Logility, Inc. (LGTY)

F1Q09 Earnings Call

September 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

Presentation

Operator

Thank you for joining us this morning for the Logility first quarter fiscal year 2009 results conference call. (Operator Instructions) At this time I would like to turn the call over to Vincent Klinges, CFO for Logility.

Vincent C. Klinges

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 in general economic conditions, the growth rate of the market for our products and services, timely availability and market acceptance of these products and services, the effect of competitive products on 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.

J. Michael Edenfield

I have some comments on the first quarter results, Vince will review the details on the financial results for the quarter, and then we'll take your questions.

For the first quarter, revenue was $9.4 million, a 22% decrease compared to first quarter last year. Operating earnings were approximately $1 million, which was a decrease of 67% versus first quarter last year. Reduced license fees were the main culprit for the decline in revenues and operating earnings, but maintenance revenues were a bright spot with $5.8 million for the quarter, which was a 10% increase over first quarter last year.

Twenty-three new customers signed license agreements in the first quarter. Customers from six countries signed license agreements with Logility in the quarter. Those countries include Australia, Canada, Japan, Kazakhstan, the Netherlands, and the United States. Some of the notable new and existing customers include Galderma Laboratories, Meyer Corporation, Roomstore Furniture, Siemens Healthcare Diagnostics, Vaughan Foods and Westcon Group North America.

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

So as we look forward to the second quarter, our business model is still in excellent shape and the company continues to have a strong balance sheet, with cash and investments of $44.4 million, which is an increase of $8.2 million from this time last year.

However, we must increase our license fees to meet our earnings and growth objectives. To that end, we are encouraged by our pipeline for the second quarter. It is significantly better than where we were entering the first quarter. The increase is pipeline is due to deals that slipped from prior quarters as well as new prospects moving up the pipeline. While our pipeline is much larger than last quarter, close rates will still be the key and the quarter appears to be backend loaded, as is typical.

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

Vincent C. Klinges

As Mike indicated, total revenues for the quarter decreased 22% to $9.4 million compared to $12 million same quarter last year. License fees decreased 57% to $2 million compared to $4.7 million in the same period last year. Services and other revenues decreased 22% to $1.6 million compared to $2 million in the same period last year, and that's due to decreased implementation project work from lower license fees. Maintenance revenues increased 10% to $5.8 million for the quarter. That compares to $5.3 million in the same quarter last year, and that's primarily due to increased or improved customer retention.

So looking at the costs, overall gross margin was 64% for the current quarter and that compares to 69% the period last year. Our license fee margin decreased to 38% when compared to 65% in the same period, primarily due to lower license fees. Services margins decreased to 42% for the quarter and that compares to 49% and that's due to decreased implementation work from lower license fees. Our maintenance margin was 80% for both the current and prior year quarter.

Looking at our operating expenses, our gross R&D expenses as a percentage of total revenue were up to 19% of total revenues and that compares to 16% and that's due to lower license fees. As a percentage of total revenue, sales and marketing expenses were 26% or $2.5 million for the quarter compared to 20% or $2.5 million for the same quarter last year. G&A expenses as a percentage of revenues were up to 13% for the current quarter. That compares to 11% in the prior year quarter, also due to lower license fees. The overall spend was down by 8% due to lower variable compensation costs and lower headcount compared to the same period last year.

So our operating earnings decreased to $986,000 for the current quarter and that compares to operating earnings of approximately $3 million for the same quarter last year.

Our EBITDA was $1.7 million compared to $3.8 million last year.

Our GAAP net income was $694,000 or $0.05 earnings per diluted share for the quarter and that compares to net income of $1.8 or $0.14 earnings per diluted share for the same period last year.

Our adjusted net income, which excludes the amortization of intangibles related to acquisitions and stock option compensation expense was $817,000 or $0.06 earnings per share and that compared to $2.3 or $0.17 earnings per diluted share in the same period last year.

International revenues for the quarter were up to 19% of total revenues and that compares to 17% for the same quarter last year.

Looking at our balance sheet, the company's financial position remains strong, with cash investments of approximately $44.4 million as of the end of July 2008, and that's a sequential increase of 1.7 from the previous quarter and an increase of 8.2 compared to the same quarter last year.

During the quarter, under the company's authorized stock buyback program, the company purchased approximately 40,000 shares for approximately $300,000.

Also looking at the balance sheet, our billed accounts receivables are $4.6 million; our unbilled's $1.5 or $6.1 million total AR. Deferred revenues are $11.8 and our stockholder equity's $47.2 million.

Our current ratio is 3.4 versus 2.6 last year.

Our days sales outstanding is approximately 59 days as of the end of July 31, 2008 and that compares to 68 days same time last year.

At this time, I'd like to turn the call over to questions. [Nick], do you have any questions for us?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Soetebier - Dutton Associates.

David Soetebier - Dutton Associates

Software amortization, I think it's been running about $700,000 a quarter. Is that still a good number?

Vincent C. Klinges

Actually it's closer to $550,000 right now.

David Soetebier - Dutton Associates

$550,000? Okay. Then on headcount, you mentioned it was down. Could you give us the specifics and then what the headcount is in marketing?

Vincent C. Klinges

The total headcount's 133 people at the end of July and that compares to about 140 people same time last year. So, you know, down about seven people. It's kind of across the board a little bit. Marketing, actually we have 12 people in marketing where last year we had seven, so that's actually up. So the headcounts down in some other areas.

David Soetebier - Dutton Associates

And then on DMI, in some earlier calls you said that they were able to make some sales, some companies that might be using a competitor's product for the total corporation were using DMI in branches and other areas. Is that still going on?

J. Michael Edenfield

Yes.

David Soetebier - Dutton Associates

Maybe could you give us a little more detail on why you think companies aren't closing? Is it other than the economy?

J. Michael Edenfield

I believe it's the economy.

Operator

I'm showing that there are no further questions at this time.

J. Michael Edenfield

Thanks to everyone for participating and your interest in Logility, and we'll look forward to talking with you on the next call.

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