Logility Supply Chain Solutions Inc (LGTY) 2013 Q2 法說會逐字稿

Good day, everyone. And welcome to American Software second quarter fiscal-year 2013 preliminary results. At this time, all participants are in a listen-only mode. Later you will have an opportunity to ask questions during the Q&A session. Please note, today's call is being recorded, and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Vince Klinges. Please go ahead

Good afternoon, and welcome to American Software's second quarter of fiscal 2013 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 which 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 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 fiscal 2013 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.

American Software was profitable for the 47th consecutive quarter. We grew our revenues 3% over second quarter last year, led by professional service revenue increase of 17%, and maintenance revenues increasing 5%. License fee revenues did decline 22% compared to second quarter last year. We did increase them 8% sequentially. Net earnings decreased by 7% compared to Q2 last year, but again, we did increase them sequentially.

We had 15 new customers sign contracts with us in the second quarter. Customers from seven countries signed license agreements with the Company in the quarter. Those countries included Australia, Canada, Denmark, Morocco, Sweden, Thailand, and the United States. Some notable new and existing customers include A.O. Smith, Berry Plastics Corporation, Brightstar, Cary Francis, Elo Touch Solutions, Great Plains Manufacturing, Pall Corporation, Probiotec Limited, Quickie Manufacturing, Sagent Pharmaceuticals, Dow Chemical, SECO Tools, and The RoomPlace. We continue to be encouraged by the number of new customers' launches on our products, as new customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

We look forward to third quarter and the remainder of fiscal 2013. We have the deals in the pipeline to grow our license fees and revenues. But we must have a better closing rate than we did last quarter.

I will turn the call over to Vince for a more detailed review of the financial results.

Thanks, Mike. Comparing the second quarter of fiscal '13 to the same period last year, as Mike indicated, the total revenues increased 3% to $26.3 million. And that's compared to $25.6 million in the same quarter last year. License fees decreased 22% to $5.5 million compared to $7 million for the same period last year. Services and other revenues increased 17% to $12.3 million for the current quarter. And that is compared to $10.5 million the same period last year. Services revenues increased by 45% at Logility, 23% in the ERP business unit, and 3% in our IT consulting business. Maintenance revenues increased 5% to $8.4 million. And that compares to $8 million, primarily due to increased license fee revenues in prior quarters.

Taking a look at costs, our overall gross margin was 56% for the current quarter. And that compares to 57% in the same period last year. Our license fee margin was 74% for the current period, and that compares to 79% in the same period last year. Our services margins increased to 34% compared to 28% in the same period last year, due to increased services revenue, improved billing utilization, and project rate margins. Our maintenance margin was 76% for the current and same period last year.

Looking at operating expenses, our gross R&D expenses were 12% of total revenues for the current quarter. And that's up from 10% in the prior-year quarter. As a percentage of revenue, sales and marketing expenses were 19% for both the current and prior-year quarter. G&A expenses were 12%, again, for the current and prior-year quarter.

Our operating income was $4.2 million this quarter. And that compares to $4.7 million the same period a year ago. Adjusted EBITDA, which excludes stock-based compensation, was $5.7 million this quarter, compared to $6.1 million in the same period last year. GAAP net income was $2.8 million, or earnings per diluted share of $0.10. And that compares to $3 million, or $0.11 earnings per diluted share in the same period last year.

Adjusted net income was $3.1 million, or adjusted earnings per diluted share of $0.11. And that compares to $3.3 million, adjusted earnings per share of $0.12. The adjusted numbers exclude the amortization of intangibles, expense-related acquisitions, and stock-based compensation expense. International revenues this quarter were approximately 12% of total revenues for the current quarter. And that compares to 13% for the same period last year.

Taking a look at the year-to-date numbers, for the six-month-ended period, total revenues increased 6% to $52.2 million. And that compares to $49.3 million. License fees year to date were $10.6 million compared to $13.7 million. Services revenues increased 25% to $24.8 million year to date. And that compares to $19.8 million last year. Maintenance revenues also increased 6% to $16.8 million, compared to $15.8 million in the same period last year.

Looking at our costs. Our overall gross margin was 55% year to date, compared to 56%. Our license fee margins decreased to 73% from 76%, and that's due to low license fees. Services margins were 32% compared to 27% year to date. And that is due to increased services revenue, and improved utilization and project billing rates. Our maintenance margin was 77% for both the current year to date and the same period last year.

Looking at expenses, our gross R&D expenses were 12% of revenues year to date. And that compares to 10% in the same period last year. As a percentage of total revenue, sales and marketing expenses were 19% for the current year to date, compared to 18% for the same period last year. That is due to increased headcount. G&A expenses were 12% of revenues compared to 13% in the same period last year. So, our operating income year to date was $8 million. And that compares to operating income of $8.3 million last year.

Adjusted EBITDA year to date was $10.8 million, compared to $11.1 million in the same period last year. GAAP net income was $5.2 million year to date, or $0.19 earnings per diluted share, compared to net income of $5.3 million or $0.20 earnings per diluted share. Adjusted net income year to date was $5.8 million, or $0.21. Compared to $5.8 million or $0.22 for the same period last year. These adjusted numbers exclude amortization of intangibles and stock-based compensation expense. International revenues year to date are 12% of total revenues compared to 15% in the same period last year.

Looking at our balance sheet, the Company's financial position remains strong, with cash and investments of approximately $64.8 million at the end of October 31, 2012. And no debt. Cash increased $10.5 million when compared to the same timeframe last year. During the second quarter, the Company repurchased over 29,000 shares of its common stock for approximately $237,000 under its authorized stock repurchase program. And paid approximately $2.4 million in dividends. The authorized stock repurchase program has a remaining balance of approximately 1.2 million shares available under the program.

Some other aspects of our balance sheet -- billed receivables are $12.6 million. Unbilled is $5.9 million, for a total of $18.4 million AR. Deferred revenues are approximately $18 million. And our shareholder equity is $84.9 million. Our current ratio increased to 2.9 as of October 31, 2012. And that compares to the same period last year of 2.5. Our days sales outstanding improved also as of the end of October 31, 2012 to 65 days. And that compares to 73 days at the same time last year.

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

(Operator Instructions)

Kevin Liu, B. Riley & Co.

You talked about deals just not closing within the quarter. And certainly there is some macro uncertainty out there. Maybe if you could talk about if there were any particular points of weakness. Or was this fairly broad-based? Speak to it either on a project basis, on a geographic basis.

I would say it was uniformly spread.

And as you look at the pipeline as it sits today, it doesn't seem like you are necessarily concerned that deals are falling out of there. But what are your customers talking about, either with respect to year-end budgets and whether they intend to spend against them? And to what degree do you have confidence that if we are able to avert this fiscal cliff that business should pick up from then on?

I think where we are engaged with existing customers, they are generally moving forward with the projects, or add-ons to an initial project that we did. The new business is harder to close right now. I think they don't want to start a big new project with the uncertainty that is out there.

And how are you guys approaching your Business as it relates to continuing to hire sales force and with your ambitions to drive strong license growth in the coming years?

We have added some folks to help manage the VAR channel. We have grown the VAR channel for our demand solutions brand a good bit. And I think when we bought them several years ago they had 11 VAR organizations and now we've got over 50. And so, we have invested in a layer of sales management to help manage them and get them more productive. So we had some upside there. We have slowed down hiring direct salespeople, however, just to see how we do this quarter.

Got it. Your services revenues have continued to hold up. Certainly I would imagine that is a function of having done pretty solid license growth for much of the past year. But with two quarters here of a bit softer license revenues, how long do you expect to be able to sustain this level of service revenue? And is there any worry of a drop off in the near term?

From the Logility software perspective, we have enough implementations going on. I think we have got maybe six months. A six-month backlog there, without having to add a lot of new projects. A lot of customers are upgrading now, as well. And that is keeping some of our services resources active. So, I think we are okay. Now, we will see a little seasonal downturn because of the Christmas and Thanksgiving holidays. We typically have that this quarter.

Great. And just in terms of the general competitive landscape, certainly some more consolidation continuing with the acquisition of JDA. How do you feel the landscape has changed, if at all, with this most recent deal? Do you feel like you are better positioned? Or are you at all worried that that combination might make it tougher in the marketplace?

We didn't really compete with RedPrairie. It's different product sets. And I think in the short term it will probably help us because I know the last time JDA went through -- they were the acquirer, they acquired i2. There was a lot of confusion and things like that for a while. So I think they will have a little bit of that, if not a lot of it, because it is a much bigger acquisition. And what I read about the acquisition, they didn't have a lot of the details ironed out ahead of time, as you might expect. So I think in the long run it won't make much difference. We might get a benefit in the short term.

Thanks for taking my questions. Thanks so much.

(Operator Instructions)

Gentlemen, it appears we have no further questions at this time. I'll turn it back to you for any closing remarks.

Thank you to all of you for participating on the call. And we look forward to updating you next quarter.

That does conclude today's program. We do appreciate your participation. You may disconnect at any time. And have a great day.