Logility Supply Chain Solutions Inc (LGTY) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. All sites are a now online 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). We will now turn the program over to our speaker for today, Vince Klinges, CFO of American Software. Please go ahead, sir.

Good afternoon, and welcome to American Software's second quarter fiscal 2012 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 and 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 effect of 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, CEO of Logility and COO of American Software.

Thanks, Vince. Good afternoon, everyone. Thank you for participating on the 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. Well, American Software had another outstanding quarter. We had strong growth in license fees, which were over $7 million, an increase of 65% over last year's second quarter. Logility had a great quarter, contributing $5.7 million of the $7 million total license fees. Maintenance revenue, which is recurring revenue, increased 11%, and services revenues increased 10% compared to last year's second quarter. Altogether, revenue increased 22%, which drove 166% increase in operating earnings compared to the second quarter last year. Over the last three quarters, we have increased operating income 133% compared to the same quarters the previous year.

Nineteen new customers signed license agreements in the second quarter, compared to 18 new accounts in the second quarter last year. Customers from nine different countries signed license agreements with the Company in the quarter. Those countries included Australia, Canada, France, Ireland, Nicaragua, Singapore, the United Kingdom, the United States and Zimbabwe. Some notable new and existing customers included American Textiles, Celanese, Cheetham Salt, ChemPoint, ConAgra Foods, Deschutes Brewery, Ecolab, Euro-Pro, Goose Island Beer Company, HOYA Medical Singapore, Plews & Edelmann, Renfro Corporation, Rochester Gauge, Schweppes, Techtronic, Tiffany & Company, Verizon Wireless, WD-40, and Williamson-Dickie. We continue to be encouraged by the number of new customers licensing our products. New customers are a source of future recurring maintenance revenue, new implementation services revenue, as well as being excellent prospects for additional product sales.

So as we look at the third quarter and our remainder of fiscal 2012, our pipeline remains strong. There is robust interest from our customer base, as well as new potential customers. We have good activity in our optimization products, as well as our traditional supply chain planning solutions. We continue to have some large deals in the pipeline. Based on that pipeline, it is our belief that we will increase our license revenues, our total revenues, our operating earnings, and our net income compared to the third quarter of last year. I would now like to turn the call back over to Vince for a detailed review of the second quarter and year-to-date financial results.

Thanks, Mike. Comparing second quarter of fiscal 2012 to the same period last year, as Mike indicated, our total revenues increased 22% to $25.6 million, compared to $21 million the same quarter last year. That was primarily driven by increased -- a 65% increase in license fees to $7 million, compared to $4.3 million for the same period last year. Services and other revenues also increased 11% to $10.5 million for the current quarter, and that compares to $9.5 million the same quarter last year. Service revenue increased by 35% at Logility and 6% at our IT consulting unit. Maintenance revenues also increased 11% to $8 million, compared to $8.2 million primarily due to increased license fees. Looking at our overall gross margin, it increased to 57% for the current quarter, compared to 53% in the same quarter last year. Our license fee margin was 79% compared to 66% last year, and this increase was primarily due to increased software license fee revenue. Services margins decreased to 28% when compared to 30% the same period last year due to increased services staff hiring at Logility from increased demand. Maintenance margin increased to 76% from the current quarter, compared to 74% for the same period last year due to higher maintenance revenue.

Looking at operating expenses, our gross R&D expenses were 10% of total revenues for the current quarter, compared to 12% in the prior-year quarter due to higher revenues. As a percentage of revenue, sales and marketing expenses were 19% of revenues for the current quarter, compared to 18% for the same quarter last year. G&A expenses were 12% of total revenues for the current quarter, compared to 15% for the prior-year quarter. This decrease is primarily due to the increased revenues compared to relatively fixed expenses, and to a lesser extent, lower legal and audit expenses when compared to last year. So, operating income increased 166% to $4.7 million this quarter, compared to $1.8 million the same quarter a year ago.

Adjusted EBITDA, which excludes stock-based compensation increased 91% to $6.1 million this quarter, compared to $3.2 million the same period last year. Our GAAP net income increased 102% to $3 million, or earnings per diluted share of $0.11. And that compares to $1.5 million, or $0.06 earnings per diluted share in the same period last year. Adjusted net income increased 73% to $3.3 million, or adjusted earnings per share of $0.12 for the second quarter. And that compares to net income of $1.9 million, or adjusted earnings per diluted share of $0.07 for the same period last year. These adjusted numbers exclude amortization of intangibles, related acquisitions, stock-based compensation expense, and severance expenses. International expenses -- international revenues this quarter were approximately 13% of total revenues, and that compares to 17% in the prior-year.

At this time, I would like to look at the comparing six months ended October 31, 2011, basically fiscal year, year-to-date to the same period last year. Total revenues increased 23% to $49.3 million, compared to $40 million in the same period last year. License fees increased 95% to $13.7 million, compared to $7.1 million in the same period last year. Services revenues increased 6% to $19.8 million, compared to $18.7 million last year. Our maintenance revenues also increased 10% to $15.8 million, compared to $14.3 million last year. Looking at our cost, our gross margin was 56% year-to-date, compared to 53% the same period last year. Our license fee margins increased to 76% from 70%, due to higher license fees. Services margins were 27% when compared to 29% the same period last year, and this is due to increased staffing -- hiring at Logility due to increased demand. The maintenance margins were 77% compared to 75% in the same period last year due to higher maintenance revenue.

Operating expenses, our gross R&D expenses were 10% of total revenues for the six-month period ended October 31, 2011, compared to 12% in the same period last year. As a percentage of total revenue, sales and marketing expenses were 18% for both the current and same period last year. G&A expenses were 13% of revenues, compared to 15% in the same period last year. So our operating income year-to-date increased 119% to $8.3 million, compared to $3.8 million last year. Adjusted EBITDA year-to-date increased 85% to $11.1 million, compared to $6 million the same period last year. And GAAP net income was $5.3 million year-to-date, or $0.20 of earnings per diluted share. That compares to net income of $2.8 million, or $0.11 per earnings per diluted share. Adjusted net income year-to-date was $8.5 million, or earnings per diluted share of $0.22, compared to net income of $3.7 million, or earnings per diluted share $0.14 for the same period last year. And these adjusted numbers exclude amortization of intangibles, related acquisitions, stock-based compensation, and severance expenses. International revenues year-to-date were approximately 15% of total revenues, compared to 13% in the same period last year.

Looking at our balance sheet, our overall financial position remains strong with cash and short and long-term investments of approximately $54.3 million at the end of October 31, 2011, with no debt. Our cash increased sequentially $1.5 million compared to July 31, 2011. Other aspects of our balance sheet, our billed accounts receivable is $14.2 million; unbilled, $6.2 million for a total of $20.4 million of accounts receivable. Deferred revenues are close to $16 million. Shareholder equity is $76.6 million. Our current ratio is $2.5 million for October 31, 2011, compared to $2.3 million last year. Our days sales outstanding as of October 31, 2011, was approximately 73 days. That's versus 58 days the same time last year, and decreased from 77 days as of the end of July 31, 2011. This increase compared to last year is primarily due to increases in sales and the timing of closing deals close to the end of the quarter. At this time, I would like to turn the call over to questions.

(Operator Instructions) First we will go to the site of Brian Murphy. Please go ahead.

Hi, thanks for taking my question. Mike, how many optimization deals did you close during the quarter?

About three.

Three. Okay. And it looks like just overall, the ASPs are way up driven by these optimization deals. Can you give us a sense for what the ASP was for the optimization-only deals?

It was pretty high. It was probably close to $800,000 or $900,000.

Okay. And when you think about the business, obviously, these optimization deals are layering on quite a bit of incremental revenue here. Should we expect that the seasonality, specifically from the October quarter to the January quarter would change materially here?

Our seasonality hasn't been as consistent as it normally has of the last three or four years. If you track it long-term to the second half, third and fourth quarter are the big quarters, but it hasn't been that consistent over the last say four or five years. And some of that is because of macro economic issues I think. But we think our pipeline is growing. Our long-term pipeline has had a significant jump. Now, the long-term pipeline is less stable than the short-term pipeline. But it has had a significant jump. It had a nice jump last quarter, and it's had even a better jump this quarter. So the pipeline looks pretty good for the last half of the year.

Okay. And I think Vince mentioned some increased hiring at Logility. Was it the big jump in the pipeline that's prompting you to pull the trigger on ramping up the headcount here. And can you talk specifically about where those hires were? Was it sales, marketing, R&D?

We would really been hiring across-the-board. We've hired in our, and are going to continue to hire in sales. We are also not specifically hiring, but we are recruiting and signing up more VARS domestically and internationally. And we are also staffing a good bit in professional services because we see the demand coming in from the orders we already have, and the orders we are anticipating. And we obviously have to be able to implement the accounts. And because we've had added some fairly decent accounts lately, a good number of decent accounts lately, we are also have added some to customer service as well to make sure we maintain the high level of service we have been providing to our customers. So it's really been across-the-board, and we're hiring in R&D as well. You will see that just not at every area has gone up, and on the cost area there is some not near as much as the revenue. But that doesn't have to go up as much as the revenue. Probably the biggest area is going to be professional services.

And did the VAR count increase quarter to quarter again?

I believe it did. We are expecting from fiscal 2011 to fiscal 2012 to increase the VAR count about 30%.

Okay. I will jump back in the queue. Thank you.

(Operator Instructions) It looks like our next comes from Wyatt Carr from Cromwell Weedon. Please go ahead.

Hi Vincent. Just a question on the verticals that you were in. In the past you got a lot of business in the textiles, but it looks like you are broadening that substantially. Can you talk about the verticals that you are seeing opening up for you since Optiant?

Well, I think at the verticals have opened up a little bit, but we have actually not expanded them that much. I think the acquisition we made for the inventory optimization product did give us more capability and high-tech and maybe telecom. Although we did have a presence in telecom already. It is really the same verticals. It's consumer-products, food and beverage, discrete manufacturing, consumer durables, MRO environment, service parts, telecom. So it's really pretty much the same. We just have more to sell to them now.

Okay. And second question is on the DSOs, they came down this quarter, but they were up substantially year-over-year. But that is due, isn't it, to the size of the deals that you're closing now?

Yes, Wyatt. It's the timing of the deals and the size of them, and what's outstanding at the end of the quarter. So, we don't believe there is any issue with the DSO.

Okay, great. Thank you very much. Great quarter.

Thanks.

(Operator Instructions) Next we'll go to Santiago Rizzo from Outlier Partners. Please go ahead.

Hi, guys. First of all, congratulations on a great quarter.

Thank you.

Thank you.

I was wondering, for some of us newer to the story, if you can walk through what you have been doing in order to increase the sales channel. And now three quarters in a row, you guys have been doing over 20% year-over-year growth. It looks like something has definitely changed in that. Maybe you can walk us through that again.

We have been focusing on increasing our market presence for some time. And we have simply two different channels. We have a direct channel where we sell our Voyager line of products and our apparel-specific products. Then we have an indirect channel that sells another brand of our supply chain products. And so what we've been doing is -- and we have had a plan to do this, and we've been executing against the plan to increase the number of value-added resellers. And I think I mentioned earlier, our plan this year is to go from about 45 resellers that we had in 2011 to about 58 in 2012. It's about a 30% growth.

Now, just because we add them doesn't mean we get the sales. There is a start up time, and some of them sell and some of them don't. Some of them wash out. We're expanding our presence around the world, and particularly we have been weak in Europe. We could and we should have been in Europe. And we are paying particular attention there, and we think we have some good opportunities there now. And then we are also for our more extensive product line, the Voyager product line, which is where the optimization software is that is driving up our ASP somewhat. We are adding more direct sales people. And so just between now and the end of the year, we want to probably add about another 30% there. And we think we have still got runway on that, and we will be finalizing our plans for next year on the expansion as well.

If you don't mind just expanding, it seems like I don't know what the mix is between direct versus indirect, but your margins obviously went up nicely year-over-year, despite what potentially could be more sales through the VAR channel. Can you talk about that? Is that because of higher ASP or is it because of something else?

We sold more through the direct channel this past quarter than we did the prior two quarters as a ratio of the sales. And that is higher margins, obviously.

And lastly, do you mind talking about what your average deal size is, or are you getting into larger deals?

Well, we are -- the average deal size is -- the last three quarters has jumped up, and it was even higher this most recent quarter, but we don't publish that.

Okay. Well, keep up the good work. And thank you very much for the questions.

Thank you.

(Operator Instructions) Next we'll go for a follow-up to Brian Murphy of Sidoti & Company. Please go ahead.

Hi, thanks. Mike, the optimization deals that you closed in the quarter, were they to new customers or existing customers?

One was to a new customer, the largest deal was. And the other two were to existing customers.

And I know, I think it was last quarter you actually had an optimization sale pull in your traditional Voyager software. Did you see any of that bundling during the quarter?

Not this quarter, but I expect we will see that in the future.

Okay. Right now, I think you're only selling the optimization product directly. Is there any thought to developing an indirect channel that you could send that product through?

Our indirect channel -- the primary of the largest indirect channel segment is for the Demand Solutions brand, which is calling more on the small and medium companies. And we want them to stay focused on those products. We do have a few of ours for the Voyager products, which is the high-end product. And they can sell the I/O product. However, so far it's all been through our direct channel.

Okay. And it sounds like your pipeline actually grew quarter to quarter. Is that right? Or do you feel like you may have pulled some deals forward?

No, I don't think we pulled any deals forward. We have a good pipeline this quarter. Our compare per quarter last year is basically the same compare we had second quarter. I think we got a chance to have a good quarter, and I'm very pleased by the long-term pipeline as well. It had a significant jump for us. And of course it is long-term so it's fuzzier, but we've never had a jump quite like that.

And could you just maybe give us some color on any changes you may be seeing in the competitive environment? Is it the same small privately held players that you see when you compete for these optimization deals?

Well, the primary competitor is a small, privately held company, but they have a partnership with SAP. So an SAP account, we are somewhat competing with SAP there. Sometimes SAP is actually selling it, and sometimes it's the partner selling it. So, but in general, the competitive climate hasn't changed, but it is hand-in-hand combat, particularly on the larger deals.

It sounds like the value proposition for this optimization product is pretty compelling, but my sense is that there is some confusion out there in the marketplace as to what exactly this multi-echelon inventory optimization is. And how maybe some of the larger players may be creating some of that confusion around the category. Are you seeing any of that?

I haven't really seen that Brian.

Okay. Thanks a lot.

Thank you.

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

Thank you, everybody for participating on the call, and we look forward to next quarter's call being even better. Thank you.