NCR Voyix Corp (VYX) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, August 3, 2011. Leading the call is Retalix's 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 and profitability; expectations about the Company's expected pipeline of customers, addressable market; the expected contributions from our acquisition of MTXEPS; expected drivers of the Company's growth anticipated demand for and expected investments in the Company's software products and services and new offerings; management's expectations as to the Company's future financial performance, the outlook for 2011, and future strategies, plans, and opportunities.

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 in its annual report on Form 20-F filed with the SEC on April 14, 2011.

I would like to remind you that Retalix have reported operating income, operating margin, net income, and earnings per diluted 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 the investor section of the Company's website at www.Retalix.com. The press release showing the first quarter of non-GAAP reconciliations can also be found at that site.

Now I will turn the call over to the CEO of Retalix. Mr. Sheffer, please proceed.

Thank you, Alicia. Welcome and thank you for joining us on this call. This morning we announced our financial results for the second quarter of the first half of 2011. It was a strong quarter for Retalix, demonstrated by our growth in revenues and net income and solid progress executing our strategy.

All of the growth engines we define for Retalix are firing. They are beginning to contribute to our results as seen in our strong sales in this quarter with multiple new customer wins. We also continue to generate strong positive cash flow from operations and maintain our level of profitability, all while investing in our growth engines and strategic projects for customers.

This is the second consecutive quarter in which we achieved an 11% increase in total revenues compared to the year ago quarter and the sixth consecutive quarter of growth in revenues and solid profitability. Total revenues reached $57.8 million in the second quarter of 2011.

We also reported strong growth in both our non-GAAP and GAAP net income for the second quarter compared to both previous and year ago quarters. Net income non-GAAP was up 18% to $3.9 million and GAAP income was up 83% to $2.9 million compared with the second quarter of 2010.

At the same time, we also produced a strong positive cash flow from operations with $9.3 million generated this quarter.

As I said, each of our growth engines is now firing and beginning to contribute to our results. We won multiple new customers this quarter, adding new clients in the US and internationally. This includes both major tier zero and tier one retailers and leading regional retailers. In our product offering, we continue to build and launch our Retalix 10 Store Suite. We are winning customers for our products and services. We are also winning customers for our Software-as-a-Service offering and we are successfully expanding our SaaS offering including the exciting acquisition of MTXEPS announced last week. We are pleased with the market response to our offering and the traction we are building in the market.

In a moment, I will take a more detailed -- I will talk in more detail about these developments and our outlook but first let me hand the call over to Hugo to review the financial results for the quarter.

Thank you, Shuky. As Shuky said in his remarks, we are continuing to grow total revenues and maintaining the level of profitability by carefully managing our efforts. Further, we are continuing to generate strong cash flows from operations and our balance sheet remains strong. Total revenues for the second quarter and the first half of 2011 were up versus both the previous quarter and versus the year ago period. We reported $57.8 million in revenues for the three months ended June 30, 2011, compared to $52 million in revenues in the year ago second quarter. For the first half of 2011, total revenues were $112 million versus $100.7 million in the first half of 2010.

Looking at the revenue mix, software revenues were 11% of this quarter's revenues; maintenance revenues derived from our products were 27%; professional services were 51%; and [household] revenues were 11% of total revenues.

As we discussed with you in previous calls, we are maintaining similar levels of profitability in 2011. This quarter we again reported an 8.8% non-GAAP operating margin while continuing to execute on our strategy and growing our operations. Our total headcount in the second quarter of 2011 is up by approximately 50 people versus the first quarter and by 135 people versus a year ago second quarter.

Adjusted income from operations non-GAAP was $5.1 million in the second quarter versus $4.8 million in the first quarter of 2011 and $5.3 million in the year ago second quarter. For the first half of 2011, we reported $9.8 million in adjusted income from operations non-GAAP versus $10 million in the first half of 2010.

GAAP income from operations was $3.8 million in the second quarter versus $3.4 million in the first quarter of 2011 and $3.4 million in the year ago second quarter. We achieved these improvements in operating income versus the first quarter while also increasing our sales and marketing expenses as we pursue the opportunities in our market.

We recorded a net financial income of $390,000 in the second quarter of 2011 as a result of the net impact of currency fluctuations and the value of our non-dollar assets, currency translation costs, and interest income. In the year ago second quarter, we had a net financial expense of $782,000. For the first half of 2011, we had a net financial income of $112,000. This compares with a net financial expense of $1.1 million in the first half of 2010.

As Shuky said in his opening remarks, we reported strong gains this quarter in our net income both on a GAAP and non-GAAP basis. Our non-GAAP net income was $3.9 million or $0.16 per diluted share in the second quarter of 2011 versus non-GAAP net income of $3.3 million or $0.14 per diluted share in the year ago second quarter. The weighted average number of fully diluted shares for the second quarter of 2011 rose to approximately 24.7 million versus 24.2 million fully diluted shares for the second quarter of 2010.

For the first half of 2011, we reported $7.2 million in non-GAAP net income or $0.29 per diluted share versus $6.6 million or $0.27 per diluted share in the first half of 2010.

Our GAAP net income was $2.9 million or $0.12 per diluted share in the second quarter of 2011 versus $1.6 million or $0.06 per diluted share in the year ago second quarter. For the first half of 2011, we reported $5.1 million in GAAP net income or $0.21 per diluted share versus $3.5 million or $0.14 per diluted share in the first half of 2010.

Turning to the cash flows, this quarter we generated $9.3 million in cash flow from operations and $15.9 million in the first half of 2011.

We continue to pay careful attention to receivables and collections. Total trade receivables amounted to $57.5 million at the end of the second quarter, similar to the level at the end of March 2011. We had a good collections quarter.

Our DSO again improved down to 88 days at the end of the second quarter versus 93 days at the end of the first quarter 2011. As we enter into larger and longer term customer contracts, DSO might increase from these levels.

Our balance sheet strength continued to grow with an increase to $147.9 million in cash and cash equivalents, deposits and marketing securities at the end of the second quarter of 2011 with no debt. As Shuky will discuss with you in a moment, we recently used approximately $18.950 million of this cash in July 2011 for the acquisition of MTXEPS, a leading provider of electronic payment software for retailers, which will enhance and expand our staff and payments offering for retailers.

In conclusion, we had a solid financial performance in the second quarter with good growth in revenues and net income, good cash generation, strong collection, and improved DSO. We are using these strengths to continue pursuing our investments in our operations, growth engines, and strategic projects for our cash flow.

Now I will turn the call back to Shuky.

Thank you, Hugo. As I said in my opening remarks, the growth engine we defined for Retalix in 2010 are all firing and beginning to contribute a [similar] strong sales this quarter with multiple customer wins.

I wanted to take a moment to review our progress including the acquisition of MTX announced last week. This expand and enhance our Software-as-a-Service offering. We are building on our strategy of offering leading products and unique products and services that leverage our domain expertise in retailing.

We define Retalix growth drivers as, our innovative products including a new integrated store solution, R-10; our value-added services that leverage our products and retaining expertise; new market opportunities both from new geographies and new weighted segments; and building on our own successful efforts in providing Software-as-a-Service. Executing on our plan with multiple new customer wins this quarter, these include adding major new logos to our client list. Plus we still view on Q1 retailers in our traditional segments and from the targeted new fast-moving consumers goods segments such as health and beauty and drug stores with good results both in the US and internationally this quarter.

Our products continue to generate strong response from retailers as they show ways to enhance and differentiate the brands and improve operational efficiencies.

As you know, in January we launched the Retalix 10 Store Suite, an innovative store solution that offers advanced software applications, flexible deployment options, and unique architectures. Retalix then seamlessly combines major customer centric retail functions while enabling greater time to market and reducing the total cost of ownership. We believe that this is a differentiating (inaudible) also Retalix versus our competition and for the higher volume, high complexity retailers will deploy to make architecture and functionalities.

The Retalix 10 Store Suite continues to generate strong interest with retailers including new customer wins and significant products with existing customers.

A leading North American consumer retailer has selected Retalix 10 as the store platform for a major expansion program it is undertaking. This is another significant milestone that further validates the value of the Retalix same-store suite.

In the US, we also won a leading regional [growth sale] and we look forward to working with this fast-growing regional chain to enhance the customer experience and operation.

Internationally, Russian grocery DIXY has selected Retalix to enhance its store and loyalty operations, currently operating around 1000 stores across Russia and continue its rapid expansion, DIXY wanted a technology partner with robust and flexible software applications and services that could help enhance customer service and the right operating efficiency. Retalix point-of-sale store management and loyalty solutions are planned to be rolled out chain wide throughout 2011 and 2012.

We are also planning to enhance our presence in Russia and Eastern Europe to ensure that we are providing timely and local support and services both for DIXY and in response to the expanding demand for Retalix solutions from Russian grocery, fuel, and convenience store retailers. These are some of the wins this quarter.

We are also gaining traction with our services offering. We are continuing to have success with our unique business model that creates products and services that leverage our retailing expertise and provide differentiated value added services around our products for our customers. This allows us to increase the customer wallet share by signing larger multiyear contracts and to deliver more value and comprehensive solutions to our customers.

We are also winning new customers in our newly targeted fast-moving customer [wood] retailer segment. As you know, Retalix's expertise in high volume, high complex retailing environments and we are expanding our presence to fast-moving consumers with retailers.

I am pleased to announce that we won Walgreens as a customer. Walgreens is the largest drugstore chain in the US, operating [7733] drugstores in all 50 states, the District of Columbia, and Puerto Rico. Walgreens will be deploying Retalix demand-driven replenishment, a solution designed to optimize inventory and streamline the order process to manage the fresh food and order in the stores. We will be delivering the product to Walgreens as a software facility solution.

We also have been growing customer base in the Software-as-a-Service market by providing for example connected payment capabilities for retailers. Last week we announced that we would be further expanding and enhancing our Software-as-a-Service offering for retailers with the acquisition of MTXEPS. MTX is a leading provider of innovative secure end-to-end electronic payment software solutions for retailers delivered via Software-as-a-Service and in-store models.

MTX was a privately held, a US-based, fast-growing, and profitable company with solutions deployed directly and through partner channels including Retalix in over 20,000 stores in North America. We were familiar with MTX management and unique products from a successful seven-year partnership.

We acquired all of MTX shares for approximately $18.95 million in cash. Additional consideration of up to $6 million may be paid over the next two years based on the achievement of the sales and performance metric.

The MTX acquisition also demonstrates our M&A approach of acquiring capabilities that can be integrated into and expand our comprehensive advanced solution for retailers in support of strategy. The MTX management and associates join Retalix. Retalix will continue to nurture strong relationship with all of MTX customers and partners and will continue to invest in innovative payment software solutions and attentive support.

We are already creating further strength by integrating the payment products into our Retalix 10 platform. Welcoming the team from MTX, we also plan to continue to innovate and expand our payment offering as well as introduce new Software-as-a-Service and cloud-based offerings to the market.

The MTX acquisition accelerates our business in the Software-as-a-Service space, one which we know is part of our trend to cloud computing. It has also enabled our customers to adapt easily to fast changing payment landscape and to provide rich payment programs. It will enable our customers' choice flexibility and the ability to easily quickly take control of their payments, [alongside] as I mentioned, namely any (inaudible), any PIN pads, any processor or acquirer, any payments player and payments type. Importantly, this includes the fast emerging mobile payments and mobile wallet.

Mobile shopping and payments, self scanning, and home shopping are examples of technologies that are reshaping retailing in areas where we are currently seeing strong and urgent need from retailers. We believe that Retalix is well-positioned with a solution to address these needs.

Retalix [spend] designed to integrate and support these new technologies and it is to address these to quickly and efficiently deploy innovation.

We are pleased with our progress and the strong market response to our offering. Our business pipeline is improving. Retalix has the products, services and expertise to help retailers integrate these new technologies into their operations.

While retailers remain cautious due to the policies with the economic -- continued economic uncertainties around the world, they also understand in the face of strong competition that they need to deploy innovative solution now to address the trends that are reshaping retailing.

In March and again in May 2011, we said that we expected total revenues to be in the range of $217 million to $228 million for the year and expected to achieve at least the same level of profitability in 2011 as compared to 2010.

Retalix drove a strong performance in the first half of 2011. The contribution beginning to come from our growth engine, our improving business pipeline, and are all providing us with the greatest comfort for the year. Our organically generated revenues are trending to the high end of our guidance for 2011 and we are working hard to further build our production in the market.

This is before our acquisition of MTX. We expected that MTX would have minimal contribution in the remainder of 2011 but will grow as we move forward. We still expect to maintain at least the same level of profitability while we continue to invest in our growth engines, people, and strategic projects in the second half of 2011.

In summary, we are pleased with the results in the second quarter and the contribution from each of our growth engines, our strategy to offset a leading product and product and services showing the results in new customer wins including a new retail segment as well as a significant progress with our existing customers.

We are confident that Retalix is the tooling place to build on its strengths and provide unique innovations to retailers. We appreciate the hard work of all of our employees worldwide and we are pleased to welcome into Retalix the great team from MTX. We are gratified by the strong positive response we are getting from retailers, our partners, and industry analysts. We look forward to building on these in the coming quarters and sharing more success with you.

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

(Operator Instructions). Larry Tedeschi, The Ohio Teachers Retirement Fund.

I see product sales are running below year ago levels for the second quarter and also for year-to-date. When do you think product sales will go above year ago levels?

Thank you for the question. All the wins that we have this quarter and also new potential wins are not reflected obviously in our number wins. I believe that the further we grow and leverage our [PINs] and start to implement more of our new solutions with customers, we will see the license part of our revenues growing. So I believe that in the future you will see that this is trending up again.

Can you define it as later this year, sometime in 2012? A little feel on that?

We might see some impact in 2011 but definitely in 2012.

Okay. Thank you.

Andrew Uerkwitz, Oppenheimer & Co.

A couple quick questions. Can you talk about the first one -- can you talk about the scope of these new contracts? Like approximately how large are these long-term? Will they hit product sales and services? Are they just services? Could you give us a little more detail on those?

Andrew, this is Hugo. So these are multiyear contracts, multimillion dollar contracts. It depends which one but they are all contracts that are nice in their sizes. And they are both license and services.

Both, okay, perfect. Thank you, guys. Secondly, just moving down to the OpEx line, selling and marketing, obviously we knew those were going up. Are those going to continue to trend up heading into the end of the year or are these starting to flatten out?

Should be similar for the rest of the year, other than some additional due to our synergy event, a conference we have in Dallas in November.

Perfect, yes, okay. I think I have one last question. As kind of the macro environment has kind of shifted to the negative side here, have you guys seen any reluctance or pullback in your conversations with customers or is it still pretty much the same?

So far we didn't experience any of that and I think what worked for us is that in the segment we are working, which are more the grocery and the fact that this is a mission-critical system and the fact that the competition intensified, I believe that's -- I hope this will not impact.

Thanks, guys. I appreciate it.

Daniel Tisch, Flatbush Watermill.

Hi Shuky and Hugo. Congratulations first on the strong performance for the quarter. I have a couple of different questions to ask you. The first question is on the new wins. You mentioned the tier zero retailer. I was wondering if you could talk about what that retailer bought and then who that is? If you can't disclose who it is, if you could -- I think you mentioned it was primarily grocery. I wanted to just verify that and see if it was that or if it was hard goods and grocery. So if you answer that, then I will move on to the next one.

So as you mentioned, we don't -- we cannot disclose at this point the name, but this is in R-10 win and this retailer selected us because of the advantage of R-10 and this is in the grocery area. Although I can say they are not true grocers today. Every grocery retailer also offers some nonfood, but I think the main line of business is grocery.

Okay, that's great. (technical difficulty)

Excuse me, Mr. Tisch. Your line seems to have poor quality. It has cleared up now.

Is this any better?

Yes.

Okay. With regard to DIXY, was that also an R-10 win or was that the store line with the migration path?

This was a store line with the migration path. By the way, even today when we offer store line, we always -- it's always coming with a component of R-10 that are accompanying store line, but as I said, store line with some R-10 components with a migration path to R-10.

Okay, great. With regard to services, I was wondering if you could talk a little bit about the development that you are seeing there? And then in particular which service offerings are currently selling the most?

I think that the -- what we see is there are typically activities that being done by different -- with either the retailer sales or other third parties and right now when we sell, we try to offer all the services around our products. And I think as I mentioned in this call that the customers are subscribing to this model and we are turning more and more services around our products. We are not a general SI. We are not doing just this integration. We are doing -- we try to do all the services around our products.

Right. And does it tend to be more SI or is it more testing?

It's including testing, program management, training, and some other services.

Okay. And then my last question here is just digging a little bit deeper into the rationale for the MTXEPS. For example, why buy it now versus continue your partnership with them? And then if you could just cut to what you thought when you were looking at this acquisition, you said we have to buy this. Here is the core reason. Here is the core thesis. I was wondering if you could explain what that is?

I think the reason for -- we have two main reasons to buy MTX. The first one is we believe that a payment is a key critical solution in every in-store solution. And we thought as a company we should own this type of solution and integrate in our company and not start a partnership because as you mentioned, we had partnership with MTX and we resell their solution in the past.

Secondly, we believe that MTX has great people, great technology, but we can do even furthermore with the muscles of Retalix and get exposure to much more customer in the US and around the world.

And then third, this has further enhanced our Software-as-a-Service because we want -- we have today a lot of Software-as-a-Service. We want -- we are now going to use them, the MTX platform to even further expand our Software-as-a-Service and we believe that as we mentioned, this is one of our growth engines, the Software-as-a-Service. It would be one of the key growth engines for Retalix and as such, we thought that it makes much more sense to have it within the company and not as partnership.

Okay, how is there --? Because I have heard obviously this is relatively meaningless, but I have heard people before describe it as they are very penetrated, it's a mature business. Clearly you think that that is far from being a mature business.

I think that this business on the one hand is mature because you know you need to have payment. On the other hand, it's not mature with the Software-as-a-Service and I think that if you talk about Software-as-a-Service, this is the leading payment provider in the US in Software-as-a-Service.

So while in-store solution you might say it's mature, doing it as Software-as-a-Service is not mature at all. As I said, this is a leading provider of payments of Software-as-a-Service.

And additionally, we saw that with everything that is going on today and the expansion to mobile payments, it is another reason for us that we want to have this solution because we believe this can help us tremendously to enhance our offering in this area of the mobile payments and mobile wallets.

Okay, last question on that. You said that it adds a lot of capabilities with the SaaS platform. Any -- can you get into that a little bit? Currently you have -- you are using StoreNext and delivering a lot of product via SaaS through that. Does this provide a different or a more upgraded platform to offer all of that on? How does it fit in with your other SaaS platform?

I think it's going to be added because we are giving [the same type] of Software-as-a-Service and we're going to increase it, so we are giving for example as I said, we are giving payments. We want to continue to expand our Software-as-a-Service even in the future to even to a POS and even to royalties. So I think since this company, MTX, delivers successfully Software-as-a-Service to thousands of stores in the US, I think it is -- first of all, it's to expand our market share. But secondly, bring us a lot of know-how how to do successfully Software-as-a-Service and in a very -- an area which is very sensitive like payments.

And then -- actually one more final final question. You said that it is a core -- you wanted to buy it now because it's core and therefore you should think that it shouldn't continue to be a partnership. Can you explain that a little bit further? Why wouldn't -- why not continue it? Is it that there is a risk that somebody else could buy it or is it that just you wanted to own it because you really think you can take it to a different place from where it is now?

I think all of the above that you mentioned.

Okay. Thank you so much, guys.

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

Thank you. Thank you, everyone, and looking forward to talk to you again in Q3. Thank you.

Thank you. This concludes the Retalix second-quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.