One of the reasons for starting talkRA was to share some of the fascinating conversations I find myself having with people from across the revenue assurance sector. For talkRA podcast number 2, I was fortunate enough to speak with Itzik Weinstein, President & CEO of Israeli vendor ECtel. ECtel sells revenue management solutions to communications providers and is listed on the Nasdaq stock exchange. Ahead of the announcement of ECtel’s year end results, we talked about what Itzik thought about 2008 and his predictions for 2009. Because of the global economic crisis, ECtel have seen their share price fall from nearly US$3 at the start of 2008 to around half a dollar by the end. This, rather unusually, means that the assets on ECtel’s balance sheet have a higher value than its stock market capitalization. Irrespective of the bad news in the stock markets, ECtel’s announcements have continued to be positive. You can look at the text below for an abridged transcript of my conversation with Itzik. To get the full 30-minute interview, you need to listen to the podcast, available from both talkRA.com and iTunes. It proved to be a revealing conversation. Ahead of the release of ECtel’s year end results, I began by asking Itzik how good 2008 had been for business.
Eric: Thank you very much for your time, Itzik, today. How satisfied are you with the performance of ECtel over the year?
Itzik: Last year was a bit of a strange year for our industry. What we found was that deals are dragged [out] more than usual. It takes longer to close. Still, we are happy with the results. Deals that took longer to get to closure, longer than we are used to, still were closed. We got the business that we were looking for. We feel okay, taking into account the crisis out there – we got into the lower half of our guidance. This was a good year for us, although we see the difficulties to close deals… budgets were allocated at the beginning of the year but were frozen or pushed to next year.
Eric: Do you think budgets will stay at a similar level next year?
Itzik: I do anticipate a change, but this doesn’t mean lower budgets. I think the market will take a new direction. I think next year [2009] is a good year for our industry, although, if we go back to budgets, I do see that capex will be an issue. Although [customers] understand that this will save them money and the ROI will be fast, capex will be an issue. This is why we are offering new business models to the market. The idea is to transfer the capex expenses into opex and to bring the expense as close as possible to the ROI for the customer. Monthly or quarterly payments… revenue sharing… software-as-a-service… managed services… there are many options that we, as a company without debt, and with money in the bank, can give our customers.
Eric: Buying revenue assurance on a rental-type basis: is this something you are expecting to increase a lot in 2009?
Itzik: I do expect this to increase in 2009 and going forward. Vendors that understand their customers can grow even though these are crisis times. I do believe this is an opportunity for our kind of business. You know, these kinds of rental or recurring payments are more usual to tier 3, tier 4 customers that do not have the capex, than to tier 1 and tier 2, but we also see these in tier 1 and tier 2. We don’t have many deals like that yet, but we do see the interest coming from the market.
Eric: I can see what you mean that turbulent times create change, and people can exploit that change and grow and change their market position very rapidly in a positive way, as well as a negative way. Talking about the stock market for a moment, conditions are tough for everybody. Your shares are at a historic low. Do you think the stock market is being excessively gloomy in terms of the valuation?
Itzik: Yes. Very. We are speaking with our shareholders, and we have a few of them that are very big and invest a lot of money in our company, and they are involved with many others, so they are the reference. Of course, we trade lower than the cash we have in the bank. Our business is bigger than its valuation, if you want to speak about revenue multipliers, or about cash in the bank, or any other indicator from the market. We are doing a lot better, and still we get a very low value for the shares.
Eric: Is it the case therefore that, as a CEO, you have to focus upon the major shareholders and make sure they understand the business model, and not worry about what the stock market says?
Itzik: The main shareholders – I don’t mean only the big ones, the ones that are there for a long time – I get to see them once every quarter and we speak more often on the phone. They are updated on what’s happening, what we’re doing, what is the strategy – they are fully aware and it’s visible and transparent to them.
Eric: They used to say that CxO’s in telecoms companies didn’t get the point of revenue assurance, revenue management and fraud management. Do you sometimes feel that there are investors who don’t really understand what it is that you’re offering and therefore don’t understand how to value your company?
Itzik: Yes and no. There are investors that are long-term and they get to hear the testimonials from big customers and with time they do understand. To acquire a new investor is difficult, especially these days. Still, as I said, in turbulent days and crisis periods, we are going to become critical [to Communication Providers] and this will raise our valuation.
Eric: What parts of the world do you think will be driving revenues in 2009?
Itzik: I don’t see the North American region being strong next year. Central and Latin America still remains one of the biggest regions for us. Europe has new opportunities. In Asia-Pacific we have put new people on the ground, and for China there is a lot of potential for next year. Africa is growing faster than other regions, for us especially. We do see a slowdown in the former Soviet Union and a slower pipeline in North America.
Eric: You have made Integrated Revenue Management, as you call it, the focus for your marketing and for your products. In 2009, what do you anticipate will be balance between selling further extensions of the products to your existing customers versus selling to new customers?
Itzik: Traditionally, 80% comes from the current customer base. I thought that in bad times more of our revenues will come from our existing customer base, but the evidence is different. We see we are getting new customers these days. I anticipate 70 to 80% will come from existing customers, 20 to 30% will be new customers.
Eric: Even in the midst of this economic crisis, there still have been potential new customers you’ve talked to?
Itzik: We have new customers. It’s not published yet, but the press release will come.
Eric: Consolidation in the industry – obviously it’s a difficult time. Do you expect, across your competitors, that there will be more consolidation next year?
Itzik: Yes I do. I do expect to see consolidation. Maybe not in the big competitors, but amongst the small ones that will lack cash, some [will] either vanish or consolidate with others.
Eric: As you mentioned, you have got cash in the bank, the valuation of companies is depressed at the moment, there may be some companies that have issues with liquidity – will ECtel be looking out to see if there’s any bargains, and potentially acquiring companies in 2009, if the opportunity arises?
Itzik: Yes, absolutely. We’re looking all the time. It’s strategic to grow. We are looking for potential acquisitions of companies that have market share, have customers, have products that are adjustable and can be added to the suite, and to give a one-stop shop offering to our customers.
Eric: You launched IRMA, the Integrated Revenue Management Alliance, in 2008. How is that community coming along?
Itzik: It’s growing every day. More and more customers can benefit from downloading from the website. We do see webcasting, we do see questions to experts. We hope this will help people to communicate between themselves, and not just with us.
Eric: In terms of social networking, is the strongest aspect increasing the satisfaction of existing customers, or helping to introduce you to potential new customers?
Itzik: We do see a potential for new customers and new global accounts, where they can set their own groups within the community, and we just offer them the platform to do that. For the current [customers] we see easier communication with them, and we see them communicating between themselves.
Eric: In terms of being aware of the conversations taking place, is it something that influences developments of your product line?
Itzik: Of course it is. We do emphasize and concentrate on what can help the industry today.
Eric: Thank you for your time, Itzik. I appreciate it and I’ve enjoyed our conversation today.
Itzik: Thank you very much.
To recap, that was just a brief summary of some of the topics discussed during the interview with Itzik. To hear the full version, listen to the podcast.
