Logility Supply Chain Solutions Inc (LGTY) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to today's program.

At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during our Q&A session. Please note this call may be recorded.

It is now my pleasure to turn the call over to Mr. Vince Klinges, CEO. Please go ahead, sir.

Good afternoon. Welcome to American Software's second quarter fiscal '09 conference call. On the call with me are Jim Edenfield and Mike Edenfield of American Software.

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. There 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, our underlined in the forward-looking statements.

There are a number of factors that could cause actual results to differ materially from those 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 accessibility 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 assurances that the forward-looking statements will prove to be accurate.

At this time I would like to turn the call over to Mike Edenfield.

Thanks, Vince. Good afternoon, everyone. Thanks for participating in this call.

I have some comments on the second quarter results. Vince will review the details on the financial results for the quarter and year-to-date and then we will take your questions. For the second quarter revenue was $19.8 million, a 16% decrease compared to second quarter last year, but a 3% increase, sequentially. Operating earnings were approximately $2 million, a 28% decline from second quarter last year, but a 56% increase sequentially form first quarter.

14 new customers signed license agreements in the second quarter. Customers from 12 countries signed license agreements in the quarter. Those countries include Australia, Canada, China, India, Ireland, Italy, Kenya, the Netherlands, Poland, Sweden, the United Kingdom and the United States. Some of the notable new and existing customers include AO Smith, Arch Chemicals, Augusta Sportswear, Demis Manufacturing Company, Coaster Company of America, Dassault Falcon Jet, Haynes Furniture Company, Ingram Industries, Magneti Maralli, New Balance in Australia, Rollands Sporting Goods, SKF, Snap Brands in Australia, Starbucks Shanghai, and Thermatrue Doors. 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. As we look forward to the third quarter, our business model is still in excellent shape and the Company continues to have a strong balance sheet with cash and investments of $71.1 million. We did have some deals and orders that slipped due to the economy. However we are encouraged by our pipeline for third quarter. We feel we can do about the same or better than we did this past quarter, the second quarter. But when our pipeline is pretty good and 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 for the second quarter and year-to-date.

Thanks, Mike. Comparing the second quarter of fiscal '09 with the same period last year, as Mike indicated, the quarter - - total revenues decreased 16% to $19.8 million, that compares to $23.6 million in the same quarter last year. That's primarily due to the licensing decreasing 21%, to 3.8, compared to 4.8 for the same period last year. And also services and other revenues decreased 23% to 9 million. And thats primarily due to lower implementation work resulting from lower licensing sales in prior quarters, as well as lower consulting services from our IT Consulting business, when compared to the same period last year.

Our maintenance revenues decreased slightly 2% to $7 million, compared to 7.2, primarily due to lower licensing in prior quarters. Overall gross margin was 52% for the current quarter and that compares to 50% for the same quarter last year. Our license fee margin decreased to 60% compared to 68% due to lower license fees and partially offset by lower amortization costs. Services margin increased to 30% compared to 27% for the same period last year. And that's due to increased end margins in our IT Consulting and our ERP units. Maintenance margin was 74% for both current and same period last year.

Looking at the operating expenses, our gross R&D expenses were 12% of total revenues for the current period and that compares to 10% in the prior year. As a percentage of revenues, sales and marketing expenses were 17% - - of revenues and that is 3.5 for the quarter, and that compares to 16% or 3.8 for the same quarter last year. G&A expenses were 14% of total revenues for both periods.

Our operating income decreased 28% to 2 million for this quarter and that compares to 2.7 for the same quarter a year ago. Our interest income and other net was 1.2 million of expenses quarter, and that compares to income of 1.7 for the same period last year. And that is primarily due to lower yields on investments, loss on currency exchange rates, bond amortization expense and unrealized and realized loss in our equity portfolio.

Our EBITDA was $3 million for this quarter and that compares to $3.8 for the same period last year. Our GAAP net income was $470,000, our earnings per diluted share of $0.02 per share, and that compares to $2.5 million, or $0.10 earnings per diluted share for the same period last year.

Our adjusted net income was $708,000, or adjusted earnings per diluted share of $0.03 for the second quarter and that compares to a net income of - - or adjusted net income of 2.8 or $0.11 for the same period last year. And these adjusted numbers exclude the amortization of intangibles related to our DMI acquisition and stock-based compensation expense. International revenues for this quarter and last year at the same period were 9% of total revenues.

Looking at the year-to-date numbers, six months ended October 31, 2008, total revenues year-to-date decreased 14% to 39 million, and that compares to 45.3 million last year. Our license fees decreased 34% to 6.5, and that compares to 9.9 in the same period last year. Services revenues decreased 14% to 18.3 million year-to-date and that compares to 21.4. Our maintenance revenues increased slightly to 14.2 year-to-date compared to 14.

Looking at costs, our overall gross margin was 52% year-to-date compared to 51% same period last year. And license fees decreased to 57% compared to 67% last year due to lower license fees. Services margins were 34, excuse me, 33% compared to 29% the same period last year, and our maintenance margin held steady at 74% for both current period and year-to-date period of last year.

So looking at operating expenses, total gross R&D expenses were 12% of total revenues for the six months ended October 31, 2008, and that compares to 11%. As a percentage of total revenues our sales and marketing expenses were 18% compared to 15% in the same period last year. G&A expenses were 15% of revenues compared to 15% in the same period last year. And our operating income year-to-date was 3.3 million, and that compares to 5.3 the same period last year.

Our EBITDA was 5.2 compared to 7.4 million last year. And our GAAP net income was 1.1 compared to or $0.04 earnings per diluted share and that compares to 4.5 million, or $0.17 earnings per diluted share for the year-to-date period last year. On adjusted basis year-to-date, was 1.5 million or earnings per diluted share of $0.06. And that compares to net income of 5 million, or $0.19 for the same period last year.

International revenues year-to-date were approximately 10% of total revenues, and that compares to 9% for the same period last year. Taking a look at our balance sheet, our cash position remains strong with 71.1 million at the end of October 31, 2008 with no debt. During the quarter the Company repurchased 95,000, a little over 95,000, on the common stock for approximately $550,000 under its authorized stock repurchase program and paid 2.3 million in dividends.

Also during the quarter, the Company's majority owned subsidiary Logility repurchased a little over 27,000 shares of its common stock for approximately $181,000 under it authorized stock repurchase program. Other aspects of the balance sheet our billed accounts receivables of 9.2, unbilled approximately 3 million, for a total billed and unbilled AR of 12.1.

Our working capital is 53.3 million, our deferred revenues are 14.4 million, and our share holder equities are 82.3. Our current ratio is 3.4, versus 3.7 last year. And our day sales outstanding was approximately 56 days, and that compares to 66 days at this time last year.

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

We will pause for just a second to allow questions to queue. It appears we have no questions at this time.

Thank you.

I apologize, we did get a couple in here. It looks like we have Brian Murphy from Sidoti and Company. Your line is open.

Hi. Thanks for taking my question. Mike, could you give us an idea of what percentage of license revenue came from new customers in the quarter?

There was more from existing customers than new customers this past quarter.

Okay. I am guessing that you guys are continuing to see longer sales cycles out there and perhaps higher cost of selling. Do you intend to focus more on the install base, going forward?

Well, we are focusing on both, install base and new accounts. Our best opportunities this quarter are all new accounts. And I think we have a good shot of getting all three of them. So we will see. If that happens, the ratio would switch back around where new accounts would be higher than existing accounts this quarter?

Okay. And, obviously, there's not a lot of visibility out there for anybody these days. But can you give us a sense of maybe a little bit of color in terms of what you are hearing from customers, in terms of- - budgets going into calendar '09. And do you think perhaps they might be more likely to sit on budgets in the front half of the year. Have you seen any change over the past month or so, just anything you can add there?

We have seen a little bit of everything, Brian. We had some customers say that we were trying to go get orders with - - the last couple of months, say well we thought we could do it, we can't do it. We are going to have it in the budget for next year, but we don't know if we will be able to do it then either.

We've had some companies come in and buy, without any hesitation, you wouldn't know there were any issues at all. And then we've had various flavors in between where they have delayed it but they think they can do it in the first quarter of next year, so for example. So a lot of it depends on the industry you are dealing with.

Some industries are not as distressed as others, like health care. And private label food manufacturers are doing quite well because there are people buying private labels rather than the brand labels to save money. They're - - manufacturing as fast as they can and doing quite well. So there are still pockets there that we can focus on and hopefully grow our numbers by executing well in those pockets.

Thanks. That's good color there. It might just - - could you give us an idea. Do you guys have a contingency plan perhaps to scale down the cost structure and the calendar '09. Or can you give us just sort of a flavor for what kind of flexibility you have there to scale down?

We tweaked our cost structure a little bit already. And we actually started that the quarter before last, I believe. You know, right now, we don't, we are certainly we know how to do that, we have done it in the past, Brian.

I don't know how long you have been following us, but we've had much more serious situations than this. Right now we thing our business model is in pretty good shape. But if we see that the market is deteriorating, we will certainly aggressively go after things like that. But given our pipeline this quarter we don't see a need to do it.

Okay. Great. And maybe one for you, Vince, I think I missed this. Did you say that cash flow from operations was 3.3 million year-to-date?

You mean the EBITDA which is a good metric?

Okay. Whatever you put out. I think I missed it.

I mentioned EBITDA, it was year-to-date 5.2 EBITDA.

Okay. And what was CapEx in the quarter?

Hang on a second. About a couple hundred thousand.

Okay. Great. That's it for me. Thank you very much.

Thank you.

And your next question comes from Ryan McGaver from Capstone Investments. Your line is open.

Good afternoon, everyone. Vince, I was wondering if you can break out the other expenses, you mentioned current loss and some other realized and unrealized loss.

Yes. The 1.2 expense number for the quarter, it breaks down into about 1.4 is unrealized, mostly unrealized loss, on our equity portfolio. Amortization is roughly 125,000, our exchange rate loss is close to 200,000. So those are all three negatives. The positive is interest income of 455,000 and rental income of 66,000 that we get from some of our tenants here in our building.

And in terms of the share repurchases, can you remind us how many shares are left under that authorization.

Yes, under the American Software authorization is 1.4 million shares.

Do you know the number for Logility also?

Yes. It is a little over 40,000.

Okay. And for the quarter, depreciation and amortization was - - roughly 3 million?

$7 million.

Can you repeat that.

$7 million.

Okay.

That's how I got to the roughly 3 million for the quarter in EBITDA.

Okay.

We've reported operating income about 2 million.

Okay. Thank you.

And our next question comes from Sam Roboski from SER Asset Management. Your line is open.

Good afternoon, Mike and Vince. I came on a little late. I'm not sure if you dealt with the cash that is current and noncurrent. And what the noncurrent is attributable to and how much of that is has been marked down. If it has been, as far as the noncurrent.

Sam, this is Vince. Actually, in order to obtain a little bit better yield, we have gone out on the yield curve beyond 12 months on some bonds, primarily MUNI, Municipal and Government backed bonds. And so we have to classify those as long term, or non current.

Okay. And then when we look at the number - - the other interest income, other net an expense of 1.187 million, versus the income of 1.664 million. Could you break out the details on how we get to those numbers on the amounts. I know you addressed some of it, but it is not clear to me, that is about a $3 million swing.

I actually just did it on the previous question.

I didn't follow that because the numbers that you mentioned didn't sound like a $3 million swing.

What I was explaining was that I was supporting the balance of the $1.1 million expense number for quarter. And it breaks down into about 1.4 million is the unrealized loss on the equity portfolio.

$1.4 million loss. What does that relate to - - it that auction or what it that - - is that stocks or what is that.

Just pure equity,.

Equities. Okay. So you mark to market every quarter on that.

Yes, it's considered a trading.

Okay. So 1.4 million, so would you have picked up income in the same comparable quarter last year at this time?

Yes. Because that's when the market was peaking if you recall actually.

Okay. Did you indicate the pipeline is a little lower than it was at the same time at the previous quarter, or was it higher? What is the nature of the pipeline currently?

Well comparing it to last quarter, being the second quarter. The third quarter, we think we've got an opportunity to do about the same or better.

Okay. Okay. Where in essence I guess, I didn't, analyze Logility substantially, but presumably you took a little hit on Logility similar on the portfolio. I didn't - - was there any kind of similar number in Logility?

Logility doesn't have any equity, that was primarily exchange rate.

In essence Logility on relative basis they did pretty well. Is there anything that you attribute there, there being pretty much flat, which is good in this kind of market climate.

I think the value proposition Logility brings to the market is - - is helping you manage your supply chain and, generally, that is manage it to have reduced costs. In this market if you can't increase revenues, one thing you have to do is reduce your costs. So our customers typically get a return fairly rapidly, less than a year, and then sometimes that return can be quite substantial. So even if you are cutting CapEx you have some CapEx. The best (inaudible), you're going to get that CapEx. We have to do our job and make sure all of our customers understand that we ought to be a high priority project for them.

As far as the stock purchase with the 1.4 million and the 550,000 you bought on American Software in this current quarter. Were you showing more stock at different prices in past or were you out of the market at certain times when the stock was coming down. How do you relate to the way the market trades and your availability. Is it judgment call or can you sort of address what your thoughts are going forward?

We have a corporate policy, we - - our open window if you will is two trading days after the end of the quarter. After the earnings announcement and that goes onto the first day of the last month of the quarter. So it is really a short trading window.

Okay. Were you shown much stock that you might have passed at any times, or as long as your judgment was - - at various times has been weak or erratic. I don't know the size or the volume that occurred, but in general were you shown blocks or stock or - - did you hear my question?

Hello. Yes, Sam. The amount of stock is fairly small compared to the daily trading volume.

You are limit by the amount you can buy relative to the trading volume. And even if blocks were shown, you would not able to buy, et cetera, unless the trading volume is sort of picked up. Is that the point?

Right. That's right.

Okay. Well look it is a tough climate. And just for many situations and in essence you are fortunate that you are sitting with a bulk load of cash. And both is I guess you have a lot of options. Hopefully, has from been any situations that you might have wanted to acquire that has increased based on what has been going on in the industry?

As you know, Sam, from previous calls, we are always looking to find good acquisitions. And we have some opportunities we are looking at now that are interesting to us, but it will have to be good valuation for us.

Well I guess in this kind of market climate you are in the drivers seat.

We hope so.

Well hopefully things improve and good luck.

Thank you.

And it looks like we have a follow up question from Brian Murphy. Your line is open.

Hi. Mike, can you just maybe give us a little bit of color on any changes you might seeing in the competitive environment out there. And maybe just how that - - the impact in your win rate?

I don't know if we have seen any major changes. I don't have a quantitative way to back this up, but I think with the merger, or the proposed merger that is now evidently off between JDA and I-2. I've got the feeling that - - there are a number of places we are competing against them and going down a little bit. But other than that, everything seems to be the same. If anything, everybody is hungrier than they ever were for an opportunity. If there's a good qualified opportunity out there, people are going to be chasing it hard.

Got it. Thank you.

It appears we have no further questions at this time.

Thanks to everyone for participating on the call and your interest in American Software. And we are going to work hard and have a good quarter here in the third quarter and look forward to the next conference call.

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