NCR Voyix Corp (VYX) 2012 Q1 法說會逐字稿

Hello and welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, May 9, 2012. Leading the call is Retalix CEO, Shuky Sheffer. Joining him is Sarit Sagiv, 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, effective tax rates, financial income and profitability, expectations about the Company's pipeline of customers, addressable market and market trends, 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, outlook for 2012 and future strategies, plans, and opportunities.

Such forward-looking savings 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 filings with the SEC and in particular in its annual report on Form 20-F filed with the SEC on April 5, 2012.

Also I would like to remind you that Retalix reported income from operations, 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 relations section of the Company's website at www.retalix.com. The press release showing the first-quarter non-GAAP reconciliations can also be found on this site.

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

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

This morning we announced our financial results for the first quarter of 2012. We had a good start to 2012, recording record revenues and strong improvement in operating margin and net income as we continued to execute on our strategy and work to deliver programs for our customers.

This is our ninth consecutive quarter of revenue growth. It demonstrates the success of our strategy of combining Retalix 10 and other innovative products and product-led services to build our customer engagement.

Revenues increased 21% year-over-year to $65.7 million in the first quarter and net income non-GAAP was up 50% year-over-year to $5 million in the first quarter. We are achieving good consistent results and solid execution across the Company. We are beginning to leverage our achievements in 2011 executing on customer wins and continue to be a built across all our lines of business and around the globe.

Retalix base 10 is being recognized as the most innovative solution for larger high-volume, high complexity retailers enabling today's demanding consumers to shop at any time from any place and on any channel as well as crossing seamlessly from channel to channel. We are helping retailers to enhance their efficiencies, differentiate and grow their businesses, and proactively and quickly adapt to the changing requirements of today's market.

Our service offerings including software integration, managed services, and automated testing are also creating a lot of opportunities for us.

We continue to receive positive feedback from our customer prospects and key industry analysts on our offering and vision and win new customers and projects. This quarter we won customers across our lines of business and around the globe including China and other emerging markets. We are delivering our strategy and confirming that Retalix is positioning with the unique solutions to meet retailer's needs.

In a moment I will talk in more detail about market trends and our outlook. Before that, I'm pleased to welcome Sarit Sagiv to our team as our CFO. With her strong experience including financial management of large and global services software and services programs, we are confident that Sarit will continue to strengthen of our financial operations.

I want to again thank Hugo Goldman for his excellent service to Retalix, including his contribution to the transition we have been making over the last two years. Sarit brings to Retalix a wealth of relevant experience which will be very helpful to managing the business as we continue to grow and transform Retalix. I am pleased to welcome have Sarit on board and look forward to introducing her to you.

Thank you, Shuky. I am very excited by the opportunities that I see for Retalix. Retalix had a solid financial performance in the first quarter of 2012, reporting 21% growth in revenue compared to year ago first quarter and 5% above the sequential quarter. Total revenues were $65.7 million for the three months ended March 31, 2012 compared to $54.1 million in the year-ago first quarter.

Looking at the revenue mix, total revenue was approximately 14% of revenue in the first quarter of 2012. Maintenance revenue derived from our products were 24%, professional services, which includes our SaaS revenue were 53%, and hardware revenues were 9% of total revenues.

Keeping with our guidance for 2012, our non-GAAP operating margin improved to 9.4% in the first quarter versus 8.8% in the year ago first quarter and 7.9% in the sequential quarter.

Non-GAAP income from operations was up 30% to $6.2 million in the first quarter 2012 versus $4.8 million in the year-ago first quarter. GAAP income from operations was up 13% to $3.9 million in the first quarter of 2012 versus $3.4 million in the year-ago first quarter. We achieved these improvements while continuing our investments.

R&D remains stable as a percentage of total revenues. Sales and marketing increased as we continued to build our market position. G&A declined as a percentage of revenue versus the year-ago first quarter and our total headcount was largely stable in the first quarter at over 1,560 people. Versus the year-ago first quarter, our headcount is up by nearly 200 people including the additional personnel who joined Retalix following our acquisition of MTX in July 2011.

We recorded financial income of $0.6 million in the first quarter which includes interest income, the net impact of currency fluctuation on the value of non-dollar assets and currency transaction costs. This compares to financial expense of $0.3 million in the first quarter of 2011. The financial income was at a similar level to sequential quarter and as we previously noted, we expect little or no financial income in 2012.

After the cash benefits we recorded in 2011 which lowered our effective tax rate in the third and fourth quarters and for the full year, we moved in the first quarter of 2012 to a more normalized effective tax rate of approximately 25%. We expect to maintain a similar effective tax rate for the rest of 2012.

Turning to our income, we reported strong year-over-year gains in our net income both on a GAAP and non-GAAP basis. Our non-GAAP net income was up 50% of $5 million or $0.20 per diluted share in the first quarter versus $3.3 million or $0.13 per diluted share in the year-ago first quarter.

Our GAAP net income was $3.3 million or $0.13 per diluted share in the first quarter versus $2.3 million or $0.09 per diluted share in the year-ago first quarter.

Our balance sheet strength continued. This quarter we generated $3.8 million in cash flow from operations, bringing our total to $138.7 million in cash and cash equivalents, deposits, marketable securities and long-term investments and we have no debt. We continue to pay careful attention to receivables and had another strong collections quarter.

Total trade receivables increased to $66.9 million at the end of the first quarter, reflecting the growth in our business. Our DSO, however, was stable at 85 days at the end of the first quarter, the same as the previous quarter and improved in the 93 days in the first quarter of 2011.

As we commented in the past, we expect that while entering into larger and longer-term customer contracts, our DSO might increase.

In conclusion, we started 2012 with a strong financial performance, good growth in revenues, operating margin, and net income. I am excited to join Retalix and look forward to working with the team. I believe our strong financial platform will continue to help us in pursuing opportunities in our markets.

Now I will turn the call back to Shuky.

Thank you, Sarit. As we discussed on in our call in February, last year was a defining year for Retalix as our leadership position was strengthened. We expect 2012 to be a big execution year as we build on our success in 2011.

The first quarter was a strong execution quarter for Retalix. This will remain a key focus for us in the coming quarters. We are executing on our large customer programs that we announced both last quarter and the beginning of the year and we're working to further build on our growth engines.

As you know, this includes the Retalix 10 Store Suite and our other innovative products, our services offering, Software-as-a-Service including our connected payments programs, and growth across our geographies and in adjacent markets.

Our innovative products are being well received by retailers and creating a lot of opportunities in the market. The growth in license revenues this quarter reflects both good interest we are generating for our products and the customer wins we discussed with you in 2011.

We are building on the strength of the Retalix 10 Store Suite, which includes multi-channel capabilities and strong architecture while allowing low cost of ownership and flexibility in addressing retailers' needs. In January 2012 at the National Retail Federation conference, we announced the Retalix 10 Mobile Shopper, a new mobile platform that connects consumers to the retailer ecosystems and their favorite local store.

At NRF, we also announced that Retalix 10 is available as a service from the cloud. This enables retailers to simplify their IT infrastructure and operations, reduce maintenance, IT resources, and capital expenditure while enjoying the benefits of per-demand, scalability and elasticity, as well as accelerate time-to-market.

We are enabling our customers to deploy their system in multiple set ups best suited for their format, geographical location, and line of business. This further demonstrates our future looking strategy anticipating both existing and emerging needs of our customers as the industry continues to transform. Additionally, it also means that smaller retailers can now afford access to enterprise applications that were up to now only accessible to large retailers.

We also continue to create good growth with our services offerings including software integration, managed services, and automated testing. Our strategy of building larger and longer-term relationships with our customers by combining product and product-led services is beginning to contribute to our results. It is also helping us to achieve one of our key goals, which is to grow our share of wallet with our customers.

In addition to enhance Software-as-a-Service opportunities for Retalix 10, we also continue to expand our connected payments program where we are also winning new customers. We are successfully executing on our plan of growing our business around the world and in adjacent markets. We are creating opportunities with a growing range of retailers including many who in the past did not see Retalix as a natural partner for their business.

We are moving aggressively to take advantage of these opportunities. We are also working diligently on our current customer programs and delivering on our commitments.

The retail marketing is very active and retailers are focusing on the store and customer interaction. Retailers are concentrating their IT efforts on their touch points, building customer loyalty, and integrating new technologies such as mobile shopping to their operations. As we have discussed with you on the previous call, this is playing to our strengths and expertise in high volume, high complexity store operations.

These trends are generating a lot of interest from retailers in our unique solutions demonstrates both by the strong response we received in January at NRF as well as a lot of activity across the Company and around the globe during the first quarter. We are gratified by this strong response and it is helping us to build our pipeline for 2012 and beyond.

Looking at the overall retailing market, we see increasing activity in United States markets. The US market is moving faster than Europe and economic uncertainties remain in parts of Europe.

The competitive landscape is also being redefined by a number of large transactions including the recent announcement of Toshiba's acquisition of IBM's point-of-sale solutions business. Retalix of course is accustomed to working in a competitive marketplace and no stranger to competing against large global companies as well as partnering with them when the opportunity exists. We see opportunities in these changes and we are working to leverage our strengths in the market as well as adapting to and capitalizing on the new opportunities.

We are pleased by our start in 2012 and the success in the first quarter. Today we are reiterating our guidance that we gave you two months ago. We continue to expect to achieve double-digit revenue growth and improved profitability in 2012 and 2011. In February, we said we expect total revenues to be in the range of $260 million to $270 million and 9% to 10% profitability from operations for 2011. Our guidance is based on organic revenue growth generated from Retalix's products and services.

In summary, we had a good start to 2012 achieving a strong financial performance as we begin to leverage our successes in 2011 and work to deliver good results and innovation to our customers.

Our results continue to confirm our position and the strength of our strategy, focusing on innovative products and product-led services for a growing variety of high-volume, high complexity retailers. We continue to build on our strengths to investigate emerging trends in the marketplace, focusing in the store and the customers and the key elements such as mobile and e-commerce. We are gratified by the strong positive response we are getting from retailers, our partners, and industry analysts and we continue to work and execute on our strategy and deliver strong results for our customers.

We thank you for your support and looking forward to sharing with you more success as 2012 unfolds. Now we are ready to take questions.

(Operator Instructions). Andrew Uerkwitz, Oppenheimer.

Congratulations on the quarter, guys. Just quickly, I was looking -- if you -- do you guys still expect to get sequential revenue growth throughout the rest of the year? And then if so, when I run the numbers here, it looks like you guys are going to hit at least to the top of your guidance if everything goes well if not beyond. So could you kind of talk about the thought process and the conservatism into your guidance?

So when we look at first of all, we are very excited by the results of the first quarter. As we said, we are leveraging wins in 2011 and also in 2012 and when we look at the market as we said, we are seeing increasing activity in the United States while we're a bit cautious about the uncertainty in Europe. Overall as we said in our guidance, we are looking for double-digit growth and profitability in 2012.

Okay and then change gears here. You mentioned you have added I think 200 people last year. Do you -- many people do you expect to add this year? How do you look at your expense run rate for the rest of the year?

Andrew, we expect to see an increase in the headcount which will go end-to-end with the more engagement -- service engagement with our customers. This is our strategy to have the service -- the product-led services and we are executing on it.

I want to add since our strategy is product-led services, so we will see that we are adding more people as we get more and more customer engagement, which means we are going to get much more [services] around our products, so we would see that there is a growth towards there.

Okay, thanks. Congratulations again on the quarter.

Greg McDowell, JMP Securities.

Thank you for taking my questions. It's great to see the 28% product sales growth and I was wondering first if that growth number was influencing the quarter by one or two megadeals or if the strength was broader based?

No, it was broader based. As we said, we expect that the software business will contribute more this year. We might see some fluctuations between the quarter but overall we expect that software to contribute more this year comparing to last year.

Okay, great. Shuky, I heard you touch on North America and Europe briefly but I was just hoping you can give us just a little bit more detail on some of the spending trends you are seeing across the different geographies and specifically if you are starting to see any delay from the retail sector and retailers wanting to maybe pull back on their CapEx spending for the rest of 2012.

As I said, we see increased activity in the United States. The demands of the market, the competition, the ability to move fast is almost forcing retailers to do a change and we believe we have the leading platform to be able to do that.

In Europe, we haven't seen so far any cutting back in the areas that we are because this is a mission-critical system for our customers. In the store, this is the heart of the operation and -- but we read the news like everyone else and look what's going in Europe, so we are a bit cautious what is going on. So far we were not impacted by this and we haven't seen our customers doing that, but we are a bit cautious regarding to Europe.

Okay, if I could squeeze one last question in, I would love to hear your thoughts on the Toshiba IBM situation and how you guys may take advantage of all the activity going on between Toshiba and IBM.

Okay, so we believe that we compete with IBM for a long time. Actually in the last couple of years, we took a nice piece of market share from IBM. We believe that we have a much better offering by far than IBM, and so I don't think this is going to be changed by the acquisition of Toshiba.

For the short term, we see this as an opportunity because we believe that IBM customers will just be much more cautious about decisions because no one knows what will be the future of this -- the product and services -- managed software. As you know, we are not a hardware player so we are talking about the software, so the short answer that in the short term we see an opportunity for us because of this acquisition.

Great. Thank you, guys.

Josh Schwartz, Flatbush.

Good morning. Can you guys hear me? Shuky, I just was wondering if you could discuss if to date the R10 transaction is a success that at least the company has announced have been more along the line of a full store replacement. And you are talking about the opportunities in America and I am just curious not only in America but elsewhere, do you think that the biggest opportunities are going to be for full store replacements with a new POS or will it come maybe with installing Mobile Shopper and then moving towards migration? I'm just wondering if you might comment on how the market is playing out and what you see the best way to compete right now is for the Company?

Thank you, Josh. Today I can tell you that all R10 engagements are much more than just the standard POS. In most of the cases, our customers are leveraging these multi-omnichannel offerings and all our R10 engagements are more than seven touch points, so it's obviously all the back office and office solution, POS and mobile POS, self checkout, self scan and mobile. So I can say that all R10 engagements are much more like a store suite than just on a POS engagement.

And do you think that holds true for things that are being worked and pipeline opportunities as well at the moment?

Yes, I think that today when we compete, we always compete on the suite and when we win, it's always more than just the standard. I think this is the whole -- what's nice about is that our customers see the leverage they can get in all the different touch points and on the other hand, they have a question for the market, so you cannot be successful today as a big, high-volume, high complexity retailer by offering only one channel. And I think this is what we see in all of our engagements.

Great. If I could just ask you one more question on the service side, obviously I understand the strategy to have a leading product that would get us into discuss innovative things with customers. I'm curious to know if our services offerings are having any success in customers maybe that might not be thinking about a Retalix 10 product today but there are some values to the services we offer. I'm just -- or are the main service thrusts focused where the R10 offerings are being gone after?

The answer is in both, so we are offering services also to customers that they are not necessarily right now ready to do a full transformation, so we are also successful in areas of system information, automated testing and other areas which are we can do on any of our platforms.

Obviously R10 and the full transformation is the main driver for the services but the answer is both. I can tell you that I think what people like about the offering is not just the product but the fact that we are coming with the domain expertise and with the right DNA and the success history to take a product and to implement it in a customer environment, so I think that the differential toward Retalix is not just the leading platform in this area but also the services around it that will guarantee a successful project.

I'm sorry, one last thing. I don't get to talk to you that frequently, so one last one is that with respect to the SaaS offerings, you announced in the past that a Tier 1 customer consumed the payment as a service offering. And I was curious where you think we are in the market place maturation in terms of will there be a day when the point-of-sale in some of these store systems are provided as a software service? How far out are we and just your thoughts around that?

So to go to a Software-as-a-Service business model with Retalix 10, we believe that the first one to adopt it, the business model will be the lower tiers, Tier 2 or in some cases Tier 1. We don't think that the Tier 0 will go there so fast. But it's not just a business model. It's also architecture and technology so we can see the large customers doing their private cloud using our technology.

So from a technology perspective, I can see that the Tier 0 customers are in the process of adopting this technology. From a business side model of recurring Software-as-a-Service business model, this is where I think that the lower tiers, Tier 2 and lower, will adopt it first.

So just so I understand what you are saying, the larger customers, maybe they would buy our software and they would manage it to their store's infrastructure as a SaaS offering themselves but buy a license from us. And on the lower end customers, we would be servicing them with the service. Is that accurate understanding of what you are saying?

Yes.

All right. Thanks so much and it's very nice to see what's going on with the Company. Congratulations.

[Len Tedeschi].

Good morning. What are your priorities for the cash on the balance sheet?

First of all as you remember, even when we say our guidance we say this is just an organic growth. We are looking actively to do acquisitions and as we said in the past, we will do acquisitions that will fit our strategy and support the strategy. It could be in the area of portfolio, to do some consolidation of competitors, but we definitely are looking for the right acquisition so this is one from which in this respect.

On the other hand is that we always say that yes, we are dealing with the largest retailers in the world and they want to make sure that they will grow up with a company that will be here 20 or so now and this is why we think the fact that we have a lot of cash gives them a lot of confidence to do business with us.

Thank you.

(Operator Instructions). Liron Rochman, Oscar Gruss.

I missed the first part of the call, so if you can explain what's happened in the gross margin for the product in this quarter, what's made it so high?

We had a very good license quarter, which obviously improved the margin and the profitability and as we said earlier, we expect the license revenue in 2012 to increase even though it may fluctuate between the quarters.

Okay, thank you. Shuky, can you give us some update regarding the deployment with Tesco, their R10 deployment, where it stands there, how many shopper (inaudible) deployed and what is the reaction from the customers?

As you know, we do not disclose internal customer information, so if Tesco will -- I can tell you that we are as we announced in the past, we are in several engagements where we are still zero and so far, we are very with a happy with the progress on all of them.

Okay, regarding Target in Canada, when should we expect to see that project -- the revenue from that project starting?

The revenue is only partially -- is in the numbers and because we are working hard on this project as (inaudible)

Any project we recognize the project as a percentage of completion and on the advancement of the project.

I see, okay. Very well. Thank very much and good luck.

[Hamid Sair], Rodman and Renshaw.

Just one question on the wins that you are seeing in China and the emerging markets. Can you provide any color on who these wins are with and the scale of these opportunities?

If you look at the China market, it's a bit different comparing to other big markets in the world if you compare to the United States, UK, France or Germany, which are big markets, it's much more fragmented. If you look at the revenue, the market share of the big retailers in the UK or in the US and other places in the world comparing to lower tiers or to mid tiers in China actually if we look at the Tier 2, Tier 1, this is a bigger market share than the Tier 0s, which is a unique phenomenon to China, which means that it represents a lot of opportunity because they are in many, many customers.

And regarding our activities in China, so as you know, we have a very successful as we mentioned long time ago operation with the system in fuel. We announced PetroChina in the past and we continue to have success with other C stores and fuel operators in China.

By the way, I think we said before we believe that we have the largest implementation in the world of C stores of 16,000 stations in China and so this is one area that we see some growth. The other part is as I said, the different deals in grocery that this is -- we have some wins this quarter.

As I said, this is a unique market and the fact that it's so fragmented actually creates an opportunity for us.

The margins in the China side of opportunities, is it similar to the rest of your geographical segments?

I can tell you that we are proud to say that we can look at China markets. We take certain actions to protect our IP and some other areas but we see similar margin in China like the rest of the business.

Thank you so much.

Josh Schwartz, Flatbush.

I figured I might as well jump in if I had the chance, so thanks for the opportunity. Shuky, just I will give you three follow-ups and just address them.

One is, when we started out the process when you guys began running the Company, we were talking about Horizon 1 and with stability, Horizon 2 with some planning and there's been discussion of Horizon 3. I'm just curious how you guys are thinking about that progress of planning out how we position the Company for two, three, four years from now, and what the timeline might be to address that? That's one.

Number two is we have this C store business that my assumption from the outside is that it would benefit greatly from a similar architectural shift as we are doing with our larger grocer and retail business. I'm curious what your thoughts on that and where we are?

And then finally in the press release, you mentioned that you are seeing some interest from different kinds of retailers and I just wanted you to just address that if you could to any extent you would be able to.

Okay, so the first question I think today actually executing Horizon 2, which was our strategy of innovative products and products led services, Software-as-a-Service and we are in the process right now and we are investing a lot of time and money to think what will be our offering to address two or three years from now when we talk about what we believe will be a completely digital experience of a consumer, a completely multichannel. You can move from one channel to the other so Target coupons, digital coupons, safe to [cut] coupons, all of this right now we are actually building in the process of building our strategy so I don't have anything to report yet. But this is what we do right now.

And regarding C stores, we believe that Retalix 10 architecture, we are planning also to go to the C store markets with this architecture. By the way, going back to the cloud discussion we were having before in the SaaS, you could see some situations that customers are managing their large store in a more traditional way and taking for example the express stores to a model of cloud-based or source of service.

So I think this is the first two questions. What was the last question, Josh?

The third one was you mentioned in the press release that you are seeing -- I don't have it directly in front of me right now but that you are seeing interest from different kinds of retailers, I think.

I think we mentioned that we see some interest of the Retalix 10 right now with customers that traditionally Retalix was not the first choice so we talked in the past (multiple speakers)

-- so outside of the grocer business, you're saying?

Yes, like we talk about that we are one -- talk about in the past we are going to go to adjacent markets to what we do, so today what we see that if you look at our overall pipeline, we have more of the adjacent market retailers than we used to have in the past.

Okay, just as a follow-up on the second thing, it's very interesting to me because my thought would be if I am running a 7-11 or something like that, where you have thousands of these smaller stores, it would seem to me that it makes so much more sense if the technology is there that why should I have a software stack located at every location that if we can deliver solid functionality over the cloud, then it's a much lower cost operation, probably get access to much better information, and manage our business properly.

And I just want to make sure I understand that your thoughts are similar that if Retalix could deliver an R10 type architecture to that market that you think there might be some demand for that?

The answer is yes there is overall some concern about the network reliability but this network will become a much more like a standard utility, which is very secure over the (inaudible), then I think we will see more and more of that.

On that note, do we see --? When we are running our payment infrastructure as a Software-as-a-Service, is that -- are the customers -- do they feel the network is reliable enough to run that?

Yes.

All right, thanks so much. I really appreciate you taking time to answer the questions.

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?

Yes. Thank you, Adam. First of all, I want to apologize for the technical issues that we have in the start of the call and thank you for participation and looking forward to talk to you at the end of Q2. Thank you.

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