Cimatron's (CIMT) CEO Danny Haran on Q1 2014 Results - Earnings Call Transcript

May.14.14 | About: Cimatron, Limited (CIMT)

Cimatron Ltd. (NASDAQ:CIMT)

Q1 2014 Results Earnings Conference Call

May 14, 2014 9:00 AM ET


Danny Haran - President and CEO

Ilan Erez - Chief Financial Officer


Jay Srivatsa - Chardan Capital Markets

Anya Shelekhin - Sidoti & Co.


Ladies and gentlemen, thank you for standing by. Welcome to Cimatron's First Quarter 2014 Results Conference Call. All participants are present in a listen-only mode. Following managements formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions)

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 at Investors page. As a reminder, this conference is being recorded today, May 14, 2014.

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 is subject to 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, 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 now like to turn over the call to Mr. Danny Haran, Cimatron's President and CEO. Mr. Haran, would you like to begin?

Danny Haran

Thank you. Good morning. And welcome to Cimatron's first quarter 2014 results conference call. You can imagine we are very pleased with the first quarter results. The revenue growth both in new product sales and in maintenance contract is evidence across all service lines and geographical regions.

Furthermore, we were able to convert about half of the revenue growth into operating profit growth due to our efficient financial structure and business model. A $3.2 million cash flow from operating activities, this quarter marks the best ever cash flow of any first quarter for Cimatron.

Furthermore, I can confirm that since the end of Q1, our cash position has continued to grow, beyond the $16.1 million reported for the end of Q1. I see the strong cash position that’s paramounting our ability to keep investing in new technology and to pursue M&A opportunities.

We recently held two large reseller meetings, one in the U.S. for GibbsCAM and one in Israel for CimatronE, where the next versions of both products were presented and discussed with representatives from around the globe.

We got excellent feedback from the participants. And we are very excited about these next versions. Improvements cover a vast range of topics from driving and simulating ever more complex machines, better surface quality, mold and die design automation, other way to new offerings for the additive manufacturing market. I believe we have a lot to look forward to in 2014 and beyond.

Ilan Erez, our CFO will now review the financial statement. Ilan, please?

Ilan Erez

Thank you, Danny. Hello, everybody, and thank you for joining us. Revenues for the first quarter of 2014 was a Q1 record of $11 million, compared to $10.2 million in the first quarter of last year, an increase of 6.3% on a constant currency basis.

The revenue breakdown down in Q1 '14 was as follows, license revenues 41%, maintenance revenues 50%, and other professional services revenues 9%. The geographical revenue breakdown in the quarter was as follows, Europe 51%, North America 40%, Asia Pacific 16%, and the rest of the world 4%.

Gross margin in Q1 ‘14 was 88% of revenue, the same as in Q1 ‘13. Operating expenses in Q1 ‘14 amounted to $8.2 million, compared to $8 million in the first quarter of last year. Operating profit in the first quarter of 2014 was a Q1 record of $1.4 million, an increase of 40% from $1 million in the first quarter of last year.

Net profit for the first quarter of 2014 was $900,000 or $0.08 per diluted share, compared to net profit of $700,000 or $0.08 per diluted share recorded in the corresponding quarter of last year.

Income tax expense in Q1 ‘14 was 43% of income before taxes, compared to 28% in Q1 2013. We still expect income tax expense in full 2014 to be in the range of 20% to 25% of income before taxes. Obviously, the actual annual effective tax rate will be dependent on the taxable annual profit split by territories among other things.

Our net cash balance at the end of March 2014 was $16.1 million, or approximately $1.50 per share, as compared to $14 million or approximately $1.20 per share as of the end of 2013.

As we collect, most of the annual maintenance revenues during the first six months of each year, we didn’t expect that our cash balance would realize in the first half of this year stronger than it’s driving in the second half.

Nevertheless, this year, the collection in the first quarter was even stronger than usual, as we selected in the end of quarter, deferred revenue balance of $6.1 million which was higher than usual.

We will now open the call for the question-and-answer session. Operator, please?

Question-and-Answer Session


Thank you, sir. (Operator Instructions) The first question is from Jay Srivatsa of Chardan Capital Markets. Please go ahead.

Jay Srivatsa - Chardan Capital Markets

Thanks for taking my question. Danny, I know you don’t provide guidance but typically Q2 tends to be stronger sequentially relative to Q1. Is there any indication that things are different this time around and if not, we expect the quarters to be backend loaded as they typically are?

Danny Haran

Yeah. I can tell you that all our products were sold backend loaded. We did not see any reason to believe that outcomes this year will be different than what they are. But I do have to say that Q1 and Q2, sometime 1 is stronger than the other and sometimes the other way around. So there is no way of telling than most evident fluctuations of Q4 is stronger than Q3 is weakest, Q1 and Q2 kind of play catch-up with each other depending on the year. So, overall, we see a normal pattern so far.

Jay Srivatsa - Chardan Capital Markets

All right. In terms of the CimatronE product that you talked about previously, one of things that in terms of 3D support for conformal cooling and AMF support and then when do you expect that for a launch to happen?

Danny Haran

Yeah, pretty much plans are on track and same schedule. We said we would, this is version 12. It is expected to be released officially around midyear, probably early July give or take, and yes, conformably will be there. We see -- we get more information from more customers that they are beginning to adopt metal 3D printing for touch uses, for insets within malls and we expect that to grow. Also, we will provide support for AMF, a format that is more specific for additive manufacturing.

And I see there are other things that already I would say brewing and we expect to have more applications and actually more uses and features and modules in coming versions. It is pretty much as we expected that as soon as we get into this market, we learn much more, we find more opportunities. It’s a very long-term process. It’s a marathon run as the market learns what it can do, what it wants to do, but yes, we expect more uses in coming versions.

Jay Srivatsa - Chardan Capital Markets

Okay. Geographically, can you give us some sense on where you’re seeing the strength for some of your products and where do you expect further growth to come in terms of penetration?

Danny Haran

Okay. In the first quarter, we continue to see growth in Europe, strong growth in Germany. We saw growth in North America in both product lines. In Asia Pacific, we saw nice growth this quarter in Japan, somewhat in China. South Korea is doing well. So overall, it’s all over the place. There is no specific place that we can emphasize, but I will say Germany is specific territory growing more than the others.

Jay Srivatsa - Chardan Capital Markets

Okay. And last question for me. You mentioned acquisitions, where are you in the process of making a decision and what are some of the areas you are looking at to beef up your core expertise?

Danny Haran

Well, in terms of (indiscernible) we, as we said, at this time, we keep looking, we keep talking, discussing, obviously nothing has matured to the point that we can or has to report anything, so there is not much to end -- to adhere. And all in all, I would say that at this period, the pricing is getting higher and pricing expectations are getting higher. It’s getting somewhat better than before to get to a deal, but we are still looking and we are still there. We are still operating.

Jay Srivatsa - Chardan Capital Markets

Thank you very much.

Danny Haran

Thank you.


The next question is from Anya Shelekhin of Sidoti & Co. Please go ahead.

Anya Shelekhin - Sidoti & Co.

Hi, and thanks for taking the questions. First question, are you looking into India as a potential market for growth?

Danny Haran

India has been overall not a great market for us. We do have sales in India, but it has never grown to be significant for our business. There is a lot of issues with illegal copies in India. Also, prices tend to be very low. So, no, I don’t think we will see significant contribution from India in the coming years.

Anya Shelekhin - Sidoti & Co.

Okay. And second question, I was hoping you could comment on the year-over-year increase in Europe for revenue. It seems like you had the strongest growth there. In what countries, specifically, do you see the strongest growth there? And could you possibly tell us what the percent increase was for Germany?

Danny Haran

Well, as I said earlier, Germany is the most growing territory in Europe. Although we see now some wake up I would say in Portugal, in Spain, which suffered more than Germany and Italy in the recent deals. Italy is holding well, still continues with a lot of problems, but we are doing relatively well and we grow our business in Italy. Usually, we do not provide specific numbers of all specific territories, but I can say that Germany grew in Q1 almost 10% on a constant currency basis.

Anya Shelekhin - Sidoti & Co.

All right. Thank you.


(Operator Instructions) There are no further questions at this time. Mr. Haran, would you like to make your concluding statement?

Danny Haran

Thank you. On behalf of management, I would like to thank you for your continued interest, long-term support of our business. I do look forward to speaking with you and update you again next quarter. Have a great day. Thank you.


Thank you. This concludes the Cimatron first quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect.

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