NCR Voyix Corp (VYX) 2011 Q3 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, November 2, 2011. Leading the call is Retalix's CEO, Shuky Sheffer, and 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, DSO and profitability; expectations about the Company's pipeline of customers, addressable market; the expected contributions from the acquisitions 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 all these risks and uncertainties contained in today's press release and in the Company's filing with the SEC and, in particular, in its annual report on Form 20-S filed with the SEC on April 14, 2011.

Also, I would like to remind you that Retalix 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 Investors section of the Company's website, www.retalix.com. The press release showing the third-quarter non-GAAP reconciliations can also be found at the site.

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

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

This morning we announced our financial results for the third quarter and the first nine months of 2011. This was another quarter of sequential growth for Retalix with a positive strong record quarterly revenue for the Company, and we are achieving good consistent results and solid execution across the Company. We are delivering our products and services, building on the interest of our innovative offering from our current customers and from new prospects, and continue to make good progress proceeding with our strategy.

As we first reported last quarter, each of the growth engines refinements we define for Retalix is firing and beginning to contribute to results. This is now happening in all our geographies and across our line of business. The contribution of billing for our new products and services, including system integration services, our expanded Software-as-a-Service service offering. The [positive] Retalix then starts with continues to be very strong, and demand his building as we position Retalix brand as the leading store platform. We are making solid progress executing and delivering for our customers. We are winning new programs, including wins in this quarter for products, services, Software-as-a-Services. We are also pleased with the focus on our acquisition of MTXEPS. We are on track with the integration, and we have already won several new engagements, including from a (inaudible) retailer for our expanded Global Payments offering.

The third quarter was the seventh consecutive quarter with growth in revenues and solid profitability. We recorded strong revenue year over year in revenues, good cash generation, strong collection, improved DSO and maintained our profitability. We are also in the midst of an intense build of investment as we move forward with Retalix brand and our strategic initiative for our customers and prospects.

During the third quarter, we achieved a 16.4% increase in total revenues compared to the year ago quarter and 6.4% growth versus the previous quarter. Total revenue reached $61.6 million in the third quarter of 2011. The additional contribution for MTX was minimal this quarter, but as we said when we announced the acquisition, we expected an increasing contribution going forward.

We also reported strong growth in both our non-GAAP and GAAP net income for the third quarter compared to both previous and year ago quarters. Net income non-GAAP was up 20% to $7.7 million, and GAAP net income was 16.8% to $5.5 million compared to the third quarter of 2010.

Compared to the previous quarter, we nearly doubled our net income on both a GAAP and non-GAAP basis, including positive contributions from financial income and tax benefits. Cash flow from operations also remains strong with $4.1 million generated this quarter and more than $20 million in the first nine months of 2011. We are pleased with the response of our offerings and the traction we are building in the market. All of this is providing us confidence as we will exceed the top end of our revenue guidance we provided for 2011.

In a moment I will talk in more detail about our outlook. First, let me hand the call over to Hugo to review the financial results for the quarter and the nine months.

Thank you, Shuky. We had a solid financial performance in the third quarter with strong growth in revenues, good cash generations, strong collections, improved DSO and maintaining the level of profitability while continuing the investments in the future. Our balance sheet continues to be strong. Total revenues for the third quarter and the first nine months of 2011 were up versus both the previous quarter and versus the year ago period. We reported $61.6 million in revenues for the three months ended September 30, 2011, compared to $52.9 million in revenues in the year ago third quarter. For the nine months, total revenues were $173.5 million in 2011 versus $153.6 million in the first nine months of 2010.

Looking at the revenue mix, software revenues were 10% of this quarter's revenues. Maintenance revenues derived from our products were 25%. Professional services, which includes our SaaS revenues, were 53%, and hardware revenues was [12%] of total revenues.

As we discussed with you on previous calls, we are maintaining similar levels of profitability in 2011. This quarter we reported an 8.9% non-GAAP operating margin, while continuing to execute on our strategy and growing our operations. Our total headcount in the third quarter of 2011, including the acquisition of MTX, is up by approximately 135 people versus the previous quarter and by 250 people versus the year ago third quarter. Our adjusted income from operations non-GAAP was $5.5 million in the third quarter versus $5.1 million in the second quarter of 2011 and $5.3 million in the year ago third quarter.

For the first nine months of 2011, we reported $15.3 million in adjusted income from operations non-GAAP, which is consistent with the $15.3 million reported for the first nine months of 2010. GAAP income from operations, which included our M&A expenses and related costs, was $3 million in the third quarter versus $3.4 million in the year ago quarter and $3.8 million in the second quarter of 2011. Our R&D, sales and marketing and G&A expenses were each a similar percentage of revenues compared to last quarter.

We recorded a net financial income of $1.1 million in the third quarter of 2011 as a result of the net impact of currency fluctuations on the value of our non-dollar assets, currency fluctuation costs and the interest income. In the year ago third quarter, we had a net financial income of $2.7 million and a net financial income of $390,000 in the second quarter of 2011. For the first nine months of 2011, we had a net financial income of $1.2 million compared with a net financial income of $1.5 million in the first nine months 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 $7.7 million or $0.31 per diluted share in the third quarter of 2011 versus non-GAAP net income of $6.5 million or $0.27 per diluted share in the year ago third quarter. The weighted average number of fully diluted shares for the third quarter of 2011 was approximately 24.7 million shares versus 24.2 million fully diluted shares for the third quarter of 2010.

For the first nine months of 2011, we reported $14.9 million in non-GAAP net income or $0.60 per diluted versus $13.1 million or $0.54 per diluted share in the first nine months of 2010. Our GAAP net income was $5.5 million or $0.22 per diluted share in the third quarter of 2011 versus $4.7 million or $0.19 per diluted share in the year ago third quarter.

For the first nine months of 2011, we reported $10.6 million in GAAP net income or $0.43 per diluted share versus $8.2 million or $0.34 per diluted share in the first nine months of 2010.

Turning to the cash flow, this quarter we generated $4.1 million in cash flow from operations and $20 million in the first nine months of 2011. We continue to pay careful attention to receivables and collections. Reflecting our growth in total revenues, total trade receivables rose to $61.3 million at the end of the third quarter versus $57.5 million at the end of the second quarter. Our DSO again improved down to 85 days at the end of the third quarter versus 88 days at the end of the second quarter of 2011.

As we enter into larger and longer term customer contracts, DSO might increase from this level. Our balance sheet strength continues with $132.5 million in cash and cash equivalents, deposits, marketable securities and long-term investments at the end of the third quarter of 2011, and this is after we use approximately $18.95 million of cash in July 2011 for the acquisition of MTXEPS. We continue to have no debt.

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

Now I will turn the call back to Shuky.

Thank you, Hugo. As I said in my opening remarks, the growth engines we designed for Retalix in 2010 are all firing and beginning to contribute to our results. It is now happening consistently across all geographies and all lines of business.

I'm very pleased to be able to report that we are making solid progress on all our programs. We are executing on the customer wins we discussed with you in the past quarters, and each of our strategic initiatives is adding to the strong interest we are receiving from retailers. We are making good progress with our existing customer and prospects. Interest and demand is building for our new Retalix install suite, as well as our expanded service and Software-as-a-Service offering. Recognition is building for Retalix brand as the leading platform for retailers, and we continue to see positive signs from customers on adoption of this innovative platform.

Our business pipeline is continuing to grow, and we continue to win new customers. For example, this quarter we won a new grocery retailer in China, another example of our successful effort to expand across all geographies. This is in addition to our current successful deployment for PetroChina.

We are already beginning to show results from our efforts to grow our Software-as-a-Service business and expand our offering with the MTX acquisition. We have several wins this quarter for our integrated Global Payments offering, including a win of a (inaudible) retailer.

In our markets, we continue to see significant global trend of shoppers being more empowered. Much of this shopper empowerment is being enabled and driven by technology such as online price comparison in mobile. As a result, in an already highly competitive marketplace, competition between retailers is intensifying and recently to an unprecedented degree around price.

Price and discounting is a short-term strategy and does not build loyalty with shoppers. This translates to our strengths. Retailers are looking to build loyalty and to differentiate themselves by enhancing the entire shopping experience. As you know, anticipating these trends, we have spent the better part of the last two years investing heavily in our products, including the launch of Retalix 10 Store Suite and positioning it as the leader. Retalix's strength is a high volume, high complexity retail environment, and we believe we are very well placed with our product services and expertise to help retailers integrate the new technologies into the overall shopping environment and improve store operations. We are enabling retailers to interact with shoppers at any place, at any time, and across all touch points ranging from customer homes, mobile to the gas pump and in the store.

While retailers remain cautious to the continued economic uncertainties around the world, they also understand that they need to deploy solutions now to address the trends I just described.

Next week in Dallas we will be holding Synergy, our annual user conference. We are very encouraged by the number of customer prospects we have signed up to attend and believe this further demonstrates the growing interest in the market for our products and services. Moreover, we have proud and prominent keynote speakers both from customers and the industry analyst community will be presenting at the conference. It will be an excellent program, and we are confident that it will further enhance recognition for our innovative solutions.

We are pleased with our progress and believe our results in the third quarter and for the year-to-date demonstrates the strong market responses we are building for our offerings. Contributions coming for our growth engine, balance performance across our business line -- sorry -- balanced performance across all our business lines and positive response from our customer prospects, all contribute to the growth in our organically generated revenues.

As expected, our recent acquisition of MTX has had minimal impact so far, but we are pleased with the progress of the Global Payments software offering. After the acquisition, its contribution will be going forward. All of these is now giving us confidence that we will exceed our guidance for the total revenues in 2010 -- sorry, 2011, and also expect profitability in 2011 to be similar to 2010.

In summary, we are very pleased with the continuing progress and strong execution across all areas of Retalix. Our strategy is to have leading products and product-led services showing results and helping us to drive Retalix growth. We are gratified by this strong positive response we are getting from retailers, our partners and industry analysts, and we are looking forward to a very exciting user conference next week in Dallas. We look forward to continuing to build on this momentum and sharing more success with you.

Thank you for your attention. Now let me open to answer any questions.

(Operator Instructions). Andrew Uerkwitz, Oppenheimer.

Congratulations on the quarter. The numbers look great. Could you talk about what your goals are around or what your plan is around OpEx investment? It seems like it continues to increase, and I think obviously it needed to be with your topline growing so strongly. But could you talk about where you guys -- timing on continuation of investments, when the operation margins should start to improve?

We expect it to be at similar levels going forward. Obviously, as I mentioned, we are now in the midst of our investment in all areas. We are investing a lot in the development of our 10, which is our leading store platform. As we mentioned, we are getting a lot of new engagements for SI activity, which means we need to recruit people to be able to deploy these services. So I think we can say that we are now in the midst of our investment, but going forward we believe it will be remain at the same level.

Perfect. And then if you could also, could you talk about how the quarter, the last quarter shaped up, and how it is shaping up for October as far as customer demand? Have you seen weakness? Has it been pretty equal in each month?

So far we did not witness any significant weakness. I think some of it is because Retalix's main activity is in the area of grocery and C-store and department store. And traditionally grocery is less impacted by market conditions. People need to continue to eat. And so so far I cannot say we see any weakness, but we are always cautious, and we are checking the market around us to make sure that we are doing the right thing.

Great. Thanks. I think that is all I have. Again, congratulations on your quarter.

Josh Schwartz, Flatbush Watermill.

Just three quick ones. First, Hugo, is there any meaningful contribution in the product sales line from R10?

Right now, as we said, we are just at the very beginning, and so it is a small, very small contribution, and this will be growing over time.

Okay. Then two other quick ones. Did you mention explicitly the percent of SaaS revenues that was in the service revenue line?

No, no, we did not. Right now it is a small number in our total revenue mix.

At this point we are not reporting separately, but I can tell you that it is growing very fast generally speaking. I think that the acquisition of MTX contributed a lot, and we see a lot of demand for our Global Payments offering, and we are very encouraged with the progress.

Great. And then the last question I had was on the MTX stuff. You mentioned that you signed this Tier 0 for the Global Payments. Was that something that was in the company -- in MTX's pipeline prior to being purchased by Retalix? I guess my question is, did Retalix bring that to the table? I'm trying to get a sense of the value that the Company has after being purchased versus prior.

So, I think there was some discussion, but definitely Tier 0s we want to make sure that they engage with large companies like Retalix. So I think actually the acquisition sealed the deal. I'm not sure they want the result of this acquisition, but the fact that -- and the strength that Retalix gave to this operation convinced them to make the deal.

Great. Thanks a lot. Looking forward to seeing you guys in Dallas.

Greg McDowell, JMP Securities.

If we went to the high-end of your previous guidance of $228 million, and I know you expect to exceed that, but if we went to $228 million, say, it would imply a sequential decline in revenue in Q4. So I'm just wondering, do you think you can grow the business sequentially from Q3 to Q4?

So generally we don't give a quarterly guidance. We give an annual guidance. In this case, it is only one quarter, but until October, the end of October, the beginning of November, we are positive about the quarter, and we plan to continue to grow the business. But we don't want right now to give the prediction for Q4. But, as I said, we believe that we will exceed the annual guidance.

Fair enough. And then, Hugo, maybe you could talk through the tax benefit you got in Q3 and how we should think about modeling the GAAP and non-GAAP tax rates moving forward.

For the modeling, you should exclude this tax benefit. Basically we did some global review of the tax position in the different countries, and as a result of it, we did these adjustments. It is not something that will not be recurring. We will continue doing this review from time to time because we act -- we have activities in the different continents and countries, so sometimes there are updates to the view. So for the modeling, I would not take this benefit.

And then my last question -- and I know it is a little early to start guiding for next year, 2012 -- but can you just walk us through how you are thinking about operating margin expansion and your level of investments? I mean if the economy takes another turn down, will you pull back a little bit on investments and give us more operating margin expansion for next year?

So now we are actually in the process of building our plans for 2012 that we are pleased -- that we plan to complete by the end of this quarter, and we will give the guidance when we talk again at the end of Q4. And so we are taking into consideration that market conditions could be difficult. So, but at the same time, we don't see increasing in the level of expenses. We are building some efficiency plans in the Company, so I think every company should try to be more and more efficient all the time.

Over time I believe that with the contribution of our 10 software licenses and as we get more and more efficient in delivering our SI services, I believe that we will see an improvement in operating income.

(Operator Instructions). Josh Schwartz, Flatbush Watermill.

I figured I would jump in again while I had the chance. Just on the back of that with the margin expansion, Shuky, could you just discuss a little bit now from a high level, you have been running the SI services expansion now for a year and a half. Do you -- how do you think about the margin opportunity there in terms of being able to provide the services you selected at a good profit rate over time? I mean do you think you are on track for all that you had planned initially?

First, we are on track, and we are very excited about the growth of this business. We are in this business probably even less than a year or something like this, and the growth is very good. And I think we will see all the time improvement in the margins because of what we -- we built the infrastructure, we built the processes, we built the centers, and we recruited people. So the more we are getting -- so, for the first couple of customers, you can have this profitability. The more customers joining the programs, then obviously we can introduce much more efficiencies and best-in-class practices. So I see definitely that over time the margins for this business are going to grow.

(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 statements?

Thank you. So thank you, guys, for joining us today. You are welcome to join us next week in our user conference in Dallas, and we are looking forward to talking to you, again, next quarter. Thank you.

Thank you.

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