Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Vincent C. Klinges - Chief Financial Officer

J. Michael Edenfield - President, Chief Executive Officer, Director

Analysts

Drake F. Johnstone - Davenport & Co.

David Soetebier - Dutton Associates

Sam Rebotsky - SER Asset Management

Logility, Inc. (LGTY) F2Q08 Earnings Call December 7, 2007 9:00 AM ET

Operator

Welcome to today’s teleconference. (Operator Instructions) I will now turn the program over to Vincent Klinges, Chief Financial Officer. Go ahead, sir.

Vincent C. Klinges

Good morning and welcome to Logility's second quarter fiscal ’08 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 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 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 the irregular pattern of revenues.

In light of these risks and uncertainties, there could 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, CEO of Logility.

J. Michael Edenfield

Thanks, Vince. Good morning, everyone and thank you for participating in this call. I have some comments on the second quarter. Vince will review the details on the financial results and then we will take your questions.

Logility had another good quarter. For the second quarter, revenue was $11.1 million, an 11% increase compared to the same quarter last year. All revenue streams contributed to growth led by services, with 28% year-over-year growth. Maintenance also grew 12% year over year and license fees were up 2% over last year.

Operating earnings were excellent, coming in at $2.2 million, an increase of 49% over second quarter last year.

Some of the notable new and existing customers closed in the second quarter include Atek Medical, CooperVision, Cypress Medical, Henkel North America, Nike, PPG Refinish, Premier Farnell, Electrolux, and SanMar Corporation.

We added 24 new customers in the quarter. Customers from 12 countries signed license agreements with Logility in the quarter. Those countries include Australia, Brazil, China, France, Germany, Italy, Malaysia, South Africa, Switzerland, Thailand, the United Kingdom and the United States.

We continue to be encouraged by the number of new customers licensing our products. Customers are a source of future maintenance and implementation services revenue, as well as being excellent prospects for additional product sales.

The company continues to have a strong balance sheet with cash and investments of almost $40 million and no debt. Logility's strong financial position and organizational stability continues to be a competitive advantage versus many of our competitors. Our two brand strategy continues to work. These brands Demand Solutions and Logility Voyager solutions enable us to provide solutions across the entire spectrum of corporations ranging from Fortune 100 enterprises to very small companies. This substantially increases the market we can provide our supply chain solutions to.

We also expanded our distribution channel for Demand Solutions with a new var focusing on the federal government marketplace and a new var in Shanghai.

Regarding our outlook for the third quarter of fiscal 2008, the third quarter has an opportunity to be better than last year’s third quarter. As we have discussed in the past, our license fee revenue has been somewhat seasonal. The trend based on the last few years is approximately 40% to 45% of licensees coming in the first half of the fiscal year; 55% to 60% generated in the second half of the fiscal year. If that trend continues, we will have a terrific close for fiscal 2008.

The pipeline gives us the opportunity to finish the year strongly. As usual, close rates will be key.

I would now like to turn the call over to Vince for a detailed review of the financial results for the second quarter and year-to-date.

Vincent C. Klinges

Thanks, Mike. Comparing the second quarter of fiscal 2008 with the same period last year, as Mike indicated our overall revenues increased 11% to $11.1 million compared to $10.0 million last year. Our licensees increased 2% to $3.4 million compared to $3.3 million in the same period last year. Services and other revenues increased 28% to $2 million compared to $1.6 million the same period last year, and that was due to increased implementation project work from increased license fees in the prior quarters and also better billing utilization.

Our maintenance revenues increased 12% to $5.7 million for the quarter compared to $5.1 million for the same quarter last year, primarily due to increased license fees. Our overall gross margin increased to 66% for the current quarter compared to 65% for the same quarter last year. Our license fee margin was 55% for both periods. Services margins increased to 50% for the current period compared to 47% last year and that again is due to increased implementation work from prior license fee sales and improved building utilization. Maintenance margin was 78% for this quarter when compared to 76% at the same time last year and that’s due to increased revenues.

Looking at operating expenses, our gross R&D expenses increased 11% compared to last year due to increased investments in our product development. As a percentage of revenues, the gross R&D expenses are down to 17% compared to 18%, and that’s due to higher revenues. As a percentage of total revenues, sales and marketing expenses were 22% or $2.4 million for the quarter, and that compares to 24% for the same quarter last year.

G&A expenses as a percentage of revenue were 12% for the current quarter compared to 13% for the prior year quarter and that’s also due to higher revenues. So our operating earnings increased 49% to $2.2 million for the current quarter compared to operating earnings of $1.5 million for the same quarter last year.

Our EBITDA was $3 million compared to $2.3 million last year. Our GAAP net income increased 50% to $1.7 million or $0.13 earnings per diluted share for the quarter and that compares to a net income of $1.1 million or $0.08 earnings per diluted share for the same period last year.

Adjusted net income, which excludes the amortization of intangibles related to acquisitions and stock option compensation expense, was $1.8 million or $0.14 earnings per diluted share compared to $1.3 million or $0.10 earnings per diluted share last year.

International revenues for the quarter were up to 16% of total revenues compared to15% for the same quarter last year.

Looking at the six months ended October 31 ’07 compared to the same period last year, total revenues year-to-date increased 18% to $23.1 million compared to $19.6 million last year, and this was mainly due to license fees which increased 22% to $8.1 million compared to $6.6 million over the same period last year. Also, services revenues increased 35% to $4.1 million year-to-date compared to $3 million last year. Maintenance revenues also increased 10% to $11 million compared to $10 million in the same period last year.

Our overall gross margins year-to-date increased to 67% compared to 64%. License fees margins increased to 61% compared to 57% last year. Our services margins were 50% compared to 44% for the same period last year and our maintenance margin also increased to 79% when compared to 75% last year.

Looking at operating expenses year-to-date, our gross R&D expenses were 17% of total revenues compared to 18% in the same period last year. As a percentage of total revenues, sales and marketing expenses were 21% year-to-date compared to 25%. G&A expenses were 11% compared to 12% of revenues last year.

Logility year-to-date had operating income increase of 91% to $5.2 million compared to operating income of $2.7 million last year. Our EBITDA was $6.8 million compared to $4.4 million last year, so GAAP net income was $3.5 million, or earnings per diluted share of $0.26 compared to net income of $2 million, or earnings per diluted share of $0.15.

Adjusted net income year-to-date was $4.2 million, or $0.31 earnings per diluted share. That compares to $2.4 million earnings per diluted share of $0.18. International revenues year-to-date were approximately 16% of total revenues and that compares to 15% year-to-date last year.

Looking at the balance sheet, the company’s financial position remains strong with cash and investments of approximately $39.7 million as of the end of October 31, 2007, with no debt. That is a sequential increase $3.5 million and a year-over-year increase of $9.9 million.

Looking at other aspects of the balance sheet, our billed accounts receivables approximately $5 million. Our unbilled is $1.4 million, for a total of $6.3 million. Working capital is $33.4 million. Our deferred revenues are $10.8 million and our stockholder equity is $44.6 million.

Our current ratio is up to 2.8 compared to 2.0 in the same period last year. Our day sales outstanding improved to 52 days as of the end of October 31, 2007, and that compares to 86 days the same time last year. This decrease is primarily due to timing of license fee sales closing towards the end of last year’s quarter, which temporarily raises accounts receivable balance and therefore the DSO last year, and also improved collections in the current quarter.

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

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Drake Johnstone with Davenport. Go ahead, sir.

Drake F. Johnstone - Davenport & Co.

A question for you; so Logility in the first half of fiscal ’08 grew software license revenue 22% year over year and you had lower growth there in Q2 and it was strong in Q1. From what you’ve said, it sounds like you’ve got a strong pipeline for Logility. So the question I have is do you think [it’s staying [inaudible]] at the pace you expected, has good potential to generate software license growth up in that range? That 20 -- sort of in the 20s [would be sort of] typical for Logility?

J. Michael Edenfield

We have the potential to do that, Drake. We’ve got a good pipeline for the third quarter, better than we had last quarter and we’re excited about the opportunity. As we discussed in the past, the quarter sometimes might not be strong in third quarter and we might be weaker in fourth quarter or vice versa. I think last quarter or last year for third quarter, we thought we were going to do super and it really ended up we did good, but we did super in fourth quarter. But we are very excited about the pipeline we have going into third quarter and we think we’ll have a strong second half.

Drake F. Johnstone - Davenport & Co.

Okay, and then to what -- is your pipeline, do you feel it’s strong for both Logility and Demand Solutions? Is it sort of balanced between the two or is it skewing towards one more than the other?

J. Michael Edenfield

No, it’s strong for both.

Drake F. Johnstone - Davenport & Co.

And to what extent do your new vars, you’ve got a new var for Demand Solutions for the [inaudible] side, a new var targeted at government, also a new var in Shanghai. Do you already have potential orders associated with those vars?

J. Michael Edenfield

Well, there’s going to be some start-up time for the new vars. We do have -- the government one, in particular, is going to take some time. The one in China does have a nice prospect but we’re not really counting on anything there. That would be a pleasant surprise in the next quarter or two.

But we’ve also been working hard to increase the size of the distribution channel within the existing var channel by help coaching them to expand their sales force. So we have on board more sales people within the existing var network than we did this time last quarter, and definitely than we did this time last year.

So we’re not only expanding the vars, many of our vars are getting on board and expanding their sales channel within their existing territories.

Drake F. Johnstone - Davenport & Co.

And if you looked at the type of business that Demand Solutions has orders in the pipeline for and also Logility, is the deal size across all ranges or are [A deals] doing larger than before?

J. Michael Edenfield

I’d say Demand Solutions probably has more six-figure deals than they did this time last year. That’s the -- the new management there has done a good job of focusing on increasing the average sales price. And then Logility is probably about the same as it normally is, deal size. Maybe a little bigger.

Operator

Thank you. We’ll take our next question from David Soetebier with Dutton Associates. Go ahead, please.

David Soetebier - Dutton Associates

Good morning, gentlemen. Could you talk about the size of the contracts in the quarter? Were there a number of big contracts? And do you have a number of big contracts in the pipeline?

J. Michael Edenfield

I would say the size was about normal. There wasn’t anything very large in the quarter, just typical, I would say, for both brands.

This coming quarter we do have a couple of nice sized deals in the quarter that -- in the pipeline, I should say, for the quarter that could make a difference. We’ll have to see if we get those or not.

David Soetebier - Dutton Associates

And could you quantify the increase in the Logility in-house sales force now versus a year ago?

J. Michael Edenfield

I think we have two or three more people in the sales organization than we had this time last year.

David Soetebier - Dutton Associates

And on the -- there was a sequential -- you know, you were up against a tough compare in the licensee sales, $3.4 million versus last quarter. Would that basically be maybe last quarter had two more sales?

J. Michael Edenfield

You’re talking about Q1 versus Q2?

David Soetebier - Dutton Associates

Right, Q2 versus Q1, right. Did Q1 have maybe two more Logility sales?

J. Michael Edenfield

It had a pretty large contract in the quarter in Q1 and probably had another -- I haven’t looked back at Q1, to be honest with you, but probably had another incremental sale or two.

David Soetebier - Dutton Associates

All right. Thank you very much.

Operator

(Operator Instructions) We’ll take our next question from Sam Rebotsky with SER Asset Management. Go ahead, please.

Sam Rebotsky - SER Asset Management

Good morning, gentlemen. The 52 days outstanding of accounts receivable is indicative that you had sales in the pipeline that might close in the beginning of the next quarter. How significant was your expected sales in the beginning of the next quarter compared to this particular quarter?

Vincent C. Klinges

The DSO is a function of how fast you collect your outstanding receivables. This doesn’t link to any kind of future pipeline information but what it does show you is that we are collecting our accounts receivables very timely.

Sam Rebotsky - SER Asset Management

I guess my question is not -- I’m making an inference that if you made a sale at the end of the quarter, the days outstanding would have increased. That’s what you --

Vincent C. Klinges

Oh, yes, that’s true, yes.

Sam Rebotsky - SER Asset Management

So I’m sort of making a judgment that you had a lot of sales that you would have liked to make at the end of this quarter that will go into the next quarter, so is that fairly significant?

J. Michael Edenfield

I wouldn’t say it’s anymore significant than any other quarter.

Sam Rebotsky - SER Asset Management

Okay, and as far as not closing any sales, is there any -- in other words -- you don’t think it’s anymore significant. Okay, now let me ask, as far as -- I guess the stock of Logility the last quarter, I think American Software bought some more. Is there any other buying taking place of Logility? What’s the ability to buy Logility stock in the open market? What is the open supply there?

Vincent C. Klinges

Last quarter, the first quarter we purchased 30,000 Logility stock --

J. Michael Edenfield

Logility purchased.

Vincent C. Klinges

Logility purchased.

Sam Rebotsky - SER Asset Management

Okay, and --

Vincent C. Klinges

We did not have any activity in the second quarter. The current authorization is roughly around 250,000 shares.

Sam Rebotsky - SER Asset Management

Is this another -- one of those things that you expressed that it’s a good idea for Logility to be public and American Software, so if you continue buying stock, is that a good idea or is it preferable to do a transaction as one company? What’s your thoughts about continuing to buy the stock, being less stock out there or which is -- even though it meets the price you want when you do the purchase.

J. Michael Edenfield

Well, we have a lot of cash and if somebody presents a block to us and we think it’s a reasonable price, we might buy it, depending on, you know, the circumstances at the time.

Sam Rebotsky - SER Asset Management

And the -- with the $30 million in cash, about $3 a share for Logility, it would appear that if an acquisition came along, you would -- of a company, you would presumably do that in Logility or is there a preference or what’s your thoughts about doing the acquisition in American Software or Logility?

J. Michael Edenfield

It would depend on the company we were looking at and where they best fit. Both companies are looking to make acquisitions. I’m focused on looking at them for Logility, obviously, but both companies would -- it would depend on the acquisition and where it fit best, in our opinion.

Sam Rebotsky - SER Asset Management

And as far as the cash dividend from Logility, I guess there’s been no decision on that, even though there’s this $3 per share in cash?

J. Michael Edenfield

No, I don’t -- we haven’t been contemplating a cash dividend, to my knowledge, anyway.

Sam Rebotsky - SER Asset Management

All right. Sounds good. Logility's done very well and along with American Software. Good luck.

Operator

We appear to have no further questions at this time, sir.

J. Michael Edenfield

Well, thank you everyone for being on this call and your interest in and support of Logility and we look forward to the next successful conference call. Bye.

Operator

This concludes today’s teleconference. Thank you for your participation and you may disconnect at any time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Logility F2Q08 (Qtr End 10/31/07) Earnings Call Transcript
This Transcript
All Transcripts