Logility Supply Chain Solutions Inc (LGTY) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the American Software fourth quarter 2010 earnings conference call. At this time all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the Question and Answer Session. Please note this this call may also be recorded. I will be standing by in the meantime should you need any assistance whatsoever.

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

Good afternoon, and welcome to American Software's 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, 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 resident limited to, changes in 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 revenues. In light of these risks risks and uncertainties there can be no assurance that the forward-looking information will be prove to be accurate.

At this time, I would like to turn the call over to Mike Edenfield, COO of American Software.

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

I have some comments on the fourth quarter results. Vince will review the details on the financial results for the quarter and fiscal 2010, and then we will take your questions.

For the fourth quarter, revenue was approximately $18.9 million, essentially flat compared to the fourth quarter of last year. Operating earnings were approximately $1.3 million, a 25% decrease from the fourth quarter last year. Despite that, net earning increased 14% in the fourth quarter, and for the year earnings per share increased 83% on a fully diluted basis.

Twenty new customers signed license agreements in the fourth quarter. Customers from ten different countries signed license agreements with the Company in the quarter. Those countries include Australia, Belgium, Canada, France, Ireland, Mexico, Norway, Singapore, the United Kingdom, and the United States. Some of the notable new and existing customers include Bioproducts Laboratories, Bright Star Corporation, Brookstone, Diversity, Huhtamaki, JJ Mae, Levelor Kirsch, PartyLite, Stryker Orthopedics, Swiss Valley Farms, Topson Downs of California, and the Tyndale Company. For the full fiscal year we added seventy-eight new customers and customers from twenty-one countries signed license agreements. 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.

During the fourth quarter, Logility, our wholly-owned subsidiary, completed the acquisition of Optiant, a leading provider of multi-echelon inventory optimization solutions. We are very pleased with this acquisition. Our new inventory optimization product suite enhances our ability to deliver value to our customers and increases our competitive edge in the marketplace for new business. Optiant had a small, but you blue chip customer base that includes companies like Nestle and Proctor & Gamble, among others. We have fully integrated Optiant into the Logility organization, and our sales force is now selling those products as well as the traditional products we have always had, and we've generated some nice sales opportunities in our customer base and with new potential customers. We will continue to evaluate acquisition opportunities in the marketplace as that remains a key part of our growth strategy.

So as we look forward to fiscal 2011, our business model is still in good shape. We have some exciting new products to sell, and the Company has a strong balance sheet with cash and investments of approximately $54 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 still be the key and the quarter appears to be back end loaded as is typical. We do have an unusually strong first quarter from last year to compare against this year.

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 2010.

Thanks, Mike.

Comparing the fourth quarter 2010 with the same quarter of last year, as Mike indicated, total revenues for the quarter were $18.9 million for both the current and the same quarter last year. License fee decreased 34% to $3.2 million compared to $4.8 million last year. Services and other revenues increased 23% to $8.9 million primarily due to our increase in our IT consulting business. Maintenance revenues decreased slightly 1% to $6.9 million when compared to the prior year quarter.

Looking at costs, our overall gross margin was 55% for the current period and that compares to 60% prior year quarter. The license fee margin increased to 80% compared to 78% due primarily to lower software development amortization expense due to the timing and completion of several R&D projects. We expect amortization expense to increase in the first quarter of 2011. Services margins decreased 29% compared with 34% in the same period last year, and that's due to increased services revenue from our lower margin IT consulting business. Our maintenance margin increased 76% compared to 73% from the prior year primarily due to cost saving efforts.

Looking at operating expenses, our total gross R&D expenses were 13% of total revenues for the current period, and that compares to 12% for the same period last year. As a percentage of revenue, sales and marketing expenses were 20% of revenues, or $3.9 million, and that's $3.9 million for the both current and same period last year. G&A expenses were 17% of total revenues for the current quarter and that compares to 20% for the same period last year. This decrease is primarily due to Logility tender offer expenses last year, fourth quarter last year, and due to lower audit and SOX related fees.

Operating income decreased 25% to $1.3 million this quarter compared to $1.8 million for the same period last year. EBITDA was $1.8 million for this quarter and that compares to $2.3 million for the same period last year. GAAP net income increased 14% to $1.3 million,or earnings per diluted share of $0.05, and that compares to net income of $1.2 million, or $0.05 earnings per diluted share the same period last year.

On an adjusted net income basis, it increased 5% to $1.7 million, or $0.06 adjusted earnings per diluted share for the fourth quarter of this year, and that compares to $1.6 million, or an adjusted earnings per diluted share of $0.06 for the same period last year. International revenues for this quarter were 11% of total revenues, and that compares to 10% same period last year.

Looking at for the full year, total revenues for 2010 decreased 4% to $75.3 million compared to $78 million last year. License fees decreased 4% to $15.5 million compared to $16.1 million last year. Service revenues decreased 5% to $32.3 million compared to $33.9 million, and our maintenance revenues decreased slightly 2% to $27.5 million, and that compares to $28 million last year.

Looking at the cost for the full year, our overall gross margin was 56%. That compares to 55% for '09, and our license fee margin increased to 78% compared to 69%, and again that was due to lower Cap software amortization costs. Services margins were 29% compared to 32% for the same period the last year and again that was due to increased service revenue from our lower margin IT consulting business. Our maintenance margin was 75% for the full year compared to 74% last year.

Looking at operating expenses, our total gross R&D expenses were 12% of revenues for both the 2010 and '09 periods. As a percentage of revenue, sales and marketing expenses were 20% compared with 19% for the same period last year, and total expense was approximately $15 million for both fiscal 2010 and fiscal '09. G&A expenses were 17% of revenues for both 2010 and '09. Operating income increased 2% in 2010 to $7.3 million, and that compares to operating income of $7.2 million last year.

EBITDA was $7 million compared to $8.6 million for last year, '09. Our GAAP net income was $5.7 million for 2010, or $0.22 earnings per diluted share, and that compares to net income of $3 million or $0.12 earnings per diluted share last year. Adjusted net income for 2010 was $7.3 million, or earnings per diluted share of $0.28 and that compares to net income of $4 million, or earnings per diluted share of $0.15. On an international revenues for the full year were 11% of total revenues and that compares to 10% last year.

Looking at the balance sheet, the cash -- the Company's financial position remains strong with cash short and long-term investments of approximately $53.9 million at the end of April 30, 2010, with no debt. During fiscal 2010 the Company purchased the remaining outstanding shares of Logility not owned by the Company for approximately $12.8 million. It also paid out approximately $9.1 million in dividends. We purchased Optiant for $3.3 million and we purchased approximately 40,000 American software shares under the stock buyback program for roughly $250,000.

Other aspects of the balance sheet, our accounts receivable billed is $8.7 million, our unbilled $2.4 million, for a total AR of $11.1 million. Deferred revenues are $15.1 million, and shareholder equity is $72.3 million. Our current ratio is 2.2 as of the end of April of 2010 and that compares to 2.8 same period last year. And our day sales outstanding as of the end of April 30, 2010, was approximately 54 days and that compares to 65 days this time last year.

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

Thank you. (Operator Instructions) We'll take our first question from the line of Drake Johnstone at Davenport. Please go ahead, sir.

Hello, guys. A question I have for you is -- the past few quarters had the impression from you all that your potential backlog was fairly similar from quarter to quarter and it basically came down to close rate. Although, for the end of this quarter looking into Q1 '11 you use the term decent which sounds like your backlog isn't quite as strong as it has been, so I am wondering if you would make some comments on that, Mike?

Well I think it is typical for what we expect in the first quarter, although out of the prior three years we've had two pretty strong first quarters, stronger than -- for example, this year we exceeded our internal expectations on first quarter. So I think it is sort of a normal first quarter pipeline.

The other question I have is looking at your R&D, sales and marketing, G&A expenses as a percent of revenue, do you anticipate in future quarters that they will remain a similar percentage of revenue? Or are you looking at the actual amount of these similar somewhat less than they are in the fourth quarter?

Drake, this is Vince. I think just taking them one by one, I think the R&D would pretty much be in line same with sales and marketing. G&A we anticipate being a little lower as a percentage of revenues for '11 compared to '10, and that's primarily due -- we had the Logility tender offer costs at the beginning of the year. And then we've also been doing a job of trying to reduce some other G&A type costs, like audit fees and things like that. So we think it is going to be a little lower.

You're referring to fiscal '11 at this point, not the first quarter?

Yes.

So R&D as a percentage of revenue? Or an actual amount? Remain the same in fiscal '11?

As a percentage of revenue.

Okay. Thank you.

Thank you. We will take our next question from the line of Sam Rebotsky at SER Asset Management. Your line is open, sir. Please go ahead.

Yes. Hi. Good afternoon. Tell me, the acquisitions that costs the $3.3 million, it was March 19, 2010. Did we get much revenue from that in the current period? What kind of revenue do we get?

We got little services revenue and we got some maintenance revenue, but we can't count it because of the fair valuing of the maintenance and that will go on for about twelve months or so, maybe a little longer. They didn't have a huge pipeline coming in, and -- but we're very encouraged. We have -- the products fit very well with our products. And our sales guys are extremely enthusiastic about the products and we have got some nice prospects, but they're early in the cycle.

Okay. And was there -- would there be some -- the bulk of the costs would be goodwill, or can we talk about that? Or --

The bulk of the ongoing costs?

The $3.3 million in cash, how would we account for that? Are there assets there --

Oh. Oh, yes, the majority of that was goodwill intangibles, yes. I would say about 80%, 90% of it. Yes.

Okay. Now -- and would some of that be written off? Or what's our plan there?

Yes, about close to $2 million of it is going to be written off over probably about a five years period.

Okay. Okay. And the -- I don't know, did you address the reduction of the $500,000 SG&A? Is that related to the Logility transaction in the fourth quarter?

Yes.

Or what is that reduction?

Yes. Two things. Primarily the Logility tender offer costs. We had some costs in the fourth quarter of last -- '09, which we didn't have in 2010. And then we have also reduced some other G&A type costs, like audit fees and things like that.

Okay. And the reduction -- the taxes being about $200,000 lower in the fourth quarter. Is that just to adjust for the whole year to get everything in line? Or is that -- is there any rationale for that?

yes, that's what it is, Sam. Our effective rate for the fourth quarter was about 34% and that's to get everything in line. We have the full year was 37%.

Okay. And the interest income relates to the -- your significant portfolio, and that's where it is up a couple hundred thousand from the prior year?

Yes, exactly.

So what do you have to do to increase the pipeline? Are you seeing your competitors -- is there anything that's flowing a little easier? Or is the economy, or the inability to free up money, what is the, what is the -- how does it look?

It's still -- Sam, this is Mike. It still seems pretty tough out there. Lot of deals are taking longer and then some, you know, you invest a lot of time in them and then they tell you all along they can do it, and then when it gets down to getting the money allocated, they can't. So they say, well it will be another quarter, et cetera, et cetera. So we're still seeing a good bit of that. I think, I think we need the economy to -- well, everybody needs the economy to get better, obviously. But we haven't seen a whole lot of signs of it, particularly last quarter.

As far as the return of the investment of the purchaser of your software, what is your basic -- what is the normal return? Is it a two-year timeframe? Or what is the three-year -- what is the normal return that they can see by utilizing your software?

Well, it depends obviously on the situation, but generally we can justify a one-year return from implementation.

That sounds very good. All right. Look, hopefully the pipeline improves and you can keep doing what you're doing.

Thank you.

Thank you. (Operator Instructions) It does appear there are no further questions at this time.

Thank you, ladies and gentlemen, for your time on the call. We look forward to discussing the results from the first quarter.