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, 2001
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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
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LOGILITY, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2281338
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
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(Address of principal executive offices) (Zip Code)
(404) 261-9777
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(Registrant's telephone number, including area code)
None
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(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 15, 2001
------------------------------ -----------------------------
Common Stock, no par value 13,252,503 Shares
LOGILITY, INC.
Form 10-Q
Quarter Ended January 31, 2001
Index
Page
Number
-------------------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
January 31, 2001 and April 30, 2000 3
Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended January 31, 2001 and 2000 4
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2001 and 2000 5
Notes to Condensed Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-16
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-17
Part II - Other Information 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
January 31, April 30,
2001 2000
----------------- ----------------
Current Assets:
Cash and cash equivalents $ 4,749 $ 3,524
Investments-current 11,292 14,425
Trade accounts receivable, less allowance for doubtful accounts of
$652 and $684 at January 31, 2001 and April 30, 2000, respectively:
Billed 3,358 4,599
Unbilled 1,132 2,558
Due from Parent 2,321 2,204
Prepaid expenses and other current assets 550 556
----------------- ----------------
Total current assets 23,402 27,866
Investments-noncurrent 4,371 6,738
Furniture and equipment, less accumulated depreciation 1,634 1,870
Intangible assets, less accumulated amortization 7,735 6,748
Other assets, net 1,268 1,312
----------------- ----------------
$ 38,410 $ 44,534
================= ================
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 1,012 $ 1,225
Accrued compensation and related costs 1,407 1,879
Other current liabilities 1,377 1,750
Deferred revenues 5,546 5,705
----------------- ----------------
Total current liabilities 9,342 10,559
Deferred income taxes 2,762 2,762
----------------- ----------------
Total liabilities 12,104 13,321
----------------- ----------------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares issued - -
Common stock, no par value; 20,000,000 shares authorized;
13,873,514 and 13,871,993 shares issued at January 31, 2001
and April 30, 2000, respectively - -
Additional paid-in capital 44,670 43,312
Accumulated deficit (13,948) (7,788)
Treasury stock, at cost - 621,011 and 564,811 shares at January 31,
2001 and April 30, 2000, respectively (4,416) (4,311)
----------------- ----------------
Total shareholders' equity 26,306 31,213
Commitments and contingencies
----------------- ----------------
$ 38,410 $ 44,534
================= ================
See accompanying notes to condensed financial statements.
3
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
January 31, January 31,
2001 2000 2001 2000
-------------- -------------- --------------- ----------------
Revenues:
License fees $ 1,904 $ 3,897 $ 6,026 $ 12,211
Maintenance 2,684 2,465 7,820 6,985
Services and other 1,897 2,151 6,172 6,240
-------------- --------------- --------------- ---------------
Total revenues 6,485 8,513 20,018 25,436
-------------- --------------- --------------- ---------------
Cost of revenues:
License fees 1,406 884 3,086 2,610
Maintenance 388 430 1,207 1,391
Services and other 1,434 1,237 4,283 3,361
-------------- --------------- --------------- ---------------
Total cost of revenues 3,228 2,551 8,576 7,362
-------------- --------------- --------------- ---------------
Gross margin 3,257 5,962 11,442 18,074
-------------- --------------- --------------- ---------------
Operating expenses:
Research and development 1,894 1,842 6,264 6,136
Less: Capitalized development (506) (873) (2,004) (2,518)
Sales and marketing 3,372 3,253 10,525 10,113
General and administrative 968 756 2,768 2,141
Provision for doubtful accounts 393 40 453 90
Charge for restructuring 240 - 476 -
-------------- --------------- --------------- ---------------
Total operating expenses 6,361 5,018 18,482 15,962
-------------- --------------- --------------- ---------------
Operating income (loss) (3,104) 944 (7,040) 2,112
Other income, net 398 303 880 922
-------------- --------------- --------------- ---------------
Income (loss) before income taxes (2,706) 1,247 (6,160) 3,034
Income taxes 0 0 0 0
-------------- --------------- --------------- ---------------
Net income (loss) $ (2,706) $ 1,247 $ (6,160) $ 3,034
============== =============== =============== ===============
Net income (loss) per share: Basic $ (0.20) $ 0.09 $ (0.46) $ 0.23
============== =============== =============== ===============
Diluted $ (0.20) $ 0.09 $ (0.46) $ 0.22
============== =============== =============== ===============
Shares used in the calculation of net income
(loss) per common share: Basic 13,284 13,290 13,299 13,343
============== =============== =============== ===============
Diluted* 13,284 13,763 13,299 13,639
============== =============== =============== ===============
* Diluted weighted average common shares outstanding are not included in the
three or nine months ended January 31, 2001 calcuation due to the anti-dilution
of the net loss.
See accompanying notes to condensed financial statements.
4
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended
January 31,
-------------------------------------
2001 2000
----------------- ----------------
Cash flows from operating activities:
Net income (loss) $ (6,160) $ 3,034
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,603 2,558
Provision for doubtful accounts receivable 453 90
Write-off of minority investment in business 300 -
Charge for restructuring - non-cash portion 182 -
(Increase) decrease in operating assets:
Accounts receivable 2,214 (14)
Due from Parent (117) (71)
Other assets 50 8
Increase (decrease) in operating liabilities:
Accounts payable, accrued costs and other liabilities (1,058) (297)
Deferred revenues (159) 439
----------------- ----------------
Net cash provided by (used in) operating activities (1,692) 5,747
----------------- ----------------
Cash flows from investing activities:
Additions to capitalized computer software development costs (2,004) (2,518)
Additions to purchased computer software costs (170) (55)
Net sale (purchase) of investments 5,500 (3,304)
Minority investment in business (63) -
Purchases of furniture and equipment (241) (353)
----------------- ----------------
Net cash provided by (used in) investing activities 3,022 (6,230)
----------------- ----------------
Cash flows from financing activities:
Repurchase of common stock (105) (736)
Proceeds from exercise of stock options - 74
----------------- ----------------
Net cash used in financing activities (105) (662)
----------------- ----------------
Net change in cash and cash equivalents 1,225 (1,145)
Cash and cash equivalents at beginning of period 3,524 9,695
----------------- ----------------
Cash and cash equivalents at end of period $ 4,749 $ 8,550
================= ================
Supplemental disclosure of noncash investing activity:
Transfer of software from Parent $ 1,173 $ -
================= ================
5
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, which 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 Form 10-K for the fiscal year ended April 30, 2000, as
filed with the SEC on July 28, 2000. The interim results reflected in the
condensed financial statements are not necessarily indicative of the
results to be expected for the full year.
We are an approximately 85% owned subsidiary of American Software, Inc.
(the "Parent"), a publicly held provider of enterprise resource planning
solutions and managed services (NASDAQ - AMSWA).
B. Industry Segments
On February 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. The Company operates and manages its business in one segment,
providing Business-to-Business Collaborative Commerce solutions to
participants along the value chain.
C. Comprehensive Income
On May 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. No statements of comprehensive income (loss) have been included
in the accompanying condensed financial statements since comprehensive
income (loss) and net income (loss) presented in the accompanying condensed
statements of operations would be the same.
D. Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Software Revenue
Recognition with Respect to Certain Transactions. License revenues in
connection with license agreements for standard proprietary and tailored
software are recognized upon delivery of the software, providing collection
is considered probable, the fee is fixed or determinable, there is evidence
of an arrangement, and vendor specific evidence exists to defer any revenue
related to undelivered elements of the arrangement.
6
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
E. Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common shareholders
are based on the weighted-average number of common shares outstanding.
Diluted earnings (loss) per common share available to common shareholders
is based on the weighted-average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options.
The numerator in calculating both basic and diluted earnings (loss) per
common share for each period is the same as net earnings (loss). The
denominator is based on the following number of common shares:
Three Months ended Nine Months ended
January 31, January 31,
2001 2000 2001 2000
-------------------- ---------------------
(in thousands) (in thousands)
Common Shares:
Weighted average common shares outstanding 13,284 13,290 13,299 13,343
Dilutive effect of outstanding stock options* - 473 - 296
-------------------- ---------------------
Total 13,284 13,763 13,299 13,639
==================== =====================
Net (loss) earnings: $(2,706) $ 1,247 $(6,160) $ 3,034
Net (loss) earnings per common share:
Basic $ (0.20) $ 0.09 $ (0.46) $ 0.23
==================== =====================
Diluted $ (0.20) $ 0.09 $ (0.46) $ 0.22
==================== =====================
*For the three and nine months ended January 31, 2001
approximately 774,000 and 301,000 stock options, respectively,
were excluded from the computation of diluted earnings (loss) per
share because they were antidilutive.
7
LOGILITY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, which are subject
to substantial risks and uncertainties. There are a number of factors that could
cause actual results to differ materially from those anticipated by statements
made herein. The timing of releases of our 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, including
but not limited to, changes in general economic conditions, technology and the
market for our products and services, including economic conditions within the
e-commerce markets, the timely availability and market acceptance of these
products and services, the effect of competitive products and pricing, and the
irregular pattern of our revenues could affect our future performance.
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
business-to-business (B2B) collaborative commerce solutions that power
e-Business and optimize supply chain management for 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. Logility Voyager Solutions(TM) consists of an Internet-based,
integrated e-Business software suite that provides collaborative supply chain
management including inventory planning, distribution planning, supply planning,
manufacturing planning and scheduling, forecasting, warehouse management, and
transportation planning and management capabilities. These capabilities are
designed to increase revenues, reduce inventory costs, improve forecast
accuracy, decrease order cycle times, optimize production scheduling, streamline
logistics operations, reduce transportation costs and improve customer service
across our customers' value chains, private Internet portals and public
e-Business trading exchanges.
In addition to the Logility Voyager Solutions application suite, the
i-Community(SM) provides a complete solution for web-based networking of trading
partners that facilitates Collaborative Planning, Forecasting and Replenishment
(CPFR(R))-based collaboration with suppliers, manufacturers, retailers and
customers. The i-Community allows trading partners to quickly access and
leverage the Logility Voyager Solutions suite and gain the benefits of
e-Business via a web-browser. We market our solution worldwide, primarily to
large enterprises that require a comprehensive supply chain 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.
We previously conducted our 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 us. Effective August 1997,
American Software transferred to us 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 Logility, transferring its business, operations, assets and
liabilities, including the Transportation Planning and Transportation Management
software, to us. Our condensed financial statements included herein present the
combined assets, liabilities and results of operations for the three business
units for all periods.
8
Item 2. Management's Discussion and Analysis (continued)
Our 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 upon delivery of the software, provided collection is considered
probable, the fee is fixed or determinable, there is evidence of an arrangement,
and vendor-specific evidence exists to allocate the total fee to all elements of
the arrangement. 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.
COMPARISON OF RESULTS
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, 2001 and 2000:
Percentage of Pct. Change
Total Revenues in Dollars
------------------------------------ ------------------
2001 2000 2001 vs 2000
---------------- ---------------- ------------------
Revenues:
License fees 30% 46% (51)%
Maintenance 41 29 9
Services 29 25 (12)
---------------- ---------------- ------------------
Total revenues 100 100 (24)
---------------- ---------------- ------------------
Cost of revenues:
License fees 22 10 59
Maintenance 6 5 (10)
Services 22 15 16
---------------- ---------------- ------------------
Total cost of revenues 50 30 27
---------------- ---------------- ------------------
Gross margin 50 70 (45)
Operating expenses:
Research and development (net) 21 11 43
Sales and marketing 52 38 4
General and administrative 15 9 28
Provision for doubtful accounts 6 1 883
Charge for restructuring 4 - nm
---------------- ---------------- ------------------
Total operating expenses 98 59 27
---------------- ---------------- ------------------
Operating income (loss) (48) 11 nm
---------------- ---------------- ------------------
Other income, net 6 4 31
---------------- ---------------- ------------------
Income (loss) before income taxes (42) 15 nm
Income taxes - - -
---------------- ---------------- ------------------
Net income (loss) (42)% 15% nm
================ ================ ==================
nm - not meaningful
9
Item 2. Management's Discussion and Analysis (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, 2001 and 2000:
Percentage of Pct. Change
Total Revenues in Dollars
------------------------------------ ------------------
2001 2000 2001 vs 2000
---------------- ---------------- ------------------
Revenues:
License fees 30% 48% (51)%
Maintenance 39 27 12
Services 31 25 (1)
---------------- ---------------- ------------------
Total revenues 100 100 (21)
---------------- ---------------- ------------------
Cost of revenues:
License fees 15 10 18
Maintenance 7 6 (13)
Services 21 13 27
---------------- ---------------- ------------------
Total cost of revenues 43 29 16
---------------- ---------------- ------------------
Gross margin 57 71 (37)
---------------- ---------------- ------------------
Operating expenses:
Research and development, net 21 14 18
Sales and marketing 53 40 4
General and administrative 14 8 29
Provision for doubtful accounts 2 1 403
Charge for restructuring 2 - nm
---------------- ---------------- ------------------
Total operating expenses 92 63 16
---------------- ---------------- ------------------
Operating income (loss) (35) 8 nm
Other income, net 4 4 (5)
---------------- ---------------- ------------------
Income (loss) before income taxes (31) 12 nm
Income taxes - - -
---------------- ---------------- ------------------
Net income (loss) (31) 12 nm
================ ================ ==================
nm - not meaningful
10
Item 2. Management's Discussion and Analysis (continued)
THREE MONTHS ENDED JANUARY 31, 2001 AND 2000:
---------------------------------------------
REVENUES:
Our total revenues decreased 24% to approximately $6.5 million from $8.5 million
for the comparable quarter a year ago. This decrease was largely due to a
decrease in our license fees and related services, partially offset by an
increase in maintenance revenues. International revenues represented
approximately 27% of total revenues in the quarter ended January 31, 2001
compared to approximately 11% a year ago. This increase was due to lower overall
revenues, as well as successful sales efforts by our international value added
resellers.
LICENSES. License fee revenues decreased 51% to approximately $1.9 million from
the same quarter a year ago primarily as a result of the reorganization of our
sales management team, which is near completion, as well as continued slow
general economic conditions. The direct sales channel provided approximately 29%
of license fee revenues for the quarter ended January 31, 2001, compared to
approximately 78% in the comparable quarter a year ago. This decrease is due to
lower overall levels of license fees, in conjunction with one transaction of
significant size obtained through our indirect channel. In the quarter ended
July 31, 2000, we entered into a marketing agreement with a major software
distributor that we believe could become an increased source of future indirect
channel revenues.
MAINTENANCE. Maintenance revenues increased 9% to approximately $2.7 million
from a year ago, due to continued growth in the installed base of our software.
Maintenance revenues have a direct relationship to current and historic license
fee revenues, since new licenses are the potential source of new maintenance
customers.
SERVICES. Services revenues decreased 12% to approximately $1.9 million from a
year ago as a result of lower license fee sales in the last two quarters
resulting in lower software implementation service levels.
GROSS MARGIN:
Total gross margin in the quarter ended January 31, 2001 was 50% of total
revenues, compared to 70% a year ago. This decrease was largely due to the
decreased level of license fees, which fell to 30% of total revenues, down from
46% a year ago. The gross margin on license fees declined to 26% from 77% a year
ago, due to the combination of lower license fees and the relatively fixed
amount of amortization expense on capitalized software, which makes up the
primary component of cost of license fees. Gross margin on maintenance revenues
rose to 86% compared to 83% a year ago, due to the increase in maintenance
revenues from customers obtained in previous quarters. Gross margin on services
revenues decreased to 24% compared to 42% in the same period a year ago, due to
lower levels of implementation services.
11
Item 2. Management's Discussion and Analysis (continued)
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:
Three Months Ended
-------------------------------------------------------
January 31, Percent January 31,
2001 Change 2000
----------------- ------------ -----------------
Gross product development costs $ 1,894 3% $ 1,842
Percentage of total revenues 29% 22%
Less: Capitalized development (506) (42)% (873)
Percentage of gross prod. dev. costs 27% 47%
----------------- ------------ -----------------
Product development expenses $ 1,388 43% $ 969
Percentage of total revenues 21% 11%
Gross product development costs increased 3% in the quarter ended January 31,
2001 compared to a year ago, due to development expenses related to new
marketing alliances. Capitalized development decreased 42% from a year ago,
while the rate of capitalized development as a percentage of gross product
development costs declined to 27% versus 47% a year ago. Gross development costs
increased, while capitalized development decreased, due to timing issues between
the research and development phases of certain projects. Product development
expenses, as a percentage of total revenues, increased to 21% from 11% a year
ago, due primarily to the decrease in total revenues, as well as lower levels of
capitalized development.
SALES AND MARKETING. Sales and marketing expenses increased 4% from the same
period a year ago, due to increased overall marketing expenditures, as well as
increased sales staffing levels. As a percentage of total revenues, sales and
marketing expenses were 52% for the quarter ended January 31, 2001, compared to
38% for the quarter ended January 31, 2000. This increase was due to the
decrease in overall revenues, as well as the increased expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 28% to
approximately $968,000 from a year ago, mainly as a result of an increase in the
number of employees, which when combined with fewer employees in the parent
corporation, resulted in an increased allocation of shared intercompany expenses
from the parent. Increases in utility costs over the prior year also contributed
to the increase. For the three months ended January 31, 2001, the average number
of employees was approximately 193, compared to approximately 183 for the three
months ended January 31, 2000.
PROVISION FOR DOUBTFUL ACCOUNTS. Due to prevailing economic conditions and the
resulting uncertainty as to collection of certain accounts, we added $393,000 to
our provision for doubtful accounts in the three months ended January 31, 2001.
CHARGE FOR RESTRUCTURING. During the three months ended January 31, 2001, we
recorded a charge against earnings of approximately $240,000 resulting from
severance expenses for approximately 40 employees in sales, marketing, services,
and research and development. Of this amount, $232,000 related to cash severance
and $8,000 related to the acceleration of vesting of stock options to terminated
staff. All expenses related to this severance have been fully recorded and no
related accruals remain.
12
Item 2. Management's Discussion and Analysis (continued)
OTHER INCOME:
Other income is comprised of earnings from the investment of our cash reserves.
Our investments are primarily short term in nature, and all investments mature
within three years. For the quarter ended January 31, 2001, these investments
generated a yield of approximately 6.1%.
INCOME TAXES:
We are included in the consolidated Federal income tax return filed by American
Software, Inc. However, we provide for income taxes as if we were filing a
separate income tax return. For the quarter ended January 31, 2001, we did not
record any income taxes as a result of the cumulative operating losses incurred
since our Initial Public Offering.
NINE MONTHS ENDED JANUARY 31, 2001 AND 2000:
--------------------------------------------
REVENUES:
Our total revenues decreased 21% to approximately $20.0 million from $25.4
million for the comparable period a year ago. This decrease was largely due to a
decrease in our license fees and related services, partially offset by an
increase in maintenance revenues. International revenues represented
approximately 18% of total revenues in the nine months ended January 31, 2001
compared to approximately 10% a year ago. This increase was due to lower overall
revenues, as well as successful sales efforts by our international value added
resellers.
LICENSES. License fee revenues decreased 51% to approximately $6.0 million from
the same period a year ago primarily as a result of the reorganization of our
sales management team, as well as continued slow general economic conditions.
The direct sales channel provided approximately 58% of license fee revenues for
the nine months ended January 31, 2001, compared to approximately 84% in the
comparable period a year ago. This decrease is due to lower overall levels of
license fees, in conjunction with one transaction of significant size obtained
through our indirect channel.
MAINTENANCE. Maintenance revenues increased 12% to approximately $7.8 million
from a year ago, due to continued growth in the installed base of our software.
Maintenance revenues have a direct relationship to current and historic license
fee revenues, since new licenses are the potential source of new maintenance
customers.
SERVICES. Services revenues decreased 1% to approximately $6.2 million from a
year ago as a result of lower levels of software implementation services.
GROSS MARGIN:
Total gross margin for the nine months ended January 31, 2001 was 57% of total
revenues, compared to 71% a year ago. This decrease was due to the decreased
level of license fees, which fell to 30% of total revenues, down from 48% a year
ago. The gross margin on license fees declined to 49% from 79% a year ago, due
to the combination of lower license fees and the relatively fixed amount of
amortization expense on capitalized software, which makes up the primary
component of cost of license fees. Gross margin on maintenance revenues rose to
85% compared to 80% a year ago, due to the increase in maintenance revenues from
customers obtained in previous quarters. Gross margin on services revenues
decreased to 31% compared to 46% in the same period a year ago, due to higher
staffing and infrastructure costs incurred in anticipation of higher levels of
license fees.
13
Item 2. Management's Discussion and Analysis (continued)
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:
Nine Months Ended
-------------------------------------------------------
January 31, Percent January 31,
2001 Change 2000
----------------- ------------ -----------------
Gross product development costs $ 6,264 2% $ 6,136
Percentage of total revenues 31% 24%
Less: Capitalized development (2,004) (20)% (2,518)
Percentage of gross prod. dev. costs 32% 41%
----------------- ------------ -----------------
Product development expenses $ 4,260 18% $ 3,618
Percentage of total revenues 21% 14%
Gross product development costs increased 2% in the nine months ended January
31, 2001 compared to a year ago, due to development expenses related to new
marketing alliances. Capitalized development decreased 20% from a year ago,
while the rate of capitalized development as a percentage of gross product
development costs declined to 32% versus 41% a year ago. Gross development costs
increased, while capitalized development decreased, due to timing issues between
the research and development phases of certain projects. Product development
expenses, as a percentage of total revenues, increased to 21% from 14% a year
ago, due primarily to the decrease in total revenues.
SALES AND MARKETING. Sales and marketing expenses increased 4% from a year ago,
due to increased overall marketing expenditures, as well as transition costs
related to the hiring of new sales management. As a percentage of total
revenues, sales and marketing expenses were 53% for the nine months ended
January 31, 2001 compared to 40% for the nine months ended January 31, 2000.
This increase was due to the decrease in overall revenues, as well as the
increased expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 29% to
approximately $2.8 million from a year ago, mainly as a result of an increase in
number of employees, which when combined with fewer employees in the parent
corporation, resulted in an increased allocation of shared intercompany expenses
from the parent. Increases in utility costs over the prior year period also
contributed to the increase. For the nine months ended January 31, 2001, the
average number of employees was approximately 203, compared to approximately 184
for the nine months ended January 31, 2000.
CHARGE FOR RESTRUCTURING. During the nine months ended January 31, 2001, we
recorded charges against earnings of approximately $476,000 resulting from
severance expenses for approximately 46 employees in sales, marketing, services,
and research and development. Of this amount, $294,000 related to cash severance
and $182,000 related to the acceleration of vesting of stock options to
terminated staff. All expenses related to this severance have been fully
recorded and no related accruals remain.
OTHER INCOME:
Other income is comprised of earnings from the investment of our cash reserves.
Our investments are primarily short term in nature, and all investments mature
within three years. For the nine months ended January 31, 2001, these
investments generated a yield of approximately 6.0%.
14
Item 2. Management's Discussion and Analysis (continued)
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The following table shows information about our cash flows during the nine
months ended January 31, 2001 and January 31, 2000. This table and the
discussion that follows should be read in conjunction with our condensed
consolidated statements of cash flows contained in "Item 1. Financial
Statements" in Part I of this report and in our Annual Report on Form 10-K for
the fiscal year ended April 30, 2000.
Nine Months Ended
January 31,
--------------------------
2001 2000
--------- ----------
Net cash provided by operating activities before
changes in operating assets and liabilities. (2,622) 5,682
Increase in operating assets and liabilities 930 65
--------- ----------
Net cash provided by operating activities (1,692) 5,747
Net cash provided by (used for) investing activities 3,022 (6,230)
Net cash used for financing activities (105) (662)
--------- ----------
Net(decrease) increase in cash and cash equivalents 1,225 (1,145)
========= ==========
We normally fund our operations and capital expenditures primarily with cash
generated from operating activities. The changes in net cash used for operating
activities generally reflect the changes in net income and non-cash operating
items plus the effect of changes in operating assets and liabilities, especially
investment securities, trade accounts receivable, trade accounts payable,
accrued expenses and deferred revenue.
Our operating activities used cash of approximately $1.7 million in the nine
months ended January 31, 2001, and provided cash of approximately $5.7 million
in the same period last year. Operating cash flows decreased for the period
primarily because the net loss for the period and the net changes in operating
assets and liabilities, such as trade accounts payable and deferred revenue,
were only partially offset by non-cash operating items, such as depreciation and
amortization.
Cash provided by investing activities was approximately $3.0 million for the
nine months ended January 31, 2001. Investing cash flows increased for the
period primarily because of the net sale of investments of $5.5 million, which
was partially offset by $2.0 million in additions to capitalized software
development costs. For the same period last year, cash used in investing
activities was approximately $6.2 million, composed primarily of $3.3 million in
net purchase of investments, and $2.5 million in additions to capitalized
software development costs.
Cash used in financing activities was approximately $105,000 and $662,000 for
the nine months ended January 31, 2001 and 2000, respectively. Cash flows used
in financing decreased for the period primarily because there were fewer
repurchases of common stock during the nine months ended January 31, 2001,
compared to the prior year.
Days Sales Outstanding (DSO) in accounts receivable were 71 days as of January
31, 2001, compared to 85 days as of January 31, 2000. This decrease was due
primarily to lower overall levels of accounts receivable.
Our current ratio on January 31, 2001 was 2.51 to 1 and we have no debt. Our
principal sources of liquidity are our cash and investments, which totaled
approximately $20.4 million at January 31, 2001. We believe that our sources of
liquidity and capital resources will be sufficient to satisfy our presently
anticipated requirements during at least the next twelve months for working
capital, capital expenditures and other corporate needs. Management is not aware
of any condition that would materially alter this trend.
15
Item 2. Management's Discussion and Analysis (continued)
On December 15, 1997, our Board of Directors approved a resolution authorizing
the repurchase of up to 350,000 shares of our common stock through open market
purchases at prevailing market prices. We completed this repurchase plan in
November 1998. In November 1998 we 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 our liquidity and cash flow needs. For both plans, through March
15, 2001, we had purchased a cumulative total of 621,011 shares at a total cost
of approximately $4.4 million.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement was amended in June 2000 by Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." Statement No. 133 and
Statement No. 138 will be effective for us beginning May 1, 2001. The new
Statements require all derivatives to be recorded on the balance sheet at fair
value and establishes accounting treatment for three types of hedges: (1) hedges
of changes in the fair value of assets, liabilities, or firm commitments; (2)
hedges of the variable cash flows of forecasted transactions; and (3) hedges of
foreign currency exposures of net investments in foreign operations. We have not
invested in derivative instruments or participated in hedging activities and,
therefore, do not anticipate there will be a material impact on the results of
our operations or financial position from Statement No. 133 or No. 138.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") and amended it in March and June 2000. We are required to adopt the
provisions of SAB 101 in the fourth quarter of fiscal 2001. In October 2000, the
SEC issued further guidance with respect to adoption of specific issues
addressed by SAB 101. Management does not currently believe the adoption of SAB
101 will have a material effect on the consolidated financial results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency. For the nine months ended January 31, 2001, we generated 18%
of our revenues outside the United States. International sales usually are made
by our foreign subsidiaries or value added resellers, and are denominated
typically in U.S. Dollars or British Pounds Sterling. However, the expense
incurred by foreign subsidiaries is denominated in the local currencies. We have
not engaged in any hedging activities.
Interest rates. We manage our interest rate risk by maintaining an investment
portfolio of held-to-maturity instruments with high credit quality and
relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and
tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with our investment policy. These instruments are denominated in U.S.
dollars. The fair value of securities held at January 31, 2001 was approximately
$15.7 million.
We also hold cash balances in accounts with commercial banks in the United
States and foreign countries. These cash balances represent operating balances
only and are invested in short-term time deposits of the local bank. Such
operating cash balances held at banks outside the United States are denominated
in the local currency.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)
Many of our investments carry a degree of interest rate risk. When interest
rates fall, our income from investments in variable-rate securities declines.
When interest rates rise, the fair market value of our investments in fixed-rate
securities declines. We attempt to mitigate risk by holding fixed-rate
securities to maturity, but should our liquidity needs force us to sell
fixed-rate securities prior to maturity, we may experience a loss of principal.
We believe that a 10% swing in interest rates would not have a material effect
on our accompanying statement of operations.
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
------- ---------------------------------------------------
Not applicable.
Item 5. Other Information
------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits:
None
(b) No report on Form 8-K was filed during the quarter ended January
31, 2001.
17
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 15, 2001 /s/ J. Michael Edenfield
----------------------- ------------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE March 15, 2001 /s/ Vincent C. Klinges
---------------------- ------------------------------------
Vincent C. Klinges
Chief Financial Officer
DATE March 15, 2001 /s/ Deirdre J. Lavender
---------------------- ------------------------------------
Deirdre J. Lavender
Controller and Principal Accounting Officer
18