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MIND C.T.I. Ltd. (NASDAQ:MNDO)

Q4 2010 Earnings Call

February 17, 2011 10:30 AM ET

Executives

Andrea Dray – IR

Monica Iancu – Chairperson and CEO

Analysts

James Lee [ph]

Operator

Good day and welcome to the MIND’s Q4 and year-end 2010 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to your host today to Ms. Andrea Dray. Please go ahead, madam.

Andrea Dray

Thank you, operator. Good morning everyone and welcome to MIND’s conference call. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company’s management uses its financial information and internal analysis in order to exclude the effects of acquisitions and other significant items that may have a disproportionate effect in a particular period.

Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company’s business and to have a meaningful comparison to prior periods.

Also, this call includes information that constitutes forward-looking statements. Although we believe that expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material.

Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include but are not limited to the effects of general economic conditions and such other risks as discussed in our earnings release and at greater length in the company’s filings with the SEC.

MIND may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Yesterday, MIND reported the results of its fourth quarter and full year 2010. The financials can be found in our Form 6K and on our website. On the call today from MIND is Ms. Monica Iancu, MIND’s CEO.

I would now like to turn the call over to Monica. Monica, please go ahead.

Monica Iancu

Thank you Andrea. Good day ladies and gentlemen. Thank you for your interest in MIND and for joining us today. In our call today, I will summarize our major achievements in 2010 and discuss our business.

You can find the full financials that we reported yesterday on our website. In this call I am delighted to have by my side our newly appointed permanent CFO, Mr. Aviram Cohen. Aviram joined MIND as Controller in June of 2006. Before joining us, he served as an auditor at E&Y. After two promising quarters of serving as Interim CFO, we now appointed Mr. Aviram Cohen as permanent CFO.

We are pleased with our total revenues for 2010 that were closed to $20 million, a 13% internal growth over 2009. Our operating income was above our target of 20% and they reached $5 million dollars or 25% of revenues including a non-cash impairment of goodwill and intangible assets of $993,000 and equity based compensation expense of $139,000.

The growth in revenues and some increased efficiency helped us increase the operating income from 2009, operating income of $2.2 million. Net income was $4.9 million or $0.26 per share. Cash flow from operating activities was $6.3 million similar to 2009. Our balance sheet continues to be strong with total cash position of $20.5 million at the end of 2010. Our backlog as of December 31, 2010 includes approximately $12.2 million, which is expected to be billed by year-end. Similar to the one, we reported on the same date last year.

We are pleased with our continued execution as well as with the growing interest in our solutions. Our technical teams, development pre and post sales support had to be praised for their great work. I wish to join our customers and thank the whole MIND’s team. And I will quote from a letter that we received from our customer in South Africa this week. I start quoting, I would like to take this opportunity to thank the MIND team involved in the MIND Bill project for the great work they have done in such a short period. The level of professionalism around customer and product interaction has been exemplary. The team has been exceptional in going the extra mile and putting in the extra effort which is greatly appreciated, end of quote.

We get appreciation for the flexibility of our solution and for the successful deliveries and we are satisfied every time as we feel we help our customers succeed and we create win-win situations that benefit both sides.

We succeeded in 2010 to secure four new customers as well as multiple follow-on orders. Our latest win which we previously announced is with the Canadian company EastLink. This is the first Canadian company that combines cable, internet and telephone service in a communications and entertainment bundle. EastLink will deploy our end-to-end prepaid and postpaid convergent billing solution for their new mobile offering.

We expect to increase the scope of this project in the future by supporting other EastLink services and needs. In recognition of the existing relationship, and the potential in closed in it, we issued EastLink a warrant to purchase 924,545 ordinary shares of MIND at an exercised price of $2.48 per share which was equal at time to the average closing price per share of MIND’s ordinary shares on the NASDAQ stock market during the 30 trading day period immediately preceding the date of the issuance.

The warrant shall be exercisable from time to time for period of 18 months following the date of issuance. Additional wins this year include a startup company proving voice-over-IP services for the mobile IP industry. A telecom vendor has been awarded us as the prime contractor in a project that is financed by the European Union. We have been chosen following a lengthy selection process that have started almost two years ago. A regional U.S. wireless carrier that is a member of this Sprint Rural Alliance. And this operator will utilize our full suite of convergent pay in advance and postpaid billing, rating, invoicing, roaming, customer care, web self-care, point of sale, inventory management, commissions, web services, workflow engine, provisioning, mediation, and dashboard reporting, in order to support their wireless services.

The MIND team has a record of on-time successful delivery and exceptional support. The quality of our technology and our support is proven repeatedly by our customer satisfaction which they express by requesting additional functionality from us. We have announced multiple follow-on orders of various many deals including a major functionality enhancement with our largest Eastern European customers that has since 2007 gradually built a mobile operation based on our billing solution.

MIND also support with its end-to-end billing solution, the wireline operation that services over one million subscribers. Lately, we completed the migration from different platforms into the MIND convergent platform that includes support for wireline, wireless, broadband and IT services. Another follow-on order is with a South African carrier proving a full suite of ISD services and voice-over-IP solutions primarily to corporate customers.

The rating and billing of voice services has been handled by MIND since the launch in 2005, while other solutions were used for data services. Following the decision to expand its service offering, as well as consolidate all systems in to a single platform, MIND was chosen as the convergent platform. Another major upgrade is with an existing U.S. customer, a regional mobile operator that deployed our postpaid billing solution in 2006 and implemented our prepaid IN during 2009.

MIND prepaid IN supports all versions of commercially used IN protocols and it scales from a few thousands to millions of prepaid subscribers. The current enhancement includes replacement of their existing point of sale with our point of sale application. We also had follow-on orders from various customers including two wireless carriers who have been MIND’s customers since 2005 and one Greenfield operator that has stopped his activity in the past and is restarting it now.

These follow-on orders are related to other enhanced rating capabilities adding point of sale order management to the existing MIND platform. Regarding our dividend distribution, as previously described and announced, following the Board of Directors resolution, the company sort and receives to the court approval formerly required in order to enable a dividend distribution of up to $6 million out of its current asset. Based on the new policy and the amount approved by the Board, while taking into consideration the strong cash flow in 2010 and the remaining cash after the distribution, the Board declared a cash dividend of $0.32 per share before withholding tax.

The record date for the dividend will be February 28, 2011 and the payment date will be March 21, 2011. Tax will be withheld at the rate of 20%.

To summarize, we are pleased with our overall execution, the year-to-year growth, our customer satisfaction, and our on-time deliveries, as well as our newer wins. Our strategy has been for many years now to increase the average deal size, to build strong long-term relationships with our customers, to build a strong team of motivated professionals with experience in the industry and in our product, and to continuously win new business.

In 2011, we plan to slightly increase our professional services teams as we support and enhance customer base with larger projects. We believe that the reputation and experience that we have built over more than a decade will help us continue to win new deals of increased size and scope. Operator?

Question-and-Answer Session

Operator

Hello. (Operator Instructions) We’ll pause for just a moment to allow everyone to signal. We will take our first question today from James Lee [ph]. Please go ahead.

James Lee

Do you anticipate paying this level of cash dividend on an annual basis? I’m assuming that you generate this type of operating results. And number two, regards to the withholding tax, does that apply to U.S. based investors?

Monica Iancu

I am sorry James, but I couldn’t hear the first question.

James Lee

So the first question has to do with the cash dividends, whether you anticipate paying this level of cash dividend going forward on an annual basis assuming that you continued to perform like last year?

Monica Iancu

We have now a dividend policy that specifically explains that it is the company policy to distribute a certain amount every year, but every year as we did this year as well we look at the company needs. And the Board needs to finally approve the dividend. We have distributed until now, I think something like seven dividends, seven yearly dividends and we plan to continue to do so, if the situation is the right one. And we really think that our investors appreciate this dividend policy. And this is one of the reasons that we do it.

Now regarding the withholding tax, the withholding tax of 20% is by the Israeli law, and it is to all parties from anywhere in the world. And what I advise everybody is to go to their tax advisor and to see how the treaty between Israel and U.S. or any other country helps them with this treatment of the withholding tax.

James Lee

All right, thank you.

Monica Iancu

Thank you James.

Operator

(Operator Instructions) There are no further questions in the queue at this time madam.

Monica Iancu

Okay. So thank you all.

Operator

That will conclude today’s conference call. Thank you ladies and gentlemen for your participation, you may now disconnect.

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