Executives
Ido Schechter – CEO
Ehud Helft – GK Investor Relations
Top Image Systems Ltd. (TISA) Q1 2009 Earnings Call Transcript May 13, 2009 11:00 AM ET
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Top Image Systems’ first quarter 2009 results conference call.
All participants are at present in listen-only mode. Following management’s formal presentation instructions will be given for the question and answer session.
As a reminder this conference is being recorded.
By now you should have all received the company’s press release, if you have not received it please contact GK Investor Relations on 1 646 201 9246, or visit the company's website – www.topimagesystems.com
I would now 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 to everyone. I would like to thank Top Image Systems’ management for hosting this conference call to discuss their first quarter 2009 results.
Before we start, I would like to remind everyone that the conference call may contain projections or other forward-looking statements and the safe harbor provision in the press release issued today also refers to the contents of this conference call.
With me today on the call is: Dr. Ido Schechter, CEO;
Ido, would you like to begin?
Ido Schechter
Thank you, Ehud.
Good day everyone. Thank you for joining us today.
We are pleased with the results of the first quarter, ending with a strong improvement in our operating income, due to our higher margin levels.
We’re also pleased with our revenue levels, which generally came in-line with our budget. Germany and the rest of Europe showed particularly strong performance, making up for weaker performance in Japan, the market we see hit particularly hard by the global recession.
I’d like to delve into the makeup of our revenue so you can better understand our results.
As we mentioned in the past two quarters, we have embarked on a strategy to cease low-margin hardware and third party sales. In 2008 as a whole, around a quarter of our revenues came from third party sales. In the fourth quarter of 2008, the transition began and this quarter almost all of our revenues were based on eFLOW solution sales.
So you can see, while we did have a sequential decline in overall revenues; our software sales actually grew. We are particularly pleased with this, given that our first quarter is seasonally the slowest for software sales, plus we have a global economic slowdown to contend with.
Gross margins were also strongly improved, reaching 57% in the quarter compared with 51% last quarter, and at this level throughout last year.
The improvement in gross and operating margin were not only driven by the shift to software sales, but also by the generally improved efficiencies and lower costs policy we launched across the board. If you remember, we took some early decisions last year to significantly reduce costs and headcount, including the closure of our Guangzhou office in China, and we are now beginning to see the fruits of these efforts.
We believe that the changes we made last year have set up our business as a platform for growth and increased profitability. Moving forward in 2009, we are a leaner and a more profit focused company.
I’d like to talk about the global recession.
The affect on us so far has been fairly limited.
While there is no doubt that a slowing economy affects all, I believe our sector, and in particular our position in our sector, is more defensive than most. We have found that in past downturns, our sector has been less prone to reductions in IT spending.
This is because we occupy a niche market which is associated with efficiency and improved processes, and we can easily demonstrate a fast return on investment. Thus in many cases projects that were delayed are now moving ahead as our clients look for areas to make savings and efficiency improvements.
Additionally, purchasing our system is actually a small expense for many of our enterprise, large customers and does not include major changes in the organization.
We are also now more focused on targeting larger and more secure deals and a good portion of our projects are Governmental projects, using stimulus money, as well as financial organizations seeking costs reduction. These types of clients tend to execute larger than average projects and we are seeing them making quick decisions in the current environment. Both these facts benefit us and our visibility.
In order to further increase the number of opportunities and our footprint in the market, we also encourage our major partners to become more active in generating deal flow. In fact, our sales pipeline has remained very stable in the current negative global economic environment.
We are aiming to leverage the current environment to maintain and build on our market leadership, enhancing our competitive positioning. Even against this backdrop, we still expect to see success in growing our average deal size and improving our margins throughout 2009.
Most importantly, we expect to record an operating income during 2009, at a level higher than the one of 2008.
Before I move on to the financials, I’d like to highlight a couple of the regions in which we operate.
As I said, our European offices, and in particular the German-based team, are performing excellently, far exceeding our expectations, even in the current active and competitive market. Sales and implementation processes are working very effectively and the strong results are evident quarter after quarter. One of their significant achievements this year was the win of a large project with the SwissPost Logistic department, valued at several million dollars that will be recognized over the next several quarters. As there are many synergies between our German and the other European teams, we have recently merged these teams. Each team can now better leverage off the other while costs are reduced to a minimum and resources are utilized to the full.
The UK office, while still profitable, underperformed our expectations due to the weak British Pound as well as the depth of the recession there. While we are capitalizing on leads and seeing a strong pipeline there, decision making has become slow. The Japanese branch also underperformed this quarter, again as a result of their sharp fall into recession, and we already cut our expenses there.
The rest of our global operations are performing more or less in line with our plans.
With that, I would like to briefly walk you through the financial results for the quarter.
Revenues for the first quarter of 2009 were 6.1 million dollars, down 6% from the last quarter of 2008.
However, as said before, the fall is due to the absence of 3rd party sales, and is also demonstrated by the improvement in gross margins, which for the quarter was 57% compared with 50% in the same quarter of last year.
Our operating income in the first quarter of 2009 reached $314 thousand dollars, compared with an operating income of $554 thousand dollars in the first quarter 2008.
Our financing expenses this quarter was $1.6 million, due to the increase in the market value of our debentures partially offsetting by the strengthening of the US dollar versus the Israeli shekel. It is important to note that this is a non cash expenses and that we have no control over these market values.
We reported a net loss for the first quarter of 2009 totaled $1.4 million, compared to a net income of $1.3 million in the first quarter of 2008. Loss per share in quarter was $0.15, compared with earnings per share of $0.15 in the first quarter of 2008.
Finally, operating cash flow in the quarter was a negative $208 thousand dollars, due to slightly longer collection times. However, we do not see any issues here.
In terms of our expectations for the remainder of 2009, as I mentioned, we expect to show improved gross and operating margins by way of solely software solutions sales combined with lower fixed costs. Our first quarter 2009 results demonstrate that we are on track.
We aim for achieving larger deal size, and, as I said, we do expect to be increasingly profitable on an operating level during 2009, ahead of our 2008 levels.
In conclusion, we will leverage our success and continue to focus on improving our operating profitability. We continue to focus on our goal of becoming the clear global leader for document capture solutions.
With that, I am happy to take your questions.
Operator
I’d like to thank everyone for joining us for our conference call
We hope to speak with you again next quarter.
Thank you and goodbye.
Question-and-Answer Session
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