Nano Dimension Ltd.

Ladies and gentlemen, thank you for standing by. All participants are present in listen-only mode. Welcome to today's conference call to discuss Nanodimensions 2021 full year and fourth quarter results. On the call with us today are Yoav Stern, CEO, and Yael Sandler, CFO. 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 outlining today's earning press release also pertains to this call. If you have not received a copy of the press release, please review it in the investor relations section of the company's website. Yoav will begin the call with a business update, followed by a question and answer session, at which time Yoav will answer questions regarding the fourth quarter 2021 financial results. As a reminder, this conference is being recorded March 31st, 2022. I would now like to hand over the call to Mr. Yoav Stern. Mr. Stern, would you like to begin?

Sure, thank you very much. Thank you everyone for participating and good morning. So it is a news release with a letter to the shareholders which is quite long and I'm not sure all of you or part of you had the attention spent to read it but I recommend that you will because everything I have to say is written there. I've done it before and I found out that Being all this information in front of you is very helpful when I speak with investors later because those who are seriously diving into the business of the company read it and they're very educated. So that's point number one. Just in case you don't have the time, and I'll try to just summarize really quickly and leave more time for questions. So if you ask when you ask something relating to what I've either written or didn't write, I will dive into that based on your interest. In general, it's a very exciting news release, obviously. If we're saying that we expect to be this year, 2022, 200% above last year, it's only shadowed by the fact that last year, 2021, we were 209% above 2020. It's exciting. If you combine this together and multiply it properly, then in 2022, we're maybe 10 times over 2020. So that's exciting. It's ahead of my expectations. I must admit as much as revenue is concerned. And we'll speak about the numbers specifically in a few minutes. So I'm very encouraged. I'm not, however, illusioned. to say that we now can rest on our laurels because now we are close to, if you multiply Q4, $30 million of revenue or more just by multiplying Q4 by four. No, we measure our advancement not by only revenue or margins. Eventually, this is, of course, the goal. but by what is happening internally in the development and what we see in the market. And those are also very exciting news with the new technologies that we merged from acquisitions into our product lines. And we merged the sales organizations and the leverage we get from that. And what we see out there as much as prices of M&A. And we've looked by now at 300 companies over the last two years. No, less than two years because I didn't have money. That's probably a year and a quarter. So let's say since July, August 2020 until today, it's about a year and a quarter, a year and a half. And we have a whole department, not huge by the way, not 25 people, just three, four people that are searching the market for the technologies and the companies that will be interested and what we see is prices that's going down. That justifies our patience under pressure of the last year of not to buy neither SPACs nor things that sounds like a SPAC but it doesn't sound so well to say it and we didn't do it and From the companies we said no to over the last year, as much as synergistic acquisitions, I think maybe 20% were sold at the prices that we didn't want to buy, and 80% were not. And by now the prices are down. Do I think the prices are down in time to buy? I don't judge if the prices are down and are going to be down more. I'm not able to judge the market. Nobody actually can, and we all know that. What I'm judging is if the prices are low enough in so much as what am I buying and is it worth the money and can I make this worth more by paying $10 or $100 million for it? Because if I pay $100, it should be worth $200 and more within a year, year and a half. If not, then $100 is too much. So that's just an example. So let's dive now that we can. And somebody asked me, Last call, when we're going to speak about numbers, let's dive into numbers a little bit. I'm not going to go through the balance sheet because it speaks for itself and it's strong and the numbers are pretty much clear. Let's speak for a second about the profit and loss, the P&L. And by the way, just let me tell you, somebody asked me in the last call or maybe in somebody that called me, when are we going to publish our cash flows? because it's important to show how strong our cash flow positions are. And he was right, and I promised that we're going to do it. So the cash flow is published today in the 20F, not in the news release. And the 20F was published today as well. But starting from next quarter, we will also publish the cash flow on the news release itself. So on a quarterly basis, you'll have also cash flow if you need it for today. you can open it at 20F and it's all there. As much as the profit and loss statements, I'll just point a few highlights for you. First of all, the gross margins are about 46%. They're not high enough and the reason they are lower than what I think I know they should be and what it is on our high-tech machines that we're selling is because it's a mixture of gross margins between many product lines, some of them are lower gross margins, some of them from the acquisitions are lower gross margins, so the average is 46. And when I'm speaking about the gross margins, I'm taking out this line, the third line in P&A, it's called cost of revenue amortization of intangible. That's not part of business cost of sales because it's non-cash expense from needing to amortize all kind of things like historical capitalization of R&D, which we don't do anymore, and other things that Yael can give you details. So I'm looking at the real gross margins, which are the revenue in percentages minus the real cost of goods sold. So 46%, I believe, I know it's an average. I'm quite satisfied with the gross margins on a per-product line. I'm not going to disclose it because it's very competition sensitive. But obviously the components that we sell or the sub-assemblies are at lower gross margins and the full machines that we sell are much higher gross margins and the materials that we sell are also much higher gross margins than 46, I'm saying. By the way, I will mention this moment, important note. Don't ask me when we come to the Q&A, please, what is our revenue based on what was the revenue of what companies we acquired separate from companies we didn't acquire or product lines that we sell or sold before. We don't have this breakdown. It's very competition sensitive because we sometimes intend to sell different machines as a package deal and combine them together for the customer, and we don't want the customer to know exactly what the machines, which they're coming from, product line, and what are we selling them in a different market with different prices when they're standalone. The company by now is so well integrated. Again, this is also ahead of my expectations. I'm not happy with integration as a fait accompli. I still think we should We are increasing the integration, but the product lines and the sales of the acquisitions are merged. The early acquisitions are already merged in R&D as well and operations and manufacturing. So it's a real one company with a product line that is sold to different verticals, most of them overlapping, and some of them are even in package deals. So that's the reason we're not going to disclose sensitive information like this. Anyhow, moving on down the P&L, the profit and loss, notice the research and development. Contrary to what may sound, I think I spoke about it many times in the calls before, it's a very important note that the research and development went up from $9.8 million in 2020 to $42 million. I'm rounding the figures because this is the manifestation that the money we raised is put to work because this is what's going to create and is creating the value that will is going to create the return and it's not so simple to increase 10 million dollars to 42 a because there's issues of hiring top scientists and type a researchers both in the united states and europe very difficult secondly when you grow R&D, you can't just grow it by hiring people. You have to grow it in a way that you create the right culture and you dive into the right research projects. And the fact that our R&D is four times bigger by now is very encouraging from year to year. Sales and marketing, same thing. We declared mid-2021, actually second quarter, that we are now going to start to invest in a go-to-market. Cost The expense went up from 6.6 to 22.7. It's, again, a manifestation of the go-to-market network and distribution channels that we built in North America and in Europe. We didn't invest in the Far East because of political risks that we find in China, and it's another subject. So most of our investments are United States, Europe, and now we opened these days. We have the first showing in Australia in a very big electronic show. So it's very, very exciting. That's on the go-to-market sales and marketing expense. The G&A number is high, but if you notice, it's actually similar to last year, 20 down to 19.6. It's because the GNA didn't change a lot, and the number is high not because we have so much expenses in GNA. We don't have $20 million paid out to either employees or rental. A lot of it is non-cash expenses that Yael can speak about if you want, the non-cash expense including granting of stock options to new employees, which is we hired a lot of people. Remember, we hired 350 employees over the last 11 months. actually more than that, probably 360. So this is the expense as we hire. We try not to increase their salaries or overpay them in order to bring the type A's, but we give them stock options, and that's the non-cash expense that falls into the G&A. So the number in cash is actually much, much, much lower, and if somebody's interested, can ask you later. So overall, the operating loss, is seems like big, right? 220 million. But here's another one that we were obligated to do, to write down $140 million because of the regulation of the SEC when they compare the price of the share to the value of the non-cash, non-tangible assets that the company has. So again, if you want details about it, what is it combined from, Obviously, nothing is in non-cash, so that's the write-down. It happens once, not once a year, once in many, many years, because once you write it down, you don't need to write it down anymore. We pretty much wrote down everything to whatever was non-tangible to zero. And Yael can give you more details if you have questions. So the net operating loss is actually $83 million, not $220 million. and the net comprehensive loss after tax is actually less. It's $60 million. And this $60 million, interestingly enough, if you go up and look at the research and development expense and the sales and marketing expense, combine them together, it is $63 million. And $63 million of investment are showing at the total comprehensive loss of $60 million. Of course, by gap or IFRS, this is a loss. But it's actually an investment, $40 million investment in R&D and $20-something million investment in building up the marketing and sales. And I like that. I think at this point, after talking for about 15, 20 minutes, it will be much more effective for all of you for me to open it up for Q&A, and I would be happy to answer your questions. Please.

Thank you, Sir. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. I repeat, if you have a question, please press star one. The first question is from Rich Brun. Please go ahead.