CIMATRON CONFERENCE CALL SCRIPT
VEIDAN OPERATOR
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's Second 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 - August
13th, 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
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CIMATRON CONFERENCE CALL SCRIPT
and in Israel, the impact of competition, supply constraints,
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 CONFERENCE CALL SCRIPT
DANNY HARAN
Good morning and welcome to Cimatron’s Second Quarter 2013
Results Conference Call.
We are pleased to report another solid second quarter, with
record revenues for the second quarter of any calendar year, solid
gross and operating margins and a healthy increase in our net
cash balance.
Revenues in the second quarter increased by 3.4% on a constant
currency basis relative to the second quarter of 2012, and we
believe that this was in line with our market growth for that
period.
We are working to boost our revenues, both in terms of sales
efforts and product offerings. As part of these efforts, we recently
announced a new product cooperation contract with Moldex3D,
to offer new capabilities for cooling system simulation. This
cooperation serves two purposes: while it will become part of our
new offering for 3D-printed conformal cooling, it can also be sold
to users of traditional cooling systems, thus generating additional
revenues.
At the same time, we continue to explore M&A opportunities of
any kind that would make sense in terms of price and synergies.
Ilan Erez, our CFO, will now review the financial statements. Ilan,
please.
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CIMATRON CONFERENCE CALL SCRIPT
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ILAN EREZ
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the second quarter of 2013 were 11.0 million
dollars, compared to 10.6 million dollars in the second quarter of
2012.
In the first six months of 2013, revenues were 21.2 million dollars,
compared to 20.5 million dollars in the corresponding period of
2012.
The revenue breakdown in Q2/13 was as follows – license
revenues: 45%; maintenance revenues:
48%;
and other
professional services revenues: 7%.
The geographical revenue breakdown for the quarter was as
follows: Europe: 47%; North America: 32%; Asia Pacific: 16%; and
Rest of the World: 5% .
Gross Margin for the second quarter was 89% of revenues, the
same as in the second quarter of 2012.
In the first six months of 2013, gross margin was 89% of revenues,
as compared to 88% in the parallel period of 2012.
Operating expenses in the second quarter amounted to 8.2
million dollars, compared to 7.7 million dollars in the second
quarter of last year.
In the first six months of 2013, operating expenses were 16.2
million
dollars,
compared
corresponding period of 2012.
to
15.2
million
dollars
in
the
CIMATRON CONFERENCE CALL SCRIPT
The year-over-year increase in operating expenses 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, and, to a lesser extent, it reflects
changes in currency exchange rates.
Operating profit in the second quarter was 1.6 million dollars,
compared to 1.7 million dollars in the corresponding quarter of
2012.
In the first six months of 2013 operating profit was 2.6 million
dollars, compared to 2.8 million dollars in the corresponding
period of 2012.
Net profit for the second quarter was 1.2 million dollars, or 13
cents per diluted share, compared to net profit of 1.0 million
dollars, or 11 cents per diluted share recorded in the
corresponding quarter of last year.
In the first six months of 2013, Net profit was 1.9 million dollars,
or 20 cents per diluted share, compared to net profit of 2.0 million
dollars, or 22 cents per diluted share recorded in the
corresponding quarter of last year.
Income tax expense in the first six months of 2013 was 26% of
income before taxes. We expect income tax expense in full 2013
to be around 25% of income before taxes.
In line with the typical seasonality in our cash flows, our cash and
cash equivalents balance, net of short-term bank credit, increased
during the second quarter of 2013 by 3.4 million dollars, to 7.1
million dollars as of the end of June 2013.
We will now open the call for the Question and Answer session.
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CIMATRON CONFERENCE CALL SCRIPT
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. Please stand by while we poll for
your questions. The first question is from Nathan Schneiderman
from Roth Capital. Please go ahead.
Nathan Schneiderman: Hi guys. Hi, Danny and Ilan. Thanks in
advance for taking my questions. And it looks like you delivered
this quarter with some nice balance sheet improvement, so nice
job on that. I was hoping to drill down a little bit more, just again,
by asking you your thoughts on Q3 seasonality. I know often I've
noticed that your Q3 revenue results are maybe a little more
seasonal than a lot of software companies that I cover and often
fall below Q1 levels. Is that how you see it this year, or do you
think you'll have stronger results than typical seasonality?
Ilan Erez:
Well, let's start with the typical seasonality, and
indeed, the typical seasonality is that Q3 is usually somewhat
below Q1. We have no, no way or no reason to believe that this
year it will be different, but obviously, first of all, we are not
providing any guidance. And second, in mid-August, we don't
really have a good idea of how the quarter would look. But
generally speaking, we could expect the typical seasonality to be
maintained this year as well.
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CIMATRON CONFERENCE CALL SCRIPT
Nathan Schneiderman: Got it. And I know, I know you're not, you
don't want to give guidance for the year. But let's say if we look at
the first half of the year, you're pacing to call it 3 to 4% top line
growth. Do you think that's a reasonable, that kind of level, midsingle digit is a reasonable way to think about the overall growth
for the year, or do you see something in your pipeline or business
that make you feel that the second half is going to be much, much
stronger than the first half and you'd end up pacing to more of a
high single for the full year?
Ilan Erez:
Well, again, our visibility in terms of license
revenues is low and it's difficult to say how the year will develop.
Generally speaking, as Danny mentioned, the growth that we are
showing in the first half of this year, it seems to be the growth
that we see in the market this year. The multi-year growth in our
market is mid to high single digit. But we can't tell how this year
will develop.
Nathan Schneiderman: Got it. Can you talk about, can you talk
about the bigger deal environment? What, maybe could you share
with us, what do you consider medium-big deals for your firm?
What do you consider larger deals for your firm in terms of a
dollar size? And then can you share with us how the quarter went
in terms of that, maybe how many of those kinds of deals you
booked this quarter and how that compared with the year-ago
period, just to help us benchmark that.
Ilan Erez:
Again, let's start with the general statement, and
the general statement is that our average deal or the typical deal
is around some tens of thousands of dollars. The medium size
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CIMATRON CONFERENCE CALL SCRIPT
would be somewhere between 100 to 150. And the large ones
would be 200 and north. We usually do not provide specific
details about such deals. In the past, when there were large deals,
it happened twice in China, we announced that on press releases.
But other than that, we do not want to get into specific details.
Nathan Schneiderman: Okay. Can you, okay, with, maybe without
getting into specific details, can you share with us, is the pattern
you're seeing across typical deals, mid-size deals and large deals
similar to what you saw in the year ago period, or do you think
you're seeing some shift toward bigger deals or some shift toward
smaller deals.
Ilan Erez:
It's the same pattern give or take.
Nathan Schneiderman: Okay. Can you share with us maybe some,
a little more discussion, a little more discussion about the
environment? What do you feel is going better than planned, and
what have you been disappointed with. What hasn't quite been
matching up to the plan you were hoping for through the first half
of the year?
Ilan Erez:
Well, again, usually, we try to make our plan in line
with what could be the growth in our market. It's not that we
have any specific disappointment or excitement from anything.
But all in all, what we could see is that the growth in the US that
we've seen in the last 2 or 3 years, prior to this year, is getting
slower. And this could be one of the reasons that the entire
market is growing slower this year than last year, at least till now.
Nathan Schneiderman: Got it. Okay. Now, I have a couple of real
quick ones for Ilan. Ilan, I was hoping you could give us an update
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CIMATRON CONFERENCE CALL SCRIPT
on total head count and the number of quota reps, and then also
share with us deferred revenue was up a good bit sequentially.
Was that just, was that really just support fees, or did you have a
chunk of license fees in there, and if so, can you talk about the
dynamic that lead to that growth in deferred?
Ilan Erez:
Okay, let's take it one-by-one. Your last question
regarding deferred revenues, the $6.0 million that we're showing
at the end of June is relatively expected. We always show the
highest deferred revenue balance by the end of Q2 of each year.
This is, I would say, all of it is coming from maintenance support
revenues, not from license revenues in the pipeline. And there is
some growth relative to the end of June of last year. And it is in
line with the growth in the maintenance revenues that we see.
Regarding the head count that you mentioned, our total head
count is roughly 290 people all over the world, stable, maybe
growing a little here and there, R&D, sales and marketing. But all
in all, in the range of 290 people.
Nathan Schneiderman: Okay, and quota,
Ilan Erez:
You had another question. What was it?
Nathan Schneiderman: Quota reps, sales reps.
Ilan Erez:
Like direct sales people, we have just above 50
worldwide.
Nathan Schneiderman: Okay. Thanks very much guys. Appreciate
it.
Ilan Erez:
Thank you.
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CIMATRON CONFERENCE CALL SCRIPT
Operator:
The next question is from Anya Shelekhin from
Sidoti. Please go ahead.
Anya Shelekhin: Hi. Congratulations on the quarter. I had a, so I
had a couple quick questions. First of all, you mentioned an
increased investment in R&D and sales and marketing. Could you
elaborate on this and what efforts this spending is being directed
towards?
Ilan Erez:
In terms of sales and marketing, we are increasing
our efforts a little more on head count. In the U.S. for example,
we increased head count this year. We are investing in Brazil and
we are investing in some smaller territories in Asia-Pacific, smaller
than China, I mean. In terms of R&D we are increasing head count
wherever we see that we need to strengthen our offerings, make
it ever better, and that's it.
Anya Shelekhin: Okay, great. And one more question. Could talk
about some of the recent industry trends within the molds and
die industry, and how Cimatron has been impacted by these
trends?
Danny Haran: Well, the one thing that Ilan mentioned is that we
did see some maybe slowdown or slower growth in the U.S. Other
than that, actually, the automotive industry in the U.S. is doing
quite well. Other than that, we don't see any significant trends
that we could really point to in the mold and die, in the die
industry. In that respect, and we said this again and again, we
work in a very mature industry and changes are slow and nothing
that we can report that is, you know, making big waves in our
industry right now.
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CIMATRON CONFERENCE CALL SCRIPT
Anya Shelekhin: Okay. And last question. 3D printing, could you
possibly give some more information on your plans with that?
Long term goals and short term goals too, with partnerships and
M&A?
Danny Haran: Sure. And again, we said this before. We are
exploring this. It's a fairly new area for us. Actually, it's a fairly new
area altogether, if you look at software for 3D printing it is really
an industry in its infancy. The agreement we had with Moldex 3D
is actually a good example for the kind of cooperation we're
looking to, to get some technology to get us moving faster,
because, and I think I said this also before, we're not going to
develop everything. This is a combination of development that we
are working on, some tools specifically for conformal cooling as
well as technologies we will acquire from third parties or maybe
we can find some small companies to buy altogether and get this
technology. We can license technology; we can buy technology.
So Moldex 3D is actually a very nice, very powerful finite element
calculation of cooling systems and the way the heat flows through
the system and through the cooling channels. And this is
something that you absolutely have to have if you want to go into
more advanced cooling system designs such as conformal cooling
for 3D systems, because there's no point in doing this expensive
cooling system when 3D printed parts and doing the metal and
everything that is involved with that, if you don't know that you're
actually going to get good benefit from all that effort. So we have
some customers. We actually visited recently some customers
already doing conformal cooling with metal for molds, for specific
areas of the molds where cooling is more challenging than others,
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CIMATRON CONFERENCE CALL SCRIPT
small areas, tight areas. They'll definitely be interested in such
simulation software that we'll be delivering on the next version of
CimatronE and that's like April next year. So we do see interest in
that. But in all fairness, and again we said this, not many of our
customers are already involved in that type of cutting-edge
technology. So we did identify some of the leaders that already
jumped in the water, they have machines, or they outsource the
work, but they use the technology. There are not too many of
them. We hope this will continue. But definitely conformal cooling
is something that we are in the middle of development. Some of it
will be this third-party software, some of it will be developed
inside Cimatron by our R&D, mostly on the CAD side. And the
integration, really, is what brings the value. This is near term,
again the middle of next year, with some revenues in 2014. And
we'll have to see how that develops. And by the way, just to
mention, this Moldex 3D technology we actually expect to be able
to generate more revenues from that, because it could be
appealing to some users of traditional cooling systems. It doesn't
only apply to conformal cooling. So that's like again, we hope to
bring more revenues just from having that technology. Beyond
that, we are looking into software to actually do the preprocessing of parts before they go on machines. This is a more
long term development and endeavor. We're still studying that.
We see some opportunities. It's very difficult to assess the size of
the market, because there's just not enough users. Most people
still use today software that is being delivered with the machines,
working with some consultants, trying to get a better
understanding of the potential and match it with the effort
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CIMATRON CONFERENCE CALL SCRIPT
required to see, develop a business plan around that. And these
are the two areas, really, that we are dealing with in 3D printing.
Anya Shelekhin: Okay. Great thanks. That's all for me.
Operator:
The next question is from Michael Brcic from
Oppenheimer. Please go ahead.
Michael Brcic: Hi, folks. I just have three questions/clarifications.
First one is, you mentioned visibility was somewhat low at the
moment. Is that lower than it has been in the last few quarters,
because it seems like you had pretty good visibility there for a
while?
Ilan Erez:
No, it's the same, it's the same visibility. In terms of
license revenue, the visibility is always low, because actually, from
the moment we get a purchase order to the moment we deliver,
it's typically the same day. Obviously on the maintenance
revenues, the visibility is very high, because this part of the
business it's roughly 50% of the business that is practically
guaranteed at the beginning of each year. But there's no change
in the visibility from previous years.
Michael Brcic: Okay, great. I'm just confirming what I think I
heard. I think you said, like, on the third quarter seasonally is
usually lower, but you expect some growth in line with the market
from last year. Is that right, year on year?
Ilan Erez:
Yeah, well again, in terms of seasonality, it is
usually the weakest quarter of the year, but we are expecting that
quarter to grow in line with how the market grows, relative to the
third quarter of last year.
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CIMATRON CONFERENCE CALL SCRIPT
Michael Brcic: Okay. That's what I confirmed. Finally, you
mentioned you seeing a little bit of a slowdown in the U.S. And
then you also said the auto sector was strong. So in what area do
you see some slowdown in the U.S.?
Danny Haran: I guess general production, general manufacturing.
The manufacturing business index seems to be lower. We also
have some surveys from Gartner that indicates some reduction in
acquisition of machines, milling machines or metal processing
machines. So again, probably not in the automotive, because we
see actually good results from the automotive, but with other
areas in the U.S. there seems to be some softness in production
overall. Again, nothing, I don't know if this is long term or just soft
patch, or something that has to do with people concerned about
QE4 and so on towards the end of the quarter. But there was
some sluggishness there.
Michael Brcic: Actually, let me add onto that a little bit. There's
been a lot of talk lately because of low natural gas prices that a lot
of manufacturing has been coming back to the U.S. Have you seen
much of that trend yet, or not really yet?
Danny Haran: Actually we have seen reshoring, even in previous
years, especially in the mold and die industry, where people
realized that some molds, specially complex ones, it simply does
not make sense to manufacture at low wage countries. And we
did see some reshoring in that respect. I'm not aware, not that I
can say that it's not happening, but I do not know of similar trends
in the general discrete part manufacturing. But we did see it in
molds and dies. But not new, by the way, several years already.
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CIMATRON CONFERENCE CALL SCRIPT
Michael Brcic: Got it. Thank you very, very much. I appreciate it
again.
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 for participating. Thank you for the
support. And we look forward to seeing you again in the next
quarter. Thank you.
Operator:
Thank you. This concludes the Cimatron second
quarter 2013 results conference call. Thank you for your
participation. You may go ahead and disconnect.
(End of conference call)
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