NCR Voyix Corp (VYX) 2010 Q4 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference is being recorded today, March 2, 2011. Leading the call is CEO of Retalix, Shuky Sheffer. Joining him is Hugo Goldman, the Company's Chief Financial Officer.

Before I turn over the call, I would like to remind our listeners that management's remarks contain forward-looking statements. These statements include comments regarding the guidance and expectations about their revenues, net income, margins, expenses and tax rate. The Company's ability to improve cash flow and profitability, 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 the protection of said 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 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 20-F filed with the SEC on June 15, 2010.

Also I would like to remind you that Retalix reports its operation income, net income and earnings per share on both a GAAP basis and an adjusted non-GAAP basis. Today's press release includes a reconciliation of non-GAAP information to the most directly comparable GAAP information, and it is posted in the investor section on the Company's website www.Retalix.com.

Now I will turn over the call to the CEO of Retalix, Mr. Scheffer. Please begin.

Thank you Tessa. Welcome and thank you for joining us on this call.

On this call we wanted to review with you the financial results for the fourth quarter and the full year 2010. I will also discuss our outlook for 2011 and our guidance for the year.

We completed our fourth quarter with continued year-over-year growth on all of our key financial parameters, while also [proceeding] and in fact increasing our investment in the future. During the [first] quarter we continued to execute on our strategic plan. We successfully delivered a range of (inaudible) to our customer and won contracts [for the] new services offering. We're also preparing for the January 2011 launch of our [innovation] new product offering, Retalix 10 Store Suite, which I will discuss in more detail in a moment.

In the fourth quarter we continued our growth in total revenues and maintained solid profitability versus a loss in the year-ago fourth quarter. Today we (inaudible) the total revenues of $53.8 million, non-GAAP operating income of $4.5 million and non-GAAP net income of $4 million for the three months ended December 31, 2010. We also continue to generate very strong positive cash flow from operations.

For the full year, we achieved a new record for Retalix in net income -- non-GAAP. Our results were at the upper level of our guidance and we [perceive] consistent performance in each of the quarters in 2010. Total revenues were $207.4 million.

Our non-GAAP operation income was up 27% year-over-year to $19.8 million and our non-GAAP net income was up 42% versus 2009 to $17.1 million or $0.70 per diluted share.

2010 was an important transition year for Retalix. The new management team, executing its plan, successfully completed a lot of activities that will enable the future growth of the Company. We generate growth and profitability while also developing our strategy for growth in laying the foundation for the future. This [including hits] in our product and services offering, improving our infrastructures, (inaudible) our customer [facing organization], and putting a new emphasis on making [this] sales (inaudible) organization.

I would also like to take a moment to publicly thank Eli Gelman for his leadership and contribution in 2010 as the Chairman of Retalix Board of Directors. If you will recall, Eli joined the Board as part of the Alpha Group after the November 2010 investment in Retalix and we benefited greatly from his experience in the management of IT companies. Eli remains a member of our Board but stepped down as Chairman after taking his new role of CEO of Amdocs.

Avi Naor will now become Chairman of the Retalix Board of Directors. Avi is another member of the Alpha Group and also became a Director of Retalix in November 2009. He has extensive expense of managing and growing IT companies, founder and ex-CEO of Amdocs, and we welcome him to his new role as the Chairman.

In a moment I will talk in more details about the market environment and our next steps. But first let me hand the call over Hugo to review the financial results of the fourth quarter and the full year 2010.

Thank you. As Shuky said in his remarks, we achieved results at the upper end of our guidance for 2010. We recorded increases in total revenues and net income, GAAP and non-GAAP. We had a 9.5% non-GAAP operating margin for the year and generated a very healthy $53.9 million in cash flow from operations.

Cash and equivalents, which includes our deposits and marketable securities, increased to over $134 million. This was why we also proceeded with our planned investments in Retalix's products and service offerings, enhanced our operations and customer facing abilities, and continued with our efforts designed to build our future opportunities.

Our guidance for 2010 [has called] for total revenues of $200 million to $210 million and similar EBITDA profitability to 2009. For the full-year 2010 we reported total revenues of $207.4 million compared with $192.4 million in 2009. Total revenues for the fourth quarter of 2010 were up versus (inaudible) the previous quarter versus the year-ago fourth quarter. We reported $53.8 million in revenues for the three months ended December 31, 2010 compared to $46.4 million in the year-ago fourth quarter.

Looking at the revenue mix, software revenues were 13% of this quarter's revenues. Maintenance revenues derived from our products were 27%. Professional services were 45% and hardware revenues 15% of total revenues. The quality of our mix improved in 2010 as the percentage of sales from hardware continued to decline.

Adjusted income from operations non-GAAP map $4.5 million in the fourth quarter of 2010. This compares with $182,000 in the fourth quarter of 2009. GAAP income from operations was $2.7 million in the fourth quarter versus a loss of $3.1 million in the fourth quarter of 2009.

Included in our operating expenses during the fourth quarter of 2010 were the increased sales and marketing and R&D expenses as we prepared for the launch of the Retalix 10 Store Suite that we undertook at the National Retail Federation's annual conference in January 2011.

Also, as we have discussed with you on previous calls we are continuing with our efforts to build our services offering, adding to our headcount to enhance our customer facing teams and building our sales and services organization. As of the end of December 2010 our headcount was up by over 100 people versus December 2009. With this increased cost investment and additional headcount, we still produced an 8.4% non-GAAP operating margin during the fourth quarter and a 9.5% non-GAAP operating margin for the full year.

$800,000 in interest income related to tax refunds combined with the impact of the currency fluctuations and the value of our non-dollar asset and foreign currency [transactions] produced a [net of] $2 million in financial income for the fourth quarter of 2010. In the year-ago fourth quarter we had $185,000 in financial income. For the full year we had nearly $2 million in interest income related to the tax refund and are reporting a net financial income for the full year of $3.5 million compared with the $1.8 million for the full year of 2009.

In 2011 we do not expect to have the interest income related to the tax refunds. And with the fluctuations to the currency market, we're not expecting a similar level of financial income if any in the year ahead.

Our non-GAAP net income was $4 million in the fourth quarter of 2010 versus a loss of $853,000 in the year-ago fourth quarter. The earnings per diluted share were $0.16 versus a loss of $0.04 in the year-ago fourth quarter. Note that the per diluted share figure I am discussing includes an increase in the weighted diluted shares for the full year to 24.5 million shares in 2010 versus 21 million shares in 2009.

During the fourth quarter the weighted diluted shares outstanding was 24.6 million versus 22.1 million a year ago, reflecting the shares issued in the Alpha Group's private placement completed in November 2009.

GAAP net income was $2.6 million in the fourth quarter of 2010 versus a loss of $4 million in the year-ago fourth quarter. The net income per diluted share was $0.11 versus a loss of $0.18 per diluted share in the year-ago fourth quarter.

For the full year 2010 we are reporting an increase in our non-GAAP net income to $17.1 million versus $12 million in 2009. The per diluted share earnings were $0.70 versus $0.67 in the year-ago.

For the full year 2010, our GAAP net income was $10.8 million versus $5.8 million in the year-ago. The per diluted share earnings were $0.44 versus $0.28, also including the change in the weighted diluted shares outstanding.

Turning to the cash flow, this quarter we generated a very healthy $15.3 million in cash flow from operations. And for the full year we generated $33.9 million in cash flow from operations. Included in this cash flow from operations figure is $10.6 million as a result of our tax refund and related interest income.

We're continuing [our attention] to receivables and collections. Total trade receivables amounted to $56.6 million at the end of 2010, down from $62.8 million at the end of the third quarter. Our DSO was 103 days at the end of the fourth quarter of 2010, which is stable versus the third quarter and improved from the 113 days in the fourth quarter of 2009.

Our balance sheet strength continued to grow with an increase to $134.6 million in cash and cash equivalents, deposits and marketable securities at the end of 2010 with a very negligible debt. This is up from $120 million in cash and equivalents at the end of the third quarter of 2010 and a net increase of $30 million for the full year of 2010.

This equates to over $5.50 per diluted share in cash on our balance sheet, demonstrating the strength of Retalix to our customers and providing us the ability to pursue future opportunities. Now I will turn the call back to Shuky.

Thank you Hugo. Let me continue by giving you a brief update on our outlook for 2011. Our efforts in 2010 were designed to ensure that Retalix is well-positioned with the organizational structure and innovative solution needed to address the trends [that are foreseen in retailing].

Retailers understand that they must build stronger ties with the customer and need to personalize the shopping experience (inaudible) all the touch points where they interact with the customers. In a highly competitive marketplace, the speed and ease at which retailers can introduce innovation become increasingly critical.

As we have discussed with you on our past calls, the new technologies such as mobile are changing the way consumers interact with retailers. This is creating opportunities for the retailers that have the platforms that can quickly and easily integrate these new technologies into their operations.

All of our discussions with retailers and industry analysts confirm that retailers need tools to take them forward. Market leaders from the leading industry analysts highlight that retailers believe their existing systems are hard to upgrade and are not designed to incorporate the new technologies. Understanding these are the trends that are driving the future opportunities in retailing, we defined four growth engines for Retalix.

As we discussed on our last call, the cost (inaudible) are -- our new integrated Store solution, our value-added services that leverage our product and retailing experience, new market opportunities both from new geographies and (inaudible) of retail segments and building our successful efforts in providing software as a service.

Our strategic [direction] innovation was [validated through our] discussion with our customers, industry analysts attending our Synergy user conference in November 2010 and last month at the National Retail Federation Annual Conference. At NRF, we saw extensive signs of the [increasing cost general retailing]. Retailers need more store platforms with multichannel consumer touch points and they need to vertically integrate new technologies into their operation.

As we discussed with you, our focus is on ensuring that we are providing an architecture that enables time to market, multiple deployment options, the full range of sales touch points and integrated application ranging from store promotion and loyalty programs to [remain focused in] replenishment. These efforts identified in the fourth quarter [as we prepared for a] January 2011 launch of our breakthrough new product, the Retalix 10 Store Suite.

Retalix then is the first [true] (inaudible) store platform. Our new store suite [offers a diverse] software application and unique architecture [that] seamlessly combines major customer centric (inaudible) function, while enabling quicker time to market and reducing the total cost of ownership.

Retalix then is the first platform to fully integrate key functions such as customer touch points, store management, targeted promotion and loyalty, unifying the management and deployment of an in-store system (inaudible) mobile (inaudible).

Its innovative architecture employs a single software engine and feature [age-old] development methodologies and easy [extensibility] as well as advanced capabilities of flexible deployment alternatives. The Retalix 10 Store Suite is generating a lot of excitement in the market place, providing meaningful advantage both for our existing customers to upgrade and for new customers looking for the most advanced solution of the market today.

As you can sense, we're very excited to have this unique solution on the market. Our investment in this offering will continue through 2011 and we'll update you as these efforts proceed.

Our enhanced services offering is our second growth engine. We are deploying a unique business model that creates product-led services that leverage our retailing expertise and provide differentiated value-added services to our customer.

We're beginning [rolling out] these new services in 2010, and I am pleased to be able to report that in the first few months since this launch we have already won major customers for our new offerings such as testing, information and support. We're continuing to introduce these new services to our customers and integrating them into our offerings for retailers.

The sales growth driver for Retalix is the opportunities in the adjacent market. There are opportunities both to grow geographically and with the blurring of retail segments, Retalix is a strong story (inaudible) [the blend with the retail] segments. Retalix has a strong global offering and we see opportunities in new geographies as small retailers seek out the best in class solutions for their operations.

Also the fast moving consumer [group] retailers such as department stores and health and beauty retailers are increasingly offering food in their stores. We are leveraging our strength in these high-volume, [high complex] retailing environment and deep expertise on the unique challenge with grocery and food products to realize the opportunities created by this trend.

Another growth driver for Retalix is software as a service. We're successfully growing the number of stores which we offer our services and we will continue to expand our offering in this segment.

In 2010 we beat each of these engines while continuing to grow our revenue and profitability. We signed major retailers [and senior] customers and successfully delivered customer projects. We're excited about the opportunities that lay ahead.

We're execution on our plan, building on Retalix strong foundation to drive our growth. Generally speaking our customers are doing well and are beginning to map all of their IT investments focusing on the consumer experience at the store level. We foresaw this next major focus and aligned our strength to meet this need.

Accordingly, we are putting a lot of effort into strengthening our pipeline. Today we announced our guidance for 2011. We [built the long-term strategy plan] for Retalix in 2010 and we are executing on it.

Based on the positive feedback we're receiving from the existing and new customers and industry analysts, we feel confident that our investments are creating a unique advantage for Retalix in the market place, which we expect to start leveraging in the year ahead.

Our [biggest tradition] (inaudible) quarter to quarter and our expectation is the same for 2011. We expect total revenues to be in the range of $217 million to $228 million. We also expect to achieve at least the same level of profitability in 2011 as compared to 2010, while also continuing the investment to build and enhance our product and services offering and operations.

We'll of course continue monitor the markets closely and engage our customers seeking to maximize opportunities as 2011 [progress].

In conclusion, we believe 2010 was a solid year, producing results at the upper end of our guidance and we also invested in the future. The new management team was successful in shaping Retalix, executing on its plan and completing a lot of activities in 2010. We have our growth engine in place and we are beginning to 2011 with a lot of excitement including the launch of our new 10 Store Suite and [expense] services offering.

The investment in these areas are continuing in 2011 and we are receiving very positive feedback from our customers and new potential customers, as well as the leading industry analysts. We appreciate the dedicated effort of our employees worldwide and the interest and support from our customers, partners, investors and analysts. We look forward to more exciting development in the year ahead.

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

(Operator Instructions) [Daniel Dish], [Flatbush Watermill].

Hi Shuky. I just first off wanted to thank you guys for all the incredible work that you are doing. It obviously shows.

And then I had two quick questions to ask you, one on sales and one on gross margin. And I just want to stress that I'm not looking for specific guidance, but more a general sense of what is possible.

The first question is for sales in the fourth quarter of 2011. I'm trying to get a sense of what the growth rate might be, whether that is going to be closer to the 16% level that we just saw or if it is going to be closer to the 10% level implied in the high end of annual sales guidance.

And then the second question is regarding gross margin. In the years prior to 2007, gross margin ranged typically from 65% to 70%. And I wanted to know if you thought we could get back there in a three-year to five-year timeframe? Thanks.

This is Shuky. Good to hear from you. I will answer the first one and Hugo will answer the second one.

Regarding the first one, we see momentum in sales. We're getting, as I mentioned, a lot of good feedback from customers for our new offering both in Retalix [spend] and the services. As we said in the release, we see our revenue build from quarter to quarter like it was in 2010 and we expect it to be the same in 2011.

Hi, good to hear from you. As your question on the gross margins, certainly we don't expect to get back to those high 60%s ranges in the gross margin years ago.

I think the business, the nature of the fundamentals are different right now. And we are building the Company to obviously improve over time in efficiencies and profitability, but at these levels that we are talking about.

Do you have a target when you look five years out, let's say, on a range of gross margin that you think is possible?

Basically we're looking at the operational margin. That is where we are looking at a double-digit growth and improving, but this is where we are focusing on most.

Okay. But I know that -- so you don't have any sense that you can share about whether you think in five years a 15% operating margin is possible, an 18% operating margin is possible or anything that you can share along those lines?

We prefer not to share that at this point. In general what we're saying double-digit. If we're building the growth engine, it is definitely to be able to execute better over time and this is about what we can say at this point.

(multiple speakers) I think that we believe, when all the -- our growth engine will kick in, we're aiming to have in the future a double-digit percent profitability.

Okay. Last follow-up on this was regarding the 4th Q growth rate. There again, obviously you have seen a ramp and accelerating growth.

And I'm just try to get a sense for next year whether the growth rate is going to end the year at that 10% level or if it is going to and closer to the 16% level? Any sense that you can share generally on that?

Look, what -- obviously at this point we still have work to do in order to complete the fourth quarter 2011 sales, so there is work to do. So we cannot -- it's something we still need to work on.

Basically what we're saying, as Shuky said, we expect the revenues to grow quarter after quarter, similar like we've seen in the past. The exact ratios [would be] something we still need to wait and see (multiple speakers) quarter after quarter (inaudible) growth.

I'm sorry. Can you say the last part again? When you both spoke (multiple speakers)

I would say a general trend is typically we expect to see similar to last year, which is sequential growth quarter-after-quarter, general trend -- something still we have work to do to see what happens in (multiple speakers)

But this, I think, just as we mentioned, we see this growing quarter to quarter in 2011 in the same way it built up in 2010.

Okay, thank you.

(Operator Instructions) [Leon Rachmann], Oscar Gruss.

Hi, guys. Can you talk about competitive landscape, what you see right now?

This is Shuky. Yes. When we look at the competition, there are not too many companies like Retalix. If you look at the majority of our competitors are hardware players and software players. And some of the competitors are just software players and I think that Retalix is a very unique business model of new software and services.

When I look at the competition, as I mentioned, I truly believe that there is no competing products in the market today to our 10. We believe it's new, it's modern, it's unique. It has unique capabilities.

We manage a competitive [desk] in the Company and we follow up very closely about what is happening in the market so far. And mainly what we get from the (inaudible) analysts really, our 10 is a breakthrough product. And I think that the combination of the product and services, as I mentioned, this is something which is a unique offering in the market.

But we are all the time checking ourselves, making sure that we are ahead of the competition and we're monitoring our activity all the time. So I don't want to sound -- I want (inaudible) to sound humble. We have a lot of work to do to beat the competition, but we believe that we built the right tools in 2010 to do that.

Okay. Another question regarding the OpEx, what is the prospect regarding that for next year?

For next year we're talking about the overall total OpEx similar levels to 2010.

As a percentage of revenue?

Yes.

Okay guys, thank you very much and good luck.

Thank you very much.

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?

Yes. Thank you everyone for joining us on the call and thank you for the time, and we look forward to talking to you again after the end of Q1. Thanks again. Bye-bye.

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