Mind CTI Ltd (MNDO) 2010 Q3 法說會逐字稿

Good day and welcome to the MIND Q3 2010 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Andrea Dray. Please go ahead, madam.

Thank you, Sarah. Thank you, 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 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 constitute 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.

Yesterday, MIND reported the results of its third quarter 2010. The financials can be found in our Form 6-K. On the call today from MIND is Ms. Monica Iancu, MIND's CEO. I would now like to 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. In our call today I will summarize our major achievements in the third quarter of 2010 and discuss our business. The financials can be found in our press release.

Yesterday, we reported our business results for the third quarter of 2010. Revenue for the third quarter was $4.7 million. Revenue from our customer care and billing solutions was $3.9 million, and revenue from our enterprise call accounting solutions was approximately $0.8 million. The geographic revenue breakdown was roughly 39% from the Americas and 48% from Europe. The license revenue was $1 million, or 22% of total revenue. Maintenance represented $1.9 million, or 40%. Services were $1.8 million, or 38%.

During the third quarter of each year we perform impairment tests for the value of goodwill and other intangible assets. Following the tests performed in Q3 2010, we recorded an impairment charge of $586,000 for goodwill and $407,000 for intangible assets related to the company we acquired in the UK in 2007. The balance sheet as of September 30, 2010 shows the remaining amount of $5.4 million for goodwill relating to the company we acquired in the US in 2005.

The non-GAAP operating income excluding the non-cash impairment of $993,000, amortization of intangible assets of $64,000 and equity-based compensation expense of $16,000 was $1,371,000, or 29% of revenue. The non-GAAP net income was $1,429,000. The GAAP operating income for the third quarter was $298,000, and the net income was $356,000, and EPS of $0.02 per share.

Our balance sheet continues to be strong with total cash position of $19.6 million at the end of the quarter. Our backlog as of September 30, 2010 includes approximately $4 million which is expected to be billed by year end compared to $4.2 million on the same date last year.

We are pleased that, in these economic conditions, we continue with our execution of positive cash flow and that during the quarter we succeeded to close additional business. In the third quarter, MIND secured one new customer as well as multiple follow-on orders. The new win is a multi-year agreement with a regional wireless carrier that is a member of the Sprint Rural Alliance. We will implement our MINDBill imprint convergence billing solution. This operator will utilize our convergent pay-in-advance and postpaid billing, rating, invoicing roaming, customer care, Websense care point of sale, inventory management, commissions, Web services, workflow engine, provisioning mediation and dashboard reporting in order to support their wireless services.

The follow-on orders were received from various customers, including three wireless carriers as follows. The first wireless carrier has been a MIND customer for five years and bought enhancement to rating capabilities. The second one is also a customer since 2005 and bought enhancements to customer care, point of sale and rating capabilities. The third started its relationship with us in 2007, when they planned to start their operation. This greenfield operator has stopped its activity in the past and is restarting it now with a slightly different business model that requires also enhancement for our order management.

As previously announced in our latest conference call, our Board of Directors reviewed lately the dividend policy. On October 25, 2010, it decided to further enforce the expected annual distributions and update the policy slightly. Under the old dividend policy, we declared, subject to specific Board approval and applicable law, a dividend distribution once per year in the amount of our net income from the previous year. The new policy changes only the amount to be distributed, the new amount being equal to our EBITDA plus financial income minus taxes on income. The EBITDA for the first nine months of 2010 was $4,639,000.

The Board of Directors also resolved that the Company should seek court approval formerly required in order to enable a distribution for the year 2010 in an amount of up to $6 million. Under Israeli law, a company with insufficient retained earnings is required to obtain approval from the court for such a cash distribution. Prior to paying any dividend which is still subject to specific Board approval, the Company will issue a press release announcing the exact dividend amount, record date and distribution date.

We continue to strongly believe that our dividend policy enhances shareholder's value. Our solid cash position and our long-standing positive operating cash flow enable us to sustain it. Our strategy has been for many years now to increase the average deal size, to build strong, long-term relationships with our customers; to build a strong team of motivated professionals with experience in the industry and in our products; to continuously win new business; to increase the professional services part of our business, and thus increase visibility; to continuously develop new modules that enhance our offering; and, of course, to perform all these tasks while maintaining profitability.

We regularly announce additional modules that we develop and enhance our platform. In the near future, we will announce our latest development, the BI module. For our customers business intelligence, or BI, refers mainly to analyzing business data such as sales revenue by products, number of subscribers or resellers and income from subscriber products to other chosen parameters, all over a chosen period of time. BI provides historical and current views of business operations. To achieve the common functions of BI, we're enhancing our reporting tools to better enable online analytical processing for better business performance management. And in the end, this will increase the carriers' income.

To summarize, we are pleased with the year-to-year growth and believe that the decrease in revenue compared to the previous quarter is related to timing of revenue recognition of one almost completed project. The new win this quarter increases the long-term backlog and strengthens our US footprint. We are especially pleased with the vote of confidence that we get from our customers as they enhance the part of their business that is supported by our solutions. This validates our strategy of developing additional modules to further enhance our solutions of billing and full customer care, to support the carriers' point-of-sale business intelligence reporting needs and much more.

We believe that we have the up-to-date required technology and team that will enable internal growth if and when the market conditions improve. Operator?

Yes?

We'll take questions, if any, now.

(Operator instructions) Manoj Nadkarni, ChipInvestor Group.

Good afternoon and congratulations on strong results.

Thank you.

If we look at your past results, historically your third quarter is slower than the second quarter, and we believe it's due to seasonal effect. You saw this in 2008 and 2009. And again, this year, we are seeing it, but to a lower degree than what you saw previously. Is this primarily due to summer vacations in Europe, where you have nearly 50% of revenues coming from?

First of all, you are right in your analysis is correct. And, although the reason is not 100% clear, but you are right; it is related to summer vacations in Europe and especially with deployments of solutions that almost don't happen in the July-August months. And also the vacations of our employees; thus, the percentage of completion of projects is somehow to a lower extent during these three months of the summer vacations.

Yes; we have seen this with any companies, technology companies that we follow, that have a high exposure to Europe, wherein typically third quarter is their low revenue quarter. Do you -- does the Company have a stock buyback program?

We used to have a stock buyback program. It is not activated at this point in time.

And if I may ask, what is the philosophy behind having or not having the buyback pogrom?

It is a decision of the Board of Directors, and at this point in time the Board of Directors thinks that the dividend policy, which is another type of buyback, if you want to look at this, this way, is the right policy for MIND. And as it is now, we have around 18.5 million shares, and we do want to keep liquidity in the Company and to be able to have volumes of trading with the shares. So this is one of the reasons that the Board considers when they look at implementing a new buyback. And as I said, discussing this subject within the Board of Directors, the decision was to reinforce and to give a strong note to the dividend policy and not to the buyback.

And can you please give us more details on revenue distribution by geographies, Europe versus United States and Asia and where, in particular, you are seeing strength versus less growth in certain segments?

As we said in the press release, Europe came at around 48% and the United States at 39%. And the rest is really -- the rest is not so much, and something like 5% out of it comes from Israel, and the ad revenue comes from -- some from Asia-Pacific, some from Africa. But we thought that it is not so significant if it's 2% or 3% from each of these regions to go into detail.

Yes; my question is more so, you saw revenue increase of about 16% compared to last year's quarter. Was the growth primarily from Europe, or was it more so from US? Any more color on that?

We see strong revenue from US. And also, if you look at the new customers that we signed in the last quarters, you can see that also the customer, the new win this quarter is from the US as well. And as you are aware, at MIND revenue recognition will start a few quarters after the deal is signed. So we expect also that these follow-on orders that we got, the majority of them from US, the major -- the more important ones are from the US and the new win is in the US. So we expect that that part of the revenue will be one to increase, and to continued to increase.

Very good; and what, if I may ask, what have you seen so far in the fourth quarter, now that more than a month is over?

First of all, we do not give any estimates for the fourth quarter. What we said is that at the end of the quarter the backlog was at $4 million, and we compared this to the backlog a year ago that was at $4.2 million. So you can kind of expect -- you can do an extrapolation with Q4 of 2009.

Okay, all right, thank you very much.

(Operator instructions) Manoj Nadkarni, ChipInvestor Group.

Yes, just one more question. You are running at operating margins of about 29% non-GAAP level. Do you think you will be able to maintain these levels or improve upon those levels if your revenues -- if you can maintain revenues or do better with revenues?

Our long-term target is really around 20%, about 20% but not -- the 28 or 29 that we had in the last two quarters is above our target, and we expect that we will reinvest part of these margins into more marketing and into more development of new modules of new technology. Our long-term target, as I said, is 20%-plus. And if you ask if the 28% to 29% is sustainable, it could have been sustainable. But we think that it's a better idea to reinvest part of it into enabling growth.

I see, all right, thank you.

(Operator instructions). We currently have no further questions in the queue.

Okay, thank you very much for attending this call.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.