Nano Dimension - Q1 2023
June 29, 2023
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to Nano Dimension's First Quarter 2023 Earnings Conference Call. My name is Joe, and I'm your operator for today's event. On the call with us today are Yoav Stern, Chairman and CEO, Yael Sandler, CFO, and Julien Lederman, Vice President 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. 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.
Yoav will begin the call today with a business update, 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 Nano Dimension's Chairman and CEO, Yoav Stern. Yoav, please go ahead.
Yoav Stern (Chairman and CEO)
Thank you very much. Good day to everybody. Thanks for being here. Let me start by apologizing that this quarter we're a little bit late in releasing the results of last quarter. We're almost finishing the second quarter. This is just the first quarter. Reason is because we've been extremely busy this quarter in a lot of integration and implementation of SAP, the new computer system in all our subsidiaries and all the acquisitions from last year. The good news is it worked very well. In the future, we'll be able to be much faster. My goal is to be able to release full results of the quarter around the middle of the quarter after maybe even better.
For that matter, we may be different than others, are trying to even be earlier, and we release earlier results, at least revenue, few days after the end of the quarter, which we will try to continue to do. The good news is the second quarter early results will be out in few days.
Before I start through the presentation, just let me tell you that we spend a lot of time and millions of dollars on lawyers on fighting silly fights with some shareholders, and the quarterly results of last quarter and this quarter is one of the proofs that you shareholders, our shareholders, my partners, have a great company that is improving on a quarter-by-quarter basis, and that the share price will go up unless you will succumb to people who manipulated the shares and bought them for two and a half dollars and are trying to get them out, themselves out for $4. We're not going to get them. It's pretty much over. We are winning in every way possible, in all the attempts in silly complaints to court. We're moving forward, and we'll speak at the end about other plans and M&A.
It's all good news today. Let's start. First, the highlights. We had almost $50 million quarterly revenue. Best quarterly revenue ever. Our gross margins have gone up to 47% on a non-IFRS. YoY growth in revenue is 43%. The increase in gross profit is beautiful, I mean, huge percentage number, about 550%. Adjusted gross profit increase is 68%. What can I tell you? I'm proud in the efforts of both the sales, marketing, operation teams, and not to speak about the R&D efforts that are by now starting to show results. More important than everything else, 50% organic growth, which means the internal generated technologies and breakthroughs is actually causing the advancement. In specifics, we sold to NASA.
We have 10 defense contractors, Fraunhofer Institute, Western government agents, defense agencies. We're speaking about Western government defense agencies, we're talking about all what they call the three letter agencies, which you all know. Certain countries in Europe, they have more than three letters, especially in Israel, the same kind of people you realize that buying our machines. The DeepCube implementation into the DragonFly, and now starting to go into other machines, is working beautifully and justifying the smart, deep learning that is making the machines accurate and with higher throughput. Going into the specific financials and in comparison to Q1 of 2022, I don't want to repeat the numbers that I just said in percentage. You can read them yourself. I will just highlight for you in this slide the fact that the R&D expense is $15 million.
It's a huge investment. Out of the loss in EBITDA of what? Close to $22 million, almost 15.5 of it is R&D, which means it's a decision of to invest in the future of the company. We can turn this company, which we will, profitable very quick. The decision at this point to continue to invest is showing by the fact that our revenue are at the rate of $60 million, which is 50%, almost 50% growth from last year, or 35%, 40% growth. Secondly, if you look at the Adjusted EBITDA, net of the revenue expense, the R&D expense, you see where it stands. That's what I just said. The first quarter ever in the history of the company that we are profitable, $22 million of net income.
I'm highly unimpressed with this number, guys, because this number comes from the fact that we are shareholders of Stratasys, mostly, and Stratasys shares went up as a result of us putting a bid. The fact that the shares went up from $14-$18, caused us to make money as well. Let's be fair, that's not how we measure ourselves. It's nicer to have that than the opposite, but we measure ourselves based on profits from operations and EBITDA, unrelated to financial profits. That's how we measure the company. Of course, we have interest as well, the amount of money we have. Some people asked me in the past, through emails, kind of very, I would say, funny questions, or actually, more than questions, I saw criticism that we are not making enough money with the money we have.
Well, we're at the rate of $45 million a year of profits from our cash. We're not- and with that, without risking the principal, which means we don't invest in certain tools and certain financial tools that we could, which we would make us make maybe $60 million-$70 million a year just from that, because we don't want to risk the principal. That's not what you gave us your money for, but we are in the business of maximizing return on this capital as it's being prepared to be used in business development, means M&A, et cetera. The net cash and operations, hence, that we have spent is much lower than we budgeted for, and which is good as well.
You see it here in a graphic format, comparison between the first quarter and the first quarter of last year, both on the revenue side and on the gross margins. It shows in two colors on the right side, based on IFRS, how much we grew, and the Adjusted non-IFRS, which take out of the gross margins, all kind of non-cash expense that are coming from granting of RSUs or stock options to the employees. We built up an interesting graph here for you, rather than just showing YoY, over the last three years, because our revenue history, really, the substantial one is just over the last two years.
We took the LTM of every quarter since Q2, 2021, the last 12 months. We show how the company's revenue is growing on a last 12 months basis, which is actually a better way to look at the performance of the company than just looking a YoY. Who says somewhere at the end of the year, on the 31st December, is the right time to measure? The right time to measure is every quarter when you look at 12 months before that quarter. That is what this graph shows you. You have here 1, 2, 3, 4, 5, 6, 7, 8, 9, 6, sorry, 8 data points that shows you how healthy is the company and how healthy it's growing.
To remind you, all these list, the last $48 million in the one column before the last, is a close to 50% gross margin. The last column is just taking the first quarter, multiplying by 4, to show you the run rate for 2023. Here I did a little bit of a comparison of how are we comparing to the peers that are publicly traded. 3D Systems is down 9%. Stratasys is down 9%. Desktop Metal is down 9%. Markforged, was good company, up 10%. The peer group, this peer group, as an average, down 7%. We are up 43% YoY, quarter, quarterly. If this doesn't convince some people that this company is going to a multi-billion dollars with acquisitions. Without acquisitions, we're going to a multi-hundred million dollars, then I will never convince anybody.
The next slide speaks about the synergies from the M&A. I mentioned it twice, I'm very proud of it. It's 50% growth, not over a year, but over a half a year. In Q3 comparing Q1 now comparing to Q3, two quarters, three quarters ago, is 50% growth. The reason I took that is because the last acquisitions that we made, which was a small one, was the end of Q2, beginning of Q3 last year. Since then, it's all organic growth. We had organic growth before, but this is more protruding because there was no acquisition for six months. The next slide shows you how much we grew in just machine sales, which means, as you know, our business is combined from razor and razor blades.
We sell machines, and then we sell materials, and we sell services, et cetera, et cetera. Why is the machines important? The machine growth, the machine sales, is the infrastructure that enables eventually the recurring revenue to grow by themselves and continue. The systems product line revenue increased 45%. I gave you on the right side here, in a comparison to a company called Stratasys, which reduced their sales in our systems over the same period, first quarter of the year, by 26%. You may not see it from their publications, because one of the things you'll read very soon in our news release, is in our due diligence, which is an ongoing on Stratasys, we're discovering major black holes in their reporting. They are not reporting everything and not reporting everything accurately. That's a different subject.
Now, let's speak for new products and technology advancement. We have new systems, both in the macro, micro AM design. You see the machines, actually, the new machines pictures there. We have growing installed base with Accumold, TTH, government defense agencies. DeepCube is starting to show results in the operations of the machines. The most exciting things about with DeepCube is we're getting requests from the market, the industrial market, other companies with other machines, not competing with us, which are requesting us to implement the DeepCube engine, the DeepCube deep learning engine, into their machines and their production floors.
Justifies the whole concept of where we started to look for deep learning two years ago, and eventually end up buying DeepCube, is that the need for a tool like this, which is kind of going together with what you're hearing today about the resurgence of the AI in the industrial field. Without deep learning and AI, this is a glass ceiling that will not be penetrated, and we have it. The next slide will speak about something that's not connected with the performance of the company. I'll just remind you, it's the last slide. We are buying Stratasys. We are buying it for $20.05. $20.05.
We are looking forward because we have a very clear plan of how to fix that company, how to get around their entrenchment of their board, and shortcoming of their management. Not to speak about the plans, alternative plans that they put, which are, as everybody here knows, quite improper for their shareholders. We're looking forward for this deal to be completed, and by then, our shareholders are going to be seriously benefited from this transaction, but in a very natural way, their interest will be in line with the Stratasys shareholders, which will benefit from this transaction. I'm welcoming all the Stratasys shareholders that are going to sell their shares to us.
I hope that those who sell the shares will keep small amount of shares that they wouldn't sell, because those shares will go up after we will implement our plans for Stratasys as their major shareholder. I hope to be partners moving forward. At this point, I would like to open the discussion for Q&A, please.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star, then two. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Sol Zelman with Gericare. Please go ahead with your question.
Sol Zelman (Director Of Sales And Business Development)
I have a very specific question, which you touched on, but I'd like to add to it, and then get your feedback on it. I feel slightly that the market underappreciates the AI capabilities of the DeepCube subsidiary of Nano.
My basic question is, just the knowledge and expertise of the DeepCube's team, that alone can be monetized either by, alone or even divested. Just looking at the Nvidia and Intel's race to dominate that sector, how does Nano fit in there? How do you see that, growth opportunity vis-a-vis, the other players in the market?
Yoav Stern (Chairman and CEO)
First of all, DeepCube is, right now, it's a subsidiary, it's a division of Nano. When we purchased DeepCube, there was, they were in discussion with Intel and with Nvidia for a purchase. Both of them were interested to purchase them. We kind of snatched it under, because one of DeepCube, actually the CTO and the DeepCube founder at the time, Dr. Eli David, one of the world experts on deep learning, was on our board. That's how I knew about DeepCube and could know about it early. It was by then, three years old. Yes, of course, DeepCube could be of interest to Nvidia, could be of interest to some other similar companies.
As I mentioned, as you said yourself, I touched on it, we are already getting interest from the outside for DeepCube to be installing the it in companies unrelated to us. We are following up. We will maximize the value of DeepCube. It could be in the ways you mentioned, it could be in combination of some of the way you mentioned, but we're totally focused on that.
Sol Zelman (Director Of Sales And Business Development)
Understood. That information will be available by what period of time? What are we looking at based on...? Again, it's a super hot environment. I'd love to see, as an investor, I'd love to see what you guys, what your answer to that is. When would you project that date?
Yoav Stern (Chairman and CEO)
You will hear every time there will be advancement on the DeepCube side with an agreement with an outside company, we will publish it.
Sol Zelman (Director Of Sales And Business Development)
Okay. I'm looking forward to that. Thank you very much.
Yoav Stern (Chairman and CEO)
Thank you very much.
Operator (participant)
Our next question will come from Katherine Thompson with Edison. Please go ahead with your question.
Katherine Thompson (Analyst)
Hi there. Actually, this is a follow-on question on the DeepCube opportunity. I just wanted to understand, for you to maximize that opportunity, is there a lot of investment you would need to do internally? You know, having the right staff so that you can help sell that software into the existing, you know, customers, but also the company, and help them integrate that software in with their own hardware.
Yoav Stern (Chairman and CEO)
Since we purchased DeepCube, we sharpened our pencil. We have today a group that we believe can answer all the technological requests that we're getting from outside customers as well as from internal. We have about 30 data engineers, data scientists, PhDs, and technicians, including very special programmers that can program the sophisticated algorithms in an efficient manner, that it doesn't need Cray-sized computers. All of them together is about 30. The cost is much, much, much less than $10 million per year. We feel that we don't have to add at all. In a combination between the group in Israel and the software capabilities we have in our Cambridge group in England, we feel we have everything in-house.
Katherine Thompson (Analyst)
Right. Okay. Thank you.
Yoav Stern (Chairman and CEO)
Thank you.
Operator (participant)
Our next question will come from Rick Smith with Smith Capital. Please go ahead with your question.
Rick Smith (Senior Business Executive)
Morning, good afternoon. I don't know if you guys are aware, your filing last night says $25 per SSYS. Is that a typo?
Yoav Stern (Chairman and CEO)
Yes.
Rick Smith (Senior Business Executive)
Okay. On the last call, I'm sure you remember this, I asked you when the tender offer expired, you told me the date, I asked you if you promised.
Yoav Stern (Chairman and CEO)
Yes.
Rick Smith (Senior Business Executive)
Okay, when are you guys gonna go away from this thing?
Yoav Stern (Chairman and CEO)
We're not.
Rick Smith (Senior Business Executive)
The market doesn't believe you.
Yoav Stern (Chairman and CEO)
Who is the market? You?
Rick Smith (Senior Business Executive)
The market is the share price, SSYS, right?
Yoav Stern (Chairman and CEO)
The market.
Rick Smith (Senior Business Executive)
I'm.
Yoav Stern (Chairman and CEO)
Will believe us when we close the deal. The market will believe us when we close the deal.
Rick Smith (Senior Business Executive)
When you close the deal. Okay. Thanks.
Yoav Stern (Chairman and CEO)
Thank you, sir.
Operator (participant)
Our next question will come from Rami Reddy, an investor. Please go ahead with your question.
Rami Reddy (Shareholder)
Hey, thank you for reporting a nice quarter. I have a couple of questions. The first one is, when are you going to get the final judgment from the court or from settlement for the lawsuit between Nano Dimension and the Toronto group? Second question is, are you expecting any analyst coverage in the near future?
... please answer those two questions.
Yoav Stern (Chairman and CEO)
Okay, can you repeat the first question, please?
Rami Reddy (Shareholder)
I want to know what the timeline for getting the final judgment between Nano Dimension and Toronto Group lawsuit.
Yoav Stern (Chairman and CEO)
The Canadian group?
Rami Reddy (Shareholder)
That is on everybody's minds.
Yoav Stern (Chairman and CEO)
We don't have any settlement. We don't have any settlement with them. Those are shareholders.
Rami Reddy (Shareholder)
Yeah, yeah.
Yoav Stern (Chairman and CEO)
They were trying to liquidate the company.
Rami Reddy (Shareholder)
Yeah
Yoav Stern (Chairman and CEO)
their price coming in was two and a half dollars. They wanted to stop all activities and take the money at the $4. Since 85% of our shareholders are prices are higher than that, and we don't think it's reasonable. I don't know what settlement you're talking about.
Rami Reddy (Shareholder)
I'm thinking right now, if when the judgment is going to come from the court. Otherwise, you know, your job is in the air. We don't know whether you are going to be CEO after the next shareholders meeting or not.
Yoav Stern (Chairman and CEO)
I'm sorry. I don't understand what you're saying.
Rami Reddy (Shareholder)
I.
Yoav Stern (Chairman and CEO)
What is the question?
Rami Reddy (Shareholder)
The question is that right now, there is a lawsuit pending in the court, right? Whether there.
Yoav Stern (Chairman and CEO)
There is a court case which they are going to lose because they don't have the right, and they didn't have the right to try to do what they did six months ago. Even without the court, as you can see, whatever they did six months ago has no meaning. Business continues as usual. The company is performing very well.
Rami Reddy (Shareholder)
Yeah.
Yoav Stern (Chairman and CEO)
We're not looking at them as any factor in what we do as we run our business. They're totally not a factor. They're shareholders, and that's it.
Rami Reddy (Shareholder)
But is there any dead, date for the final court hearing on that? Is there any date set for that?
Yoav Stern (Chairman and CEO)
The court, there's few court hearings, both in New York. We sued them in New York for manipulating the share, last year. We found out with computer programs that they were cooperating with-
Rami Reddy (Shareholder)
Yeah
Yoav Stern (Chairman and CEO)
other funds there and were playing with the shares. This is a federal offense, so we sue them, and this is going on. There's a court in Israel, which they tried to enforce something they did six months ago, but they didn't succeed. Once there will be a court decision in our lawsuit against them in New York or in Israel, we'll let you know.
Rami Reddy (Shareholder)
Yeah. Until then, you know-
Yoav Stern (Chairman and CEO)
What is-
Rami Reddy (Shareholder)
If the court is going to say whatever the shareholders meeting they conducted in March, that is valid, you are out, right?
Yoav Stern (Chairman and CEO)
I don't know what you're talking about. I'm really sorry to say that, I don't know what you're talking about.
Rami Reddy (Shareholder)
I'm sorry. I'm sorry, because they had an illegal shareholders meeting in March 2023, right?
Yoav Stern (Chairman and CEO)
Sir, as I told you,
Rami Reddy (Shareholder)
Yeah.
Yoav Stern (Chairman and CEO)
Nothing happened.
Rami Reddy (Shareholder)
Yeah.
Yoav Stern (Chairman and CEO)
We continue our business. It was six months ago. The company is growing. We're doing acquisition of Stratasys soon.
Rami Reddy (Shareholder)
Yeah.
Yoav Stern (Chairman and CEO)
If there'll be any court decision, we will publish it. Thank you very much.
Operator (participant)
Again, if you have a question, please press star then one to join the queue. With that, this will conclude our question and answer session. I'd like to turn the conference back over to the company for any closing remarks.
Yoav Stern (Chairman and CEO)
Okay, I see there's a couple of other questions. Let them ask those. You know, it's an opportunity still, so it's just half an hour, so please.
Operator (participant)
Absolutely. Our next question will come from Eric Marcus, an investor. Please go ahead with your question.
Eric Marcus (Shareholder)
Hello, Mr. Stern, can you hear me?
Yoav Stern (Chairman and CEO)
Yes.
Eric Marcus (Shareholder)
Mr. Stern, at the last quarterly meeting, I asked when would be scheduled an annual shareholder meeting to vote on chair and directors, and you said it would happen later this year.
Yoav Stern (Chairman and CEO)
Yeah.
Eric Marcus (Shareholder)
Can you give us an update on that?
Yoav Stern (Chairman and CEO)
I already gave you an update. I published it last week in the news release.
Eric Marcus (Shareholder)
Can you please tell us when that is?
Yoav Stern (Chairman and CEO)
Yeah, it should be probably around September.
Eric Marcus (Shareholder)
All right. Thank you very much.
Yoav Stern (Chairman and CEO)
Thank you.
Operator (participant)
Now, with no remaining questions in queue, I'd like to turn the conference back over to the company for closing remarks.
Yoav Stern (Chairman and CEO)
Okay. Thank you very much. Thank you very much, everybody, for participating. It was a pleasure to speak with you. Thank you for the intelligent questions. If you would like to know more, please feel free to connect to us or even to me directly. We'll be happy to speak with you. Have a good day, everybody, and good day in the market.
Operator (participant)
The conference has now concluded. Thank you for attending Nano Dimension's quarterly earnings conference. You may now disconnect your lines.