Mind CTI Ltd (MNDO) 2010 Q1 法說會逐字稿

Good day and welcome to the MIND Q1 2010 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to your host today, Andrea Dray. Please go ahead, ma'am.

Thank you, Anna. 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 this financial information and internal analysis in order to exclude the effects 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 attained 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.

A short reminder of our history and business. MIND was incorporated in Israel in 1995 and started providing our enterprise software products in that year. In 1997, we introduced our billing and customer care software for voice over IP. We have enhanced our billing solution since then to support multiple IP services, wireless and wireline carriers, and multiple play, voice, data, and content service providers.

In August 2005 we acquired Sentori, Inc., a leading provider of billing and customer care solutions to Tier 3 and Tier 2 wireless carriers and mobile virtual network operators, or MVNOs, mainly in the United States and the Caribbean. In October 2007, we acquired a UK-based company which provides billing and customer care software solutions in a service bureau mode mainly to European carriers.

Yesterday, MIND reported the results of its first-quarter 2010. The financials can be found in our form 6-K.

On the call today from MIND is Monica Iancu, formerly 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.

As you may be aware, we have not held a conference call since Q4 2008. In this call, aside from covering the results and highlights from Q1 2010, I will also discuss our business and our achievements in 2009.

We supply Tier 3 and Tier 2 carriers around the world billing and customer care solutions that enable them to offer all types of wireline, wireless, voice over IP, and broadband services. Our convergent billing and customer care solutions support multiple services including voice-based IN contact services as well as both prepaid and postpaid payment models in a single platform.

Prepaid subscribers can enjoy the full range of services offered by the provider with their special bundles, rating plans, and limits. The prepaid solution authorizes each service and controls each session in real time, taking care that the balance is not exceeded.

Postpaid subscribers, whether they are retail or business customers, including credit limited and unlimited, represent the loyal and the higher average revenue per customer market. All services used by a postpaid subscriber appear in a single bill, which consists of all charges including one-time, recurring, and usage-related.

Our billing solution is unique as it includes our own integrated real-time mediation products that provide interfaces with IP, Intelligent Networks, and traditional telecommunication equipment.

The latest version of our billing and customer care solution includes a powerful workflow engine to support the creation and execution of business processes such as order management, trouble ticket, and debt collection. It also includes an integral point-of-sale solution that covers all dealer, store, and cashier management and sales processes.

The MIND solution introduces multilayered architecture supporting real-time distributed processing, achieving performance, scalability, and high availability. It uses an open architecture, thus enabling fast and seamless integration with other systems and third-party applications.

We also provide professional services consisting of installation, turnkey project implementation services, customer support, training, and maintenance services, customization, and project management. Our professional services also include enhanced support options, known as managed services, which are mainly offered to customers in the United States and Europe and are performed from our offices. These managed services include performing day-to-day billing operational tasks.

In addition to our billing and customer care solutions, we offer call management systems used by organizations for call accounting, telecom expense management, traffic analysis, and fraud detection. Our enterprise software product has been installed in over 16,000 locations throughout the world for traditional telephony, for IP switches, and hybrid networks.

Our latest product, PhonEX-ONE, delivers one unified solution for all voice communication expenses including traditional, IP, and mobile telephony. The flexible and scalable architecture of PhonEX-ONE meets the needs of large enterprises, supporting an unlimited number of extensions and sites.

The way we sell this is that we primarily use two business models when we sell our solutions -- the license model and he managed services model. In the license model the customer pays a one-time implementation key; a one-time license fee for a perpetual license limited by the traffic metrics chosen by the customer; and additional fees as they spend above the limitation. In addition, we are paid maintenance fees to renew periodically the maintenance agreement at the customer's discretion.

In the managed services model, the customer pays a one-time implementation fee; a monthly fee that includes a periodic license, the rights to use, maintenance, and service fees calculated by the metrics chosen by the customer -- mainly the number of subscribers.

For us, 2009 was an eventful year with nice new wins and follow-on orders including our first prepaid IN implementation. At the same time, unfortunate loss of three customers with managed services agreements due to lack of financing.

We have reached a settlement in our auction rate securities case, and we executed on our buyback plan. We had a one-time special dividend, and we have taken the decision to de-list from the Tel Aviv Stock Exchange.

At the same time, we encountered fluctuations in exchange rates that had an influence on our revenue and on our expenses. Towards year-end, we took a decision to increase investments in sales and marketing.

In general, we are pleased with our results for 2009 given the prevailing market conditions. And we are very satisfied with the fact that we anticipated the market situation and we planned accordingly, way ahead.

The most important metrics in our view are margins, backlog, and especially the cash flow from operations. We improved our non-GAAP operating margins and exceeded our annual cash flow target.

We executed on these metrics and will continue to focus of them. At MIND, we believe that whatever the market conditions are, we need to execute our strategy of focusing on profitability and cash flow.

We believe that we are effective in planning the steps to overcome crisis conditions; and at the same time we are ready to show growth in positive market sentiment and improved economy.

We support mission-critical activities for our customers around the world, including managed services under long-term contracts. And this drives recurring revenue with high visibility and strong backlog.

Yesterday we reported our business results for the first quarter of 2010. We are proud of our execution in the first quarter, that included the completion of important milestones in different projects that are in the process of implementation and, again, of our outstanding positive cash flow from operating activities.

We are extremely pleased with the enhancements we win with our customers. We believe it is the best proof of customer satisfaction and that it strengthens our ongoing relationship.

Our technical teams, both development and support, and are to be praised for their great work. Itay will now review some financials. Itay?

Thank you, Monica. Revenue for the first quarter was $5.3 million, an increase of 28.4% year-over-year. Revenue from our customer care and billing solutions was $4.3 million; and revenue from our enterprise call accounting solutions was approximately $956,000.

Sequentially our revenue increased by 6% over Q4 2009. Revenue growth in the first quarter was driven primarily by the recognition of revenue from projects related to the new wins which we announced during 2009.

In the first quarter of 2010, the geographic revenue breakdown was roughly 52% from the Americas; 33% from Europe; and the rest divided between Israel, Africa, and Asia-Pacific. The revenue breakdown from our business lines of products was $2 million or 38% from licenses; $1.6 million or 30% from maintenance; $1.7 million or 32% from services.

Gross margin in the first quarter was 68.3% compared to 69.3% last quarter and 65.3% in Q1 2009. Operating income for the first quarter was 27.9%, up from 25.1% last quarter and up from 7% in the first quarter of 2009.

Improved profitability is the result of the top-line growth coupled with margin leverage, which means that even though operating costs and expenses have increased revenue grew at an even faster rate. Our operating margins were also favorably impacted by the strengthening of the US dollar versus the euro.

Non-GAAP operating income was 30.3% of revenue, up from 27.6% last quarter and up from 9.8% in Q1 2009. Net income for the first quarter was $1,356,000 compared to $212,000 in the first quarter of 2009.

Earnings per share in the first quarter were $0.07 per share versus $0.01 per share in the same quarter of 2009. Our balance sheet continues to be strong with total cash and short-term bank deposits $20.5 million at the end of the quarter.

Cash flow from operating activities was $2.4 million compared to $2 million last quarter and to $596,000 in Q1 2009. The strong cash flow was driven by higher profit, a strong collection, and by the increase in our deferred revenue balance which reflects advance payments.

Our backlog as of March 31, 2010, includes approximately $10 million which is expected to be built by year-end, compared to $7.7 million on the same date last year.

During the first quarter, we announced our annual dividend for 2009, $0.20 per share. The dividend in the amount of $3.7 million was paid on April 12, 2010.

In the third quarter of 2009, the Board of Directors resolved to de-list the Company's ordinary shares from the trading on the Tel Aviv Stock Exchange. The de-listing went into effect on February 7, 2010.

I will now turn the call back over to Monica.

Thank you, Itay. I wish to now update you on the Company's new wins and follow-on orders for both the first quarter of 2010 and then the full-year 2009.

In the first quarter of 2010 MIND secured one new customer as well as one major upgrade and one major enhancement with two existing customers.

The new win is an entry-level project with a startup company providing voice over IP services for the mobile IP industry.

The upgrade is with a US mobile carrier that has been running its operation based on our billing solutions since 2006. This carrier succeeded in increasing its business, and we supported this growth first for the postpaid model and later for its prepaid model as well. The current update follows the successful implementation of MIND's prepaid module in 2009 and will enable additional mobile services.

The major functionality enhancement is with our largest East European customer that has since 2007 gradually built a mobile operation based on our billing solution. This customer is now adding 3G services based on UMTS and GPRS in addition to the CDMA network.

MIND also supports with its end-to-end billing solution the wireline operation that services over 1 million subscribers. Lately we completed the migration from different platforms into the MIND convergent platform that includes support for wireline, wireless, broadband, and IP services.

In 2009 we won and announced four new customers and two major upgrades. A follow-on order with an existing US regional mobile operator for our first implementation of prepaid IN.

A new customer, a regional mobile operator, in the US that offers postpaid and prepaid wireless Internet, long distance, and paging services.

A new win -- a new operator in Africa, launching WiMAX network and services; of course this is already up and running and implemented.

A follow-on order with an existing Caribbean customer for a complete end-to-end convergent prepaid and postpaid billing, including among many more modules the MIND point-of-sale inventory management and interconnect. The agreement is for four years and includes migration from existing solutions, license implementation services, and maintenance support.

A leading international communications provider chose MIND to support the offering of mobile, broadband, domestic, and international fixed-plan services for their operation in one country in Central America. MIND will provide mediation, rating, and billing for prepaid calling cards. The MINDBill solution will handle millions of prepaid calling cards supporting multiple services through its built-in balance manager.

Finally, a new NextGen operator that plans to start offering voice over IP and IP services in East Europe chose MIND as the billing supplier.

At the same time in 2009, we unfortunately lost three US greenfield customers that signed managed service agreements with us in 2007 and 2008 and starting building their new mobile operations. Due to the financial crisis, they failed to raise the money needed to support their business. We did not incur any bad debt; but the bankruptcy of these customers had a strong impact on our EBITDA in the mid 2009.

Now I want to say something about our competition. In our market, the billing and customer care market, competition is intense; and we expect competition to continue to be strong. We compete with many local companies and worldwide companies such as Comverse with both their Kenan postpaid and their original prepaid solution.

We believe that our competitive advantage is based on our ability to rapidly deploy a complete turnkey product-based solution; our solutions functionality, which includes billing, customer care mediation, provisioning, rating for multiple services, and prepaid IP functionality; our proven platform; and our many years of wireless and IP experience; and our ability to satisfy customer requirements and to meet customer requirements in a short time frame.

Some of our competitors have a larger customer base and greater financial, sales teams, marketing, and other resources and at the same time also greater name recognition than we do. Other competitors have a limited product, but at the same time they have a lower cost structure and compete with us on pricing.

I want to update on our buyback plan. Since September 2008, when MIND announced its intention to execute for the first time a buyback program, a few plans were approved and executed. As a result, we repurchased a total of 3,165,000 of the Company's ordinary shares in the open market in a total amount of $2.8 million.

We have a new plan in place that will be executed when applicable. Under the repurchase program, share 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.

An update on the dividend distribution. In July 2003, the Board of Directors at MIND has adopted our dividend policy. Our existing dividend policy distributes on a yearly basis all net income subject to Board approval. We have since distributed yearly cash dividends seven times, the latest in April 2010, and one special dividend as well. We intend to continue to distribute dividends based on factors that include our cash flow, our cash position, and our activities.

To summarize, we believe that the turbulent period is still ongoing. But we also believe that we have the skills, experience, and understanding to react quickly to change in either direction.

Through the years since inception, we were able to analyze the market conditions and to plan ahead, make decisions, and act upfront on expected changes. We remain confident in our long-term strategy, prospects, and future. And in the meantime, we are pleased with our margins and our cash flow. Operator? We will take questions now.

(Operator Instructions) It appears that there is nobody to queuing for questions at this time.

Okay. Thank you for listening to our conference call, and see you next time.

(technical difficulty) today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.