the second quarter, we believe our business model is still in excellent shape and the company continues to have a strong balance sheet with cash and investments of approximately $74 million. However we must increase license fees to meet our earnings and growth objectives. To that end we are encouraged by our pipeline for the second quarter. It is significantly better than where we were in the first quarter, once again primarily due to Logility's pipeline. The pipeline is better because of deals that have slipped from prior quarters as well as new prospects moving through the pipeline. While our pipeline is much larger than last quarter, close rates will still be the key and the quarter does appear to be back-end loaded as is typical. I will now turn the call back over to Vince for a detailed review of the financial results.

Thanks, Mike. Comparing the first quarter of fiscal '09 to the same period last year, as Mike indicated that revenues went down 12% to 19.2% compared to 21.7% the same period last year. It is primarily due to the decrease in license fees to 2.7% compared to 5.1% from the same period last year. Services revenues decreased 5% to $9.3 million due primarily to lower implementation work resulting from lower licensing sales as well as lower consulting services at our IT consulting business when compared to the same period last year. Service revenues increased 5% to $7.1 million compared to $6.8 million and that's primarily due to increases at Logility which increased 10% compared to the same periods last year and that's due to improved customer tension. Looking at costs our overall gross margin was 53% for both the current quarter and prior year quarter. Licensing margins decreased to 53% when compared to 67% and that's due to lower license fees, primarily offset by lower software amortization costs.

Services margins increased to 36% compared to 30% in the same period last year and that's due to increase in higher margin implementation work. And the maintenance margin increased to 75% compared to 74% the same quarter last year and that's primarily due to increased maintenance revenue. Looking at operating expenses, our gross R&D were 12% of revenues for the current period and that compares to 11% the same period last year. As a percentage of rev revenues sales and marketing expenses were 20% of revenues or $3.8 million for the current quarter compared to 16% for the same quarter last year. The percentage is higher due to the increased head count and marketing cost and partially offset by a decrease in direct sales commission. G&A expenses were 16% for the total revenues of both periods. Our operating income decreased 50% to $1.3 million for this quarter compared to $2.5 million the same quarter year ago. EBITDA decreased 25% to $2.2 million this quarter compared to $3.6 million in the same period last year.

So our GAAP net income was $610,000, our earnings per diluted share of $0.02 and that compares to net income of $2 million or $0.07 earnings per diluted share for the same period last year. Adjusted net income was $795,000 or adjusted earnings per diluted share of $0.03 for this first quarter, and that compares to net income $2.2 million or adjusted earnings per share of $0.08 for the same period last year. And the adjusted numbers exclude the amortization of intangibles related to the [DMI] acquisition and stock-based compensation expense. International revenues this quarter and last year were the same, approximately 10% of total revenues. Looking at our balance sheet, the company's financial position remains strong with cash and investments of approximately $73.7 million at the end of July 31st, 2008, with no debt. This is approximately a $1.9 million decrease when compared to July 31st, '07. During the quarter the company repurchased a little over 86,000 shares of its common stock for approximately $.5 million under its authorized stock repurchase program and paid approximately $2.3 million in dividends this quarter. Also during the quarter the company majority owned subsidiary Logility repurchased approximately 40,000 of it sown common stock for approximately $300,000 under its authorized stock repurchase program. Looking at other aspects of the balance sheet, our billed accounts receivable of $11.1 million, our unbilled at $2.8 million for a total of $13.9 million. Our working capital is $66.3 million. Our deferred revenues are $15.3 million. And our shareholder equity is $84.4 million. Our current ratio is 37 -- excuse me, 3.7% versus 3.5%, and our days sales outstanding at July 31st, 2008, was approximately 66 days, so that compares to 71 this time last year. At this time I'd like to turn the call over the questions.

Certainly. (OPERATOR INSTRUCTIONS) Our first question comes from Drake Johnstone with Davenport. Please go ahead, sir.

Hey, guys how are you doing there?

Good, Drake.

The question I have to you in the interest of line interest income you showed minus $136,000. What, did you have some investment write downs in the quarter?

Yes. It was the break down of f that is the majority of it is the interest income yield is down compared to last year this time. We were yielding a little over 5% and DMA it is a little less than 2%. So that two reasons why, one is the fact the overall yields are down and also we have been, when the credit crunch started, we became more conservative with our money and got lower yields.

Well, but you show a negative figure there. Was there some investment write downs that fit that negative?

Yes, yes, that was about $.5 million of the swing, the other $.5 million of the swing is roughly the write down of unrealized losses on our equity portfolio.

Okay. Because it appears that if there were just, if you didn't have the write down there that your earnings would have been probably in the neighborhood of $0.03.

Yes, it would have. Yes.

Okay. And then you indicated that your pipeline at the beginning of this quarter is a lot better than entering the first quarter. Would you say that is half from the deals from prior quarters that slipped and half new, or do you have sort of a break down of that?

That's a reasonable write down.

And are there any, are you getting any customers from different industries that you have been accustomed to in the past or same target industries?

It is primarily the distribution intensive industries, CPG, [barrel] companies, food and beverage.

And is there any comment on in terms of what is going on with your operations in China and to what extent, I mean, do you have any companies that had operations over there actually starting to go back to Latin America? Are you getting any sort of blow back from that?

No. Remember our operations in China are really three bars. So we -- primarily three bars. We have some people down there for the apparel company, but they're paying their way basically. So, the bars are variable costs and they're trying to sell the Logility products in particular the demand management brand, solutions brand, I should say. And that's really early in the life cycle and it is not a huge investment for us. So -- but no we haven't had, that's not really, doesn't have anything to do with the short fall in license fees. We are reviewing that more as a longer-term play.

And I mean if you do see an uptick this quarter, I suppose some expense will go up as you pay more commissions, that sort of thing, but if you don't see much change, is it safe to assume you are going to try to keep the expenses similar to what we see in the current quarter?

Same or less actually.

Okay. So the only reason we might see an uptick in say sales and marketing would be if your license sales go up you are paying more commissions there? Is that a safe assumption?

Yes, that's a safe assumption.

Okay. Great. Thanks, guys.

Our next question comes from David Soetebier with Dutton & Associates. Please go ahead.

Good afternoon, gentlemen. Could you talk a little bit about the demand on the Voyager line versus the DMI line? And then maybe a little bit on the industry, do you feel you have lost market share this quarter or stayed the same? And who would be a good comp for us to look at, I believe [I2's] being acquired, so who's left?

Well, both brands Logility's products which are the ones you asked about underperformed to our expectations. I guess if I had to pick one that underperformed the most it will be the Voyager brand, and of course that is the higher ticket price, the one that we target from the larger company. So, we sort of would expect that I guess in a slowing economy that we would be impacted more. But we do have a ton of activity right now, very good activity in both of those, those brands. The question is can we convert the activity into a signed contract. That's what has been very hard in the last few months here to get to happen, but we definitely have a significantly more activity right now. In terms of who we would compare against, I2 is a reasonable comparison. part of JDH business, who acquired I2, is also a reasonable comparison. That would be the [managistics] portion, they don't break that out anymore, but they are also a competitor. And that's probably the two closest ones that are public companies.

All right. Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Sam Rebotsky with SER Asset Management. Please go ahead, sir.

Yes. Good afternoon, Michael and Vince. I guess it is a little disappointing for you guys, not to make your budget numbers, and I guess it is a difficult environment, but you indicate the pipeline is improved. Do we -- have we so far in August closed more deals and would it appear that you would make up the loss in the current quarter for the -- as far as your budget for the rest of the year?

We have not had a great August. August is a very slow month in general, and we are -- as I mentioned in my opening comments, the quarter does appear August it is going to be back-end loaded which is fairly difficult for us. So -- but we haven't seen -- to go -- if we just measured it on August, we wouldn't be very excited about where we are right now. What was your other question, Sam.

Do you sort of feel that during the balance of the year I am sure your budget, you missed your budget this quarter. Do you expect to make it up as the year goes on? Is that your judgment or how -- what are your thoughts there?

That's our goal and we are going to take it one quarter at that time. But so we need to start making it up this quarter. We do have earnings targets and objectives obviously and they can still be made and we can deliver on the license fees. So it is not like we are out of where we wanted to be. We are behind where we want to be unfortunately. But if we perform the next three quarters like we performed in the past, not last quarter but other quarters in the past, we can definitely catch up.

It appears that the license revenue, if you separate -- take out Logility, American Software on their own did very well. Is there anything unique about that because, first, the revenue and the profitability was pretty significant if you just lock -- take out the cost of the revenue at least as you break it out. Is there any other expenses that should go if there that I would be missing?

Well, Sam. Actually the business from a licensing point of view actually had a pretty good quarter compared to the same period last year. So yes that's up. Specifically underneath the covers there is the new generation computing piece of our business which is in the apparel space had a very successful quarter.

And the cost of that was at least the way it seems to be, the cost are rather negligible and does it appear this should be improved going forward from American Software.

If they keep selling the way they did this quarter, yes.

Okay. Okay. And I guess as far as you will continue to buy stock in the open market as the -- what is the balance that you have available to buy in both Logility and American Software? What --

At American Software we have 1,492,865 shares available to buy back under the American Software program. Under Logility's we have 69,855 shares available.

Okay. Well, look, I guess it is this economy is kind of difficult, but have you seen anything as the economy has become more difficult that would make sense for you to acquire? Have the prices of any of the potential acquisitions gone down or is there anything you are looking at?

We are looking at some that are interesting to us, and it is too early to tell what the price will be.

Okay. Well, good luck.

Thanks.

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

Thank you all for participating on the call today. And we look forward to our next conference call.

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