Logility Supply Chain Solutions Inc (LGTY) 2009 Q4 法說會逐字稿

Good day, and welcome to American Software's fourth quarter fiscal year 2009 results call. At this time, all of our participants are in a listen-only mode. Later we'll conduct a Q&A session. (Operator Instructions). This call is being recorded.

I would like to turn it over to our moderator, Vince Klinges.

Good afternoon, and welcome to American Software's fourth quarter fiscal 2009 earnings conference call. To begin, I would like to remind you 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 or 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 revenue. 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, CEO of Logility, and Executive Vice President of American Software.

Thanks, and good afternoon, everyone, and thank you for participating on the call. I have some comments on the fourth quarter results and then Vince will give the details on the financial results for the quarter and fiscal 2009, and then we will take some questions.

For the fourth quarter, American Software's revenue was approximately $19 million, a 12% decrease compared to fourth quarter last year. Operating earnings were approximately $1.8 million, a 45% increase from the fourth quarter last year. Increased license fees and lower costs contributed to the increase in operating income. 18 new customers signed license agreements with us in the fourth quarter. Customers from 11 different countries signed license agreements with us in the quarter. Those countries included Australia, Canada, Cyprus, France, Honduras, Ireland, Italy, Spain, the Netherlands, the United Kingdom, and the United States.

Some of the notable new and existing customers include Argosy Trading, Bernhardt Furniture, Billabong International, Constellation Brands, Doosan Trading Formica, J Brand, Johnson Diversey, Portia, Ridge Tools, Rockline Industries, Sony Electronics, Time Customer Service, Trek Bicycle, Tyndale and Ventura Foods. We continue to be encouraged by the number of new customers who are licensing our products. As you know, new customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

To summarize our past performance, we are pleased overall with the quarter and the year, especially given the state of the economy we are operating in. As we look forward to fiscal 2010, our business model is in good shape, the Company has a strong balance sheet with cash and investments of about $71 million and no debt. While some deals have slipped due to economic conditions, we do have a decent pipeline for the first quarter. As usual, close rates will be the key, and the quarter does appear to be back end loaded, as is typical.

I would now like to turn the call over to Vince for a detailed review of the financial results for the fourth quarter and fiscal 2009.

Thanks, Mike. Breaking down the fourth quarter, first for the quarter, compared to the same period last year, total revenues of the quarter decreased 12% to $18.9 million, and that compares to $21.6 million for the same quarter last year. License increased 3% to $4.8 million compared to $4.7 million for the same period last year. Services and other revenues decreased 25%, to $7.2 million. That's due primarily to lower consulting services at our IT consulting business and lower implementation work resulting from lower license fees in prior quarters when compared to the same period last year. Our maintenance revenues decreased 5% to $6.9 million compared to $7.3 million, primarily due to lower license fees in the prior quarters.

Looking at costs, our overall gross margins increased to 60% for the current quarter compared to 52% the same quarter last year. That was due to license fee margin which increased to 78% compared to 67%, and that's due primarily to the result of the completion of amortization expense of several products in the end of the third quarter of 2009. That resulted in lower amortization costs in the fourth quarter. And also due to the mix between direct and indirect sales because the indirect sales commissions are coded to cost of license the fees. Services margin increased to 34% compared to 30% in same period last year, and that's primarily due to higher margins at our IT staffing as well as some of the other business units. Our maintenance margin increased to 73%, for the current period, and that compares to 72% for the same period last year.

Looking at operating expenses, our gross R&D expenses were 12% of total revenues for the current and prior year period. As a percentage of revenue, sales and marketing expenses were 20% of revenues or $3.9 million for the quarter, and that compares to 21%, or $4.5 million for the same period last year. G&A expenses were 20% of total revenues for the current quarter compared to 16% the same period last year, and that increase is primarily due to legal and banking advisory fees related to the Logility tender offer process going on and also some bonus compensation expense.

Operating income increased 45% to $1.8 million this quarter, and that compares to $1.2 million same quarter a year ago. Interest income and other was $464,000 of income this quarter, and that compares to $475,000 of income last year. Our EBITDA was $2.3 million for this quarter, and that compares to $2.2 million for the same period. So our GAAP net income was $1.2 million, our earnings per diluted share was $0.05, and that compares to net income of $897,000 or $0.03 earnings per share same period last year. On adjusted net income basis, we reported $1.6 million or adjusted earnings per diluted share of $0.06 for the fourth quarter, and that compares to $1.1 million or adjusted earnings per share of $0.04 same period last year. And those adjusted numbers exclude amortization of intangibles related to the DMI acquisition, stock-based compensation expenses, and expenses related to the Logility tender offer.

Our international revenues this quarter and last year's quarter were approximately 10% of total revenues.

At this time, I would like to look at the full year of fiscal 2009 compared to the same period last year. Our total revenues for the year decreased 12% to $78 million compared to $89 million last year. License fees decreased to 15% to $16.1 million compared to 19% in the same period last year. Services revenue decreased 19% to $33.9 million for the year compared to $41.7 million. Our maintenance revenues decreased slightly to 1% to $28 million compared to $28.4 million in the prior year.

On a gross margin basis, our overall gross margin for the year was up to 55%, and that compares to 52% last year. License fees margin increased to 69% compared to 68%. Our services margins were 32% compared to 30% last year. The maintenance margin was 74%, compared to 73% last year.

Looking at operating expenses year to date, gross R&D expenses were 12% of total revenues compared to 11% last year. As a percentage of total revenue, sales and marketing expenses were 19% compared to 18% last year. G&A expenses were 16% of revenues compared to 14% same period last year. So the total operating income for the year 2009 was $7.2 million, and that compares to operating income of $8.1 million last year. And last year included a $1.2 million writedown of cap software.

EBITDA for fiscal 2009 was $10.7 million and that compares to $13.3 million same period last year. On a GAAP net income basis we reported $3.1 million or $0.12 earnings per share, and that compares to net income of $6.5 million or $0.25 earnings per share last year. On an adjusted net income basis we reported $4 million for fiscal 2009, or adjusted earnings per diluted share of $0.15, and that compares to net income of $8.1 million last year, or $0.30.

International revenues for fiscal '09 and fiscal '08 were 10% of total revenues.

Looking a at the balance sheet, the Company's financial business remains strong with cash and short and long-term investments at approximately $71.1 million at the end of April 30th, 2009 with no debt. During the quarter the Company repurchased a little over 6,000 shares of its common stock for approximately $21,000, and paid approximately $2.3 million in dividends. Other aspects of the balance sheet are accounts receivable of $10.2 million, unbilled roughly $3 million, deferred revenues of $16.1 million, and our shareholder equity is close to $80 million. The current ratio is 2.8 versus 3.5 last year. This is lower due to the fact that we have $17 million in investments being classified as long-term as we have increased our CD and bond maturities to improve the yields on our investments.

Our day sales outstanding as of April 30th, 2009 was approximately 65 days, and that compares to 67 days this time last year.

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

(Operator Instructions). Our first one will come from Jackson Spears from the Robins Group.

Vincent, how are you, sir?

Hi Jack.

Could you walk us through -- I know you are doing a tender offer so I'm going to ask it carefully -- what are the dynamics, what are the potential savings once you've completed the consolidation of Logility, what's the cost of capital, and what does it mean for earnings per share when you can consolidate it?

Jack, this is Vince.

I'm trying to ask in a way you can answer it.

At this point, all that information is in the tender offer documents that's public. If you go to the filings you can see that information there. So we really can't talk too much about the tender right now.

Thank you.

Next we will take a question from Brian Murphy from Sidoti & Company.

Hi, thanks for taking my question. Mike, were close rates on license deals what you expected for the quarter?

I think in some cases they were a little better than we expected, and some not as good, but in general we were pleased. Other than normal slippage, did you see any deals in particular that you were counting on slip out into the future quarters? We always have some deals slip out into future quarters but nothing out of the ordinary. Okay. Maybe one for you Vince, on the maintenance revenue, is there any change in renewal rates there, or is that purely the lag from lower license revenue in previous quarters?

Primarily low license fees prior quarters. And a little bit of retention on the legacy piece of our ERP business.

Got it. And we're almost two-thirds of the way through the first quarter now. There has been some commentary from some of the bellwether software companies out there that maybe things are stabilizing a little bit and maybe some expectations that budgets may loosen up in the back half of the year of the calendar year. Can you give us any color on that from where you sit?

We see it about like it has been the last six months, really, or last previous two previous quarters. First quarter, though, for us is usually a seasonal low quarter. I think a lot of that has to do with the fact that the last month of the quarter is in July, and it's hard to get things done in July. But we are actually pleased with our pipeline and where we are so far. I think we can have a good quarter. In terms of beyond that, I'd say our pipelines about where it was the last two quarters.

I know it's a tough business environment out there for everybody. Are you seeing any particular pockets of strength or weakness?

For the larger companies, we see more ability to invest there because they have budget. It's hard to get the budget, but they have budget. Where we are seeing it's tougher is for the smaller companies, say $100 million or under, it's tough to get credit and access to capital so their investing in projects like these has dropped dramatically. We've tracked that that way probably for the last three quarters now or so. That's cross industry there. In terms of the size of the enterprise we definitely notice that. One area that continues to do well is private label. Consumers cutting back. Instead of buying the the brand name and paying more for it, they will buy the store generic label and save money. Our private label customers are running at capacity and doing as well as they've done in some time.

Got it. You guys have done a great job managing the cost side of things. Any plans here for maybe further head count reductions or, on the flip side, maybe hiring some sales guys? Any kind of color there would be good.

We are actually looking to hire a couple of sales guys but that's to really fill in for some past attrition there. I believe we are going to end up fairly stable on the head count going forward.

Got it. Thank you. I will jump back in the queue.

(Operator Instructions). We do have one from Drake Johnstone from Davenport. Mr. Johnstone, your line is open.

A question I have, Mike, you indicated that your pipeline for the current quarter is similar to Q3 and Q4 of '09. But the question I have is your Q4 to Q1 seasonality jumps around quite a bit over the past few years. In 2006 it was down 3% sequently, and in 2008 it was down 17%, but I think Q4 '07 you lined up some big deals Could you provide a little bit more color there? In terms of license revenue, how significant a decline are you expecting on a sequential or year-over-year basis?

We don't know for sure. We look at the pipeline and just compared to Q4, I think we've got an opportunity to do as well as we did Q4 from a license fee perspective. So we've got the deals there, the question is will they close. And will they close by the end of July. So one of the things that always makes it hard for July is the vacations and approvers not being around when we need it. That sort of thing. That's why the uncertainty is there. But the pipeline itself looks pretty good.

On the services, on the staffing business, are you seeing any stability there, or are you still seeing weakness in that business?

We are still seeing weakness right now. It's down pretty materially year-over-year. Hopefully we can maintain the lower level that we are at right now.

On the gross margin you had a nice lift in Q4. You indicated some amortization, you no longer have an account, but are you seeing a similar mix for Q1 thus far compared to Q4?

As far as the margins yes, similar.

Great. Appreciate it. Thanks, guys.

(Operator Instructions). At this time, there are no more questions.

Thanks to everyone for your interest in American Software and we look forward to our next conference call.

This concludes today's teleconference. You may disconnect at any time