Logility Supply Chain Solutions Inc (LGTY) 2012 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.

(Operator Instructions)

Please note this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to hand the call over to Vince Klinges, CFO of America Software. Please go ahead.

Good afternoon and welcome to American Software's third quarter fiscal 2012 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 and uncertainty 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 other competitive pressures, and the irregular and unpredictable 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, CEO of Logility and COO of America Software.

Thanks, Vince and good afternoon, everyone. Thanks for participating in the call. I have some comments on the fiscal 2012 third quarter results, Vince will review the details on the financial results for the quarter, and then we will take your questions. Well, American Software had another outstanding quarter; all three revenue streams again had double-digit increases compared to third quarter of fiscal 2011. We had strong growth in license fees, with an increase of 62% over last year's quarter. License fees were helped by our Voyager brand continuing to increase the average selling price year-over-year, and a record performance by our Demand Solutions brand. We believe the record results for the Demand Solutions brand is attributable to three key accomplishments -- first, excellent response to the release of the latest version of Demand Solutions' product suite, DSX; secondly, the ongoing expansion of the indirect sales channel; and thirdly, our growing relationship with Microsoft.

Maintenance revenue, which is a recurring revenue stream, increased 11% and services revenues increased 18% compared to last year's third quarter, with most of the increase coming from higher margin implementation services from Logility. Altogether, revenue increased 25%, which drove a 84% increase in operating earnings compared to the third quarter last year. Over the last four quarters we have increased operating income 120% compared to the same quarters the previous years. We had 24 new customers sign license agreements in the third quarter -- customers from 10 different countries signed those license agreements. Those countries included Australia, Canada, Colombia, France, Japan, New Zealand, Singapore, Sweden, the United Kingdom, and the United States. Some notable and new existing customers include 3M New Zealand, A.R.T. Furniture, GTM Sportswear, Haddad Apparel Group, Lighting Sciences Group, New Belgium Brewing, Newfoundland Labrador Liquor Control Board, Nicole Miller, Norgine, OneMed, Smith Cooper, Seagate, Sunovion Pharmaceuticals, and Victoria Classics.

We continue to be encouraged by the number of new customers licensing our products, as 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 fourth quarter and the remainder of fiscal 2012, our pipeline remains strong, there's robust interest from our customer base, as well as new potential customers, we have good activity across all product lines, and our pipeline continues to grow. We do have a tough comparison as last year's fourth quarter was by far our best quarter in some time. The Company does have the pipeline to grow license fees in the fourth quarter on a year-over-year basis but we must execute and close well to do so. I would now like to turn the call back over to Vince for our detailed review of the third quarter and year-to-date financial results.

Hello. Thanks, Mike. First I would like to take a look at the third quarter fiscal '12 compared to the same period last year. As Mike indicated, total revenues for the quarter increased 25% to $25.4 million, compared to $20.4 million last year. This is primarily due to license fee increase of 62% to $6.8 million compared to $4.2 million the same period last year. Services and other revenues increased 18% to $10.3 million for the current quarter. That compares to $8.7 million. That's primarily due to services revenue increases at Logility, which was up 47% and 14% of our IT consulting unit. Maintenance revenues increased 11% to $8.3 million compared to $7.5 million and this is primarily due to increases in license fees. Taking a look at costs, our overall gross margin increased to 53% for the current quarter compared to 51% same quarter last year. Our license fee margin was up to 68% compared to 62% last year and this is primarily due to increase in license fees. Services margins decreased to 23% compared to 24% in the same period last year. That's primarily due to increases in staff hiring at Logility from increased demand of the implementation work. Maintenance margin increased to 77% for the current quarter compared to 76% in the same quarter last year and that's primarily due to higher maintenance revenue.

Look at operating expenses, our gross R&D expenses were 11% of total revenues for the current quarter and that compares to 12% in the prior year. As a percentage of revenues, sales and marketing expenses were 18% for both the current and prior year quarter. G&A expenses were 14% of total revenues for both the current and prior year quarter. So our operating income increased 84% to $3.3 million this quarter compared to $1.8 million in the same quarter a year ago. Adjusted EBITDA, which excludes stock-based compensation, increased 50% to $4.7 million for this quarter. Compares to $3.1 million the same period last year. GAAP net income increased 47% to $2.6 million, or earnings per diluted share of $0.10 for the quarter and that compares to net income of $1.8 million or $0.07 per diluted share last year. Adjusted net income increased 41% to $2.9 million, or adjusted earnings per diluted share of $0.11 for the third quarter and that compares to net income of $2.1 million or adjusted earnings per diluted share of $0.08 for the same period last year. The adjusted numbers exclude amortization of intangibles, expenses related to acquisitions, and stock-based compensation expense. International revenues for this quarter were approximately 17% of total revenues and that compares to 15% the same period last year.

Comparing year-to-date, the nine months ended January 31, 2012, for the same period last year, total revenues increased 24% to $74.7 million compared to $60.4 million. That is primarily due to license fees, which increased 82% to $20.5 million, compared to $11.3 million the same period last year. Services revenues also increased 10% to $30.1 million year-to-date compared to $27.4 million last year. And maintenance revenues also increased 11% to $24.1 million compared to $21.7 million last year. Looking at cost, our overall gross margin was 55% year-to-date compared to 52% the same period last year. Our license fee margin increased to 73% from 67% and that's primarily due to higher license fees. Services margins were 26% compared to 28%, year-to-date and that's primarily due to staff hiring at Logility from increased demand of services work. Our maintenance margins were 77% year-to-date, compared to 76% in the same period last year and again that's up a point, primarily due to higher maintenance revenue.

Looking at operating expenses, gross R&D expenses were 11% of total revenues for the nine month period ended January 31, 2012, and that compares to 12% for the same period last year. As a percent of total revenue, sales and marketing expenses were 18% for both the current and same period last year. And G&A expenses were down to 13% of revenues compared to 15% in the same period last year. So, operating income year-to-date increased 108% to $11.6 million when compared to operating income of $5.6 million. Adjusted EBITDA, year-to-date increased to 79% to $15.8 million compared to $8.8 million same period last year. Our GAAP net income increased 71% to $7.9 million year-to-date or $0.29 earnings per diluted share and that compares to net income of $4.6 million or $0.18 per diluted share last year. Adjusted net income year-to-date was $8.7 million or earnings per diluted share of $0.32 and that compares to net income of $5.7 million or earnings per diluted share of $0.22 for the same period last year. International revenues year-to-date were approximately 16% of total revenues and that's up from 14% for the same period last year.

Looking at our balance sheet, our cash and long-term investments are approximately $61.5 million at the end of January 31, 2012, and no debt. The cash increased sequentially $7.3 million compared to October 31, 2011, and $9.1 million when compared to January 31, 2011. Other aspects of the balance sheet. Our bills receivables was $14.6 million, our unbilled is $4.3 million for a total of $18.9 million of receivables. Our deferred revenues $17.8 million, and our shareholders equity is close to $80 million. Our current ratio is 2.6 as of the end -- for January 31, 2012, and that compares to 2.5 last year, at this time. Day sales outstanding as of January 31, 2012, was 68 days, and that's compared to 60 days for the same period, same time last year and it decreased from 73 days sequentially at the end of October quarter. At this time, I'd like to turn the call over to questions.

(Operator Instructions) And it looks like our first question will come from the site of Brian Murphy with Sidoti and Company. Your line is now open.

Hello. Thanks for taking my questions. Mike, could you just tell us how many inventory optimization deals you closed in the quarter?

We did close some business in inventory optimization but we're not going to be breaking out by product how many deals we do.

Okay. Let's see, you mentioned that you got 24 new customers in the quarter, and I know that's up sequentially by quite a bit. Can you tell us how many customers you got, new customers you got, in the year-ago quarter?

A year-ago quarter, I believe we did 28.

Okay.

But our average selling price is going up.

Okay, got it. And, checking in on the progress you are making expanding the VAR channel. Can you tell us where you are there? Are you still on track to hit that 58 number by the end of fiscal '12 here?

Yes, we are.

Okay, great. And I know you guys don't talk much about this, but could you give us some color about the Microsoft relationship?

Yes, I can. We've had the relationship, we are probably in about our fourth year of the relationship and it took us a good while to get it going. And just some metrics. We've closed 50% more business through that relationship year-to-date than we did all of last year. So, we've got essentially a quarter remaining to build on that. And, the pipeline metrics are really the same. We got about 50% more pipeline now than we did at the end of the last fiscal year. So we are pleased with it. They are doing well with their Microsoft Dynamics in the SMB market. And we are their partner on a lot of these deals. And so we think that helped us this quarter and, excuse me, last quarter that we are reporting and it's already helped us on this quarter.

Okay, great. And I think you mentioned that you had the pipeline to actually grow license revenue in your fiscal fourth quarter despite license sales being up about 150% in the comp quarter. I think you made some commentary just about the long-term pipeline. I think last quarter you mentioned that you had never seen quite a jump in the long-term pipeline. Could you give us a little bit more color about where that stands now?

Yes. It's continuing to grow. We checked it last week and it's at an all-time record again.

Okay, great. I will jump back in the queue.

Thank you.

(Operator Instructions) We we'll pause momentarily to give all participants the opportunity to queue. And it looks like we have a follow-up question from the site of Brian Murphy. Your line is now open.

Okay. So, when I look at your sales force productivity, Mike, this is just in terms of license revenue per sales and marketing dollar. I think it's hard to find another company with this kind of sales force productivity. How are you thinking about the expansion of the sales force here?

We're expanding it. It's a lot of hard work to find good salespeople and of course we are expanding the VAR channel and but we are also on the direct side for Voyager -- the Voyager brand, we are expanding there. As we mentioned, I think, last call, where we hoped to expand the channel from the beginning of the year with a direct sales channel from the beginning of the fiscal year to the end, which we are almost at, about 30%, and then we have plans similar to that for next year. And we are on track by April 30, May 1 to be there for the 30% growth with the direct channel this year.

Okay, could you give us some commentary about the selling environment just in terms of -- just the demands commentary?

There's a lot -- there seems to be a lot of interest out there and we seem to be winning a lot of evaluations and -- where in the past it seems like our win rate was lower, I think it is higher now. One of the things we are seeing it's taking -- but once you get selected it's sometimes taking longer to get the projects approved and get a contract done. So, that -- it's sort of switched. Usually we felt like, boy if we can get selected, we will get it and it was harder to get selected than it was to close it once you did get selected. Now it has kind of changed, flipped the other way a little bit and I think that may be people just watching their pennies better, more approvals to go through to get the actual dollars allocated.

Okay. And it sounds like despite maybe some longer sales cycles for some of these larger deals that you have in the pipeline here, you have enough coverage with the broader base of business with the expansion of the VAR channel to hit your numbers. Is that fair?

That is fair. It is nice to have multiple channels selling into different size companies.

Okay, great. That's it for me, thank you.

Thank you.

And it appears that there no further questions at this time. (Operator Instructions) We will pause for one moment to give all participants the opportunity to queue. And there are no other questions at this time.

Thank you very much for your support of American Software and we look forward to talking to you on the next call. Goodbye.

And, this does conclude today's teleconference. Thank you for your participation, you may now disconnect.