NCR Voyix Corp (VYX) 2009 Q4 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, March 16, 2010. Leading the call is Retalix CEO, Shuky Sheffer. 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, margins, expenses and tax rate, the Company's ability to maintain 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, management's expectation as to the Company's future financial performance and the outlook for 2010, future strategies and plans, opportunities and strategy planning.

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 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 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, gross margin, net income and earnings per share on both the GAAP basis and an adjusted non-GAAP basis. Today's press release includes the reconciliation of non-GAAP information to the most directly comparable GAAP information and is posted in investor section of the Company's website at www.retalix.com. Now I will turn the call over to the CEO of Retalix, Mr. Sheffer, please proceed sir.

Thank you, Teresa. Welcome and thank you for joining us on this call. As you know, I joined Retalix at the beginning of the year and it is a pleasure to have this opportunity to speak with you about the Company and our strategy. I joined the Company immediately after the successful completion of the strategic investment in Retalix made by the Alpha Group. The group is made up of five experienced and successful executives with a global tech record in building and managing leading local software Company. At the same time Barry Shaked, the founder and CEO of Retalix, retired from the Company. On behalf of the board and all the employees I would like to thank Barry for his 20 years of dedication and services in bringing Retalix into a leading solution provider for retailers. All appreciate you therefore to ensure smooth transition. I am committed to building the strong foundation that Barry build and continuing to take Retalix to the next level.

In January Eli Gelman was appointed the new Chairman of the board. Eli has more than 28 years of experience in software industry, including more than 20 years with Amdocs. Eli and I enjoyed a very confident relation in the past and I look forward to working with him again and benefiting from his vast experience in proven management possibilities in (inaudible). I was appointed CEO for Retalix as of January 1st and it is a natural transition for me. My curremt focus on building and delivering complex mission critical software and services solution to customers all over the world, which is (inaudible) in the (inaudible). I am excited by the opportunity that I see for Retalix. The fundamental of strong Retalix's excellent customer base, including many hidden tier 1 and tier 2 customers, a global presence of both portfolio products and (inaudible) That in speaking with customer, we confirmed that we matched a few others in the industry. Our first full week in the Company as being very busy and productive. We've put in place such a (inaudible) development process with two major phases. Horizon I was designed to focus on the goals of 2010.

We defined the immediate target and determine where we will complete and what (inaudible) we can bring to the market. (inaudible) quickly starts to show innovative product core mix, which also see being defined as being positively received by a customer in (inaudible). We are undertaking the customer (inaudible), I've spent considerable amount of time meeting these customer and (inaudible) these customers from all parts of the globe. We discuss with our customer (inaudible) see in Retalix any concern about operation and how we can work together and deliver Retalix big domain knowledge to meet their needs. We have had many positive comments from customer about the success of Retalix and the Company's ability to provide innovative solution. We are using this knowledge to further strength our customer facing operations. Internally we've been working to ensure that everyone is focused on the right target and that our resources are properly aligned between the business units.

A key focus for me is working closely with our sales and our customer facing teams, insuring that they are focusing on the needed needs of the customer and leveraging our existing assets to maximize the results for 2010. In 2009 you will see with an excellent job of managing the Company finance and cost. In a challenging business environment we successfully improved operating efficiencies, low margins, improved cash flow, (inaudible) to maintain profitability in customer relationship. These financial strengths will permit us to focus on opportunities and drive growth for the Company. Before I talk in more detail about the current market environment and our next step to develop the future business strategy, let me hand the call over to Hugo to review the financial results of the fourth quarter and full year 2009.

Thank you, Shuky. Today we will talk of results for the fourth quarter and year ended December 31, 2009. While 2009 was a challenging business environment, Retalix was able to meet its GAAP guidance and to exceed its non-GAAP guidance by implementing operating efficiencies and improving our operating margin. We were also able to significantly increase cash flows and be profitable in spite the expected decline in revenues in 2009 due to the difficult economic conditions. We reported $192.4 million in revenues for the full year in 2009 compared to $221.6 million in revenues for the full year in 2008. The (inaudible) in declining revenues was in line with the overall market performance in 2009 as customers were proceeding very cautiously due to the global economy and slowdown in consumer spending.

Total revenues in the fourth quarter were $46.4 million, down 11.01% compared to $52.2 million in the fourth quarter of '08. Fourth quarter revenues continue to be impacted by retailers, cautious response to the economy, lower license revenues versus 2008 and by lower service revenues due in part to the seasonality fewer working days we experience each year during the holiday season. Looking at the revenue mix our total product revenues in the fourth quarter represented 53.9% of our overall revenue versus 52.7% in the year ago fourth quarter. Harbor revenues represented nearly 17.7% of total revenues in the fourth quarter and this quarter generated lower than usual margins for us. Revenues from the sale of software licenses was approximately [16.2%] of total revenues. While this is still weak, it was higher than the levels in the past two quarters, but down versus the year ago fourth quarter. Total service revenues were 66.1% of sales during the fourth quarter versus 65.3% of sales in the year ago fourth quarter.

Maintenance revenues were 44% of total services and accounted for 29% of total revenues in the fourth quarter. For all of 2009 our revenue mix was approximately 30% product and 70% services. Our records designed to monitor (inaudible) improve operating efficiencies and control cost continue to contribute to the overall results. Operating expenses were down 17.1% in the first quarter and 20.2% for the full year excluding the 2008 non-cash charge for the impairment (inaudible) and intangible. During the quarter our non-GAAP operating margin was impacted by the lower revenues and higher cost of goods sold but still remain positive at [14%], down 3%. For the full year we improved our non-GAAP operating margin from 3.7% to 8.1%. As a result, adjusted income from operations non-GAAP was $16.5 million for the year and $0.2 million in the fourth quarter of '09. These compare to $8.2 million for the full year of 2008 and negative $0.3 million in the year ago fourth quarter. For the year we reported financial income of approximately $1.8 million of which $185,000 was in the fourth quarter.

As we discussed in previous calls, Retalix hedged a portion of its currency exposure for 2009 and we also benefited from currency translations related to the (inaudible) for our long dollar asset. In comparison in 2008 we had the financial experience of approximately $2 million for the full year and a financial extent of $2.6 million in the fourth quarter of 2008. The adjusted non-GAAP net income for the full year of 2009 was $12 million or $0.67 per diluted share. Non-GAAP net income was a loss of $853,000 or a loss of $0.04 per diluted share for the fourth quarter. This compares with non-GAAP net income of $99 million or $0.49 per diluted share for the full year of '08 and $2.8 million or $0.14 per diluted share for the fourth quarter of 2008. Regarding the share (inaudible) on the private place that was completed in November, Retalix issued to the outside world just over 3.6 million shares in (inaudible) to purchase up to an additional 1.250 million of ordinary shares. Therefore the fully diluted share count was 25.3 million shares a fully diluted basis.

On a GAAP basis the net income was $5.8 million or $0.28 per diluted share for the full year and a loss of $4 million or $0.02 per diluted share for the fourth quarter. Included in the GAAP net income our own onetime expenses of $1.8 million related to the transaction activities. I would say the out (inaudible) of actual related activities and the additional [circle] of approximately $1.5 million for amortization and stock based compensation expense. In 2008 we recorded a non-cash charge of $58.2 million for the impairment of goodwill and intangibles resulting in a net loss for the year in 2008 of $51.6 million or $2.55 per diluted share and our net loss in the fourth quarter of $53.7 million or $2.64 per diluted share.

Before proceeding with the, however a period, the question (inaudible) in our press release about the results of the lease today, I will talk about our continued effort to enhance the (inaudible) financial reporting in the second half of 2009 and we implemented a new Oracle ERP financial software system to replace our various legacy systems, due to the inherent complexity of the (inaudible), the (inaudible) system, we have required - will require some more time to compile and to complete our report and therefore we needed more time and we are undergoing additional review processes. In addition, Retalix has not yet completed the analysis of certain complex income tax related items. Therefore the results for today are familiarly and contain, as we will be further analyzing as I do in the results until the finding of the (inaudible) financial statement called form 20-F with the US Securities Exchange Commission by June 30, 2010. As we said earlier, it was a good year for cash mostly due to some collection and especially successful efforts to catch up.

We generated approximately $3 million, actually was $2.9 million, in cash and operating activities during the first quarter of 2009 and approximately $39 million for all of 2009. We were able to catch up on collection and in spite the weak economy and lower revenues, more than doubled our cash flows. With the $3 million we generated in the fourth quarter we are now closer to our steady rate of quarterly cash flow from operations that can continue into 2010. Also December 31, 2009, our balance showed about $104.6 million in cash, cash equivalents and marketable securities. Also the $33.6 million at the end of 2008. Included in the cash were the $32.9 million in proceeds from the private placement. Our full cash position provides a platform to build the Company and enables our customers to have even more confidence in Retalix to seek to deepen our relationships and continue to bring greater long-term business value to them.

Total trade receivables amounted to $56.2 million at the end of 2009 compared to $73.4 million a year ago and $59.9 at the end of the third quarter 2009. We continue to carry almost no debt. The number of days our trades outstandings were in stay good, a little bit higher than the 106 days of third quarter, in Q4 our results were 113. Now I will turn the call back to Shuky.

Thank you, Hugo. Here let me touch on current market conditions and the outlook for 2010. As you know when the global economy downturn began about 18 months ago we felt like all businesses became very cautious and sought to delay (inaudible) capital expenditures. However, over time we also saw the (inaudible) reach out Retalix main customer were less impacted by consumers cutting back on discretionary spending than non food retailers. The telephone are telling us that they believe in and also we remain competitive and grow in this economy, they must improve operating efficiencies and cut costs while also improving and personalizing the shopping experience. I believe that Retalix's unique demand driven solution to effectively address this requirement and to produce meaningful (inaudible) retailers. For example, our (inaudible) order calculated to cut their inventory level significantly.

We also have unique solution that can provide retailer with (inaudible) for the personalized customer experience. As 2010 begins we are seeing signs of recovery in some of the geographies. Retailers are starting to move out of the panic mode, back into planning, but retailer will still remain cautious if the recovery will likely to be choppy and inconsistent. Because of our agree to bring variable customers are becoming more engaged with our customer both our service and solutions. Further, we are working to leverage the new activity in the market, including efforts into building our pipeline. Retalix recently completed two significant deployments of our solution. In the US we completed a rollout of Retalix 4.3, including POS, back office and SP application, along with food service and commercial fuel modules with more than 230 service location for fuel and convenience at Love's Travel Stops and Country Stores.

In Scandinavia we completed the deployment of an integrated solution consisting of store, fuel, headquarter application at more than 1,000 sites for leading convenience store operator Reitan Servicehandel. (inaudible) on one strategic quarter we are excellently managing our portfolio for that, (inaudible) our relationship with (inaudible) and engaging our customer. Recently expanding as we shifted internally to the areas where we see the best growth opportunity. This morning we announced our guidance for 2010. Retalix expects (inaudible) wide 2010 revenues to be between $195 million and $200 million. And we expect -- excuse me $195 million and $210 million and we expect to maintain similar profitability in 2009. Further we, of course, continue to monitor the economy and the market (inaudible) looking for opportunities as the year progresses. At the same time we have begun the second phase of our strategic planning, Horizon II.

This is a comprehensive process that we are currently conducting. We are analyzing the market, deciding where we compete, what our portfolio for the sales will look like and owning our growth engines. It's probably, therefore, that (inaudible) find the trends that will shape returning and how we tailor we do the biz in the future. Details (inaudible) future in salers and personalize the shopping experience both in the store and with different technologies from the Internet to smart phone. (inaudible) check out the re-shopping. We believe there will be strong opportunities to work with our customers to help them personalize the shopping experience and (inaudible) size to their customers. With Retalix non standing know how in both retailers, I'm confident that we can provide innovative solution and services to help retailers to be more innovative and (inaudible).

We are also reviewing the full scope of our addressable market in making out the new product and services we can bring to the market, where (inaudible) opportunities which led to the (inaudible) experience and lead to knowledge to meet market needs (inaudible) to do the business model. I look forward to having the opportunity to meet with you personally in the future and (inaudible) strategic (inaudible) Retalix. Thank you for your attention and now we can open to answer your questions.

(Operator Instructions) The first question is from Ziv Tal of Oscar Gruss. Please go ahead.

Good afternoon, Shuky and Hugo. My first question is can you describe what caused the decrease in service revenues and do you expect them to rebound to third quarter levels in the March quarter?

Well, in Q4 we experienced a weaker profit in the services revenue because seasonal affect because of the holiday and basically following the seasonal decline in Q4, we should see going back up into a better stage of capital and services, and this is basically the change. Then there are all kinds of additional (inaudible) between the quarter. So I would say that to answer to your question, we will be improving the profit on services from the Q4 level.

Okay. Do you see any price decreases for your various solutions at the moment? In the product level?

We don't see any decrease in prices.

And can you elaborate what caused the decrease in, significant decrease in gross margins in the quarter, lower than what you've initially expected?

Well, we have the decline in revenue of about $4 million this quarter. We had decline in professional services also that due to the seasonality and helped decline the (inaudible). In addition to that third party profitability was less profitable and was lower in this quarter, and we have increased additional headcount of about 30 people mainly R&D in Q4. Altogether this brings to the decline in operating margins in Q4.

And for the full year 2010, should we expect the same kind of gross margin levels that we have seen this year?

Yes. Our guidance for 2010 you should look at the similar profitability.

And, Shuky, you've mentioned the pipeline. Can you discuss, give us a little bit of color on the pipeline, what you are seeing, how exactly are you trying to build it or rebuild it?

Okay. We are doing a lot of effort to increase our pipeline and I think it's mainly in two different areas. One, as you know, we have a very strong base of tier 1 and tier 2 customers, so we are now looking and actually increasing the pipeline with our existing customer, sending them additional solution and also additional services. So this is one area where we are putting a lot of effort. The other area is new logos and new customer. In this place we are now enhancing our sales coverage. We are enhancing our customer facing organization. We also doing changes in our portfolio to make sure that we have the best product for the market. All in all, I am very positive that with all this effort we are going to increase our pipeline significantly.

Do you see some degree of improvement in product sales. In March, do you see a degree of improvement as compared to the fourth quarter of 2009?

As you know product sales is critical for the Company and in order to push the product sales, there are several things you need to do. First of all you need to have a great product. So we are doing, as we speak, a major effort to (inaudible) our product road map and to make sure that it fits the customer needs. The second area is as I mentioned before, is we have to make sure that we have the right sales coverage and customer facing organization to make sure that they are able to sell this new product and to make sure that there's a match between our offering and the customer needs. As I mentioned before, we (inaudible) very competitive forces in Q1. And regarding what we believe where we should compete, what are the programs that the market needs, so we are taking all this (inaudible) that we have today and pushing hard the license sale and the new product sale and I believe that over time we will see growth in the license sales.

Another question. Can you add some -- do you expect to see this same operating expenses and next year do you expect to extend them as compared to 2009?

Well, basically, as we said, we are expecting, first of all, senior profitability. As you are seeing what we are increasing in our guidance the revenues and we keeping (inaudible) profitability in (inaudible) is that we will be doing a few things. One is (inaudible) going to be shifting some resources between areas, strengthening the area, (inaudible) in marketing, R&D, shifting resources, all kinds of (inaudible) where the main subject for us is double digit growth. There will be the quality can be from additional overall expenses here and there, but we'll be looking compared to our revenues in order to keep the profitability that we are looking after.

Okay. And can you give us the geographic split of revenue for the quarter?

Well, basically I will give it to you later. I don't have it in front of me right now.

Thank you very much.

Okay, you're welcome.

Thank you, Ziv.

The next question is from Larry Tedeschi of the Ohio State Teachers Retirement Fund. Please go ahead.

Hello. Were you surprised by the size of the fourth quarter revenue decline compared to the year ago quarter?

No. We were not surprised. We basically, we knew after the third quarter that we may face lower Q4 and we had the, usually the professional services, there is seasonality in Q4. We knew that we had some specially hardware sales in Q3. So overall it was not a surprise.

Okay. And then also regard to R&D spending for 2010, I didn't hear you say anything specifically on that in terms on guidance. Is it safe to assume it would be about the same as 2009?

First of all, R&D for 2010 will be I would say similar, but will be some like slightly higher than 2009, but I would say that more importantly, we are focusing to spend on what we believe to be the high potential growth engines. This is more or less, as I said, slightly higher and focusing where we believe will be high potential growth.

Okay. Thank you.

You're welcome.

(Operator Instructions) There are no further questions at this time. I would now like to turn the call back to Mr. Sheffer. Mr. Sheffer, would you like to make your concluding statement.

Thank you, Teresa. I would like to thank you for taking the time to participate in this call and for your questions. We are now setting off on a new exciting journey and growth focus on managing the strong fundamentals of the Company and continue to be innovative and bringing good business value to our customers. I look forward to our next call where I can update you further about the progress that we have made. Thanks again.

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