NCR Voyix Corp (VYX) 2009 Q2 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference is being recorded August 25, 2009. 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'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 as to the Company's future financial performance.

Such forward-looking statements are subject to risks and uncertainties and, therefore, Retalix claims the protection of 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'd 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 its Annual Report on Form 20-F filed with the SEC on June 22, 2009.

Also I'd like to remind you that Retalix reported 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 their Investor section of the Company's Web site at www.retalix.com.

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

Thank you, Tessa. Welcome and thank you for joining us on this call. This morning we are reporting our financial results for the second quarter and the six months ended June 30, 2009.

The results were in line with our expectations, reflecting both the continuing market softness and now successful efforts to control cost and enhance our operating efficiencies. As we discussed with you on prior calls, we anticipated difficult market conditions that would result in revenue decline. The market conditions remain largely unchanged versus the last quarter.

We are executing on our plans which focus on ensuring we meet customer needs while also maintaining profitability despite the continuing economic slowdown. During the second quarter, we generated $3 million in profit from operations versus $1.1 million from operations in the second quarter of 2008.

This improvement is despite more than 17% decline, over $10 million in revenues this quarter versus a year ago. We also achieved the substantially (inaudible) in our non-GAAP adjustment net income in the second quarter.

We reported $6.1 million or $0.30 per diluted share which was double the year ago numbers. For the six months ended June 30, 2009, we reported $7.9 million or $0.39 per share in non-GAAP adjusted net income. We also continued to achieve positive cash flow and maintained our strong balance sheet while working closely with our customers to understand the needs in the current market environment and ensure that we continue to support current programs.

We are also monitoring the market closely for any near-term opportunities while also working to ensure we are positioned for future improvement in the markets. Now let me hand the call over to Hugo to review the financial results in more detail.

Thank you, Barry. As we anticipated, revenues continue to be impacted by the current market conditions. We recorded $48.9 million in revenues for the three months ended June 30 versus $46.9 million in the first quarter of the year, and $59.3 million the same quarter a year ago. For the six months, we reported $95.9 million in revenues versus $113.2 million in the same period a year ago.

We are continuing to experience a decline in revenues in all areas of our business in particular in product revenues that are about 57% lower than the same quarter a year ago. Revenues from the sale of software licenses in the second quarter of 2009 continue to be soft and were below 11% of total revenues, down versus the same period in 2008.

Our total product revenues in the second quarter represented 27.8% of our overall revenues versus 36.3% in the year ago second quarter. Our largest increase versus the first quarter came in hardware revenues which were over 17% of the total revenues in the second quarter compared to 14% in the first quarter of 2009. We anticipate that in the third quarter hardware sales will again be a larger percentage of total revenues.

Total service revenues were over 72% of sales during the second quarter or over $35 million versus 64% of sales in the year ago second quarter, or nearly $38 million. Maintenance revenues are basically stable, accounting for 28.7% of total sales in the second quarter. As Barry discussed, market conditions are impacting revenues in 2009.

Our efforts have been designed to manage our business, improve operating efficiencies and control costs based on our revenue expectations. We continue to see the positive impact of these efforts. During the quarter, our overall non-GAAP gross margin was 44.5%, our non-GAAP gross margin in products was 37% reflecting the lower portion of license revenues in the mix, and the non-GAAP gross margin on services was 47% in the quarter.

Operating expenses in the second quarter were down more than 17% or approximately $3.7 million versus the second quarter of 2008 as a result of the operating efficiencies and cost savings. For the first half of 2009, we reduced operating expenses by nearly 24% compared to the first half of 2008. As a result, income from operations reached $3 million in the second quarter of 2009 compared to $1.1 million in the year ago second quarter.

For the six months ended June 30, 2009, we recorded $7.4 million in income from operations versus basically break even in the same period a year ago. Please note that the audited 2008 financial statements in Form 20-F filed in June included a subsequent event according to Statement of Accounting Standards Number One of $1 million in bad debt which was originally reported in the first quarter of 2009 unaudited income from operations.

Accordingly, the income from operations for the six months ended June 30, 2009, has been adjusted to exclude that $1 million. A number of other factors also impacted our results. As we discussed last quarter, we have hedged a portion of our currency exposure for 2009.

The dollar weakening this quarter versus the Israeli shekel resulted in adjustments to the mark-to-market value of our hedges of approximately net $1.4 million. The weakening dollar this quarter also produced a benefit for us in currency translations of around $2 million related to the exchange rate for our non-dollar assets.

During the second quarter, we reported financial income of a total of $3.7 million. This largely offset a similar financial expense we recorded during the first quarter that was due to the strengthening of the dollar value during that period. For the six months ended June 30, 2009, we reported only a small amount of financial income.

On a GAAP basis, the net income was $4.9 million in the second quarter of 2009 versus $1.5 million in the year ago quarter. For the six months ended June 30, 2009, GAAP net income was $5.6 million versus just under $1 million in the year ago first half. The adjusted non-GAAP net income in the second quarter of 2009 was $6.1 million, nearly double the $3.2 million report reported in the year ago second quarter.

For the six months ended June 30, 2009, we reported $7.9 million non-GAAP net income versus $4.4 million in the year ago first half. The reduced costs together with continued good collections helped us to generate nearly $9.7 million cash from operating activities during the second quarter of 2009. This compared with net cash used in the operations of $1.2 million in the year ago second quarter.

Part of the cash flow increase this quarter is due to the timing of certain payments from customers totaling of over $4 million and also from the receipt of the net proceeds from the successful arbitration of $1.9 million we discussed with you in the first quarter. While we expected cash flows to moderate from the very strong levels of the first quarter for the six months ended June 30, 2009, we have generated more than $70 million in cash flow from operations versus a negative cash flow of $835,000 in the first half of 2008.

Total accounts receivable amounted to $58 million at the end of the second quarter compared to $88.2 million a year ago. The number of days our sales are outstanding continues to improve with a good decline versus last quarter. In the second quarter of 2009, our DSO was 105 days versus 125 days in the first quarter of the year.

As of June 30, 2009, our balance sheet showed $66.3 million in cash, cash equivalents and marketable securities, up from $56.9 million at the end of the first quarter of 2009. We continue to operate with practically no debt on the balance sheet. We currently have approximately 1,200 employees worldwide.

In conclusion, while our 2009 revenues continue to be impacted by current market conditions we have been successful on executing on our plan to increase operating efficiencies and manage our operations to maintain profitability and improve cash flow. Now I will turn the call back to Barry.

Thank you, Hugo. As we said on the past several calls, we expected retailers and distributor to remain very cautious in 2009. They are still being very careful and forward visibility in the market remains very limited. In speaking with retailers and distributors, we continue to hear that they are focusing on near-term enhancements in their operational efficiencies and costs.

They remain focused on efforts to preserve capital and reduce unnecessary inventories as well as applications that can help maintain and improve their share of wallet. This approach to the market is reflected in the new client assignments we announced during the second quarter.

For example, K-VA-T food stores, a regional US supermarket chain that operates more than 100 stores, selected the Retalix Loyalty as the next-generation customer loyalty and promotions management system. At the Food City stores, Retalix Loyalty will be tightly integrated with their existing Retalix Store line point of sales and Retalix HQ price management system.

Roche Bros. Supermarkets, an 18-store regional US grocer, selected Retalix HQ Store to replace its legacy pricing and store back office system. And the large UK general retailer, Argos, is deploying Retalix yard management software system at its nine distribution centers across the UK to optimize resource and improve efficiencies in day-to-day operations.

We are continuing to monitor the market closely. Despite the economic reports which point to improving segments of the global economy we have not yet seen any significant shift in retailers' and distributors' approach to the market. Therefore, we are prioritizing our efforts to ensure we are addressing the most pressing concerns for retailers and distributors and looking for meaningful enhancements that we can offer the market.

We recently announced the details for our Retalix energy 2009 conference. It will take place in November 8 through November 11 in Dallas, Texas. The theme is in the spirit of the current times, ROI. In this case, relationship, opportunities and innovation.

The program is helped design retailers and distributors learn how to better utilize current systems and exploit new technologies to maximize their business performance. Based on the current market environment we are maintaining our conservative outlook for 2009, revenues to be between $180 million to $200 million, GAAP net income to be between $1 million and $6 million and adjusted non-GAAP net income to be between $5 million to $11 million.

In closing, let me knowledge our appreciation of the dedication efforts of our employees worldwide. We also appreciate your interest and support. Thank you for your attention and now we are open to answer your questions. Operator?

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. The first question is from Ziv Tal of Oscar Gruss. Please go ahead.

Hi, and congratulations on the good results. This is Dafna Levy on behalf of Ziv Tal.

Hi, Dafna.

Hi. First, I had a couple of housekeeping questions. Product sales slightly recovered from the first quarter. Do you view the first quarter as the bottom of the [statement]?

We, right now we are on the bottom in terms of the level. Without, still be some changes here and there, but we believe that's pretty much the bottom.

Right. Okay.

Can you provide some insight on gross margins? The margin for the product segment has increased significantly compared to the last quarter. I was wondering how we should think about the second half of the year in terms of gross margins? Do you expect gross margins to try to remain at current levels?

Yes, it will be similar to the Q2 levels, the product margin.

Across all segments? I mean products, product margins should remain as low as in this quarter?

Levels of the Q2 like the overall was 44.5%.

Okay.

Product margin was 37%, services margin 47%, so it will be roughly similar, similar levels, maybe a little bit better, but small change.

Okay. What is the tax rate expected for next quarter?

Taxes is basically we are doing an annual, annual analysis for taxes and right now we are looking at 25%.

25%. Okay. Now given the hedging expenses and currency differences do you expect the same level of financial income during the second half of the year?

No, actually this is something that's very erratic, [defense] on the currency fluctuations. It's something it's difficult to predict. We did some hedging on the dollar versus the shekel and this is something we did for our contracts at the beginning of the year.

The more we get into the end of the year these differences will be smaller, and, on the other hand, if the dollar continues its weakening we will see additional additional positive income on the non-dollar assets and valuations and translation gains there. It's difficult to predict, though.

Okay. I see. Thank you. Now regarding cash, you generated approximately $30 million cash from operations during the first half. Can you tell us what are your expectations for the remainder of the year?

Very, very moderate. I think we shouldn't take the first half as the basis for the second half. Maybe some moderate improvement. That's all.

Okay. Now can you tell us your D&A and CapEx figure for the rest of the year?

CapEx for the first half, in the second quarter, sorry, was close to $1.5 million. We expect another additional between $0.5 million to $1 million for the rest of the year maximum.

I'm sorry. Can you repeat that?

In the second half of the year can be another $1 million maximum.

All right. The D&A?

Sorry, can you explain? I don't --

Depreciation and amortization.

Similar levels. We will, some investments we are doing were operational in the last quarter so the differences will be minimal, incrementals will be minimal this year.

Okay. Business related, how does your pipeline look for the remainder of the year? Can you give some color on that?

While we are seeing, we are not seeing any immediate improvement, we are seeing the pipeline growing. That's, of course, all potential. So we don't want to start celebrating yet.

Okay. Now looking at your competitors, how do you feel about holding your market share at this time?

We are still winning our share in the market. We are the leaders in grocery and convenience, and I think the softness is hitting all of us. It's not that any competitors have taken any business from us.

Okay. Good. Now, can you provide the geographics, please, for the first half of the year?

In terms of split of revenue?

Yes.

One moment. We'll get back to you on that during the call.

Okay. Okay. Lastly, what indication do you think would sign the recovery for your business? I mean, which pattern should we look for?

I think that when you see our product revenue go up by 30% to 50%.

I'm sorry, 30% to 50%?

Just the product side. The software side, yes.

Okay. Great. Thank you. That's it for me. Good luck, guys.

Thank you.

Thank you.

(Operator Instructions) Please stand by while we poll for more questions. The next question is from [Mark Regenbergen] of Ohio State Teachers Retirement Fund. Please go ahead.

Yes, hello. We are shareholders here and I have a question regarding continued media attention to your various parties that may be interested in your shares and there was another media report this week.

And I know you can't talk about specific offers or anything like that, but I'm just curious, this latest media report said that there may be an offer for your shares, a partial offer where they may want to buy in at $9 to $10 per share. Is that a price that you would just laugh at or is that a reasonable price? I'm just wondering what your sensitivity is to any offers as far as the pricing of that?

As we stated two calls ago, we will not comment on to any questions regarding this subject. Once it will be news we will come up with a statement.

Okay. Once again, I'm not asking about any specific offer. I'm asking a general question as to whether $9 to $10 would be anything near acceptability to you as shareholders and as managers, or is that something that you would think would be an outrageous price to even contemplate?

Unfortunately, I will still remain with my same answer.

Okay.

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

I would like to thank everyone who joined this call, thank all the Retalix employees and I'd be happy to speak to you again in three months time. Thank you.

Thank you. This concludes the Retalix second quarter 2009 results conference call. Thank you for your participation. You may go ahead and disconnect.