NCR Voyix Corp (VYX) 2003 Q3 法說會逐字稿

At this time I would like to welcome everyone to the third quarter fiscal 2003 earnings release conference call.

All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, press star then the number 1 on the telephone keypad. To withdraw a question, press the pound key or press star then the number 2 on the telephone keypad.

Thank you. Mr. Coulson, you may begin your conference.

Thank you, Tracy.

Welcome, everyone to Retalix third quarter conference call.

With us today are Retalix Chairman and CEO, Barry Shaked, the company's Chief Executive Officer Danny Moshaioff and the CEO of Retalix USA, Jeff Yelton.

Before I turn the call over to them, I'd like to take a moment to remind our listeners, that in this call managements' prepared remarks may contain forward-looking statements. And these statements subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions. These forward-looking statements include comments regarding anticipated demand for Retalix's enterprise software products, successful implementation and roll-out of existing license agreements, and management's expectations as to the company's future financial performance. Therefore, the company claims protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today. Therefore, we'd like to refer you to a more detailed discussion of these risks and uncertainties contained with the filings of the SCC and principally filing 20-F.

For those of you unable to listen to the entire call at this time, we are going to make a recording available for 90 days. You can find that at the Retalix website at www.retalix.com in the Investor Relations section.

With those formalities out of the way, it's my pleasure to turn the call over to Retalix's CEO, Barry Shaked.

Thank you Crocker and good afternoon and good morning to everyone. Thank you for joining the third quarter announcement of Retalix. I'm pleased to announce our best quarter ever.

Net revenues for the quarter ended September the 30th, 2003 where $24.3 million, an increase of 19% from $20.4 million in the third quarter 2002. Operating income rose 55% to $3.1 million as compared to $2 million in the third quarter of 2002.

Net income for the quarter was $2.1 million or 16 cents per diluted share in comparison to $1.6 million or 13 cents per diluted share in 2002. Net revenue for the nine months were $66.4 million, an increase of 23% from $33.9 million in 2002. Net profits in the first nine months was $4.7 million or 36 cents per diluted share in comparison to $3.8 million or 31cents in 2002.

As I said, this has been our best quarter ever in terms of revenue, operational profits and net profits. We're on target with our strategy and product development and our customers are liking what we are presenting for the future.

Our web-based hosting and (INAUDIBLE) applications are well received and our pilot with some strategic customers are going well. We are getting more and more inquiries from our customers about web-based solution and the possibility of sending of the store(ph).

Our product strategy with ReMA and Pocket Office is a top priority on our customer lists and all of them want to availability to access any information from any place at any time. The days of having a computer room with data entry people is over. Retail IT is having mobile devices with access to any and all information while you are out there, while you are in the aisles, while you walk in the storeroom, while you are receiving goods or if you're in the front end next to the checkout.

Also some of our competitors have failed in trying to provide post solutions and have announced that they are deinvesting(ph) from enterprise software. I'm proud that Retalix has managed to develop this part of our business and that while doing so, we have shown a strong balance sheet and kept our business profitable. Our post to post strategy in providing itself and most of our C-store customers are buying our combined solution and taking advantage of inherited integration piece that comes with our solution.

Our investment in technology in StoreNext has not only proven to be good for our StoreNext customers but our large customers are starting to adopt this technology as well.

A quick business update, as announced during the quarter, A.S. Watson selected store line for 1850 sites across Europe, Hy-Vee selected StoreLine for the next generation Store platform, Irving Oil StorePoints PRS solutions for the entire chain, and we have verbal agreement from two additional tier 1 customers that we hope to be announcing in the next few months.

We announced a few days ago that Bank Hapoalim via it's subsidiary, IsraCard, has invested in StoreNext Israel. This is a statement that our strategy with StoreNext Israel is on par and is on target and this is the time that we will start providing financial services to the community of retailers and suppliers that are all connected up to StoreNext.

We are continuing to make steady gains in the U.S. market penetration and the territory continues to be a major part of our revenue. North America now accounts for almost 70% of our revenues and we continue to grow our market share in both the grocery and convenience sectors.

Now I would like to pass the call over to Jeff to talk about business in the United States. ¶

Thanks.

We've had another strong quarter in the U.S. across both our convenience store and grocery segments. The number of builds that we are involved in has increased and it continues to appear that the technology spending in these two sectors is slowly starting to recover from the last two years. Customers are still extremely focused on ROI of their investments and are only approving solutions with very short paybacks.

As we spoke about on earlier calls, one of our strategies has been to increase the amount of business from our existing install base. We put a lot of energy into this strategy with heavy investments in both development and sales resources and we're beginning to see strong results from this.

We also believe that the increased spending we are seeing from our current customers validates the investments that we've been making in our new products and it also solidifies the return on investments that our products provide to our customers. We have few -- we had major new purchases from our current install base in the third quarter on the convenience store side of our business and believe that this trend will continue for the foreseeable future.

Also on the convenience store side, we are entering the roll-out phase with many of the customers we signed contracts with earlier in the year. Caseys, which is a convenience store chain up in Des Moines, is well into their roll-out and we're currently adding resources to increase the installation rate there. The roll-out of this project should be completed some time in early 2006.

Cumberland Farms, a convenience store up in the Boston area, which signed a contract in April and also, if you remember we discussed on the last call, that it was our first customer with RFS, or Retalix 4 court server, which is the software application to allow us to control the pumps and allows the customers to take hardware out of their store and reduce their overall cost of running their stores. We installed the first fully integrated system in the first few sites this quarter. The roll-out is now beginning to pick up pace and we should reach the maximum capacity of our rollout in the next 60 days or so.

Irving Oil, which is a Canadian convenience store chain that also has convenience stores in the U.S., we're well into the roll-out and have installed the first Canadian Credit and NACS ML interface in these stores. The installation of the Canadian Credit interface is going to open up a lot of new additional opportunities in the Canadian market for Retalix because we are one of the few non-Canadian C-Store software vendors to offer this type of solution.

On the grocery side, we have acquired a new account with the signing of Fresh Brands. Fresh Brands is a lower tier one account in the Wisconsin area. We've already gone live with our first pilot in one of Fresh Brands new flagship stores which also includes integrated fuel. Fresh Brands is a very progressive user of technology and a strong operator and we're looking forward to working with them in the future and also learning from them as we develop our relationship.

Also on the grocery side, we are well into the customization roll-out of many of the accounts we won earlier in the year. Publix, the tier one chain out of Florida, we're in advance stages of the customization there and we're well on our way to meeting our install dates to begin early next year. Hanniford Brothers, which is part of Dell Hayes, which as you'll know from earlier calls also is the first Linux install of our customers, we began that roll-out in July and are continuing with the roll-out there.

Hy-Vee as Barry talked about earlier signed a contract earlier in the quarter. We have our first fuel stores installed this quarter and their full grocery store roll-out will commence in the first quarter of 2004. Costco located out in Seattle, we've installed their Canadian fuel sites in connection with to the Canadian Credit networks there, also.

In StoreNext, our joint-venture with Fujitsu in the United States, we 've begun to see acceptance of our vision with them in both the dealer and customer group. (INAUDIBLE) We started to see a number of these new connections and commitments to connect increase in the last 30-45 days. We've been excited to see the larger chains inside of this segment, this lower tier segment, have also begun to commit the connected services strategy and connected delivery of applications.

We believe this is a validation. That they agree with our belief that this is the way to enforce the higher value applications that the tier one accounts have always had access to but a lot of the smaller chains have not been able to afford. Their belief ,as our belief, is that this is the best way for them to acquire these tools to help them be competitive in the future.

We're excited about the successes we've had and believe that we're on track to build a connected community between the retailers and the manufacturers just as we've done in the Israeli market. From a sales backlog point of view, our pipeline continues to remain full and we feel confident that the U.S. has adequate opportunities to fulfill its commitments to the business for the reminder of 2003.

Barry?

Danny will discuss the finances.

Thank you, Barry.

Net revenues for the third quarter amounted to $24.3 million compared to $20.4 million in Q3 of 2002, an increase of 19%. The nine months revenue was $66.4 million, an increase of 23% over the same period the last year.

As we discussed before, our revenues and profits this year are tilted toward the second half of the year and gross products have increased to over 70% this quarter compared to about 66% in Q1 and Q2 of this year. Operating profits for the third quarter amounted to $3.1 million compared to a profit of $2 million in the third quarter of 2002. Operating profits for the nine months was $6.4 million compared to $5 million last year.

Net profits were $2.1 million compared to $1.6 million last year and net profits for the nine month period were $4.7 million compared to $3.8 in 2002. Earnings per share for the quarter were 16 cents and 36 cents per share for the nine months fully diluted. Operating expenses were $13.9 million this quarter compared to $12.1 last year. Cash and marketable securities amounted to $42.2 million on September 30th compared to $34 million on December 31st.

Total financial liabilities including long-term were $12.9 million compared to about $15.9 million on December 31st. Our cash flow position remains strong with positive operating cash flow of about $3 million for the quarter and $7.4 million for the nine month. Our DSO for September 30th was 62 days. similar to previous quarters. Shareholders equity amounts to $66.4 million out of $102.2 million, total balance sheet about 65%. That completes the financial review.

Now back to Barry.

Thanks, Danny.

We are continuing to take business from our competitors. In the sector we are tending to continuing to show strength and are continuing to invest in IT. Chains will be spending money on IT and have to spend money as many of the store and hosting systems have reached their capacity limits.

We are seeing more and more RSPs in the top tier chains all over the world and we believe that 2004 will be a big year of the season taking in terms of store and hosting systems. We expect to continue growing by over 20% in our top and bottom lines for 2003, and we will be announcing our growth then for 2004 at the beginning of next year. With $3 million generated this quarter and over $7.4 for the first nine months, we will continue to be cash positive for 2003.

Our business successes in the U.S., Europe and Asia Pacific prove that Retalix is maintaining its position as the number one software supplier to the grocery, C-Store, and petroleum retail industry in the world.

Now I would like to pass the call back to the operator for questions.

At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on the telephone keypad. We will pause for just a moment to compile the Q&A roster.

Your first question comes from Stephen Levey.

Good afternoon. Congratulations on some excellent results again. Can you just explain how you increased the gross margin this quarter? ( INAUDIBLE) It ramped up quite significantly and there's a big houseware (ph) content there and yet you managed to improve your gross margins this quarter. I was wondering how you managed to do that?

Thanks, Steve.

We discussed it and at the beginning of the year we had lower margins the first and second quarter because of revenue recognition procedures and some of the revenue recognition, we knew when we budgeted the year would be tilted toward the end of the year and that's the reason for that.

What were revenues in StoreNext U.S. and StoreNext Israel this quarter?

You know we don't give out that information but we did say we will do better in StoreNext USA, we'll do better than what we projected.

You mentioned in your comments, you made a comment about competition withdrawing from the market. Can you elaborate on that a little bit, please?

Yeah, there's been some announcements in the market without going into specific companies that have deinvested from enterprise solutions and are just focusing on the store side, while we see focusing not only the store, but having a host to host solution is providing, will provide to our customers a far bigger advantage than just a good store solution like perhaps some others are giving.

Last question for me, you guys obviously have good visibility, long-term contracts. I'm surprised you haven't given any guidance at this point for next year, so let me ask you this. Any reason to expect top and bottom line growth in 2004 to be slower than 2003?

Steven, you'll hear about it in the beginning of next year. We are now in the process of compiling our budgets and when we are ready, we'll come up with the numbers. I can tell you it will be double digit growth.

Okay. Is there anything out there in terms of news flow or contracts or growth in the economy that should suggest that growth would be slower next year than this year?

We look at our customers and our figures and our probabilities and that's how we come, we are in the midst of this process and will come out with the markets when we have sound figures.

Let me try one more. Barry, are you more or less or just as optimistic about your business today than twelve months ago?

As you know, I'm always more optimistic.

You're more optimistic today than 12 months ago. Okay.

You have six ways of asking the same question.

But I got a good answer in the end.

He's funny.

Okay. I would like to remind everyone in order to ask a question, press star then the number 1 on the telephone keypad.

We will pause for just a moment to compile the Q&A roster. Your first question from Arnon Rubinstein.

Good afternoon. I'm going back to the issue of the gross margins.

Because again, like Stephen said, StoreNext should have had a large effect on margins like it had in the first two quarters. And you are saying you are actually expecting to do better this year than the $60 million guidance you gave us earlier last year.

So, again, where did the big improvement come from, meaning if StoreNext is only growing?

You know, it's all about the ratio between product and project and if you look at our margins in the second half of last year with StoreNext USA, we are about 69%. We dropped at the beginning of the year mainly because of, as I said, revenue recognition and we knew that, and we talked about that in previous quarters and we said we would recover that and come back to the 69-70% for the year and that's what we are doing.

So, again, those issues of revenue recognition might recur again in coming quarters if you win large contracts and you get more kind of less product and more kind of population work to be done. Is this an assumption that can be made or just saying it was more difficult to discern?

Arnon, we knew about this. We said so in the beginning of the year, if you go back to our discussions in Q1 and Q2, we saw that coming and we said that our annual figure would be around 69%. The first two quarters were low but we are compensating for that now.

Of course, what I'm asking is looking forward to 2004.

69% for average for a year is a good number.

Okay. Thank you very much for that.

Your next question comes from Absholom Semek.

Hi. Again congratulations for the results.

Can you speak louder, please?

Okay.

I want to ask a technical question regarding the financial expenses. We were expecting a minor positive number but it actually impacted EPS at the end of the day. I just want to know why is the negative financial income over there and what we should expect looking forward?

Yeah.

Some of this is because of relationship between dollar and checkout and you know that interest rates on cash and now securities has been going down and that influences. It is a bit high I'll say for the next quarter as we get lower numbers.

Lower but still on the negative side, you mean?

I think so, yeah.

Thanks.

Your next question comes from Tad Piper.

Thank you.

I was hoping that you could give us a little bit better color on the RFP activity you talked about. You did mention RFP was up. I wonder if that is both in the convenience store chains as well as, I mean in all three areas that you're in, or is there an area where you are seeing relatively more activity from an RFP perspective?

This is correct both in C-store, petroleum and in grocery. It is true around the world.

Okay. And in terms of those projects, are they mostly in-store system projects or are they primarily POS starting RFPs?

In-store -- I don't understand. In-store and POS in our language are the same.

But if you are referring to enterprise solutions, we've seen both on the hosting or enterprise and the store solutions, our RFP coming up.

I guess what I'm trying to get at is whether it's primarily people looking first and foremost to upgrade their POS systems and then provides an up-sell opportunity or in fact are all these three areas actually looking for enterprise solutions at this point?

Well, the beauty of what's happening is, that if in the past we were mainly store solution provider, and that's how we were coming in to bits, now we are starting to get the recognition and the bits from the enterprise piece which are actually resulting in somewhat eventually to peers so we come in early in to the stage of the POS in that case. So it's coming from both directions and getting us closer to the customer and our strategy of providing this host to host solution is proving itself.

Okay. Can you give us any color at all on the relative size of the pipeline versus, say, the beginning of the year?

We don't give that out but in general it's been, you know at the beginning of every year, it grows and this is what we are seeing again.

Okay. ¶ Thank you.

At this time, there are no further questions.

Well, we'd like to thank everyone for participating in the call today, and also would like to comment that next week, the company will be presenting at the AA Classic conference in San Diego on November 4th and 5th. Look forward to seeing many of you there.

The company will also be in the Bay Area at 6th and 7th and then look forward to talking to you early next year in mid-February about fourth quarter results. Barry, any other concluding remarks?

Thank you. Thanks, again, for listening.

This concludes today's third quarter fiscal 2003 earnings release conference call. ¶ You may now disconnect.