NCR Voyix Corp (VYX) 2010 Q1 法說會逐字稿

Welcome to the Retalix conference. As a reminder, this conference call is being recorded today, May 12, 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 would like to remind our listeners that management's remarks contain forward-looking statements. These statements include, but are not limited to, comments regarding the guidance and expectations about revenues, net income, cash flows, margins, expenses and tax rates, and 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 expectations as to the Company's future financial performance, the outlook for 2010, future strategies and plans, opportunities and strategic 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 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 20F, filed with the SEC on June 22, 2009.

Also, I would like to remind you that Retalix reported incoming tax, operating margin, net income and earnings-per-share on both a GAAP basis and an unadjusted non-GAAP basis. Today's press release includes a reconciliation of non-GAAP information to the most to directly comparable GAAP information and is posted in the investors 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 go ahead.

(technical difficulty)

Excuse me for the interruption, Mr. Sheffer. I'm going to have to call you back, because the quality is bad. Hold on a moment, please, everyone. We will be resuming soon.

Thank you for holding by. Mr. Sheffer, please go ahead.

Okay, guys. Sorry for this inconvenience. Thank you, Teresa. Welcome, and thank you for joining us on this call. This morning, we reported results for the first quarter of 2010. We are pleased with our progress in the first quarter.

On this call, we wanted to review the financial results with you, and I will also give you a brief update since our last call two months ago.

Our first three months with the Company has been very busy and productive. As we discussed on the last call, we have put in place a structural plan on which we are executing. We are making progress. We took steps to align our resources with the opportunities we see in the market. We continue to invest in building and enhancing our innovative products to address the changing needs of our customers.

We also established a new global services group. We are engaging with our customers and focusing our sales efforts on the unique product and services we offer to help retailers and managers manage their businesses.

Today, we reported revenues of $48.7 million for the three months ended March 31, 2010. This is in line with our guidance for the year. These results are an improvement over both previous quarters and the year-ago first quarter. We won engagements from both new and existing customers. We are continuing our efforts to build the sales pipeline.

We reported net income non-GAAP of $3.3 million, which included approximately $0.5 million in realignment expenses. Our focus continues to be on delivering a solid 2010 and building on Retalix's strong foundation. I will talk in more detail about the market environment in our next steps, but first, let me hand the call over to Hugo to review the financial results of the first quarter of 2010.

Thank you, Shuky. Total revenues were up in the first quarter of 2010 versus both the year ago-quarter and the fourth quarter of 2009. We reported $48.7 million in revenues for the three months ended March 31, 2010 compared to $46.9 million in the year-ago first quarter. Let me remind you that in the year-ago quarter we had a $1.7 million contribution to revenues from the favorable outcome on arbitration.

Looking at the revenue mix, our total product revenues represented 28% of overall revenue versus 27% in the year-ago first quarter. Software and hardware revenues each represented 14% of total revenues. Our service revenues are comprised of professional services and maintenance revenues. Professional services were 43% of total revenues, maintenance was 29% of our total revenue this quarter. Combined professional services and maintenance accounted for 72% of revenues during the first quarter versus 73% of revenues in the year-ago first quarter.

Total operating expenses remained relatively flat over the year-over-year; however, during the first quarter of 2010, we incurred approximately $0.5 million in expenses, mainly severance costs related to the realignment of retail operations. Our non-GAAP operating margin was 9.7%.

Adjusted income from operations non-GAAP was $4.7 million versus $6 million in the year-ago first quarter. As I already mentioned, the first quarter of 2010 included a $0.5 million severance expenses in the first quarter of 2009, including the $1.9 million contribution to our income as a result of the arbitration.

In the first quarter of 2010, we reported a financial expense of $0.4 million, largely related to currency translations and the exchange rate for our non-dollar assets. This compared to the financial expense of $3.6 million in the year-ago first quarter. The year-ago first quarter included significant charges related to forward currency transactions, in addition to currency exchange expenses.

The adjusted non-GAAP net income was $3.3 million or $0.14 per diluted share for the first quarter versus $1.7 million or $0.09 per diluted share in the year-ago first quarter. On a GAAP basis, the net income was $1.9 million or $0.08 per diluted share versus net income of $0.7 million or $0.04 per diluted share in the year-ago first quarter.

Please note that the fully diluted shares outstanding was 24.2 million in the first quarter of 2010, after the private placement to the Alpha Group in November 2009. In the year-ago first quarter, the fully diluted shares outstanding was 20.4 million.

This quarter, we generated $1.4 million in cash flow from operations. This also is after the additional severance expenses incurred, as I already mentioned. Our net headcount increased to over 1250 during the quarter, as we began recruiting in key areas, including our customer-facing and services group. These increases were in line with our plan to enhance our operations in the areas where we see the strongest opportunities. Shuky will describe these efforts in a moment.

We also continued to focus on our receivables and ensuring strong collections. Total trade receivables amounted to $58 million at the end of the first quarter. The continued strong collections and focus on receivables was reflected by a continued improvement in the number of days of sales outstanding. At the end of the first quarter, our DSO was 106 days versus 124 days a year ago and 113 days in the fourth quarter.

Our balance sheet is strong, with $105 million in cash and cash equivalents, deposits and marketable securities, up from $104.6 million at the end of 2009 and $56.9 million a year ago. We also continue to (inaudible) negligible debt.

Now I will turn the call back to Shuky.

Thank you, Hugo. Let me continue by giving a brief operational update. As I mentioned, we were very busy in the first quarter, and I can share with you some of these activities.

We continue to make progress developing our product portfolio to lead the market with an innovative and compelling offering. This is our key strategic advantage. Services is one of our focus areas for the Company and an area in which our customers tell us we can do more for them. We started with Retalix Global Services, RGS, a dedicated services group, and we are making good progress ensuring we deliver quality product and services to our customers.

As you know, it will take time to [win] our services pipeline, and we are making efforts accordingly in this regard. By enhancing our service offering around our products, we are deepening our customer relationships and making them more strategic.

As we discussed with you on previous calls, we realigned internal resources. This included transferring people and (inaudible) new sources to ensure we are effectively managing all areas of the business and building these areas in -- the areas we are focusing in 2010.

Our net income is up. We've increased income in key areas including sales and customer-facing, R&D and services, while introducing efficiencies in other areas in order to do things more effectively.

We announced two new customer wins during this first quarter. In EMEA, we have a significant new customer win with Sasol Oil. The South African convenience and fuel chain will be installing its (inaudible) application including our StorePoint fuel solution, petrol and (inaudible) office system to (inaudible) the customer experience, streamline operations and enhance profitability across all Stasol sites in South Africa.

The win of Stasol, a large retailer, again demonstrates Retalix's global position as the leading provider of innovative solutions to fuel and convenience stores.

In the US, we have (inaudible) with Weis Markets. This is an example of the strong market opportunity that we believe exists as small retailers seek innovative solutions to replace or expand functions they previously developed internally. Weis Markets, a 164-store chain headquartered in Pennsylvania, selected a major upgrade of expansion of its Retalix system to improve its competitive advantage with customers.

Weis will upgrade the Retalix HQ Solution, which has been installed since 2002, replacing a number of internally developed and supported mainframe systems, as well as expanding functionality. They are adding new models of pricing and merchandising to provide increased automation and analysis, and which will help improve margin and cap growth in their operation.

The new engagements are just an example of the market opportunities for Retalix. While we are still analyzing the full scope of the market as part of our strategic program, we really believe our addressable market is more than $6 billion. This is not only a large market, but also one that is going through a transformation.

Retailers are confronting a range of issues, including intense competition, changing shopper dynamics, the (inaudible) segments and globalization. To respond to these challenges, Retalix has to be able to address shoppers in a personalized way, seamless across multiple channels, while at the same time driving operational efficiency and taking costs out of the operations.

Major grocer retailers, which are Retalix's main customers, were less impacted by consumers cutting back on the discretionary spending than nonfood retailers, but their customers nonetheless have become increasingly value-driven during this global recession. To remain competitive, retailers need to find new ways of differentiating their businesses and driving value throughout the operation.

This (inaudible) transformation creates both near-term and long-term opportunity for Retalix. Our customer needs to respond quickly, and I believe that Retalix is the unique demand-driven solution to meet their needs. We have been focusing on these office and sales efforts on (inaudible) and innovative solutions we can provide retailers to address the changes in the market.

As we said in the call two months ago, retailers are starting to show signs of recovery, but they continue to be cautious. The recovery continues to appear to be choppy and inconsistent. Very important are the different geographies in which we operate. While engaging with our customers, we see that there is interest and demand for our products and services.

Our current performance, along with what we [view] for our customers, give us a level of confidence to reiterate the guidance we announced in earlier this year for 2010. We continue to expect FY 2010 revenues to be between $195 million and $210 million, and we expect to maintain similar profitability as 2009.

In conclusion, it was a solid first three months. There is much work still to be done, but we are executing against our plan, and we are steadily making improvements across the Company. We will continue to build on this foundation in the coming quarters.

Thank you for your attention and now we are open to answering questions.

(Operator Instructions) Jonathan Kreizman, Oscar Gruss.

Hi, this is [Dove] on Jonathan's behalf. My first question, if I may, is regards OpEx. You got the OpEx down basically through R&D, if I understand correctly. I wanted to know that this is part of the restructuring, and in general if it is sustainable, if this is the OpEx looking forward more.

First of all, it is part of the restructuring. Going forward, we will see more OpEx in terms of the customer-facing, sales and marketing, et cetera, and we may see over time some more R&D expenses. Overall -- the overall total operating expenses will be between 34% to 35%, and we will be closely monitoring as -- business as we move forward.

Okay, great. As part of geographies, you mentioned that the recoveries vary very much from the different geographies. Can you give a little more insight? Maybe was a lot of the trouble in Europe, or how many clients were in the problematic regions? Any color you can give there.

So far we don't -- as I said in my presentation, we see signs of recovery, but the retailers are still very cautious. I can add that we haven't seen any issues in Europe yet. And at the same time, I feel that if you look at the customer base of Retalix, which is based on the biggest Tier 1 retailers in the world, and the majority of our customers are in the grocery business, which is nonfood, usually this sector is hurt less than the other sectors in the market. Having said that, we are monitoring the market position all the time and making sure we can act accordingly.

I see. Thank you. Can you give any indication as far as the pipeline? You mentioned the service pipeline -- or in general.

I'm not sure how I can -- I can answer that overall in all the territories, we see increasing pipelines.

And (inaudible). Now just if I can go back for one second to the restructuring. There was a $0.5 million in severance pay due to the restructuring. Just if you can elaborate. I know you mentioned a little bit in your remarks.

Anything more you can mention about what you already achieved as far as the restructuring plan, or what -- you also said that in OpEx, you plan on more restructuring forward. What else is planned [will be costs] like you mentioned?

Generally speaking, all the time we will continue to check how we can do what we do today more efficiently, in a more productive way. The restructuring that we announced is basically doing the same activity in certain areas, but doing them more effectively.

We, while -- as I said, while we are going to continue to drive excellence into our business and doing things more effectively, we are also going to increase our customer-facing and sales and R&D to make sure that we address all the opportunities we have in the market and we have the right products to answer the market needs.

Okay, just one more. You said you were rising the headcount in certain areas. Is it due to demand in those areas? Is that -- in other words, it's not R&D. I'm guessing it is sales.

We are driving the headcount in R&D to make sure that we have the best competitive products in the market, and more innovative products. We are increasing our sales presence to make sure that we increase the pipeline. And regarding services, if we see that we see increased demand for our services, we will have to do this also.

Okay, all right. Thank you very much.

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

Thank you, Teresa. Thanks for taking the time to join us today. Looking forward for our next call together. Thank you.

Thank you. This concludes the Retalix first-quarter 2010 results conference call. Thank you for your participation. You may go ahead and disconnect.