CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
VEIDAN OPERATOR
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's Third 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 –
November 12th, 2013.
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 Q3/2013 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 Q3/2013 CONFERENCE CALL TRANSCRIPT
DANNY HARAN
Good morning and welcome to Cimatron’s Third Quarter 2013
Results Conference Call.
We are excited to report our best third quarter ever, with record
revenues and record profits for the third quarter of any calendar
year. Moreover, we are encouraged by the year-over-year
revenue growth in the third quarter of this year, which was higher
than the growth in the first and second quarters of the year. In
the third quarter, 48% of the year-over-year revenue growth
reached the operating profit line.
We recently announced a new agreement with our long-time
partner MachineWorks, by which we incorporate a new software
package, Polygonica, into the CimatronE software. This is a prime
example of our product strategy, where we attempt to mix inhouse development with select third-party products to bring
added value to our customers. Polygonica, with its strong meshbased design capabilities will be incorporated into several tools
and functions inside CimatronE, with first delivery planned for the
next version of CimatronE, in mid-2014.
In addition, we continue to explore several potential acquisitions,
which can help us extend our product portfolio and/or
distribution channels even further.
With ever increasing customer base and enhanced Sales and
Marketing and R&D efforts, we believe we can continue growing
our revenues and profits going forward.
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
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Ilan Erez, our CFO, will now review the financial statements. Ilan,
please.
ILAN EREZ
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the third quarter of 2013 were 10.3 million dollars,
compared to 9.5 million dollars in the third quarter of 2012, an
increase of 6% on a constant currency basis.
In the first nine months of 2013, revenues were 31.5 million
dollars, compared to 30.0 million dollars in the corresponding
period of 2012, an increase of 4% on a constant currency basis.
The revenue breakdown in Q3/13 was as follows – license
revenues: 41%; maintenance revenues:
52%;
and other
professional services revenues: 7%.
The geographical revenue breakdown for the quarter was as
follows: Europe: 51%; North America: 31%; Asia Pacific: 15%; and
Rest of the World: 3%.
Gross Margin for the third quarter was 88% of revenues, as
compared to 89% in the third quarter of 2012.
In the first nine months of 2013, gross margin was 88%, the same
as in the parallel period of 2012.
Operating expenses in the third quarter amounted to 7.6 million
dollars, compared to 7.4 million dollars in the third quarter of last
year.
CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
In the first nine months of 2013, operating expenses were 23.9
million dollars, compared to 22.7 million dollars in the
corresponding period of 2012.
The 1.2 million dollars year-over-year operating expense increase
in the first nine months of 2013 mainly reflects our increased level
of activity that accompanied the greater demand for our
products, as well as our increased investment in R&D, selling and
marketing. Yet, half a million dollars of this increase was also as a
result of the weakening US Dollar versus the Euro and the Israeli
Shekel in the first nine months of 2013 compared to the same
period in 2012.
Operating profit in the third quarter increased 45% to 1.4 million
dollars, compared to 1.0 million dollars in the corresponding
quarter of 2012.
In the first nine months of 2013 operating profit increased 6% to
4.0 million dollars, compared to 3.8 million dollars in the
corresponding period of 2012.
Net profit for the third quarter increased 62% to 1.1 million
dollars, or 11 cents per diluted share, compared to net profit of
700 thousand dollars, or 7 cents per diluted share recorded in the
corresponding quarter of last year.
In the first nine months of 2013, net profit increased 11% to 3.0
million dollars, or 32 cents per diluted share, compared to net
profit of 2.7 million dollars, or 29 cents per diluted share recorded
in the corresponding quarter of last year.
Income tax expense in the first nine months of 2013 was 24% of
income before taxes. We expect income tax expense in full 2013
to be around 25% of income before taxes.
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
Following the share offering we made in August this year, our net
cash and cash equivalents balance increased during the third
quarter by 5.8 million dollars, to 12.9 million dollars as of the end
of the quarter.
We will now open the call for the Question and Answer session.
Operator, please.
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.
Jay Srivatsa: Yeah, thanks for taking my question. Danny, I know
you don't provide guidance for the upcoming quarter, but
qualitatively, can you talk about how the quarter's tracking and
what you're sensing in terms of demand, as you look at Q4?
Danny Haran: Generally, and this has been true almost every
year, Q4 is the strongest quarter of every year. We expect this
year to be no different, and we expect it to be stronger than the
other three quarters. However, it is too early in the quarter to
give more qualitative guidance. As you know, our quarters in
general are back-ended. We see much of the activity coming
towards the end of the quarter. So I cannot say much more
beyond that we, again, expect this to be the strongest quarter of
the year.
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
Jay Srivatsa: Okay. One of your competitors got acquired earlier
this week. What does that do to your business model? And
looking ahead, do you see further consolidation in your industry?
Danny Haran: Well, in general we believe consolidation should
happen, is happening, and will continue to happen in this market.
You know, any way you look at our market, consolidation seems
logical. And I don't think, you know, we're not surprised to see it
continues. This is not the first acquisition of this year, definitely
not the last couple of years. The fact that, the recent acquisition
of Delcam was definitely news this week. We do not expect this to
have any immediate impact on our business. We are yet to see
how this will evolve on their side. And of course I cannot
comment on that. But we will definitely try to take advantage of
any opportunity that such a change in ownership or maybe
direction, we don't know, any opportunity that this will open to
us. So you know, we'll keep our eyes open and be focused on
what we do.
Jay Srivatsa: In terms of 3D printing, there's been a lot of
interest in that market. How do you see that market developing as
you look at 2014? And how do you see Cimatron playing in that
space?
Danny Haran: Well, as we said before, we are starting to work and
develop products and solutions for the software side of 3D
printing. We don't have any intentions to go into the machines or
materials. But we do see some opportunities in the software side
of that market. We will come with a first solution or what's known
as conformal cooling for molds in the next version of Cimatron-E,
which as I mentioned, is expected about mid-2014. We do talk to
customers. We see them starting to get interested whenever they
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
need specific cooling for specific inserts and difficult-to-cool
molds. So overall there is interest in that. But as we said before,
we don't want to, you know, give any wrong impression here. This
is just starting move in that market. We expect it to continue and
grow. How fast, how far exactly, it's too early to know. But we
definitely intend to be there as that happens.
Jay Srivatsa: Last question. In terms of Q4, you said it's the
strongest quarter for the year. Do you expect both your licensing
and maintenance revenues to go up, or is it one or the other? Can
you give us a little bit more color there?
Danny Haran: Well, usually, maintenance is much more flat across
quarters, because in many of our customers, we actually collect
the maintenance contract at the beginning of each year, and then
we recognize them quarter by quarter. So in terms of
maintenance, we have higher visibility and I can say that the
differences in maintenance are not that large between quarters.
The main differences are in product revenues. That's where we
see Q4 by far overshadowing the other quarters, at least as far as
history can tell us. And again, we expect the same to happen here.
Maintenance is much more stable, of course.
Jay Srivatsa: Thank you very much.
Danny Haran: Sure.
Operator:
The next question is from Anya Shelekhin of Sidoti
and Company. Please go ahead.
Anya Shelekhin: Hi. My first question is about the big drop in
SG&A expense in this quarter. I was wondering, is that related to
the exit of DBSI, the private equity firm, or are there other
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
reasons for the decrease, such as a new cost management
strategy?
Ilan Erez: No. First of all, there is a very small impact of us
stopping to pay the management fees to our previous major
shareholder, as it happened towards the end of the quarter. So
we will see a more, a greater impact of that starting Q4 of this
year. Other than that, there was probably some shifting between
quarters in expenses, but it's not that there is any change in the
expense level as we see it from the beginning of the year. We
have not, definitely, we have not reduced any kind of expense on
our side.
Anya Shelekhin: Okay, thanks. And second question is about sales
initiatives into Brazil and Southeast Asia. How are those going?
And in what geographic areas going forward do you expect to see
the highest growth rate?
Danny Haran: Well, I can say Southeast Asia is doing well. One
thing we've, you know, we say cautiously, also Japan is showing
signs of life, and the reason I say cautiously, is because we've seen
Japan showing signs of life like 5 times in the last 10 years. And it
has not always, you know, continued for a long period of time.
Definitely we hope this will continue. So yeah, definitely
Southeast Asia presents a nice opportunity for growth. But it's not
really the only place. We actually see good business in some other
areas, Germany actually had a strong quarter. And we expect
other places as well.
Ilan Erez:
And also Brazil is ramping up slowly but surely. We
started there like a couple of years ago, but we do see the growth
and the potential is there and we're working on it.
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CIMATRON Q3/2013 CONFERENCE CALL TRANSCRIPT
Danny Haran: Right.
Anya Shelekin: Okay, thanks. That's all for me.
Danny Haran: 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?
Danny Haran: Yes, thank you. So 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. Thank you very much
and have a good day.
Operator:
Thank you. This concludes the Cimatron third
quarter 2013 results conference call. Thank you for your
participation. You may go ahead and disconnect.
(End of conference call)
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