Logility Supply Chain Solutions Inc (LGTY) 2010 Q3 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 the question-and-answer session. It is now my pleasure to turn the conference over to Mr. Vince Klinges, CFO of American Software. Please go ahead.

Good afternoon, and welcome to American Software's third quarter of fiscal 2010 earnings conference call. On the call with me on Jim Edenfield, CEO of American Software and Mike Edenfield, COO of American Software and CEO of Logility. 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. 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 the general economic condition, the growth rate of the market for our products and services, the timely available and market acceptance of these products and services, the effect of competitive product and pricing and the irregular pattern of revenues. 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 thank you for participating on our call. I have some comments on the third quarter as well as the year-to-date results. Vince will review the details on the financial results and then we will take your questions.

We had an excellent third quarter. It was our thirty-sixth consecutive quarter of profitability. The Company delivered net earnings growth of 138% compared to the third quarter last year and year-to-date net earnings are up 136%.

For the third quarter, American Software's consolidated revenues were approximately $19.8 million, which was a 1% decrease compared to the third quarter of last year. However, Logility wholly owned subsidiary of the Company grew their revenues 4% for the quarter. For the quarter, American Software's consolidated license fees were down 3% year-over-year, and while consolidated license fees were down, Logility's license fees increased 9% for the third quarter. Adjusted net income for the quarter was $2 million, a 99% increase over last year.

Regarding our year-to-date financial results, American Software's total revenues declined 5%, but Logility's revenues increased 4%. American Software's year-to-date license fees increased 9% over the prior period with Logility driving that growth in license fees with a 15% year-over-year increase. Year-to-date adjust net income increased 135% over the prior year.

22 new customers signed license agreements in the third quarter. Customers from nine different countries signed license agreements with the Company in the quarter. Those countries included Australia, Belgium, Cameroon, Canada, China, Ireland, Indonesia, the United Kingdom and the United States. Some of the notable new and existing customers include a.b.m. Canada, Color Image Apparel, Entergy Service, Evergreen Packaging, FMC Corporation, Handgards, Mohawk Carpet, Nice-Pak Products, Shiseido Americas, Sportscraft, Summer Infant, Terex Telelect and Thomas Built Buses. We continue to be encouraged by the number of new customers 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 licenses.

As we look forward to the fourth quarter, our business model is in good shape, the Company has a strong balance sheet with cash and investments of approximately $54 million. Regarding our software pipeline, while some projects have slipped due to economic conditions, we again feel we have a good sales pipeline for the fourth quarter. As usual, close rates will be the key and the quarter appears to be back end loaded, as is typical. I'll now turn the call back over to Vince for a more detailed review of the financial results.

Thanks, Mike. Taking a look at the third quarter compared to the same period last year, our total revenues for the quarter decreased 1% to $19.8 million compared to $20 million same quarter last year. License fee decreased 3% at 4.6 compared to 4.7, services and other revenues were 8.4 for both the current quarter and the same period last year. Maintenance revenues decreased slightly to 1%, $6.9 million. Looking at gross margins, that was 56% for the current and prior year quarter. License fees margins increased to 80% compared to 77%, primarily due to lower software amortization expense due to the timing of completion of several R&D projects. We expect amortization expense to increase in the fourth quarter and fiscal year 2011. Services margins decreased to 26% compared to 29% for the same period last year, and that's due to increase in service revenue from our lower margin IT consulting business. Maintenance margins increased to 76% compared to 74% in the prior year, and that's primarily due to cost saving efforts.

Looking at our operating expenses, our total gross R&D expenses were 11% of total revenues for the current and prior year quarter of which Logility's 17% of its total revenues for R&D spend. As a percentage of revenue, sales and marketing expenses were 18% of revenues, or $3.7 million for the current quarter, and that compares to 19% the same quarter last year. G&A expenses were 15% of total revenues for the current quarter, and that compares to 17% for the same period last year. This decrease is primarily due to cost saving efforts as a result of Logility tender offer and to a lesser degree, lower building improvement costs when compared to last year. So our operating income increased 30% to $2.8 million this quarter, and compares to $2.1 million for the same period a year ago. EBITDA was $3.3 million for this quarter compared to $3.1 million last year. GAAP net income increased 138% to $1.8 million, or earnings diluted share of $0.07, and that compares to net income of $775,000 or $0.03 earnings per diluted share for the same period last year. On an adjusted net income basis, it increased 99% to $2 million, or an adjusted earnings share of $0.08, and that compares to net income of roughly $1 million or adjusted earnings per share of $0.04 the same period last year. The adjusted numbers exclude amortization of intangibles and stock based compensation expense.

International revenues for the quarter were approximately 10% of total revenues for both the current and prior year quarter. At this time, looking at the full year-to-date numbers and nine month ended January 31, 2010, total revenues increased 5% to $56.4 million compared to -- excuse me -- decreased 5% to $56.4 million compared to $59.1 million for the same period last year. License increased 9% to $12.3 million compared to $11.3 million for the same period last year. Services revenues was $23.4 million year-to-date compared to $26.7, and maintenance revenues decreased slightly 2% to $20.6 million compared to $21.1 million last year. Looking at cost for the nine month period, our overall gross margin was 57% year-to-date compared to 63% the same period last year. License fees margins increased to 78% from 66% last year, and that's, again, due to higher license fees and also lower capitalized software amortization costs. Services margins were 30% compared to 32% in the same period last year, maintenance margins were 75% year-to-date compared to 74% same period last year.

Looking at operating expenses, our gross R&D expenses were 12% of total revenues for both year-to-date this year and last year. As a percentage of total revenues, sales and marketing expenses was 20% compared to 19% for the same period last year and that's due to higher license fee sales through our indirect channel when comparing to the prior year. Yes. G&A expenses were 17% of revenues compared to 16 -- excuse me -- 17% of revenues compared to 16% for the same period last year, and this increase was primarily due to Logility tender offer expenses in the first quarter of this year and to a lesser extent, some increased variable compensation and tax advisory costs.

So, our operating income increased 10% year-to-date to $6 million compared to operating income of $5.4 million last year, our EBITDA was $7.6 million year-to-date compared to $8.3 million, GAAP net income was $4.4 million year-to-date compared -- or $0.17 earnings per diluted share, and that compares to net income of $1.9 million or $0.07 earnings per diluted share last year. On adjusted net income year-to-date, that was $5.6 million or earnings diluted share of $0.22, and that compares to $2.4 million or $0.09 for the same period last year, and these adjusted numbers exclude the amortization of intangible stock based compensation expense and expenses related to the Logility tender offer in the first quarter of this year. International revenues year-to-date were approximately 11% of total revenues, and that compares to 10% in the same period last year.

Looking at the balance sheet, the Company's financial position remains strong with cash and investments of approximately $53.8 million at the end of January 31, 2010 with no debt. During the quarter, the Company paid approximately $2.3 million of dividends and purchased approximately 40,000 shares of its common stock for approximately $248,000 under the stock buyback program.

Other aspects of the balance sheet are billed accounts receivables $11.5 million, unbilled $3.1 million for a total of $14.6 million. Deferred revenues are $13.9 million, shareholder equity is $72.7 million. Our current ratio was $2.5 million at the end of this quarter compared to $3.1 million. Our day sales outstanding as of January 31, 2010 was approximately 67 days compared to 61 at this time last year. At this time, I would like to turn the call over to questions.

(Operator Instructions). We will take our first question from Brian Murphy with Sidoti & Company. Please go ahead.

Thanks for taking my questions. Vince, it looks like maintenance revenue ticked down a little bit sequentially. Any change in renewal rates there?

Not materially. Just that -- we are just getting a little bit of pressure -- pricing pressure on some of the larger renewals and some others, a little bit of retention issues, but we are working through it.

Okay. And you referenced, in terms of the maintenance gross margin, you referenced some cost savings there. Does that mean that this sort of mid-70s, I think you -- over 76% maintenance gross margin in the quarter, is that range sustainable going forward here?

Provided we keep the maintenance growing, yes.

(laughter) Okay.

But, yes.

And I'm curious about the sales and marketing expense down sequentially when you had a significant uptick in license sales.

Brian, it's due to the mix. We had more coming from the indirect channel than we did last year at this time, so the commissions related to the indirect channel get coded to the cost of license fees. And so we had less from the direct channel so we had lower commissions.

Okay. Makes sense. And the service gross margin is sort of the lowest that I've seen it in a while. Can you just give us some color there?

Again, it's the mix coming from our IT consulting business. We had a pickup there in that part of the business compared to last year, and that's a lower margin business.

Right. And that's been growing sequentially. Do you expect that to continue to grow on a sequential basis?

We believe so, yes.

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

And we will take our next question from Drake Johnstone with Davenport. Please go ahead.

Hey, guys. How are you doing there?

Drake.

Hey, a question I had, Vince, the past few quarters it sounded like your pipeline for potential software deals was sort of at a similar level each quarter, and it really just came down to the level of your deal close rates. How would you characterize the pipeline for potential software deals at the onset of Q4 compared to the prior quarters?

Hey Drake, this is Mike.

Hi, Mike.

I'll answer that one. I would say we have got some upside. It depends on the close rates again. It's not enough upside where we could have the same close rates and have a blowout quarter, but there's a little more upside and like every quarter, it comes down to close rates, particularly on the larger orders.

So when you suggested upside, are you suggesting upside that might provide typical seasonality for the fourth quarter, or how would you characterize that?

It can provide upside on top of the typical upside, or it could provide the typical upside or if our close rate is lousy, it won't provide any upside. (laughter)

Right, I understand. And then on your cost structure, looking at your operating expenses, are you looking at sort of a similar level in Q4, or do you get some bump-up because of compensation costs associated with year-end?

Yes, there will be some of that and also, we have our Sarbanes-Oxley cost that hits in the fourth quarter also, so there will be a little bump-up in the G&A area because of that.

Although your Sarbanes-Oxley, that cost should be not as much of a change as the prior years because you've consolidated Logility, is that correct?

Right, it would actually be lower compared to year-over-year but I was referring more to sequential.

All right. And then as far as the mix, looking at your deals in your pipeline, would you characterize the mix between direct and indirect being similar to what you saw in the Q3?

It might have been a little more direct as a percentage.

Okay, great. I appreciate it. Thanks.

(Operator Instructions) And we will take our next question from Sam Rebotsky with SER Asset.

Good afternoon, gentlemen. I --

Hello?

-- but I'm looking at the cash. Should we -- is there something that occurred in the investments non-current? Did they get into current or where -- what's your investments non-current currently?

Investments non-current actually is $14 million right now.

$14 million. So your cash increased rather significantly. Was there any debt that increased or --

Well, actually cash -- are you referring to year-over-year?

I'm looking at October 31, you had $41 million in cash and $14 million of investments non-current.

No. At the end of October, we had $56.4 million in cash, total.

Oh, so you're including both current and non-current?

Right, yes.

Okay.

So we had $56.4 million at the end of October, and we are down to $53.8 million.

Okay. And relative to the other income, is there anything unusual, or is there any -- there a number that goes with that in this quarter that's basically similar to the previous quarter, or what kind of number do we have there?

No, there's nothing up usual in there. That's just -- last year at this time, we actually had a pretty big exchange rate charge that drove that number down last year.

Okay. And as far as -- the customer -- customers that you sell are sort of rich in the sense that you have good name customers. Are there particular products that you think that you could find that would match up with the products you're selling now, or what's your ability to find something that in this kind of climate to add on to sell to these customers, another product line?

There is definitely some opportunities there, Sam.

Would you sell -- in other words, you would have to acquire a product line versus joint venturing a product that you might sell, presumably.

You can do either but, obviously, if you own it, you have more upside.

Okay. And what are you seeing out there? Are you seeing opportunities in the sense of the prices coming down, and is it possible something could happen in the future?

You mean from an acquisition perspective?

Yes.

Yes, I think people -- there's definitely some opportunities out there. I don't know how much prices are really coming down, but there's definitely opportunities out there.

All right. Well, hopefully you'll find something as good as Logility.

I don't know if we can afford that, Sam. (laughter)

Well, I guess it sort of paid off, what you did pay for it. So good luck.

Thank you.

Thank you.

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

Thank you, everybody for participating on the call, and we look forward to talking to you in approximately 90 days.

This concludes your teleconference. Thank you for your participation. You may now disconnect.