Cimatron Ltd.
Q2/2012 Results Conference Call
August 9, 2012
Conference Coordinator:
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's 2nd Quarter 2012 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 9th, 2012.
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 contained in this conference call that are not historical facts contain forwardlooking 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, as well as certain other risks and uncertainties which are detailed in
Cimatron's filings with the various securities authorities.
The results that will be presented on this call are primarily 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.
I would like to turn over the call to Mr. Danny Haran, Cimatron's president and CEO.
Mr. Haran, would you like to begin?
Danny Haran:
Good morning and welcome to Cimatron’s second quarter 2012 results Conference Call.
We are pleased to report another strong Q2 for Cimatron, during which we experienced
record operating profit for the second quarter of a fiscal year. In particular, we are pleased
with the strong growth of 16% in new license sales compared to Q2 of 2011, on a
constant-currency basis. Equally important is the 9% growth in maintenance revenues, on
a constant-currency basis, as we believe that this demonstrates customer loyalty and the
level of user satisfaction with our products.
Solid growth has been recorded for both product lines, CimatronE and GibbsCAM, and in
most geographical regions, in Europe, North America and Asia Pacific. We hope to
maintain our momentum throughout 2012 in spite of the low visibility and high level of
uncertainty in the global economy.
Today we also announced an agreement with the Office of Chief Scientist in the Israeli
Ministry of Industry, Trade and Labor (also known as the OCS). Under the agreement, we
paid to the OCS in July 2012 an amount of approximately $2.5M, and the OCS exempted
us from any further royalty reports and payments, other than as may be required under
applicable law in the event of transfer of know-how outside of Israel. As a result of this
agreement, we recorded additional income of approximately 400 thousand dollars in the
second quarter of 2012, reflected as a lower cost of revenue in our GAAP Statements of
Income. This one-time income was excluded from the non-GAAP results for the second
quarter of 2012, as we believe that our non-GAAP results should reflect the results of our
ongoing business.
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 second quarter of 2012 were 10.6 million dollars, compared to 10.0
million dollars in the second quarter of 2011, an increase of 11% on a constant currency
basis.
In the first six months of 2012, revenues were 20.5 million dollars, compared to 18.9
million dollars in the corresponding period of 2011, an increase of 12% on a constant
currency basis.
The revenue breakdown in Q2/12 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: 46%; North America: 34%; Asia Pacific:
15%; and Rest of the World: 5%.
Gross Margin for the quarter was 89% of revenues, the same as in the second quarter of
2011.
In the first six months of 2012, gross margin was 88% of revenues, the same as in the first
half of 2011.
Operating expenses in the quarter amounted to 7.7 million dollars, compared to 7.6
million dollars in the second quarter of last year.
In the first six months of 2012, operating expenses were 15.2 million dollars, compared to
14.6 million dollars in the corresponding period of 2011, reflecting our increased level of
activity that accompanied the greater demand for our products, as shown in our increased
revenues.
Operating profit in the quarter increased 28% to 1.7 million dollars, compared to an
operating profit of 1.3 million dollars in the corresponding period of 2011.
In the first six months of 2012 operating profit increased by 42% to 2.8 million dollars, from
2.0 million dollars in the corresponding period of 2011.
Net profit for the quarter was 1.0 million dollars, or 11 cents per diluted share, compared
to a net profit of 1.3 million dollars, or 14 cents per diluted share recorded in the
corresponding quarter of 2011. The contrast between operating profit (which rose in Q2/12
compared to Q2/11) and net profit (which declined in Q2/12 relative to Q2/11) was mainly
attributable to two causes:
1. In Q2/12, income tax expense constituted 29% of income before taxes, while in Q2/11,
it was 3% of income before taxes. The main reason for the higher effective tax rate is our
having completed the use of our remaining U.S. tax loss carry-forwards towards the end of
2011; and
2. Financial expenses that we incurred in Q2/12, primarily due to the effect of the Euro and
Israeli Shekel exchange rate changes versus the US dollar. In Q2/11, the effect of such
exchange rate differences was in the opposite direction and resulted in financial income.
In the first six months of 2012, Net profit was 2.0 million dollars, or 22 cents per diluted
share, compared to the same net profit and EPS recorded in the corresponding period of
2011. The contrast between operating profit (which rose in the first half of 2012 compared
to the first half of 2011) and net profit (which remained the same in these two periods) was
mainly attributable to the same two causes that produced a corresponding effect in the
second quarters of 2012 and 2011, respectively.
As of the end of Q2/2012, our cash and cash equivalents balance, net of short term
bank credit, was 14.6 million dollars, representing approximately 1.57 dollars per share,
with positive cash flow from operating activities of 4.7 million dollars in the first half of
2012.
We will now open the call for Questions and Answers. 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 star 1. If you wish
to cancel your request, please press star 2. If you are using speaker
equipment, kindly lift the handset before pressing the numbers. 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 Michael Brcic of
Oppenheimer. Please go ahead.
Michael Brcic: Hi, good morning. Great quarter again. Any more color on the current
quarter you're in. Obviously the macro had winds out there. Are you seeing a
slowdown at this point, or are you just concerned about it like everybody
else? Thank you.
Danny Haran: I would say that at this point we are just concerned as everyone else. We do
see a discrepancy between what we read in the newspapers and the overall
economical signs and what we see in our books. So, so far so good. And of
course we do, we are concerned. It could be that at some point the
discrepancy between actual results and the perceived situation will no longer
hold. But so far, and I would say also into Q3, we do not see any real
slowdown in our business. Q3, one has to note, it is very early to say, also
because of the summer vacations now, so it's really a bit too early to say. But
so far we have nothing to report in that sense.
Michael Brcic: Can you also maybe go over any sort of seasonality that you have in your
revenues, etc?
Danny Haran: Yeah. It's really the same story every year. Q1 and Q2 are like in the
middle somewhere. They're good quarters. Q3 typically is the slowest
quarter of the year, again, mainly due to the summer vacations in Europe.
And then Q4 is by far typically the best quarter of each year. The only
exception we had, I think, was Q4 of 2008, when we actually started to feel
the big crisis of 2009. So this is the seasonality. And so far, we expect this
year to unfold as usual, unless, again, something different happens.
Michael Brcic: Thank you very much, and congratulations.
Danny Haran: Thank you.
Operator:
If there are any additional questions, please press star 1. If you wish to
cancel your request, please press star 2. Please stand by while we poll for
more questions. The next question is from David Cohen of Minerva
Advisors. Please go ahead.
David Cohen: Good afternoon, guys. I'm looking for a little more detail on this OCS
agreement. The $400,000 in income that was recorded or in reduction of
costs of goods, that was recorded in the second quarter, I assume that
corresponds to some royalty that was run through the income statement
previously that's now being reversed. What I’m trying to understand for
modeling purposes going forward is how much on an annualized basis does
this agreement reduce our cost of goods?
Ilan Erez:
Well, first of all, you are correct. Throughout the years and until the first
quarter of 2010, we accrued, meaning booked as an expense in the P&L, but
did not pay, approximately $2.9 million. So we had this liability on our
balance sheet. So now settling for $2.5 million, this is what created the
$400K of one-time income. This is the answer to your question, to your first
question. As to the second question, due to the fact that we are not accruing
any more, ever since the first quarter of 2010, it means that this settlement or
agreement would not contribute now anything further to our P&L or to a
higher income, because it is not affecting our P&L for the last 2.25 years. So
no effect going forward. The only thing is that other than the 400K income
that was created by this agreement, we are also freed from a contingent
liability worth approximately additional $2.5 million that the OCS kind of
claimed that we owed them. And this settlement actually frees us from any
further liabilities under this relationship with the OCS.
David Cohen: Okay. Great. That's perfectly clear. Just one follow up, and you can guess
what it might be. The comment about how there could be potential
additional liability if the technology were transferred outside of Israel. Since
I’m not familiar enough with Israeli law to be able to understand what that
means, assuming a non-Israeli company wanted to buy Cimatron, can you
give us a sense, order of magnitude as to how much potential additional
liability there would be there?
Ilan Erez:
Yes, well, in case for whatever reason, the owner of the company or the
company itself would like to take the intellectual property of Cimatron
outside of Israel, we are talking about roughly, and again, it depends when,
because there are certain interests involved here, interest rates, and so on, we
are talking roughly about $2.5 million.
David Cohen: Great. Thank you.
Ilan Erez:
Thank you.
Operator:
The next question is from Don McKiernan of Landolt Securities. Please go
ahead.
Don McKiernan: Thank you. Your revenue run rate is about 40 million per year, based on
the first six months. I want to know what percentage of that would be
attributable to GibbsCAM, the company you bought several years ago.
Ilan Erez:
Yeah, well the revenue split between GibbsCAM and Cimatron-E, our
traditional product, is roughly 30/70.
Don McKiernan: 30% for GibbsCAM?
Ilan Erez:
Yes, give or take.
Danny Haran: Yeah, but you should, the run rate, really, you should look at the last twelve
months, because of the strong seasonality. Usually the second half of each
year is stronger than the first. So if you want to get a good sense of the run
rate, trailing twelve months would give you a better indication than the first
six months, and not …
Don McKiernan: Right, right. And has Gibbs grown over the years or have the revenues,
it seems to me they're flat from when you purchased them?
Danny Haran: No, no. They're growing very nicely. We do not give the exact numbers to
the public, actually they have grown even a little bit further than CimatronE. And they're doing much better today than they did at the time of the
acquisition. It's an excellent product, and excellent division. And we see
growth all the time, both in the U.S. and in Europe.
Don McKiernan: With all your cash do you foresee any additional acquisitions? It's a very
fragmented industry, so.
Danny Haran: Hard to say at that point. We have been and looking at some companies and
keep on doing that. But at that point, it's hard to say.
Don McKiernan: And also with your cash, aren't you looking at a special one-time
dividend and you're waiting for approval or something like that?
Ilan Erez:
Yeah. That's what's reported in previous conference calls. There is some way
to do here. We already got the court approval for such a distribution. But we
do have some discussions with the Israeli Tax Authorities, discussions that
are going on while we speak. And we cannot estimate at this point when and
how such discussions would end up.
Don McKiernan: Okay. But it's still something that, once you get through the government
approval process, that you plan on proceeding with. Is that right?
Danny Haran: I'm sorry, what was the question again?
Don McKiernan: Yeah. So the question is, once you get through all the government
regulatory hurdles, do you still plan on doing a special one- time dividend?
Ilan Erez:
Well, this really depends on when such approvals will be granted and it still
depends on the board to make such a decision. It wouldn't be responsible to
say now what exactly would be the plan, because we do not know if and
when we will get the required approvals.
Don McKiernan: Right. Okay. Thanks for taking my questions.
Danny Haran: Thank you.
Operator:
There are no further questions at this time. A replay of the call will be
available on Cimatron's website: www.cimatron.com, starting tomorrow.
Mr. Haran, would you like to make your concluding statement?
Danny Haran: Yes, , well, thank you very much all for joining us for this conference call,
and we look forward to meeting you again here in three months, for next
one. Thank you very much.
Operator:
Thank you. This concludes the Cimatron second quarter 2012 results
conference call. Thank you for your participation. You may go ahead and
disconnect.
(End of conference call)