CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
OPERATOR
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's First 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 – May
14th, 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 contain forward-looking
information with respect to plans, projections, or future
performance of Cimatron, the occurrence of which is 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,
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
exchange rate 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 Q1/14 CONFERENCE CALL TRANSCRIPT
DANNY HARAN
Thank you. Good morning and welcome to Cimatron’s First
Quarter 2014 Results Conference Call.
As you can imagine, we are very pleased with the first quarter
results. The revenue growth, both in new product sales and in
maintenance contracts, is evident across all product lines and
geographical regions. Furthermore, we were able to convert
about half of the revenue growth into operating profit growth,
due to our efficient financial structure and business model.
At 3.2 million dollars cash flow from operating activities, this
quarter marks the best ever cash flow of any first quarter for
Cimatron. Furthermore, I can confirm that since the end of Q1,
our cash position has continued to grow beyond the 16.1 million
dollars reported for the end of Q1. I see the strong cash position
as paramount in our ability to keep investing in new technology,
and to pursue M&A opportunities.
We recently held two large reseller meetings, one in the US for
GibbsCAM, and one in Israel for CimatronE, where the next
versions of both products were presented and discussed with
representatives from around the globe. We got excellent
feedback from the participants, and we are very excited about
these next versions. Improvements cover a vast range of topics,
from driving and simulating ever more complex machines,
through better surface quality and mold and die design
automation, all the way to new offerings for the additive
manufacturing market. I believe we have a lot to look forward to
in 2014 and beyond!
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
Ilan Erez, our CFO, will now review the financial statements. Ilan,
please.
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
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ILAN EREZ
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the First quarter of 2014 were a Q1 record of 11.0
million dollars, compared to 10.2 million dollars in the first
quarter of 2013, an increase of 6.3% on a constant currency basis.
The revenue breakdown in Q1/14 was as follows – license
revenues: 41%; maintenance revenues:
50%;
and other
professional services revenues: 9%.
The geographical revenue breakdown in the quarter was as
follows: Europe: 51%; North America: 30%; Asia Pacific: 15%; and
Rest of the World: 4%.
Gross margin in Q1/14 was 88% of revenues, the same as in
Q1/13.
Operating expenses in Q1/14 amounted to 8.2 million dollars,
compared to 8.0 million dollars in the first quarter of last year.
Operating profit in the First quarter of 2014 was a Q1 record of
1.4 million dollars, an increase of 40% from 1.0 million dollars in
the first quarter of last year.
Net profit for the first quarter of 2014 was 900 thousand dollars,
or 8 cents per diluted share, compared to net profit of 700
thousand dollars, or 8 cents per diluted share recorded in the
corresponding quarter of last year.
CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
Income tax expense in Q1/14 was 33% of income before taxes,
compared to 28% in Q1/13. We still expect income tax expense in
full 2014 to be in the range of 20% to 25% of income before taxes.
Obviously, the actual annual effective tax rate will be dependent
on the taxable annual profit split by territory, among other things.
Our net cash balance at the end of March 2014 was $16.1 million
dollars, or approximately 1.50 dollars per share, as compared to
13.0 million dollars, or approximately 1.20 dollars per share, as of
the end of 2013. As we collect most of the annual maintenance
revenues during the first six months of each year, it is expected
that our cash balance would rise in the first half of each year
stronger than it rises in the second half. Nevertheless, this year
the collection in the first quarter was even stronger than usual, as
reflected in the end-of-quarter deferred revenue balance of 6.1
million dollars, which was higher than usual.
We will now open the call for the Question and Answer session.
Operator, please.
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
Operator:
Thank you, sir. 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 1 on your
touchtone phone. If you wish to decline from the polling process,
please press the star followed by a 2. 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.
Mr. Srivatsa: Thanks for taking my question. Danny, I know you
don’t provide guidance, but typically Q2 tends to be stronger
sequentially relative to Q1. Is there any indication that things are
different this time around and, if not, do you expect the quarters
to be backend-loaded as they typically are?
Mr. Haran:
Yeah, I can tell you that all our quarters are
backend-loaded. We do not see any reason to believe that
patterns this year will be different than what they are. But I do
have to say that Q1 and Q2, sometimes 1 is stronger than the
other, sometimes the other way around, so there's no real telling.
The most, I'll say, evident fluctuations, our Q4 is strongest and Q3
is weakest. Q1 and Q2 kind of play catch-up with each other,
depending on the year. But overall, we see a normal pattern so
far.
Mr. Srivatsa: All right. In terms of the CimatronE product that
you talked about previously, where are things at in terms of 3D
support for conformal cooling and AMF support? And then, when
do you expect that formal launch to happen?
Mr. Haran:
Yeah, pretty much, plans are on track, and same
schedule. We said we would, this is version 12; it is expected to be
released officially around midyear, probably early July, give or
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
take. And yes, conformal cooling will be there. We see, we get
more information from more customers that they are beginning
to adopt metal 3D printing for such uses, for insets within molds,
and we expect that to grow. Also, we will provide support for
AMF, a format that is more specific for additive manufacturing.
And actually there are other things that are already, I would say,
brewing. And we expect to have more applications and actually
more uses and features and modules in coming versions. It is
pretty much as we expected, that we, as soon as we get into this
market, we learn much more, we find more opportunities. It's a
very long-term process. It's a marathon run as the market learns
what it can do, what it wants to do. But yeah, we expect more
uses in coming versions.
Mr. Srivatsa: Okay. Geographically, can you give us some sense
on where you’re seeing the strength for some of your products
and where do you expect further growth to come in terms of
penetration?
Mr. Erez:
Okay. Well, in the first quarter, we continued to
see growth in Europe, strong growth in Germany. We saw growth
in North America in both product lines. In Asia Pacific, we saw nice
growth this quarter in Japan, somewhat in China; South Korea is
doing well. So overall, it’s all over the place. There is no specific
place that we can emphasize, but I would say Germany, as a
specific territory, is growing more than the others.
Mr. Srivatsa: Okay. Last question for me: You mentioned
acquisitions. Where are you in the process of making a decision?
And what are some of the areas you're looking at to beef up your
core expertise?
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
Mr. Erez:
Well, in terms of M&As, we, as we say all the time,
we keep looking, we keep talking, discussing. Obviously, nothing
has matured to the point that we can, or have to report anything,
so there is not much to add here. All in all, I would say that at this
period that pricing is getting higher and pricing expectations are
getting higher. It’s getting somewhat tougher than before to get
to a deal, but we are still looking and we are still, we are still
there. We'll see what happens.
Mr. Srivatsa: Thank you very much.
Mr. Erez:
Thank you.
Operator:
The next question is from Anya Shelekhin of Sidoti
& Co. Please go ahead.
Ms. Shelekhin: Hi, and thanks for taking the questions. First
question: Are you looking into India as a potential market for
growth?
Mr. Haran:
India has been overall not a great market for us.
We do have sales in India, but it has never grown to be significant
for our business. There's a lot of issues with illegal copies in India;
also, prices tend to be very low. So, no, I don’t think we will see
significant contribution from India in the coming years.
Ms. Shelekhin: Okay. And second question: I was hoping you
could comment on the year-over-year increase in Europe for
revenue. It seems like you had the strongest growth there. In
what countries specifically, do you see the strongest growth
there? And could you possibly tell us what the percent increase
was for Germany?
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CIMATRON Q1/14 CONFERENCE CALL TRANSCRIPT
Mr. Erez:
Well, as I said earlier, Germany is the most growing
territory in Europe. Although we see now some wakeup, I would
say, in Portugal, in Spain, which suffered more than Germany and
Italy in the recent years, Italy is holding well; still the country has a
lot of problems, but we are doing relatively well with our business
in Italy. Usually we do not provide specific numbers of our specific
territories, but I can say that Germany grew in Q1 almost 10% on
a constant-currency basis.
Ms. Shelekhin: All right. Thank you.
Operator:
If there are any additional questions, please press
the star followed by the 1 on your touchtone phone. If you wish to
cancel your request, please press the star followed by a 2. There
are no further questions at this time. Mr. Haran, would you like to
make your concluding statement?
Mr. Haran:
Thank you. On behalf of management, I would like
to thank you for your continued interest, long-term support of our
business. I do look forward to speaking with you and updating you
again next quarter. Have a great day. Thank you.
Operator:
Thank you. This concludes the Cimatron first-
quarter 2014 results conference call. Thank you for your
participation. You may go ahead and disconnect.
(End of conference call)
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