Logility Supply Chain Solutions Inc (LGTY) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen. All sites are now on line in a listen-only mode. Please note, today's conference may be recorded, and also note there will be a question-and-answer session later on in the call. (Operator Instructions).

I'll now turn the program over to our moderator for today, Vince Klinges, CFO of American Software. Please go ahead, sir.

Good afternoon, and welcome to American Software's second quarter of fiscal 2011 earnings conference call. 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 these 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, COO of American Software, and CEO of Logility.

Thanks, Vince. Good afternoon, everyone, and thank you for participating in this call. I have some comments on the second quarter results, Vince will review the details on the financial results for the quarter and year-to-date, and then we will take your questions.

For the second quarter, our revenue was approximately $21 million, which is an increase of 12% compared to second quarter last year. All three revenue streams increased, led by license fees with 19% growth. Adjusted net earnings were approximately $1.9 million, a 22% increase from the second quarter last year.

18 new customers signed license agreements in the second quarter. Customers from 11 countries signed license agreements with us in the quarter. Those countries include Australia, Brazil, Canada, China, Denmark, El Salvador, France, Ireland, Italy, the United Kingdom and the United States.

Some of the notable new and existing customers include Bestseller, which is a large, fast growing apparel company in Denmark, Fintyre, an Italian based company, Haggar Clothing, Pandora, which is a jewelry company in Denmark. Strategic Partners, Summit Golf Brands, the Forzani Group and Thule. 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.

As we look forward to the remainder of the year, our pipeline in Logility is continuing to grow. We are seeing good activity in our inventory optimization products, as well as our traditional supply chain solutions. We have strong interests within the Logility customer base, as well as new potential customers. Based on our pipeline, we believe we have a reasonable opportunity to increase our license fees this quarter, as well as our total revenue.

I would now like to turn the call back over to Vince for a detailed review of the financial results for the second quarter and year-to-date results.

Thanks, Mike. Comparing the second quarter of fiscal 2011 compared to the same period last year, as Mike indicated, total revenues increased 12% to $21 million, and that compares to $18.7 million in the same quarter last year. It's primarily due to license fees, which increased 19% to $4.3 million, and that compares to $3.6 million same period last year. Services and other revenues also increased 15% to $9.5 million, and that's due primarily to higher consulting services from our IT consulting business, and higher implementation work resulting from higher license fees in recent quarters when compared to the same period last year. Maintenance revenues also increased 4% to $7.2 million compared to $7 million, and that's primarily due to higher license fees and improved retention.

Looking at costs, our overall gross margin was 53% for the current quarter, excluding severance expense from our ERP business unit, and that's compared to 55% for the same quarter of last year. License fee margin was 66% compared to 74% last year, and this decrease was primarily due to the increase in software amortization expense from Logility's product release of Voyager 8 at the end of Q1 2011. And this effect on the margin was partially offset by higher license fees in the quarter when compared to last year. Service margins decreased slightly to 30% compared to 31% for the same period last year, and that's due to increased services revenues coming from our IT consulting business unit, which has lower margins. Our maintenance margin increased to 74% compared to 73% from the prior year, and that's primarily due to increased revenue.

Looking at operating expenses, our gross R&D expenses were 12% of total revenues for the current and last year period. As a percentage of revenue, sales and marketing expenses were 18% of revenues, or $3.8 million for the quarter, and that compares to 20%, or $3.8 million for the same period last year. G&A expenses were 15% of total revenues in the current and prior-year quarter. Operating income increased 2% to $1.8 million this quarter compared to $1.7 million in the same quarter a year ago. EBITDA increased 26% to $2.9 million this quarter, and that compares to $2.3 million for the same period last year.

So, our GAAP net income increased 9% to $1.5 million, or earnings per diluted share of $0.06, and that compares to net income of $1.4 million, or $0.05 earnings per diluted share. On an adjusted net income basis, it increased 22% to $1.9 million, or adjusted earnings per diluted share of $0.07 for the second quarter, and that compares to a net income of $1.5 million, or adjusted earnings per diluted share of $0.06 for the same period last year. These adjusted numbers exclude the amortization of intangibles related to acquisitions, our stock-based compensation expense, and severance costs.

Looking at our international revenues for this quarter, they were approximately 17% of total revenues, and that compares to 12% last year. Looking at the year-to-date numbers for the six months ended October 31, 2010, total revenue increased 10% to $40 million, and that compares to $36.6 million. License fees decreased 9% to $7.1 million compared to $7.7 million same period last year. Services revenue was $18.7 million year-to-date compared to $15.1 million last year. Maintenance revenues increased 4% to $14.3 million compared to $13.7 million last year.

Looking at our costs, our overall gross margins for the six month period was 53%, and that compares to 57%. License fee margin decreased to 70% compared to 77%, and again, that's due to higher capitalized software amortization costs. Our services margins were 29% compared to 32% in the same period last year, and again, that's due to IT consulting business unit, which has lower margins. Our maintenance margins were 75%, and that's up slightly from 74% in the same period last year.

Looking at our operating expenses, our gross R&D expenses were 12% of total revenues for the six month period of this fiscal year and last year. As a percentage of revenue, sales and marketing expenses were 18% compared to 21% in the same period last year. G&A expenses were 15% of revenues compared to 18% for the same period last year. And this decrease is primarily due to Logility tender offer expenses in the first quarter of last year.

Operating income year-to-date increased 19% to $3.8 million compared to operating income of $3.2 million. Our EBITDA year-to-date increased 28% to $5.5 million compared to $4.3 million for the same period last year. So our GAAP net income was $2.8 million year-to-date, or $0.11 earnings per share, and that compares to net income of $2.5 million, or $0.10 earnings per diluted share. On adjusted net income year-to-date was $3.7 million, or earnings per diluted share of $0.14, and that compares to net income of $3.6 million, or earnings per diluted share of $0.14. On a year-to-date basis, our international revenues were approximately 13% of total revenues, and that compares to 11% same period last year.

Looking at our balance sheet, our Company's financial position remains strong with cash and investments of approximately $51.4 million at the end of October 31, 2010, with no debt. And during the quarter, we paid approximately $2.3 million in dividends.

Other aspects of our balance sheet, our billed accounts payable of $10.1 million, our unbilled is $3.3 million, for a total of $13.5 million. Deferred revenues are $14.2 million, and our shareholder equity is $72.4 million. Current ratio is 2.3, and that compares to 2.5 last year. Our days sales outstanding as of October 31, 2010, was approximately 58 days, which was the same as last year.

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

(Operator Instructions) I will pause for just a few moments to give everyone an opportunity. It looks like our first comes from the site of Brian Murphy with Sidoti and Company, please go ahead

Thanks for taking my question. Mike, did you guys do any Optiant business in the quarter?

We did some services and obviously, some maintenance, but we have not sold a new deal yet there. But we have a good opportunity to do so this quarter, we believe.

I know the ASP for that module is quite a bit hard for you guys. Can you give us a sense for what kind of deal size we should be expecting and maybe how many opportunities you have in the pipeline there?

We have a couple of dozen opportunities in the pipeline at various stages. The size depends somewhat on whether it standalone or it's with a suite sale of the traditional supply chain products. But it could go anywhere from $300,000 to a couple of million dollars.

Okay, I'll jump back in the queue. Thanks.

(Operator Instructions) I will pause for just a few more moments. It looks like next we'll go to the site of Kevin Liu from B. Riley and Company, please go ahead.

Thanks for taking my questions. First off, getting back to your last comment, Mike, you mentioned a couple more suite deals. In terms of the Optiant deals that are in the pipeline, how many frequently are they bundled in with the Logility offering?

Well, in terms of our proposals right now, I would say it's about 40% that are bundled in with a suite deal and about 60% were they are standalone.

Got it. And what about this in terms of the overall composition? Because Optiant as a much higher ASP product, if you look at a dollar value of the pipeline today, how does that split up between the two product lines?

It depends on how long out you measure it, but it would still be higher for the traditional product lines.

And I think in your prepared comments you guys indicated your confidence that license revenues can increase here in this current quarter. Just curious to what extent you expect that to be driven by traditional supply chain deals versus some of these larger Optiant solutions?

I think we like our pipeline right now. And I think we have the potential to grow the license revenues, even without an Optiant deal. We have to execute fairly well to do that, but that's what we are planning on trying to do. If we add a Optiant deal into the mix, it will be great.

Great, and switching gears a bit. In terms of some of the opportunities you've had in expanding your reseller channel, just curious to what degree you feel like some of these newer reseller have ramped up on your offerings? And how much the channel will contribute going forward?

The channel is mostly in our Demand Solutions brand of products, and they have a good quarter last quarter. Not a great, but a good one, and we are expecting about the same from them this quarter.

Alright, that's all I had. Thanks.

Next we will go to the site of Drake Johnstone with Davenport, please go ahead

Mike and Vince, I'm sorry if this question has been asked. I got disconnected. But the -- when you indicated that you expected license revenue and total revenue to be higher, do you mean sequentially or year-over-year or both?

Both.

Okay. And you said you were pleased with your pipeline, is your pipeline comparable to the level at the outset of the second quarter? Or is it higher?

It's a little higher.

Okay great, thank you.

Thank you.

(Operator Instructions) Next we will go to the site of Brian Murphy with Sidoti and Company, please go ahead

Hi, I don't know this is for Mike or Vince, but the service revenue came in pretty strong this quarter, despite you guys have that $1.1 million haircut from the ERP business. I'm just wondering how we should think about that business going forward?

Well we -- it was really across the board. All of our software assets had stronger than expected results. But the main driver from a volume perspective, was The Proven Method. They came in very strong. And based on what were seeing, we are expecting to, despite the fact that we have a seasonal quarter here from a services perspective because of the holidays, we believe we have a reasonable shot to exceed incrementally the services number that we did last quarter.

Okay. And remind me what kind of visibility you guys have on that Proven Method business, because that's sort of project based, right?

It's project based, but it's pretty good visibility. But it could change, it could change quickly, but in general, it's good visibility.

Okay. Thanks very much.

(Operator Instructions) It appears we have no further questions from the phones.

Thanks for all of you to listen to the call and participate in the call. And we look forward to talking to you next quarter.