Top Image Systems' (TISA) Q1 2014 Results - Earnings Call Transcript

May.14.14 | About: Top Image (TISA)

Top Image Systems Limited (NASDAQ:TISA)

Q1 2014 Earnings Conference Call

May 14, 2014 10:00 AM ET

Executives

Shelli Zargary - Director, Corporate Marketing and IR

Izhak Nakar - Founder and Active Executive Chairman

Gili Shalita - CFO

Michael Schrader - COO

Analysts

David Hynes - Canaccord Genuity

Mark Schappel - Benchmark Capital

Jay Harris - Goldsmith & Harris

Operator

Greetings and welcome to the Top Image Systems’ First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I will now turn the conference over to your host Ms. Shelli Zargary, Director of Corporate Marketing and IR. Thank you, you may begin.

Shelli Zargary

Thank you and good day everyone. Our earnings release was issued before the market opened this morning and it’s been posted on the Company Web site at www.topimagesystems.com. Additionally, in conjunction with the release of our earnings report we posted on our Web site under the Investor Relations tab additional charts in the form of a PowerPoint presentation to correspond with our prepared remarks. If you click the link in the press release for the webcast, you will automatically see these slides as you listen. If you’re dialing in by phone, you can access the slides at the IR tab of the Web site or click over to the webcast.

Representing the Company on the call today are Izhak Nakar, Active Chairman; Ms. Gili Shalita, our CFO; and Michael Schrader, our COO. 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 applies to the contents of the call. Top Image Systems expressly disclaims any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in its views or expectations or otherwise.

The call is the property of Top Image Systems Limited. Any distribution, transmission, broadcast or rebroadcast of this call in any form without the expressed written consent of the Company is prohibited. A replay of this call will be available from the day after the call on our Investor Relations section of our Web site at www.topimagesystems.com or via the webcast link, which appeared in the earnings release that we published today.

With that out of the way, I am now going to turn the call over to Michael Schrader, Top Image Systems’ Chief Operating Officer. Michael?

Michael Schrader

Thank you Shelli and hello everyone. Q1 represented a great start for Top Image Systems provisioning us to achieve excellent result in 2014. By growing quarterly revenues 19% to $8.1 million, we exceeded the consensus revenue estimate of $7.8 million forecasted and we earned non-GAAP operating profits of $385,000 rather than incurring the loss forecasted by well respected analysts such as HC Wainwright, Canaccord Genuity, and Benchmark. Following a formal evaluation of our Q1 performance, we believe that in 2014 we will deliver double-digit revenue growth for the full year. Total revenue grew 19% to $8.1 million. This increase includes strong license revenue growth of 43%.

This increased license revenue is based on increased sales of our growth and in solutions. These include our B2B2C offering the second pending TIS mobile imaging platform and the self-service MobiPAY, MobiCHECK, and other mobile imaging processing apps we sell and our B2B enterprise eFLOW ERP and DMR solutions together accounting for 70% of our total revenue. We would like to see a growth plan in revenues coming from SaaS both for mobile as well as for our enterprise solutions.

Revenue from SaaS contracts was $0.44 million and it is important to note that this amount will be paid again regularly over the next 10 quarters dealing up with solid growing base of returning revenues. The total license revenue of these contracts is equivalent to approximately $4.4 million. We continue to focus on the mobile imaging market which is resulting in increased business opportunities and successful sales. This quarter we enhanced our MobiFLOW mobile imaging platform to further improve the automatic capture process for higher quality images and better user experience.

We launched a new mobile product MobiREMIT, engaged in new mobile partnerships and increased market reminisce of our offerings at key mobile payments marketing events such as FinovateEurope on actual payments in the U.S. We announced that the MobiFLOW mobile imaging platform was awarded in Innovationspreis as Best of 2014 in the mobile category. In comparison to 2013, this year we carried out an increased number of mobile imaging PUCs and we were invited to respond to a growing number of RFPs for mobile capture solutions.

As a consequence, we are beginning to see significant growth in our sales of both our mobile imaging platform as well as our diverse mobile imaging processing applications. Among these we see the highest growth in revenues for MobiPAY and MobiCHECK. Regarding mobile check deposit, a large bank deployment of MobiCHECK in Europe went live this quarter and changing regulations at another of our key mobile partners to implement a mobile check deposit pilot fund international banking institution. Regarding the mobile bill payment in October of 2013, Fiserv announced that it would incorporate TIS mobile flow technology under the name Snap-to-Pay into its mobility product.

In Q1 2014 Fiserv reported increased Snap-to-Pay, bill payment and mobile banking products, which is a positive indicator for TIS. I think that leads me to believe that the use of our mobile imaging platform and mobility from Fiserv will increase the volume of mobile transactions and will prove to be a great business opportunity for TIS.

Our U.S.-based partner Fiserv went to market with the Snap-to-Pay capability for select Fiserv’s mobile banking and payment solutions. The MyCheckFree mobile app from Fiserv is now leveraging mobile imaging technology from TIS to enable users to select images of bills in order to at the ease and a check in order to add their payment account information without having to key in this data on their mobile device. This quarter we also closed a deal with a new U.S. partner OPEN SCAN who will leverage the TIS mobile platform to drive mobility payment capture solutions that enable processes of payment in the field at time of delivery. This will allow OPEN SCAN’s large U.S. install base in the transportation, logistics and manufacturing sectors, new work for TIS in the U.S. in the process payment sector.

While we expect that in the U.S. MobiPAY would be the largest contributor in 2014 among all our mobile apps. We’re also excited by the sales potential of our product in our mobile suite, including MobiCLAIM, MobiMETER, MobiCREDIT, MobiENROLL and MobiREMIT. We attribute much of our success in mobile imaging to the fact that we offer not only specific solutions but a flexible mobile imaging platform which can also fully integrate with our backend multichannel platform. TIS has engaged with many of the major mobile bill pay and online banking vendors that had no success rates and negative user experiences with the first-to-market solutions due to the mobile capture, data extraction and integration limitations.

In contrast TIS has received very positive feedback from customers, for example the project we implemented with Xerox for 3,000 sites in Brazil was initially contracted only for mobile enrollment. After the deployment of the mobile front end, the project was extended to include eFLOW DMR to optimize the backend operations of the project at Xerox.

A similar example is the insurance industry where we are pursuing projects with existing customers and other large insurance firms to deploy MobiCLAIM submission apps that can leverage our flexible mobile platform, to easily integrate our Digital Mailroom and other enterprise applications. Vendors offering closed mobile applications cannot provide this kind of functionality and in fact looking at our overall Q1 sales activities we found that we only competed against source to market mobile imaging solutions suppliers in some 3% of our sales opportunities, including in RFPs and tenders from mobile programs for major financial providers for which is the final analysis of this kind of competitor cannot provide a different solution that TIS offers with our mobile platform.

This important competitive advantage uniquely positions us to win enough space and provide in the space and we expect the situation to continue in the next quarters as well. Seeking to document and quantify the growing mobile payments market, the U.S. Federal Reserve board issued a report in April 2014, indicating that 17% of all mobile phone owners have made a mobile payment in 2013. While from 2012 to 2013 the percentage of mobile banking users depositing paper checks via phone camera moved from 22% to 38%. For this reason we feel confident saying that the great market potential and growing number of business opportunity for fair service payment and related mobile imaging applications is undeniable.

Looking ahead, we expect to be able to provide more quantified data regarding the growth of mobile bill pay and usage of our other mobile offerings. Incorporating mobile imaging our gross solutions now represent 70% of revenues compared to 65% in entire 2013 which is an increase of 5%. Beyond mobile imaging much of this global revenues come from sales of eFLOW ERP INVOICE and eFLOW DMR.

The availability of the powerfully enhanced eFLOW 5 platform and its embedded workflow mobile and cloud capabilities is driving these increased ERP and DMR sales. TIS is currently upgrading to eFLOW 5 to enhance the eFLOW DMR implementation at a U.S.-based banking client, although the eFLOW 5 platform was already launched in June 2013, already to-date the eFLOW 5 platform is running live at five major financial institutions. Beyond our current growth engine solutions to be continued in Q1 the development and promotion of our newly emerging technologies mainly our patent pending glass capture, data capture solution for Google Glass enabled devices and eFLOW CrowdBridge our data validation for outsourcing solution developed for the Amazon Mechanical Turk platform enabled to 500,000 registered Amazon Mechanical Turk workers from over 190 countries worldwide. In this the first quarter of the slide operation eFLOW CrowdBridge has already carried out 30,000 transactions.

During Q1 eFLOW CrowdBridge was awarded a best of 2014 innovation prize in the content management category. Another key component of our global strategy is partnerships, in Q1 we have invested significant effort in resource in our global alliances program to bid new and strengthen existing alliances with technology and safe partner such as Amazon, High Systems and K2. Since last year we had doubled the revenue forecast in the pipeline of opportunities we are pursuing with strategic partners and in 2014 we aim to double the number of strategic partners we work with.

In alignment with the growth strategy this quarter we continued our intensive investment in the U.S. and are starting to see higher returns. TIS added six professionals to its U.S. team, doubled its U.S. marketing staff, sponsored key industry events in the U.S. and engaged an experienced director of business development for U.S. banking and mobile solutions.

In February 2014, we announced that Avi Mileguir was named Executive Vice President and General Manager Americas for the newly combined branches of TIS Latin America and TIS America, forming TIS Americas. In addition our VP Global Engineering a 14 year veteran of the Company, relocated to the U.S. to lead all professional services for the Americas. Through joint efforts with U.S.-based partners for both mobile and enterprise B2B solutions we are entering new verticals in the U.S. pipeline for our growth solutions, has grown by 20%.

Another important indicator of TIS business sales in Q1 is our positive cash balance. Thanks to the high cash flow business model we expect our cash balance to remain positive. None of the net $13.7 million borrowing capital that we raised in February has been extended on our operational activities, as our solid profitability profile enabled us to completely fund operations organically.

We will be deploying this capital to work inorganic growth of opportunities as we are aggressively pursuing. At present we are actively targeting growing accretive assets that consolidate our cloud SaaS and mobile organically strategies. Why we have made progress in identifying targets which we have started an engagement process, we are also conducting solid due diligence to ensure increase shareholder value for our investors on any acquisition to be made.

At this point, I’d like to turn the call over to Gili Shalita our Chief Financial Officer to review the financials in greater detail.

Gili Shalita

Thank you. Michael. Starting with the revenues, total revenue for the first quarter was 8.1 million an improved of 19% from 6.8 million for the first quarter last year. License revenue of 3.4 million and includes a 43% compared to Q1 last year. Total return revenue of 2.6 million an increase of 36% from last year. Maintenance revenue of 2.2 million, an increase of 16% over the third quarter in the prior year, professional service revenue for the first quarter of 2 million a decrease of 17% year-over-year, this decrease does not represent negative trend but essentially a result of fluctuation in project lifecycle. Deferred revenue increased to 3.4 million compared to 2.3 million in December 31st last year representing a 50% addition.

Moving to the expenses, operating expenses were 4.9 million compare to 4 million in the year-ago period and including 149,000 in non-cash stock-based compensation, compared to 43,000 in the year-ago period. In spite of Q1 line presented the cost of revenues was 2.9 million compared to 3 million for the year-ago period.

Gross margin for the first quarter was 64% compared to 56% in the first quarter last year. Sales and marketing expenses increased to 29% to 2.8 million compared to Q1 last year, these expenses are unnecessary to increase our expanding growth initiative. R&D expenses improved 1 million to 0.8 million in the year ago period. These investments were required to enhance and upgrade our now broader and more diversified product portfolio.

G&A cost were 1.1 million unchanged from the same period a year ago. To preclude non-GAAP operating income was 0.4 million compared to a loss of 0.2 million for the first quarter of last year, non-GAAP net income was 0.3 million compared to a loss of 0.3 million for the same period last year, non-GAAP diluted earnings per share was $0.02 compared to a loss of $0.02 per share for the first quarter last year. GAAP net income was 0.5 million or an income of $0.01 per diluted share compared to a loss of 0.3 million for the first quarter last year or a loss of $0.03 per diluted share.

The total numbers of shares in Q1 were 14.1 million for basic and 14.7 million for fully diluted shares. In February, the Company closed a net 13.7 million public offering for the near share. We have held it in the higher share count proactive to the Q1 last year. These conclude my remarks and I now like to turn the call over to Michael for concluding statements.

Michael Schrader

Thank you very much, Gili. To sum up we are very pleased to see the growing fruits of the strategy we initiated in the last three years. We are seeing a strong growth in the pipeline both for our enterprise and our mobile imaging solutions. As well as a higher win rate. The investment in the Americas and in the expanded sales force and marketing program and in developing strong strategic partnerships to promote our cloud and mobile strategy has paid off this quarter with a 20% increase in the U.S. pipeline, new customer wins by our partners, and many a sales cycles in progress at the growing number of leading U.S. and Latin American enterprises.

In parallel, we over achieved our already strong forecast of increased sales in EMEA and close deals for our growth solutions in other emerging markets in Asia Pacific. Looking at the breakdown of revenues by geography, we see growth in the Americas from $0.5 million in Q1, 2013 to $1.1 million in Q1, 2014, an increase of 100%. This high growth is based primarily on growth engine sales. In EMEA, revenues in Q1, 2014, were $5.7 million compared to $5 million in Q1, 2013, an increase of 14%. This is in alignment with the current IT growth trends in Europe. In APAC, where the bulk of our sale -- legacy products and we are gradually increasing sales of growth solutions, revenues grew from $1.12 million, in Q1 2013 to $1.23 million in Q1, 2014 which is an increase of 5%.

We believe that this pattern we will be repeating in the coming quarters. On the side note, the recent acquisition of our competitor ReadSoft by Lexmark is a proof point of the value of our enterprise solutions. In comparison, the growing proportion of high growth mobile solutions and TIS revenues going forward will have an even more positive impact on our market value. Newly emerging technology such as our eFLOW CrowdBridge solution for manual validation of data via cloud sourcing in early stages of excess deployment and executing transactions, I also expect that to contribute to accelerating revenue growth rates in the future. This combination of our focus on growth engine solutions driving organic growth, active pursuit of accretive assets for acquisition, investment in new geographies and disciplined management of operation puts TIS in a great position for 2014 to be a year of double-digit revenue growth and increased profits.

Shelli Zargary

Thank you, Michael. At this point, we are ready to open the floor to questions and our top executive Mr. Schechter, Mr. Shalita, and Mr. Nakar are standing guard to take investors’ questions.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from David Hynes of Canaccord. Please proceed with your question.

David Hynes - Canaccord Genuity

So, Michael that the 4.4 million in total contract value of the SaaS business that you talked about, is that all mobile solutions or are there other dot capture revenue streams in there as well? And then a follow-up to that is can you break it down and tell is how much of that is coming out of the U.S.?

Michael Schrader

Yes, I mean this is not just mobile this is mobile combined with our other cloud-based, class-based solutions. We don’t provide a detailed breakdown but this is the combination of all of our products.

David Hynes - Canaccord Genuity

Okay. And then how much is U.S.-based can you tell us that?

Izhak Nakar

We actually highlighted it in slide deck and we don’t really breakdown in each product but you can see in our slide which is in our Web site, you can see the breakdown in geographic between APAC, Europe and in U.S. You can see all these number there.

David Hynes - Canaccord Genuity

Okay. And then Gili maybe some color on gross margins, it’s obviously a strong license quarter but gross margins were as good as we have seen. So, anything standout in the quarter there or how should we think about it going forward, could we see it step down sequentially or how do you think about that?

Gili Shalita

The gross margin end of quarter has ended, yes it’s a bit higher than it was in the prior quarters and it’s going to remain close to this level but we have to understand that exact gross margin, it depends on the proportion that we have between the mobile type and the other products because the mobile product, the mobile items have much better gross margins than the others.

David Hynes - Canaccord Genuity

Okay.

Gili Shalita

So, it depends on the exact proportion that we have in a specific quarter.

David Hynes - Canaccord Genuity

Got it. And then may be last before I jump back in the queue, Izhak or Michael, you guys alluded to M&A and obviously raised some money and I think investors’ were expecting to see some sort of transaction. So maybe if you could talk kind of in generalities about kind of areas of interest and what you are seeing maybe in terms of valuation expectations from the private companies you are speaking with?

Izhak Nakar

Actually the main two areas that we are looking for acquisition is SaaS and mobile or should we say a SaaS cloud. Definitely we defined target candidate. We have right now short-lists and we evaluate all these candidate but it definitely is going to be in two main area as I said before SaaS and mobile. Regarding the multiply, I believe you know the multiply better than me. But you know it’s going from all the range from one-time up to three time revenue depend what the condition of the Company, whether it’s profitable or not. But part of our format and definitely it should be accretive and this is what we’re looking for and we’re in let’s call it in the short lease to select the target company for us.

David Hynes - Canaccord Genuity

Excellent, great thanks a lot for the color guys.

Izhak Nakar

Thanks.

Michael Schrader

Thank you.

Gili Shalita

Thanks Dave.

Operator

Thank you. Our next question is coming from Mark Schappel of the Benchmark Company. Please proceed with your question.

Mark Schappel - Benchmark Capital

Hi. Good morning and a nice upside in the quarter. Michael starting with you I was wondering if you could give us more information on the currently or excuse me the recently released MobiREMIT product particularly in terms of the product’s capability and market opportunity?

Michael Schrader

This MobiREMIT product is mainly developed in the -- or is mainly first developed with a partnership OPEN SCAN but basically it enabled us for another application besides the MobiCHECK and MobiPAY. What I want to mention what I think is important in our product strategy is that the combination of our mobile product together with a strong platform enables us to not just play in specific single applications but in a wide variety of different applications, like later on or as I mentioned we’re looking also at the insurance vertical or transportation vertical or utilities and we see a lot of opportunities in this space.

Mark Schappel - Benchmark Capital

Okay. And then Michael with respect to the annual growth rate for the mobility business, I believe last quarter mobile revenue grew 100% year-over-year and comprised about 10% of total revenue, I was wondering if you could give us some more metrics for this quarter?

Michael Schrader

We still see the same momentum in the mobile business we see big opportunities, we see in general our pipeline grew specifically in the U.S. or in the Americas business but also in the mobile business. So as we pointed out 70% of our revenue today are built of our growth solutions of the new product really and as Gili was explaining, this products are also delivering a better gross margin. And of course it’s mobile and this is the best player in the year but also the other new solutions are in general delivering a better gross margin than our legacy products. So to come back to the original question we really see a continuous growth in that market and our main growth that we want to achieve this year in the North American business or in the TIS Americas business is coming from mobile.

Mark Schappel - Benchmark Capital

Okay. So going forward then is this the metric you’ll be giving for the mobile business combined with the SaaS business?

Michael Schrader

Yes. Yes.

Mark Schappel - Benchmark Capital

Okay, thanks. And then that should do it for me. Thank you.

Michael Schrader

Thank you.

Operator

Thank you. Our next question is coming from Mark T.D. of H.C. Wainwright. Please proceed with your question.

Unidentified Analyst

I guess it is afternoon where you are? My first name is Kevin as you guys know a little more insight on your expectation for double-digit growth this year. Is there any way you can maybe lend some more color to that?

Izhak Nakar

When we have talked about double-digit actually we can say that we feel very comfortable with all the research that is published by three analysts. One of them is from your firm actually, and we feel very comfortable. But as based on the partnership and agreement which we signed last year we see nice growth on the pipeline and we mentioned it especially we talked about 20% growth in the pipe and this is where it gives us the confidence that this year we will grow in double-digit in this case. So I believe the best way is to relying on the research, three researches this is where we believe and feel comfortable with the number there.

Unidentified Analyst

Well note it was a solid sequential growth in deferred revenue, is that associated with one particular contract that you’re still working through namely the large one in Brazil?

Gili Shalita

No it’s nothing to do with the contract in Brazil it’s a seasonality thing basically. In Q1 basically we have the large amount of deferred revenue and grows below as well in the [indiscernible] because lots of it is maintenance revenue and part of it is related to some product that we have.

Izhak Nakar

And it also related to the general growth of the company we have to say.

Unidentified Analyst

Okay. Fair enough. Then on, just on the service side can you lend a little color on I mean both the December quarter and the March quarter those levels were down a little bit and versus I guess what we’ve seen in prior quarters and I am just kind of curious why that might be and what you might expect going forward there?

Michael Schrader

Well first of all it is goes back to the question that we answered in the beginning we are changing the product mix and this new product requires a bit so basically the percentage of license revenue goes up a bit the professional service goes down a bit we are increasing profits here the newer products don’t require so much professional services like for instance our mobile product it doesn’t require so much professional services to install it. That’s the reason that’s one of the main reasons for that.

Unidentified Analyst

I see. So Michael what you are saying is that because you are disclosing recurring revenue and SaaS separately that’s coming out of professional services too and then on top of that the mobile subsystems that need as much hand holding exactly, just to make sure that I understand it correct.

Michael Schrader

Yes, that’s what I meant.

Unidentified Analyst

Okay, perfect. Thank you. Then I know that the gross margin question was asked too but I guess I am just looking for a little more detail on quantity I understand that you expect it to be stronger given stronger license and stronger margin profile and mobile solutions and SaaS. I just was hoping if you give us a better feel for how much influence I know it’s difficult to tell me specifically but do you think something in the 62 to 64 range is sustainable or do you think it falls back somewhere between the 60 to 62 range?

Gili Shalita

Again this result to represent the same asset but again if you think on the proportion of the revenues and the mix the cost of revenues again unless something unusual occurs like a [indiscernible] falls are close to the level of $2.93 million okay and this is pretty much constant so again if you take on the revenues and on the proportion of rates as long as little bit higher license revenue and the [indiscernible] revenue that is what marginally gets higher.

Michael Schrader

The issue caring about is as you understand the shops and the mobile it’s coming with very high gross profit, gross margin the other product line the DMR and INVOICE is lower than the INVOICE and the SaaS so based on the proportion we know how high we can reach the gross profit so with full year low revenues from SaaS and the mobile the gross profit continue to increase basically so it depend on the mix and the proportion between the product.

Unidentified Analyst

Okay, so what do you think would be a fair assumption on mix since we’re speaking to that specifically given the mobile is roughly 10% last year where could that go this year given the work with Pfizer and Xerox, et cetera?

Michael Schrader

Sorry to say but we really don’t give, we say that we would give it once a year this is what we did last year and as you know during the last few last quarter our breakdown between the product. So we don’t do it every quarter so this is something that is difficult actually to breakdown and give the number right now but definitely by the end of the year we breakdown on this information by product and the percentage of each product.

Unidentified Analyst

Okay, fair enough. I noticed that R&D expenses were down a little bit from the fourth quarter but they seem to be higher overall last year is that sort of a fair run rate to assume going forward or what are you thinking about R&D and how should we look at total operating cost going forward?

Izhak Nakar

As we mentioned in the last call we had some one time R&D expenses in Q4 investing into our cloud and sorry in our mobile and cloud product we had some onetime expenses so the expenses that you see currently here is what should be during the year.

Unidentified Analyst

Okay, fair enough. And the my last question is just on the tax rate I know it’s not the tax the corporate tax rate up overall what are you sort of expecting to see on that for the full year as a general guidance?

Gili Shalita

It should be around the 7% that it is right now.

Unidentified Analyst

Okay. Well, thank you for taking all of my questions and congratulations on a great quarter you guys.

Michael Schrader

Thank you, Kevin.

Izhak Nakar

Thanks a lot.

Operator

Thank you. (Operator Instructions) Our next question is coming from Jay Harris of Goldsmith & Harris. Please proceed with your question.

Jay Harris - Goldsmith & Harris

Good morning. You burned some cash in the first quarter do we return to free cash flow generation in the second quarter and how do you see that evolving as the year progresses?

Gili Shalita

Okay, thank you for the question. And yes of course we did burn some cash this quarter and this has to do with the combination of two reasons the first one is actually the actual payment of the expenses that we accrued in Q4 and the other reason is some annual payments which has been done in Q1 but the struggle for prepaid is done to benefit off for the year and so I would expect MobiFLOW because the current generating cash.

Jay Harris - Goldsmith & Harris

Alright. And then a just sort of a follow-up on the operating expense ratio questions that have been asked as the company grows what kind of ratio do you think you could grow into and I am not looking for an answer for 2014 or 2015 I am looking for what you think is necessary over long-term to support growth in revenues in the business?

Gili Shalita

I am not sure I understand the question…

Jay Harris - Goldsmith & Harris

Your operating expense ratio was 4.9 million on revenues of $8 million over the next few years how low could that number get?

Gili Shalita

How low? I guess we’ll to get to an operating margin of something around 16% to 20% but again it depends on the ratio of what was there in two or three years and this is very hard to predict right now.

Jay Harris - Goldsmith & Harris

Well, if you get to being $50 million Company what kind of operating, what will you be spending in terms of R&D and SG&A?

Michael Schrader

Jay the question right now first of all you can see the gross profit based on the gross profit and what we are doing in the last few years probably you can for this year probably it’s going to be the same the operating expense for this year as we grow definitely this expense really increases as you understand we can do the calculation but for this year probably December it will be the same that we are in Q1.

Jay Harris - Goldsmith & Harris

Look if you have a if you do I don’t know if you do let’ say 35 million this year and you’re spending 20 million on operating expenses that’s a little less than 60%, right. Can you run that company at 40%, can you run the company at 25%, that’s the nature of my question looking out over period of time?

Michael Schrader

The combination of the product is what we have right now. No, the answer is no. But if the combination will increase the mobile and SaaS definitely it is achievable and again…

Jay Harris - Goldsmith & Harris

What’s achievable?

Michael Schrader

Sorry?

Jay Harris - Goldsmith & Harris

What is achievable?

Izhak Nakar

To improve the ratio.

Michael Schrader

To improve the ratio…

Jay Harris - Goldsmith & Harris

So what level do you think you’ll be able to improve it to is my question.

Michael Schrader

Correct, it depends on the ratio of the product.

Jay Harris - Goldsmith & Harris

Can you run this business with a 30% operating expense ratio, 40%, what -- as your business grows to a significant size where do you think your operating expense ratio will end up, in percentage terms?

Michael Schrader

I suggest for least answer to take a look on the analyst research otherwise any number that we will give you right now is not going to be accurate and I don’t think it’s right thing to do so I think that you take a look on the research you will have probably the number there in this case otherwise we can guessing and I don’t want to guess.

Izhak Nakar

And one important point to mention you see that all the actions that we currently take may it be partnerships to improve our save cost ratio may be lower than SaaS and mobile the more product mix are going into direction to achieve what you just asked is exactly our direction that exactly our strategy.

Operator

Thank you. At this time I’d like to turn the floor back over to management for any additional or closing comments.

Shelli Zargary

Okay. Thank you everyone for joining us. We appreciate your time and attention and we wish you a very-very good day.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this. And have a wonderful day.

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