Logility Supply Chain Solutions Inc (LGTY) 2011 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, you will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions). Please note today's call will be recorded and I will be standing by if you should need any assistance.

It is now my pleasure to turn the conference over to Vincent Klinges, Chief Financial Officer of American Software. Please go ahead.

Good afternoon and welcome to our first quarter of fiscal 2011 earnings conference call. 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 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 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 would like to turn the call over to Mike Edenfield, CEO of American Software.

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

For the first quarter, revenue was approximately $19 million, an increase of 7% compared to first quarter last year. Operating earnings were approximately $2 million, a 39% increase from the first quarter last year. We signed 21 new customers in the first quarter. Customers were from 12 different countries that signed license agreements with American Software in the quarter. Those countries include Australia, Brazil, Canada, Colombia, France, Ireland, Mexico, Singapore, South Africa, Thailand, the United Kingdom, and the United States.

Some of the notable new and existing customers include 3M Canada; American Cast Iron Pipe Company; Continental Mills; Bossini Retail Group out of South Africa; Joseph A. Bank's Clothiers; London Luxury; Peninsula Beverage Company; Pentair Residential Filtration; R.G. Barry, Corp.; Sunoco; Universal Fiber Systems; and [Anoumont] Industries.

We continue to be encouraged by the number of new customers who have licensed our products. New customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales. We are also pleased with our maintenance revenue increasing year-over-year for the first time in a couple of years, as pressure on renewals has subsided somewhat.

So as we look forward to the remainder of the year as it relates to the legacy side of the business, we had a large ERP customer decide not to renew a custom service agreement after August. This customer agreement was the only one of this type and effect, and had been ongoing for over 10 years. This non-renewal will result in a decrease in quarterly service revenues of approximately $1.1 million per quarter.

We have taken appropriate cost reduction efforts to mitigate the impact of this lost revenue to earnings. This services agreement was unique to this customer and, therefore, we do not believe that the termination of the agreement was a trend that will affect other services agreements or customer relationships.

The good news is our pipeline in Logility has improved substantially compared to this time last quarter. We are seeing good activity in our inventory optimization products that we acquired as part of the Optiant acquisition; we have good interest for those products within the Logility customer base as well as new customers. It is our goal to grow our profits by increasing our license fee revenues and we believe the new Optiant products will help us there.

I would now like to turn the call back over to Vince for a detailed review of the financial results for the first quarter.

Thanks, Mike. Comparing the first quarter revenues to the same quarter last year, as Mike indicated, the revenues increased 7% to $19.1 million compared to the same quarter last year. License fees decreased 33% to $2.8 million compared to $4.1 million for the same period. Services and other revenues increased 34% to $9.2 million. That's primarily due to an increase in our IT consultanting business unit. Maintenance revenues increased 4% to $7.1 million compared to the prior-year quarter.

Taking a look at costs, our overall gross margin was 53% for the current period compared to 60% in the prior-year quarter. Our license fee margin was 75% compared to 79%. That's primarily lower due to lower software license fees.

As announced on July 27, Logility released its general availability of its new product, Voyager 8, at the end of the first quarter. As a result of this increase -- this release -- we will begin amortizing this product over a three-year life, and this will increase amortization expense by approximately $625,000 per quarter. Services margins decreased to 29% compared to 33% for the same period last year. And that's due to increased services revenue from our lower margin IT consulting business unit. Our maintenance margin increased to 77% compared to 75% for the prior year, and that's primarily due to increased revenues.

Looking at operating expenses, our total gross R&D expenses were 13% of total revenues for the quarter and that compares to 12% same quarter last year. As a percentage of revenues, sales and marketing expenses were 17% of revenues or $3.3 million for the current quarter. And that compares to 21% for the same quarter last year.

G&A expenses were 15% of total revenues for the current quarter compared to 20% in the same period last year. This decrease is primarily due to Logility tender offer expenses that were in the first quarter of last year, and also due to lower audit and legal fees in the current quarter when compared to last year.

Our operating income increased 39% to $2 million this quarter compared to $1.5 million the same quarter a year ago. EBITDA was $2.6 million for this quarter and that compares to $2 million same period last year. So our GAAP net income increased 16% to $1.4 million, our earnings to diluted share of $0.05. And that compares to net income of $1.2 million or $0.05 earnings per share last year.

On an adjusted net income basis, it was $1.6 million or adjusted earnings per diluted share of $0.06 for the first quarter, and that compares to net income of $2 million or adjusted earnings per share of $0.08 the same period last year. These adjusted numbers exclude amortization of intangibles related to acquisitions; stock-based compensation expense; and last year's -- included last year -- Logility's tender offer expenses. International revenues for this quarter were approximately 10% of total revenues and that compares to 9% in the prior-year quarter.

Taking a look at the balance sheet, the Company's financial position remains strong with cash, and short- and long-term investments of approximately $52.9 million at the end of July 31, 2010 with no debt. During the quarter, the Company paid approximately $2.3 million in dividends and purchased approximately 78,000 of its common stocks for approximately $396,000 under its stock buyback program.

Other aspects of the balance sheet, our accounts receivable build is $9.1 million; our unbilled is $2.6 million for a total of $11.8 million in accounts receivable. Deferred revenues are [$14.4 million] and our shareholder equity is [$72.1 million]. Our current ratio is 2.2 as of the end of the quarter and that compares to 2.3 as of the same quarter last year. Our days sales outstanding as of July 31, 2010 was approximately 56 days, and that's down from 68 days the same time last year.

At this time, I'd like to turn the call over for any questions.

(Operator Instructions). Drake Johnstone, Davenport.

A question I have is you indicated that the -- a pipeline at this point is significantly higher than -- I think you were referring to the fourth quarter of 2010. How does that pipeline compare to first quarter of 2010?

I actually meant to compare it to the first quarter.

So first quarter 2010, you had license revenue of $4.1 million and --

I'm sorry -- I meant first quarter.

You just reported the first quarter of 2011, so I wanted to get a sense of what you were referring to.

Yes, it was '11.

So, alright. So, the first quarter 2011, you're saying right now that the pipeline is significantly greater than which quarter?

I was comparing -- my comments about the pipeline were comparing it to first quarter of '11.

Oh, okay, right. First quarter of '11, okay. How about going back to a year ago?

Second quarter or first quarter?

Either.

Well, it's hard to tell. We're off to a good start.

What would you attribute -- I mean, this is the first time I've heard you say that in a few quarters, that your pipeline was a lot stronger than -- on a sequential basis. Is that due to the Voyager 8 and the fact that your license revenue growth was -- it's been fairly weak for a few quarters in a row. I mean, to what extent do you have customers that are delaying or were waiting to upgrade to Voyager 8?

I don't think we had a lot of people waiting for Voyager 8. I think it's the general demand environment and -- but we've been working very hard, and I just think we have a higher-quality pipeline than we did last quarter. And we've had a pretty good first month of the quarter.

Alright. So, of the pipeline you've had, you feel like you're getting a better conversion rate than you've had in prior quarters?

Well, it's too early to tell for this quarter, but we're off to a good start.

And then you obviously had to deal with the headwind of that service revenue going away in Q2. But even accounting for that, and you're saying you're going to try to reduce expenses to offset that -- if you look at the operating expenses as a percent of revenue in Q1, the R&D and G&A, and sales and marketing, is it your goal to keep those expenses as a percent of revenue in Q2 similar to what they were in Q1?

Yes, Drake, we're actually going to try to mitigate it as much as we can. We actually had been taking costs out of the G&A area, as you can see there, with the G&A costs are down $1 million year-over-year. So we had already been reducing costs in that area. But I think -- I'm not sure if we're going to be able to mitigate the full impact of the lost earnings, but we're trying.

So your goal in Q2 versus Q1 is looking at operating expenses, is actually to try and reduce them sequentially further than you already have. So instead of being stable, we might see them come down somewhat.

Yes.

Okay. Alright, thanks, guys.

Sam Rebotsky, SER Asset Management.

Good afternoon. As far as talking about the pipeline, is the time to close a contract shorter? What would you say the time to close is currently versus the previous quarter?

It's probably about the same as it was last quarter, but in general, the last several quarters, it's been taking longer to close business. And then sometimes you go through a process and people you're working with have checked with the higher-ups, and [if] they can do the project, they can do the project. But it comes down, they have to defer.

But at this point in time, your pipeline is improving and it may close a little quicker?

Well, it has improved and we had a good month of August.

Okay. Now as far as this decrease, the $1.1 million per quarter and the $4.4 million for the year, and this is a customer that you've had for 10 years -- are they or not -- are they switching from your products or going to another competitor or --?

They switched to somebody else, yes.

Okay. In the Optiant that you're integrating, what kind of improvement do you expect that to create for sales for you?

Well, it could be very significant. It's a high value product in terms of the return on investment. It can help our customers generate. And we're also in bigger companies in some cases. And they've got bigger supply chain problems and we've got a bigger price tag for the product there. So we'll see how many we get; but if we just get one or two a quarter, it can make a difference.

Okay. So in essence, by integrating with the Logility Voyager product, you're going to get bigger customers and increases. Is that part of your pipeline in the Optiant? Have you closed any products with Optiant so far?

Well, we haven't closed anything with it yet. When we bought them, they didn't really have much of a pipeline. But we have generated a good pipeline with our sales force now selling the product, representing the product. And we have situations where we're selling it standalone to large companies, and we also have situations where it's part of our integrated suite.

Okay. Now as far as the general expenses being down $1 million, how much would you attribute to the Logility acquisition and the audit? And how much is the balance of that $1 million?

Well, at the bottom of the -- if you look at the press release at the bottom, there's an adjustment of earnings. We've taken out $543,000 related to the Logility tender offer from last year. So that was -- about half of the $1 million decrease was related to Logility tender offer. The other related to audits and other fees.

Okay. And you expect, as part of this reduction of the $1.1 million a quarter, to take some more general and administrative -- can you quantify that? Or is it number of employees that you reduce? Or is it -- how do we -- is that what it would be thought of?

Well, from [its NA] line, most of that's been more savings for outside firms and things like that. But directly related to the actions took when we lost the customer, that's been contractors and employees.

Okay. And as far as the acquisition, is there anything that appears on the horizon or that you've been looking at?

We're always in discussions with somebody and we are now. But generally, those things are less than 50/50 until you get real close.

Okay. Well, that sounds -- hopefully, we could replace this business sooner than later. And hopefully, we keep on the tracks that you've been. Good luck.

Thank you. At this time, there are no further questions in queue. (Operator Instructions). It appears there are no further questions at this time.

Thank you, everyone, for participating on this call and we look forward to talking to you soon.