NCR Voyix Corp (VYX) 2008 Q3 法說會逐字稿

Welcome to the Retalix third quarter 2008 conference call. (OPERATOR INSTRUCTIONS) 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 to remind our listeners that Management's 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, expected benefits from investment in product development and penetration into new territories, expected costs from the depreciation of the US dollar, anticipated demand for the company's software products, anticipated rate of growth and management's expectations as to the Company's future financial performance.

Such forward-looking statements are subject to risks and uncertainties, 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'd like to refer to you more detailed discussion of all these risks 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'd like to remind you that Retalix reports its operating income, net income, and earnings per share on both a GAAP basis and on 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's section of the Company's website at www.retalix.com. I'll now turn the call over to CEO, Barry Shaked.

Thank you, Jonathan. Welcome to all of you and thank you for joining us on this call. As everyone is well aware, beginning in mid-September, the global economy took an unforeseeable turn. I do not believe there are any businesses -- business segments that have not been affected by this unforeseen turn of events.

While our third quarter results reflect a broad economic uncertainty, they also reflect the positive results of the internal efforts we discussed with you previously designed to improve our operating efficiencies. In a moment Hugo will talk more about how we improved our gross margins on services, our operating margins and our cash flow from operations compared to previous quarters. The crisis in the financial markets coming so close to the end of the third quarter impacted many companies timing of technology investment decisions. For Retalix this resulted in a number of software license deals that we were actively working on to be delayed at the very end of the third quarter.

As a result, total revenues for third quarter were $56.2 million compared to $58.1 million in the third quarter last year. Since the be beginning of the fourth quarter we have made progress with some of the deals that were delayed in September. We have closed a few of these deals already and expect to close more in addition to new deals in the remaining weeks of 2008. However, our current market outlook assumes that some investment decisions will be deferred to 2009 and beyond. We, therefore, have recalibrated our full year 2008 estimates in view of the global economic slow down. We now expect fiscal year 2008 revenues to be between $221 million and $226 million. GAAP net income to be between $2 million to $5 million and adjusted non-GAAP net income to be between $9 million and $12 million.

While our maintenance and professional services revenue remain as planned, the range in our net income largely depends on our ability to close new software license deals. While some of the license deals were delayed at the end of the quarter, we continue to move forward with many other projects and continue to see good business activity. Let me briefly touch on some of these recent highlights before we continue with the discussion on our financials.

During the third quarter, Morrisons, the UK's fourth largest supermarket group, contracted Retalix's software for its 378 stores and 285 billion gas stations. Petrol China rolled out Retalix software to 400 retail and petroleum sites by the end of the third quarter and by now has more than 500 sites running Retalix software. BP started deploying Retalix software in the AM/PM site in the United States. McLane Company, one of the world's largest food service distributors and grocery wholesalers selected Traffic Management Solutions for deployment at its 19 grocery distribution centers across the United States. C & S, the second largest grocery wholesaler in the US, deployed Retalix Transportation Solutions at its 34 distribution centers, and Sagemark supermarkets, 245-store grocery chain based in California, rolled out our integrated suite of Retalix supply chain and wholesale management applications to its headquarters and three distribution centers. In a moment, I will discuss in more detail the opportunities we currently see in the market. But first I would like to Hugo to review our financials for the third quarter.

Thank you, Barry. Total revenues during the third quarter were $56.2 million, compared to $58.1 million for the same quarter a year ago. In the nine-month period ended September 30th, our revenues reached a company record of $169.5 million compared to $166.2 million in the same period a year ago. Our product revenues in the third quarter represented 32% of our total revenues with software licenses representing 8% and hardware representing 24% of total sales. Service maintenance represented 26% of total sales.

As Barry mentioned the execution of the internal improvement plan which we launched earlier this year continues to bear fruit. As a result, our gross margin on services, our operating margin, and our cash flow from operations have improved in the third quarter compared to previous quarters. Our overall non-GAAP gross margin was 41.6% due to the relatively large share of hardware in our product revenues this quarter. Our gross margin on services was 43%, up 2% from the second quarter of '08. Our non-GAAP operating margin was 7% compared with 5.5% in the previous quarter and 2.4% in the first quarter of 2008.

It is important to note that during the third quarter 2008 we generated $1.8 million cash from operating activities compared to a negative $3.9 million cash used in the third quarter of 2007. To remind you, this is cash from operations generated without factoring of receivables. During the third quarter 2008, we used $2.1 million in investing activities, mainly related to the third floor of our headquarters building which we acquired last year. We began moving employees into the space this month and next year we expect our expenses to decline as practically all of our employees in Israel will be working in facilities owned by the Company.

As of September 30, 2008, our balance sheet had $27.6 million in cash, cash equivalents, and marketable securities. We have practically no debt with less than a million dollars in debt. Total accounts receivable amounted to $88.9 compared to $88.2 million at the end of the second quarter.

DSO in the third quarter was 142 days compared to 133 days in the second quarter. Shareholders equity grew to $228 million at the end of September. At the end of the third quarter, we had 1,362 employees worldwide. In conclusion, while our third quarter results were impacted by the crisis in the global economy, we continue to demonstrate strong improvements internally in our operations. Now I will turn the call back to Barry.

Thank you, Hugo. Looking forward, in spite of the current economic slowdown, the pipeline of customers evaluating our solutions remains strong. I'd like to remind you that Retalix is focused on the food-related segment of retail mainly grocery and convenience stores. These segments are likely to be hurt less than others by the possible recession.

Last Friday, the US Census Bureau published its monthly retail sales data. In October, grocery sales remain flat in comparison to September while retail sales in general fell by 3%. Another indicator was our annual user conference which was held in Dallas three weeks ago with more than 500 customers and partners in attendance. While everybody was obviously concerned with the current economic environment, retailers and distributors continue to look for technology solutions to help them reduce expenses, increase productivity and increase share of wallet. It is my impression that some of these big investments may be slowed but operational-specific applications and ones with strong return on investment may proceed.

For example, as gas prices have become volatile and unpredictable, retailers and distributors are looking to optimize their transportation management processes. As a result, we have seen increased interest in our suite of transportation solutions, which offer relatively quick ROI. McLane and C & S, two of the largest grocery wholesalers in the United States, are a recent example of. On the retail front, many retailers are interested in our technology solutions to optimize store ordering to reduce the strong inventory levels and related financial expenses. During our conference we have heard a case study presented by one of our convenience store customers who reduced his in-store inventory by more than 30%, nearly eliminating these out of stocks and achieving a multimillion dollar cost reduction using Retalix software.

Other retailers want to improve their customer loyalty and promotion programs in order to increase customer share of wallet and retention in the increasing competition versus the heavy discounts. This is demonstrated, for example, by (inaudible) Belgium which started upgrading its (Lotus) system with Retalix solution just last week. In spite of the near-term uncertainties, we continue to believe Retalix is well-positioned as the leading software provider in our market. I also feel that we have taken several important steps earlier this year which made us better prepared for the challenging environment that now face all of us.

I would like to remind you that we have reduced our headcount by more than 10% compared to the end of 2007 and our product development has been restructured and reprioritized. The initiatives we undertook are working. Nevertheless, we are prepared to take additional measures if the economy deteriorates further. In addition, our balance sheet, which has close to $28 million in cash, and equivalents, and less than $1 million dollars in debt, gives us a solid foundation from which to run our business. We appreciate the dedicated efforts of our employees worldwide and their continued focus on driving our profitability. We also appreciate your continued interest and support.

Thank you for your attention, and now we are open to answer your questions. Operator.

Thank you. (OPERATOR INSTRUCTIONS) The first question is from Ziv Tal of Oscar Gruss.

My question is with regard to gross margins. Should these deals not close in the fourth quarter or slip into 2009 should we expect the same gross margins next quarter?

If we cannot close the deal, I would say similar results.

Okay. And on the product side.

Yes.

Okay. And last quarter you mentioned that you focusing on the top line again-- the situation was different. What are you --

We were focusing on the bottom line.

Well, you said that you have concluded focusing on the bottom line and said that you are ready to divert more attention to the top line. But what are your plans to handle potentially lower than expected revenues in 2009?

We are continuing to focus on our bottom line and our profitability, and this is how we are driving our business, and we will definitely continue to look at this in 2009.

What we indeed said was that after we saw that we were getting on track with our plan, we wanted to start looking more into the top line as well, but we couldn't anticipate the crisis in the market. We are working with a lot of agility and flexibility in order to -- in closely monitoring what we are doing, and right now, if you see the Q3 results, we can see the improvements in the margins and the cash flow, et cetera.

Okay. Last for me, why did your cash position decrease? Was that because of the capital expenditure?

Can you repeat?

The decrease in cash during the quarter. Was that because of the capital expenditure?

Yes, Yes we increased cash from our operation is $1.8 million. We had investment $2.1 million, and mainly because of the third floor in our headquarters.

Thank you.

You are welcome.

Thank you. (OPERATOR INSTRUCTIONS) There are no further questions at this time. I would now like to turn over the call back to Mr. Shaked. Would you like to make a concluding statement?

Thank you, everyone, for listening, and we welcome to you join our next call in three months time. Thank you.

Thank you.

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