Logility Supply Chain Solutions Inc (LGTY) 2010 Q1 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 we will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions). Please note this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Vince Klinges, Financial Officer of American Software. Please go ahead, sir.

Good afternoon. Welcome to American Software's first quarter of fiscal 2010 earnings results. To begin I'd 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 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'd like to turn the call over to Mike Edenfield.

Thanks, Vince. Good afternoon, everyone, and thanks for participating in this call. I have some comments on the first quarter results. Then Vince will come back and review the details on the financial results for the quarter, and then we'll take your questions.

We had a good quarter. It was our 34th consecutive quarter of profitability. The Company delivered strong profit growth, and the Company completed a tender offer for the shares of Logility we did not already own. For the first quarter, revenue was approximately $17.8 million, a 7% decrease compared to the first quarter of last year. The decrease of revenues is primarily attributable to services revenue declines in both our IT consulting business segment and the ERP segment.

(Inaudible) was a license fee growth of 51% which was driven by Logility with a 75% increase in their license fees. This is the third consecutive quarter we have achieved growth in license fee revenue over the prior year's period. We believe this is a direct result of our ability to provide a high return on investment to our customers with an industry leading time to benefit and lower total cost of ownership than our primary competitors. Adjusted net income was $2 million, 155% increase over last year's quarter, with increased license fees, lower cost and higher other income driving the improvement.

We signed 20 new customers for license agreements in the first quarter. Customers from six different countries signed license agreements with the Company in the quarter. Those countries include Australia, South Africa, the Netherlands, Turkey, the United Kingdom and the United States. Some of the notable new and existing customers include Arrow Fastener, Boston Apparel Group, Bush Hog, Cache, Carlisle Tire & Wheel, Central Garden and Pet, DCI Cheese, Hanesbrands, Juicy Couture, Johnstone Supply, KGP Telecommunications, Stony Apparel, Synergy Health, and WebWholesale.

We continue to be encouraged by a number of new customers licensing our products. New customers are a source of future maintenance and implementation services revenue as well as being great prospects for additional product sales. As we look forward to next quarter as well as the remainder of the year, we are pleased with our overall performance. Our business model is in good shape. The Company has a strong balance sheet with cash and investment of over $60 million. Our IT consulting business unit revenues are trending back up this quarter, as we've hired approximately 25 people this quarter to staff additional projects. On the software side, while some projects have slipped due to macroeconomic conditions, we've again had a decent sales pipeline for the second. As usual, close rates will be the key, and the quarter appears to be back-end loaded as is typical. I'd now like to turn call back over to Vince for a detailed review of the financial results for the quarter.

Thanks, Mike. Personally, I'd like to take look at the first quarter of 2010 compared to the same period of last year. The total revenues for the quarter, as Mike indicated, decreased 7% to $17.8 million compared to $19.2 million. However, license fees increased 51% to $4.1 million compared to $2.7 million for the same period last year. Service and other revenues decreased 27% to $6.9 million due to lower consulting services at our IT consulting business than lower implementation work resulting from lower license fees in the prior quarters of our ERP segment when compared to the same period last year.

Maintenance revenues decrease 4% to $6.8 million compared to $7.1 million primarily due to lower pricing fees in our ERP business unit compared to prior quarters. Overall, our gross margin increased to 60% for the current year -- current quarter compared to 53% for the same quarter last year. Our license fee margin increased to 70% compared to 53%, and that's due primarily to, as a result of the completion of amortization expense of several projects in Q3 of '09, resulting in lower amortization cost in the current quarter and also due to license fee sales mix between direct and indirect. We had higher direct sales this quarter.

The service margins decreased to 33% compared to 36% in the same period last year, and that's due to lower margins at our ERP unit from lower utilization rates. Our maintenance margin was 75% for the current and prior-year period. Taking a look at operating expenses, our gross R&D expenses were 12% of total revenues for both the current and prior-year quarter. As a personal of revenue sales and marketing experiences were 21% of revenues or 3.7 for the current quarter. That compares to 20% or 3.8 for the same quarter last year. D&A expenses were 21% of total revenues for the current quarter, compared to 16% for the same quarter last year. The increase was primarily due to legal, banking, advisory and other fees related to the Logility tender often and also higher bonus compensation expense accrual.

Our operating income increased 14% to $1.5 million this quarter compared to 1.3 million the same quarter a year ago. Our EBITDA was $2 million this quarter, and that compares to 2.2 million for the same period last year. This is lower primarily due to the tender offer costs this quarter, which were approximately $800,000. GAAP net income was $1.2 million or earnings per diluted share of $0.05 for the quarter and that compares to a net income of $610,000 or $0.02 earnings per share last year. On adjusted net income basis, that increased to 155% to $2 million or adjusted earnings per diluted share of $0.08 for the first quarter, and that compares to an adjusted net income of $795,000 or $0.03 for the same period last year.

Adjusted numbers exclude amortization of intangibles, related acquisitions or stock based compensation expense and expenses related to Logility tender offer. International revenues for this quarter were approximately 9% of total revenues, and that compares to 10% in the prior-year quarter. Taking a look at the balance sheet, the Company's financial position remains strong with cash and investments of approximately $61 million at the end of July 31, 2009, with no debt. During the quarter, the Company paid over $9 million to purchase the outstanding shares of Logility and paid approximately $2.3 million in dividends.

Other aspects of the balance sheet, our billed accounts receivable, was $10.2 million, unbilled $3 million for a total of 13.2 million of AR. Deferred revenues are $15.6 million, and our shareholder equity is $73.8 million. Our current ratio is 2.3, versus 3.7 last year, and this is lower due to the approximately $16 million in investments, classified as long-term. We have increased our investment and maturities to mostly 1 to 3 years to improve the yields and also due to lower cash on hand. Our day sales outstanding as of the end of the quarter was approximately 68 days compared to 66 days this time last year. At this time, I'd like to turn the call over to questions.

(Operator Instructions). We'll take our first question from Drake Johnstone with Davenport. Please go ahead.

Hey, Vince and Mike. Hey, a question I had for you. Mike, you talked about the pipelines in the current quarter. You didn't really give us any indication of the pipeline from the current quarter compared to the outset of Q1, and also the outset of Q3. The impression I had received prior to this report was that your pipeline in Q3, Q4 and for Q1 was at is a similar level, so it sounds like maybe this closes as many deals this quarter, which I guess is typical this quarter. So could you give input in terms of the level of the pipeline going to Q2 compared to some of the other quarters?

Yes. We're actually pleased with the amount we closed in the first quarter. We had a pretty good pipeline going in. Our first quarter is normally a seasonally low quarter for us. There are some exceptions, but if you look over the past five or six years, it's usually seasonally low. So we're very happy with the first quarter. I would say our pipeline is about the same this quarter as it was last quarter and the previous quarters. I think we have an opportunity to do as well, a reasonable shot to do better in license fees. It will, as I mentioned earlier, it will come down to our close rates again. But we do have some interesting opportunities this quarter.

Mike, you said do as well as license fees, but you indicated Q1 was down sequentially due to seasonality, and you had $4.8 million in license fees in Q4 and 4.7 million in Q3. So which quarter is it you're referring to?

Well, we had an opportunity to do better than the first quarter than the first quarter. I don't know if it would be as good as fourth quarter or third quarter but we had definitely opportunity to do better and had an opportunity to do as good as those quarters, maybe better.

Okay. And then as far as expenses, it sounds like you had some one time expenses in the quarter associated with the Logility acquisition. So for G&A, should that be closer to 16% of revenue going forward.

Yes. Actually, if you look at the bottom of the press release you actually see the expenses broken out related to Logility tender over. A little over $500,000 . Then that's a stock exemption charge in there. So those are unusual items, yes.

So that Logility stock compensation charge, that is a onetime charge associated with the transaction?

Yes.

Okay. Thank you.

And we'll take our next question from Jackson Spears with the Robins Group. Please go ahead. Mr. Spears your line is open. Please go ahead with your question.

--and on the revenues, other than that -- so the rent is two months paid up front plus a thousand dollars plus 1,100 or whatever?

We'll go to the next question from Brian Murphy from Sidoti and Company. Please go ahead.

Thanks for taking my question. Mike, I think you mentioned that you hired some people on the IT services side. Just looking at that services line item, obviously down quite a bit. If my memory serves me you have quite a bit of customer concentration in that business. Can you give us a sense for sort of what your visibility is sort of into that service line item at this point?

Well, I mentioned we've hired approximately 25 people, and those are -- we only hire those people when we have work for them. So we have good visibility; and then the current plans are that we think we can grow it -- continue to grow it throughout the rest of the fiscal year. So we actually are more bullish on that segment than we were 90 days ago.

Okay. Great. And did you guys hire any salespeople during the quarter?

I believe we didn't hire any -- I believe we have one start this quarter. We reached an agreement the prior quarter, but I think we started this quarter.

Okay. And--?

Excuse me. That's on the direct sales channel. We also have hired a number of VARs over the last couple of quarters, and have them started with us, including some in Asia Pacific. Which is a new area, or an expanded area for us now.

That's interesting. So just to follow that thread there in terms of the license mix, it seems like things continue to be skewed toward the Voyager side. Do you expect that to continue sort of this quarter and into the near future? And when would you expect the Demand Solutions business to start to come back?

Well, as I look at this quarter, I believe it will probably be more Voyager again than Demand Solutions, which it typically is, but I believe it will remain skewed. Demand Solutions is doing good with the mid-size companies. Where the business has slowed down for us is on the 100 million and less size companies. They're not -- they don't have the money or the access to credit to invest as much as they traditionally do but the larger companies do. They don't have as much, but they still have capital budgets they can allocate to high priority projects; and we've been able to get our share of the pie there. So their pipeline is pretty good. But I think -- I think their -- I don't see them roaring back just yet.

Okay. Thanks very much.

And we'll go to our next question from [Brian Madaver] with Capstone Investments. Please go ahead.

Hi. Good afternoon. I was wondering -- you touched on it previously. But a comment on the sales cycle. How is it looking? You said that the soft $100 million companies are kind of having a hard time; but as far as the other markets you go after, versus previous quarters, a comment on the sales cycle?

Yes. We have some sales cycles that are getting delayed, because they can't get the money, or they're getting canceled because they can't get the money; but we actually are -- we had some pretty brisk sales cycles last quarter in particular. We had -- July was surprisingly good for us. So if you're in -- the beauty of our solution is it helps people save money; and in some cases helps them take market share from competitors by providing better service so a lot of our target markets are still investing even with the downturn because of the quick return on investment they can get in terms of cutting cost in particular. So the sales cycles, when they're -- a lot of the sales cycles are really more than the typical -- I just use Voyager, for example, six to nine months range.

Okay. And I was wondering if -- or you had mentioned that there was a higher proportion of direct sales versus indirect sales. Was it particularly material, or is it just a slight change there?

I would say it's material. That helped embolden our markets quite a bit. The direct was fairly strong. The indirect channel was okay; but not as good as it was a couple of years ago. So when that turns around -- and if we can keep them both going in the right direction, we're going to see some decent growth in the license fees. Has that dynamic continued into the second quarter of a stronger direct sales force? Based on the forecast, yes.

Okay. That takes care of my questions. Thank you.

Thank you.

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

Good afternoon, gentlemen.

Hi.

A good transition. Now you said there was about $800,000 of extra cost in the current quarter? And this will go away in the next quarter. What kind of savings do you expect to have in addition these onetime charges. Either for the next year going forward as far as the merger of Logility?

This is Vince. The estimate is roughly around 450,000 to 500,000 in savings. And that was all actually documented in the tender offer documents that we filed.

And this will occur on a quarter to quarter basis, or it will be one particular quarter?

It's probably more back-end loaded the back half of the year year.

Okay. As far as the -- is there anything that occurs in the last month of the quarter, any better deals that are given for people to close the transaction, or are they basically, you just work harder to get a transaction to close in the last month?

Yes.

Okay.

Typically the buyers are better educated and they know your quarters, they know your year end. The fact of the matter there has to be an event for these sometimes just to get them off the dime. A lot of the times they're not in a huge hurry to do anything but that's something that we can use as a closing of that.

Okay. And is there any plans as far as visibility now? I assume, when you -- as Logility is 100% owned going forth in the next quarter. Will there be any differentiation to sort of differentiate the revenues license fees, or how will that sort of be discerned?

Yes. We do segment reporting on our Qs. So when you see the 10-Q in a few days.

When the 10-Q gets filed it will probably be about September 14, or around there. We do segment reporting and break out the revenues and the operating earnings.

Okay. And also now that you've gone to the, some of your assets or gone from one to three years, does that mean you're less prone to be looking at acquisitions going forward, or what's your thought about acquisitions going forward?

We went from one to three years just to get a better yield. They're still very liquid assets. And we are looking for acquisitions just as much as we are before.

Okay. Great. All right. Well, good luck. Hopefully we get to see some more improvements as you're one Company and you don't have to deal with both. Good luck.

Thank you.

Operator Instructions). We'll pause for any other questions in the queue. We'll take our next question from Jackson Spears with The Robins Group. Please go ahead.

Congratulations on your numbers. It must be good if you're in a more normal environment now versus a year ago. Your G&A number was up a bunch. I assume that was the tender offer cost?

Yes, it is, yes.

And your recovery of doubtful accounts, was that a onetime account or was that more than one?

It was one large one. We had one customer who actually went bankrupt and then subsequently, a private equity firm bought the company, and then they paid us.

Congratulations. And what about -- I hate to -- there's so much talk about real-estate, and you have a real-estate portfolio. Can you give us some color on your investment income whether there's any problems in your real estate, or whether it's all very current? Your rental income number, for instance?

It's a little over a 100,000 a quarter that we're getting from our rental income. And that's pretty stable.

So you had no problem accounts there as well?

No,, no problem accounts.

Okay. And so your -- your 600,000 also was due to the lack of equity losses, I assume?

Yes.

So that and -- is that number more accurate, going forward, the 600,000 more accurate on that level without the equity losses?

It depends on -- it depends on how the market does, yes.

Great. Thanks a lot.

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

Thank you, everyone, for your participation on the call, and we look forward to talking with you next quarter.

This does conclude today's teleconference. You may disconnect your lines. Thank you and have a great day.