Logility Supply Chain Solutions Inc (LGTY) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to today's second-quarter fiscal 2014 preliminary results conference. 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. Please note this 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, Sir.

Good afternoon, and welcome to American Software's second-quarter fiscal 2014 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 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 regular 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 American Software.

Thanks, Vince. Good afternoon, everyone. Thank you for participating in this call. I have some comments on the second-quarter results and the business. Vince will review the details of the financial results, and then we'll take your questions.

Well, American Software had a terrific quarter. Second-quarter revenues were $26.9 million, which is an increase of 3% year-over-year and a 15% increase sequentially. License fees increased 13% year-over-year and 92% sequentially. Maintenance revenues, which were recurring, increased 7% year-over-year for the quarter. Our operating income for the quarter was $5.4 million, an increase of 27% year-over-year and a sequential increase of 126%, as the Company continued to be profitable for the 51st quarter in a row.

Regarding customer news, we had 22 new customers sign license agreements in the second quarter, which was double the number of new customers in the first quarter. Some of the notable new and existing customers include ABN Signs out of Germany, American Woodmark, AB Trend, Bestseller United, Citizen Watch Company, FMC Corporation, The Gate Group, Hills Holdings, L'Oreal USA, Mitsubishi Heavy Industries, Pharmacare Labs, Snap AB, Soda Stream, and Sunny Delight Beverage Company. We had customers from 11 different countries sign license agreements with American Software in the quarter. Those countries include Australia, Brazil, Canada, China, Colombia, Denmark, Germany, Japan, Sweden, the United Kingdom and the United States.

As we look at the second half of fiscal 2014, the market adoption of cloud services is changing our business model. Historically, we were primarily an on-premise perpetual license model with professional services and customer support. Customers are now adopting our cloud services such as hosting and managed services, and we are offering a SaaS option to meet our customers' needs and help prioritize our supply chain initiatives. This may result in some revenues being spread over time, depending on the type of contracts we enter into.

This quarter, approximately $3 million of revenue will be spread over three years. Approximately $1.1 million of this will be license fees that we booked in the second quarter, but did not count in that quarter. Regarding our pipeline for the third quarter, it looks similar to the second quarter, perhaps slightly better.

I would now like to turn the call over to Vince for a detailed review of the financial results for the second quarter and the first half of fiscal 2014.

Thanks, Mike. Comparing the second quarter to the same quarter last year, as Mike indicated, the total revenues increased 3% to $26.9 million, and that compares to $26.3 million in the same quarter last year. That was primarily due to -- the increase was primarily due to license fees, which increased 13% to $6.2 million compared to $5.5 million for the same period last year.

Services and other revenues decreased 5% to $11.7 million for the current quarter compared to the same period last year. Services revenues decreased 38% at our ERP business unit due to the completion of a large project at New Generation Computing at this time last year. This was offset partially by a 4% increase in our IT staffing business due to timing of project work. Maintenance revenues increased 7% to $9.1 million. That compares to $8.4 million. That was primarily due to increased license fees this quarter and also improved customer retention when compared to last year.

Looking at gross margins, they were 58% for the current quarter, and that's up from 56% for the same period last year. Our license fee margin was 80% for the current quarter, and that compares to 74% for the same period in the prior year. And this, primarily, increase is due to lower software amortization expense of $625,000 as a result of completion of amortization of our Voyager project released at the end of the first quarter of this year. We expect the amortization expense to increase in the third quarter of fiscal 2014, when the next major product is released.

The decrease in cost of license fees was partially offset by an increase in commissions as a result of the increased license fees through our indirect VAR channel. Services margin was 30% for the current quarter. That compares to 34% in the prior year and it's primarily due to lower services revenue. Maintenance margin was up 78% for the current quarter compared to 76%, and that's primarily due to the increase in maintenance revenue.

Looking at our gross R&D expenses, they were 11% of total revenues for the current quarter. That compares to 12% for the prior-year period. As a percentage of revenue, sales and marketing expenses were 19% for both the current and prior-year period. G&A expenses were 11% of total revenues for the current quarter, and that compares to 12% for the same quarter. And that's primarily due to recovery for a doubtful account this quarter when compared to last year.

So our operating income increased 27% to $5.4 million for the current quarter, and that compares to $4.2 million for the same quarter a year ago. Adjusted EBITDA, which excludes stock-based compensation, was $6.2 million for this quarter, and that compares to $5.7 million for the same period last year.

Our GAAP net income increased 33% to $3.7 million or earnings per diluted share of $0.13. That compares to $2.8 million or $0.10 earnings per diluted share for the same period last year. Adjusted net income was $4 million or adjusted earnings per diluted share of $0.14 for the second quarter, and that compares to net income of $3.1 million or adjusted earnings per share of $0.11 for the same period last year. These adjusted numbers exclude amortization of intangible expenses related to acquisitions and also the stock-based compensation expense.

International revenues for this quarter were up to 17% of total revenues, and that compares to 12% in the same period last year. Taking a look at the full year-to-date, six months ended October 31 of 2013 and compared to the same period, total revenues decreased 4% to $50.2 million, and that compares to $52.2 million in the same period last year. License fees year-to-date is $9.4 million, and that compares to $10.6 million for the same period last year. Services revenues year-to-date are $22.9 million compared to $24.8 million. And maintenance revenues year-to-date were $17.9 million compared to $16.8 million last year.

Looking at costs year-to-date, our overall gross margin was 55% for the current and prior-year period. Our license fee margin increased to 75% compared to 73% last year. Our services margin was 29% compared to 32% for the same period last year, and that's primarily due to lower services revenue. Our maintenance margin was 78% for the current year-to-date period, and that's up a percentage point from 77% in the same period last year.

Looking at operating expenses, our gross R&D expenses were 11% for total revenues for the six-month period compared to 12% in the same period last year. As a percentage of total revenue, sales and marketing expenses were 19% for both the current and prior-year period. G&A expenses were 12% for both the current and same periods last year. So our operating income year-to-date is $7.8 million, and that compares to operating income of $8 million last year. Adjusted EBITDA year-to-date was $9.9 million year-to-date compared to $10.8 million in the same period last year. And our GAAP net income was $5.3 million year-to-date or $0.19 per earnings diluted share compared to $5.2 million or $0.19 per earnings diluted share last year.

Adjusted net income year-to-date was $5.9 million or earnings diluted share of $0.21, and that compares to net income of $5.8 million or earnings diluted of $0.21 also of last year. International revenues year-to-date were approximately 17% of total revenues, and that compares to 12% last year. If you look at our balance sheet, the Company's financial position remains strong, with cash and short-term and long-term investments of approximately $70.2 million at the end of October 31, 2013. That's an increase in cash and investments of approximately $5.4 million when you compare it to the same time last year.

Other aspects of our balance sheet -- our billed Accounts Receivable was $12.8 million; unbilled is $4.4 million, for a total of $17.2 million of Accounts Receivable. Our deferred revenues current are $19.4 million; our deferred revenues long-term are $500,000. Shareholder equity is $87.4 million. Our current ratio is 2.8 as of October 31st, 2013, and that's down slightly from 2.9 in the same period last year. And our day sales outstanding as of October 31, 2013 was 58 days. And that's an improvement from 65 days 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.

Nice quarter, guys. First question here -- just in terms of the contributing factors to the strong license performance, could you talk a little bit about to what extent this was closure of some of those slipped deals from the prior quarter? Whether you felt the macro was starting to help you guys finally? Anything along those lines would be helpful.

Yes, I think it might have been a little -- deals that slipped. I think the macro environment has improved. And I'm basing that on what I'm seeing in the pipeline for this quarter. (multiple speakers)

Sorry? And what about on the sales productivity? Are you seeing broad-based improvement across your sales team? Or was this more a function of certain folks pulling in some larger deals?

No, it was broad-based.

Great. And then you mentioned the size of the pipeline is sustained. Are a lot of these deals also far along enough in the process where you feel like you'll get the normal seasonal year-end budget flushes that might be helpful for this quarter?

I think we will get that, yes.

And then just on the staff's opportunities. The $3.2 million in deals -- I was wondering if that was one sizable transactional or whether this was also spread across several transactions?

Well, there were two transactions where we had to spread the revenue. And one was bigger -- our biggest order of the quarter. And it's being spread. And another one was just a routine deal.

Got it. And how about in terms of the composition of the pipeline? Are you seeing more SaaS deals make up the pipeline?

No. Now it's still more perpetual.

Great. And then just one last one -- it looked like you guys did a small acquisition within the quarter. I was wondering if it had any sort of impact on the financials for the quarter? And if you could just maybe talk about it a little bit in terms of what this adds to the platform, what sort of impact it has to the go-forward numbers?

We bought a small company called Taylor Manufacturing. And they have -- we get two benefits from it for two different channels. For the Voyager, Logility Voyager channel, we were primarily more focused on process manufacturing companies as far as our manufacturing product. And this allows us to go after discrete manufacturers of that product. We still sell other products to discrete manufacturing, but it gives us a fuller product line for discrete manufacturers.

And then also, our demand management subsidiary did not have a manufacturing planning capability. They were partnered with a third-party. And so now we own the asset, and our margins will be better. And I think we can go after more deals from the international perspective.

Great. And then what about the timing of when this closed and whether or not it had much of an impact on your Q2 results?

Yes, Kevin. This is Vince. It closed on August 14th. It didn't have a material impact from a cost point of view. We had about $75,000 of accounting and legal fees to close at this quarter that are in the G&A numbers. But we did actually close three small deals with -- either individually or inside of the deals, through DMI, through this channel with this product during the quarter already. So we're pretty excited about it.

Sounds good. Thanks so much.

(Operator Instructions) And gentlemen, it appears we have no further questions at this time. I'll turn it back to you for any final remarks.

Thank you very much for participating on the call. We look forward to the next conference call. Thank you.