Nano Dimension - Q2 2023

Transcript

Operator (participant)

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 Yoav Stern, Chairman and CEO, Yael Sandler, CFO, and Julien 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. If you have not received a copy of the press release, please view it in the investor relations section of the company's website. The replay of today's call will also be available on the investor relations section of the company's website.

Yoav, Yoav will begin the call with the business update, followed by a question and answer session, at which time the management team will answer questions. I will 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, thank you very much. Hi, everybody. Welcome to the call. We will go through the presentation, and then we'll open it to Q&A. Going to slide number three. Our quarter was an excellent quarter. It follows two other excellent quarters. Actually, it was Q4 of 2022, Q1 of 2023, now Q2. Each quarter was a stellar, the two others, and best quarters of the company until now. The key highlights is, first of all, and I'll repeat it five times, there's a 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 three and a half quarters is about 47%.

Our growth from the same quarter last year is 33%, revenue is higher in the first half, is higher by 38% from 2022. More importantly, our gross margins dramatically increased by 81% and 185% for a quarter and a half, they went up from 40%-48%. Depends if you're speaking about adjusted gross margin or gross margin. 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 in 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.

Similar names that I cannot disclose, and in all across the product, product, lines 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 DeepCube deep learning machine to install them on their operations and manufacturing operations. Very, very exciting. They recognize the importance. Remember, we originally bought DeepCube for the purpose of applying the technology inside our, our machines and in our cloud network, cloud manufacturing network. Now it seems like DeepCube 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 a contract. The rollout of the DeepCube machine, sorry, DeepCube engine into the DragonFly system is happening, is out. For me, the most important advancement in R&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. It's materials and add- and artificial intelligence. In materials, we have major investment over this year.

In 3 quarters, we invested almost all our R&D in materials, and we have major advancement, which we will announce in November in the industry, industry trade shows. Moving forward. Financial specifics. You can see the profit and loss statement in comparison of Q2 and Q2. Both Q2s of 2022 and 2023. Growth of revenue, organic growth since Q3 are 47%. 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 million, out of which 13, I'm rounding figures, close to 13 was R&D expense. Yes, it is expense because we don't capitalize it, but it is an investment. We spent unnecessary-...

activity, at that time, Q2 was $2 million on legal for all kind of proxy machinations, which is, and as much I'm concerned, is a waste of money. We didn't have a choice, and we don't have a choice. We've been forced into that. The net cash used in operation is $28 million, but we made money from the cash, so really, the net net is only $21.5 million. On a per quarter basis, we are making about $10 million-$12 million a year in interest, gets close to $50 million per year, and the interest rate is per today. The next slide will describe to you the growth of the revenue of the company on a last 12 months basis.

Every quarter measured from the Q3 of 2021, which was $5 million, to Q2 2023, it's $52 million, and we're at the run rate, if we continue at the same rate, to be at $60 million at the end of the year. If you compare this to what other companies in our industry did this quarter or the last few quarters, everybody is down on its revenue, down on its bottom lines. We are up. Next slide describes it, the margins graphically. Revenue, sorry, revenue on the left side and margins on the right side. 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. We chose 4 or 5 companies out of maybe 10 that are public, including in Europe. You can see that other than 1, everybody had net shrinkage, and we had 33% growth. The 1 that had growth had just 5% growth. All this is comparing to a year before. Can't skip my most favorite subject, which is proxy fight, annual meeting, annual general meeting. You, if there are shareholders, I'm sure there are shareholders on the call, are called to vote.

We have, you know, 10 more days to vote, and you basically have 2 choices. The left one is what we propose, which is to keep the board that you have now. There's 3 people to be being re-voted. We will continue with the strong fundamentals. From the past, we have 12% of revenue growth, we have 60% run rate. We have about 3-5 M&As ahead of us, and 2 of them are very large companies. Notice what happened in this whole M&A activity when we removed our proposal to buy Stratasys. The whole M&A consolidation in this industry collapsed. Everybody's share went down, except us. We went up. Stratasys went down from $21 to $14. 3D, which was going to supposedly to buy Stratasys, went down from $11, $10.5, to $6.

Desktop Metal went down to $1 something, which is supposed to have a merger with Stratasys. All this because we pulled our offer, and all this while our share went up from over the last, I think two months, from $2.3 to $3.2, and then back to $2.9. Somewhere hovering around $3. 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're listed on this- 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 are, we are established, we have established an very strong base for global go-to-market and R&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. We deliver strong organic growth, not to forget now, 47%. This will continue. On the other side, on 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 activists. When you look at activist activity in the market. Nelson Peltz as an activist, wanted to get into Walt Disney, Disney, or when Carl Icahn wanted to get into Southwest Gas, or when Elliott wanted to get into Athenahealth.

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 companies, 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 or 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 $1.1 billion, 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.

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 these kind of players, call them, trying to get to the cash and liquidate it. It's totally self-interested, opportunistic. There are nominees to the board. Each one of them got $50K just to put their buyers 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 $50K. It's nice, but they're golden handcuffed.

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 to liquidate it 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. I voted. 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 saw published about me over the last year, and I bent my head and let it slide over. Fake data and fake news. We are talking data. 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 Sarfaty. Moshe Sarfaty is the main senior analyst for Murchinson, out of maybe 10 employees. That is testifying under oath in a court when we were dealing with their illegal shareholder meeting in March, and he was asked by the honorary judge, "What? I don't understand," the judge said, "What exactly do you intend to do if you want to change the board?" The answer now is a quote: "I don't analyze the activity because I don't understand 3D 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 Murchinson, almost the only one that knows something about the company. For him, is he doesn't know nothing. He's testifying. If you want this to happen, I will respect that.

By the way, I will step down because I work for shareholders. If the shareholders will vote to change the board with these kind of people, I'm not ready 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. If they want to stay investors, I am more than welcoming them. If they want to stay shareholders, I'm promising Murchinson they will make money with us. If they want to take over the company and liquidate, unfortunately, I cannot be there. 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 will, and ask me the tough questions and the challenging questions you usually ask, and I like very much to answer. Thank you.

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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Yoav Stern (Chairman and CEO)

There we go. There we go. Operator, anybody?

Operator (participant)

Okay. Again, if you have a question, please press Star then one. Okay, our first question will come from Rami Rauch, with Private Investor. You may now go ahead.

Rami Rauch (Shareholder)

Hello? Can you hear me?

Yoav Stern (Chairman and CEO)

Yeah. Yes, please.

Rami Rauch (Shareholder)

Hi. Hi. Thank you for the presentation. I'm actually also quite disappointed by the fact that Murchinson only talked about Nano's cash position without even providing any, any roadmap for the actual business and profitability. 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? Thank you.

Yoav Stern (Chairman and CEO)

Yeah. Listen, they, 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 million 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 $2.50. 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 cost coming in at the same price.

I'm assuming people who will naturally vote for them in order to get $3.7 a share, will be the people I mentioned, which together, let's say, is 15%. The rest of the 85%, maybe 82%-83%, maybe the 2%-3% of in between, but the 83% rest is retail shareholders. I'm talking about 160,000-170,000 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, one by one, and convince them that the growth plans we have comparing to liquidation plan is worthwhile.

We have to reach, and we are making an effort now for weeks to reach these, 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 two years. When I raised the $1.5 billion, I only sold to institutions, and you think about it, only 15% were left. Actually, I didn't raise the money from Murchinson, but Anson invested in all my deals and made money. All them, including Anson, at the relevant time, sold their shares to retailers who paid much more than $4 a share. 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 are not used to vote, and they get emails or messages from their brokers, and they don't pay attention because they have businesses and they have companies to run, or they have work to do. 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. I hope I answered your question.

Rami Rauch (Shareholder)

Yeah, thank you.

Yoav Stern (Chairman and CEO)

The, the, the key thing for these retailers, obviously, is if this liquidation happens and these guys get in and they start to do, we'll buy the shares from the public, we'll do a share buyback and at $4 or $3.50, they'll make 40%-70% return on their investment over half a year. The rest of the retailers, the 85%, most of them will have losses. By the way, on a by the way note, we announced that we went to court to ask for another $227 million of a buyback, and we're asking it for a year. We'll have the option, depends on the advancement of the M&A programs and acquisitions, to decide 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, we're going to buy an M&A and merge it and make money and earnings per share. Sometimes, if the purchasing is not happening in the right pace, we can use this war chest to do a buyback of shares. That's it, by the way. Yes, please. Next question.

Operator (participant)

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

Katherine Thompson (Director, TMT)

Hi. Hi there. Hi. I have a couple of questions. I'll just give the 2 questions straight away. The first one, you mentioned largest ever. I just wanted to, if that was with an existing customer, and also when you expect to ship that order and for it to recognize revenue? The second question was on the recent acquisition of Additive Flow. I just wondered if you could give us any financial information about the company, so any revenue or cost data, and also any information on what you paid for the company. Thanks.

Yoav Stern (Chairman and CEO)

Can you just repeat the first question? I couldn't. It was a little bit bad, bad, bad connectivity.

Katherine Thompson (Director, TMT)

Yeah. You recently announced that you'd won your large order. I'm just wanting to know if, if that was from existing customer or new customer, and also when you expect to ship the order?

Yoav Stern (Chairman and CEO)

Okay, I got it.

Katherine Thompson (Director, TMT)

recognize the revenue. Yeah.

Yoav Stern (Chairman and CEO)

I got it. Thank you very much. Okay, the first question, the large order, which was the largest order in our history, to 1 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. 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. They expect to buy many more machines if this first order is successful, because they are growing very fast. It's the 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 Flow and the customers they have, we, we decided not to publish it.

Katherine Thompson (Director, TMT)

Okay. Okay, thanks.

Yoav Stern (Chairman and CEO)

Next question, please.

Operator (participant)

Again, if you have a again, if you have a question, please press star, then 1. Donald, our next question comes from Donald Solomon with Garrett Care Firm. You may now go ahead.

Donald Solomon (Analyst)

Hi, good morning, y'all. Thank you for your presentation. A lot going on, both in the release as well as the, the, presentation this morning. Some shared and some, new information. I guess there's, a lot going on out there. I, I, I'm interested in picking your brain for a second. From your perspective, how do you ins- how do you, you envision the consolidation stage in the additive manufactur, manufacturing sector, following the termination of the Nano-Stratasys, tender offer, and the fact that, the current 3D Stratasys deal, in my opinion, at least, doesn't seem realistic, especially after their, their quarter two results and the, their current weak cash position based on, their, those results?

Yoav Stern (Chairman and CEO)

Okay, it's a very good question. I kind of referred to it a little bit earlier, but I will expand on that. Let's, let's speak about who we're talking about. Our industry is, I would say more than 400 companies, for sure, because Julian here beside me in our M&A department, has looked, and we have a list of... Julian, at least 400, right?

Donald Solomon (Analyst)

At least that.

Yoav Stern (Chairman and CEO)

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 to $650 million in revenue. The ones that are public, and you know them better because of publishing the results, are Nano, Desktop Metal, Markforged, 3D Systems, Stratasys, Velo3D, voxeljet, in a way, Materialise, Protolabs, Shapeways, Fathom, Xometry, and that's about it. Of course, there's the private companies beyond that, and I think this industry, which is estimated at $15 billion today and growing to $30 billion in the end of the decade, is bound and must consolidate.

What we started and failed, and we did fail, cause we offered at the end to buy Stratasys at full, they didn't even respond to us. We offered to buy part of it, and they activated the poison pill or had the poison pill. We couldn't do... We started something that we believe is right for the industry, because none of the company I've mentioned to you is profitable. Maybe other than Materialise. I don't remember exactly. Maybe, and Materialise and Protolabs is not a really additive manufacturing, because Protolabs is more subcontract manufacturing and Materialise as well. All the rest are not profitable. More than that, all the rest are finishing their cash. Five of them are SPAC refugees. Their share at SPAC was $10 at a deal point, and today, are all, all of them below $1.50.

This that's net of Stratasys and 3D. Stratasys and 3D announced horrible quarters. All the rest of the companies announced bad quarters. Maybe other than Markforged, which also had a squeeze out in this, 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 re-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, Markforged will buy them as well, or Stratasys. Sorry, not Markforged, I mean, 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, lead, showing the rule. And even Markforged is losing $16 million-$20 million a quarter, and they are focused, and they are good. If one asks me the direction it's going, there's no other way than the direction we started to, to carve, and we failed. We moved back. Churchill moved back in Dunkirk as well. If he wouldn't have pulled the forces in Dunkirk, Dunkirk in Second World War, he wouldn't have won the war three years later.

We moved back because we were wasting our time fighting types like Stratasys board, and we're moving ahead again. We will lead this, and we will lead this also because our strategy is not based on only buying 3D 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 manufacturing, it can be a lot of other edge devices, as long as they are digital and can work in high-mix, low-volume environment. Our strategy is not technology-based, is based on the principle of what kind of industry we want to make efficient and profitable.

We will move forward, and as I mentioned earlier, we have already few, in, in the process, as much as M&A, and we'll consolidate them and on a principle of purchase and grow, not purchase and squeeze.

Donald Solomon (Analyst)

Based on what you just shared, where you're saying that except for Markforged, who's doing it right, everybody else is just losing money, and we're seeing this significant sell-off in major cases, as well as the decline in share price of Nano's peers. Is everybody just running out of capital, and do you foresee bankruptcies coming through, like with everybody else, except for Markforged and Nano?

Yoav Stern (Chairman and CEO)

Nano is definitely not going to any other direction other than growth. Yes, I hope that, and I think the 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. They finished their cash. They announced-- they didn't have a choice, so they announced last week that they are raising convertible debt at $70 million. Their share went down 40%. Of course, because it's totally dilutive. They'll get the, the cash. They are totally non-profitable, Velo. They have gross margins, ridiculously low. I don't remember right now, between 15%-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. 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 Voxeljet, much smaller. Voxeljet is a $30 million business, which we know very, very well, and they didn't do what's right. They are getting close to finishing their cash, and they're desperate, and it's not easy for them to raise money because they are a German company with a German corporate law, doesn't allow to raise money at any price. You're limited by how much discount. Voxeljet, I don't know if they'll survive. Desktop Metal, finishing their cash within a quarter and a half. 3D Systems.

3D Systems cannot pay to Stratasys what they commit to pay in the proposal because they had a bad quarter. They burned $30 million or so, I don't remember the exact number. They don't have enough cash to pay now. I don't think they'll go bankrupt. I think there are smart enough people that will understand that they need to consolidate.

Donald Solomon (Analyst)

Great. Thank you very much.

Yoav Stern (Chairman and CEO)

Thank you very much.

Operator (participant)

... If you have a question, please press star then one. Our next question will be a follow-up from Rami Rauch with Private Investor. You may now go ahead.

Rami Rauch (Shareholder)

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

Yoav Stern (Chairman and CEO)

So far, I think I saw about 30-something million shares voted out of 250. Remember, we have 10 days to go, so usually people vote. Traditionally, what we're being told by the, our expert in the proxy solicitation firm, they're voting usually in the last few days. I'm not surprised that it's still low.

Rami Rauch (Shareholder)

Okay, thank you.

Yoav Stern (Chairman and CEO)

Thank you.

Operator (participant)

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

Yoav Stern (Chairman and CEO)

Let's just wait for a second, see if a couple of other people may have some, late, later thoughts about the question, to give them an opportunity, and then we'll, we'll close it. Okay. Seems like it's quiet on the Western front. I will thank you very much, all participants. I would, I would also want to invite you. Over the last few months, I'm spending time writing, answering emails for, to private and not private investors. 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. If you wish, I'm sitting at night hours and answering emails to retail investors.

Feel free to write me, and to call me if you wish. We have other teams here, other members of the team, that are totally focused on answering the question. 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't do that, but we're making our best. Thank you very much, everybody, and have a good day.