NCR Voyix Corp (VYX) 2008 Q1 法說會逐字稿

Welcome to the Retalix first quarter 2008 conference call. Leading the call is Retalix President and CEO, Barry Shaked. Joining him is Hugo Goldman, the Company's Chief Financial Officer.

Before I turn the call over to them, I would like to remind our listeners that managements remarks contain forward-looking statements. These statements include comments regarding the guidance and expectations about revenues, net income, margins, expenses and tax rate, the Company's ability to improve cash flow and profitability to cut expenses, product development efforts, benefits from relationships with partners, expected increased revenues and productivity from services, reduced cost from inefficiencies, expected cost from the depreciation of the U. S. dollar, anticipated demand for the Company's software products, expectations with regard to implementation and roll out of existing license agreements, analysis of market conditions and our position, pipeline of perspective customers and the anticipated rate of growth and managements expectations as to the Company's future financial performance.

Such forward-looking statements are subject to risks and uncertainties and therefore Retalix claims the protection for such statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and we would like to refer you to a more detailed discussion of all of these risk and uncertainties contained in today's press release and in the Company's filings with the SEC and in particular on Form 20-F. Also, I would like to remind you that Retalix reports it's net income in earnings per share on both a GAAP basis and an adjusted non-GAAP basis. Today's press release includes a reconciliation of non-GAAP information to the most directly comparable GAAP information and is posted in the Investor Section of the Company's web site at www.Retalix.com.

I will now turn the call to the CEO of Retalix, Barry Shaked.

Thank you. Welcome to all of you and thank you for joining us on this call. The results of the first quarter of 2008, which were-- we reported earlier today demonstrate the initial progress of our turn around plan. Total revenues were $53.9 million, GAAP net loss of $0.5 million and adjusted non-GAAP net income was $1.2 million. As we have stated before, one of our top priorities for 2008 is to improve our profitability and our cash flow. This is our primary focus not just top line growth but bottom line improvement. We have been working hard to align our operations with the current revenues, control costs and improve our profitability. As a result of these efforts, I m pleased to report that after recording losses in the fourth quarter, we restored non-GAAP profitability in the first quarter while back to generating cash from operations without factoring our receivables. We are encouraged by the progress we are making. We also understand that we have to do more in the coming quarters, but we believe that we can continue to build on these results through 2008. Before we discuss the financials, let me briefly touch on some of the highlights of the current business and operations.

The market outlook remains positive in the food retail segment we serve. As we discussed with you, Retalix solutions play essential roles in our customers business and central to their operations. Our position as market leader remains strong as reflected in the recent business development. For example, recent selection of Retalix by leading grocery retailers in Europe and Asia further strengthens the position of Retalix as the leading point-of-sale software solution. In North America, Food Lion, the Tier 1 grocery chain deploys the Retalix Yard Management solution as its main distribution center. Retalix Yard Management helps retailers and distributors to manage all of the traffic of trucks into and out of the distribution center. Food Lion plans to roll out the Retalix solution at all of its eight distribution centers which serve approximately 1300 stores in the United States. And in the convenience segment, The Pantry, one of the largest convenience store chains in the United States began rolling out Retalix's StorePoint, Retalix Fuel and Retalix HQ-Convenience software to more than 1600 sites. During the first quarter, we first quarter, we also broadened our relationship with IBM, we had recently announced a world wide partnership to deliver combined software, hardware and services to petroleum and convenience stores retailers of all sizes. This partnership makes sense, because IBM will benefit from the broad offering of our market leading software solutions for fuel and convenience while Retalix will benefit from IBM's global presence and strength in marketing sales and integration services. The combination of IBM Hardware and Retalix Software is already a solution of choice for several leading fuel and convenience retailers such as BP and The Pantry.

Another area where we both, IBM and Retalix will benefit from cooperation is in the grocery segment. Our (inaudible) StoreNext started marketing IBM (inaudible) hardware terminals with our leading point-of-sale software solutions. In addition, we are working with IBM on several other specific initiatives which hopefully will result in new customer wins and enhanced market recognition in the future. On the product development front we announced three new releases of Retalix DemandAnalytx, Retalix HQ/Store and Retalix Power Analyzer. The new DAX-6 brings out-of-the-box features that makes it easier and faster to implement demand forecasting and ordering optimization. With the new version of DAX, our team achieved quick implementation in record time at a customer site, getting the user ready to roll out with significant less efforts on their IT side. As you see, the business front continues to be strong. Now, I would like Hugo to review the financials of the first quarter.

Thank you, Barry. Total revenues during the first quarter were $53.9 million which was up from $52.7 million the same quarter a year ago. As you know from the past, the first quarter is usually the lowest revenue quarter of the year for Retalix, as our customers begin planning and implementing their yearly budget. Product revenues traditionally built during the year and this remains our expectation for 2008. For the same reasons, the first quarter is typically a higher service revenue quarter. Our services revenues drew by 8% representing 71% of our total revenues this quarter, compared to 67% in the first quarter a year ago. Gross margins were 43.5% reflecting the higher proportion of professional service revenues and other sales in the total mix of revenue. Our gross margins on services are typically lower than margins of products. But gross margins also continued to be impacted by number of points we discussed with you on the call in March.

As you will recall, as new products mature in the development cycle, we have been reducing the resources dedicated to their generic development and moving these resources over to professional services. We are tracking more closely the resources being used for the services we provide to customers. This should enable us to identify and eliminate instances where the efforts do not justify the return. While in the short-term, these changes are reflected in more cost-of-service, we are now monitoring services profitability more tightly. And will determine where resources should best be allocated and identify opportunities to improve performance. As such, these efforts should be returning to more revenues from services or we will reduce the cost-of-services by eliminating the inefficiencies on those that work, yet that are not producing satisfactory return.

Our selling and marketing expenses in the first quarter were lower versus the first quarter of '07, as we had less expenses related to conferences as well as other efficiency efforts we undertook. Selling and marketing expenses are expected to be around $28 million for the year. The weakness of the U.S. dollar continues to impact our business during the first quarter. The dollar had a negative impact on our non-dollar wage costs, primarily in Israel, amounting to $1.3 million. This was mitigated to a large extent by the reduction in work force that we budgeted for and executed. Our current plan is based on the assumption that the dollar will remain weak for the remainder of 2008 at an average level of around 3.50 Shekel per dollar. We will continue monitor very closely these fluctuations if the exchange rate goes below this current level. We reported a tax benefit of just under $0.5 million in the first quarter, as a result of the quarterly calculation for tax purposes, partly deriving from the strength of the shaken currency. For the year, we expect an effective tax rate of around 20%.

During the first quarter, we returned to a positive cash flow after facing negative cash flow, last year. We generated $359,000 from operating activities, in spite of the fact that we discontinued the factoring of receivables. I believe this is another step in the improving plan of our receivable cycle which includes the areas of payment terms, invoicing, insuring customer credit and collection. This is a gradual process which we expect will continue in the coming quarters. As we have said in the past, we expect the improvement of cash flow to take a total of four to six quarters. Our accounts receivable amounted to around $87 million compared to similar amount in the fourth quarter of 2007.

During the first quarter we did not renew the factoring of approximately $5 million of receivables. As of March 31, 2008, our balance sheet have $29.4 million in cash, cash equivalents and marketable securities an increase of $1.8 million compared to last quarter. We have practically no debt. We only have long-term debt of $852,000 and shareholder's equity was $223 million at the end of March.

The net income gross margins operating expenses and tax rate I just mentioned, are adjusted non-GAAP figures which exclude amortization of intangibles and stock-based compensation expenses. Please be reminded that reconciliation to GAAP figures is available on our website at www.Retalix.com. Now I will turn the call back to you, Barry.

Thank you, Hugo. Now let me take a few moments to update you on the efforts we outlined earlier this year, designed to improve our financial performance. We have completed the study of our expense structure as well as the resources we need to be able to serve our clients, bring new products to the market and seize available opportunities. As a result, we redefined some of our development priorities and restructured some of our R&D teams. In addition, in recent months, we have cut expenses in all areas, cut back on new hires and focused on reassigning and promoting existing employees. As a consequence, since the beginning of 2008, the (inaudible) Retalix employee worldwide has been reduced by approximately 120. While a reduction in force was part of our plan for 2008, we estimate that it is also, it also provides cost savings that mitigate the efforts to the extent of the continued strengthen of the Israeli Shekel against the U.S. dollar during the first quarter. We are confident that all our on going efforts will help us to address the issue that is effect our performance in the past and will help us to improve our financial performance.

Finally, in closing let me discuss our outlook for 2008. Overall demand for our software and services remains strong, as retailers and distributors cautiously proceed with their long-term technology investments. New deals are continuing to happen in the market although they are taking longer to be closed. In spite of the continued strength of the Israeli Shekel which represents most of our expenses, we continue to expect total revenues for the full-year of 2008 to exceed $232 million, GAAP net income to exceed $8 million and adjusted non-GAAP net income to exceed $15 million. Finally, I feel that the first quarter proves that the Company's management is closely monitoring the changing circumstances and is capable of making quick adjustments. Although we had a $1.3 million of extra costs due to the strength of the Israeli Shekel, we still managed to make our number. Thank you for your attention and now we are open to answer. Back to you operator.

Thank you, sir. (OPERATOR INSTRUCTIONS). Please stand-by while we poll for your questions. The first question is from Ehud Eisenstein of Oscar Gruss. Please go ahead.

Thanks and Congrats. Hugo, did you expect sales and marketing to be around 20 million for the year? Is that what you said?

Hi, how are you? I said 28, not 20. 28.

28 for the year.

Yes.

Okay. That makes more sense. So, we, yes, so looking forward for the entire OpEx that is pretty much where the numbers, in other words you are not expecting additional reduction in OpEx going forward.

We said we would be monitoring closely our performance. Right now we have a plan and we continue the plan.

Okay. And on the decline in product sales, any thoughts on that?

As we decide to focus on profitability, one of the things that we are making sure of with our customers is if we have to give discounts, we will give discounts on licenses but protect our professional services which are on going expenses and also profit center and that's some of the reasons that you see a bit less licenses. But on the other hand, you see a nice improvement both in professional services and the profitability of the professional services.

Speaking of profitability, Hugo, what are the gross margin expectations for the year now?

Basically, gross margins for the year we are thinking about overall 47.5%.

Okay. And do you have the break down?

Yes, it is about 49 on product margin and 46 on service margin.

I see. So you don't really see the March-quarter margins as resemble for the year overall. In other words they should go up, looking-forward.

Yes, because as you can see the product mix, I mean the product percentages is slower usually in the second half of the year you have higher percentage of product revenues which are, which they have higher margins.

Okay. So if I take Barry's comment on longer, longer sales cycle to close new deals, you still positive on the, on the new business coming in the second half of the year?

Yes, going forward. Even right now because some of the, some to a close in Q 12 are still working on. So it is just a bit slower but we are still positive.

Okay. Thanks. Now I will go back to the queue. Thank you.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS). Please stand by while we poll for more questions. The next question is from Isaac [Fromfiquay] Please go ahead.

How do you see the role of your company, do you see them -- to selling the company like they did in -- (inaudible)

First of all, we see the join of investments of (inaudible) inside the company as a very positive one. They believe in the company. We also, as you know, we have signed Brian and I, this is Barry speaking, signed a agreement within the strengthening the controlling interest inside the company giving us a stronger position to execute on our vision. You'll also noticed the vision of showing or providing an end-to-end solution for the marketplace was part of that agreement. So we are focusing on the business and not on selling the company. So definitely that is my goal.

Okay. Thank you.

There are no further questions at this time. I would now like the turn the call over back to Mr. Shaked. Mr. Shaked, would you like to make a concluding statement?

Thank you, Jonathan. Thank you all for listening and at this opportunity I want to thank all of the Retalix employees who are definitely part of our turn around and our fresh 2008. Thank you very much and see you in another quarter.

Thank you. This concludes the Retalix first quarter 2008 result conference call. Thank you for your participation. You may go ahead and disconnect.