Logility Supply Chain Solutions Inc (LGTY) 2012 Q4 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 have an opportunity to ask questions during the question-and-answer session.

(Operator Instructions)

Please note this call may be recorded. It is now my pleasure to turn the conference over to Chief Financial Officer of American Software, Mr. Vince Klinges. Go ahead, please.

Good afternoon, and welcome to American Software's Fourth Quarter Fiscal 2012 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 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 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 effect of 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, COO of American Software and CEO of Logility.

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

Well, American Software had another outstanding quarter as well as a terrific year. Fourth Quarter revenue was almost $28 million, which is 11% growth year-over-year. Services were very strong, with 29% growth, while license fees in Q4 declined slightly compared to a very strong fourth quarter last year, it was still the largest quarter for license fees in the fiscal year, as was maintenance and services revenues. As you would expect, those revenue results paid off with 26% growth in operating income and earnings per share of $0.13. For the year, the financial highlights were 45% growth in license fees, accelerating growth in services, and maintenance growth of 10%, which drove a 76% increase in operating earnings, and an increase of cash and investments for the year of over $11 million, while increasing our investment in research and development, and the professional services organization, and the sales organization.

21 new customers signed license agreements in the fourth quarter, which is the largest number of new customers in the last three years. Customers from 11 countries signed license agreements with American Software in the quarter. These countries include Australia, Belgium, Canada, Germany, Mexico, the Netherlands, Singapore, South Africa, Sweden, the United Kingdom and the United States. Some of the notable new and existing customers included Art Van Furniture, Bright Star, Brownells, Coating Excellence, Denso, Ferguson Enterprises, GWA Bathrooms & Kitchens, Marquez Brothers International and Twin Disc. For fiscal year 2012, we added 86 new customers. We continue to be encouraged by the number of new customers licensing our products. The customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

As we look at the first quarter in fiscal 2013, our pipeline remains strong. In fact, Logility's pipeline is up substantially for both the Voyager and Demand Solutions brands from this time last year. There's interest from our customer base as well as new potential customers, and we have more large deals in the pipeline. Additionally, we have increased Logility's direct sales team from 11 account executives this time last year to 18 this year. We also have increased the VAR channel to 50 partners from about 45 this time last year. Demand Solutions has also made good progress growing their pipeline from the Microsoft relationship. It's up approximately 49%. Based on our pipeline and expanded sales capacity, we have the opportunity to increase license fee revenues as well as total revenues and income over the course of the fiscal year. I'd now like to turn the call over to Vince for a detailed review of the financial results for the fourth quarter and year-to-date results.

Thank you, Mike. Taking a look at the fourth quarter of fiscal 2012 compared to the same period last year, as Mike indicated, our total revenues increased 11% to $27.9 million, compared to $25.2 million in the same quarter last year. License fees decreased 9% to $7.3 million, compared to $8 million for the same period last year. Services and other revenues increased 29% to $12.3 million for the current quarter, and that compares to $9.6 million for the same period last year. That's due to -- primarily due to Logility, which increased 58%, and also our ERP business, which increased 23%, and our IT consulting business, which increased 19% year-over-year.

Maintenance revenues increased 9% to $8.4 million, compared to $7.6 million, primarily due to increases in license fees this year. Looking at cost, our overall gross margin was 55% for the current and same quarter last year. License fee margin was 77%, compared to 74% last year. This increase was primarily due to a higher mix of software license fee revenue coming from our direct channel compared to last year. Our services margins increased to 29%, compared to 23% for the same period last year, and that's due to increases in services revenue, and also improved building margins at Logility and IT consulting units. Maintenance margins decreased slightly to 76% for the current quarter, compared to 77% for the same period last year.

Looking at operating expenses, our gross R&D expenses were 11%, for of total revenues for the current quarter, compared to 10% last year. As a percentage of revenue, sales and marketing expenses were 18% of revenues for the current quarter. That compares to 20% last year. G&A expenses were down slightly to 12% of total revenues for the current quarter, compared to 13% for the same quarter last year. That's primarily due to higher revenues.

Our operating income increased 26% to $4.6 million for this quarter. That compares to $3.6 million same quarter year ago. Adjusted EBITDA, which excludes stock-based compensation expense, increased 20% to $6 million this quarter, and that compares to $5 million in the same period last year. GAAP net income increased 26% to $3.5 million, or earnings per diluted share of $0.13 for the current quarter. That compares to $0.10 earnings per diluted share for the same period last year. Adjusted net income increased 27% to $3.8 million, or adjusted earnings per diluted share of $0.14 for the fourth quarter, and that compares to net income of $3 million, or adjusted earnings per diluted share of $0.11 for the same period last year. These adjusted net income numbers exclude the amortization of intangible expenses related to acquisitions and stock-based compensation expense. International revenues this quarter were approximately 15% of total revenues for this quarter and the same period last year.

Now I'd like to look at the full year compared to last year. For -- total revenues for the year increased 20% to $102.6 million, compared to $85.6 million last year. License fees increased 45% to $27.8 million, compared to $19.2 million the same period last year. Services revenues also increased to 15% to $42.4 million. That compares to $37 million last year. Our maintenance revenues also increased. They increased 10% to $32.4 million, compared to $29.4 million last year. Looking at the costs for the year, the overall gross margin was 55% for the year. That compares to 53% last year. That increased because of the license fee margin increased to 74%, compared to 70% last year. Our services margins were 27%, compared to 26% last year. Our maintenance margins were 77%, compared to 76% last year.

Looking at operating expenses, our gross R&D expenses were 11% of revenues for the year fiscal 2012, compared to 12% for fiscal 2011. As a percentage of total revenue, sales and marketing expenses were 18% for the current year and last year. G&A expenses were 13% of revenues, compared to 14% last year. Our operating income for fiscal 2012 increased 76% to $16.2 million, compared to operating income of $9.2 million last year. Adjusted EBITDA for fiscal 2012 increased 52% to $21.8 million, compared to $14.3 million in the same period last year.

Our GAAP net income increased 54% to $11.3 million, or $0.42 earnings per diluted share. That compares to net income of $7.4 million, or $0.28, last year. Adjusted net income for fiscal 2012 was $12.5 million, or earnings per diluted share of $0.46, compared to adjusted net income of $8.6 million, or earnings per diluted share of $0.33 for the same period last year. These adjusted numbers exclude amortization of intangibles, stock-based compensation expense, and severance expenses from last year. International revenues for fiscal 2012 were approximately 16% of total revenues. That compares to 14% the same period last year.

Taking a look at the balance sheet, the Company's financial position remains strong, with cash and short- and long-term investments of approximately $66.9 million at the end of April 30, 2012, and no debt. The cash increased sequentially $5.3 million compared to January 31, 2012, and $11.5 million when compared to April 30, 2011, while the Company paid approximately $9.6 million to shareholders during the year. Other aspects of the balance sheet -- our billed accounts receivable is $15.2 million; un-billed is $4.6 million, for a total of $19.8 million. Deferred revenues are up to $19.4 million. Shareholders equity is $83.0 million Our current ratio increased to 2.6 as of April 30, 2012, and that compares to 2.2 the same period last year. Our Day Sales Outstanding of April 30, 2012, was approximately 64 days. That's down from 67 days last year. At this time, I'd like to turn the call over to questions.

(Operator Instructions)

Dan Cummins, ThinkEquity.

Thanks, good afternoon. A couple questions. I guess first, the year-over-year on license obviously breaks a trend line of approximately four to five quarters. If you do what I presume to be normal seasonality in sort of an enterprise IT way, meaning down 15 or 20 quarter-on-quarter, you'll be down year-over-year on license in the July quarter? That's the first question. The second question is I guess for Jim. How do you feel about the -- not the year-over-year result, but the quarter-on-quarter result for your fiscal fourth quarter on license? Any follow-on color you can offer us incrementally on the margin with respect to the large deal environment out there? It sounded like you had a pretty good quarter in terms of adding new customers. Thanks.

This is Mike Edenfield. I was pleased with the license fees. Obviously we wanted to do -- we wanted to beat last year, but last year was a monster quarter --

Right.

For us at that time. We also had some pretty good license fee quarters throughout the year, so it wasn't like we had a -- we were back-end loaded on it. Fourth quarter, if you look at it, was the best license fee quarter of the year for us. It just wasn't as good as the previous one. As that relates to first quarter, which I think was one of your questions, we haven't been following the normal pattern. We might follow it this time but we haven't had a normal pattern for a while. For example, our first quarter last year was very strong. It could be very strong this year.

One of the reasons it could be strong is we have some big deals in the pipeline. We have more big deals, and I'm saying these are license fees of $1 million or more. We have more than we've ever had in the pipeline. We're excited about where we are, and our business is not linear necessarily. It doesn't follow any specific pattern. It used to be more predictable in the old days, but now it's just I guess with the economy going up and down as frequent as it seems to, it seems to have obliterated the normal patterns.

If I could just ask one follow-up. Was there anything notable in the funnel that you tried to close and for whatever reason didn't? And half way through the July quarter, any -- did anything notable of that kind already close?

Nothing slipped last quarter that was a large deal, and we haven't closed a large deal yet this quarter.

Okay. All right, thank you very much.

Thank you.

(Operator Instructions)

Brian Murphy, Sidoti & Company.

Hi. Thanks for taking my question. Vince, you were running through the numbers pretty fast there. I think you said that the ERP segment was up 23%. Was that consolidated segment revenue in ERP?

Yes, that's our business unit ERP, yes.

Okay. Over the past couple of quarters, I think the license sales from that segment had doubled. Can you give us an idea of if license revenue in the ERP segment was up again in the fourth quarter?

Yes, actually license fees were down 19% quarter-over-quarter.

19%, great. From a profitability standpoint, was the ERP segment as much of a drag for the full year fiscal 2012 as it was in fiscal 2011?

Yes, because primarily because we lost that large account in the first quarter, at the end of the first quarter of last year that was very profitable in the ERP segment, so we had the benefit of that last year which we didn't have this year; so the answer is yes.

Got it. With that kind of rolling off, what are the expectations for fiscal 2013? Do you think the ERP segment will be as much of a drag on profitability?

It depends on how the performance of the new generation computing piece of that business.

Okay. With this big ramp in the sales head count, Mike, you guys are pretty -- you're typically pretty conservative with head count additions, so I'm guessing that the pipeline you guys have must be pretty robust for you to make that kind of step-up in distribution capacity. Can you give us a little bit more color there on that sales force expansion? Maybe where you're getting these guys and how long you anticipate it will take for these guys to ramp up? Just really anything would be helpful.

Sure. Well to give you a specific metric, the pipeline for -- this is for Logility Voyager, which is the direct sales channel business unit -- the pipeline is double what it was this time last year, and we've got all the same people that measure the pipeline and track the pipeline. We have a process. When I saw it soaring up like that, I was skeptical, but the guy we have running sales is very methodical. He's got a lot of processes, and he follows them to a T, and he swears if anything it's the same or maybe a little tougher to get something on the pipeline. That doesn't mean we'll close anything out of it, but the pipeline is definitely better, substantially better.

We were seeing that for not quite as dramatic as it soared up recently, but we were seeing that, and we felt we needed more salespeople. We were missing opportunities, and so we started hiring and then we found some good folks that have worked in supply chain before for competitors or other segments of the supply chain that had been successful, and so we kept hiring them. We had a plan to try to get to 20 actually by the end of the year, but we're going to add two more as fast as we can -- excuse me, by the end of the last year, that was our earliest goal. We're still going to hire a couple more, and then we're going to absorb them and see where we go from there.

Okay, sounds good. How are you thinking about top-line growth versus profitability at this point?

Well, the good thing about our business is if we can grow those license fees, we can invest. How much we're making now, it doesn't appear to me that a few salesmen is that much of an investment. We've also hired a number of consultants over a longer span of time. They are getting billable very quickly because of the projects we're selling, and they're generating money for us. That investment is a quick payback, and if we -- we wouldn't hire them if we couldn't get them billable. I don't think it's going to hurt us as long as we sell like new projects. If we don't sell new projects, obviously, we would be hurting whether we invested or not, but we're going to sell some new projects this year.

Okay. Sorry, so on the services side, I know it's sort of The Proven Method business had been growing -- I think it was up about 10% year-to-date, and I think it was above 14% last quarter -- is most of the growth in the service line in that business segment, or is it also in Logility?

Well, I was specifically -- I should have made this clear, I apologize -- I was specifically talking about the software side of Logility. The Proven Method is growing, too, but the software side services for Logility have really accelerated, and those are higher margin services. That's what I was focusing on in my comments.

Got it. Okay, thank you very much.

(Operator Instructions)

We'll pause a moment to allow further questions to queue. It appears we have no further questions at this time.

Thank you everybody for your interest in our Company, and we look forward to talking to you more on the next conference call.