Monica Iancu - President & CEO
MIND C.T.I. Ltd. (MNDO) Q1 2011 Earnings Call May 5, 2011 8:30 AM ET
Thank you and 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 this financial information and internal analysis in order to exclude the effect 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 first quarter 2011. The financials can be found in our Form 6-K and on our website.
On the call today from MIND is Mrs. Monica Iancu, MIND’s CEO. I would now like to turn the call over to Monica. Monica, please go ahead.
Thank you Andrea, and good day ladies and gentlemen. In our call today I will summarize our major achievements in the first quarter of 2011 in this console business. You can find the full financials that we reported yesterday on our website.
Non-GAAP revenues were $4.8 million excluding a one-time stock-based compensation granted to a customer in an amount of $332,000. GAAP revenues were $4.5 million compared with $5.3 million in the first quarter of 2010.
We mentioned in the past that most of our customers require a lengthy process before they order our products, and in many cases they also delay the implementation due to reasons that are not related to us. Our sales process is often subject to delays because before we can sell our software to most of our customers, they contact lengthy and complex approval in the purchasing process. They also tend to change their mind multiple times during the process.
The length of the decision process includes the time needed for the service provider to determine and announce its specific requirements that change during the process most of the time, the selection period and the legal and purchasing procedures. Only after these stages in the process high level approvals that are necessary in order to commit to the significant resources required to our acquisition and implementation of a billing solution are being sought and at that point the whole process may start from the beginning. Thus the sales cycle is long and requires resources and patience.
In 2010 we announced four new customers, meaning we successfully completed the long and resource-exhausting cycle I just described. Some revenue from some of these deals that was supposed to be recognized in Q1 based on percentage of completion was deferred to future quarters since the implementations were delayed by the customers for various reasons that are not in our control.
The recent implementations and consequently the revenue recognition are delayed is mainly due to delays in the build up of the customer’s network infrastructure and changes in requirements, the projects scope after the process is started.
In the first quarter, we recorded a non-GAAP operating income based on the non-GAAP revenues and excluding equity-based compensation expense of $20,000 of $1.274 million or 26.6% of non-GAAP revenues.
GAAP operating income was $922,000 or 20.7% of GAAP revenues. GAAP net income was $1.162 million or $0.06. As we mentioned many times in the past, we believe that we have the skills to maintain profitability even when revenues are shy of the ones we expected.
Cash flow from operating activities was $1.2 million. Backlog as of March 31, 2011 includes $10.2 million that is expected to be billed by year end. We succeeded in the first quarter of 2011 to secure one new customer, as well as multiple follow-on orders. Our latest win which we previously announced is with the Israeli company Pelephone, the first Israeli mobile operator with over 2.8 million subscribers.
MIND provides Pelephone with an integrated end-to-end convergent billing and customer care solutions for full support of its MVNE, mobile virtual network enabler operations. Pelephone Communications is the first cellular provider in Israel to partner with MVNO carriers. And since December 2010, Pelephone has been chosen by a number of new carriers.
MIND’s billing and customer care platform will deliver a multi-provider easy configurable platform that enables Pelephone to expand Israel’s dynamic telecom market. Our convergent end-to-end billing and customer care solutions can run side by side with any existing billing system and offer the flexibility carriers need these days more than ever while reducing cost of operations.
Pelephone chose MIND since our complete platform provides the flexibility needed as they develop the MVNO operations and also based on the impressive track record of our on-time deliveries.
We are excited to have been selected for the first time by a Tier 1 operator in Israel. We are committed to Pelephone’s success in the MVNO platform operation and hope to be able to extend our relationship with this important customer. We expect to recognize the revenue from this win by year end.
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.
The multiple follow-on orders we announced include: one order for e-commerce portal with a regional US mobile operator that deployed our postpaid billing solution in 2006; implemented our prepaid IN during 2009; and enhanced the system with our point-of-sale application, and now they upgraded the system to the latest version in 2010.
Our functionality upgrade with a Tier 3 carrier, who is also a member of the Sprint Rural Alliance, provides voice and data services to technological underserved areas of America. A new release upgrade with a wireless carrier in the US who is a MIND customer for six years, and the largest I am going to speak about is a MIND major version upgrades, who as enterprise focused provider of fixed voice and data services in Turkey, who has been a MIND customer since 2004.
This carrier provides postpaid corporate voice services and termination traffic. The migration will enable the carrier to benefit from MIND’s latest version advanced rating schemes and product catalogue offerings. We will achieve a competitive advantage of converged services offerings. In addition, the technological improvement would provide operational efficiencies and cost savings to this carrier in Turkey.
Regarding the revenue distribution, the geographic distribution this quarter is atypical. The sales in Americas represented 79.3% and sales in Europe represented 46.9% of total revenue, and the rest divided between the other locations in the world. Revenue from customer care and billing software totaled $3.4 million while revenue from enterprise call accounting software was $1.1 million.
MIND has been delivering call management solutions for the enterprise market since its inception in 1995 and completed installations in over 20,000 locations around the world. With extensive reporting capabilities, MIND’s solution, PhonEX ONE, enables organizations to manage, control, track, alert and analyze their telecommunication expense, usage and productivity.
The MIND’s solution, PhonEX ONE delivers one unified solution for all voice communication expenses, including traditional Voice over IP and mobile telephony. The flexible and scalable architecture of PhonEX ONE meets the needs of large enterprises, supporting a limited number of extensions and sites with full functionality through a web browser.
The call management application is compatible with key IP telephony solutions such as the one that Cisco offers and now Microsoft. PhonEX ONE now reports not only on traditional call management information such as inbound, outbound and internal calls, and voice traffic utilization, but also on specific information including conferences, video calls and instant messages.
Revenue for the Enterprise segment has increased lately. As acceptance of large scale IP telephony network has increased and also the relationship with Microsoft that opens new doors for us.
Regarding the annual dividend, we get several questions regarding the dividend policy and the impact of the dividend on our cash position. Our balance sheet continues to be strong with a total cash position of $17.4 million at the end of the quarter.
As previously announced, based on our policy of annual, once a year dividend distribution, the board declares a cash dividend of $0.32 per share before we withholding tax. The record date for the annual dividend was February 28, 2011, and the payment date was March 21, 2011. The dividend declared and distributed was approximately $6 million, out of which $4.7 million was paid to the shareholders in March 2011, and $1.3 million was paid to the Israeli tax authority for the withholding tax during April 2011 after the quarter end.
Now I want to discuss the impact of the Customer Warrant Award on our revenues line.
As we previously announced, we issued in January 2011 to EastLink a warrant to purchase ordinary shares of MIND. Given the exercise price and warrant validity period and according to US GAAP rules we encountered a one time stock-based compensation granted to a customer adjustment, while revenues in the size of $332,000. This impact on the revenue line is similar to the impact of auction granted to employees but the debt impact is on the cost or the expense lines and is not related to the timing of exercising the warrant or the auction. This is a one-time reduction in the top-line that we encountered in the first quarter of 2011 when the warrant was issued.
To summarize, our strategy remains to focus on winning new accounts, to enhance existing relationships, and the goal was to keep a vigilant eye on profitability. We are pleased with our continued execution and we are in the long cycle of winning new projects with multiple carriers around the globe. We get appreciation for the flexibility of our solutions and hope to continue with successful deliveries and help our customers succeed. Operator?
[Operator Instructions]. Our first question comes from Pierre Jacobson. Please go ahead.
Thank you for the clarification on the warrant. With respect to the revenue that you see being delayed in the year, could you give us an idea of what is the magnitude of that revenue that you saw being delayed?
Unfortunately, I cannot give you a specific magnitude as we don’t give any estimates for future revenues. It is not something that I am willing to disclose.
Understood. Can you indicate whether or not you expect to catch up all the revenue or whether this delay will then impact the entire year?
We expect to be able to catch this revenue till year end.
Okay, thank you very much. Your performance over the last couple of years has been excellent.
Thank you Pierre, and thank you for your messages on the message board, and I really enjoying your analysis.
Thank you very much.