Cimatron Ltd.
Q4/2011 Results Conference Call
February 29, 2012
Conference Coordinator:
Ladies and gentlemen, thank you for standing by.
Welcome to Cimatron's 4th Quarter 2011 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 website at the investors' pages:
www.cimatron.com
As a reminder this conference is being recorded, February 29th, 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 which are not historical facts contain
forward-looking information with respect to plans, projections, or future performance of
the Company, the occurrence of which involves certain risks and uncertainties, which
could cause actual results to differ materially from those currently anticipated. Such
risks and uncertainties include dependence on 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 the Company's filings with the
various securities authorities.
The results that will be presented on this call are on a non-GAAP basis, as Cimatron's
management believes they better represent the actual state of the Company's
business, and make comparisons to previous periods easier. The Company also
published 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?
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Danny Haran:
Thank you. Good morning and welcome to Cimatron’s fourth quarter 2011 results
Conference Call. Just before I begin, I’d like to mention we also have Mr. Yossi Ben
Shalom here with us, Chairman of the Board, and he’ll be able to also participate in the
Q&A session at the end.
We are proud to be here and report another record quarter for Cimatron. The eighth
consecutive quarter with year-over-year growth of revenues and operational profit, Q4
2011 also marks several record levels of activity. For the first time in our history, we
have shown quarterly revenues in excess of $12M, and quarterly operating profits in
excess of $2M. We have seen strong activity in all our markets, notably in the USA,
Germany and Italy. In spite of the concerns regarding the European debt crisis,
worldwide manufacturing activity remained strong throughout Q4, and shows no signs
of fatigue in the early stages of the first quarter of 2012.
Q4 2011 concludes a very strong year for Cimatron. While we were cautious
throughout the year with respect to the global economy and the situation in Europe, we
did not let these concerns deter us from our long term mission and focus. It is that type
of long term commitment and dedication to our target markets that lets us enjoy the
continued support of our customers, evident in record maintenance revenues in 2011.
It seems like economical and geopolitical uncertainty is here to stay, and Cimatron will
continue to adapt and react to the ever changing conditions in the market. It is my
personal belief that focus and perseverance are the key factors in long term business
success, now maybe more than ever. I know we have the people, the know-how, the
passion and the organizational culture to keep growing and making the most of the
current opportunities.
As we get ready to mark our 30th anniversary in 2012, this is a great opportunity to
thank our employees, resellers, partners and customers, all of whom deserve credit for
these record results of 2011.
Ilan Erez, our CFO, will now review the financial statements. Ilan, please:
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Ilan Erez:
Thank you Danny. Hello everybody and thank you for joining us.
Revenues for the fourth quarter of 2011 increased 11% to 12.2 million Dollars,
compared to 11.0 million Dollars in the fourth quarter of 2010.
In 2011, revenues increased 13% to 40.7 million Dollars, compared to 36.1 million
Dollars in 2010. On a constant currency basis, new licenses revenues increased 20%
and recurring maintenance revenues increased 7% in 2011 from 2010, reflecting the
continuing momentum in our target markets.
The revenue breakdown in Q4/11 was as follows – License revenues: 51%;
Maintenance revenues: 42%; and other professional services revenues: 7%. The
geographical revenue breakdown for the quarter was as follows: Europe: 49%, North
America: 32%, Asia Pacific: 15%, and Rest of the World: 4%.
Gross Margin for the fourth quarter was 89% of revenues, compared to 86% in the
fourth quarter of 2010.
In full 2011, gross margin was 88% of revenues, as compared to 85% of revenues in
2010.
There are two main reasons for the improvement in gross margin from 2010 to 2011: 1.
Towards the end of 2010 we stopped selling in Italy a hardware-based measurement
product, the profitability of which was negligible, whereas management and personnel
attention required for selling it were significant; and 2. Because part of our cost of sales
consists of fixed costs, gross margins grow when revenues grow.
Operating expenses in the quarter amounted to 8.7 million Dollars, compared to 7.9
million Dollars in the fourth quarter of last year.
In 2011, operating expenses were 30.8 million Dollars, compared to 27.7 million Dollars
in 2010. One million dollars of the increase in expenses in 2011 was attributable to the
overall effective exchange rates of the Euro and the Israeli Shekel versus the Dollar in
2011 relative to the effective rates of these currencies in 2010, while most of the
remainder of the increase in operating expenses reflected our increased level of activity
that accompanied the greater demand for our products, as shown in our increased
revenues.
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Operating profit in the quarter increased by 31% to 2.2 million Dollars, compared to
an operating profit of 1.7 million Dollars in the corresponding quarter of 2010.
In 2011, operating profit increased by 65% to 5.1 million Dollars, from 3.1 million
Dollars in 2010.
Net profit for the quarter was 1.6 million Dollars, or 18 Cents per diluted share,
compared to a net profit of 1.6 million Dollars, or 17 Cents per diluted share recorded in
the corresponding quarter of 2010. The contrast between operating profit (which rose in
Q4/11 compared to Q4/10) and net profit (which practically was at the same level in
Q4/11 relative to Q4/10) was mainly attributable to two items: 1. In Q4/11 income tax
expense constituted 19% of income before taxes, while in Q4/10 it was 11% of income
before taxes. The main reason for the higher effective tax rate is the full use of US loss
carry-forwards during 2011; and 2. Financial expense that we incurred in Q4/11 mainly
due to the effect of the Euro and Israeli Shekel exchange rate changes versus the US
Dollar, while in Q4/10 the effect of such exchange rate differences was in the opposite
direction and resulted in a financial income.
Overall, in 2011, net profit increased 54% to 4.5 million Dollars, or 48 Cents per diluted
share, compared to a net profit of 2.9 million Dollars, or 32 Cents per diluted share,
recorded in 2010.
After we made two dividend payments in a total amount of 3.2 million Dollars during
2011, our cash and cash equivalents balance as of the end of 2011 was 11.8 million
Dollars, representing approximately 1.27 Dollars per share, with positive cash flow from
operating activities of 4.6 million Dollars in 2011.
We will now open the call for Questions and Answers. Operator, please.
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Operator:
Ladies and gentlemen, at this time we will begin the question-andanswer session. If you have a question, please press *1. If you wish to
cancel your request, please press *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 Lew Moser of Mafax
Investors. Please go ahead.
Lew Moser:
Good morning. Nice job. Couple of questions I have. I'm a new
shareholder. And you, I believe, do not have an investor's relations
person. I was wondering if there's any interest, in the coming year, to
make Wall Street a little bit more aware of your company. You seem to
be undervalued and yet no one's picked up on it.
Ilan Erez:
Yeah, well, first of all, it's true we do not have an American or U.S. IR
contact at the moment. But obviously as we are getting, or showing
better results, year over year, this is something we are considering
positively.
Lew Moser:
The dividends that you paid during this year, do you foresee any
payments coming in the coming year?
Ilan Erez: Yeah, well, in November 2011 we announced a process that we started with
the Israeli court in order to allow us to distribute up to $10 million of
cash to our shareholders. This is a certain process that is required under
Israeli law once a company distributed all the earnings that it could
distribute under Israeli law. So the answer is yes, we do intend to pay
more distributions to shareholders, subject to court approval, that we
believe that such process will take until mid-this year.
Lew Moser:
Do you have any new products online that will be coming out during the
current year that you feel may significantly increase your sales?
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Danny Haran: No, we have new versions planned for next year, for this year, towards
the end of the year. It's not, you know, new products per se., but these are
new versions, new capabilities, as we have every year. And obviously we
expect them to bring more value and hopefully increase sales and
maintain customers on maintenance, but nothing major that we expect,
like to go into a whole new field or something. We intend to deepen our
hold into the current markets where we operate.
Lew Moser:
And the last question is, are there any, is there any interest in acquiring
other companies that you're actively involved in now?
Danny Haran: Yes, there is such interest. We keep looking. We have announced this
several times in the past. We think that this market is going through
consolidation; probably will continue to go through consolidations. We
should be definitely, will be looking, and are looking all the time, for
opportunities for the right price and also for the right mix in terms of
synergy and matchup with our portfolio and distribution.
Yossi Ben Shalom:
Last year we made an offer to buy a company by the name Planit,
which showed our interest in doing acquisitions. Unfortunately a private
equity fund was giving a much higher price than us and they did the
acquisition. But we are definitely looking into acquisitions and mergers.
Lew Moser:
And just one more last question. I noticed that the earnings this quarter
are higher than other quarters. Is there some seasonality? Or what would
account for that?
Ilan Erez:
Yes, it is seasonality. Usually Q4 of every year is our strongest of the
year. Usually also Q3 is the weakest due to the vacations, the summer
vacations, mainly in Europe. So, yes, the answer is yes, there is a
seasonality.
Lew Moser:
Thanks very much.
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Danny Haran: Thank you.
Operator:
The next question is from Don McKiernan of Landoldt. Please go ahead.
Don McKiernan:
Yeah, thank you, and congratulations on a great quarter and a
great year.
Danny Haran: Thank you.
Ilan Erez:
Thank you.
Don McKiernan:
On the dividend that you proposed in November, up to 10
million, were you contemplating a $10 million dividend, a one-time
dividend, or maybe a series of dividends that add up to 10 million? Can
you clarify that?
Ilan Erez:
Yeah, well, for now, by the way, the right term is capital distribution,
and not dividend, but this is just termination. First of all, for now this is a
theoretical request from the court. Obviously, we do intend to distribute,
in such case, up to $10 million, but this would be, after the court
approval, this would be subject to the board of directors' discretion to
decide how much and when and in how many instances such a
distribution will be made.
Don McKiernan:
Okay, and then don't you get a significant inflow of cash on your
renewal of your maintenance contracts during the year, at some point
during the year?
Ilan Erez:
Yeah, that's true. Typically in the first half of each year, we collect most
of the annual maintenance contracts revenues, and this is why typically
by mid of each year we see the highest cash balance of each year; this is
true.
Don McKiernan:
Okay. And do you have the revenue split for the quarter and for
the year, between Cimatron and Gibbs?
Ilan Erez:
Yes. This is, give or take, 67% Cimatron and 33% GibbsCAM, give or
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take.
Don McKiernan:
Ilan Erez:
And is that pretty consistent with prior years?
I would say so, yes.
Don McKiernan:
Okay. And how is the SuperBox product going?
Danny Haran: Going slower than we expected. We have several dozen already rented,
some more dozens in evaluation. Personally, I thought it would go faster,
but we seem to be going slower than expected. I think it also helps us in
getting more NC seats sales in general, but the actual SuperBox rentals
are going slowly at the moment, slower than expected.
Don McKiernan:
How are,
Danny Haran: Sorry?
Don McKiernan:
How are sales in China going right now?
Danny Haran: China's pretty much the same level, I think, as last year. Not a big boom,
not a bust. We still have the big project with Ju Teng; that is a three-year
project. Other than that, no, nothing major in China at that time.
Don McKiernan:
How about in India?
Danny Haran: India, we have a small presence. We have a distributor that was actually
recruited just a year ago, and it has been a good year for them. They are,
you know, gaining market presence, getting their act together, putting
more and more offices working with Cimatron. But it's still quite small
compared to the overall business.
Don McKiernan:
Okay. And you said in your comments that, I think you used the
term "no signs of fatigue early in 2012". Do you expect 2012 to show
meaningful growth over 2011 in your overall business by the end of the
year?
Danny Haran: Well, usually we do not give forecasts of that nature. If the world
economy holds and the manufacturing activity continues as it does today,
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then I'm quite optimistic about 2012. We are doing some investments in
some areas, hopefully to get more revenues from places where we feel
there's growth potential. So, overall, yes, I think we can continue to
grow. We've been growing in the last three years quite consistently, and
we say as long as the economy holds, I think we'll be doing very good in
2012 as well.
Don McKiernan:
And have you been taking any market share away from any of
your competitors, or is everybody kind of holding their own?
Danny Haran: It's hard to tell. It's not that we have exact numbers. In some cases we
think we have grown faster than others. So we could be taking market
share. But I do not have any solid data to indicate that; just some
comparisons of growth numbers may suggest that.
Don McKiernan:
Yeah, and finally, I agree with the first caller's question about
investor relations. I think you have a very undervalued situation and you
really should find a way to get the word out in the U.S. markets, because
I think there'd be a lot of interest in your story; it's very, very appealing,
very attractive, and you're paying out these nice dividends. So I think
you should, you know, have some focus on that area just to accelerate
that process.
Ilan Erez:
Very well.
Danny Haran: That's going to be something to consider.
Don McKiernan:
Yeah. Thank you.
Danny Haran: Thank you.
Ilan Erez:
Thank you.
Operator:
And if there are any additional questions, please press *1. If you wish to
cancel your request, please press *2. Please stand by while we poll for
more questions. There are no further questions at this time. A replay of
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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: Just to thank the participants for joining us today, and we look forward to
see you on the next conference call in three months. Thank you very
much.
Operator:
Thank you. This concludes the Cimatron fourth quarter and year-end
2011 results conference call. Thank you for your participation. You may
go ahead and disconnect.
(End of conference call)
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