Nano Dimension Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 20, 2024

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen. Welcome to Nano Dimension's Second Quarter 2024 Conference Call. My name is Gayleen and I'm your operator for today's event. On the call with us today are Joao Stern, CEO and Member of the Board of Directors Tomer Pinches, CFO and COO and Julian Lederman, VP, 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. Gal will begin the call with a business update followed by a question and answer session, at which time the management team will answer I would now like to turn the call over to Nano Dimension's CEO and Member of the Board of Directors, Yao Stern. Yao, you may begin.

Speaker 1

The name is Yoav. And I hope people by now know me, but I've been twisted before. Hi, everybody. Thank you very much for joining us this morning, taking off your time in the beginning of the day. It's a quarter that is a very strong quarter, the best quarter we have ever even though we had a strong quarter and a similar quarter last year, we are still about 2% above that and which we are proud about.

Speaker 1

We have gross margins that are up to 45%. The adjusted gross margins are similar to last year on a half a year on a quarterly. On a half a year, they're up. On a quarterly, they're a bit down, but negligible. And more important than everything else to us, because we're aiming at positive cash and profits is that our cash burn was down 64% from $31,000,000 cash burn down to $11,000,000 And this is a result of a turnaround and reduction of expense plan that we implemented in the Q1 of this year, not because we don't have the cash to fulfill our business plan for the next 3, 4 years, but because we believe a business plan and a business model should lead to positive cash flow as fast as possible.

Speaker 1

And we are 64% of the way there. We also have some business updates, which somewhat repeatable or repeating what I've said, what we announced before, but are very important. And we announced that the acquisition of Dust of Metal, innovative additive electronics products and integrated inspection system and the digital printing partnership between GIS and ESCO Graphics and Fiery, we announced before and it's very, very important as we integrate all our product lines into the wider industry. If you watch now the customer highlights slides is the next one. I kind of brought up here just couple of names from 2 of our product lines.

Speaker 1

The reason why we bring many, many more names is we are not allowed to because many of our customers are sensitive to publishing their names. Some of them are in the space industry, some of them in defense industry, some of them are in other industries like computer, which are major players in the computer industry, but they don't want their name to appear. So I can just tell you that we beyond these 2 new customers here that came this quarter, we have already close to 10 between 6 to 10 Western armies, which are customers of ours between 5 to 7, 3 lenders agencies, secret service agencies, 3 lenders agencies as they call them around the world, only Western with the customers of ours. We have some serious from the largest defense contractor around the world, probably 4 or 5 of them are our customers, not to Sligo, but Hensold from Europe, from Germany, which is our joint venture partner in a mutual investment. So we are slowly, slowly appearing now on the forefront of every industrial chosen group of customers.

Speaker 1

If you're looking at the slide of creating an efficient industry 4.0, this is a very important slide, not so much because of the data that appears there, which is a data of our company over the last between 3 years to last year, but because of the title. Efficient Industry 4.0, ladies and gentlemen, we are not in the desktop sorry, in the additive manufacturing industry. We are aiming and we will be and we'll show you that to be in an industry 4.0. The reason is we believe additive manufacturing is not an industry, additive manufacturing is a pile of technologies. The industry we are in is an industry where we manufacture machines which are digital and converting the regular and traditional industry into a digital industry 4.0.

Speaker 1

As an example, if you take a very advanced CNC machine, computer and numerical Numeric Control, It used to be American control before there was called computer American control. These are also digital machine for the industry. And it also edge device and it's also creating an end result product except in bringing to reduction, reductive technology, not additive technology. But in our vision, this is a part of 1 industry. And as we grow and expand, you will see that we will start to be a player not only in additive manufacturing technologies.

Speaker 1

That's very, very important. One of the reasons for that is the additive manufacturing industry is again, I shouldn't call it an industry, call it a pile of technologies, is considered to sell about $15,000,000,000 a year of products and machines. But out of the $15,000,000,000 probably $12,000,000 to $13,000,000 are people who are using the machines and selling products by using those technologies. Dollars 3,000,000,000 to $4,000,000,000 is the people who manufacturing the machines, not only manufacturing, doing the R and D and developing the technologies and manufacturing machines. So 2 thirds of the market or 75% of the market are people who do not invest in R and D and do not build machines and do not manufacture materials.

Speaker 1

And sure enough, look at the economy here. The people who are manufacturing products using our machines are making money. And 95% of the people who manufacture and develop the machines and the materials are losing money. That's not a normal circumstance, not a normal situation, it cannot hold the weather. That's the reason our portion of the industry, the machine developers and maker has to consolidate.

Speaker 1

And you can get an example if you look years ago into the aviation industry, when there were many manufacturers of aircrafts, I'm speaking about commercial aircrafts and the people who are flying them. The analogy is the manufacturer of the aircrafts are us, the machine manufacturers and the airlines that fly them are the users who manufacture products. And the airline products before regulation was profitable and the people who manufactured the product has actually enabled them were losing money. And there were many of them. Who remembers the name Comet and who remembers Douglas and McDonnell and McDonnell and McDonnell and Douglas.

Speaker 1

Today, everybody consolidated and in the commercial airline industry, you have 2 manufacturers, Airbus and Boeing, and that would enable them to become profitable because they realize early in the game all the rest of the players could not survive on their own. That is what's going to happen in our industry. I'm not sure it will be reduced down to 2. I think we'll be ending up more, but definitely not 350 companies manufacturing machines that everybody and every one of them, 95% at least not making money. The next slide, which is the acquiring of Dust of Metal slide, is one of our first step.

Speaker 1

It's not our first step because we consulted before. We did 7 acquisitions before Dust of Metal, but those were smaller acquisitions and we waited for a long time for the big ones to come because prices were totally out of whack and totally unacceptable. Rest of Metal, if you read their proxy statement going for shareholders vote for this deal, describe the process that we went with them in acquisition. We gave them 9 proposals over the last 2 years to acquire them. Ladies and gentlemen, 9 proposals.

Speaker 1

The last proposal, which is the one they took, is the lowest proposals of all the line. Think about it. Traditionally, when you bid for a house and you don't get it, you increase your price, you increase your price until you get it. Well, here's the opposite. We reduce the price and every new proposal that we make because the market shrunk in valuations because the companies did not make money and were not growing at the right pace.

Speaker 1

So we waited for this moment in time to start the acquisitions of the larger companies. The next slide is a map or a graph that shows you whether we believe we are positioned or will be positioned once we close this acquisition with DASSTO Metals. And ladies and gentlemen, we didn't finish the acquisition trail. Even with Zesto Metal, it takes us from being $60,000,000 $60,000,000 $70,000,000 to $1,000,000 compared to being $230,000,000 overnight. And it positions up in the high growth potential and with the broadest technology portfolio.

Speaker 1

But all these are just sub level drivers that has to drive business model into profitability. The next slide discusses how little bit points of interest, how we develop a premium high margin portfolio of additive material machine, additive manufacturing materials. And as I mentioned earlier, you'll see us venturing out into digital Industry 4.0. It's not necessarily going to be only AM. So, AM is just one of the tools for Digital Industry 4.0.

Speaker 1

And you see here, we believe software and AI is the major driver after materials in this industry. And we are focusing on R and D efforts on that. Next slide discusses the reason actually, if you wish, that we believe that the merger with the rest of metal is such a good transaction for us. You see the in the middle, you see the overlap of distribution go to market. The verticals that we all go after are 80% overlapping.

Speaker 1

And there are a little bit non overlapping, which is our PCB and electronic business and Bare Dental and Consumer Products business. Otherwise, it's overlapping. You see on the right side, a list of impressive customers. By the way, many of them are customers of both of us. And on the left, it gives you a little bit of a taste of the kind of solution and variety of solution we apply toward the segments where we can get into mass manufacturing and mass production.

Speaker 1

I should say, the mass is a little bit misleading. It's not mass and so much as manufacturing $40,000,000 remote control TV pieces a year. We're not going to get there. We're talking about high medium volume and high amount of designs. So where any industry that needs digital industry that needs to change a lot of their product lines and the product lines are not manufacturers in millions, but they're manufacturing in a lot of variety of designs.

Speaker 1

That's where we will play a major role. It's called high mix, low volume. Lastly, some acquisition details, we published it before, but just to remind you, it was this quarter, so it's worthwhile mentioning. Acquired 100% of Dust of Metal. It's all cash transaction.

Speaker 1

People ask us, why won't you pay with shares? The answer is 2. 1, our share is undervalued. By far, I'm not talking about undervalued being 2.2 to 2.8 to 3.5. We believe it's undervalued in 100 of percent.

Speaker 1

And using the share when it's undervalued, it's obviously dilutive to our shareholders. And moreover, it is also a fact. I'm sure you remember that we bought our shares ourselves because they were undervalued just because it made sense to have less shares and then earnings more earnings per share when earnings come up and more value per share. And the reason why I think you don't see it yet in the share value is because the whole corner of this industry or the whole corner, let's call this industry, is getting very bad attitude from the market because of the rest of the companies that reduce their values dramatically and spend all their cash. That's the reason we're buying them, But it will change.

Speaker 1

Total consideration is between $135,000,000 $180,000,000 depends on certain formula. It's expected to close in the end of the year. And the closing condition is mostly finishing the regulatory approval process with the American authorities and getting a shareholders vote, positive shareholders' vote by Dust O'Meter shareholders, and it's in process right now. This is the point where we'll fly to you to ask questions, and hopefully, we'll be able to answer them. Operator, please.

Speaker 1

Operator?

Operator

Pardon me. We'll now begin the question and answer session. The first question is from Troy Jensen with Cantor Fitzgerald. Please go ahead.

Speaker 2

Hey, gentlemen. Thanks for taking my questions here. I guess, Joe, I'll turn it to you. Good morning. Good afternoon.

Speaker 2

It felt like the message this quarter was much more robotics and AI and software driven than it has been in

Speaker 1

the past. Is that correct? Did I feel like there was

Speaker 2

a kind of notable tone change in kind of the direction of the consolidation that

Speaker 1

you guys want to pursue? Yes. We believe that what will sell all of our machines, and I'm talking now about all including Desktop Metal and others that we are negotiating and talking about M and A is the software. And the analogy, if you wish, Troy, is think about you developing your product, which is the paper, the analysis with the spreadsheets and with the word. You're totally focused on the software that the network is doing that.

Speaker 1

I don't think you know the name of the printer you have in your office. The software is driving your tool to manufacture your product, not the hardware.

Speaker 2

Yes. All right. Understood. And kind of agreed. I get it.

Speaker 2

And then how about just like your thoughts on then growth in additive versus growth in kind of your robotics markets when you think about kind of the next 12 months in front of you? Is robotics the area that's driving growth and assuming less in additive? Or any extra color would be great.

Speaker 1

I believe that in robotics automation and what we call Industry 4.0 and beat electronic additive electronics or even be it other I'm sorry, just a second. Being other segments, We believe the growth there is not dramatic because it's established industries, but the growth exists especially towards the digitization of it. So it's 10%, 15% a year. It's much more established and we like it that way. The growth in additive manufacturing is now and would be and should be specific to segments of the additive manufacturing.

Speaker 1

We believe segments of metal additive manufacturing will see much higher growth once the fitting formula for materials and materials for the printing and material for the end results product are working together well and we already see it happening. And secondly is what I mentioned here before, drive a very serious drive of growth in the LED manufacturing section of Digital Industry 4.0 is the software and the application that is enabling people to seamlessly design and send into printing without having to deal with different standards and every company has its own design tool and the design tools do not fit another company. That needs to change and it changed historically in the software industry, for instance, for PCs. It all changed and it will change here and drive growth. Yes, understood.

Speaker 1

And maybe if you think about

Speaker 2

the next 12 months, do you think you're going to just be more focused on the integration of Desktop Metal or do you think we'll hear a couple of of more acquisition tuck ins? And I know you don't know for sure, but just some thoughts would be helpful. Thank you.

Speaker 1

I think in the next 12 to 24 months, we will be focusing on both integration of the rest of the metal and adding more acquisitions within the limit of our management capability to swallow it because one of the things you have to remember and just to make sure you're not becoming a deal junkie is the acquisition is exciting, but the merger is what makes it profitable. So we're carefully negotiating with 3, 4 other companies. We're not going to do all of them, again, depending on the size, if they're very small and we just acquired them because of specifics, okay. But if they're larger and the size of this domain, we'll be very careful, but we're talking to some of them.

Speaker 2

Understood, guys. Thanks for all the time and good luck to the investors.

Speaker 1

Thank you, Troy.

Operator

The next question is from Kathryn Thomas with Edison. Please go ahead.

Speaker 3

Hi, Yoh. It's actually Catherine Thompson. The first question, I believe that you've got teams already working with Desktop Metal to pull together integration plans for post completion. Is there anything you can say about that process and how that's been going?

Speaker 1

Yes. The process is called we're calling it PMI, post merger integration. And the way we run this process is we have teams from both companies working on a daily basis, both meeting in the same location. Now both headquarters are in Boston, so it's going to be relatively straightforward to emerge it. But the teams are working together, all the teams and on all management levels to plan.

Speaker 1

Why do I say to plan? Because formally, we can start to run the combined company one day after the closing of the transaction. So before that, we cannot run Dust of Metal. Dust of Metal is done by our management team. But I want to tell you something.

Speaker 1

We discovered as we get to know each other that the management team in Dust of Metal is excellent. They're going to be integrated with our management team and they're going to make decisions together starting the day after the day of closing. And meanwhile, the PMI, the post merger integration process is a planning process, very, very, very detailed. So when we hit the ground upon closing, we hit the ground running. And it works very, very well with between the two teams.

Speaker 1

Great.

Speaker 3

And then kind of on a similar topic, you mentioned the timetable to get to completion. Could you just give us a little bit more detail on kind of the rough timings for the different regulatory approvals?

Speaker 1

Yes. There's 2 regulatory approvals traditionally that are taking some time. 1 is Cotro Dino, which is the regulatory agency that make sure that when any merger you don't have a monopoly is created. That's not an issue between us and that is a matter we don't have. While we do have overlapping products, So there's no and non competing products.

Speaker 1

So there's no issue. It's more we believe it's more formality. And then the CFIUS, which is the agency that look at every merger and acquisition nowadays between American company and foreign company to make sure the American industries are not taken over by unfriendly, call it, national industries from all kind of places. That's not including us. We're from Israel, which is very close and very friendly.

Speaker 1

So we believe this will be passing as well without major issues.

Speaker 3

Okay. And then one final question. I see that you bought back, I think, about $8,000,000 worth of shares in the quarter. Are you still continuing to buy back shares for the rest of the year?

Speaker 1

We have an additional 100 close to $150,000,000 allocated and approved by the court in Israel and by our board to buy more shares. We're buying or not buying based on a decision that is partly connected to the price of the share, partly connected to not having insert information because that prevents us from buying when there's certain important events happening and the public doesn't know about it. So there's many variables affecting the buying and selling sorry, the buying of shares. But we do have a location and we do have the permission to buy and we'll do it as we see fit in the next few quarters.

Speaker 3

Great. Okay. Thank you.

Speaker 1

Thank you very much.

Operator

The next question is from Saul Zelman with Gericare. Please go ahead.

Speaker 4

Good morning, Yoav. Good morning, team. Good morning. Good afternoon. So again, thanks for the great presentation.

Speaker 4

I actually just came back myself in Boston, so it would have been great to see you guys. But all good. We'd love to see what you guys are doing. And I trust that you guys are working diligently on that post merger. Thank you for sharing that timeline for the integration with the desktop.

Speaker 4

And you have my support rooting for your smooth process and success. I do have two questions on this, slightly different but along the same track. First one is, you touched on it that over the last, I guess, local over the last couple of years that you put in the various bids, the valuations of 3 d companies haven't been pushed lower in the general market. And that's according to my humble opinion, it's based on the market opinion that the their disbelief of any meaningful recovery. So in your opinion, what kind of gross margin would indicate dynamic change in the business and provide sustainability for the future of the 3 d industry?

Speaker 4

I mean, just looking at the most recent press release, you have it currently at a margin of 45%. Would you be happy with a number of 60%? And that's the dynamic change? Or would you feel that it would have to be a much stronger robust number to indicate that? That's question number 1.

Speaker 4

Question number 2 is along the lines, like you had said, we're not going into M and As per se just to have do the acquisition as part of the integration, make sure that you're buying companies that you can actually make money with. It looks like Nano vacated the poison pill litigation on Stratasys. Is that an indication that there's no longer an interest in pursuing that Stratasys buyout? And if that's the case, why not officially end the $16.5 offer from last year as it's just causing overhang on the stock?

Speaker 1

First one. E commerce like Skyworks, few product lines. And as I told you, when we get into Industry 4.0 and we're dealing with, for instance, robotics, electronic, additive and construction, those are more traditional industries. They can live with 45% easy, even with 40% gross margins. If you're dealing with new technologies like we have in our electronics, manufacturing of electronics and now with all of Lester of Metal, we must have and you're right, getting close as possible to 60%.

Speaker 1

And as you see, our gross margin is improving and we have now a very, very big and serious work on the acquisition of Test of Metal to increase their gross margins. So the combined, not for the whole company, but for whatever we have 15% to 18% investment in R and D, we must have 60% gross margin because otherwise we would not have enough margin for profits. So your number was right. As much as the second question, Stratasys, the investment in Telesis is strategic. I announced it when we did it in June, if I remember right, of 2022.

Speaker 1

And if I remember right, let's give or take one with it or the end of 2022. And the offer to buy Stratasys is obviously not going to be executed with the number that was there from half a year ago. It's irrelevant by now. But the thinking that there's a strategic relationship between us and Stratasys And those strategic relationship can evolve moving forward is definitely there. We didn't give it up at all.

Speaker 1

We believe it's totally there. The relationship today with Services Management is very friendly. Contrary to last year, we gave up the takeover and we believe everything that we will do with them should be based on how we understand each other today and we do very well. Joerg, Zaif and myself are talking regularly. So wait for future news.

Speaker 1

When the time will come, I believe there's strategic cooperation due between 2 companies like that. And we will be already a leader like they are a leader in photopolymer. We are a leader in metal, electronics and others. So it's a good potential for cooperation.

Speaker 4

I appreciate you, Jerry, Ben. Thank you very much.

Speaker 1

Thank you.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to the company for any closing remarks.

Speaker 1

Thank you very much. So we completed this in 35 minutes, and I appreciate your time in this early morning pre working day in the United States. We're looking forward to speak with you soon because we actually believe we have very interesting things events in the very near future and we hope they will be fulfilled. So we'll be able to use the excuse and have another conference call or conference calls with you to discuss issues, positive issues and we're looking forward to that. And thank you very much for your support.

Operator

The conference has now concluded. Thank you for attending Nano Dimension's quarterly earnings conference call. You may now disconnect.

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