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Executives

Michael Edenfield - President & Chief Executive Officer

Vincent Klinges - Chief Financial Officer

Logility Inc. (LGTY) F3Q09 Earnings Call March 6, 2009 9:00 AM ET

Operator

Good day and welcome to today’s third quarter fiscal year 2009 results call. At this time all participants are in a listen-only mode. Later there will be an opportunity to ask questions during our question-and-answer session and now I would like to turn over the program to Mr. Vincent Klinges, CFO; please go ahead sir.

Vincent. Klinges

Good morning and welcome to Logility’s third quarter 2009 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 marginally 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 in general economic condition, 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 revenue.

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.

Michael Edenfield

Thank you, Vince. Good morning everyone and thanks for participating on this call. I have some comments on the third quarter results and then we’ll turn it back over to Vince for a review of the details on the financial results for the quarter and then we’ll take your questions.

We are pleased with the performance of the company in the third quarter. Our revenue was $10.6 million, which was a 7% increase compared to the third quarter last year. Operating earnings were approximately $2.8 million, which was an increase of 313% over last year; however, not including our write-down of capitalized software that was included in third quarter of last year, the operating earnings increase was 49%.

The increase in license fees revenues were the main driver for the improvement in revenues and earnings. 17 new customers signed license agreements in the third quarter. Customers from 10 different countries signed license agreements with Logility in the quarter. Those countries include Australia, Canada, Costa Rica, Italy, The Netherlands, The United Arab Emirates, The United Kingdom, The United States, Venezuela and Vietnam.

We signed up some great customers in the quarter. Some of the notable new and existing customer signed included Arch Chemicals, Astronics, Belkin, Bracco from Italy, CSN Stores, Johnson Controls, Johnson Diversey, Mitsubishi Motor Products, Norwood Promotional Products, Sonoco and Techtronic Industries.

We continue to be encouraged by the number of new customers licensing our products. New customers are a source of future maintenance and implementation services revenues, as well as being great prospectus for additional product sales.

So, looking forward to the fourth quarter; our business model is in excellent shape. We have cash and investments of approximately $47.3 million, which is an increase of almost $6 million from the time last year.

Some deals have slipped due the economy. We do have a good pipeline for the fourth quarter. We did have a strong fourth quarter last year, so we had a tough comparison. Close rate will still be the key for the quarter and we do appear to be backend loaded as is typical.

I’ll now turn the call back over to Vince for a review of the financial results. Vince.

Vincent. Klinges

Thanks Mike. Comparing the third quarter fiscal ’09 with the same period last year, as Mike indicated revenues are up 7% to $10.6 million compare to $9.9 million. That’s primarily due to license fees which increased 57%, $3.7 million compare to $2.3 million for the same period last year.

Services and other revenues decrease 34% to $1.3 million compared to $1.9 in the same period last year and that’s due to decreased implementation project work from lower license fees in the prior quarters. Our maintenance revenues increased slightly 1% to $5.7 million for the quarter, and that compares roughly to $5.7 million for the same quarter last year.

Looking at costs, our overall gross margin increased to 72% for the current quarter and that compares to 65% for the prior year period. License fee margin was 73% for the current period and that compares to 42% for the same period last year due to license fee increases. Our services margin decreased to 41% for the current period compare to 56%, and that’s due to lower implementation work from lower license fees in the prior periods. Our maintenance margin increased to 79% from the current quarter, compared to 78% in the prior year quarter.

Taking a look at operating expenses our gross R&D expenses as a percentage of revenues were 16% total revenues for the current period, compared to 17% for the prior year period. As a percentage of total revenue, sales and marketing expenses were 23% or $2.4 million for the quarter compared to 24% for the same quarter last year.

G&A expenses as a percentage of revenues were up to 11% for the current quarter, compared to 9% for the prior year quarter and that’s primarily due to a reversal of some bonus compensation accrual in the prior year quarter and in this quarter higher legal and audit expenses in the current period.

Our operating earnings were $2.8 million for the current quarter, compared to operating earnings of $675,000 for the same quarter last year, which included a $1.2 million write down of capitalized software.

Interest income and expense, we had an expense of $44,0000, compared to an income of $538,000 for the same quarter last year and that’s primarily due to, we had a currently exchange rate loss of roughly around $200,000 this quarter and we actually had lower yields on our investments. We are yielding roughly about $1.5 million compared to 4.4% last year.

Our EBITDA number was $3.5 million compared to $2.6 million, the same period last year. So our GAAP net income was $1.8 million or $0.14 earnings per diluted share for the quarter and that compares to a net income of $835,000 or $0.06 per earnings diluted share last year.

On an adjusted net income basis, which excludes the amortization of intangible related to acquisitions, the stock options compensation expense, it was $1.9 million or $0.14 earnings per diluted share compared to $1.8 million or $0.13 per share for the same period last year. International revenues for the current quarter were approximately 17% of total revenues, compared to 18% for the same quarter last year.

At this time I’d like to look at year to-date number, nine months ended January 31, 2009, compared to the same period last year. Total revenues decreased 8% to $30.5 million compared to $33.0 million for the same period last year.

License fees decreased 14% to $9 million, compared to $10.4 million. Services revenues also decreased to 29% to $4.2 million year-to-date and that was offset by a 4% increase in maintenance to $17.3 million, compared to $16.6 million in the same period last year.

Looking at gross margins, our overall gross margin increased to 68% compared to 67% in the prior year-to-date period. License fees margins increased to 58% from 57% last year. Services margins were 42%, compared to 52% in the same period last year and that’s due to lower service revenue. Our maintenance margin increased slightly to 79% for the period compared to 78% for the prior year period.

Operating expenses; our gross R&D expenses were 17% of total revenues for the nine months period and that’s exactly as the same period last year. As a percentage of total revenue, sales and marketing expenses were 23% for this period, compared to 22% and our G&A expenses 11% compared to 10% of revenue last year.

So our operating income year-to-date was $6 million, compared to an operating income of $5.9 million last year, which included a $1.2 million write-down of cap software last year. Our EBITDA was $8.1 million for the nine month period, compared to $9.5 million for the same period last year. GAAP net income year-to-date is $4 million or earnings per diluted share $0.31 and that compares to a net income of $4.4 or $0.33 last year.

Our adjusted net income basis year-to-date was $4.4 million earnings per diluted share of $0.34, which excludes the amortization of intangibles related to acquisitions and the stock option compensation expense, compared to net income of $5.7 million or earnings per diluted share of $0.42 for the same period last year, which excludes amortization of intangibles, stock option expense, tax evaluation adjustment and the write-down of cap software last year.

Year-to-date international revenues are 17% of total revenues for both the current period and last year. Looking at the balance sheet, the company’s financial position remains strong with cash investment of $47.3 million as of the end of January 31, 2009. That’s a sequential increase of $2.1 million, compared to the previous quarter, and an increase of 5.9, compared to the same timeframe last year.

Other aspects of the balance sheet are billed accounts receivable of $6.2 million, our unbilled were well over $400,000 for a total AR of. $6.6 million. Deferred revenues were $11.6 million and our stockholder equity is $50.6 million. Our current ratio is $2.9 million and that’s versus $3.1 million last year, and our day sales outstanding is approximately 57 days as of January 31, 2009 and that compares to 67 days in the same time last year.

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

Question-and-Answer Session

Operator

(Operator Instructions) It appears that we have no questions at the time.

Vincent Klinges

Well, thank you everyone for participating on the call and your interest in Logility and we look forward to our next conference call.

Operator

This does conclude today’s program. Thank you so much for your participation. You may disconnect at anytime.

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Source: Logility Inc. F3Q09 (Qtr End 31/01/09) Earnings Call Transcript
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