2717 Partners Sends Letter to Logility Board Calling for a Review of Strategic Alternatives
Believes Logility's Persistent Underperformance Demonstrates that Logility is Underappreciated by the Public Markets
Believes a Take-Private Transaction Would Immediately Unlock Value for Shareholders, Closing the Gap Between Logility's Current Valuation and its Intrinsic Value
2717 Partners, LP, an actively engaged shareholder that applies a private equity mindset to create value in the public markets and a significant shareholder of Logility Supply Chain Solutions, Inc. (NASDAQ:LGTY) ("Logility" or the "Company"), today sent a letter to the Company's Board of Directors calling for it to explore strategic alternatives, including a sale of Logility.
The full text of the letter follows:
December 9, 2024
Logility Supply Chain Solutions, Inc.
470 East Paces Ferry Road, NE
Atlanta, GA 30305
Attn: Board of Directors
Members of the Board,
2717 Partners, LP ("2717") is an actively engaged shareholder that seeks to leverage our deep private equity and sector expertise to help small-cap technology company management teams and boards apply a private equity value-creation playbook in the public markets. We aim to partner with the companies in which we invest to maximize their value for the benefit of all stakeholders. We are writing to the Board of Directors (the "Board") of Logility Supply Chain Solutions, Inc. ("Logility" or the "Company") with the hope of working constructively with you to do just that.
As a significant shareholder of Logility, we have strong conviction in the Company. Indeed, Logility was one of the first investments 2717 executed following our launch. We invested in the Company because we believed Logility had tremendous upside potential that we could help management and the Board unlock. Further, management had made several strategic decisions over the prior two years that we hoped would be a net positive and consistent with a long-term value creation plan, including removing the controlling shareholder structure, pursuing a divestment of the corporate headquarters, divesting The Proven Method, re-branding, expanding and investing in system integrator ("SI") relationships, and pursuing tuck-in M&A.
Unfortunately, however, these decisions have not instilled confidence in the public markets. Instead, there remains a gap between Logility's current valuation and its intrinsic value. The Company has continued to underperform relative to its proxy peers1 (-0.8%, -55.4%, -81.5%), comparable companies2 (-17.5%, -89.7%, -87.9%), the NASDAQ Computer Index (-30.8%, -135.5%, -94.7%), and the Russell 2000 Index (-23.7%, -49.2%, -62.7%) over 1-, 2-, and 3-year horizons, respectively. We believe this perpetual underperformance demonstrates that Logility is underappreciated by the public markets.
The market has spoken. As fiduciaries to Logility shareholders – including pension funds, college savings plans, and 401(k)s of hard-working Americans – the Board must immediately form a special committee of independent directors and hire an investment bank to explore strategic alternatives, including a sale of Logility, to maximize the value of shareholders' investments.
Logility is not suited for the public markets
We believe every company should have the right owners and leaders for the appropriate stage in its lifecycle. It is clear that the public markets are not the proper owners of Logility at this time. After over 50 years of controlling ownership under founder James Edenfield, public shareholders were only recently given true "ownership" of the business in August 2024, when the controlling Class B shares were eliminated.
During the Company's Q2 fiscal year 2025 earnings, the first as a non-controlled company, management reaffirmed guidance for the two North Star metrics for the business, recurring revenue and Adjusted EBITDA. From our perspective, the only potential negative commentary from the earnings call was the forecasted reduction in professional services revenue due to the shift from in-house migration projects to third-party SIs. Any software investor knows this transition is a net positive and long-term value-creation lever for the business. Despite this, Logility's shares opened down approximately 20% the following day.
Shareholders are frustrated with Logility's continued unimpressive total revenue growth trend, particularly in light of the Company's weak Adjusted EBITDA margins and poor capital allocation decisions. Logility spends a higher percentage of revenue across all operating expense categories compared to peer averages, and the Company's sales and marketing efficiency is the lowest in supply chain management software. Our diligence also indicates that less than 10% of the sales force hit quota in fiscal year 2024, and these results are even worse when we consider that most of Logility's subscription revenue growth has come from customer migrations. We believe any expense on the income statement should be regarded as a capital allocation decision, in line with dividends, share buybacks, and M&A, with strict targets for return on invested capital. Logility has proven that it does not hold this same belief.
We believe that if the status quo persists and Logility continues to operate in the public markets, the Company will be unable to achieve its long-term goals for all stakeholders.
Logility should find a new home in the private markets
We believe Logility has many value-creation levers and attractive attributes that appeal to private equity. The Company's recurring revenue model and ongoing customer migration initiatives provide strong visibility into future cloud expansion with a track record of success, as reflected in the ~36% CAGR subscription revenue growth from fiscal year 2018 to fiscal year 2024. Logility is highly rated by industry analysts and customers, it is ranked as a Leader in Gartner's Magic Quadrant for supply chain planning solutions, and it is one of the best-rated supply chain management solutions on Capterra. Further, it operates in an end market with sustainable tailwinds, including globalization and growing supply chain complexity, that demands Logility's mission-critical solutions.
Under private ownership, Logility would benefit from a concentrated shareholder base with both sector specific expertise and a track-record of value-creation for companies at this stage in their lifecycle. The Company is at the point where it needs to shift focus from growth to profitability, and a private equity owner would have an aligned incentive structure and improved governance around capital allocation decisions to accomplish this. We believe this outcome would not only be in the best interests of Logility shareholders, but also all Logility stakeholders.
We have talked to many private equity firms and strategic buyers about Logility, and the Company has attracted more interest from our network than any other software asset. We believe that Logility should operate at 30% to 40% Adjusted EBITDA margins, which is what most private equity funds would manage the Company at in the private markets. If Logility operated at the upper end of these margin ranges, its current valuation would be below seven times fiscal year 2025 Adjusted EBITDA.
As of December 6, 2024, Logility is trading at $10.99 in the public markets. If a take-private transaction were consummated in the near-term, we believe that shareholders would receive a substantial premium to where shares trade today.
The path forward
We believe the Board and management have been given enough time to realize success for the Company and its stakeholders—now, it is time for change. We call on the Board to form a special committee of independent directors and to retain an investment bank to explore strategic alternatives, including a sale of Logility.
We hope that the Board sees our perspective and is open to engaging with us on this topic.
Regards,
2717 Partners, LP
Edward Robson
Partner & Chief Investment Officer
Note: TSR calculated as of 12/6/2024
- Proxy peers include Agilysys, Aspen Technology, Asure Software, Descartes Systems Group, E2open, eGain, Kinaxis, Manhattan Associates, PROS Holdings, and SPS Commerce (Model N has been acquired).
- Comparable companies include Descartes Systems Group, Kinaxis, Manhattan Associates, SPS Commerce, and Tecsys.
About 2717 Partners, LP
2717 Partners, LP is an actively engaged investor that applies a private equity value-creation playbook in the public markets. The firm primarily invests in small-cap technology companies and seeks to work constructively with management teams and boards to unlock value for shareholders.
Disclaimer
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. This press release does not recommend the purchase or sale of a security. There is no assurance or guarantee with respect to the prices at which any securities of Logility Supply Chain Solutions, Inc. ("Logility" or the "Company") will trade, and such securities may not trade at prices that may be implied herein. In addition, this press release and the discussions and opinions herein are for general information only and are not intended to provide or be investment advice. This press release contains forward-looking statements. Forward-looking statements are statements that are not historical facts and may include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "expects," "anticipates," "believes," "intends," "estimates," "plans," "will be" and similar expressions. Although 2717 Partners, LP ("2717 Partners") believes that the expectations reflected in forward-looking statements contained herein are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties—many of which are difficult to predict and are generally beyond the control of 2717 Partners or Logility—that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. In addition, the foregoing considerations and any other publicly stated risks and uncertainties should be read in conjunction with the risks and cautionary statements discussed or identified in the Company's public filings with the U.S. Securities and Exchange Commission, including those listed under "Risk Factors" in Logility's annual reports on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements speak only as of the date hereof and, other than as required by applicable law, 2717 Partners does not undertake any obligation to update or revise any forward-looking information or statements. Certain information included in this material is based on data obtained from sources considered to be reliable. Any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should not be viewed as factual and should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and, unless required by law, are subject to revision without notice. 2717 Partners's funds and investment vehicles currently beneficially own shares of the Company. These funds and investment vehicles are in the business of trading (i.e., buying and selling) securities and intend to continue trading in the securities of the Company. You should assume such funds and investment vehicles will from time to time sell all or a portion of their holdings of the Company in open market transactions or otherwise, buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to such shares. Consequently, 2717 Partners's beneficial ownership of shares of, and/or economic interest in, the Company may vary over time depending on various factors, with or without regard to 2717 Partners's views of the Company's business, prospects, or valuation (including the market price of the Company's shares), including, without limitation, other investment opportunities available to 2717 Partners, concentration of positions in the portfolios managed by 2717 Partners, conditions in the securities markets, and general economic and industry conditions. Without limiting the generality of the foregoing, in the event of a change in the Company's share price on or following the date hereof, 2717 Partners's funds and investment vehicles may buy additional shares or sell all or a portion of their holdings of the Company (including, in each case, by trading in options, puts, calls, swaps, or other derivative instruments relating to Logility shares). 2717 Partners also reserves the right to change the opinions expressed herein and its intentions with respect to its investment in the Company, and to take any actions with respect to its investment in the Company as it may deem appropriate, and disclaims any obligation to notify the market or any other party of any such changes or actions, except as required by law.
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