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Retalix Announces Fourth Quarter and FY 2006 Results

Fourth Quarter Revenues Reached a Record $56.8 Million with Net Income of $3.4 million and Adjusted Net Income of $5.4 Million; Full Year Revenues Reached $203.8 Million with Net Income of $1.3 million and Adjusted Net Income of $7.9 Million

Ra’anana, Israel, March 6, 2007 – Retalix® Ltd. (NasdaqGS: RTLX), a global provider of enterprise-wide software solutions for food retailers and distributors, today announced results for the fourth quarter and full year ended December 31, 2006. 


Fourth Quarter 2006 Financial Highlights:

    * Total Revenues for the period were a record $56.8 million, compared to
$53.7 million in the fourth quarter of 2005.
    * Product Revenues for the period were 36.2% of total revenues, compared to
48.1% of total revenues in the fourth quarter of 2005.
    * Gross Margin for the period was 62.4%, and adjusted (non-GAAP) gross
margin was 64.4%, compared to gross margin of 64.4% and adjusted (non-GAAP)
gross margin of 65.7% in the fourth quarter of 2005.
    * Net Income - GAAP for the period was $3.4 million, compared to net income
of $5.5 million in the fourth quarter of 2005, or $0.17 per diluted share,
compared to $0.28 per diluted share in the fourth quarter of 2005.
    * Adjusted Net Income (non-GAAP)* for the period was $5.4 million, compared
to $6.4 million in the fourth quarter of 2005, or $0.27 per diluted share,
compared to $0.32 in the fourth quarter of 2005.
    * Cash Flow: In the fourth quarter of 2006, the Company generated $1.1
million from operating activities, compared to $2.3 million in the fourth
quarter of 2005.

Full Year 2006 Financial Highlights:

    * Total Revenues for the period were $203.8 million, compared to $187.4
million in FY 2005.
    * Product Revenues for the period were 36.3% of total revenues, compared to
48.9% of total revenues in FY 2005, reflecting the growth of enterprise
solutions as part of the Company’s overall business.
    * Gross Margin for the period was 60.0% and adjusted (non-GAAP) gross margin
was 62.5%, compared to gross margin of 64.8% and adjusted (non-GAAP) gross
margin of 66.1% in the fourth quarter of 2005.
    * Net Income - GAAP for the period was $1.3 million, compared to $14.6
million in FY 2005, or $0.06 per diluted share, compared to $0.74 in FY 2005.
    * Adjusted Net Income (non-GAAP)* for the period was $7.9 million, compared
to net income of $16.8 million in 2005, or $0.39 per diluted share, compared to
$0.85 in FY 2005.
    * Cash Flow: In FY 2006, the Company generated $3.1 million in operating
activities, compared to $12.5 million in FY 2005.
    * Balance Sheet: Cash and marketable securities amounted to $59.7 million on
December 31, 2006, compared to $58.5 million on September 30, 2006. Long term
debt was $1.0 million, and shareholders’ equity was $211.4 million.

Fourth Quarter Operational Highlights:

    * A tier-1 petroleum and convenience store chain in the USA selected Retalix
point of sale.
    * A tier-1 supermarket chain in the USA completed the roll out of Retalix
StoreLine point-of-sale to its 900 stores.
    * C&S Wholesale Grocers went live with Retalix Biceps purchasing solution.
    * Four distributors in North America went live with Retalix Power Enterprise
and Retalix Power Warehouse.
    * In India, Reliance Industries selected Retalix StoreLine and Retalix
Loyalty for their newly-established grocery stores.
    * In China, a major home-furnishing retail chain selected Retalix
point-of-sale, headquarters and loyalty solutions.
    * A Ukrainian retailing group selected Retalix point-of-sale, headquarters
management and order optimization solutions.
    * Woolworths Australia completed the roll out of the Retalix point-of-sale
software to its Big W stores.
    * In Israel, Supersol successfully piloted the thin-client point-of-sale
solution, Retalix Storeline.net.
    * StoreNext Israel expanded its market coverage to include sales data from
Supersol, and it now covers 70% of Israel’s food and fast moving consumer goods
market.
    * Retalix opened an office in Tokyo, Japan, to support Japanese customers.

“The fourth quarter of 2006 was a record quarter for Retalix in terms of revenues and our second-best quarter in terms of adjusted net income,” said Barry Shaked, president and CEO of Retalix Ltd. “We view this as an encouraging sign that we addressed the challenges we faced mid-year in 2006. Retalix entered 2007 better equipped to meet the challenges that face us, both in terms of human resources, management team, products and integration, and with the experience to better predict the execution and revenue recognition of various projects.”

“We are making progress with our new enterprise platform, Retalix InSync, and we plan to release the Retalix InSync Purchasing, Order Management & Billing and Thin Store applications in the first half of 2007 and the Warehouse Management System later this year. At the same time, we continue to have a strong business of in-store solutions and a strong business of field-proven headquarters and supply chain solutions. These products provide us with the resources and the confidence to invest in the development of next-generation solutions, and still make a profit for our shareholders,” said Shaked.

Business Outlook

Shaked added: “Looking forward, we continue to believe that market conditions remain favorable for Retalix, and that we will be able to achieve the goals that we have set for 2007. As in the past, we expect our revenues and income to weigh more on the second half of the year. We expect around 45% of our total revenues in the first half of 2007, and around 55% of our total revenues in the last two quarters of the year.”

Based on market conditions and the current pipeline for 2007, Retalix anticipates total revenues for FY 2007, in the range of $220 to $230 million, adjusted (non-GAAP) net income in the range of $15 million to $22 million, and GAAP net income in the range of $9 million to $16 million. GAAP net income includes estimated equity based compensation expenses of $3.5 million and estimated acquisition related non-cash items of $2.5 million (net of tax effect)*.

Conference Call and Webcast Information

The Company will be holding a conference call to discuss results for the fourth quarter and FY 2006 on Tuesday, March 6, 2007 at 10:30 AM Eastern Time (5:30 PM Israeli Time). This conference can be accessed by all interested parties through the Company’s web site at http://www.retalix.com/index.cfm?pageid=1063. To listen to the live call, please go to the Web site at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on the Retalix site.

About Retalix

Retalix is an independent provider of enterprise-wide software solutions to retailers and distributors worldwide. With more than 42,000 sites installed across 51 countries, Retalix solutions serve the needs of multi national grocery chains, convenience and fuel retailers, food service operators, food and consumer goods distributors and independent grocers. The Company offers a full portfolio of software applications that automate and synchronize essential retailing, distribution and supply chain operations, encompassing stores, headquarters and warehouses. Retalix develops and supports its software through more than 1,500 employees in its various subsidiaries and offices worldwide. The company’s International headquarters are located in Ra’anana, Israel, and its American headquarters are located in Dallas, Texas. Retalix on the Web: www.retalix.com

* Note on Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Retalix uses non-GAAP measures of gross margin, net income and earnings per share, which are adjustments from results based on GAAP to exclude non-cash equity based compensation in accordance with SFAS 123(R) and amortization of intangibles related to acquisitions. Retalix’s management believes the non-GAAP financial information provided in this release is useful to investors’ understanding and assessment of the Company’s on-going core operations and prospects for the future, as well as for providing useful comparisons to periods prior to the adoption of SFAS 123(R). The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management also uses both GAAP and non-GAAP information in evaluating and operating business internally and as such deemed it important to provide all this information to investors. Reconciliation between GAAP to non-GAAP statement of income is provided in the table below.

** Note Regarding Adjustments to Retained Earnings

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, "Financial Statements -- Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108 requires companies to quantify the impact of all correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company and its consolidated subsidiaries initially applied the provisions of SAB 108 using the cumulative effect transition method in its annual financial statements for the year ending December 31, 2006 in connection with its accounting treatment for employee medical benefits of its U.S. employees as well as land leasing rights with regard to its headquarters in Ra’anana, Israel. Previously to these financial statements, the company accounted for costs related to its U.S. employee medical benefits on an as incurred basis. All paid claims, net of stop-loss reimbursements were recorded as expenses in the current period. However, no liability for future claims, incurred but not reported (“IBNR”), was presented on the balance sheet. Effective for 2006, the Company has estimated the outstanding claims as of December 31, 2006 and 2005. The estimated liability as at December 31, 2005 of approximately $1.0 million has been recorded against retained earnings.The change for the year ended December 31, 2006 was recorded as an expense in the Statement of Income for the year ended December 31, 2006. In addition, previously to these financial statements the Company has not amortized its lease rights in land related to its headquarters in Ra’anana, Israel. The accumulated amortization as at December 31, 2005 of $0.3 has been recorded against retained earnings. The net change for the year ended December 31, 2006 was recorded as an expense in the Statement of Income for the year ended December 31, 2006.

Safe Harbor for Forward-Looking Statements: Except for statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Retalix, including revenues, income and expenses, to be materially different from any future results, performance or achievements or other guidance or outlooks expressed or implied by such forward-looking statements. For example, statements regarding being better equipped for 2007, progress of new platforms and solutions and under “Business Outlook,” all involve forward-looking statements. Factors that could impact these forward-looking statements include risks relating to Retalix’s anticipated future financial performance and growth, continued roll-outs with existing customers, continued interest in Retalix’s new platforms, the perception by leading retailers of Retalix’s reputation, the potential benefits to food and fuel retailers and distributors, expansion into new geographic markets, and other factors over which Retalix may have little or no control. This list is intended to identify only certain of the principal factors that could cause actual results to differ from the forward-looking statements. Readers are referred to the reports and documents filed by Retalix with the Securities and Exchange Commission, including Retalix’s Annual Report on Form 20-F for the year ended December 31, 2005, for a discussion of these and other important risk factors. Except as required by applicable law, Retalix undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.