NCR Voyix Corp (VYX) 2011 Q4 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, February 29, 2012. 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'd 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 revenue, DSO, financial income, tax rate and profitability, expectations about the Company's pipeline of customers, addressable market, 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 2012 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'd like to refer you to a more detailed discussion of all these risks and uncertainties contained in today's press release and in the Company's filings with the SEC and in particular in its Annual Report on form 20-F filed with the SEC on April 14, 2011.

Also, I'd like to remind you that Retalix reported income from operations, net margin, 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 at www.Retalix.com. The press release showing the fourth-quarter and full-year 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, Michelle. Welcome and thank you for joining us on this call. This morning, we announced our financial results for the fourth quarter and the full year 2011. We had a strong finish to 2011 recording record revenues in the fourth quarter and saw financial results in all parts of our (inaudible). This was the eighth consecutive quarter of growth and continued profitability for Retalix.

Revenue increased 16.2% in the fourth quarter versus the year-ago fourth quarter. Profits were a total of $62.5 million. Net income non-GAAP was up 13.5% versus the year-ago fourth-quarter to $4.5 million. We continue to achieve good consistent results in selling execution across the Company. During the fourth quarter, one significant customer made progress in our program.

The [evaluation] of Retalix strength is the leading platform for retailers to continue to build. (inaudible) in general, we announced the Target Corporation, a leading US-based retailer, selected the Retalix 10 Store Suite as its next-generation store platform for Target's new retail operation in Canada. We clearly made this program for Target Canada with our software as a service-based connected payments offering demonstrating our success in integrating our position of MTX (inaudible).

Target is a significant new label for Retalix and is the Tier 0 win we mentioned on the earlier calls. We are very excited to be working with Target, which is one of the largest and most effective retailers in the world and look forward to building this relationship.

For the first quarter, we had another Retalix 10 win with a Tier retailer. After an extended review, this Tier 0 retailer selected Retalix 10 because of the significant advantages offered, including the fully integrated multichannel capabilities, significant reduction with time to market and its advanced architecture.

Other wins this quarter include multiple new levers across our geographies, including wins for our products, services and software-as-a-services payments offering. We also completed significant milestones for our customers during this quarter, including, as you saw in our general press release, which we announced a successful initial pilot with Tesco of the Retalix 10 Store Suite software.

The strong market and strong sales offerings continue to build demonstrated by the largest ever attendance of retailers and [shoppers] at our Synergy user conference, which took place in November in Dallas. Participant rose by 10% versus 2010 and we included presentations by major retailers, partners and leading industry analysts.

Moving to our full-year results, through consistent and solid execution of our strategy, we achieved solid double-digit growth in 2011. This morning, we report a new record for fourth-quarter revenues and non-GAAP net income for the year. As we said last quarter, we expected to achieve our guidance for 2011 as our growth engines began to contribute consistently across our markets and geographies.

Revenue was up 13.8% in 2011 to a total of $236 million. Net income non-GAAP was up 13.9% to $19.4 million and GAAP net income was up 26.9% to $13.7 million in 2011. We also generated strong cash flow from operations and maintained a strong balance sheet with no debt. All of the achievement in 2011 demonstrates that our strategy of creating strong results for Retalix and highlights that we have successfully positioned the business for the future.

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

Thank you, Shuky. We continued our solid financial performance reporting record total revenues for the fourth quarter and the year and record net income non-GAAP for 2011. Profitability was maintained when we proceeded with our investments. We also continued our strength (inaudible) from efficient cash management generating good operating cash flow in 2011 and improved DSO. Our balance sheet is strong. We refer to the 16.2% increase in total revenues in the fourth quarter. Total revenues were at $62.5 million for the three months ended December 31, 2011 compared to $53.8 million in revenues in the year-ago fourth quarter. For the full year, total revenues reached $236 million in 2011 versus $207.4 million in 2010.

Looking at the revenue mix in 2011, total revenues were 10% of full-year revenues. Maintenance revenues derived from our products were 26%. Professional Services, which includes our SaaS revenues, were 52% and hardware revenues were 4% of total revenues for the year.

As we discussed with you on previous calls, we maintained similar levels of profitability in 2011 while we proceeded with investments in strategic programs that are enhancing our strengths and creating new opportunities in the market. Recent metrics are reflected in our income from operations, but our non-GAAP net margin, net income as a percent of sales, remained at 8.2% in the full-year 2011, consistent with the 8.2% recorded in 2010.

Our non-GAAP operating margin was 0.8% in the fourth quarter and 8.6% for the full year. Adjusted income from operations non-GAAP was $5 million in the fourth quarter versus $4.5 million in the year-ago fourth quarter. For the full-year 2011, we reported $20.3 million in adjusted income from operations non-GAAP as opposed to $19.8 million in 2010. GAAP income from operations was $3 million in the fourth quarter versus $2.7 million in the year-ago fourth quarter. For the year, we reported $13.2 million in GAAP income from operations versus $12.4 million in 2010.

Looking at our expenses, our total headcount was up in 2011 by over 240 people, including the acquisition of MTX, as we grew our operations to realize opportunities in the market. R&D expenses (inaudible) amounts as we proceeded with investments in Retalix 10, our services and other products, including our Saas and connected payments effort and the addition of MTX in the second half of 2011. R&D remains stable as a percentage of revenue.

Sales and marketing expenses increased in 2011 as we addressed new market opportunities. In the fourth quarter, and we also had the expenses for Synergy, which was the largest users conference for the Company. G&A expenses were largely stable and for the year were 11% of total revenues. We recorded a net financial income of $0.6 million in the fourth quarter of 2011 and a total of $1.8 million for the full year, which includes interest income, the net impact of currency fluctuations on the value of our (inaudible) assets and current utilization costs.

In the year-ago fourth quarter, we had net financial income of $2 million and a total of $3.5 million for all of 2010. Retalix 10 financial income created $2 million in interest income related to our tax refund, which we knew would not be repeated in 2011. Looking forward in 2012, we expect little or no net financial income.

In the (inaudible) fourth quarter, we achieved significant tax benefits and lower (inaudible) effective tax rate in the quarter and for the full year. We don't expect to realize seeing a tax benefit in 2012. We expect our effective tax rate to be approximately 25% in 2012.

As Shuky said in his opening remarks, we reported strong year-over-year gains in our net income both on a GAAP and non-GAAP basis for the fourth quarter and for the full year. Our non-GAAP net income was $4.5 million or $0.19 per diluted share in the fourth quarter of 2011 versus non-GAAP net income of $4 million or $0.16 per diluted share in the year-ago fourth quarter.

For the full-year 2011, we reported a 13.9% increase to $19.4 million in non-GAAP net income or $0.79 per diluted share. This compares to $17.1 million or $0.70 per diluted share in the full-year 2010. Our GAAP net income was $3.1 million or $0.13 per diluted share in the fourth quarter of 2011 versus $2.6 million or $0.11 per diluted share in the year-ago fourth quarter. For the full-year 2011, we reported a 27% increase to $13.7 million in the GAAP net income, or $0.55 per diluted share. This compares to $10.8 million or $0.44 per diluted share in the full-year 2010.

Turning now to the cash flow, this quarter, we generated $1.7 million in cash flow from operations and a total of $20.1 million in the full-year 2011. This includes some material adjustments we made between cash flow from operations and cash flow from industry. We continued to pay careful attention to receivables and had another strong collections quarter.

Total trade receivables were $57.6 million at the end of the fourth quarter versus $61.3 million at the end of the 2010 quarter. Our DSO was 85 days at the end of the fourth quarter versus 83 days at the end of the third quarter and 103 days at the end of 2010. As we commented in the call, as we entered into larger and longer-term customer contracts, DSO might increase from the current levels. Our balance sheet strength continues with $135.7 million in cash and cash equivalents, deposits, marketable securities and long-term investments at the end of 2011. This is after we used approximately $18.95 million of cash in July 2011 for the acquisition of MTX. We have no debt.

In conclusion, we had a firm financial performance in 2011 with strong growth in revenues and net income, new cash generations, strong collections and improved DSO. These strengths permitted us to pursue our investments in our operations, growth engines and strategic projects for our customers and prospects in 2011 and will continue to help us to pursue opportunities in the market in 2012. Now, I will turn the call back to Shuky.

Thank you, Hugo. 2011 was a defining year for Retalix as our leadership positioning was strengthened. We delivered on our promises as all of the growth engines began to contribute and began to drive Retalix (inaudible) revenues.

As we discussed with you previously, we defined a series of growth engines for Retalix, including innovative products and product-led services, expanding our software-as-a-service offering in geographies and adjacent markets, as well as M&A activity to support our strategies.

Let me briefly review our achievements with each growth engine. Our innovative product, the Retalix 10 Store Suite, which was launched (inaudible) in January, 2011 and is now recognized as the leading platform for high-volume, high competitive retailers. Retalix 10 has been endorsed by prominent industry analysts.

As a (inaudible) fully integrated platform, Retalix 10 enables a consistent shopping experience across the multichannel retail environment. Retalix 10 provides unique advantages, including an architecture that provides flexibility while streamlining deployment and management of installed systems, accelerating time-to-market and enhance (inaudible) capability.

As I mentioned in my opening remarks, the customer wins from Retalix 10 includes Tesco, Target Canada and a third tier zero retailer, (inaudible). Business continues to build for Retalix 10 both with our current customers and a wide range of (inaudible).

The second growth engine we define is our unique business model, the (inaudible) product-led services that leverage our retailing expertise and provide differentiated value-added services around the products for our customers.

In 2011, we won a broad range of engagements for these services, which includes system integration services such as testing, automation, training, deployment and support. We are successfully integrating services into our customer relationships and using this offering to expand our share of wallet.

(inaudible) is another growth driver. In July, we acquired MTX and have successfully integrated connected payments into our platform with the new global payment group. We are winning customers, including, as I mentioned, Target Canada for our software-as-a-service payments offering. We are starting to see growing contributions from our connected payments overall.

We grew our customer list adding major (inaudible) and expanding to new geographies and adjacent markets. For example, in the United States, we won Walgreens, the leading drugstore chain; one in Russia, DIXY, one of the fastest growing food retailers; and in China, we won a new grocery customer. And additionally, we successfully rolled out more than 16,000 retail (inaudible) locations (inaudible) in China.

We also won new (inaudible) and expanded our customer relationship with regional chains, including Tops and Weis Markets in the United States, Family Express, a convenience store and The Southern Co-Operative in the UK.

The successes in 2011 give us even more confidence that our strategy is the right one. We identified the marketplaces to position Retalix with the innovative multichannel solution to help retailers enhance their operations. Major industry analysts are harnessing the impact of the empowered shopper and consumers and retailers are focusing their investment on the store with attention to the customer. Customer service is mobile. The strength of playing to our strengths and [exercise] -- the strength of playing to our strengths and expertise in high-volume, high complexity store operations. Retalix 10 is the leading platform for the multichannel environment.

With (inaudible) additional [transformation] for our strategy, direction (inaudible) markets, we've issued some of the strongest sales from customers' prospects in the national (inaudible) at our conference, which took place in January, 2012 in New York. The strongest [forms] for Retalix 10 is coming both from new customers and from proactively engaging with our current customers. We are providing them with a compelling migration path to upgrade their store operations to take full advantage of the new technology designed to enhance their interaction with shoppers and fully integrate all the customer platforms -- consumer platforms.

Which mounts on the other technologies consumers now interact with (inaudible) across multiple channels making it critical to have the solution to ensure a consistent shopping experience inside and outside the store. To enhance the shopping experience, the seller must integrate multiple touch points (inaudible) from the way mobile shopping to POS, search (inaudible) mobile segment, search scanning, customer scan, customer (inaudible) and continue to interact with the shopper after they leave the store.

(inaudible) that, our (inaudible) multichannel solution, while a lot of our competition continues to offer products from individual silos, it cannot seamlessly integrate the growth of the platform. (inaudible) solutions to integrate all these elements of the shopping experience and incorporate application, including the loyalty and customer management, to ensure the differentiated installs remain competitive and are able to quickly adapt to meet increasing customer expectations.

All of our customers are now focusing on multichannel retailing. We are constantly hearing this in our discussion with customers and we are ready with the best solution available in the market to address the touchpoints available today and in the future. We recently announced Retalix 10 is cloud ready, meaning we not only address the multichannel demand, but also enable our customers to deploy the system in a (inaudible) set up best suited to their (inaudible) location and line of business. This further demonstrates our future-looking strategy and anticipates both existing and emerging needs for our customers as the industry continues to transform.

The key complement of the multichannel environment is mobile shopping solutions that seamlessly connect the customer to the store. In January, the National Retail Federation (inaudible) Retalix 10 Mobile Shopper, a new set of mobile application that is another significant [decision] for Retalix in the market. Retalix 10 Mobile Shopper is designed to provide value throughout the entire shopping cycle (inaudible) broad range of functionality for the consumer.

With this application, Retalix provides consumers the ability to manage their shopping inside and outside the store. Consumers can find store locations, access store information and pricing, review special offers, (inaudible) targeted for promotional coupons, scan items (inaudible) payments and more. For the retailer, our mobile shopping seamlessly integrates into the store and provides the ability to tie to the loyalty and customer management program.

The (inaudible) market is large and growing and continues to change. We will continue to invest in programs designed to provide unique advantage to retailers (inaudible). We are excited by the opportunities we see in the market. Our goal for 2012 is to leverage what we build and take advantage of our lead (inaudible) unique product and services to gain marketshare.

Our efforts in 2012 will continue to focus on executing of our strategies, to expand the leadership of the Retalix salesforce suite and leverage the advantage we offer with our unique multichannel solutions. We will expand on the success with our services, system integration and sales-as-a-service offering and build on what we've achieved with our global payments offering since the acquisition of MTX in July 2011. We also continue to explore (inaudible) designed to support our strategy.

For 2012, we expect to continue double-digit revenue growth and continue to import profitability. Today, we're announcing guidance of total revenue in the range of $260 million to $270 million, a 9% to 10% profitability (inaudible) for 2012. Our guidance for 2012 is based on organic revenue growth for Retalix products and services. As in 2011, we expect to build our results as the year progresses.

In summary, we are very pleased by our strong performance in 2011, delivering on our goals and returning Retalix to (inaudible) growth. Our strategy to have leading products and products and services produced a record set of revenues and net income non-GAAP in 2011 providing us with strong positioning on which to build in 2012.

As we projected, the (inaudible) of playing to our strengths in the multichannel environment (inaudible) and mobile. We focused our efforts to prepare for these opportunities and as we have innovative solutions that we believe provided better (inaudible) unique investments. While gratified by the strong positive response we are getting from retailers, our partners and (inaudible), we continue to (inaudible) to realize the opportunities in the market. We thank you for your support and looking forward to showing you more success in 2012.

(Operator Instructions). Andrew Uerkwitz, Oppenheimer.

Just looking at your guidance, could you -- maybe I missed it on the call -- but could you give some commentary around where you see gross margins going and how that will play out on a quarter-to-quarter basis?

We expect similar gross margins, improving slightly from quarter-to-quarter.

Perfect. And then on the operating side, it looks like there's going to be continued significant investments, which makes sense considering the ramp-up. But is that -- do you think that is first-half loaded? Is it equal throughout the year? How do you guys look at that?

Well, in general, we expect, as a percent of sales, to be similar to 2011. In dollars will be more, but will be similar for sales while the G&A we expect to see some slightly less as a percent of sales.

Perfect. And then just one last question. On the revenue -- as you look into 2012, is this -- how are you viewing I guess the landscape? Is it improving, is it -- how's it looking to you guys? It seems like it's definitely improving from the things I've seen. And then how has that view kind of layered in on your revenue guidance?

This is Shuky. We see signs of improvement in all the world and mainly the United States. I think that retailers are now, because of everything I mentioned in this call, retailers are almost sourced to be able to provide a multichannel environment for the consumers. We believe that one or two years from now, mobile shopping will be almost standard. So I think that retailers are actually forced to change their systems. And at the same time, which plays to our advantage, we see retailers are focusing more investment in the store comparing to other parts of their business.

Perfect. All right, hey, thank you, guys.

Greg McDowell, JMP Securities.

It's great to see the strong revenue guidance of $260 million to $270 million. I was hoping you can help us think about the revenue line items that you think will grow the most in 2012. I assume it's going to be services growing faster than product, but would just love to hear your thoughts there.

Actually it's growing together. When we put together our typical deals, it's a combination of several elements. Obviously, Retalix 10, which is the product and a lot of services around it. Either it could be delivered services, system integration services or software-as-a-service. So we see them grow together and the majority of the deals we have today are much more bigger because of the services component.

Okay, that's helpful, thanks. And then my second question, I would just love to learn a little bit more about the Target rollout in Canada. I mean I don't believe the store is open until 2013 and was wondering if you could help us kind of understand the revenue recognition of that deal, whether we'll products spike in 2013 as the stores open up or is that already on the P&L? Thanks.

Hi, Greg. So we are also excited about Target Canada. Basically they are going -- stores to be opened in 2013 and we will be -- this will be reflected in the revenues over time as we progress with the project.

Okay, fair enough. And then just if I could squeeze in one last one. What was the contribution of MTX revenue for the quarter and for the full year 2011?

Yes, it was marginal. Just keep in mind that we were partners -- they were our partners for several years and so it's only a few months of the last year and it's marginal to our revenue.

Okay, great. Okay, thank you, gentlemen.

Amit Dayal, Rodman & Renshaw.

Between Retalix 10 and the services offerings, where is the Company basically going to be focused on selling or marketing more aggressively in 2012?

As I mentioned before, it's a combination. We don't have a deal today. We just sell Retalix 10. I think customer value, that it's not just (inaudible), which we believe is (inaudible) in the market. Also our ability to implement and support them in the implementation of this product in the best way. So all our builds are a combination of trying to extend the product itself and a lot of services around the product to support our customer (inaudible).

So does this combination allow you to basically expand your potential contracts and deal sizes?

Definitely. We'll see a trend of increasing deal size since we started to offer much more services and now our wallet share is going up. So all is going up.

Can you give us a sense of the difference in the deal sizes maybe from a percentage basis between what you're seeing or what you will see in 2012 versus what you might have been seeing a year or two ago?

Amit, this is Hugo. Look, there are several aspects to it because, first of all, adding to its more touchpoints and more retailers are looking for more customer experience. So it's getting into more -- the size is large, adding areas like (inaudible) services, improving existing (inaudible), not only in dollars, but also multiyear contracts, giving us also more visibility, improving efficiencies. So there are several aspects to these larger sizes of deals.

I would add that when we offer services to customers, you gain a lot of things. First of all, the deal is getting bigger by terms of percent. Secondly, you include your visibility; and third, you actually build a much more strategic partnership with your customer.

In terms of the cash that we see continuing to build -- the cash balance, are there any near-term plans to divert (inaudible) any strategic focuses or will you just continue to keep that in your focus?

I'd say we certainly in the past M&A is part of our strategy and we also said that we will do M&A to support our strategy. So we are, all the time, actively looking for (inaudible) in the market or we definitely plan to discuss in the future also from (inaudible).

Just finally on the mobile shopping aspect, are you already seeing any deployments for those needs right now or is this something you anticipate will happen a little bit more down the line?

We are actively involved in the deployment that we believe will happen in 2012.

Thank you.

Larry Tedeschi, The State Teachers Retirement System of Ohio.

How long do you think product sales as a percentage of total sales can go down to as a practical matter?

Well no, no, we're not -- hello, Larry. We're not counting on this to go down. In 2011, it was 10% in license and it will be stable to grow over time.

Well, I just noticed in how -- I mean it's been falling very sharply over the years as you -- as you said earlier, that you've grown services very rapidly and I understand that. So it was 22% total service -- product sales as a percentage of total sales. I was just wondering do you expect that it will probably -- that's about as low as it will go or it will keep going down as you (multiple speakers).

I will explain. The 22% includes software and hardware. We expect to sell more software, we expect the hardware component to be lower. But what we said about license, obviously, we have also the maintenance attached to it that will continue growing every year as well. So all in all -- so we expect to sell more software licenses and we expect to sell the maintenance, continue growing in maintenance. And the factor that is among products that we have of that one is as a percent of sales to going down.

Okay, thanks.

(Operator Instructions). Ron Senator, Sphera Funds.

Just trying to look further I guess in the second half of the year and maybe possibly to next year, when you look at the margins, the operating margins, can you comment on what sort of trajectory do you see? Is this sort of an equilibrium right now what you are seeing for 2012? Or do you see a potentially higher margin down the road?

Well, basically, in our guidance, we said between 9% to 10%. So we expect to build quarter after quarter over the year and (inaudible) improving to the profitability we showed in 2011. Is that answering to your question?

And putting this aside and looking at the mix of the business and what kind of operating leverage do you have there going forward, I mean is this something, without getting into too specific numbers, do you see an operating leverage, whatever the revenue level could possibly be higher than 2012?

Look, there are some (inaudible). For example, the actual (inaudible) of the revenues will have more license, more higher margins. Or if the top line will be higher for this application. Of course, for upside, but that's why we gave a range because it's what we feel will be the range for the profitability of (inaudible) for 2012.

Over time, we see an improvement (inaudible) software-as-a-service offer kicking in, which is a more profitable (inaudible) services (inaudible) profitability, the more we get more licenses from renewals outstanding. So we hope to see (inaudible) continue to grow.

Thank you.

Amit Dayal.

Thank you. Hi, Hugo. Just a question on the tax rate assumptions for 2012 and beyond. Can you please provide some color in what we should be using as taxes on volume?

Yes, the tax rate to be used should be around 25%. This is --.

And beyond basically?

Yes, 25% for next year and beyond.

Okay. Thank you.

Okay, you're welcome.

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

Thank you. Thank you all. Looking forward to talk to you again in Q1 call. Thanks.

Thank you.

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