ECtel Ltd. Q1 2009 Earnings Call Transcript

ECtel Ltd. (ECTX)

Q1 2009 Earnings Call

May 6, 2009 10:00 am ET

Executives

Ehud Helft – GK Investor Relations

Itzik Weinstein – Chief Executive Officer & President

Michael Neumann – Senior Vice President & Chief Financial Officer

Analysts

Des Malavi – Oscar Gruss

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to ECtel’s First Quarter 2009 Results Conference Call. (Operator Instructions). As a reminder this conference is being recorded May 6^th, 2009. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft would you like to begin.

Ehud Helft

Thank you. Good day everybody. On behalf of the investors, I would like to thank ECtel’s management for hosting this call. Earlier today, ECtel issued its results for the first quarter of 2009. I trust that most of you have seen by now a copy of the press release, but if not, you may view it in the Investor Relations section of ECtel’s website at www.ectel.com and in all major international wireless services.

Joining us on the call today are Mr. Itzik Weinstein, ECtel’s Chief Executive Officer and President; and Mr. Michael Neumann, Senior Vice-President and Chief Financial Officer. Itzik will begin by providing a summary of the main highlights of the quarter followed by Michael who will provide you with an analysis of the financial results. We will then turn over the call to the question and answer session.

Before we begin, I would like to point out that the Safe Harbor statements in the company’s press release issued earlier today, also refer to the content on this conference call. In addition, during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company’s management uses this financial information in its internal analysis in order to exclude the effect of amortization of acquisition-related intangible assets, share-based compensation expenses, and the impact of permanent impairment charges related to certain securities. We believe that these measures enable a more meaningful comparison of our business performance between the periods.

For more information regarding our use of non-GAAP financial measures including a reconciliation of these measures, refer to today’s earnings release.

With that, I would now like to turn over the call to Mr. Itzik Weinstein, ECtel’s CEO. Itzik.

Itzik Weinstein

Thank you Ehud. Good morning everyone, and thank you for joining us today. The first quarter of 2009 was both challenging and interesting for ECtel. On the one hand, the climate is driving strong demand for our products. On the other hand, we're seeing the impact on certain of our customers lengthening implementation. Revenue for the first quarter came in on the low-end of our expectation at $3.4 million. The weakness here mainly follows the longer implementation cycle as our customers navigate the global crisis.

Gross margin however reached 44%, mainly resulting from both the efficiency measures adopted and slightly stronger dollar. This is an improvement though still not where we think to be. As revenues appreciate, we expect to see this margin increase even further. Our quarterly net loss totaled $1.4 million mainly due to the revenue level. Orders this quarter were high, with book-to-bill coming at substantially more than one. Contributing to a second consecutive quarter of growing backlog. With lower prices and the urgent need to preserve revenues is driving long demand for revenue assurance solutions such as ECtel.

This quarter we added a total of five new customers, a major achievement in this market kicking off the year to a good start. The climate also drove an increase in service contract by existing customers and increased collection from the channels with new leads in several key regions. In terms of cash flow, the environment which contributes to our orders is also impacting our customers in terms of payment. Here certain of our customers got assistance in financing our solutions, in such collection was lower, drawing us will present a $2.8 million cash burn this quarter. We do believe we will collect this payment this year. We are working closely with these customers before division and continue to view our customers as long-term partners increasing the potential for future order flow.

We ended the first quarter of 2009 with just under $50 million in cash, continuing to serve as a key asset in this environment. With regards to cost saving, this is a major area under focus. We are constantly seeking to reduce burn. This quarter we already benefited from the deep cost cutting measures initiative including salary and workforce reductions and shift to lower cost region. We expect to sell at least $4 million in 2009 over 2008. In Q1 we already saved more than anticipated and expect the savings to get us feed in the coming quarters. As a note this measure did not include customer-facing position such as tele screen.

Now to a few words of the new model. As mentioned the current economic climate is driving demands to solutions like ECtel’s IRM platform, which offers operator complete revenue management tool. This enables them to stay on top of revenue stream, minimize leakages, while receiving proxy alerts that out of the normal event. All while offering a quick ROI. During the first quarter we welcome five new customers. These included: First, a complete IRM platform to a permanent Georgian customer. Second, the strong management solution to a leading U.K. cable operator who is just entering the telephony market. Third, an order of our Business View product which combines the acquired complex technology to a permanent operator and a number of leading global Orange mobile group.

Four, another for physical BillView for billing verification purposes to a major mobile operator in Southeast Asia. And five, the Professional Services agreement to a leading Israeli cable operator as it enters to the telephony space and is consistent in developing revenue assurance strategy. This quarter we also saw existing customers renew and even expand the service agreements with ECtel, signing a typical two to three year service agreement.

All these agreement serve as validation to the long-term commitment, both our new and existing customers as to our solution. While gathering us a certain element of the current revenue and visibility. This also asserts to the strength of our partnership approach as we also are closely are tuned to our customers needs and issues, gaining the long-term supportiveness. This quarter, we also benefited from our global channel network, seeing increased demand and new leads from our channels worldwide. We believe this demand will translate into higher order inflow through this network.

The increased demand witnesses has driven us to increase our European sales team adding a Central European based Service Professional. This will help us better target the region addressing growing demand. So, we are cutting cost on the operational front, we’re still reaching up our customer safety efforts to meet growing demand. We believe this will help us identify and meet the opportunities in coming forward as we leverage our team, using our time to gain competitive advantage.

This quarter, we also participated in several prominent professional conferences into revenue assurance and Fraud management space. The conferences offer a platform to both the operator and vendor to showcase the solution and its benefit, serving also an ideal opportunity for many of our key clients to step forwad and highlight the merits and benefits of ECtel solutions.

At the Annual Telestrategies Conference in Miami focusing on the Revenue Assurance space we jointly presented with AT&T Mobility. As part of the presentation AT&T highlighted the benefit of ECtel Revenue Assurance Solution, noting that they made the investment in just a few months since they’ve been employing the solution. At the Revenue Assurance conference in London we made a presentation and roaming revenue, featured on telecom national cellular operator TMN highlighted ECtel’s BillView solution then outlining the importance of bill verification and finally we also presented at the LLB Conference in Kuala Lumpur showcasing the importance of fraud management.

All in all, a very active quarter, both in terms of professional conferences being held as well as in terms of presentation of the merit of ECtel strategic solutions. Altogether this looks to be interesting and challenging year. This tough climate is clearly creating opportunities for ECtel though not without challenging us and visible into cash collection. We will continue to leverage on our strong product and customer base and cash resources while taking an ever-tight reign on expenses to weather the current fall. We’re committed to meeting our goal of non-GAAP breaking even during the second half of the year.

Looking ahead to direct 2009 we anticipate that the growing pipeline of orders will translate into firm backlog and revenue gaining pace as we move further into the year. Furthermore we seek to improve collections, we expect to collect payments contributing to the decline in our burn rate. We view our customers as a long-term partner and understanding their issues and difficulties in the current market. So, revenue is further we’re on the lower end with weak collection we believe this is an interim period of adjustment to both the new market condition and new requirements, and believe that has a strong order influence on both revenue and cash will benefit from our strategy.

With that, I would like to turn over the call to our Senior Vice-President and CFO, Mr. Michael Neumann, for more details on revenue and view on our results. Michael?

Michael Neumann

Thank you Itzik. I will review the non-GAAP results for the first quarter ended March 31, 2009. Revenue for the first quarter totaled $3.4 million compared to $6.5 million in the first quarter last year and $4.8 million last quarter. Revenues were on the low end this quarter mainly due to the slower implementation rates with customers, which refrained us from recognizing previously anticipated orders. This matter remains under review and we are working diligently to gain acceptance in coming weeks.

Geographic revenue breakdown for the quarter was as follows. Europe totaling 43% of which 21% from Western Europe and 22% from Eastern Europe. 41% from the Americas and 16% from Africa, Asia Pacific, and Israel. Gross margin for the first quarter was 44% similar to the first quarter last year and higher than the 34% last quarter. Operating loss for the first quarter totaled $1.6 million compared to $1.8 million in the first quarter last year and $3 million operating loss last quarter.

Reviewing the first quarter, we reversed several provisions from 2008, mainly the cancellation of (inaudible) for 2008 following the Board of Director's decision. Net loss for the first quarter of 2008 totaled $1.4 million or $0.09 loss per share compared to $1.1 million net loss or $0.07 loss per share in the first quarter of 2008. Net loss for the last quarter totaled $2.9 million or $0.18 loss per share. Now turning to the balance sheet and cash flow. Cash, cash equivalents, and marketable bonds and securities as of March 31, 2009, were $14.8 million or $0.91 per diluted share compared to $17.6 million or $1.01 per share as of December 31, 2008. The majority of this $2.8 million burn during the quarter was attributed to the declining payment by certain customers as they are impacted by the environment.

As mentioned we are addressing this by refinancing payments, assisting our customers through this time while guaranteeing order flow. And now we will be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). The first question is from Jonathan Kreizman of Oscar Gruss. Please go ahead.

Des Malavi – Oscar Gruss

Hi. This is Des Malavi standing for Jonathan. Can you elaborate a little bit more about this new five customer wins in terms of size and geography? Thank you.

Itzik Weinstein

Hi, thank you for the question. At this point we do not show despite, it will come in the near future if we are still on the geography, because in the message, and I’m willing to go over this again. The first which is the full IRM platform is from the Georgian customer based from Georgia. The second one is U.K. catalog operator. The third one is within Orange mobile group and fourth one is Southeast Asia. And the last one is Israel.

Des Malavi – Oscar Gruss

Thank you for that. Now regarding the pipeline, can you provide some insight on additional deals in the pipeline at this point in time?

Itzik Weinstein

Usually we don’t reveal the booking information though it was essentially above one in the book-to-bill ratio and as we can say part of this pipeline came from partner channels and some direct. Just on the bookings point of view, we made plans and projects.

Des Malavi – Oscar Grus

Okay. That's it from me. Thank you and good luck.

Operator

Thank you very much. (Operator Instructions). There are no additional questions at this time. I would like to remind participants that a reply of this call will be available on the company's website www.ectel.com. Mr. Weinstein would you like to make your concluding statement.

Itzik Weinstein

Thank you all for joining us. It is a very complex time, though I’m confident that we have the necessary cash resources, strong business fundamentals and experience to weather the firm and grow the company in the long-term. And thank you for your ongoing support, and look forward to speaking with you next quarter. Thank you.

Operator

Thank you. This concludes the ECtel’s first quarter 2009 results conference call. Thank you for your participation and have a nice day.

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