Mind CTI Ltd (MNDO) 2008 Q4 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to MIND's Q4 and year-end 2008 earnings conference call. My name is Wendy, and I'll be your coordinator for today's conference. Throughout the presentation, you will be on listen-only. However, at the end of the call there will be an opportunity to ask any questions.

(Operator Instructions)

I am now handing you over to Andrea Dray to begin today's call.

Thank you, Wendy. Good morning everyone and welcome to MIND's conference call. Before we begin, I would like to point out that during this call we will discuss certain financial information that is not prepared in accordance with GAAP. The Company's management uses its financial information and internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period.

Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the Company's business and to have a meaningful comparison to prior periods.

Also, this call includes information that constitutes forward-looking statements. Although we believe that expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated.

These risks include, but are not limited to, the effects of general economic conditions and such other risks as discussed in our earnings release and at greater length in the Company's filings with the SEC. MIND may elect to update these forward-looking statements at some point in the future; however, the Company specifically disclaims any obligation to do so.

Yesterday, MIND reported the results of its fourth quarter and full year of 2008. The financials can be found in our Form 6-K. On the call today from MIND is Monica Eisinger, MIND's CEO and Itay Barzilay, the Company's CFO. I would now like to turn the call over to Monica. Monica, please go ahead.

Thank you, Andrea. Good day ladies and gentlemen. Thank you for your interest in MIND and for joining us today. Yesterday we reported our business results for the last quarter and full year of 2008. We are pleased with our results, given the existing marketing conditions, and we are very satisfied with the fact that we anticipated the market deterioration and planned accordingly way ahead.

The most important metrics, in our view, for our Company are margins, backlog and especially the cash flow from operations. We improved our non-GAAP operating margins and reached our annual cash flow target. We executed on these metrics and will continue to focus on them.

In our previous call, I mentioned that the unique market conditions and the credit market situation is expected to impact economic activity around the world. The effect on our potential customers' decision timing and our existing customers' spending decisions is already seen.

Our plan to act in this period of global confusion is clear. We continue to execute our strategy of focus on profitability and cash flow. We believe that we are effective in planning the steps to overcome this ongoing crisis and that we will overcome it.

In the last six months, we see delays in signing new deals or even enhancing from existing customers. We support mission critical activities for our customers around the world, including managed services under long-term contract, and this drives strong recurring revenue with high visibility and strong backlog.

We offer billing and customer care solutions as well as call management systems used by organizations for telecom expense management and internal billing. We expect that this line of business will suffer less from general slowdown and we focus on expanding it.

Itay will now review some financials.

Thank you Monica. I will start with the financial highlights of the fourth quarter and then I will move on to the full year.

In the fourth quarter, revenues of $4.6 million remained flat compared with the third quarter, and down from $5.6 million in the fourth quarter of 2007. During the fourth quarter, we recorded a non-cash goodwill impairment charge of $2.2 million following an impairment test triggered by the adverse global economic environment and the decline in our stock price.

Excluding the goodwill impairment charge, amortization of intangible assets, and equity based compensation expense, our non-GAAP operating income was $640,000, or 13.8% of revenue. GAAP operating loss was $1.6 million.

During the fourth quarter, we recorded an additional impairment to the Auction Rate Security investment in the amount of $1.3 million. The decline in the model-based valuation was driven primarily by the increased risk of default as implied by credit default swaps spreads and by the decline in LIBOR forward rates.

Moving on to the full-year financial results. Revenue in the full year was $19.5 million compared with $18.4 million in 2007. The total non-cash impairment charge of goodwill and other intangible assets in the year was $3.7 million.

Excluding these impairments, amortization of intangible assets, and equity-based compensation expense, our non-GAAP operating income amounted to $2.1 million or 10.8% of revenue.

GAAP operating loss was $2.3 million compared with operating income of $1.3 million in 2007.

During the year, the total impairment of Auction Rate Security investment was $4.2 million. The value of the Auction Rate Security investment in our books was approximately $900,000 as of December 31, 2008.

For the year 2008, our GAAP net loss was $6.4 million or $0.30 per share compared with GAAP net loss of $12 million or $0.55 per share in 2007.

At the same time during the year 2008, we generated cash in the amount of $4.1 million from our operating activities. Our cash position as of December 31, 2008 was $9.7 million -- I am sorry, it was $9.7 million after a $1.6 million expenditure for the buyback of $2.1 million company shares in the fourth quarter.

As of December 31, 2008, our long-term backlog was $17 million, of which $8.7 million is expected to be billed by 2009 year-end.

I will now talk a little about revenue distribution in the fourth quarter and for the full year. In the fourth quarter of 2008, revenue from our customer care and billing software was $3.9 million, and revenue from our enterprise call accounting software was approximately $700,000.

For the full year, revenue from our customer care and billing software was $16.2 million, and revenue from our enterprise call accounting software was $3.2 million. We operate and win business around the world, and we continue to focus mainly on the Americas and Europe.

For the fourth quarter of 2008, the geographic revenue breakdown was roughly 44% from the Americas, 48% from Europe, and the rest divided between Israel, Africa and Asia-Pacific.

Geographic revenue breakdown for the full year was roughly 40% from the Americas, 51% from Europe, and the rest divided between Israel, Africa and Asia-Pacific.

I will now turn the call back over to Monica.

Thank you, Itay. I wish to update you on the Company's buyback. In September 2008, MIND announced its intention to execute for the first time a buyback program. At that time, the Board of Directors authorized a plan for the repurchase of up to 2.1 million of the Company's shares in the open market, in an amount in cash of up to $2.8 million.

The buyback started in November 2008 and the Company has purchased 2.1 million ordinary shares for a total of approximately $1.6 million. In order to execute the plan, the Company received court approval as requested by Israeli law, for the amount of $2.8 million.

Yesterday, the Board of Directors of MIND approved an increase in the number of shares of the buyback, up to the original dollar amount, which was previously approved.

Under the repurchase program, shares purchases may be made from time to time depending on market conditions, share price, trading volume, and other factors. The repurchase may be suspended from time to time or discontinued.

We continue to believe that in light of current share prices, the history of positive cash flow from operations and the Company's resources, the purchase of the Company's shares is a good investment and is in the best interest of the Company.

We continue to believe that at this time the repurchase of our stock at these prices will deliver value to our shareholders and it is the most appropriate use of our resources.

And now an update regarding the Auction Rate investments. As previously announced, on February 20, 2008, we filed a statement of claim with the FINRA and commenced arbitration proceedings against Credit Suisse. We intend to pursue the arbitration vigorously. The arbitration hearing is now scheduled for June 2009, but no predictions of the timing of a resolution or possible outcomes can be made at this time. Meanwhile, we continue to receive interest payments every month on the held security.

To summarize, we believe that our results reflect the existing market conditions and we are pleased that we have the skills, the experience, and understanding to react quickly to any change. We remain confident in our long-term strategy, prospects and future and in the meantime, we are pleased with our backlog, our margins and our cash flow. Operator?

Thank you. (Operator Instructions) Our first question comes through from the line of Hugh Cunningham from Oppenheimer. Please go ahead.

Hello. Thanks for taking my question. This is Hugh Cunningham from Oppenheimer. You have given us some sense of what you are seeing in the marketplace. Can you elaborate a bit and give us some insight into the mindset and behavior of your customers? And I also have a follow-up.

Okay. First of all, what we see that companies that depend on financing, on getting new rounds of financing, or companies that want to start a new operation find it, at this time, difficult to do so. But at the same time we see that in the US especially, there is a growing interest especially in the mobile world. The mobile subscriber base is growing especially for those carriers that go for the pay-in-advance model and in the rural markets.

So in those markets we see our existing customers, the rural mobile carriers, or the MVNOs that are our customers, we see most of them growing and this is one way that we increase our revenue from this existing customer base. At the same time we also see that there are some new companies in this field especially, as I said, in pay-in-advance model that did get financing earlier in 2008 and now are growing their customer base.

At the same time everybody is very hesitant on ordering new functionality, on further increasing their presence in new markets. And we see that people that have very old systems and are willing to replace now for a long time are really hesitant about really making the move. So we have a very long pipeline with lot of potential enhancements of existing customers and also many new customers but we don't have any definite timeframe from either of them.

Okay. So it sounds like prepaid and rural in particular are opportunities for you. In terms of -- let me backtrack a bit -- in terms of geography globally, what are you -- what is your sense of differences on a geographic basis?

First of all, we mainly concentrate on West Europe and in the U.S. markets and this is -- over 40% -- between 40% and 50% comes from each of these markets and only a very small portion comes from other parts of the market. But if you look at the whole world that is talking about growing China, I wouldn't suggest to any software company to try to sell software in China because they have lot of local solutions.

And so the growth of the Far East, the Asian markets is -- it's something that although in networking or other kind of products you might see growth, but most of that growth goes into local solutions. And this was the reasoning for us to move more into the markets that are more interesting that are willing to pay the right price for the right solution and they appreciate the fact that we are a global company and we have the ability to support them from our locations both in Europe and in U.S.

So if we look globally, I think that most of the action is happening now in the Americas, in both North and South America, but most of it is happening in the Americas although the slowdown is also very strong there.

Okay. And just to clarify, one final question. When you talked about potential customers or existing customers who have not yet upgraded their systems, you are saying this is a particularly promising opportunity for you?

What I am trying to say is kind of the opposite that we don't have a definite timeframe for anything to close. So it is a positive for us because these deals we have been in touch with all these potential customers and with our existing customers certainly, and it is a good sign when you have a long pipeline. But it isn't a good sign when you can't put a final date for a decision of a customer.

So eventually there will be some release of some other attitude, optimism or financing into these markets. We do expect that at that point, we will be very well positioned to get some of these deals and to see a major change. But unfortunately I believe that none of us knows when this will happen.

Okay. I think I understand. So you are saying there is a pretty substantial pipeline, but there -- because of the macro environment, there is some uncertainty in terms of when these potential revenues might be realized.

Yes, whatever.

Okay, excellent. Well, thank you very much for taking my question.

Thank you. Thank you.

Thank you. Our next question comes through from the line of [Ben Westin] from Westcap. Please go ahead.

Yes hi, good morning. I had a couple of questions. First, Monica, could you clarify your comments on the buyback program? I couldn't hear it properly.

Okay. When we decided to go for the buyback, we needed to approve the dollar amount into a court in Israel because of some Israeli regulations. And we got the approval for $2.8 million.

Out of that amount, we meanwhile used $1.6 million and repurchased 2.1 million shares, and what the Board decided yesterday to use the remaining $1.2 million, and to continue the buyback until we reach the dollar amount of $2.8 million.

Okay, understood. And how soon do you anticipate that you are allowed to be in the market again in buying stock?

Probably within a week because we are now in quiet period, and so there are some days that we cannot do anything, and then we have to just do some paperwork. So probably within -- around a week.

Okay, sounds good. And your backlog, if I heard you right, it was $17 million in total, $8.7 of which you expect in 2009?

Yes.

And is there a way you could tell us where your backlog stood a year ago, end of year 2007?

It was around $1 million higher for each of the numbers.

Okay, okay. And Itay, do you have depreciation and amortization for your fourth quarter?

I can tell you that the non-GAAP adjustments for the fourth quarter were $2.3 million, out of which we had the $2.2 million of impairments of goodwill, and then the rest is equity-based compensation and amortization.

Did you just have what the depreciation was in the quarter?

The depreciation -- yes, give me one second. Yes, it was around $213,000.

Okay. Okay, good stuff. Thanks very much.

Sure.

Thank you. Our next question is a follow-up from the line of Hugh Cunningham. Please go ahead.

Thanks for taking this question. One other question in terms of your products, you mentioned previously that you were working on or had developed a -- an intelligent network prepaid solution. Could you give us an update on that?

First of all, thank you for this question, and yes, we did develop it, and we are negotiating one or even more of the potential deals is for an enhancement on existing postpaid customers that is willing to replace the existing platform that he has for prepaid IN with our platform.

But as I said, the timing now, financing, and the pricing of the solutions is something that -- it's more difficult to kind of get to an agreement. But as we speak, we are trying to close this deal and to get both sides to be more flexible. As I said, this is a replacement of an existing solution that the customer says. So it's -- hopefully it will close, but again timing is not really very clear.

Okay, that's very helpful. Thank you for taking the question.

Thank you, Hugh.

Thank you. Our next question comes through from the line of Richard Maguire from Delta Equity. Please go ahead.

Thank you. Hi, Monica.

Hi, Richard.

You haven't touched on the dividend that -- which would normally be talked about being paid sometime in the near future. Have you guys made a decision on what you're doing about a dividend this year?

At this point in time, we have the buyback plan that we started, and we continue with the buyback plan. And I expect that the dividend issue will not be raised in the near future.

Okay, that's fine. Second of all, about the Auction Rate Securities, I think, obviously, you are aware that there was a arbitration ruling against Credit Suisse with STMicro last week.

Yes, of course.

And I'm just wondering it seems like you guys were ahead of the curve when it came to this. Do you know at all where you are in line in the arbitration schedule with them? I know you have a date, but is there any sense of how many people have arbitrations before you, and are you at all concerned about Credit Suisse's ability to take care of any arbitrations that they have ruled against them?

I think that Credit Suisse being one of the largest banks in the world, and if you look at their financial report and you see how much money they did make in the past, and although they lost this in the last quarter, but I don't think that we need to worry about that and about their liquidity. And yes, we are aware that in March -- there is a second arbitration that starts in March. And then we have the next one in June from what we know.

Okay.

But in any case, it is different panel, different teams of people that deal with each case. So it could have been done in parallel, but this -- it doesn't happen. You are right. There is a pipeline of arbitrations against Credit Suisse.

Okay. thank you very much.

Thank you.

Thank you. We have no further questions in the queue at this time. (Operator Instructions).

We have no further questions coming through. So I will now hand you back to your host to conclude today's conference.

Thank you all for being with us and for your interest in MIND.

Ladies and gentlemen, thank you for joining today's conference. You may now replace your handsets.