<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------- ---------------------
Commission File Number: 0-23057
--------------------------------------------------------
LOGILITY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2281338
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(404) 261-9777
----------------------------------------------------
(Registrant's telephone number, including area code)
None
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practicable date.
Class Outstanding at March 10, 1999
- -------------------------- -----------------------------
Common Stock, no par value 13,455,900 Shares
<PAGE>
LOGILITY, INC.
Form 10-Q
Quarter Ended January 31, 1999
Index
Page
Number
------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
January 31, 1999 and April 30, 1998 3
Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended January 31, 1999 and 1998 4
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 1999 and 1998 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II - Other Information 19-22
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 663 $ 1,006
Short-term investments 22,467 29,559
Trade accounts receivable, less allowance for doubtful
accounts of $407 and $421 at January 31, 1999 and
April 30, 1998:
Billed 8,243 7,754
Unbilled 1,446 3,040
Prepaid expenses and other current assets 604 731
-------- --------
Total current assets 33,423 42,090
Furniture and equipment, less accumulated depreciation 1,856 1,583
Intangible assets, less accumulated amortization 5,971 6,865
Other assets, net 1,030 292
-------- --------
$ 42,280 $ 50,830
======== ========
Liabilities and Shareholders' equity:
Current liabilities:
Accounts payable 1,042 1,144
Accrued compensation and related costs 1,783 1,436
Deferred revenues 5,304 4,157
Other current liabilities 2,394 2,347
-------- --------
Total current liabilities 10,523 9,084
Deferred income taxes 2,509 2,509
-------- --------
Total liabilities 13,032 11,593
-------- --------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares issued - -
Common stock, no par value; 20,000,000 shares authorized;
13,830,000 shares issued at January 31, 1999
and April 30, 1998 - -
Additional paid-in capital 43,187 43,187
Treasury stock, at cost - 369,300 shares and 205,300 shares at
January 31, 1999 and April 30, 1998 (3,384) (1,882)
Accumulated deficit (10,555) (2,068)
-------- --------
Total shareholders' equity 29,248 39,237
Commitments and contingencies - -
-------- --------
$ 42,280 $ 50,830
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
Item 1. Financial Statements (continued)
LOGILITY. INC.
Condensed Statements of Operations (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
1999 1998 1999 1998
---- ---- ----- -----
<S> <C> <C> <C> <C>
Revenues:
License fees $ 3,338 $ 5,026 $ 7,671 $14,733
Maintenance 1,987 1,778 5,784 5,335
Services 2,002 1,647 5,726 5,132
------- ------- ------- -------
Total revenues 7,327 8,451 19,181 25,200
------- ------- ------- -------
Cost of revenues:
License fees 690 1,376 3,670 3,951
Maintenance 551 381 1,561 1,124
Services 773 918 2,481 2,494
------- ------- ------- -------
Total cost of revenues 2,014 2,675 7,712 7,569
------- ------- ------- -------
Gross margin 5,313 5,776 11,469 17,631
------- ------- ------- -------
Operating expenses:
Research and development 2,242 2,166 7,962 6,217
Less: Capitalized development (1,043) (848) (3,084) (2,276)
Sales and marketing 3,346 3,541 11,672 10,213
General and administrative 742 846 3,098 2,284
Write-off of software development costs - - 1,300 -
------- ------- ------- -------
Total operating expenses 5,287 5,705 20,948 16,438
------- ------- ------- -------
Operating income (loss) 26 71 (9,479) 1,193
Interest income 311 400 1,042 463
------- ------- ------- -------
Income (loss) before income taxes 337 471 (8,437) 1,656
Income taxes 50 0 50 0
------- ------- ------- -------
Net income (loss) $ 287 $ 471 $(8,487) $ 1,656
======= ======= ======= =======
Net income (loss) per common share, diluted $ 0.02 $ 0.03 $ (0.63) $ 0.13
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding, diluted 13,644 13,805 13,500 12,704
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
--------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,487) $ 1,656
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,198 3,403
Charge for asset impairment 1,230 -
(Increase) decrease in assets:
Accounts receivable 1,105 (3,673)
Other assets 151 (255)
Increase (decrease) in liabilities:
Accounts payable, accrued costs and other 292 1,558
Deferred revenues 1,147 349
------- --------
Net cash provided by (used in) operating activities (1,364) 3,038
------- --------
Cash flows from investing activities:
Additions to capitalized computer software development costs (3,084) (2,276)
Additions to purchased computer software costs (24) (73)
Sales (purchases) of short-term investments, net 7,092 (9,724)
Minority investment in business (763) -
Purchases of furniture and equipment (698) (786)
------- --------
Net cash provided by (used in) investing activities 2,523 (12,859)
------- --------
Cash flows from financing activities:
Deferred income taxes resulting from Tax Sharing Agreement - (110)
Distributions to American Software, Inc. - (231)
Net proceeds from issuance of common stock - 33,152
Repurchases of common stock (1,502) (282)
------- --------
Net cash provided by (used in) financing activities (1,502) 32,529
------- --------
Net change in cash (343) 22,708
Cash and cash equivalents at beginning of period 1,006 732
------- --------
Cash and cash equivalents at end of period $ 663 $ 23,440
======= ========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
A. Basis of Presentation
The accompanying condensed financial statements of Logility, Inc. (the
"Company"), are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The financial information presented in the condensed
financial statements reflects all normal recurring adjustments that are, in
the opinion of management, necessary for a fair presentation of the periods
indicated. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K, as filed with the SEC on July 28, 1998.
The interim results reflected in the condensed financial statements are not
necessarily indicative of the results to be expected for the full year.
The Company is an approximately 84% owned subsidiary of American Software,
Inc. (American Software), a publicly held applications software provider of
enterprise resource planning solutions (NASDAQ - AMSWA).
B. Completion of Initial Public Offering
On October 10, 1997, the Company successfully completed its initial public
offering of common stock. The Company sold 2.2 million shares of Common Stock
in the initial public offering for approximately $31.9 million less issuance
related costs of $3.1 million.
On November 6, 1997, the Company sold 330,000 shares of Common Stock as part
of the underwriters' over-allotment from the initial public offering for $4.8
million less issuance costs of approximately $400,000.
C. Purchase of Minority Interest
Effective July 31, 1998, the Company finalized the purchase of a 10% minority
interest in INSIGHT, a leading provider of optimization technology for supply
chain modeling and logistics systems. This investment will be accounted for
on the cost basis.
D. Write-off of Software Development Costs
During the three months ended October 31, 1998, the Company incurred a charge
against earnings of $1.3 million. This charge resulted from the write-off of
certain capitalized software development costs, which mainly relate to legacy
technology within the Company's warehouse management product line. These
older products have been rendered obsolete by the market's acceptance of the
Company's Windows NT version of WarehousePRO(TM).
6
<PAGE>
Item 1. Financial Statements (continued)
E. Repurchase of Common Stock
On November 19, 1998, the Company's Board of Directors approved a resolution
authorizing the Company to repurchase up to 800,000 shares of the Company's
common stock through open market purchases at prevailing market prices. The
timing of any repurchases will depend on market conditions, the market price
of the Company's common stock and management's assessment of the Company's
liquidity and cash flow needs. This repurchase plan is in addition to a
previous plan to repurchase 350,000 shares which was completed in November
1998.
F. Net Earnings (Loss) Per Share of Common Stock
On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS No. 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available
to common shareholders are based on the weighted average number of common
shares outstanding. Diluted earnings per common share available to common
shareholders are based on the weighted average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options. All prior period net earnings (loss) data presented in these
condensed financial statements have been restated to conform to the
provisions of SFAS No. 128.
G. Recent Accounting Pronouncements
On May 1, 1998, the Company adopted Statement of Position 97-2, Software
Revenue Recognition, issued by the Accounting Standards Executive Committee
in October 1997, effective for financial statements for fiscal years
beginning after December 15, 1997. The implementation of this statement has
not had a material impact on the Company's unaudited condensed financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
131 requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997 with the first disclosure required in the
annual financial statements thereafter. The Company will evaluate the need
for such disclosures at that time.
7
<PAGE>
LOGILITY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of manufacturers,
suppliers, distributors, retailers and other organizations along the "value
chain." The value chain refers to the complex network of relationships that
organizations maintain with trading partners to source, manufacture and deliver
products to the customer. The Company's solution, Logility Value Chain
Solutions, consists of an integrated client-server software suite that provides
advanced collaborative planning and integrated logistics capabilities that are
designed to reduce inventory costs, improve forecast accuracy, decrease order
cycle times, optimize production scheduling, streamline logistics operations,
reduce transportation costs and improve customer service. The Company markets
its solution world-wide, primarily to large enterprises that require a
comprehensive planning and execution solution. Sales are made through a
dedicated sales force and through relationships with third-party vendors
(including American Software) and service providers.
The Company previously conducted its business and operations as three separate
business units of American Software: a supply chain planning software group, a
warehouse management software group and a transportation management software
group. Effective January 1997, American Software transferred substantially all
of the business, operations (including research and development), assets and
associated liabilities of its Supply Chain Planning division to the Company.
Effective August 1997, American Software transferred to the Company the
WarehousePRO software and substantially all associated operations, assets and
liabilities. Also effective August 1997, American Software's wholly-owned
subsidiary, Distribution Sciences, Inc., was merged into the Company,
transferring its business, operations, assets and liabilities, including the
Transportation Planning and Transportation Management software, to the Company.
The Company's condensed financial statements included herein present the
combined assets, liabilities and results of operations for the three business
units for all periods.
The Company's revenues are derived primarily from three sources: software
licenses, maintenance and services. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License fee
revenues are recognized at the time of product delivery and fulfillment of
acceptance terms, provided that the fee is fixed and determinable and collection
is deemed probable. Maintenance agreements typically are for a one- to three-
year term and usually are entered into at the time of the initial product
license. Maintenance revenues are recognized ratably over the term of the
maintenance agreement. Services revenues consist primarily of fees from
software implementation, training, consulting and customization services and are
recognized as the services are rendered.
8
<PAGE>
Item 2. Management's Discussion (continued)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the three months ended January 31, 1999 and 1998:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
---------------------------- ----------------
1999 1998 1999 vs 1998
---------- ---------- ----------------
<S> <C> <C> <C>
Revenues:
License fees 46% 59% (34)%
Maintenance 27 21 12
Services 27 19 22
--- --- ---
Total revenues 100 100 (13)
--- --- ---
Cost of revenues:
License fees 9 16 (50)
Maintenance 8 5 45
Services 11 11 (16)
--- --- ---
Total cost of revenues 27 32 25
--- --- ---
Gross margin 73 68 (8)
--- --- ---
Operating expenses:
Research and development, net 16 16 (9)
Sales and marketing 46 42 (6)
General and administrative 10 10 (12)
--- --- ---
Total operating expenses 72 68 (7)
--- --- ---
Operating income 1 1 (63)
Interest income 4 5 (22)
--- --- ---
Income before income taxes 5 6 (28)
Income taxes 1 0 nm
--- --- ---
Net income 4 6 (39)
=== === ===
</TABLE>
nm - not meaningful
9
<PAGE>
Item 2. Management's Discussion (continued)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the nine months ended January 31, 1999 and 1998:
<TABLE>
<CAPTION>
Percentage of % Change
Total Revenues in Dollars
------------------------------- -----------------
1999 1998 1999 vs 1998
------------- ----------- -----------------
<S> <C> <C> <C>
Revenues:
License fees 40% 58% (48)%
Maintenance 30 21 8
Services 30 20 12
--- --- ---
Total revenues 100 100 (24)
--- --- ---
Cost of revenues:
License fees 19 16 (7)
Maintenance 8 4 39
Services 13 10 (1)
--- --- ---
Total cost of revenues 40 30 2
--- --- ---
Gross margin 60 70 (35)
--- --- ---
Operating expenses:
Research and development, net 25 16 24
Sales and marketing 61 41 14
General and administrative 16 9 36
Write-off of software development costs 7 0 nm
--- --- ---
Total operating expenses 109 65 27
--- --- ---
Operating income (loss) (49) 5 nm
Interest income 5 2 nm
--- --- ---
Income (loss) before income taxes (44) 7 nm
Income taxes 0 0 0
--- --- ---
Net income (loss) (44) 7 nm
=== === ===
</TABLE>
nm - not meaningful
10
<PAGE>
Item 2. Management's Discussion (continued)
General Market Conditions
- -------------------------
Beginning in the second calendar quarter of 1998 (the Company's first quarter of
fiscal 1999), several application software companies began to experience
slowdowns in the sales of their software products. These companies, as well as
industry experts, have identified the following factors as contributors to this
slowdown in the buying market:
- - Significant financial commitments devoted to Year 2000 readiness, which have
led to limited discretionary financial resources available for the purchase of
software products such as the Company's.
- - Weakness in the overall global economy, which has affected certain customers'
businesses and their buying tendencies.
- - Public announcements by large Enterprise Resource Planning (ERP) software
vendors regarding plans for introduction of new products within the Company's
target markets which have led to confusion and indecision by prospective
buyers.
The Company believes these factors, as well as possible others, have to some
degree contributed to the Company's reduced revenues in each of the Company's
first three quarters of fiscal 1999, particularly in the area of software
license fees.
THREE MONTHS ENDED JANUARY 31, 1999 AND 1998:
- ---------------------------------------------
REVENUES:
The Company's total revenues decreased 13% to $7.3 million from $8.5 million for
the comparable quarter a year ago. This decrease was largely due to a reduction
in the Company's product sales, partially offset by a 12% increase in software
maintenance revenues, and a 22% increase in services revenues. International
revenues represented approximately 18% of total revenues in the quarter ended
January 31, 1999 compared to approximately 25% a year ago.
LICENSES. License fee revenues decreased significantly in the quarter ended
January 31, 1999 from a year ago. The Company believes that several of its
potential customers continued to delay purchase decisions due to a variety of
factors, including concern over global economic conditions and limited resources
due to the allocation of resources to Year 2000 system projects. The direct
sales channel provided approximately 80% of the license fee revenues for this
quarter compared to approximately 65% in the comparable quarter a year ago.
This increase is mainly due to better sales performance from the Company's
direct sales force, combined with the overall low level of sales activity in the
quarter ended January 31, 1999. The Company's indirect sales channel is
principally through American Software.
MAINTENANCE. Maintenance revenues increased 12% to $2.0 million from a year
ago, due to an increase in the installed base of customers. Maintenance
revenues have a direct relationship to current and historic license fee
revenues, since license fees are the source of new maintenance customers.
SERVICES. Services revenues totaled $2.0 million, a 22% increase from the same
period a year ago. This increase was primarily the result of a number of new
services contracts, including some specific customer system modification
projects.
11
<PAGE>
Item 2. Management's Discussion (continued)
GROSS MARGIN:
Total gross margin for the quarter ended January 31, 1999 was 73% compared to
68% a year ago. The gross margin on license fees rose to 79% from 73% a year
ago. This increase was mainly due to a reduction of amortization expense of
capitalized software products. Approximately $470,000 of this reduction was
related to the nonrecurring charge for capitalized software impairment taken in
the second quarter of fiscal 1999. Additionally, a number of capitalized
projects became fully amortized during the second quarter. The gross margin on
maintenance revenues decreased to 72% compared to 79% a year ago, largely due to
increased Company resources utilized in customer support. The gross margin on
services revenues increased to 61% compared to 44% in the same period a year
ago, due to a number of fixed-fee services contracts relating to customer system
modifications. The Company expects the future gross margin on services
revenues to more closely approximate the historical level, which has been
50 - 55%.
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
January 31, Percent January 31,
1999 Change 1998
----------- --------- ----------------
<S> <C> <C> <C>
Gross product development costs $ 2,242 4 % $2,166
Percentage of total revenues 31 % 26 %
Less: Capitalized development (1,043) 23 % (848)
Percentage of gross prod. dev. costs 47 % 39 %
------- -- ------
Product development expenses $ 1,199 (9)% $1,318
Percentage of total revenues 16 % 16 %
</TABLE>
Gross product development costs increased 4% in the quarter ended January 31,
1999 compared to a year ago as a result of the Company's continued investment in
new product development. Capitalized development increased as well, growing 23%
from a year ago, while the rate of capitalized development as a percentage of
gross product development costs increased to 47% from 39% a year ago. Both the
amount of product development spent as well as the amount capitalized have
remained fairly consistent over the last three quarters. Product development
expenses, as a percentage of total revenues, remained unchanged from a year ago
at 16%.
SALES AND MARKETING. Sales and marketing expenses decreased 6% from a year ago,
mainly due to cost containment measures taken by the Company as a result of the
overall deterioration in market conditions. As a percentage of total revenues,
sales and marketing expenses were 46% for the quarter ended January 31, 1999
compared to 42% for the quarter ended January 31, 1998. This increase was
primarily due to a decrease in overall revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 12%
to approximately $742,000 from a year ago, mainly as a result of the Company's
reduction in employees and the resulting decrease in administrative costs. For
the three months ended January 31, 1999, the average number of employees was
approximately 189, compared to approximately 205 for the three months ended
January 31, 1998.
12
<PAGE>
Item 2. Management's Discussion (continued)
During the quarter ended October 31, 1998, the Company reduced its workforce by
approximately 40 people through staff reductions and attrition. The majority of
these reductions were within sales and marketing positions. These reductions
were considered necessary to enable the Company to focus on utilizing its most
effective sales resources towards the limited sales opportunities that exist in
the currently stalled buying market. The Company believes that taking this
action will increase its sales effectiveness. In addition to these staff
reductions the Company has reduced certain nonessential expenditures in order to
focus on returning the Company to profitability. The impact of these actions
was first realized in the quarter ended January 31, 1999.
INTEREST INCOME:
Interest income is comprised of investment earnings from the net proceeds of the
Company's initial public offering. The Company's investments are short term in
nature. For the quarter ended January 31, 1999, these investments generated a
yield of approximately 5.4%.
INCOME TAXES:
In accordance with FASB Statement No. 109, "Accounting for Income Taxes", the
Company is required to apply a separate company approach in calculating its
income tax provision. For the quarter ended January 31, 1998, the Company
recorded a provision for income taxes of $50,000, mainly for state income tax
obligations. The Company entered into a Tax Sharing Agreement with American
Software, Inc. on January 23, 1997 that does not allow the Company to utilize
its Net Operating Loss Carryforwards at this time.
THREE MONTHS ENDED JANUARY 31, 1999 AND OCTOBER 31, 1998:
- ---------------------------------------------------------
As a result of the adverse market conditions previously noted, the Company took
several steps to reduce its expense structure in an attempt to return to
operating profitability as soon as possible. These steps included reducing the
Company's direct sales force in order to improve sales effectiveness through the
use of the Company's most productive sales executives. Additionally, the
Company reduced other operating expenses, mainly sales and marketing
expenditures, during the latter portion of the Company's second fiscal quarter.
As a result of these market conditions and the steps taken in response, the
Company believes it is meaningful to compare key financial results from the
Company's third quarter ended January 31, 1999 to the Company's second quarter
ended October 31, 1998.
REVENUES:
The Company's total revenues increased 37% to $7.3 million from $5.3 million for
the quarter ended October 31, 1998. This increase was largely due to an
increase in the Company's product sales, coupled with a 9% increase in software
maintenance revenues, and a 16% increase in services revenues.
LICENSES. License fee revenues increased 87% in the quarter ended January 31,
1999 from the quarter ended October 31, 1998. The Company believes it is
realizing results from the measures taken previously to utilize its sales force
in a more focused and efficient manner.
MAINTENANCE. Maintenance revenues increased 9% to $2.0 million from the quarter
ended October 31, 1998, due to an increase in the installed base of customers.
Maintenance revenues have a direct relationship to current and historic license
fee revenues, since license fees are the source of new maintenance customers.
13
<PAGE>
Item 2. Management's Discussion (continued)
SERVICES. Services revenues totaled $2.0 million, a 16% increase from the
quarter ended October 31, 1998. This increase was primarily the result of a
number of new services contracts, including some specific customer system
modification projects.
GROSS MARGIN:
Total gross margin for the quarter ended January 31, 1999 was 73% compared to
46% for the quarter ended October 31, 1998. The gross margin on license fees
rose to 79% from 13% for the previous quarter, while gross margin on maintenance
revenues remained unchanged at 72% to the previous quarter. The gross margin on
license fees increased because of a provision for doubtful accounts receivable
taken, as well as poor performance in product sales against the relatively fixed
cost of license fees, in the quarter ended October 31, 1998. The gross margin on
services revenues also increased to 61% compared to 50% in the prior quarter,
due to a number of fixed-fee services contracts relating to customer system
modifications in the current quarter. The company expects the future gross
margin on services revenues to more closely approximate the historical level,
which has been 50 - 55%.
OPERATING EXPENSES:
SALES AND MARKETING. Sales and marketing expenses decreased 19% from the
quarter ended October 31, 1998. As a percentage of total revenues, sales and
marketing expenses were 46% for the three months ended January 31, 1999 compared
to 77% for the three months ended October 31, 1998. The Company believes that
this cost reduction is a result of the Company's efforts to streamline and focus
its sales and marketing efforts.
GENERAL AND ADMINISTRATIVE. For the three months ended January 31, 1999,
general and administrative expenses decreased 30% to approximately $742,000 from
the quarter ended October 31, 1998, mainly as a result of the Company's
reduction in employees and the resulting decline in administrative costs. For
the three months ended January 31, 1999, the average number of employees was
approximately 189, compared to approximately 220 for the three months ended
October 31, 1998.
NINE MONTHS ENDED JANUARY 31, 1999 AND 1998:
- --------------------------------------------
REVENUES:
The Company's total revenues decreased 24% to $19.2 million from $25.2 million
for the comparable period a year ago. This decrease was largely due to a
reduction in the Company's product sales, partially offset by an 8% increase in
software maintenance revenues, and a 12% increase in services revenues.
International revenues represented approximately 16% of total revenues in the
nine ended January 31, 1999 compared to approximately 12% a year ago. This
increase was mainly due to a decrease in domestic revenues.
LICENSES. License fee revenues decreased significantly in the nine months ended
January 31, 1999 from a year ago. The Company believes that several of its
potential customers continued to delay purchase decisions due to a variety of
factors, including concern over global economic conditions and limited resources
due to the allocation of resources to Year 2000 system projects. The direct
sales channel provided approximately 81% of the license fee revenues for this
period compared to approximately 64% in the comparable period a year ago. This
increase is mainly due to low sales contribution from American Software coupled
with the overall low level of sales activity in the nine months ended January
31, 1999. The Company's indirect sales channel is principally through American
Software.
14
<PAGE>
Item 2. Management's Discussion (continued)
MAINTENANCE. Maintenance revenues increased 8% to $5.8 million from a year ago,
due to an increase in the installed base of customers. Maintenance revenues
have a direct relationship to current and historic license fee revenues, since
license fees are the source of new maintenance customers.
SERVICES. Services revenues totaled $5.7 million, a 12% increase from the same
period a year ago. This increase was primarily the result of a number of new
services contracts, including some specific customer system modification
projects.
GROSS MARGIN:
Total gross margin for the nine months ended January 31, 1999 was 60% compared
to 70% a year ago. The gross margin on license fees fell to 52% from 73% a year
ago, due mainly to decreasing license fee revenues combined with the relatively
fixed cost of license fees. Gross margin on maintenance revenues decreased to
73% compared to 79% a year ago, largely due to increased Company resources
utilized in customer support. The gross margin on services revenues increased to
57% compared to 51% in the same period a year ago, due to a number of fixed-fee
services contracts relating to customer system modifications.
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------------
January 31, Percent January 31,
1999 Change 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Gross product development costs $ 7,962 28% $ 6,217
Percentage of total revenues 42 % 25 %
Less: Capitalized development (3,084) 36% (2,276)
Percentage of gross prod. dev. costs 39 % 37 %
------- -- -------
Product development expenses $ 4,878 24% $ 3,941
Percentage of total revenues 25 % 16%
</TABLE>
Gross product development costs increased 28% for the nine months ended January
31, 1999 compared to the same period a year ago as a result of the Company's
increased investment in new product development. Capitalized development
increased as well, growing 36% from a year ago, while the rate of capitalized
development as a percentage of gross product development costs increased
slightly to 39% from 37% a year ago. Product development expenses, as a
percentage of total revenues, increased to 25% from 16% a year ago, due to the
decrease in total revenues as well as increased investment in new product
development.
SALES AND MARKETING. Sales and marketing expenses rose 14% from a year ago. As
a percentage of total revenues, sales and marketing expenses were 61% for the
nine months ended January 31, 1999 compared to 41% for the nine months ended
January 31, 1998. This increase was due to a decrease in overall revenues, as
well as increased sales and marketing expenditures. Increased sales and
marketing expenditures were mainly due to increased staffing over the same
period a year ago, particularly in the areas of international sales and
increased trade show marketing commitments.
15
<PAGE>
Item 2. Management's Discussion (continued)
GENERAL AND ADMINISTRATIVE. For the nine months ended January 31, 1999, general
and administrative expenses increased 36% to approximately $3.1 million from a
year ago, mainly as a result of the Company's growth in employees and the
resulting growth in administrative costs. For the nine months ended January 31,
1999, the average number of employees was approximately 208, compared to
approximately 191 for the nine months ended January 31, 1998.
INTEREST INCOME:
Interest income is comprised of investment earnings from the net proceeds of the
Company's initial public offering. The Company's investments are short term in
nature. For the nine months ended January 31, 1999, these investments generated
a yield of approximately 5.4%.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
By November 6, 1997, the Company completed its initial public offering, in which
the Company received aggregate net proceeds of approximately $33.2 million after
deducting underwriting discounts and offering expenses.
The Company's operating activities used cash of approximately $1.3 million in
the nine months ended January 31, 1999, and provided cash of approximately $3.0
million in the same period of the prior year. The cash used by operations
during the nine months ended January 31, 1999, was primarily attributable a net
loss of $8.5 million, partially offset by non-cash depreciation and amortization
expense of $3.2 million, a decrease in accounts receivable of approximately $1.1
million, the non-cash portion of the software development cost write-off of $1.2
million, and an increase in deferred revenues of $1.1 million. The cash
provided by operations during the same period of the prior year was attributed
to net income of $1.7 million, non-cash depreciation and amortization expense of
$3.4 million, an increase in accounts payable, accrued costs and other
liabilities of $1.6 million, and an increase in deferred revenues of $349,000.
This was partially offset by an increase in accounts receivable of $3.7 million.
Cash provided by (used in) investing activities was approximately $2.5 million
and ($12.9 million) for the nine months ended January 31, 1999 and 1998,
respectively. The majority of cash for the nine months ended January 31, 1999
was provided by the sale of short-term investments. Cash used in investing
activities consisted primarily of $3.1 million in additions to capitalized
software development costs, and $763,000 for the purchase of a minority interest
in a business. For the nine months ended January 31, 1998, cash used in
investing activities consisted primarily of $9.7 million in purchases of short-
term investments, $2.3 million in additions to capitalized software development
costs, and $786,000 in purchases of furniture and equipment.
Cash provided by (used in) financing activities totaled approximately ($1.5
million) and $32.5 million for the nine months ended January 31, 1999 and 1998,
respectively. Approximately $1.5 million was used for the repurchase of the
Company's common stock for the nine month period ended January 31, 1999. For
the nine months ended January 31, 1998, approximately $33.1 million was provided
by the proceeds of the Initial Public Offering of the Company's stock.
Days Sales Outstanding in accounts receivable were 121 days as of January 31,
1999, which was essentially unchanged from October 31, 1998, compared to 111
days as of January 31, 1998. The increase over the same period one year ago was
due primarily to decreased overall revenue levels.
16
<PAGE>
Item 2. Management's Discussion (continued)
The Company's current ratio on January 31, 1999 was 3.2 to 1 and the Company has
no long-term debt. The Company believes that its sources of liquidity and
capital resources will be sufficient to satisfy its cash requirements for at
least the next twelve months. To the extent that such amounts are insufficient
to finance the Company's capital requirements, the Company will be required to
raise additional funds through equity or debt financing. The Company does not
currently have a bank line of credit. No assurance can be given that bank lines
of credit or other financing will be available on terms acceptable to the
Company. If available, such financing may result in further dilution to the
Company's shareholders and higher interest expense.
On December 15, 1997, Logility, Inc.'s Board of Directors approved a resolution
authorizing the Company to repurchase up to 350,000 shares of the Company's
common stock through open market purchases at prevailing market prices. The
Company completed this repurchase plan in November 1998. In November 1998 the
Company adopted an additional repurchase plan for up to 800,000 shares. The
timing of any repurchases would depend on market conditions, the market price of
Logility's common stock and management's assessment of the Company's liquidity
and cash flow needs. For both plans, to date the Company has purchased a
cumulative total of 374,100 shares at a total cost of $3.4 million.
YEAR 2000 READINESS DISCLOSURE
Based on management's assessment, the Company believes that the current versions
of its software products are Year 2000 ready. However, the Company believes
some of its customers may be running earlier versions of the Company's products
that are not Year 2000 ready, and the Company has been encouraging such
customers to migrate to current product versions. Moreover, the Company's
products are generally integrated into other systems involving complex software
products developed by other vendors. Year 2000 problems inherent in a
customer's other software programs might significantly limit that customer's
ability to utilize the Company's products.
In addition, the Company is working closely with American Software, the
Company's parent, which serves as its largest supplier, to identify and
remediate all internal systems of American Software which are noncompliant and
which may impact the operations of the Company. The cost of converting American
Software's internal systems utilized by the Company is not expected to be
material as American Software is providing internal resources to meet their Year
2000 readiness needs.
Software products as complex as those offered by the Company might contain
undetected errors or failures when first introduced or when new versions are
released, including products believed to be Year 2000 ready. While the Company
believes that it has assessed, corrected and tested its products to address the
Year 2000 issue, there can be no assurances that the Company's software products
contain or will contain all necessary date code changes or that errors will not
be found in new products or product enhancements after commercial release,
resulting in loss of or delay in market acceptance. In addition, the Company
might experience difficulties that could delay or prevent the continued
successful development and release of products that are Year 2000 compliant or
that meet the Year 2000 requirements of customers. If the Company is unable or
is delayed in its efforts to make the necessary date code changes, there could
be a material adverse effect upon the Company's business, operating results,
financial condition and cash flows.
The Company may in the future be subject to claims based on Year 2000 problems
in its own, as well as in others' products, and issues arising from the
integration of multiple products within an overall system. Although the Company
has not been a party to any litigation involving its products or services
related to Year 2000 compliance issues, there can be no assurance that the
Company will not in the future be required to defend its products or services in
such proceedings, or otherwise address claims based on Year 2000 issues. The
costs of
17
<PAGE>
Item 2. Management's Discussion (continued)
defending and resolving Year 2000-related disputes, and any liability of the
Company for Year 2000-related damages, including consequential damages, could
have a material adverse effect on the Company's business, operating results, and
financial condition.
The Company utilizes third-party vendor equipment, telecommunication products
and software products that may or may not be Year 2000 ready. Although the
Company is currently taking steps to address the impact, if any, of the Year
2000 compliance issue surrounding such third-party products, failure of any
critical technology components to be Year 2000 ready may have a material adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
The Company believes that Year 2000 issues have affected and may continue to
affect the purchasing decisions of customers and potential customers of the
Company's products. Many businesses are expending significant resources on
projects to make their current hardware and software systems Year 2000 ready.
Such expenditures may result in reduced funding for projects to purchase
software products such as those offered by the Company. Potential customers may
also choose to defer purchasing Year 2000 ready products until they believe it
is absolutely necessary, thus resulting in potentially stalled market sales
within the industry. Any of the foregoing could have a material adverse effect
on the Company's business, operating results and financial condition.
The Company's evaluation of its Year 2000 readiness includes the development of
contingency plans for business functions that are susceptible to a substantive
risk of disruption resulting from a Year 2000 related event. Because the Company
has not yet identified any business function that is materially at risk of Year
2000 related disruption, it has not yet developed detailed contingency plans
specific to Year 2000 events for any business function. The Company is prepared
for the possibility, however, that certain business functions may be hereafter
identified as at risk and will develop contingency plans for such business
functions when and if such determinations are made.
Forward-looking statements contained in this Year 2000 Readiness Discussion
should be read in conjunction with the Company's disclosure below under the
heading of Forward Looking Statements for the purposes of the Safe Harbor
provisions of the Private Securities Litigation Act of 1995.
FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements,
which are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. The timing of releases of the Company's
software products can be affected by customer needs, marketplace demands and
technological advances. Development plans frequently change, and it is
difficult to predict with accuracy the release dates for products in
development. In addition, other factors include changes in general economic
conditions, the growth rate of the market for the Company's 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, as well as a number of other risk factors which could
affect the future performance of the Company. For further information, refer
to the Company's Form 10-K for the year ended April 30, 1998, and other reports
and documents subsequently filed with the Securities and Exchange Commission
which are publicly available.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The registrant is not currently involved in legal proceedings
requiring disclosure under this item.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
11.1 Statement re: Computation of Per Share Earnings (Loss).
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter ended
January 31, 1999.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOGILITY, INC.
DATE March 12, 1999 /s/ J. Michael Edenfield
-------------- --------------------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE March 12, 1999 /s/ James M. Modak
-------------- ------------------------------------------
James M. Modak
Chief Financial Officer and Sr. VP
20
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
11.1 Statement re: Computation of Per Share
Earnings (Loss). 22
27 Financial Data Schedule 23
21
<PAGE>
EXHIBIT 11.1
LOGILITY, INC.
Statement re: Computation of Per Share Earnings (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------------- ----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common Stock:
Weighted average common
shares outstanding 13,468 13,798 13,500 12,697
Dilutive effect of outstanding
stock options * 176 7 - 7
------- ------- ------- -------
Total 13,644 13,805 13,500 12,704
------- ------- ------- -------
Net income (loss) $ 287 $ 471 $(8,487) $ 1,656
======= ======= ======= =======
Income (loss) per common
and common equivalent share* $ 0.02 $ 0.03 $ (0.63) $ 0.13
======= ======= ======= =======
</TABLE>
* Stock options are not included in the nine months ended January 31, 1999
calculation due to the anti-dilution to the net loss.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1999
<PERIOD-START> NOV-01-1998 MAY-01-1998
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 663 663
<SECURITIES> 22,467 22,467
<RECEIVABLES> 10,096 10,096
<ALLOWANCES> 407 407
<INVENTORY> 0 0
<CURRENT-ASSETS> 33,423 33,423
<PP&E> 3,128 3,128
<DEPRECIATION> 1,272 1,272
<TOTAL-ASSETS> 42,280 42,280
<CURRENT-LIABILITIES> 10,523 10,523
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 29,248 29,248
<TOTAL-LIABILITY-AND-EQUITY> 42,280 42,280
<SALES> 0 0
<TOTAL-REVENUES> 7,327 19,181
<CGS> 0 0
<TOTAL-COSTS> 2,014 7,712
<OTHER-EXPENSES> 5,287 20,947
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (311) (1,042)
<INCOME-PRETAX> 337 (8,437)
<INCOME-TAX> 50 50
<INCOME-CONTINUING> 287 (8,487)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 287 (8,487)
<EPS-PRIMARY> .02 (.63)
<EPS-DILUTED> .02 (.63)
</TABLE>
