Veidan Conferencing Solutions
Cimatron Ltd.
First Quarter 2008 results Conference Call
May 20, 2008
Operator:
Ladies and gentlemen, thank you for standing by. Welcome to the
Cimatron first quarter 2008 results conference call. All participants
are present in a listen only mode. Following the management's
formal presentation, instructions will be given for the question and
answer session. For operator assistance during the call, please
press star zero. 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: www.cimatron.com. As a
reminder, this conference is being recorded May 20, 2008. With us
online 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 in Israel, the impact of competition, supply
constraints, as well as other risks and uncertainties which are
detailed in the company's filings with the various securities
authorities. I would like to turn over the call to Mr. Danny Haran,
Cimatron's president and CEO. Mr. Haran, would you like to
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begin?
Danny Haran:
Yes, thank you. Good morning, and welcome to Cimatron's
first quarter 2008 results conference call. This has been the first
quarter after the merger with Gibbs & Associates. Therefore we
present results that consolidate the Gibbs numbers as well as the
Microsystem numbers. As a result, please bear in mind that
comparison to Q1 2007 is not straightforward. Furthermore,
because of the Gibbs merger, we are faced, this year, with several
significant GAAP related issues including unrecognizable deferred
revenues, amortization of intangible assets, and tax related issues.
Together, they reduce our GAAP bottom line in Q1 by $533,000.
That's why we have decided to also publish non-GAAP results this
quarter. But let us leave accounting aside for now, and focus on
our core business. We are pleased with the Q1 results. Revenues
are at an all-time quarters' record, $10 million. Growth was both
organic and M&A related. The merger process with Gibbs &
Associates is progressing as planned, with dozens of salespeople
and engineers already trained on the GibbsCAM® product. The
synergy is good. Chemistry is good, and the business prospects
are promising. We move ahead with the execution of our long-term
plan to cover the entire manufacturing software market. The
business environment is quite challenging. While Europe and parts
of Asia-Pacific are strong, we do see softness in the United States
and
Japan.
We
believe
these
are
industry-wide
trends,
experienced by all market players. During Q1 2008, we concluded
a major reorganization in our legacy U.S. subsidiary, under the
new management of Bill Gibbs, in order to increase our profitability
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under the current market conditions. Another factor of concern is
the weak U.S. Dollar, versus the Israeli Shekel, since a significant
portion of our expenses is in New Israeli Shekels (NIS). Over the
last twelve months, the U.S. Dollar has devalued by almost 20
percent versus the NIS, effectively increasing our expenses. The
strong Euro partially offsets this effect on our bottom line, as we
have positive contribution from our Europe-based operations. We
already took some cost control measures that are intended to
counter the exchange rate effect in the coming quarters. Overall, I
believe Cimatron is well positioned for the coming 2008 quarters.
Good acceptance of our products, the GibbsCAM® merger, and
tight budget control, will help us achieve our goals for the entire
year. 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 first quarter 2008 results conference call. We have
consolidated Microsystem results since Q3 2007, and Gibbs
results starting this Q1 2008. Therefore all mentioned figures for
the first quarter of 2008 include Microsystem's and Gibbs' figures,
unless specifically said otherwise. When we discuss figures that
do not include the consolidated Microsystem and Gibbs results,
we use the term organic. Revenues on a non-GAAP basis for the
first quarter of 2008 increased by 92 percent to $10.3 million,
compared to $5.3 million in the first quarter of 2007. The increase
in revenues was attributed to organic growth as well as to the
consolidation of Microsystem's and Gibbs' results. The organic
growth consisted of both software license revenues as well as
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maintenance
and
services
revenue
growth.
The
revenue
breakdown in the first quarter of 2008 on a non-GAAP basis, was
as follows: License revenues, 44 percent; maintenance revenues,
42 percent; other professional services revenues 9 percent; and
hardware revenues, 5 percent. The geographical revenue
breakdown for the quarter was as follows: Europe, 61 percent;
North America, 22 percent; Asia-Pacific, 13 percent; and the rest
of the world, 4 percent. Gross profit on a non-GAAP basis for the
first quarter of 2008 was $8.4 million as compared to $4.5 million
in the same period in 2007, or 82 percent of revenues compared
to 84 percent of revenues in Q1 2007. As expected, the decrease
in gross margin is mainly attributed to Microsystem's lower
margins on third-party hardware product sales as compared to the
margins on Cimatron sales. R&D expenses in the first quarter of
2008 were $1.8 million, compared to $1.1 million in the first quarter
of 2007. The increase is mainly attributed to the addition of Gibbs'
R&D costs, while we are keeping our R&D activity at the same
level in order to support our product development plan. There was
no non-GAAP adjustment on R&D expenses. Sales and marketing
and G&A expenses on a non-GAAP basis in the first quarter of
2008 were $6.4 million, compared to $3.2 million in the first quarter
of 2007. This increase mainly reflects the consolidation of
Microsystem's and Gibbs' results. Operating profit on a non-GAAP
basis in the first quarter of 2008 increased 125 percent to
$277,000 compared to an operating profit of $123,000 in the first
quarter of 2007. Net profit on a non-GAAP basis for the first
quarter of 2008 increased 23 percent to $235,000, or 2 cents per
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diluted share, compared to a net profit of $191,000, or 2 center per
diluted share, reported in the same quarter of 2007. Our cash flow
from operations in Q1 2008 was positive and we expect to remain
positive during 2008. 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 decline from the polling process, 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. The first question is from Don McKeirman of Landau
Securities. Please, go ahead.
Don McKierman:
Hello. The, you said 20 percent of the costs in Israel were
impacted by the dollar/shekel translation. Can you give us the
dollar amount of that impact?
Danny Haran:
Okay. Well, ballpark, if we look at the dollar/shekel as offset
by the dollar/Euro, we are talking about like $200,000 in a quarter.
Don McKierman:
Okay. And on a going forward basis, do you have some
financial objectives in terms of gross profit percentage we should
expect in operating margin percentage, so I can develop a model
on a going forward basis with the combined companies?
Danny Haran:
The operating margin for the consolidated company should
remain, sorry, the gross margins should remain above 80 percent,
as they are now. Operating margins, as a consequence, after
taking into consideration the operating expenses, should be
increased give or take at the same ratio.
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Don McKierman:
I'm not sure I understand.
Danny Haran:
What I'm saying is that every additional dollar that we will
sell on top of the revenues that we see in Q1, approximately 80
percent will get to the bottom line, give or take.
Don McKierman:
Oh, okay. So then essentially your break even is about $10
million per quarter and as you grow the business, you've got rather
significant operating leverage of 80 percent of that incremental
new revenue going right to the bottom line?
Danny Haran:
Basically this is true.
Don McKierman:
Okay. Thank you.
Danny Haran:
Thank you.
Operator:
If there are any additional questions, please press star 1. If you
wish cancel your request, please press star 2. Please standby
while we poll for more questions. There are no further questions at
this time. A replay of this call will be available on Cimatron's
website: www.cimatron.com, starting in 3 hours. Mr. Haran, would
you like to make your concluding statements?
Danny Haran:
Yes, thank you. I'd just like to thank participants for joining
us for this conference call and we look forward to see you again
on the next quarter. Thank you very much.
Operator:
Thank you. This concludes the Cimatron first quarter 2008 results
conference call. Thank you for your participation. You may go
ahead and disconnect.
(End of conference call)
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