NCR Voyix Corp (VYX) 2004 Q1 法說會逐字稿

Good morning. My name is Monica and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Retalix's first-quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. If you'd like to ask a question during this time simply press star then the number one on your telephone keypad. (Operator Instructions). Thank you, Mr. Coulson, Please go ahead.

Thank you, Monica. I would like to welcome everyone to Retalix's first-quarter earnings call. With us on the call today are Retalix's Chairman and CEO, Barry Shaked; we also have the Company's Chief Financial Officer, Danny Moshaioff; and finally, the CEO of Retalix USA, Jeff Yelton.

Before I turn the call over to them, I would like to take a moment to remind our listeners than in this call management's prepared remarks do contain forward-looking statements. And these statements are subject risks and uncertainties. Management may also make additional forward-looking statements in response to your questions on the call. These forward-looking statements include comments regarding the anticipated demand for Retalix's enterprise software products, successful implementation and rollout of existing license agreements, the integration of OMI International with Retalix's existing software products, and management's expectations as to the Company's future financial performance. Therefore, Retalix claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we would like to refer you to a more detailed discussion of these risks and uncertainties that is contained in the Company's filings with the Securities and Exchange Commission.

For those of you unable to listen the entire call at this time, we're going to make a recording available for 90 days via webcast and you can find that recording at the Retalix website in the Investor Relations section under events.

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

Good afternoon and good morning to those in the US. Welcome to the first-quarter of 2004 Retalix conference call.

Revenues for the first quarter of 2004 were $25.8 million, an increase of 25 percent from $20.7 million in the first quarter of 2003.

Net income for the quarter was $770,000 or 5 cents per diluted share. Net income with (indiscernible) intensive investment in the development of the next generation of supply chain management applications and the integration with Retalix Enterprise Suite of products as part of their recent OMI acquisition. This investment is in line with our plans and announcement in January of 2004.

Actually, revenues were slightly higher than our budget as announced 25 million resulting in a slightly higher operating and net profit.

As you all know, we have concluded a successful follow-on offering that generated net proceeds of $58 million. The main objective for this offering was to raise capital to well position Retalix for the future growth and increase share volume on NASDAQ. In both cases, we have succeeded. With close to $100 million in cash and cash equivalents, and with the successful acquisition of OMI, we are positioned to provide the marketplace a full synchronized retail solution -- end-to-end software solution all away from the warehouse through the enterprise to the store and to the checkout.

As you know, the retail market in the U.S. is a $45 billion (ph) market -- and with the international market we're looking at an 8 to $10 billion market. The food and grocery and sea (ph) store part of that would be 30 percent leaving Retalix with the opportunities of 2 to $3 billion.

This market is very fragmented and as the market is looking for a clear leader in -- to take good position in this marketplace. Retalix is well-positioned to be this leader.

Why are people buying -- why are retailers buying our new solutions? One of the reasons is the Wal-Mart effect. Many these retailers are looking for strategy how to compete with Wal-Mart. With Retalix offerings of reducing costs and increasing revenues for the retailers, we are well-positioned to sell many of our applications to these retailers.

From recent researchers, we're getting information that two-thirds of retailers will buy -- will be buying or making a new POS decision in the next two years. And in the next five years, 75 percent will be making a new POS decision. 57 percent will be buying supply chain management systems, and 48 percent in the next two years will be buying merchandising planning systems.

In all of these areas Retalix has got best of breed products.

Why are retailers moving to open systems? Mainly because of the fact that these POS systems -- these legacy systems -- are proprietary systems that are very old -- 8 to 10 years with the retailers. And a lot of them (technical difficulty) systems have been built between 15 and 20 years ago. They're not flexible enough to answer the retailers requests (technical difficulty).

If we're looking at the current market, we'll see that only 20 (ph) (technical difficulty) percent of the retailers are currently running on open systems. We do know from surveys that by 2008 75 percent will be moving to open systems. This leaves (technical difficulty) Retalix with a huge opportunity (technical difficulty) and looking at our current installed base (technical difficulty) open systems, nearly a 50 percent -- this will position Retalix as a clear leadership in the marketplace.

What is so exciting about our solution (technical difficulty) are buying them to date? The fact that we are the only Company that is providing an end-to-end integrated solution, synchronized with the warehouse to the store to the enterprise and to the supplier -- this gives the retailers who buy solutions a clear advantage.

Another advantage is the fact that we're focused on the grocery convenience and food segment. And these retailers need a solution that is 100 percent fine-tuned to their needs. Retalix has been working in this industry for the last 20 years, and therefore, we are providing an excellent and fine-tuned solution to these retailers.

In terms of technology leadership, we definitely are ahead of our competitors in terms of open architecture, hardware neutral (ph) and operating system independent. And we also RFID (ph) enabled, allowing our customers at the warehouse or at the store level to take advantage of that technology.

Not only that we believe that our solutions are leading solutions in the marketplace, but recent research by AMR has stated that Retalix has gotten the best solution in the industry. They actually took seven leading solutions at store and point-of-sale level, compared them, and Retalix had the highest marks on most of the elements that they were testing. And the survey actually states that Retalix will be a significant player in the future, taking significant market share away from IBM and Antioch (ph).

In terms of our strategy for growth, we will continue to enhance our products through massive investments in R&D. We do invest 20 percent of revenue in R&D. In 2004, we will be investing over $30 million in R&D. Which also includes $7 million that we will be investing in moving OMI products to new technology.

We will be growing internationally. Our big opportunities are some installations and new wins that we have had in China and in India. And, more so, big opportunities that are going to come from the French market, which actually influenced both -- France, Europe and South America. Four of the big French retailers are actually looking for new solutions currently. We are engaged with all four of them. And I believe that two of them will make decisions this year. And I believe that definitely we will be winning one of these customers.

Looking at the (technical difficulty) future -- we're planning to do some acquisitions. The types of acquisitions that we will be performing will be one of two types. One will be Companies with supplementary products -- things like optimization engines around pricing, loss prevention and other acquisitions will be around Companies with customer base -- Companies that have a product, have got a good customer base, but actually ran out of steam with their products. With the current products from Retalix, we can come into these Companies and use them as a base -- mainly in Europe and the Far East.

At this stage, I would like to pass the call to Jeff, who will talk about our business in the U.S.

Thanks, Barry. We had another strong quarter in the U.S. across both of our convenience store and grocery segments, with our traditional offerings. And we also had a very good quarter with the new offerings we got in our OMI acquisition. A number of deals we're engaged in across both of the industry segments and across all the product lines remains high and it continues to appear that technology spending is getting back to normal in the US.

We had an especially strong quarter in the convenience store sector, where we signed a new Tier Two account in the Southeast (technical difficulty) rollout of our BackOffice applications in one of the major oils (technical difficulty) chains on the West Coast. And we had good sales of additional products in many of our other current customers.

From OMI, we had sales from (technical difficulty) that included A&P for our warehouse (technical difficulty). Harris Teeter and Argos. Argos is a UK chain (technical difficulty) and from Winn Dixie (technical difficulty) bio terrorism (technical difficulty).

Speak a bit on this last offering, which I think is going to be a very significant to us in the U.S. over the next few months. (technical difficulty) terrorism offering is a software package that was developed to address the new laws implemented after 911. What they do is they track not only the country of origin of a retailer's products, but also the complete path through the supply chain that the product takes. This includes (technical difficulty) what warehouses it passed-through, what carriers transported it, and who had access to the product.

This information has to be available to the government on a two-hour notice. And as you might guess, it is a huge undertaking that's very process and data intensive for the retailers to implement.

While final required elements in the law are still being finished, we might have to make some minor changes to (technical difficulty) the package. We believe that we're the only vendor in the market that has this offering today. We will be able to respond (technical difficulty) our customers in the grocery convenience store segment.

(technical difficulty) customers has been (technical difficulty) be compliant with these new laws imposed by the government.

We've also had two U.S. Pilots for our OMI computer-assisted ordering product with Tier One and Tier Two accounts. And purchases from A&P, Associated Grocers, Wild Oats -- and Wild Oats for our voice recognition offering in the warehouse.

This product (ph) shows the breadth and strength of the OMI offerings in the marketplace and the value that their products are going to bring to Retalix in 2004.

The user -- the OMI Users Conference was held in Dallas from April 25th through the 22nd. And we had excellent attendance at the conference. The conference allowed us to have in-depth conversations with our customer about our business and technical strategies surrounding the OMI products set.

We got very strong positive feedback that our strategies were accurate, and the timeframes for these strategies were also acceptable to our customers.

They especially have supported our synchronized retail approach to the market that Barry talked about earlier. And felt that Retalix was uniquely positioned to deliver on this value statement to its customers by being one of the few vendors in the marketplace to offer a full supply chain suite of products.

Synchronized retail means the complete integration of both the customers internal applications, business processes and data, and the integration of the retailers business processes, applications and data to its vendors. This has been the holy Grail of supply chain efficiency as in the Andy (ph) is the foundation for RFID.

Retailers that follow the hype of RFID and install the technology associated with it, before they have achieved data synchronization will not be able to achieve the business benefits associated with the technology.

Wal-Mart has already achieved data synchronization with its vendors through its retail link IT system. And, therefore, is ready to pursue RFID. Most other retailers have not made the progress Wal-Mart has with data synchronization, and therefore, are not ready for RFID. This message was well-received and agreed to buy our customers at the conference and the work Retalix was doing to assist them in their data synchronization efforts was well-received.

From a Retalix OMI integration point of view, we are well ahead of schedule, and should be fully integrated by the end of the third quarter of this year. This achievement is a testament to the hard-work and dedication to this task each of the Company's employees have exhibited. And most importantly, the similarity of the cultures of the two Companies -- which has turned out to be completely in sync.

The technical integration of OMI and Retalix products is also on track, and we should provide the first new products to our customers beginning in the second quarter of 2004.

From a sales backlog point of view, our pipeline continues to remain full and we feel confident that the U.S. has adequate opportunities identified for a successful 2004.

And with that, I will turn it over to Danny.

Thanks, Jeff. (indiscernible) the financial review.

Net revenues for the first quarter were $25.8 million, compared to $20.7 million in first quarter 2003 -- an increase of 25.2 percent. This quarter we consolidated the OMI results since we closed the acquisition on January 2nd of this year.

Gross margins for the quarter were 55.9 percent, as planned. The seasonality effect will add margins in third and fourth quarter higher, so that the annual target of about 67 (ph) percent will be reached.

Operating profit for first quarter amounted to about $1 million compared to a profit of 1.5 in the first quarter of 2003. As the reduction is the result of the increased R&D expense in relation to the new technology re-write of OMI products.

As we previously discussed, our revenues and profits for the first six months of 2004 will be lower than the second half of the year, because of shifting of license revenue to the third and fourth quarter of the year. This influences gross and operating margins.

Net profit for the quarter were $0.8 million compared to a net profit of $1.1 million in the first quarter of 2003. Again, the reduction is the result of the higher R&D expense. Net profits also include a onetime capital gain used to an investment (technical difficulty) and the subsidiary of (technical difficulty). The net effect of the capital gain is about $100,000.

Earnings per share for the quarter were 5 cents per share fully diluted compared to 9 cents per share in the first quarter of 2003. Number of shares for the period was about (technical difficulty) million shares.

Total operating expenses for the quarter were (technical difficulty) $16.1 (ph) million, R&D about 6.8 million, sales and marketing (technical difficulty) and G&A (technical difficulty).

The fourth quarter of 2003 (technical difficulty) there is a slight reduction in costs due to end year bonuses which were included (technical difficulty) in the fourth quarter numbers.

Cash and marketable securities amounted to $41.3 million on (technical difficulty) on March 31st compared to $54.6 million on December 31st. The reduction caused by the cash portion of the OMI acquisition.

Long-term financial liabilities including the current maturities was $6.9 million compared to about $8.1 million on December 31, 2003.

Operating cash flow for the quarter was about $0.5 (ph) million -- our DSO was about 65 days -- similar to (indiscernible) in the last few quarters.

Shareholder's equity amounted to $83.4 million out of $128 million total balance sheet close to 65 percent. That completes the financial review, now back to Barry.

Thanks, Danny. With a strong first quarter, and a stronger pipeline and with market conditions, I want to reconfirm our guidance that we will -- do we do believe that we will beat the $120 million revenue for 2004, with over $5 million profits. We do believe that we will be growing quarter after quarter.

Retalix has a broader solution for retail foods (indiscernible) the food and fuel industry. As a large market opportunity, we have got blue-chip customers (technical difficulty) excellent (technical difficulty) selling to our customers (technical difficulty) products I believe that we will continue to grow year after year.

At this stage, I would like to pass it back to the operator for (ph)questions and answers. Operator?

(Operator Instructions). Stephen Levey, UBS Warburg.

Congratulations on another good quarter. A couple of questions for me. The line went a bit funny during the call a couple times. So, you may have commented on this. Did you say what revenues were from OMI in the first quarter?

No we didn't. We just (technical difficulty) said that we expect OMI revenues to be about (technical difficulty) somewhere between 8 and $9 million for the year. And that's (technical difficulty) quarter (ph).

And, Danny, you are consolidating OMI from -- essentially for the whole quarter this quarter?

Yes.

Danny, you mentioned something about a $100,000 capital gain, but again, the line, at least at my end, went bad. What was the capital gain all about? Was it is something to do with Store Alliance?

It was the (technical difficulty) which is a subsidiary of Store Alliance and (technical difficulty) just (technical difficulty) thousand dollars but because we have only (technical difficulty) 50 (ph) percent. We recognized only $100,000 of that.

Barry, just two questions for you. It was fairly quiet quarter in the first quarter in terms of announcing significant new contracts. But you're talking -- my sense from your comments are that you're pretty upbeat about the cycle -- about the number of contracts that are coming up and about your positioning. Can you just give us an idea of when you would be expecting, or how close you are to announcing any of those new contracts that you have been expecting over the last few quarters?

We definitely are happy with the cycle of retailers buying new solutions. We had an agreement, we have mentioned -- not by name -- wins that we have had. Wins over our competitors. And in the next few months, I believe we can announce the names. As you know, these retailers like to see success before and rollout, before announcing their names.

Last one for me, Barry, this is a cheeky one. I'm sorry for it. I'm going to ask it anyway.

Your guidance before the offering was a net income of $5 million this year. Your guidance post offering is still $5 million -- yet, you should -- netting at least another $1 million in interest income. Does that mean that you are actually forecasting a lower operating income for the year than you were beforehand? Or are you going to be willing to update the guidance based on the fact that you have got interest income accruing from the second quarter?

Yes, obviously, (technical difficulty) we're talking about pre-offering. And with interest and the proceeds of what we raised, we do believe that we will see around $1 million. And therefore it will be 6. Thanks for that fix.

So, 6 million would be -- so post offering -- net income forecast is no less than $6 million for the year?

Right. That is correct.

Right. Thanks, guys.

Tad Piper, Piper Jaffray.

Yes, can you give us some color as to what the StoreNext revenue was for the quarter?

(indiscernible) that we don't announce the revenues for the quarter. The only thing we did give guidance that we expect annual revenues to be over $20 million, and we are online for that projection. (multiple speakers) the only (technical difficulty)

Sorry, say again?

I said and they will increase (technical difficulty)

(indiscernible) your line is breaking up. But I assume you said they will increase quarter-on-quarter?

Right.

Can you talk a little bit about what you are seeing competitively and how that might be changing at all. And specifically, can you talk about how you think competition will differ for you with the OMI offering?

In terms of competition, what is happening is that we are (technical difficulty) entering (technical difficulty) in all directions. Not only from the store level, but also from the warehouse and also from the (technical difficulty).

We're seeing different competitors in each area. It's (technical difficulty) the warehouse side it's more around EXE (ph) and Haton (ph). If it's on the enterprise -- its more JDA (ph) and (technical difficulty) TTI (ph).

And on the store side, it's still the traditional IBM, NCR, JPMA, (indiscernible) City (ph). And what we're seeing more and more questions about (technical difficulty) integration and synchronization (technical difficulty) processes between all the elements (technical difficulty) of the retail operation. And that's where we're seeing a big advantage (technical difficulty) our (technical difficulty) and that's where we're winning.

We've actually just won a nice Tier One customer for our CAO (technical difficulty) assistant ordering system. Mainly because we are a provider of store solution and warehouse solutions, and that's why they went with us. (technical difficulty) without any major RFP (ph) (technical difficulty) business with us, because they knew that we are in the (indiscernible) industry. And I believe that that's the direction of things happening.

Sorry -- your line is breaking up a lot. You said -- you just won your ninth Tier One customers for which product?

Yeah, I was saying that we just won (technical difficulty) products (technical difficulty) which is a high-profile (technical difficulty) product. And the reason that we won it is because we are in the warehouse area and we are on the store area. And we are (technical difficulty) and that's why we won.

okay. Your line is still breaking up. But I will just circle back with you to get the answer. I don't have any more questions because I cannot hear the answers. Thanks. Bye.

(Operator Instructions). At this time, there are no further questions in queue. Are there any closing remarks?

I would like to thank everyone for joining the first quarter conference call Retalix, and see you on the second quarter. Thank you very much.

Thank you. This concludes today's conference. You may now disconnect.