Logility Inc F3Q08 (Qtr End 01/31/08) Earnings Call Transcript

Mar. 5.08 | About: Logility Inc. (LGTY)

Logility Inc (LGTY) F3Q08 (Qtr End 01/31/08) Earnings Call March 5, 2008 9:00 AM ET

Executives

Vincent C. Klinges - Chief Financial Officer

J. Michael Edenfield - Chief Executive Officer and President

Analysts

David Soetebier - Dutton Associates

Patrick Flavin – Flavin, Blake & Company

Operator

Welcome to today’s teleconference. At this time, all participants are in a listen only mode. Later there will be an opportunity to ask questions during our Q&A session. Please note this call may be recorded. I will now turn the program over to your moderator Mr. Vince Klinges. Go ahead sir.

Vincent Klinges

Morning and welcome to Logility’s Third Quarter Fiscal ’08 Earnings Conference Call. To begin I’d like to remind you that this conference call may contain forward-looking-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: the 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 effective competitive products and pricing and the irregular 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 Logility.

Michael Edenfield

Thanks Vince, good morning everyone. Thank you for participating on this call. I have some comments on the quarter and year-to-date results, then Vince will review the details on the financial results and then we’ll take your questions.

The third quarter marked Logility’s eleventh consecutive quarter of profitability, however license fees were lower than we expected and as a result so were earnings. The short fall on license fee revenues was primarily due to a number of evaluations taking longer than we anticipated.

Third quarter operating earnings were $675,000.00, but would have been substantially higher except for a one time non-cash write down of capitalized software developments costs of approximately $1.2 million.

We did add 18 new customers in the third quarter. Some of the notable new and existing customers placing orders in the third quarter included Arch Chemicals, Bob’s Furniture, GST Autoleather, Huhtamaki, Johnson Diversey Japan, PPG Industries Europe, Puma, SKF, Unilever and Yurman Design. During the quarter, software license agreements were signed with customers located in 14 countries including Australia, Canada, China, Ireland, Italy, Japan, Norway, Pakistan, Singapore, South Africa, Sweden, Switzerland, the United Kingdom and the United States.

The company’s balance sheet remains strong with cash and investments of over $41 million. Logility’s year-to-date results show revenues up 7% over last year and operating earnings up 10%. Year-to-date operating earnings were also impacted substantially by the 1.2 million non-cash write down of Cap software that I mentioned earlier.

Regarding our outlook for the fourth quarter of fiscal 2008, we have enough deals in the pipeline to have a very good fourth quarter; however, our close rate must improve significantly in order to increase our licensing revenues as compared to third quarter.

I would now like to turn the call back over to Vince for a detailed review of the financial results.

Vincent Klinges

Thanks Mike. Comparing the third quarter of fiscal ’08 to the same period last year, total revenues for the quarter decreased 12% to 9.9 million, compared to 11.3 million. And as Mike indicated, the license fees decreased 40% to 2.3 million, compared to 3.9 in the same period last year due to several significant license fee deals being delayed to later quarters. Services and other revenues increased 9% to 2 million, compared to 1.8 million in the same period last year due to increased implementation project work from increased license fees in the prior quarters. Maintenance revenues also increased 1% to 5.7 million compared to 5.6 million for the same quarter last year due to increased license fees in the prior quarters.

Taking a look at costs, excluding the 1.2 million non-cash write-down in Cap software development costs, the overall gross margin was 65% for the current quarter, compared to 70% for the prior year. The license fee margin was 42% for the current quarter, compared to 66% last year as a result of lower license fees. The services margin increased to 66% for the current quarter, compared to 15% due to increased implementation work from prior quarter license fees, sales and also improved building utilization. Maintenance margins were 78% for both the current quarter and the same quarter last year.

Looking at operating expenses, as a percentage of revenues our gross R&D expenses were 17% for both the current quarter in the same period last year. As a percentage of total revenue, sales and marketing expenses were 24% or $2.4 million for the current quarter, compared to 21% for the same quarter last year and that’s primarily due to lower revenues and to a lesser extent due to higher head count and marketing costs this year.

G&A expenses as a percentage of revenues were 9% for the current quarter, compared to 12% of revenues from the prior year quarter and that’s due to lower variable compensation costs and timing of audit and other Sarbanes-Oxley costs when compared to the same period last year.

Operating earnings decreased 75% to 675,000 for the current quarter, compared to operating earnings of 2.7 for the same quarter last year, excluding the 1.2 million write-down of capitalized software, the adjusted operating income was 1.9 million or 29% lower for the same period last year.

Our EBITDA for the quarter was 2.6 million and that compares to 3.4 million last year.

Our GAAP net income was $835,000.00 or $0.06 earnings per diluted share for the quarter and that compares to a net income of 2 million or $0.15 earnings per diluted share for the same period last year.

Adjusted net income which excludes the amortization of intangibles, stock option compensation expense and the write-down of Cap software costs was 1.8 million or $0.13 earnings per diluted share, compared to 2.1 million or $0.16 per diluted share last year.

International revenues for both the current and prior year quarter were 18% of total revenues.

Looking at the nine months ended January 31, 2008, for the same period last year; total revenues year-to-date increased 7% to 33 million, compared to 30.9 million last year. License fees decreased slightly, 1% to 10.4 million, compared to 10.5 million in the same period last year. Services revenues increased 25% to 6 million year-to-date, compared to 4.8 last year. Our maintenance revenues also increased 7% to 16.6 million, compared to 15.6 million in the same period last year.

Looking at cost for the nine month period, overall gross margin increased to 67%, compared to 66% for the nine month period last year.

Our license fees margins decreased to 57%, compared to 60% last year as a result of lower license fees sales.

Services margin increased to 52%, compared to 46% for the same period last year and that’s due to increased services revenues and also improved utilization rates.

Our maintenance margin increased to 78% when compared to 76% during the same period, also due to higher maintenance revenues.

Looking at operating expenses, our total gross R&D expenses were 17% of total revenues for both the current year-to-date and same period last year. As a percentage of total revenues, sales and marketing expenses were 22% of revenues, compared to 24% same period last year. And G&A expenses were 10% compared to 12% of revenues. And this lower percentage was due to lower variable compensation costs and timing of audit and other Sarbanes-Oxley costs when compared to the same period last year.

So Logility had operating income, year-to-date it increased 9% to 5.9 million, compared to operating income of 5.4 million last year and excluding the 1.2 million write-down of capitalized software, the adjusted operating income was 7.1 million or 32% higher for the same period last year.

Our EBITDA year-to-date was 9.5 million and that compares to 7.8 million last year.

Our GAAP net income year-to-date was 4.1 million or earnings per diluted share of $0.33, compared to net income of 4 million or earnings per diluted share of $0.30 last year.

Adjusted net income year-to-date was 5.7 million or adjusted earnings per diluted share of $0.42 and that compares to adjusted net income year-to-date of 4.4 adjusted earnings per diluted share of $0.33 for the same period last year.

International revenues year-to-date were approximately 17% of total revenues and that compares to 16% for the same period last year.

Taking a look at our balance sheet, our company’s financial position remains strong with cash investments of approximately 41.4 million as of January 31, 2008. And that was a sequential increase of 1.7 million compared to the previous quarter and 9.5 million increase compared to the same quarter last year.

Other aspects of the balance sheet, our billed accounts receivable was 6.3 million and unbilled roughly 1 million for a total of 7.3 million of accounts receivable; our deferred revenues are 11.3 and our stockholder equity is 45.7 million. Current ratio on the balance sheet is 3.2 and that compares to 2.4, same period last year. And our day sales outstanding are approximately 67 days as of January 31, 2008 and that compares to 65 days last year.

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

Question-and-Answer Session

Operator

Thank you. At this time if you would like to ask a question, please press the star and 1 on your touch tone phone. You may withdraw your question at any time by pressing the pound key. Once again, if you would like to ask a question, please press the star and 1 on your touch tone phone.

We’ll take our first question from David Soetebier with Denton and Associates. Go ahead please.

Sir, your line is open; you might check your mute function.

David Soetebier – Denton and Associates

Hello.

Michael Edenfield

Hey, David.

David Soetebier – Denton and Associates

Yes, good morning. The G&A number, going forward what type of number should we expect?

Vincent Klinges

Well, it should be somewhere close to the number that we had this quarter, maybe a little slightly higher, but we don’t, we really don’t provide guidance.

David Soetebier – Denton and Associates

That’s a nice improvement versus a year ago. So then on the software write-down, could you give a little more detail on what the, maybe what type of module that was or any thoughts on maybe why that particular applications not selling?

Vincent Klinges

Well, we’re not going to disclose which module it was, because we are out in the market place selling and it’s a product we’ve had for a long time. And it’s done really well, but it’s going in cycles and so we’ve got some active evaluations going on for it right now. So we plan on continuing to license the product to some customers.

David Soetebier – Denton and Associates

And my final question, on the maintenance of 1%. You’ve had good customer growth, so why wouldn’t that number, the year-over-year gain be higher?

Vincent Klinges

Well in the third quarter last year, we had a spike of customers that we had sort of a delay in getting the payments in. So we had put the revenue recognition on hold, then it was a number of them more, we always have a few of those, but this was more than normal because it was related to a business partner who had signed the customers up. And we collected all the money from the business partner and were able to take and it actually spiked our number a little bit last year.

David Soetebier – Denton and Associates

Alright, thank you very much. That’s all I had.

Vincent Klinges

Thank you.

Operator

Once again, if you would like to ask a question, please press the star and 1 on your touch tone phone. We’ll take our next question from Patrick Flavin with Flavin Blake & Co. Go ahead sir.

Patrick Flavin – Flavin Blake & Co.

Good morning gents.

Vincent Klinges

Morning, Pat.

Patrick Flavin – Flavin Blake & Co.

Your write-down on the software was 20% of the overall capitalized software costs Mike. What does that say about the competitiveness of your offering?

Michael Edenfield

Well I would say, obviously for this particular product line, we had not been selling it as much as the other products and so lately it has not been as competitive. Now, we think it can be competitive and we’re going to, we believe we will sell it.

Patrick Flavin – Flavin Blake & Co.

Ok but for what you, in your answer to the earlier question, you said that this was a relatively old product line. I’m just wondering why that would amount to that big a number of your complete suite of products.

Michael Edenfield

Well we’ve been investing in the product like we have our other products and it’s, you know, it’s a product line. We don’t have that many product lines. So I guess it’s about what, 20% of the total.

Patrick Flavin – Flavin Blake & Co.

Ok thank you.

Michael Edenfield

Thank you.

Operator

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

Michael Edenfield

Thank you everyone for participating on this call and your interest in Logility. We look forward to having better numbers to report next quarter. Thank you.

Operator

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

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