Logility Supply Chain Solutions Inc (LGTY) 2011 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, Chief Financial Officer of American Software. Please go ahead.

Good afternoon and welcome to American Software's third 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 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 markets 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'd like to turn the call over to Mike Edenfield, Chief Operating Officer of American Software.

Thanks Vince. Good afternoon everyone and thank you for participating on the call. I have some comments on the third quarter results, Vince will review the details of the financial results for the quarter and year-to-date, and then we'll take your questions. For the third quarter, adjusted net earnings were approximately $2.1 million, a 2% increase from the third quarter last year. Revenue was approximately $20.4 million, an increase of 3%, compared to the third quarter last year. Services revenue increased 4%, and maintenance revenue increased 8%. License fee revenue was down 9% as deals slipped to the fourth quarter as sales cycles continued to be longer than were expected. The average deal size has been increasing in our pipeline and we believe that this is contributing to an increase in the length of the sales cycle as well as an increase of the dollars in the pipeline. We anticipate that eventually, perhaps this quarter, this will result in significant growth in license fees.

We did add 28 new customers in the third quarter, which is the largest number of new customers in at least the last three years. We signed customers from 11 different countries in the quarter. Those countries include Australia, Belgium, Brazil, France, Ireland, Malaysia, Mexico, Norway, Singapore, the United Kingdom, and the United States. Some of the notable new and existing customers include American Hotel Register Company, Built New York, Craft Brewers Alliance, Land 'N' Sea, Mueller Water Products, North American Lighting, WM Barr Company, Oatey Company, Scalzo Trading Company, Fraser and Neave Beverages, which is based in Malaysia, and Vi-Jon. But we are very encouraged by the number of new customers licensing our products. Our customers are a source of future maintenance and implementation of service revenue as well as being excellent prospects for additional product sales.

As we look to the fourth quarter, our pipeline in Logility, in particular, remains strong. We have strong interests within the Logility customer base as well as new potential customers. We are seeing good activity in our inventory optimization products, as well as our traditional supply chain solutions and we have more larger deals in the pipeline, but as I mentioned earlier, sales cycles are taking longer. Based on our pipeline, we believe we have an opportunity to end our April 30 fiscal year with annual increases in all three revenue streams, with an increase in operating earnings and net income. I would now like to turn the call over to Vince for a detailed review of the financial results for the third quarter and year-to-date results.

Thanks, Mike. During the third quarter of fiscal year '11 to the same period last year, total revenues increased 3% to $20.4 million, compared to $19.8 million in the same period last year. License fees decreased 9% to $4.2 million, compared to $4.6 million for the same period last year. Services and other revenues increased 4% to $8.7 million, and that's due primarily to hired consulting services at our IT Consulting business and higher implementation work when compared to the same period last year. Maintenance revenues also increased 8% to $7.5 million, compared to $6.9 million last year, and that's primarily due to improved maintenance retention and also from the Optiant acquisition from the fourth quarter of last year.

Taking a look at costs, our overall gross margin was 51% for the current year -- current quarter, compared to 56% for the same quarter last year. License fee margin was 62%, compared to 80% last year. This decrease is primarily due to the increase in software amortization expense from Logility's product release of Voyager 8 at the end of the first quarter of 2011, and also lower license fees when compared to the same period last year. Our services margins decreased to 24%, compared to 26% in the same period last year, and this is due to increased services revenues coming from our IT Consulting business unit which has lower margins. Our maintenance margin was 76% for both the current and prior-year quarter.

Looking at operating expenses, our gross R&D expenses were 12% of total revenues for the current quarter, compared to 11% from the prior year quarter. As a percentage of revenue, sales and marketing expenses were 18% of revenues for the current and last year quarter. G&A expenses were 14% of total revenues for the current quarter, and that compares to 15% for the same period last year. The decrease is primarily due to lower legal and audit expenses when compared to last year. The operating income decreased 36% to $1.8 million this quarter, compared to $2.8 million the same quarter last year. Our EBITDA was $2.9 million this quarter and that compares to $3.3 million. Also on our tax rate, our tax effective rate in the current quarter was approximately 21.7% and that versus -- that's versus 39% in the same quarter last year. And that's primarily due to the approval of the research and development tax credit in the current quarter. We expect the full year rate to be somewhere around 34% to 37% for the full year.

GAAP net income decreased 4% to $1.67 million, earnings per diluted share of $0.07 per share, and that compares to net income of $1.8 million or $0.07 per diluted share for the same period last year. Adjusted net income increased 2% to $2.1 million or adjusted earnings per share of $0.08 for the third quarter, and that compares to a net income of -- adjusted net income of $2 million or adjusted net earnings of $0.08 for the same period last year. And these adjusted numbers exclude the amortization of intangibles related to acquisitions and also stock-based compensation expense. International revenues for this quarter were approximately 15% of total revenues, that compares to 10% for the same period last year.

Comparing the year-to-date numbers for the nine-month period ended January 31, 2011, total revenues decreased 7% to $60 million compared -- excuse me, increased 7% to $60 million compared to $56.4 million. License fees decreased 9% to $11.3 million, compared to $12.3 million in the same period last year. Services revenues increased 17% to $27.4 million year-to-date, compared to $23.4 million. Maintenance revenues also increased 6% to $21.7 million, compared to $20.6 million last year.

Looking at the costs, our overall gross margin was 52% year-to-date and that compares to 57% for the same period last year, which excludes the severance expense from our ERP unit. Licensing margin decreased to 67% from 78% last year and that's due to a higher capitalized software amortization costs and also to a lesser extent, lower license fees. Services margins were 28%, compared to 30% in the same period last year, and that's due to increased service revenues coming from our IT Consulting business unit which has lower margins. Our maintenance margin increased to 76% year-to-date compared to 75% in the same period last year due to higher revenues.

Looking at the operating expenses, our gross R&D expenses were 12% of total revenues for both the nine-month period ended January 31, 2011, and the same period last year. As a percentage of total revenues, sales and marketing expenses were 18%, compared to 20% in the same period last year. G&A expenses were 15% of revenues, compared to 17% in the same period last year, and this decrease was primarily due to Logility tender offer expenses in the first quarter of 2010 as well as lower audit and tax fees when compared to last year. So our operating income year-to-date decreased 7% to $5.6 million, compared to operating income of $6 million last year. Our EBITDA year-to-date increased 10% to $8.4 million, compared to $7.6 million for the same period last year.

Our GAAP net income was 4.6% year-to-date or $0.18 per diluted share and that compares to net income of $4.4 million or $0.17 per diluted share. Adjusted net income year-to-date was 5.6% per -- earnings per diluted share of $0.22, compared to net income of $5.6 million or earnings per diluted share of $0.22. And these adjusted numbers exclude the amortization of intangibles, stock-based compensation, severance expense and expenses related to the Logility tender offer. International revenues year-to-date were approximately 14% of total revenues and that compares to 11% in the same period last year.

Taking a look at our balance sheet, the Company's financial position remains strong with cash and investments of approximately $52.5 million at the end of January 31, 2011, with no debt. During the quarter, the Company paid the normally scheduled second quarter dividend as well as the third quarter dividend that's usually paid in March. And we paid that at the end of December 31, 2010, for approximately $4.6 million due to the uncertainty around the US tax laws at the end of the calendar year. Other aspects of the balance sheet, our account receivable billed was roughly about $10 million, unbilled was $3.5 million for a total of $13.4 million. Deferred revenues are $16.3 million. Shareholder equity is $72.9 million. Our current ratio is 2.5 for the current period and last year. Our day sales outstanding at the end of January 31, 2011, was approximately 60 days, and that's down from 76 days at the same time last year. At this time, I'd like to turn the call over to questions.

(Operator Instructions) Brian Murphy with Sidoti & Company.

Vince, deferred revenue was up 18% year-over-year. Were there any revenue recognition issues in the quarter?

Yes, actually one deal closed that had a mod in it, so we actually have to defer that, but that's not the big reason for the increase. The large piece of it is the -- Optiant maintenance billings that occur, that's coming in now that wasn't there last year. And also, of course, our maintenance is up so we have more maintenance billing. So that's primarily what the increase is.

Great, okay. And Mike, you mentioned that you had more new customers this quarter than you had seen in the past several years. Is the Demand Management business starting to pick up there?

Yes, they had a strong quarter, stronger than we expected, and added a lot of new customers. I think the investment and the time spent expanding the channel there is starting to pay off. We'll see if it's a real trend as we go into this quarter, but things are looking good for them this quarter as well.

Okay. And you made some comments about the pipeline; one of your competitors had a pretty strong December quarter, and put out some pretty bullish guidance on the license line. You mentioned that the dollar value of the pipeline was up. Can you give us a sense for how much the dollar value of the pipeline is up versus last year; is it up double digits?

It's double digits.

Okay, I'll hop back in the queue.

(Operator Instructions) Kevin Liu with B. Riley and Company.

Just in terms of the comments regarding some sales cycles still being elongated, is that primarily related to the Optiant transactions that might be in the pipeline, or are you seeing it in other areas of your business?

I'd say it's across-the-board.

And regarding some of these Optiant transactions, would that account for much of the increase in the average deal size there? And if so, what sense are you getting from your customers in terms of when they might like to actually close these out and start getting these products implemented?

Well, the Inventory Optimization product is part of the reason we have larger deals. And I did want to mention that we have closed an Inventory Optimization deal, just missed the quarter. I think it closed February 3 or February 4, and it was a deal up in the Northeast. And I'm not sure, but we probably, without all the weather problems out there, we probably would have gotten that in the quarter, but that's a sizable deal. It was just Inventory Optimization they licensed, and that one actually moved along pretty briskly. If they would all move that briskly, we would be in a lot better place, so we're pleased to see that.

But in general, people are taking longer to evaluate, and then once they select you, then they take longer to get the approvals. They have to jump through more hoops to do the project. And then you start the contract negotiation, and sometimes that takes a lot longer than it used to. So it's not really product related as much as just, I think, people being a little more cautious. So I think the key is, we have to keep building the pipeline, and eventually it will start coming out of the pipeline.

All right, great. That's all I had, thanks.

Brian Murphy.

Hi, Mike. Just to follow-up on that Optiant deal that closed, did you mention whether that was an existing customer or a new customer?

That was a new customer, and it was one that was not in the Optiant pipeline when we acquired the company.

Okay, great. Thank you very much.

(Operator Instructions) And there appears to be no further questions at this time.

Thank you for your time and interest today, and we look forward to the next call next quarter.

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