NCR Voyix Corp (VYX) 2008 Q4 法說會逐字稿

Welcome to the Retalix conference call. As a reminder this conference is being recorded March 17, 2009. Leading the call is Retalix's 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'd like 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, impairment testing, margins, expenses and tax rates, the Company's ability to improve cash flow and profitability and to cut expenses, expectations about the Company's expected pipeline of customers, anticipated demand for the Company's software products and management's expectations of the Company's future financial performance. Such forward-looking statements are subject to risks and uncertainties and therefore Retalix claims protection from such statements contained in the Private Securities Litigation Reform Act of 1995 and other Securities laws. Actual results may differ from those discussed today, and we would like to refer you to a 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 reported net income and earnings per share on both GAAP basis and 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.

Now I'd like to turn the call over to the CEO of Retalix, Barry Shaked.

Thank you. Welcome to all of you and thank you for joining us on this call. Today we are going to limit our remarks to discussion of the results for the fourth quarter and the full year of 2008 and the current market environment.

Before we begin that discussion, let me briefly remind you of the announcement Retalix made to the market on February 16 and March 3 regarding non-binding proposals received by the Company. Although the Company has not been for sale and has not sold investment capital, we stated that the Board of Directors has received unsolicited, non-binding proposal to purchase all of the outstanding shares of the Company, or to make an investment in the Company at prices ranging from $8 to $10 per share in cash. We stated in our press release that the Board of Directors is evaluating all the proposals, none of which are from our competitors or other companies operating in the same field as the Company. This is an ongoing process and the Board will make further statements to the market and shareholders at the appropriate time.

In accordance with its policy, the Company does not plan to make any statements responding to market rumors or speculations about these or any other proposals. We ask that you respect that this is an ongoing process and understand that on the advice of of our legal counsel, we will not be able to take any questions about the process on today's call.

So let's go through our business. Retalix results for the full year of 2008 reflects the successful effort we have been undertaking since the start of 2008 to improve our operational efficiencies and profitability. As a result of these ongoing efforts, we were able to increase our performance for 2008, despite the unexpected crisis in the global economy. For the full year of 2008, we reported more than $10 million of non-GAAP net income from operations, versus $6.1 million from operations a year ago.

Another significant achievement for 2008 was the strong improvement in our cash flow from operations, generating in the fourth quarter more than $12 million and about $13 million for the entire year. We will continue to focus on cash flow, on collections improvement as well as non-profitable -- as well as on profitability going forward in 2009.

As we discussed with you on the last call, the crisis in the financial markets that began close to the end of the third quarter impacted many Companies' timing of technology investment decisions. Retailers and distributors continue to be very cautious during the fourth quarter, carefully reviewing all technology investments and focusing on specific applications that can provide quick operational improvements and meaningful returns on their investments. While we were able to make progress with some of the license deals that were delayed in September, revenues in the fourth quarter reflect customer's caution -- cautious approach to technology investments and the continued broad economic uncertainty.

During the fourth quarter, we also incurred a number of expense items and a significant tax benefit due to a change in tax laws , all which Hugo will detail for you in a moment. While the environment remains cautious, retailers and distributors understand that technology can provide important efficiencies and advance -- advantages for their operations. As you know, about 85% of Retalix annual business comes from our existing customer base, and we are working closely with these customers to understand their needs in the current market environment and provide meaningful solutions. With 11 out of the top 32 retailers in the world with customers like Tesco, Carrefour, Publix and petrol players like BP, Petrol China and the Pantry, together with some of the largest food service distributors in the U.S., we are continuing to move forward with ongoing projects.

Let me highlight a few new wins in the quarter. Ben E. Keith Foods, the eighth largest food service distributor in the US has signed a contract to purchase and deploy Retalix sales force automation software for its approximately 500 distribution sales representatives, as well as Retalix self service web portal that is deployed by distributors. Food Service America, a Tier-1 distributor which has been a user of power Enterprise Solutions, recently went fully live with Retalix InSynch multi data management. This marked a significant milestone for Retalix Insynch as FSA was the first customer to go fully live with the MDM component. And Falabella, a leading Latin American retailer with more than 200 supermarkets, department stores and home improvement stores is deploying Retalix full line point of sale software in more than 1700 POS lanes in its supermarket division in Chile and Peru.

Our current market outlook continues to assume that some customers will continue to defer investment decisions towards the later part of 2009 and beyond. In a moment I will discuss in more detail the opportunities we currently see in the market, but first I would like Hugo to review the financial results for the fourth quarter and all of 2008.

Thank you, Barry. Both our revenues during the fourth quarter were $52.2 million, compared to $55.2 million in the same quarter a year ago. For the year we reported record total revenues of $221.6 million. Which was slightly ahead of the $221.4 million in total revenues for the full year in 2007. Our product revenues in the fourth quarter represented 35% of our total revenues, with software licenses representing 16% and hardware representing 19% of the total sales. The percentage of revenues coming from software licenses improved between the third and fourth quarter of 2008 after a very low third quarter. Maintenance revenues remained stable at 25% of total sales.

As Barry mentioned, execution of the internal improvement plan that we launched at the beginning of 2008 continues to contribute to our improved operations. Despite a difficult business environment during the fourth quarter, our overall non-GAAP gross margin was 43.5%, in part due to the increased license revenues this quarter. Our non-GAAP gross margin on services was 39.2% in the fourth quarter, reflecting the current business climate and the traditional lower levels due to the holiday season. For the full year, we had a non-GAAP gross margin of 42.1% and a gross margin of services of 42.7%.

On an operating basis, we reported a profit for the year of over $1 million versus an operating loss of nearly $1.5 million for all of 2007. During the fourth quarter, we reported an operating loss of approximately $1 million versus an operating loss of over $3 million in the fourth quarter of 2007. This year's operating loss was partially due to the lower total revenues, lower number of working days in services due to the holidays, the costs associated with our annual conference that took place in Dallas in October, the $800,000 approximately due to the decline in the value of the service fund caused by the global financial crisis and other costs.

Each year the Company is required under Standard 152 and 144 to review the value of its long-lived assets, including the goodwill and other intangible assets carried on its balance sheet. Due to recent economic conditions which resulted in both a decline in the Company's market capitalization and a decline in the Company's estimated forecasted cash flows, Retalix's management performed an impairment test which showed an indication of impairment. Retalix is currently conducting the second step of its impairment test to determine the amount of impairment. Retalix's management expects to recognize a GAAP non-cash impairment charge in the range of $50 million to $70 million net of tax, against its goodwill and other intangible assets.

These non-cash GAAP charges affecting goodwill acquired in the past will be reflected in the Company's reported GAAP earnings and per share earnings which will be included in Retalix's annual report to be filed on Form 20-F with the US Securities Exchange Commission. It is important to note that this is a non-cash charge that does not impact our operations.

For the year, we made strong progress in reducing our total operating expenses, which were down 26% between '07 and '08. This included more carefully managing our R&D expense, improving operating efficiencies and a reduction in our total number of employees. We ended 2008 with 1,350 employees worldwide, down by approximately 219 people during the course of the year, and currently our headcount is 1,242 people. These reductions were taken across all areas of the Company including not replacing people who resigned, but also the retirement of existing employees, and selective reductions in workforce.

A number of other factors also impacted our costs. During most of the year the weakness of the US dollar has impacted our business by approximately $6 million. During the fourth quarter, we incurred financial expenses totaling $2.6 million related to exchange rate differences, primarily due to the strengthening of the US dollar relative to the British pound and the Israeli shekel, and the write-down of the value of ARS auction rate securities held by Retalix of approximately $700,000 charged to the value of ARS held by the Company for investment purposes.

As you know, the market for ARS has been weak for over 12 months. According to the Financial Accounting Standard Board Number 115, accounting for certain investments in debt and equity securities, the impairment of the securities can no longer be considered to be temporary, so we wrote down the value of the ARS we hold to a net value of $300,000 as of December 31, 2008.

As to the taxes - due to changes in tax laws, during the fourth quarter we realized a significant one-time tax benefit of $5.8 million related to prior years which was included in the tax benefit amount recorded. One of our goals for 2008 was to improve the cash loss from the business. As you will recall, we discontinued factoring our receivables in 2008 and focused on improving collections. For all of 2008 we generated $13.2 million cash from operating activities, compared to a negative $43.7 million cash used in the operations during '07. We generated $12.3 million in Q4, '08 alone.

As of December 31, 2008, our balance sheet had $37.6 million in cash, cash equivalents and marketable securities, up from just under $28 million at the end of 2007. Further, we continued to operate with practically no debt on the balance sheet. Total accounts receivable amounted to $74.4 million, compared to $87.1 million at the end of the third quarter. Our DSOs in the fourth quarter were 141 days compared to 142 days in the third quarter.

Shareholders' equity grew to $251.4 million at the end of December, before the impairment of goodwill and other intangible assets that management expects, as we said, to be in the range of $50 million to $70 million net of tax.

In conclusion, while our fourth quarter and full year results were impacted by the crisis in the global economy, we made strong improvements in our operations during 2008 and are continuing to manage our operations and progress on maintaining profitability, based on the current market conditions. Now, I will turn the call back to you, Barry.

Thank you, Hugo. With the crisis in the global economy and uncertainty overtaking world markets, we felt it would be prudent for Retalix to continue to focus on operational efficiencies and profitability, and we undertook a very careful review of all aspects of our business. The current environment provides limited forward visibility, while we wait to see how business around the world will continue to react to the uncertain environment.

While everybody is obviously concerned with the current economic environment, in speaking with retailers and distributors, we continue to hear that they are looking for ways to enhance their operations, preserve capital, reduce unnecessary inventories, and strengthen their relationships with their customers. They understand that Technology Solutions can help them reduce expense, increase productivity, and increase share of wallet.

They know that they must deploy proven applications that can be implemented quickly to produce quick and meaningful returns on their investments. One recent report from an industry analyst group reported indications that food and grocery is providing much more resilience -- resiliency to the recent economic position. The analyst believed that grocery retailers have an opportunity actually to grow throughout the downturn. They foresee that food and grocery sector will grow by 3.1% in 2009, against 0.6% decline across the retail market as a whole. Major chains have announced plans to expand existing stores, open new stores and increase their workforce.

It is my impression that some of these big investments in new technologies will continue to be slower, but operational specific applications and ones with strong ROIs are most likely to proceed. Retalix has proven solutions that can help retailers in the critical areas of their operations.

In this difficult business environment, some retailers are also focusing on ways to improve the customer loyalty and promotional programs in order to increase customer retention and share of wallet. Again, we have solutions that produce demonstrable results in this area for retailers. In fact, we recently received a contract from a new customer for the deployment of Retalix Loyalty management system. However, given the current economic environment, we felt as a management team that it would only be prudent to take a very conservative approach to planning 2009.

For planning purposes, we asked all areas of the business to assume that soft business conditions might continue throughout 2009 with slow economic improvement coming in 2010. Further, we decided to prepare to maintain profitability while encountering 15% to 20% decline in total revenue for 2009 versus 2008. Based on this scenario, we are currently focused on Retalix fiscal year 2009 revenues to be between $180 million and $200 million. We estimate income to be between $1 million to $6 million and adjusted non-GAAP net income between $5 million and $11 million. We will continue to closely monitor the global economic economy progress and adjust our plan as the year progresses. HOwever, we believe that taking this cautious approach strengthens our long term position and would enable us to further improve profitability as the global ecomony picks up.

In spite of the near term uncertainties, we continue to believe that Retalix is well positioned as a leader software provider in our market offering proven solutions to help retailers and distributors address today's business environment.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions). Please stand by while we poll for your questions. (Operator Instructions). Please stand by while we poll for your questions. There are no questions at this time. I would now like to turn the call over back to Mr. Shaked. Mr. Shaked, would you like to make your concluding statements?

Thank you, everyone, and we'll be hearing -- you'll be hearing from us in another three months. Thank you.

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