Nano Dimension Q2 2023 Earnings Call Transcript

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August 21, 2023

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen. Welcome to Nano Dimension's Second Quarter 2023 Earnings Conference Call. My name is Anthony, and I'm your operator for today's event. On the call with us today are Yoast Stern, Chairman and CEO Yael Sandler, CFO and Julian Lederman, VP of Corporate Development. Before we begin, may I remind our listeners that certain information provided on this call may contain forward looking statements and the Safe Harbor statement outlined in today's earnings Press release also pertains to statements made on this call.

Operator

If you have not received a copy of the press release, please view it in the Investor Relations section of the company's website. A replay of today's call will also be available on the Investor Relations section of the company's website. Yohai will begin The call will be some business updates, followed by a question and answer session, at which time the management team will answer questions. I would now like to turn the call over to Nanoth Dimension's Chairman and CEO, Yoav Stern. Yoav, please go ahead.

Speaker 1

Thank you

Speaker 2

very much. Hi, everybody. Welcome to the call. We will go through the presentation, and then we'll open it to Q and A. Going to Slide number 3.

Speaker 2

Our quarter was an excellent quarter. It follows Two other excellent quarters. Actually, it was Q4 of 2022, Q1 of 2023 and now Q2 each quarter Those are stellar, the 2 are the best quarters of the company until now. The key highlights 1st of all, and I'll repeat it 5 times, there's organic growth For all people that were asking this for a long time and not to speak about some Canadians that are also lying about these numbers, Our growth in organic growth in the last 3.5 quarters is about 47%. Our growth from the same quarter last year is 33%, and revenue is higher from And the first half is higher by 38% from 2022.

Speaker 2

More importantly, our gross margins Dramatically increased by 81% and 185% for the quarter and a half, and They went up from 40% to 48%, depends if you're speaking about adjusted gross margin or gross margin. And you can see this in the first column on the left, in the bottom, comparison for the Quarters, both in IFRS and non IFRS. In the right column, you see A lot of new successes from customers, certain things are even missing there because over the last few weeks, we got one of the major space Companies that are buying dramatic amount of machines per one order and more orders to come And similar names that I cannot disclose and in all across The product lines that we have. On the DeepCube artificial intelligence, Very, very important advancement by getting other companies that are Building other machines or having other needs and are interested to buy a deep learning machine To install them on their operations, manufacturing operations, very, very exciting. They recognize the importance.

Speaker 2

And remember, we originally bought DeepCube For the purpose of applying the technology inside our machines and in our cloud network cloud manufacturing network, But now it seems like Deep Europe is going to become a profit center by itself and a revenue generator by itself. It's in the process. And we have 4 or 5 customers already in the process of signing the contract and on a long term basis. We have already one of the largest, call it, semiconductors company in the world that already signed the contract. The rollout of the DeepCube machine sorry, DeepCube engine inside the DragonFly system It's happening.

Speaker 2

It's out. And for me, the most important investment in R and D is, as I told people Who invested when I raised the money 2 years ago. The key thing in additive manufacturing, contrary to what everybody is telling you maybe in this industry, is materials. Everything else is doable, materials and artificial intelligence. And in materials, we have Major investment over this year, in 3 quarters, we invested almost all our R and D in materials, And we have major advancements, which we will announce in November in the industry trade shows.

Speaker 2

Moving forward. Financial specifics. You can see the Profit and loss statement in the comparison of Q2 and Q both Q2s of 2022 or 2023, Growth of revenue, organic growth since Q3 of 47%. And I don't want to repeat myself because I said it in the first slide, but here you see the actual numbers. The EBITDA Negative was $23,000,000 out of which $13,000,000 I'm rounding figures.

Speaker 2

Close to 13 Was R and D expense? So yes, it is expense because we don't capitalize it, but it is an investment. We spend unnecessary Activity at that time, Q2 was $2,000,000 on legal for all kind of Proxy machinations, which is and as much as I'm concerned, it's a waste of money. But we didn't have a choice, and we don't have a choice. We've been forced into that.

Speaker 2

The net cash used in operation is 28, But we made money from the cash. So really, the net net is only 21.5 So on a per quarter basis, we are making about $10,000,000 $12,000,000 a year in interest gets close to $50,000,000 per year, and the interest rate is fair today. The next slide will describe to you the growth of the revenue of the company on the last 12 months basis. Every quarter measured from the Q3 of 2021, which was $5,000,000 So Q2 'twenty three, it's 52 and where the run rate, if we continue at the same rate, To be at 60 at the end of the year. If you compare this to what other companies in our industry Indeed, this quarter or the last few quarters.

Speaker 2

Everybody is down on his revenue, down on his bottom lines. We are up. Next slide describes The margins graphically revenue on the left side and margins on the right side, and it shows it to you Both on the IFRS basis and non IFRS. Non IFRS is basically taking out of the cost All kind of non cash expenses or granting of options expenses as a non cash To show the actual results in cash as the business actually performs. Next slide shows you the statement I just made about the performance of our peer group, which shows 4 or 5 companies out of Maybe 10 that are public, including in Europe.

Speaker 2

And you can see that other than 1, everybody had Net shrinkage, and we had 33% growth. And the one that had growth at just 5% growth, all this is comparing to a year before. Can't skip my most favorite subject, which is the Proxified and General Annual meeting, Annual General Meeting. You, if there are shareholders, I'm sure there are shareholders on the call, Call to vote, we have 10 more days to vote. And you basically have 2 choices.

Speaker 2

The left one is what we propose, which is to keep the Board that you have now. There's 3 people to be are being re voted. We will continue with the strong fundamentals From the past, we have 12% of revenue growth with 60% run rate. We have about 3 to 5 M and As ahead of us, and 2 of them are very large companies. And notice what happened in this whole M and A activity when we Remove our proposal to buy Stratasys.

Speaker 2

The whole M and A consolidation in this industry collapsed. Everybody's share went down except us. We went up. Stratasys went down from 21 to 14. 3 d, which was going supposedly to buy Stratasys, went down from $11,000,000 to $6,000,000 The Ethtometal went down to $1 something, We're just supposed to have a merger with Stratasys.

Speaker 2

And all this because we pulled our offer, and all this while our share went up from Over the last, I think, 2 months from 2.3 to 3.2 and then back to 2.9, somewhere hovering around 3. So That says something, still under the cash, mind you, but we're moving forward. If you look at our historical numbers, I don't want to repeat them, but they are listed on the screen here on the left side, and you'll be able to see them, of course, On the website, this presentation is there. We have established a very strong base For global go to market and R and D programs, we invested more money than a typical small company invests, Which is something I have described when the money was raised and along the lines every quarter over the last 8 quarters. And we deliver strong organic growth, not to forget now, 47%.

Speaker 2

This will continue. From the other side and the right side, you have in red a group that has total No understanding in Nano's business, if they have any understanding in any business at all other than being a hedge fund, Attempting to be activist. When you look at activist activity in the market, When Nelson Peltz as an activist wanted to get into Walt Disney or when Kyle, I wanted to get into Southwestern Gas or when Elliott wanted to get into Athena Health, all of them came with a very serious analysis of the business of the target companies, which by the way happened to be Much, much, much bigger company of what is the alternative they propose for the shareholders that they want them to vote for, So they will end up by changing the way the company is run as much as asset allocation or as much as Selling certain businesses and improving gross margin in other businesses, so the share price eventually will go up. That's not the case here because we don't have Elliott or Starboard here. We have a small Family business that wants the cash, which we have $1,100,000,000 including Stratasys, Which we maintained meticulously because it's your money over the year and something that the prices in the market was too high.

Speaker 2

And we are totally positioned now to use it to expand the growth much beyond the $4 a share or 3.7 $3.8 a share, which is the cash value per share right now. Because we were so careful, we have this kind of Players, Collin, trying to get to the cash and liquidity is totally self interested, opportunistic. There are nominees to the Board. Each one of them got 50 ks just to put their bios on the list, Even if they're not going to be elected, mind you, when I read the bios, some of them is not worth $5,000 but they get paid 50. It's nice, but they're golden handcuffed.

Speaker 2

You think about voting to them when there'll be Directors in your company, when they've been paid before by an organization that wants liquidated for $4 or less a share, do you want that to happen? Are they independent? Think about it. I'm thinking about it. I'm a shareholder.

Speaker 2

I voted. So if you want that to happen, I invite you to vote for the red side, and of course, we will respect your vote. I'll add to that In the next slide, everything I say is factual. Contrary to a lot of Bad data that I so published about May over the last year, and I bent my head and let it slide over, but fake Data and fake news. We are talking data.

Speaker 2

When I speak in the slide before about the right red side, It's not based on what I think. It's based, as an example, on a gentleman called Moshe Safati. Moshe Safati is the main senior analyst for Murchison out of maybe 10 employees that is testifying under oaths In a court, when we were dealing with our illegal shareholder meeting in March, and it was asked by the honorary judge, What I don't understand what Jud said. What exactly do you intend to do if you want to change the Board? The answer now is a quote.

Speaker 2

I don't analyze the activity because I don't understand 3 d printing. We really have no idea What is good and what is not good to do here? I think any other word is unnecessary. This is the person in Merck and Stone, almost the only one that knows something about the company. For him, he doesn't know nothing.

Speaker 2

He's testifying. So, if you want this to happen, I will respect it. By the way, I will step down because I work for shareholders. And if the shareholders will vote To change the board with these kinds of people, another way to work under them, not with them, not beside them, unless we are running the company. If they want to be partners, I'm welcoming them.

Speaker 2

If they want to stay investors, I'm more than welcoming If they want to stay shareholders, I'm promising merchants on they will make money with us. But if they want to take over the company liquidate, unfortunately, I cannot be there. So and I announced it before, so it's not new. I hope all of you will Join us. And I hope now that you are on the call, you can you will and ask me the tough questions and the challenging questions you usually ask,

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster.

Speaker 2

Operator, anybody?

Operator

Our first question will come from Rami Raj, Private Investor. You may now go ahead.

Speaker 2

Hello. Can you hear me? Yes, please.

Speaker 3

Hi. So thank you for the presentation. I'm actually Also quite disappointed by the fact that Murchison only talked about Nanno's cash position without even providing And your roadmap for the Agfa business and profitability. So I'm supporting the current management. Having said that, Can you please share some insight on the early turnouts and chances to win this proxy contest?

Speaker 2

Thank you. Yes. Listen, the People who are coming from Canada together between the two funds as much as I know have and that's what they declared, have 15% of the sorry, about 12% of the company. That's about, I don't know, 20 something 1000000 shares. Now, I'm assuming they were able and I know about a couple of other funds that they recruited To vote with them, all of them, their cost per share coming in is about $2.5 The other two funds, I know about Clearline Capital, I know about intrinsic, people that I know well and were very, very Friendly until with us talking to us and then they got greedy when they realized somebody can help them because they had this Costs coming in at the same price.

Speaker 2

So I'm assuming people who will naturally vote for them in order to get $3.7 a share The rest of the 85%, Maybe 82%, 3%, maybe the 2%, 3% of in between, but the 83% rest is retail shareholders. I'm talking about 160,000 to 170,000 people. 170,000 people. This is almost like Voting for Parliament, when you have to reach 165,000 people, give or take, It's not that you can speak like if there were 5 institutions 1 by 1 and convince them that the growth plans we have comparing to So we have to reach and we are making an effort now for weeks to reach these retail shareholders, which by the way most of their Price coming in is above $5 We're talking about intelligent people. We're talking about people who are using their own Savings to invest over the last 2 years, because when I raised the 1,000,000,000,000, I only sold to institutions.

Speaker 2

And you think about it, only 15% were left. Actually, I didn't raise the money from a merchant, but Anson invested in all my deals and made money. So all of them, including Anson at the point of time, sold the shares to retailers we paid much more than These retailers, if they vote for us, it's a total landslide success For us, 85% against 15%, give or take, or 83% against 16%, 84%. The issue is that a lot of these retailers I'm not used to vote. And they get e mails or messages from their brokers, and they don't pay attention because they have business And the companies Toronto have work to do.

Speaker 2

And if we don't get them to vote and only a few of them vote, then we don't win, we lose. If half of them vote, we win dramatically. If 40% of them vote, we win dramatically. That's the challenge. We're making the best effort we can.

Speaker 2

I hope I answered your question.

Speaker 3

Yes. Thank you.

Speaker 2

The key thing for these retailers, obviously, is if this liquidation And these guys get in and they start to do will buy the shares from the public, will do share buyback at $4 or $3.5 they'll make 40% to 70% return on the investment over half a year. The rest of the retailers, the 85%, most of them will have losses. And by the way, note, we announced that we went to court to ask for another $227,000,000 of a buyback, and we're asking it for a year. So we'll have the option, depends on the advancement On the M and A programs and acquisitions, to the side, what is actually adding more share sorry, More value to our share as we move forward during the next year once we get the approval. Sometimes we may decide to buy The company will go to buy an M and A and merge it and make money in earnings per share or sometimes if the purchasing is not happening in the right pace, We can use this war chest to do a buyback of shares.

Speaker 2

So that's it, by the way. Yes, please. Next question.

Operator

Our next question will come from Kathryn Thompson with Edison. You may now go ahead.

Speaker 4

Hi there. Hi. I have a couple of questions. I'll just give back the 2 questions this way. The first one, you mentioned you're I just wanted to know if that was with an existing customer and also when you expect to ship that order and to Recognize revenue.

Speaker 4

And then the second question was on the recent acquisition of Additive Flow. I just wondered if you could give us any financial information about Company. So any revenue or cost data and also any information on what you paid for the company? Thanks.

Speaker 2

Can you just repeat the first question? I couldn't it was a little Bed connectivity.

Speaker 4

Yes. So you recently announced that you'd Your large order, I'm just wanting to know if that was from existing customer or new customer And also, when you expect to ship the order and recognize the revenue?

Speaker 2

I got it. Thank you very much. Okay. So the first question, the large order, which was the largest order in our history to one customer and The largest amount of also machines we're selling to the same customer was a first time customer, a leading Aviation Aerospace Worldwide Company, they we are shipping it within the next few months, some of it this quarter, Some of it early next quarter. We expect that's the expectation.

Speaker 2

We they expect To buy many more machines if this first order is successful because they are growing very fast. And it's a first time, as I said, customer. Secondly, second question, the Additive Flow acquisition, we did not publish the numbers For a reason, it's a very sophisticated technology and it has very sophisticated clients, some of them customers, some of them I disclosed some of them I couldn't. Obviously, the numbers are small Enough that we can afford not to publish it. And because of the sensitivity of the technology and the competition to additive Flo and the customers they have, we decided not to publish it.

Speaker 4

Okay. Okay. Thanks.

Operator

Donald, our next question will come from Donald Soliman with Garrett Care Firm. You may now go ahead.

Speaker 1

Hi, good morning. Yoss, thank you for your presentation. A lot going on both in the release as well as the presentation this morning. Some shared and some new information, I guess, there's a lot going on out there. I'm interested in picking your brain for a second.

Speaker 1

From your perspective, how do you envision the consolidation stage in the additive manufacturing sector Following the termination of the NanoStratus tender offer and the fact that the current 3 d Stratasys deal, In my opinion, at least doesn't seem realistic, especially after their quarter 2 results and their current weak cash position Based on those results?

Speaker 2

Okay. It's a very good question. I kind of I referred to it a little bit earlier, but I will expand on that. So let's speak about Who we're talking about? Our industry is, I would say, more than 400 companies Sure.

Speaker 2

Because Julian here beside me in our M and A department has looked and we have a list of Julian, at least 400, right? At least that. So that's the people we know. I'm assuming always there's people we don't know, but that's probably much, much smaller. We know the industry With companies from anyone from $1,000,000 to $650,000,000 in revenue.

Speaker 2

The ones that are public and you know them better because of publishing the results Our nano, desktop metal, Markforged, 3 d system, Stratasys, Velo3d, Voxeljet, In a way, materialized Proto Labs shape ways, fathom, Axometry, that's about it. Of course, the private companies beyond that, and I think This industry, which is estimated at $15,000,000,000 today and growing to $30,000,000 in the end of the decade, It is bound and must consolidate. And what we started and failed, and we did fail, Because we offered at the end to buy services at full, they didn't even respond to us, then we offered to buy part of it And they activated the poison pill or had the poison pill. So we couldn't do we started something that we believe is right for the industry None of the company I've mentioned to you is profitable, maybe other than Materialise. I Don't remember exactly.

Speaker 2

Maybe. And Materialise and Proto Lab is not really additive manufacturing because Proto Lab is more subcontract manufacturing And materialize as well. So all the rest are not profitable. More than that, all the rest are finishing their cash. 5 of them are SPAC refugees.

Speaker 2

Their share at SPAC was $10 at a deal point and today are all of them Below $1.5 And this That's Net of Stratasys in 3 d. Net Stratasys in 3 d announced horrible quarters. Although the company has announced bad quarters, maybe other than Mark Ford, which also had a squeeze out in its quarter, This company doesn't have business model successful. They have a lot of exciting technologies, entrepreneurs which are very bright, Customers which are excited, no successful profitable business model. In order to reach that business model, It must consolidate, and it must consolidate along rational lines of Synergies, combination of very few and focused Vertical Markets, how can you have a company like Desktop Metal, which is selling to nuclear, To Aviation, to Automotive, to Dental, to the Furniture Industry, Printing Wood to biology industry, how can you have a company like Stratasys who are selling to similar Verticals, soon enough somebody will sell to the food industry when they print meat and Markforged will buy them as well or Stratasys.

Speaker 2

Sorry, not Markforged, I meant Desktop Metal. If I said Markforged, I meant Desktop Metal, I'm sorry, selling to all this. Markforged is actually The only company that's focused other than Nano Dimension. Markforged is the exception showing the rule. So, this and even Mark 4 is losing $16,000,000 to $20,000,000 a quarter, and they are focused, and they are good.

Speaker 2

So, one if one asks me the direction it's going, there's no other way than the direction we started To carve, and we failed. So we moved back. Churchill moved back in Dunkirk as well. If he wouldn't have pulled The forces in Dunkirk in the Second World War, he wouldn't have won the war 3 years later. So we moved back because we were wasting our time Fighting types like Stoltos' Board, and we're moving ahead again.

Speaker 2

And we will lead this. And we will lead this also because our strategy is not based on only buying 3 d printing companies. If you look at our presentations across the line, we're talking about cloud manufacturing. We're talking about converting into digital industry, which is managed through the cloud and through artificial intelligence, And the edge devices can be additive manufacturing, can be additive assembly, it can be A lot of other edge devices as long as they are digital and can work in high mix, low volume environment. So our strategy is not technology based.

Speaker 2

It's based on the principle of what kind of industry we want to make efficient And profitable. And we will move forward. And as I mentioned earlier, we have already Few in the process is much as M and A, and we'll consolidate them on the principle of purchase And grow, not purchase and squeeze.

Speaker 1

Okay. So based on what you just shared, Where you're saying that except for Mark Farge, who's doing it right, everybody else is just losing money and we're seeing the significant sell off In major cases as well as the decline in share price of Nano's peers, is everybody just running out Capital and do you foresee bankruptcies coming through like with everybody else except for Mark Ford and Nano?

Speaker 2

Nano is definitely not going to any other direction other than growth. Yes, I hope that and I think They're smart enough people. They're not going to drive it into bankruptcies. They have to drive it into I'll give you an example. Take Velo3d.

Speaker 2

They finished their cash. They announced they didn't have a choice. So they announced last week They are raising convertible debt at $70,000,000 Their share went down 40%. Of course, because it's totally dilutive. They'll get the cash.

Speaker 2

They are totally nonprofitable velo. They have gross margins Ridiculously low, I don't remember right now, between 15% to 20%, and they don't have a business model. They have one customer That I think is more than 35% or so from what I know of their business. And they finished their cash. So they didn't go under.

Speaker 2

They raised money, diluted the share. Share went down from $3 to $1.40 and still going down. That's a good example. Another example is VoxerJet, Much smaller, Hoxajet is a $30,000,000 business, which we know very, very well. And they didn't do what's right.

Speaker 2

They're getting close to Finishing their cash and they're desperate, and it's not easy for them to raise money because they're German company with a German corporate law doesn't allow to raise money at any price. You're limited by how much discount and Voxer Jet, I don't know if they'll survive. Dust of Metal, finished their cash within a quarter and a half. 3 d? 3 d cannot pay to Stratasys what they commit to paying the proposal because they had a bad quarter.

Speaker 2

They burned $30,000,000 or so. I don't remember the exact number. They don't have enough cash to pay now. So I don't think they'll go bankrupt. I think there are smart enough people that will understand that they need to consolidate.

Speaker 1

Great. Thank you very much.

Speaker 2

Thank you very much.

Operator

Our next question will be a follow-up from Rami Rauch, a Private Investor. You may now go ahead.

Speaker 3

Hi, thank you. Following my first question, do we know how the voting is going? How many people are voting so far?

Speaker 2

So far, I think I saw about 30 something 1000000 shares voted Out of 250. But remember, we have 10 days to go. So usually, people For traditionally, what we're being told by our experts in the proxy solicitation firm, they're voting usually in the last few days. So I'm not surprised that it's still low. Okay.

Speaker 2

Thank you. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to the company for closing remarks.

Speaker 2

Let's just wait for a second, see if a couple of other people may have some later thoughts about the question to give them opportunity, And then we'll close it. Okay. It seems like it's quiet on the Western front. So I will thank you very much all participants. I would also want to invite you over the last few months, I'm spending time Writing, answering e mails to private and not private investors.

Speaker 2

Personally, I made it my goal to respond to you as we're in this not too nice process of People saying bad words about other people and people trying to liquidate the company. So, if you wish, I'm sitting at night's hours and answering e mails to retail investors. Feel free to write me And to call me if you wish, and we have other teams here, other members of the team that are totally focused I'm answering the question because our goal when we're convinced that from 85% of our investors, if we have reached to each one of them, We would have 85% voting for us. Of course, we can do that, but we're making our best. So thank you very much, everybody, and have a good day.

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