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Retalix Ltd. (NASDAQ:RTLX)

Q1 2012 Earnings Conference Call

May 9, 2012, 9:00 AM ET

Executives

Shuky Sheffer – CEO

Sarit Sagiv - CFO

Operator:

Welcome to the Retalix conference call.

As a reminder, this conference call is being recorded today, May 9, 2012.

Leading the call is Retalix's CEO, Shuky Sheffer. Joining him is Sarit Sagiv, the Company's Chief Financial Officer.

Before I turn the call over to them, I'd like to remind our listeners that management's remarks contain forward-looking statements. These statements include, but are not limited to, comments regarding the guidance and expectations about revenues, DSO, effective tax rate, financial income and profitability, expectations about the Company's pipeline of customers, addressable market and market trends, expected drivers of the Company's growth, anticipated demand for, and expected investments in, the Company's software products and services and new offerings, management's expectations as to the Company's future financial performance, outlook for 2012 and future strategies, plans and opportunities.

Such forward-looking statements are subject to risks and uncertainties and, therefore, Retalix claims the protection of such statements contained in the Private Securities Litigation Reform Act of 1995 and other securities laws. Actual results may differ from those discussed today and we'd like to refer you to a more detailed discussion of all these risks and uncertainties contained in today's press release and in the Company's filings with the SEC, and in particular in its Annual Report on Form 20-F filed with the SEC on April 5, 2012.

Also I'd like to remind you that Retalix reported income from operations, operating margin, net income and earnings per diluted share on both a GAAP basis and on an adjusted non-GAAP basis. Today's press release includes a reconciliation of non-GAAP information to the most directly comparable GAAP information and is posted in the Investor Relations section of the Company's Web site at www.retalix.com. The press release showing the first quarter non-GAAP reconciliations can also be found on this site.

Now I will turn the call over to the CEO of Retalix. Mr. Sheffer please proceed.

Shuky Sheffer

Thank you Adam.

Welcome and thank you for joining us on this call.

This morning we announced our financial results for the first quarter of 2012.

We had a good start to 2012 recording record revenues and strong improvements in operating margins and net income as we continued to execute on our strategy and work to deliver programs for our customers. This is our ninth consecutive quarter of revenue growth. It demonstrates the success of our strategy of combining Retalix 10 and other innovative products and product-led services to build our customer engagements.

Revenues increased 21 percent year-over-year to 65.7 million dollars in the first quarter and Net Income Non-GAAP was up 50 percent year-over-year to 5 million dollars in the first quarter.

We are achieving good, consistent results and solid execution across the Company. We are beginning to leverage our achievements in 2011, executing on our customer wins and continuing to build across all our lines of business and around the globe.

Retalix 10 is being recognized as the most innovative solution for larger, high volume, high complexity retailers, enabling today's demanding consumers to shop at any time, from any place, on any channel as well as crossing seamlessly from channel to channel. We are helping retailers to enhance their efficiencies, differentiate and grow their businesses and proactively and quickly adapt to the changing requirements of today's market.

Our service offerings, including software integration, managed services, and automated testing, are also creating a lot of opportunities for us.

We continue to receive positive feedback from our customers, prospects and key industry analysts on our offerings and vision and win new customers and projects. This quarter we won customers across our lines of business and around the globe, including China and other emerging markets.

We are delivering on our strategy and confirming that Retalix is positioned with the unique solutions to meet retailers’ needs.

In a moment I will talk in more detail about market trends and our outlook. Before that I am pleased to welcome Sarit Sagiv to our team as our CFO. With her strong experience, including financial management of large and global software and services programs we are confident that Sarit will continue to strengthen our financial operations. I want to again thank Hugo Goldman for his excellent service to Retalix including his contribution to the transition we have been making over the last two years. Sarit brings to Retalix a wealth of relevant experience, which will be very helpful in managing the business as we continue to grow and transform Retalix. I am pleased to have Sarit on board and look forward to introducing her to you.

Sarit Sagiv:

Thank you Shuky. I am very excited by the opportunities that I see for Retalix.

Retalix had a solid financial performance in the first quarter of 2012 reporting 21 percent growth in revenues compared to the year-ago first quarter and 5 percent above the sequential quarter. Total revenues were 65.7 million dollars for the three months ended March 31, 2012, compared to 54.1 million dollars in the year-ago first quarter.

Looking at the revenue mix, software revenues were approximately 14 percent of revenues in the first quarter of 2012. Maintenance revenues derived from our products were 24 percent, professional services, which includes our SaaS revenues, were 53 percent, and hardware revenues were 9 percent of total revenues.

Keeping with our guidance for 2012, our non-GAAP operating margin improved to 9.4 percent in the first quarter versus 8.8 percent in the year ago first quarter and 7.9 percent in the sequential quarter.

Non-GAAP income from operations was up 30 percent to 6.2 million dollars in the first quarter 2012, versus 4.8 million dollars in the year-ago first quarter. GAAP income from operations was up 13 percent to 3.9 million dollars in the first quarter 2012, versus 3.4 million dollars in the year-ago first quarter.

We achieved these improvements while continuing our investments. R&D remains stable as a percentage of total revenues. Sales and marketing increased as we continued to build our market position. G&A declined as a percentage of revenues versus the year-ago first quarter and our total headcount was largely stable in the first quarter at over 1,560 people. Versus the year-ago first quarter our headcount is up by over 200 people including the additional personnel who joined Retalix following our acquisition of MTX in July 2011.

We recorded financial income of 0.6 million dollars in the first quarter which includes interest income, the net impact of currency fluctuations on the value of our non-dollar assets, and currency translation costs. This compares to a financial expense of 0.3 million dollars in the first quarter of 2011. The financial income was at a similar level to the sequential quarter, and as we previously noted, we expect little or no financial income in 2012.

After the tax benefits we recorded in 2011, which lowered our effective tax rate in the third and fourth quarters and for the full year, we moved in the first quarter of 2012 to a more normalized effective tax rate of approximately 25 percent. We expect to maintain a similar effective tax rate for the rest of 2012.

Turning to our income, we reported strong year-over-year gains in our Net Income both on a GAAP and non-GAAP basis.

Our non-GAAP Net Income was up 50 percent to 5.0 million dollars, or 20 cents per diluted share in the first quarter versus 3.3 million dollars, or 13 cents per diluted share in the year ago first quarter.

Our GAAP Net Income was 3.3 million dollars, or 13 cents per diluted share, in the first quarter, versus 2.3 million dollars, or 9 cents per diluted share, in the year-ago first quarter.

Our balance sheet strength continues. This quarter we generated 3.8 million dollars in cash flow from operations, bringing our total to 138.7 million dollars in cash and cash equivalents, deposits, marketable securities and long-term investments and we have no debt.

We continue to pay careful attention to receivables and had another strong collections quarter. Total trade receivables increased to 66.9 million dollars at the end of the first quarter, reflecting the growth in our business. Our DSO however was stable at 85 days at the end of the first quarter, the same as the previous quarter and improved from the 93 days in the first quarter of 2011. As we commented in the past, we expect that while entering into larger and longer-term customer contracts, our DSO might increase.

In conclusion, we started 2012 with a strong financial performance, good growth in revenues, operating margins and net income. I am excited to have joined Retalix and look forward to working with the team. I believe our strong financial platform will continue to help us in pursuing opportunities in our markets.

Now I will turn the call back to Shuky.

Shuky Sheffer

Thank you, Sarit.

As we discussed on our call in February, last year was a defining year for Retalix as our leadership positioning was strengthened. We expect 2012 to be a big execution year, as we build on our successes in 2011.

The first quarter was a strong execution quarter for Retalix. This will remain a key focus for us in the coming quarters. We are executing on large customer programs, that we announced both last quarter and at the beginning of the year, and we are working to further build on our growth engines. As you know, this includes the Retalix 10 Store Suite and our other innovative products, our services offerings, software-as-a-service including our connected payments programs, and growth across our geographies and in adjacent markets.

Our innovative products are being well received by retailers and creating a lot of opportunities in the market. The growth in license revenues this quarter reflects both the good interest we are generating for our products and the customer wins we discussed with you in 2011.

We are building on the strengths of the Retalix 10 Store Suite, which include multi-channel capabilities and strong architecture, while allowing low cost of ownership and flexibility in addressing retailers’ needs. In January 2012, at the National Retail Federation conference, we announced the Retalix 10 Mobile Shopper, a new mobile platform that connects consumers to the retailer ecosystems and to their favorite local store.

At NRF we also announced that Retalix 10 is available as a service from the cloud. This enables retailers to simplify their IT infrastructure and operations, reduce maintenance, IT resources and capital expenditure while enjoying the benefits of per-demand scalability and elasticity, as well as accelerated time-to-market. We are enabling our customers to deploy their systems in multiple set ups best suited to their format, geographical location and line of business. This further demonstrates our future looking strategy, anticipating both existing and emerging needs of our customers, as the industry continues to transform. Additionally it also means that smaller retailers can now afford access to enterprise applications that were, up to now, only accessible to large retailers.

We also continue to create good growth with our services offerings, including software integration, managed services, and automated testing.

Our strategy of building larger and longer-term relationships with our customers by combining products and product-led services is beginning to contribute to our results. It is also helping us to achieve one of our key goals, which is to grow our share of wallet with our customers.

In addition to announcing the software-as-a-service opportunities for Retalix 10 we also continue to expand our connected payments programs, where we are also winning new customers.

We are successfully executing on our plan growing our business around the world and in adjacent markets. We are creating opportunities with a growing range of retailers, including many who in the past did not see Retalix as a natural partner for their business. We are moving aggressively to take advantage of these opportunities while also working diligently on our current customer programs and delivering on our commitments.

The retailing market is very active and retailers are focusing on the store and customer interaction. Retailers are concentrating their IT efforts on their touch points, building customer loyalty and integrating new technologies such as mobile shopping into their operations. As we have discussed with you on previous calls, this is playing to our strengths and expertise in high volume, high complexity store operations.

These trends are generating a lot of interest from retailers in our unique solutions demonstrated both by the strong response we received in January at NRF, as well as a lot of activity across the company and around the globe during the first quarter. We are gratified by this strong response and it is helping us to build our pipeline for 2012 and beyond.

Looking at the overall retailing market, we see increasing activity in the U.S. markets. The U.S. market is moving faster than Europe, and economic uncertainties remain in parts of Europe.

The competitive landscape is also being redefined by a number of large transactions, including the recent announcement of Toshiba’s acquisition of IBM’s point of sale solutions business.

Retalix, of course, is accustomed to working in a competitive market place and no stranger to competing against large, global companies as well as partnering with them when the opportunities exist. We see opportunities in these changes and are working to leverage our strengths in the market as well as adapting to and capitalizing on the new opportunities.

We are pleased by our start to 2012 and the successes in the first quarter. Today we are reiterating the guidance we gave two months ago. We continue to expect to achieve double digit revenue growth and improved profitability in 2012 compared to 2011. In February we said we expected total revenues in the range of 260 to 270 million dollars and 9 to 10 percent profitability from operations for 2012. Our guidance is based on organic revenue growth generated from Retalix’s products and services.

In summary, we had a good start to 2012, achieving a strong financial performance as we begin to leverage our successes in 2011 and work to deliver good results and innovation for our customers. Our results continue to confirm our positioning and the strength of our strategy, focusing on innovative products and product-led services for a growing variety of high volume, high complexity retailers. We continue to build on our strengths to address the emerging trends in the marketplace focusing on the store and the customers and key elements, such as mobile and e-commerce. We are gratified by the strong positive responses we are getting from retailers, our partners, and industry analysts and will continue to work to execute on our strategy and deliver strong results for our customers. We thank you for your support and look forward to sharing more successes with you as 2012 unfolds.

Thank you. Operator we are ready to take questions.

Question-And-Answer Session

Page 7

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Source: Retalix CEO Discusses Q1 2012 Results - Earnings Call Transcript (Prepared Remarks)

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