CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
OPERATOR
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's Second Quarter 2014 Results Conference
Call.
All participants are at present in a listen-only mode.
Following management’s formal presentation, instructions will be
given for the question and answer session. For operator
assistance during the conference, please press * 0.
If you have not received a copy of today’s earnings release and
would like to do so, please download it from the company’s
website, www.cimatron.com, at the “Investors” page.
As a reminder, this conference is being recorded today – August
13th, 2014.
With us on the line today are:

Mr. Danny Haran, Cimatron's President and CEO; and

Mr. Ilan Erez, Cimatron's CFO.
Before I turn the call over to Mr. Danny Haran, I would like to
remind everyone that statements made during this conference
call that are not historical facts and that contain forward-looking
information with respect to plans, projections, or future
performance of Cimatron are subject to certain risks and
uncertainties, which could cause actual results to differ materially
from those currently anticipated. Such risks and uncertainties
include economic and political conditions globally and in Israel,
the impact of competition, supply constraints, exchange rate
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
fluctuations, as well as certain other risks and uncertainties that
are detailed in Cimatron's filings with the U.S. Securities and
Exchange Commission.
The results that will be presented on this call are on a non-GAAP
basis, as Cimatron's management believes that such results better
represent the actual state of Cimatron's business, and make
comparisons to previous periods easier. Cimatron also publishes
its results on a GAAP basis, as well as reconciliation between
results on a GAAP and non-GAAP basis, and those can be found in
the press release issued earlier today. The term “Constant
Currency” relates to data, after eliminating from it the effect of
exchange rate fluctuations between comparable periods.
I would like to turn over the call to Mr. Danny Haran, Cimatron's
president and CEO.
Mr. Haran, would you like to begin?
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
DANNY HARAN
Good morning and welcome to Cimatron’s Second Quarter 2014
Results Conference Call.
Once again, we are very pleased to report another record second
quarter, with strong results in all parameters. Especially
noteworthy is our strong operating cash flow of $7.6m during the
first 6 months of the year, bringing our net cash position to
$20.4M, an all-time high for Cimatron. Consequently, the Board of
Directors has adopted a dividend distribution policy, according to
which the company will distribute at least 50% of its annual
distributable profits. We believe this will add value to our current
shareholders and long term investors.
The revenue growth in the second quarter of 2014 came from
both product lines and from all major geographical territories. In
Q2/2014, we had 24% year-over-year operating profit growth that
lead to healthy 17% non-GAAP operating margin, once again
demonstrating our strong operating leverage, where more than
50% of the year-over-year revenue growth in Q2/14 was
translated into operating profit growth.
As planned, CimatronE version 12 has been officially released, and
is starting the roll-out process to resellers and customers. I believe
this is a very important version for Cimatron and its customers,
with numerous productivity enhancement features and key
competitive developments. And, of course, it marks our first
delivery of software for 3D-Printing, in the form of conformal
cooling for molds and support of AMF. We continue to work,
together with our partners, on additional such features.
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
Later this year, we also plan to release a major new version of
GibbsCAM, with key developments in the support of advanced
multi-axis multi-tasking machines. We will be demonstrating these
features at the coming IMTS show in Chicago.
With healthy revenue growth, high operating leverage, strong
cash flow and major developments in both product lines, I believe
we have a lot to look forward to in the coming quarters.
Ilan Erez, our CFO, will now review the financial statements. Ilan,
please.
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
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ILAN EREZ
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the second quarter of 2014 were 11.8 million
dollars, compared to 11.0 million dollars in the second quarter of
2013, an increase of 4.4% on a constant currency basis.
In the first six months of 2014, revenues were 22.7 million dollars,
compared to 21.2 million dollars in the corresponding period of
2013, an increase of 5.3% on a constant currency basis.
The revenue breakdown in Q2/14 was as follows – license
revenues: 42%; maintenance revenues:
50%;
and other
professional services revenues: 8%.
The geographical revenue breakdown for the quarter was as
follows: Europe: 48%; North America: 31%; Asia Pacific: 17%; and
Rest of the World: 4%.
Gross margin for the second quarter was 89% of revenues, the
same as in the second quarter of 2013.
In the first six months of 2014, gross margin was 88%, as
compared to 89% in the parallel period of 2013.
Operating expenses in the second quarter amounted to 8.5
million dollars, compared to 8.2 million dollars in the second
quarter of last year.
In the first six months of 2014, operating expenses were 16.7
million dollars, compared to 16.2 million dollars in the
corresponding period of 2013.
CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
Operating profit in the second quarter increased by 24% to 2.0
million dollars, compared to 1.6 million dollars in the
corresponding quarter of 2013.
In the first six months of 2014 operating profit increased by 30%
to 3.3 million dollars, compared to 2.6 million dollars in the
corresponding period of 2013. In both the second quarter and the
first half of 2014, the significant increase in operating profit was a
result of increased revenues and strong operating leverage.
Net profit for the second quarter increased by 28% to 1.5 million
dollars, or 14 cents per diluted share, compared to net profit of
1.2 million dollars, or 13 cents per diluted share recorded in the
corresponding quarter of last year.
In the first six months of 2014, net profit increased by 26% to 2.4
million dollars, or 22 cents per diluted share, compared to net
profit of 1.9 million dollars, or 20 cents per diluted share recorded
in the corresponding quarter of last year.
Income tax expense in the second quarter and first half of 2014
was 25% and 28% of income before taxes, respectively. We expect
overall income tax expense for all of 2014 to be around 25% of
income before taxes.
Our net cash and cash equivalents balance at the end of June
2014 increased to 20.4 million dollars, or 1.9 dollars per share,
compared to a balance of 13.0 million dollars at the end of 2013.
This was largely attributable to the positive cash flow from
operating activities of 7.6 million dollars that we recorded in the
first half of 2014, as compared to 3.2 million dollars of positive
cash flow from operating activities in the corresponding period of
2013, an increase of 141% year over year.
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
We will now open the call for the Question and Answer session.
Operator, please.
Operator:
Thank you. Ladies and gentlemen, at this time we
will begin the question-and-answer session. If you have a
question, please press the star, followed by the one, on your
touch-tone phone. If you wish to decline from the polling process,
please press the star, followed by a two. Your questions will be
polled in the order they are received. The first question is from Jay
Srivatsa of Chardan Capital Markets. Please go ahead.
Jay Srivatsa: Question. Congratulations on a good quarter,
Danny and Ilan. Let me ask you – I know you don’t provide
guidance, but typically, Q2 tends to be the strongest quarter for
you, with Q3 being sequentially slightly lower. Is there any reason
to expect otherwise this time around?
Danny Haran: No, we expect similar pattern, but Q2 is not the
strongest. Q4 is always, or almost always, the strongest, and I
have a feeling by quite a large margin. Q2 tends to be like Q1,
slightly higher at times, we’ve seen years a little bit lower. But Q3
is usually the slow quarter of the year. The summer vacations in
North America and Europe definitely contribute. So, yeah, we see
the year unfolding just as a typical year.
Jay Srivatsa: And then, in terms of the war – has there been any
negative impact to your business at all?
Ilan Erez:
Not at all.
Danny Haran: No, no, we’re okay.
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
Ilan Erez:
In any case, most of our business is outside of
Israel, and even in Israel, everything was running as usual, as far
as we are concerned. So, nothing to report.
Danny Haran: It’s not as bad as it looks on the news.
Jay Srivatsa: Okay. Last question from me. In terms of, you
know, sales effort, are there any specific geographies that you’re
looking at this time around? To emphasize your efforts there, to
improve the sales in those territories?
Danny Haran: No, nothing that is worth mentioning. We try to,
you know, put efforts in many territories. Developing ones as well
as developed ones, actually. So, no, there’s nothing that really
warrants any special mention.
Jay Srivatsa: Thank you. Good luck.
Ilan Erez:
Thank you.
Operator:
The next question is from Richard Baldry of Roth
Capital Partners. Please go ahead.
Richard Baldry: Thanks. Could you talk a little bit about the
decision making around the dividend policy. I mean, you have
done acquisitions in the past, and sort of, whether you think that
that signals, that we shouldn’t really be expecting any
acquisitions? And then, you know, I don’t deal with a lot of
companies that do dividends. So, maybe you could talk about
whether there are any, sort of add-backs, any changes that – that
really help us calculate what is distributable net income, as any
sort of variations from just your reported either GAAP or proforma net income. Thanks.
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
Ilan Erez:
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Okay. I will answer the second question first.
Basically, distributable earnings, annual distributable earnings
should be the GAAP net profit. Okay, there are some other
measures and considerations that the board of directors will have
to take before any specific distribution, but generally speaking,
annual distributable profits are the GAAP net profit, for the year.
And then, we are talking about the GAAP net profit for 2014,
according to which we will declare the dividends in 2015.
Regarding
your
question,
the
first
question,
of
M&A
opportunities, basically there is no change in our long-term
strategy to grow also by acquiring or merging with other
companies. Obviously, if there was anything to report, by now we
would have reported. But, we feel that with 20 million dollars of
net cash, and taking into consideration that we will only start
distributing in 2015, and only what we’ll make as profit from now
on, we think that 20 million dollars should suffice M&A
opportunity funding , if and when, come up to the table. So we
continue looking all the time, in our market, in nearby markets,
there is no change in our strategy in this sense.
Richard Baldry: Thanks. Congrats on a good quarter.
Ilan Erez:
Thank you.
Operator:
If there are any additional questions, please press
the star, followed by the one, on your touch-tone phone. If you
wish to cancel your request, please press the star, followed by a
two. The next question is from George Melas of MKH
Management. Please go ahead.
George Melas: Yes. Hi, good morning. I’m very new to this story.
Could you try to provide, sort of, a positioning of the two major
CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
products in your market? Sort of, sort of how can I put it – sort of
a basic introduction about how you play in your market, how you
position in your market. And, also, how those two, the Cimatron
12 and the new GibbsCAM product might change that slightly.
Danny Haran: Okay, I will try to address that in a nutshell,
because the long answer is truly long. Basically, the two product
lines address two segments of the manufacturing, production
market, which are roughly split 50%, 50%. CimatronE is targeted
towards the mold and die industry, also known as tooling, where
people manufacture parts, by creating tools such as plastic
injection molds, or metal forming dies, stamping dies, and design
them, and build them, and then create parts, such as plastic, and
high volume production of metal. This is CimatronE, and it is a
dedicated product for that segment, highly specialized in those,
and that’s why we are able to win business, against, let’s say, the
generic CAD systems, because we are specialized and optimized
for that market. Whereas GibbsCAM targets the other part of
manufacturing market, which is discrete parts manufacturing,
production, one part after another, through milling, or lathe, or
mill turn, or multi-axis, multi-tasking machines, and most typically
used in aerospace, defense, heavy machinery, and medicine – all
places where you actually need to make parts one by one. And
there’s quite a few of those as well. And, Gibbs, again, is a highly
specialized system in that respect. One of the very few systems
that can actually drive the advanced machines with multi-axis
such as multi-tasking machines. And this is a fast-growing
segment of this market. And this is basically the position of the
two product lines within manufacturing. I think you can find more
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CIMATRON Q2/14 CONFERENCE CALL TRANSCRIPT
information on our website, with respect to specific applications,
uses, features, and so on.
George Melas: Okay. Thank you very much.
Ilan Erez:
Thank you.
Operator:
There are no further questions at this time. Mr.
Haran, would you like to make your concluding statement?
Danny Haran: Thank you. Well, on behalf of Management, I would
like to thank you for your continued interest and long-term
support of our business. And we do look forward to speaking with
you and updating you again next quarter. Have a nice day.
Operator:
Thank you. This concludes the Cimatron second
quarter 2014 results conference call. Thank you for your
participation. You may go ahead and disconnect.
(End of conference call)
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