Veidan Conferencing Solutions
Cimatron Ltd.
Q4/2008 Results Conference Call
February 25, 2009
Operator: Ladies and gentlemen, thank you for standing by.
Welcome to the Cimatron 4th Quarter 2008 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. As a reminder this
conference is being recorded, February 25th, 2009.
With us on 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 involve 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.
If you have not received a copy of today’s release and would like to do so, please
download it from the company website at the investors' pages or contact Commitment –
IR Investor Relations at 972-9-7418866.
I would like to turn over the call to Mr. Danny Haran, Cimatron's president and CEO,
Danny Haran: Thank you. Good morning and welcome to Cimatron’s fourth quarter
2008 results Conference Call.
Traditionally, Q4 is our strongest quarter, reflecting the annual seasonality of our
business. However, in 2008, the fourth quarter suffered the full impact of the global
economic slowdown. We have witnessed fast-eroding business conditions in all market
segments and across most territories. The main impact of the weakness in our end
markets is that prospects tend to hold back on purchasing decisions, until they see some
stability in their own business. We believe all CAD/CAM software vendors are
experiencing this behavior .
In spite of the slowdown, we are pleased to show profit in Q4, both on GAAP and nonGAPP basis. Cimatron has been preparing for such hard times – our operations are lean
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and efficient, our expenses are tightly controlled, and we are focused on areas where we
believe return on investment will be highest.
One key area where we started to invest in 2008, and will continue to do so in 2009 is
higher penetration of GibbsCAM in Germany and Italy, where we have our largest and
most successful sales subsidiaries. One example of our commitment to that effort is the
recruiting of the entire staff of a former GibbsCAM reseller in Germany, a company
called DTR, to become employees of our Cimatron GmbH subsidiary. That way, we
were able to quickly ramp up our GibbsCAM team in Germany, in order to support the
higher level of GibbsCAM business we expect in Germany in 2009.
Now is probably a good time to reflect on the merger with Gibbs and Associates, 12
months after the transaction. I am happy to report that we are very satisfied with the
merger. The product is excellent, the team is outstanding, and the synergy is just what
we expected. GibbsCAM version 9 is out, and is making very good progress in the
market. And of course, Bill Gibbs is an active member of the Cimatron management,
and also manages the Cimatron subsidiary in Detroit.
In parallel, we continue to invest in our legacy CimatronE business. CimatronE Version
9 is going through extensive beta testing and will be officially released in Q2 2009. It
includes numerous improvements and new functions for mold and die makers. Initial
market response is very positive, both from existing customers and new prospects.
CimatronE version 9 boasts several new applications and tools requested by our users.
A notable example is the new Die-Quote Generator, which helps die makers quickly
create professionally looking and more accurate quotations for their die tools. This
addition is in line with our long term product strategy, to provide tool makers a
complete integrated solution for their CAD and CAM needs, from Quoting to Delivery.
To summarize, while the economic mid-term future looks uncertain and even bleak, we
remain focused on what we do best – provide our users with the best SW tools for their
needs, increasing their productivity competitiveness. We will remain very conservative
in the way we handle our financials and expenses, and we will not hesitate to take
further cost reduction steps if and when needed. Our strong balance sheet and cash
reserve, together with excellent products, a strong distribution network and prudent
management will help us persevere and weather the storm.
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 for our
fourth quarter 2008 results conference call.
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The results we will present on this call are on a non-GAAP basis, as we believe they
better represent the actual state of our business, and make comparisons to previous
periods easier. We have also published our results on a GAAP basis, as well as a
reconciliation between results on a GAAP and Non-GAAP basis, and those can be
found in our press release issued yesterday after markets close.
Revenues on a non-GAAP basis for the fourth quarter of 2008 increased by 6% to 10.5
million Dollars compared to 9.9 million Dollars in the fourth quarter of 2007. Revenues
on a non-GAAP basis for 2008 increased by 46% to 41.8 million Dollars compared to
28.6 million Dollars in 2007. The increase in revenues in 2008 is mainly attributed to
the consolidation of Gibbs' results, to GibbsCAM sales by Cimatron subsidiaries, and to
the full year consolidation of Microsystem's results, compared to only second half year
consolidation in 2007.
The revenue breakdown in the fourth quarter of 2008 on a non-GAAP basis was as
follows - License revenues: 42%, Maintenance revenues: 43%, other professional
services revenues: 7%, and hardware revenues: 8%. The geographical revenue
breakdown for the fourth quarter was as follows - Europe: 55%, North America: 28%,
Asia Pacific: 13%, and Rest of the World: 4%.
Gross Profit on a non-GAAP basis for the fourth quarter of 2008 was 8.5 million
Dollars as compared to 7.7 million Dollars in the same period in 2007, or 81% of
revenues, compared to 77% of revenues in Q4 2007. Gross Profit on a non-GAAP basis
for 2008 was 34.6 million Dollars as compared to 23.2 million Dollars in the same
period in 2007, or 83% of revenues, compared to 81% of revenues in 2007. The higher
profit margins in 2008 are mainly attributed to a different revenue mix,
with a lower
percentage of third party hardware products sales and higher percentage of software and
services sales.
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R&D expenses in the fourth quarter of 2008 were 1.7 million dollars, compared to 1.1
million Dollars in the fourth quarter of 2007. R&D expenses in 2008 were 6.9 million
dollars, compared to 4.3 million Dollars in 2007. The increase is mainly attributed to the
addition of Gibbs' R&D cost.
Sales and Marketing and G&A expenses on a non-GAAP basis in the fourth quarter of
2008 were 5.9 million dollars, compared to 5.6 million dollars in the fourth quarter of
2007. Sales and Marketing and G&A expenses on a non-GAAP basis in 2008 were 25.4
million dollars, compared to 17.1 million dollars in 2007. The increase in Q4/08 mainly
reflects the consolidation of Gibbs' results, somewhat offset by the weakening Euro
against the US Dollar, and the increase in 2008 mainly reflects the consolidation of
Gibbs' and Microsytem's results.
Operating profit on a non-GAAP basis in the fourth quarter of 2008 increased 10% to
977 thousand dollars, compared to an operating profit of 889 thousand dollars in the
fourth quarter of 2007. Operating profit on a non-GAAP basis in 2008 increased 32% to
2.3 million dollars, compared to an operating profit of 1.8 million dollars in 2007.
Net profit on a non-GAAP basis for the fourth quarter of 2008 decreased by 45% to 553
thousand Dollars, or 6 Cents per diluted share, compared to a net profit of 1 million
Dollars, or 13 Cents per diluted share recorded in the same quarter of 2007. There are
two main reasons for the decrease in Net profit in Q4/08 as compared to the net profit in
Q4/07, despite a higher Operating profit in Q4/08: First, in Q4/08 we had financial
expenses, mainly due to the weakening Euro and Israeli Shekel against the US Dollar,
while in Q4/07 we had financial income from our cash reserves and from the weakening
Dollar against the Euro and the Israeli Shekel. Second, in Q4/08 we had some tax
expenses, mainly related to Gibbs' state tax liability, while in Q4/07 we had a small tax
income.
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Net profit on a non-GAAP basis for 2008 increased 9% to 2.2 million Dollars, or 23
Cents per diluted share, compared to a net profit of 2 million Dollars, or 25 Cents per
diluted share recorded in the corresponding period of 2007. Same as in Q4/08, in full
2008 we had financial expenses due to the weakening Euro and Israeli Shekel against
the Dollar, while in full 2007 we had financial income, mainly due to the opposite
reason.
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 standby
while we poll for your questions. I repeat, if you have a question, please
press star 1. There are no questions at this time. A replay of the call will
be available on Cimatron's website, www.cimatron.com. Excuse me. The
first question is from John Lewis of Osmium. Please go ahead.
John Lewis: Hi. Good morning guys.
Danny Haran: Good morning.
Ilan Erez:
Good morning.
John Lewis: I was just curious if you could give a little color, I think, just on the
overall industry. I think the, I remember reading that the long term
growth trends for the industry were something like low single digit
growth. Could you just talk a little bit about maybe what kind of growth
you expect for the industry, given the current economic situation? And
then that would be helpful if you could offer anything there. If not I can
move on.
Danny Haran:
Yeah, well we don't really have a quantitative or numeric
estimate. I expect 2009 will see some decline in the industry. We see this
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coming from machine tool builders that report slower sales. We see
customers having fewer orders on their own business, and therefore
they're less inclined to invest in software in new machines or expanding
the business. We expect this will be, you know, a short to medium term. I
don't know how long it will take. And eventually the industry will
resume its, as you said, single digits or high single digit growth. But right
now in the near future, I think we will see, at best, stagnant industry if
not some decline. And again, it all comes down from the, you know, the
automotive, the electronic equipment, consumer goods, where we see a
significant slowdown, exports in Japan, and so on.
John Lewis: Sure. Okay. That's helpful. Can you talk a little bit, I'm just looking at
your income statement here. It looks like your R&D was almost $7
million for the year. Can you give any color on what that would look like
for 2009?
Ilan Erez:
Pretty much the same.
John Lewis: Okay. That's, okay, that's helpful. And then, do you have any thoughts on
using your cash to repurchase shares, given what we think is an
extremely attractive valuation?
Ilan Erez:
Yeah, well, actually we are doing this while we speak, I would say. The
Cimatron board of directors approved a buyback plan back in June 2008.
The plan for the purchase is of up to $1 million, and to date, we have
purchased approximately $250,000 of shares. Given the limitations we
have of how much we can buy daily, this is what we could do so far. And
we intend to continue in this pace in the near future.
John Lewis: Okay. That's very helpful. And then lastly, I guess, can you touch briefly
on what's in total current assets on the balance sheet?
Ilan Erez:
Total current assets. Yes, total current assets, again, you can see on the
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balance sheet that out of $15 million, almost 6 million is cash and cash
equivalent, 7 million is trade receivables, and there is another $2.7
million of other current assets,
John Lewis: I'm sorry. I meant total other assets.
Ilan Erez:
Total other assets. Okay.
John Lewis: 14.3?
Ilan Erez:
Yes. Total other assets is built of a goodwill and other intangible assets
of the acquisitions we previously made. Obviously the large one is for
Gibbs and the other one is for Microsystem. Part of it is amortizable and
part of it is, you know, like non-amortizable goodwill in the balance
sheet.
John Lewis: Great. Thank you very much. Well done.
Ilan Erez:
Thank you.
Operator:
Thank you. There are no further questions at this time. Just a reminder, 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 statements?
Danny Haran:
Yes, well thank you for joining the conference call and we look
forward to seeing you in the next quarter conference call. Thank you very
much.
Operator:
Thank you. This concludes the Cimatron fourth quarter and annual 2008
results conference call. Thank you for your participation. You may go
ahead and disconnect.
(End of conference call)
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