|
CIMETRIX INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) Overview
The following is a brief discussion and explanation of significant financial
data, which is presented to help the reader understand the results of the
Company's financial performance for the three-month and nine-month periods ended
September 30, 2012 and September 30, 2011 and the Company's financial position
at September 30, 2012. The information includes discussions of sales, expenses,
capital resources and other significant financial items.
This discussion should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2011. The ensuing discussion and
analysis contains both statements of historical fact and forward-looking
statements. Forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, generally are identified by the words "expects,"
"believes," "anticipates" or words of similar import. Examples of
forward-looking statements include: (a) projections regarding sales, revenue,
liquidity, capital expenditures and other financial items; (b) statements of the
plans, beliefs and objectives of the Company or its management; (c) statements
of future economic performance; and (d) assumptions underlying statements
regarding the Company or its business. Forward-looking statements are subject to
factors and uncertainties that could cause actual results to differ materially
from the forward-looking statements, including, but not limited to, those
factors and uncertainties described below under "Liquidity and Capital
Resources," "Factors Affecting Future Results" and "Risk Factors," and those
factors set forth under "Risk Factors" in the Company's Annual Report on Form
10-K for the year ended December 31, 2011.
Cimetrix is a software company that designs, develops, markets and supports
factory automation and equipment control solutions worldwide. The Company offers
software products and professional services tailored to meet the needs of
equipment suppliers in the areas of advanced equipment control, general purpose
equipment connectivity, and specialized connectivity for 300mm semiconductor
wafer fabrication facilities.
Revenues are derived from the sales of software and services. Software includes
the initial sale of software development kits, the ongoing runtime licenses that
equipment suppliers purchase for each machine shipped with Cimetrix software and
annual contracts for software license updates and product support. Services
include the sale of professional services that provide customers with software
solutions typically incorporating Cimetrix software products. While Cimetrix
products are installed in equipment in a wide range of industries, the Company
has focused on the global semiconductor, photovoltaic (PV) and high brightness
light emitting diode (HB-LED) industries.
9
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Policies
The Company prepares its condensed consolidated financial statements in
conformity with U.S. generally accepted accounting principles. The Company's
condensed consolidated financial statements are based on the application of
certain accounting policies, the most significant of which are described in Note
1-Summary of Significant Accounting Policies to the Company's audited financial
statements included in the Company's 2011 Annual Report filed on Form 10-K.
Certain of these policies require numerous estimates and strategic or economic
assumptions that may prove inaccurate or be subject to variations and may
significantly affect the Company's reported results and financial position for
the period or in future periods. Changes in underlying factors, assumptions or
estimates in any of these areas could have a material impact on the Company's
future financial condition and results of operations.
Operations Review
Revenues
The following table summarizes revenues by category and as a percent of total
revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
New software
licenses $ 890,000 68% $ 922,000 52% $ 2,964,000 69% $ 3,853,000 63%
Software license
updates and
product support 278,000 21% 249,000 14% 736,000 17% 686,000 12%
Total software
revenues 1,168,000 89% 1,171,000 66% 3,700,000 86% 4,539,000 75%
Professional
services 146,000 11% 598,000 34% 619,000 14% 1,552,000 25%
Total revenues $ 1,314,000 100% $ 1,769,000 100% $ 4,319,000 100% $ 6,091,000 100%
Total revenue decreased by $455,000, or 26%, to $1,314,000 for the three months
ended September 30, 2012, compared to total revenue of $1,769,000 for the three
months ended September 30, 2011. For the nine months ended September 30, 2012,
total revenue decreased by $1,772,000 or 29% to $4,319,000 from $6,091,000 for
the nine months ended September 30, 2011. On a sequential basis, total revenue
decreased by $103,000, or 7%, compared to the three months ended June 30, 2012.
The decrease in revenue for the first half of the year was aligned with industry
analysts' 2012 forecasts for the overall semiconductor capital equipment market
to decline 10-20% year-over-year, along with declines in the PV and HB-LED
capital markets of 60% and 40%, respectively. At the start of 2012, industry
analysts predicted that the semiconductor capital equipment market would
experience solid growth in the second half of 2012. While we hoped this
consensus would be correct, the Company maintained a conservative operating
plan, since Cimetrix's experience is that the semiconductor manufacturing market
is highly efficient and can change quickly in response to global economic
conditions, which is what happened. Data from trade organizations and leading
equipment makers indicates that the semiconductor capital equipment industry
slowed around 15-20% from the second to the third quarter of 2012.
New software license revenue includes the initial sale of software development
kits and the ongoing runtime licenses that equipment suppliers purchase for each
machine shipped with Cimetrix software. New software license revenue decreased
by $32,000, or 3%, to $890,000 for the three months ended September 30, 2012,
compared to new software license revenue of $922,000 for the three months ended
September 30, 2011. For the nine months ended September 30, 2012, new software
license revenue decreased $889,000 or 23% to $2,964,000 from $3,853,000 for the
nine months ended September 30, 2011. On a sequential basis, new software
license revenue decreased by $216,000, or 20%, compared to the three months
ended June 30, 2012, which was in line with the general industry trends. As
expected, new software license revenue decreased significantly year-over-year,
and was aligned with industry analysts' 2012 forecasts for the overall
semiconductor capital equipment market to decline 10-20% year over-year, along
with declines in the PV and HB-LED capital markets of 60% and 40%, respectively.
10
--------------------------------------------------------------------------------
Table of Contents
Revenue associated with software license updates and product support increased
by $29,000, or 12%, to $278,000 for the three months ended September 30, 2012 as
compared to $249,000 for the same period in 2011. For the nine months ended
September 30, 2012, revenue associated with software license updates and product
support increased 7% over the nine months ended September 30, 2011. The increase
in revenue from software license updates and product support was a result of new
customers added since September 30, 2011.
Total software revenue decreased to $1,168,000 for the three months ended
September 30, 2012, as compared to $1,171,000 for the three months ended
September 30, 2011. For the nine months ended September 30, 2012, software
revenue decreased to $3,700,000 as compared to $4,539,000 for the nine months
ended September 30, 2011. Again, this decrease in revenue is attributable to the
overall decline in the semiconductor, PV and HB-LED capital equipment markets
since the second half of 2011.
Similarly, professional services revenue decreased, year-over-year for the nine
months ended September 30, 2012. The decrease in professional services contracts
is partially due to the overall decline in the semiconductor, PV and HB-LED
industry as equipment makers look to save costs. While Cimetrix is a software
products company, professional services is a complementary service we offer to
assist customers in using Cimetrix products. Some customers purchase Cimetrix
software development kits and perform the integration work themselves. Other
customers will only purchase Cimetrix products if Cimetrix is also able to
provide professional services assistance. Professional service projects are
difficult to forecast and are subject to wide fluctuations in revenue.
Results of Operations
The following table sets forth the percentage of costs and expenses to total
revenues derived from the Company's Condensed Consolidated Statements of Income:
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Total Revenues 100 % 100 % 100 % 100 %
Operating costs and expense:
Cost of revenues 38 49 42 44
Sales and marketing 17 15 17 13
Research and development 23 19 17 17
General and administrative 21 16 21 16
Depreciation and amortization 1 1 1 1
Total operating costs and expenses 100 100 98 91
Income from operations - - 2 9
Other expense, net - - - -
Total other expenses, net - - - -
Income before income taxes - - 2 9
Provision for income taxes - - - -
Net income - % - % 2 % 9 %
The Company reported net income of $4,000 for the three months ended
September 30, 2012, compared to $3,000 for the three months ended September 30,
2011.As stated earlier, a recent pull-back in the semiconductor, PV and HB-LED
capital markets that began in the middle of 2011 impacted our 2012's revenues
and operating results. The net results for all periods include non-cash
stock-based compensation expense and non-cash depreciation and amortization
expense. For the three-month periods ended September 30, 2012 and September 30,
2011, stock-based compensation expense was $18,000 for both periods, and
depreciation and amortization expense was $17,000 and $13,000, respectively. The
Company reported net income of $48,000 for the nine months ended September 30,
2012 as compared to the net income of $518,000 for the nine months ended
September 30, 2011. For the nine-month periods ended September 30, 2012 and
September 30, 2011, the stock-based compensation expense was $62,000 and
$45,000, respectively and depreciation and amortization expense was $48,000 and
$36,000 respectively.
11
--------------------------------------------------------------------------------
Table of Contents
The Company generated net cash from operating activities totaling
$272,000 for the nine months ended September 30, 2012, compared to net cash from
operating activities of $93,000 for the nine months ended September 30, 2011.
Cost of Revenues
The Company's cost of revenue for the three months ended September 30, 2012
decreased by $368,000, or 42% to $504,000 from $872,000 for three months ended
September 30, 2011. For the nine-month periods ended September 30, 2012 and
September 30, 2011, the Company's cost of revenues decreased by $836,000, or 32
% to $1,817,000 from $2,653,000. This decrease was primarily a result of the
decrease in revenues over the same periods, but was also impacted by investments
in our current products and the reduction of the use of service partners to
augment our engineering team to deliver Professional Services netted against the
increased head-count and related payroll and benefit costs. Cost of revenue as a
percentage of total revenues will vary from period to period depending on the
mix of software and professional service revenues, the type of service projects
completed, the pricing strategy for the projects, the extent of utilization of
outside resources, and other factors.
Sales and Marketing
Sales and marketing expenses decreased $31,000, or 12%, to $226,000 during the
three months ended September 30, 2012, from $257,000 during the three months
ended September 30, 2011. During the nine months ended September 30, 2012, sales
and marketing expenses decreased $73,000 or 9% to $736,000 from $809,000. The
decrease was primarily a result of reduced commissions on lower revenues offset
by increased costs for our Japan operations. Sales and marketing expenses
reflect the direct payroll and related travel expenses of the Company's sales
and marketing staff, the development of product brochures and marketing
materials, costs associated with press releases, branding, search engine
optimization, website design improvements and costs related to the Company's
representation at industry trade shows.
Research and Development
Research and development expenses decreased $35,000 or 11%, to $296,000 during
the three months ended September 30, 2012, from $331,000 during the three months
ended September 30, 2011. During the nine months ended September 30, 2012,
research and development expenses decreased $305,000 or 29% to $746,000 from
$1,051,000 for the nine months ended September 30, 2011. The decrease was
primarily due to the reduction of use of service partners to augment our
engineering team. Because Cimetrix was able to significantly strengthen its
balance sheet during the last up cycle, the Company has been able to maintain
its highly experienced staff of research and development engineers and has been
using this down cycle to continue investing in new technologies and new products
to better position the Company for future growth. Research and development
expenses include only direct costs for wages, benefits, materials, and education
of technical personnel involved in new product development activities. All
indirect costs such as rents, utilities, depreciation and amortization are
included in general and administrative expenses, as discussed below.
12
--------------------------------------------------------------------------------
Table of Contents
General and Administrative
General and administrative expenses decreased $20,000 or 7%, to $268,000 in the
three months ended September 30, 2012, from $288,000 in the three months ended
September 30, 2011. During the nine months ended September 30, 2012, general and
administrative expenses decreased $71,000 or 7% to $919,000 from $990,000 for
the nine months ended September 30, 2011. The decrease was primarily due to
lower profit sharing costs related to net income. General and administrative
expenses include all direct costs for administrative and accounting personnel,
and all rents and utilities for maintaining Company offices.
Depreciation and Amortization
Depreciation and amortization expense increased $4,000 or 31% to $17,000 in the
three months ended September 30, 2012, from $13,000 in the three months ended
September 30, 2011. During the nine months ended September 30, 2012,
depreciation and amortization increased $12,000 or 33% to $48,000 from $36,000
in the nine months ended September 30, 2011. The increase is a result the
Company's investment in equipment upgrades and new financial software.
Other Income (Expense)
The Company had no interest expense for the three and nine months ended
September 30, 2012. Interest expense for the three and nine months ended
September 30, 2011 was $6,000 and $37,000, respectively. The decrease in
interest expense for the three months and nine months ended September 30, 2012,
compared to the same periods in 2011 was due to the repayment of the Company's
Senior Notes in July 2011.
Interest income for the three months ended September 30, 2012 and 2011 was
$1,000. During the nine months ended September 30, 2012, interest income was
$1,000 compared to $3,000 for the same period in 2011. The 2012 decrease in
interest income was a result of lower cash reserves.
Liquidity and Capital Resources
At September 30, 2012, the Company had current assets of $1,775,000, including
cash of $1,119,000, and current liabilities of $662,000, resulting in a working
capital of $1,113,000. Excluding deferred revenue of $408,000, which requires
the Company to provide services and support, but does not represent a scheduled
obligation requiring the outlay of Company funds, the Company's current assets
exceeded current liabilities by $1,521,000 at September 30, 2012.
Revolving Bank Line of Credit - The Company and Silicon Valley Bank (the "Bank")
entered into a Loan and Security Agreement, effective as of September 27, 2011.
On September 26, 2012, the Company and the Bank entered into a First Amendment
to Loan and Security Agreement. The First Amendment extended the maturity date
of the Agreement to September 25, 2013. Line of credit advances are available to
the Company in accordance with a defined "Availability Amount", based in part on
qualifying accounts receivable, up to a maximum of $1 million. The line of
credit bears interest at the prime rate plus 1.75%, payable monthly. The line of
credit is collateralized by substantially all operating assets of the Company.
Interest payments are payable on the first day of each month with all principal
advances payable on the maturity date of the line of credit. As of September 30,
2012, the Company had no borrowings against the line of credit.
Under the line of credit agreement, the Company is required to comply with the
following financial covenants:
· Maintain a ratio of quick assets to current liabilities minus deferred revenue
of at least: 1.50 to 1.00
13--------------------------------------------------------------------------------
Table of Contents
· Maintain a tangible net worth equal to or greater than the sum of (i)
$500,000, plus (ii) for each successive quarter, commencing as of the quarter
ending December 31, 2011, 50% of net proceeds received by Company in the
preceding quarter from bona-fide issuances of new equity or bridge financing
which constitutes "subordinated debt".
The line of credit agreement also contains numerous negative covenants
restricting certain actions by the Company without the bank's consent, such as
are typically included in similar loan agreements, including restrictions on the
payment of dividends, restrictions on incurring additional debt, prohibitions
restricting major corporation transactions, including a sale of the business,
and a requirement that the Company retain certain key employees.
At September 30, 2012, the Company was in compliance with all covenants.
Results of Operations and Cash Flows - The Company has been profitable on a
quarterly basis for over three years, beginning in mid-2009. As of September 30,
2012, the Company had total stockholders' equity of $1,295,000. During the three
months ended September 30, 2012, the Company reported net income of $4,000
compared to $3,000 for the same period in 2011. During the nine months ended
September 30, 2012, the Company reported net income of $48,000 compared to
$518,000 for the same period in 2011. The Company generated net cash from
operating activities of $272,000 for the nine months ended September 30, 2012 as
compared to $93,000 for the same period in 2011.
Net cash used in investing activities during the nine months ended September 30,
2012, was $24,000. Net cash used in investing activities during the nine months
ended September 30, 2011, was $56,000 and consisted of hardware and software
upgrades.
Net cash used in financing activities for the nine months ended September 30,
2012 was $0, compared to $753,000 for the nine months ended September 30, 2011,
which was comprised of $19,000 in proceeds from the issuance of common stock
related to the exercise of Senior Note warrants, payments of debt to related
parties of $396,000 and payments of debt of $376,000.
The Company has not been adversely affected by inflation. Revenues from foreign
customers were $1,839,000 during the nine months ended September 30, 2012,
representing 43% of the Company's total revenues, compared to $2,667,000 or 44%,
of total revenues during the same period in 2011. Most of Cimetrix's PV and
HB-LED sales came from customers outside the United States and the decrease in
foreign customer sales year over year is mainly attributable to the significant
downturn in the PV and HB-LED markets as described in the Operations Review
section above. There are potential economic risks inherent in foreign trade. To
minimize the risk from changes in foreign currency exchange rates, the Company's
export sales are primarily transacted in United States dollars.
Factors Affecting Future Results
Total revenues for the first nine months of 2012 decreased 29% compared to the
first nine months of 2011, reflecting the significant decline in the
semiconductor, PV and HB-LED capital equipment markets beginning in the second
half of 2011. Revenues from software license updates and product support
increased on a quarterly and annual basis over 2011 as Cimetrix continues to
expand its customer base. Sales of software development kits are difficult for
the Company to forecast, as the Company is highly dependent on the timing of the
equipment suppliers' decision to initiate a new machine development program and
utilize the Company's products.
The Company continues to focus on incrementally expanding its customer base and
product line in order to increase revenues. In 2008, the Company introduced its
CIMControlFramework product for equipment control, which enables the Company to
provide equipment makers with a complete software solution that reduces their
time-to-market for new equipment developments. As equipment makers reduce costs
and internal resources, Cimetrix believes the market for CIMControlFramework
will continue to grow as equipment makers invest in new machine development
programs.
14
--------------------------------------------------------------------------------
Table of Contents
Ultimately, the Company's business is driven by the global demand for electronic
devices by consumers and businesses. Any changes in the global economic
conditions could adversely affect Cimetrix's business and results of operations.
The Company continues to pursue customers through its professional services
group, which is available to assist customers by providing professional services
and complete turnkey solutions. The ability of the Company to provide both
products and services to its customer base is becoming a more important factor
as customers seek to limit the number of suppliers, reduce their internal staff,
and prefer single source responsibility. The experience gained delivering
professional services also provides valuable inputs to new product development
roadmaps.
The Company's future operating results and financial condition are difficult to
predict and will be affected by a number of factors. The markets for the
Company's products are evolving and specialized. There can be no assurance that
the markets for industrial motion control, factory connectivity, and equipment
control that are served by the Company will continue to grow, or that the
Company's existing and new products will satisfy the requirements of those
markets and achieve a successful level of customer acceptance.
Because of these and other factors, past financial performance is not
necessarily indicative of future performance, and historical trends should not
be used to anticipate future operating results.
[ Back To Contact Center Solutions Homepage's Homepage ]
|
MetricNet Publishes 4 New Australian Benchmarks for IT Support, Contact Centres 
Part 1: Home Agents: The Big Game Changer [white paper]
