CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
VEIDAN OPERATOR
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's Fourth Quarter 2013 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 – February
27th, 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 involve 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 Q4/13 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 Q4/13 CONFERENCE CALL TRANSCRIPT
DANNY HARAN
Good morning and welcome to Cimatron’s Fourth Quarter 2013
Results Conference Call.
We are happy to end our best year ever with another record
quarter. With record revenues and profits, strong cash flow, and a
solid balance sheet, we remain confident in our ability to continue
and grow our business in the coming quarters and years.
A significant part of our product strategy has always been to
expand our exposure to new markets and market segments. 2014
will mark our first release of software solutions for the additive
manufacturing market, also known as 3D printing. CimatronE
version 12, scheduled for release in mid-2014, will offer conformal
cooling and AMF support, both directly targeted towards additive
manufacturing.
Additional work is already underway on providing additional
additive manufacturing solutions. As we expected, we keep
discovering new uses and applications of our software in this
exciting field. We believe additive manufacturing, both for metal
and plastic, will become a more significant part of our business in
the coming years.
In addition, we keep investing in our traditional markets and
products, where we see additional growth opportunities. The
upcoming version of CimatronE will bring multiple productivity
enhancements to our traditional users in the areas of mold and
die design, NC machining and EDM electrodes.
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With a strong and evolving product portfolio, continued
investment in R&D as well as Sales and Marketing, and a strong
balance sheet that will allow us to explore additional growth
opportunities, we believe we have a lot to look forward to in
2014 and beyond.
Ilan Erez, our CFO, will now review the financial statements. Ilan,
please.
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
ILAN EREZ
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the fourth quarter of 2013 were 12.7 million dollars,
compared to 12.4 million dollars in the fourth quarter of 2012, an
increase of 1.2% on a constant currency basis.
In 2013, revenues were 44.2 million dollars, compared to 42.3
million dollars in 2012, an increase of 3.2% on a constant currency
basis.
The revenue breakdown in 2013 was as follows – license
revenues: 44%; recurring maintenance revenues: 49%; and other
professional services revenues: 7%.
The geographical revenue breakdown for 2013 was as follows:
Europe: 48%; North America: 32%; Asia Pacific: 16%; and Rest of
the World: 4%.
Gross margin for the fourth quarter was 88% of revenues, as
compared to 89% in the same period of 2012.
In 2013, gross margin was 88%, the same as in 2012.
Operating expenses in the fourth quarter amounted to 8.8 million
dollars, compared to 8.7 million dollars in the fourth quarter of
last year.
In 2013, operating expenses were 32.7 million dollars, compared
to 31.3 million dollars in 2012.
Out of the 1.4 million dollars operating expenses increase in 2013,
approximately 800 thousand dollars were attributable to the
weakening of the US Dollar versus the Euro and the Israeli Shekel
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
in 2013 relative to the effective rates of these currencies in 2012,
while most of the remainder of the increase in operating expenses
reflected our increased investment in R&D, selling and marketing.
Operating profit in the fourth quarter was 2.4 million dollars,
compared to 2.3 million dollars in the fourth quarter of 2012.
In 2013 operating profit was 6.3 million dollars, compared to 6.1
million dollars in 2012.
Net profit for the fourth quarter was 1.7 million dollars, or 16
cents per diluted share, compared to net profit of 1.7 million
dollars, or 18 cents per diluted share recorded in the
corresponding quarter of last year.
In 2013, net profit increased to 4.7 million dollars, or 48 cents per
diluted share, compared to net profit of 4.4 million dollars, or 47
cents per diluted share recorded in 2012.
Income tax expense in 2013 was 25% of income before taxes,
compared to 26% in 2012. We expect income tax expense in 2014
to be in the range of 20% to 25% of income before taxes.
Our net cash balance at the end of 2013 was $13.0 million dollars,
approximately 1.21 dollars per share, and cash flow from
operating activities in 2013 was 3.5 million dollars.
We will now open the call for the Question and Answer session.
Operator, please.
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
OPERATOR
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 the touch
tone 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.
Jay Srivatsa: Yes thanks for taking my question. Danny, as you
look towards 2014, typically Q1 tends to be seasonally soft, can
you expand on, and tell us do you expect it to be any different, or
do you expect similar seasonal patterns in 2014?
Danny Haran: For as far as we can tell, we expect similar
seasonality. Q1 actually is only soft if you compare it to Q4 which
tends to be the strongest of every year. Usually Q1 and Q2 are,
say – relatively strong, and like the mid quarters of the year in
terms of revenue, and Q3 tends to be weaker, because of
verifications, mostly in Europe and North America. Right now we
have no indication of anything different as you know our quarters
are back loaded and much of the activity takes place towards the
end of the quarter and it's hard for us at that point to say – we
don't see any difference in long term patterns.
Jay Srivasta: In terms of your 3D printing product, you
mentioned a potential launch in the second quarter. When do you
expect material revenues to start creeping in, after the
introduction of that product?
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
Danny Haran: It's hard to say at that point. We believe it will take
probably a couple of months to actively start selling this. So we
should expect something in Q4 probably. But how much? Again
this is conformal cooling and AMF support, we expect to provide
AMF support with no charge – it's a relatively small addition that
will make the product attractive to users of 3D printing in the long
term. The conformal cooling is something that we could not
establish yet – you know any solid estimate of how much we can
make of that.
Jay Srivasta: Ok. Ilan, in terms of the OPEX, do you expect the
OPEX to decline in Q1 or are you seeing similar type of run rate
going forward?
Ilan Erez:
Well, First of all they will decline in Q1 due to that
seasonality that we discussed, obviously part of the expenses are
related to the revenue level. But other than that we are not
expecting any major move, upwards or downwards, in this
respect.
Jay Srivasta: Ok, and then last question from me, in terms of the
shekel vs. the dollar, what's your sense in terms of how it looks
going forward. Do you expect it to stabilize or are you hedging
yourself for future increases in the shekel?
Ilan Erez:
Obviously we cannot tell for sure, but we can see at
the moment that the current rate of 3.5 shekels to 1 dollar, is
relatively stable. It's a kind of level that seems to the central bank
is trying to support, and this is our work assumption for the
remainder of the year.
Jay Srivasta: Ok, maybe – one more question from me –
geographically, as you look at 2014, where are some of the areas
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
that you are looking to strengthen, and where do you feel
comfortable in terms of your own market position?
Danny Haran: It's hard to say. We expect Germany to continue on
strong, but really we expect – again, good results everywhere. We
don't see any specific area where we are concerned, except that
just like the last couple of years – Germany is doing better than
the most of the rest of Europe, North America automotive is doing
well, we expect it to continue to do well. Southeast Asia – overall
fine. Japan picking up to some extent. Overall we have good
expectations worldwide.
Jay Srivasta: Thank you; good quarter
Ilan Erez:
Thank you.
Operator:
The next question is from Anya Shelekhin, of Sidoti
and Company.
Anya Shelekhin: Good morning. My first question is – could you
comment on any other plans or projects that you have in the
works, to add more 3D printing capabilities to the new software
release?
Danny Haran: Yeah well, at that point we are working on
additional solutions which we have decided not to disclose yet. It
relates to some partnerships we're trying to establish, and we are
working on more solutions, which we will detail, elaborate on,
later on. But definitely, it's really what we expected. The more we
go into that area, we find more solutions. It's a long term process,
like a marathon, but there are more needs, for use of 3D printing
and software to support that 3D printing, and we expect to have
probably another module or application or the combination – on
the next version of the software, which is like 1 year after that
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
version, but for now we prefer to keep it – not to disclose the
details.
Anya Shelekhin: Ok. And are you looking at any acquisitions, still?
In the future?
Danny Haran: We are, all the time, trying to find something with
synergy and so far regrettably, as you know, we were not
successful. The last acquisition we were able to do was 2008. We
keep looking for opportunities. We think there's still are some
opportunities, but again – regrettably, we were not able to close
any, yet.
Anya Shelekhin: What about the cloud? Does it make sense
looking into entering the space? I think a few other software
companies…
Danny Haran: We did look into cloud based solutions. It seems
that our customers are mostly reluctant to use cloud based
solutions for their files or solutions. There are some technical
details that make this a little bit less – let's say, less simple or less
attractive to our industry then others. Things like file size. Some of
the files we are using, the projects could be hundreds of
megabytes and bandwidth could be an issue. Other issues we
keep hearing is people are concerned about security of their
designs or their customer's designs, if they're not held closely at
the place. Our industry and the kind of application people use do
not lend themselves easily to use, let's say – on mobile devices,
because the guys are using very high definition displays,
extremely powerful graphics cards to have the big parts or
assemblies. So – overall, we're looking at opportunities, maybe to
do some licensing over the cloud, maybe to do some limited
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
applications, just use this as a distributed storage. We're moving
some of our update, the patch distribution to cloud based
technology, but these are like in the fringes of what we do. The
core business of CAD/CAM for manufacturing, at that point –
remains, let's say – on the ground.
Anya Shelekhin: Ok. And final question – what new efforts have
you been making to expand internationally, and what do you plan
to do going forward?
Danny Haran: I'm sorry, we're – can you repeat the question?
Anya Shelekhin: Sure. What new efforts are you making to
expand internationally?
Danny Haran: Ok. We – overall we think we are well positioned as
it is in most of the global market. We keep investing in Brazil, we
think we are underrepresented in Brazil and we hope to get some
more resellers on board. We're in the process of establishing
more presence for GibbsCAM, let's say in Japan, where we think –
again, we can do more with GibbsCAM. Some more work is being
done on Southeast Asia, which is a more dynamic market, so we
see more resellers in Indonesia, Malaysia, more work in Vietnam.
These are the main markets where we actually, actively invest –
other than our traditional markets in Western Europe, North
America, more work in Korea with sub dealers. But overall it is –
it's not like totally new territories, 'cause pretty much we are
represented in all the places where manufacturing takes place. It's
more specific sub dealers, resellers, associate resellers; or getting
one product like Gibbs to be represented in more areas in Japan.
Anya Shelekhin: Alright, good. That’s all for me.
Danny Haran: Thank you.
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CIMATRON Q4/13 CONFERENCE CALL TRANSCRIPT
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. Please
stand by while we poll for more questions. There are no further
questions at this time. Mr. Haran, would you like to make your
concluding statement?
Danny Haran: Yes, thank you. On behalf of management, we
would like to thank you for your continued interest in Cimatron
and long term support. And we look forward to meet you again on
our next conference call. Thank you very much.
Operator:
Thank you. This concludes the Cimatron 4th quarter
2013 results conference call. Thank you for your participation. You
may go ahead and disconnect.
(End of conference call)
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