Logility Supply Chain Solutions Inc (NASDAQ:LGTY) reported strong adjusted EBITDA and earnings from continuing operations, driven by a 9% growth in subscription revenue.
The company successfully rebranded and aligned its corporate name with its globally recognized brand, Logility.
New solutions like network optimization, decision command center, and the generative AI platform are gaining momentum, indicating client interest and potential for future growth.
A significant expansion deal was closed with an existing client in Canada, showcasing successful deployment and potential for further expansion.
The company's financial position remains strong with total cash and investments of approximately $84.2 million at the end of the quarter.
Negative Points
Overall revenue performance was affected by headwinds, including clients delaying project start dates and unexpected churn impacting short-term results.
Elongated sales cycles were more pronounced this quarter, attributed to global events and economic uncertainties, causing deferrals of large transactions.
Total revenues decreased by 2% compared to the same period last year, primarily due to lower revenues from license fees, professional services, and maintenance.
Subscription revenue declined slightly on a sequential basis due to delays in project starts and the inability to compensate for one-time revenue increases from the prior quarter.
The company revised its fiscal 2025 guidance for total revenue to a slightly lower level, reflecting the impact of delayed project starts and uncertainty in deal closures.
Q & A Highlights
Q: Can you provide more details on the projects that were delayed and how conversations with those customers have evolved? A: Allan Dow, President and CEO, explained that the delays were due to staffing challenges and a desire to defer spending until after the holidays. Some projects were pushed to January, while larger contracts were deferred to the next calendar year. Despite this, there is active engagement to secure contracts before year-end, with a positive outlook for future spending.
Q: With the new administration in place, have you noticed any changes in customer conversations or confidence in budget allocations? A: Allan Dow noted that the completion of the election brought clarity, which positively influenced North American projects. While some financial challenges remain, there is more commitment to future spending, with clients showing readiness to proceed next year.
Q: How is the current economic environment, particularly in retail, affecting your business? A: Allan Dow highlighted a segmentation in the consumer goods space, with discretionary spending facing challenges. However, staple goods, especially non-branded ones, are performing well, driving projects with Logility. The company focuses on these markets, which are showing strong demand.
Q: Despite lowering revenue guidance, how are you maintaining the EBITDA range? A: Allan Dow stated that the reduction in revenue guidance was due to the professional services segment, which is less profitable. The company has right-sized its business to align with project backlogs, maintaining margin profiles and focusing on higher-margin elements like subscriptions and maintenance.
Q: How are conversations with on-premise customers about transitioning to the cloud progressing? A: Allan Dow reported positive progress, with clients budgeting for cloud migration next year. The transition offers clients new functionalities and opens upsell opportunities for Logility. There has been minimal pushback, and the company is well-prepared to support clients through the migration.
