NCR Voyix Corp (VYX) 2012 Q2 法說會逐字稿

Welcome to the Retalix conference call. As a reminder, this conference call is being recorded today, August 8, 2012. Leading the call is Retalix's 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, 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 products, 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 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 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 margins, 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 second-quarter and six-month 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, Michelle. Welcome and thank you for joining us on this call. This morning we announced our financial results for the second quarter and the first six months of 2012.

We had another strong quarter again, recording record revenues and good improvement of pricing margin and net income. We are executing on our strategy in a disciplined manner, delivering on our commitments to our customers, and winning new programs and logos for our products and services.

The positive response we are receiving for Retalix is demonstrated in the wins and in the financial results we are reporting for the quarter. It was another consecutive quarter of growth for Retalix.

Revenue increased 18% year-over-year to $68.2 million in the second quarter, and net income on GAAP was up 36% year-over-year to $5.2 million in the second quarter. We continue to build across our lines of business and around the globe.

We had more Retalix 10 wins, including another Tier 0 retailer, and a good progress with our recently launched Retalix 10 Mobile offering, which also won a Tier 0 retailer. Retalix 10 continues to gain recognition from retailers and industry analysts as the most advanced platform available today on the market.

Our services offering, including system integration, also continued to generate strong results. This quarter we won a large multiyear managed services program with Tier 0 retailer. It is significant in that it is our first managed services contract and demonstrates our success in expanding the long-term strategic relationship that we have with retailers.

Our Connected Payments software-as-a-service solution is also progress -- performing nicely. We are winning Connected Payments businesses including a Tier 0 retailer this quarter and deploying this offering for a broad range of retailers.

Our wins this quarter, including the managed services deal, highlight the opportunities in our business model. Our model creates value for retailers by combining innovative products and leveraging our unique product and domain expertise with product-led services. We are helping retailers create fully-integrated multichannel environments that differentiates the shopping experience for consumers and improves store operations.

In a moment I will talk in more detail about our progress this quarter and how we are working to leverage these strengths to realize the opportunities in the market. Before that, let me hand the call to Sarit, who will review our financial results for the first-half 2012.

Thank you, Shuky. Retalix continued its solid financial performance with good results for the second quarter and the first six months of 2012. Total revenues were up 18% in the second quarter to $68.2 million versus $67.8 million in the year-ago second quarter. For the first six months of 2012, total revenues are up 20% to $133.9 million versus the year-ago period.

Looking at the revenue mix for the second quarter, software and hardware revenues were each approximately 10% of revenues. Maintenance revenues derived from our products were 25%. And professional services including our SaaS revenues were 56% of total revenues.

The fluctuation in license revenue quarter-to-quarter was expected. And as we mentioned on the previous call, some of the fourth quarter of 2011 wins were reflected in the third-quarter 2012 license revenues.

We continue to report improvements in non-GAAP operating margins due to our growth in revenues and careful management of our expenses. We reported a 9.9% non-GAAP operating margin in the second quarter versus 8.8% in the year-ago second quarter and 9.4% in the sequential quarter. For the first six months of 2012, we had a 9.6% non-GAAP operating margin.

Non-GAAP income from operations was up 33% to $6.7 million in second-quarter 2012 versus $5.1 million in the year-ago second quarter. GAAP income from operations was up 28% to $4.8 million in second-quarter 2012 versus $3.8 million in the year-ago second quarter.

For the six months, non-GAAP income from operations was up 31% to $12.9 million, and GAAP income from operations was up 21% to $8.7 million versus the year period.

We achieved these improvements while continuing our investments. R&D and sales and marketing remained largely stable as a percentage of total revenues, as we work to expand on the market position we have achieved.

G&A had a small dollar increase related to the broad range of activities and new contracts signed in this quarter. Our total headcount remained at over 1,560 this quarter, largely stable versus the first quarter.

We recorded financial income of $0.7 million in the second quarter, which includes interest income, the net impact of currency fluctuation on the value of our non-dollar assets, and currency fluctuation costs. This compares to financial income of $0.4 million in the second quarter of 2011.

Turning to our net 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 36% to $5.2 million or $0.21 per diluted share in the second quarter, versus $3.9 million or $0.16 per diluted share in the year-ago second quarter. For the first six months, non-GAAP net income was up 42% to $10.2 million versus the year-ago period.

Our GAAP net income was up 37% to $3.9 million or $0.15 per diluted share in the second quarter, versus $2.9 million or $0.12 per diluted share in the year-ago second quarter. For the first six months, GAAP net income was up 41% to $7.2 million or $0.28 per diluted share versus the year-ago period.

Our balance sheet strength continues. This quarter we generated $5 million in cash flow from operations, bringing our total to over $142 million in cash and cash equivalents, deposits, marketable securities, and long-term investments. We have no debt.

Reflecting the growth in our business, total trade receivables increased to $71.6 million at the end of the second quarter. Our DSO also increased to 90 days at the end of the second quarter, compared to 88 days in the year-ago second quarter and 85 days in the sequential quarter. 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 continued our strong financial performance in 2012, reporting good growth in revenues, operating margins, and net income. We have a strong financial platform which will continue to help us in pursuing opportunities in our markets.

Now I will turn the call back to Shuky.

Thank you, Sarit. The second quarter was another strong quarter for Retalix as we continued to make progress with our growth strategy. As we said on the first-quarter call, 2012 will be a big execution year for us as we build on our successes.

We are leveraging the strength of Retalix 10 and continue to generate good interest from retailers around the world for Retalix 10's unique architecture, true multichannel capabilities, and low cost of ownership. Retalix 10 is clearly the most-advanced store suite development on the market.

This quarter we had another significant Retalix 10 win with a Tier 0 retailer, and we are also making good progress with other Retalix 10 projects discussed on previous calls. In an age where shoppers have more choice and more information, we enable retailers to serve their shoppers with flexibility and short response time across integrated multichannel environments.

We are particularly encouraged by the reception we are receiving for Retalix 10 Mobile Shopper. Retailers are excited by the unique capabilities of this solution and appreciate the [very] open architecture.

It is an example of our strategy of providing innovative solutions for retailers' most-pressing challenges, namely, the need to integrate emerging technologies quickly and efficiently into their operations. With the proliferation of smartphone and the frequency of use by consumers of their devices, it is clear that this channel is the utmost importance to retailers.

Our Mobile solution is resonating with many of our customers, and we have had several wins including a Tier 0 retailer -- sorry. We have multiple wins including a Tier 0 retailer in the six months since the product was first shown at National Retail Federation Conference.

What differentiates Retalix is that our Mobile Shopper is not a separate silo application. Like all other touchpoints, Retalix 10 Mobile employs the advanced architecture of our central engine.

The ability to sell discrete Retalix 10 components, like mobile self-checkout, self-scanning, and customer service scales, is providing us more opportunities to interact with retailers. It also means we can independently implement Retalix 10 components next to existing POS systems, providing the flexibility to tailor solutions to each consumer individually.

Our services business is also creating increasing advantage for us with retailers. This quarter we signed our first managed services engagement. This is an exciting deal for Retalix in which we are providing the range of services including support and [configuration] to a major, well-respected, Tier 0 retailer.

This is a large, multiyear managed services contract for Retalix. Engagements such as this depend on our long-term relationship with customers.

By adding managed services to our offering, we can serve customers [full] environment and provide more value to this strategic relationship. It also means that we are providing retailers with choice and flexibility in how they choose to engage our services. In less than two years we successfully built a complete offering of products and services relating from configuration to delivery, deployment, [informative] testing, support, and more.

Our software-as-a-service Connected Payments offering continues to grow. We won another Tier 0 retailer for our Connected Payments this quarter, and we continue to roll out these services to a broad range of retailers.

The retailing market continues to be very active and we are creating a lot of opportunities for Retalix as Retalix's focus on the store and consumer interactions. We are making good progress executing on our plan; but there are still a lot of challenges in the market, and in particular the global economic uncertainty.

Our focus for the second half of the year remains on strong execution and successful delivery on the projects we have won while also working to realize the opportunities we see in the market and consistently manage our growth. We are moving aggressively with our sales and marketing efforts to leverage our market position and realize the opportunities we believe exist today.

We are also continuing our activities to leverage Retalix 10 leadership as the most advanced product solution on the market. In the second half of the year we were also making an investment to grow our headcount to ensure successful delivery on our customer wins where we are consistently providing innovation -- as we are consistently providing innovation and value to our customer.

We will be highlighting our thought leadership and the emerging trends in retailing at our upcoming Synergy user conference, which should be taking place between October 21 and 24 in Dallas. The conference will provide us another opportunity to develop retailers' interest and enhance our relationship with customers, partners, and industry analysts. We hope you, our investors and investors, will also take this opportunity to learn more about our strengths, see demonstration of our products, and meet our customers and partners.

We are gratified by the progress in the first half of the year. Our revenues are trending to the high-end of our guidance of $260 million to $270 million for 2012.

We also [believe] to expect improved operating margins versus 2011. Our target is 9% to 10% non-GAAP operating margin for 2012, as we also continue our investment to deliver on our new wins and further build our traction in the market.

In summary, in the second quarter we again achieved strong financial results in terms of the profits and executing on our strategy, winning new customers and programs and delivering good results in innovating for our customers. I will thus continue to confirm our positioning and strength of our strategy, focusing on innovative products and product-led services.

We are gratified by the strong positive results we are getting from retailers, our partners, and industry analysts. We will continue to work to execute on our programs, deliver strong results to our customers, and manage our growth. We thank you for all your support and look forward to showing you more success. And now we are opening to questions.

(Operator Instructions) Andrew Uerkwitz, Oppenheimer.

Thank you. Thank you for taking my questions. I just -- Shuky, could you go over the differences between like a managed service program versus a traditional maintenance contract, and how that dynamic will work? Would the gross margins improve over time with that contract?

Thank you, Andrew. The difference between managed services contracts versus a standard engagement is that in managed services contract usually we take some activity in the organization, and we are managing end-to-end like we are part of the retail organization. These type of agreements usually are managed by service level; so it is not like a typical program that you get either a time and material or fixed price here.

We are delivering the services. [Not get] mission-critical service to retailer. In most cases, this is activities that the retailer was doing by himself and/or with other parties.

It is usually a long-term contract that help us to build efficiency and to improve profitability over time. And I think that in most cases, retailers tend to do it because it means that they can focus on their strategic activities as a retailer and move different IT functions to this model, to us, which we believe we can do a better service.

For us it's very important because it creates trust and a strong relationship and partnership with this type of customers.

Perfect. I appreciate that. Is this customer -- is this from an existing customer, or is this a new customer?

This is an existing customer of Retalix.

Okay, and then I guess my last question is around -- you have had two strong quarters here in a row. You have shown for the past, was it eight or nine quarters now, strong sequential growth.

So based on where your guidance -- where you are guiding at, it looks like revenues at least in the near term are going to flatten out. Is that macro-related, or is there something specific that is causing that? Or are you guys just being cautious?

When we look at the market, obviously we are very happy with our performance in the past six months. We are definitely executing our strategy, which, by the way, help us to do much better than the market. If you look at the industry retail side and how much this industry is growing, I think that we are performing by far better than the market, and we are very pleased with this.

I think this is mainly to our strategy, which is coming with Retalix 10 and all the service around this. So this is -- on the one hand we are very happy with our performance and the growth and everything that we are creating.

On the other hand, we look at the market and there are some uncertainties. We look at the situation in Europe. We look in United States, might be that the recovery is not as fast as people anticipated.

So while we take these two things into consideration, on one hand, we are very happy with the growth and the potential; on the other hand we are looking at the uncertainty. We saw that the combination is what we are trending.

Obviously we want to continue, and we hope to continue to grow the business. But as I said, we don't see something negative; it is more being cautious with looking at the market conditions.

Thanks again for taking my questions, and keep up the good work. Appreciate it.

Thank you.

Greg McDowell, JMP Securities.

Great, thank you. Hi, Shuky and Sarit. Thanks for taking my questions and congratulations.

Wanted to first follow up on the managed services contract, the Tier 0 contract, and see if you can talk about whether this was a competitive win against some global systems integrators, or if this Tier 0 customer just felt comfortable enough with you guys that they decided not to look at anybody else.

This was a competitive deal, and I think that the customer realized that we have a unique value. I think that when we look about Retalix differentiation in doing this type of services, it's not -- like under SI.

We have understanding on the -- deep understanding of the industry and deep understanding of our products. So I think that definitely we have some unique value in this regard.

But this was a competitive bid. I think the customer appreciated we have a better value. And I think, as I said before, that it has opened for us a new growth engine in services that we didn't have before.

Very helpful. Thank you. Then I mean, would you think about longer-term and how many of these types of managed services contracts you can do a year, and even handle internally? Are we talking one or two a year, or something a little bit more than that?

I was just wondering how you are thinking about it internally in terms of short-term/long-term goals, of how many of these things you can do.

I think that it will pick up over time, for two reasons. First of all, we are getting more and more experience in doing it. And, by the way, I think we are doing it exceptionally well and we are going to increase our referenceability, so I think it will pick up over time.

The other thing is we see, I think, more and more retailers in the world are trending to transfer a non-strategically operation from their end to us. Because as I said, retailers should focus on retail and how they can beat the competition, not necessarily on function which definitely we can do better.

So I think we are getting more experience. We are getting more referenceability. This is from one hand.

On the other hand, it is coming in -- more and more the trend in the big retailers is to do more and more this type of engagement. So between the two I think that we will see a pickup in this activity.

That's great. If I could slip in one more question, just about growing your headcount. As a matter of fact, I think you are holding a job fair in your Dallas US headquarters today, which is always a good sign.

But a twofold question. I guess, what are the areas you are hiring in most? Is it sales and marketing, or is it delivery of the managed services offering, or is it R&D?

I guess my second part of that question is -- I know you are not ready to talk about 2013 yet; but maybe how we should start thinking about operating margin expansion for next year in light of the aggressive hiring in the second half of this year. Thanks.

We are hiring many to accommodate all the new wins. So we all the time are making sure that the size of our headcount meets the business potential.

We could do some ahead of time because we want to be ready, and you know there is some type we need to do. Recruit the people, train them, etc.

But we are not hiring for sales and marketing. Well, we do, but it is not the majority.

The majority of the hiring is to deliver the services that we need to do for the new wins. And this is why we are doing this hiring.

Regarding 2013, as you said it is still early. We are still in the mid of 2012.

We, as I said before, that we expect that over time our profitability will increase. And this is because with all the big engagements as they start over time, you can introduce efficiency to these engagements. And we believe that and we want that in 2013 we will continue to see the improvement in the same that we see improvement in 2012 (inaudible) level.

Great. Thank you very much, guys.

(Operator Instructions) Josh Schwartz, Flatbush Watermill.

Hi, good morning, Sarit and Shuky. I just wanted to clarify one thing. It's in both the release and your statement. There is a comment that you had multiple partner wins, including Tier 0 wins for R10 and R10 Mobile Shopper.

Just can you clarify? Are you saying those are two separate things? There's an R10 win that's just products? Or are you just including Mobile Shopper in that?

No, it is two separate wins. One is for the full suite of Retalix 10 and the other one is adding a Mobile Shopper win to an existing customer.

Have you -- has there been any (inaudible) where you get an R10 Mobile Shopper in a prospect, so it's a -- willing to look at something like that, and then go with the Retalix 10? Or how is that [panning out] on that?

We have to date several engagements in which we start with Mobile Shopper. And actually in some situations the Mobile Shopper become like our beachhead in gaining the customer trust in this platform.

So definitely as I mentioned in my comments, the fact that we can take the Mobile Shopper and in a relatively quick time implement it side-by-side to existing POS platform help us a lot from this regard. So we see we have different engagement today in this -- of this type.

And then lastly, you have a lot of experience with managed services in the past. But can you discuss a little bit more in depth the ways in which you think this enables the Company to become more strategic? What kind of things might this enable the Company to do by getting an engagement like this versus not having it? Where does it lead down the road?

If you ask me, my dream is to have in some cases a full -- to do a full managed services end-to-end, to an entire environment. It will take some time until it would happen.

But I think when you do this type of agreement, first of all, it means that the customer has full trust in you, because otherwise they will not do it with you. Secondly, it's a long-term agreement. It's a not a one or two years' agreement; this is a long-term agreement. It's build partnership, and it helps the retailer to see more value from Retalix.

So I think it fits perfectly with our strategy to develop our business with our customers to help to support their mission-critical system and to show them the value that we can have. And I think that our competitive edge in this area comparing to regular SI, as I mentioned before, is that when we do additional type of activities, add support different levels, and maintenance, etc., we understand our products and we understand the environment, and this is why we can do these services.

And actually we are bringing higher service levels than the competition, and this as well is our value. So to summarize, I think that it creates a strong, long-term partnership with our customers.

Do you think that it helps longer-term deliver more products in addition to services? What is the relationship there?

I think that we have different scenarios. Usually, we are leading with the products, and the customer trusts over time, and then we can get to the level that the customer trusts us enough to do many services with us.

This is something -- usually this is the way it works. That first the customer -- we have the trust by the traditional products and services activity, and then we elevate the relationship to go also to managed services.

Thanks very much.

Greg McDowell, JMP Securities.

Hi, thanks. Just one quick follow-up since we have a couple more minutes. I thought I would ask -- I am not sure if I heard on a geography basis where some of these Tier 0 wins came from, whether they are from the US or Europe or Asia. Maybe if you could just talk about the health of the pipeline for other large deals like this and maybe geographically where those large deals might take place, thank you.

So, actually this was very nice this quarter. All the wins are spread around all the world. So between Europe, Australia, North America, China, and other places; so I cannot point to a specific. This was across the board, which we are very happy with it.

We actively now are working with many engagements in different type of maturity. If I look at our pipeline, it is strong.

And when I talk about execution ahead of us, on the one hand we talk about our ability to execute and deliver the quality products and services to our customers, so all the engagement won. And the same time we talk about execution, we are talking about how we are really leveraging unique opportunities we have (inaudible) the market. We have the best platform in winning more [builds] from our current pipeline and enhancing our pipeline.

Great, thanks.

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, guys, and looking forward to talking to you next quarter. Thanks.

Thank you.

Thank you. This concludes the Retalix second-quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.