Nano Dimension Ltd.

Good day, ladies and gentlemen. Welcome to today's conference call to discuss Nano Dimensions' third quarter 2022 financial results and quarterly update. My name is Betsy, and I'll be your operator for today's event. On the call with us today are Yoav Stern, Chairman and CEO, Yael Sandler, CFO, and Julian Letterman, Head 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 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. Yoav will begin the call with a business update, followed by a question and answer session, at which time Yael will answer questions. I would now like to turn the conference over to Nano Dimensions Chairman and CEO, Yoav Stern. Yoav, please go ahead.

Thank you very much. Good day to everybody. We're going to go short. Hopefully everybody has it in front of him. We finished a beautiful quarter of $10 million of revenue, which takes us to about $31 million of revenue over three quarters, comparing to three quarters last year is hundreds and hundreds of percent above, almost a thousand. And comparing to the last quarter, a similar period last year, it's also 650%. So we're happy about it. And we have certain criticism at ourselves, which we'll be talking about, but we'll start with the highlights. We'll go through what we think should be improved. So on the highlights, which are not numbers highlights, but rather milestones in the business. First and foremost, we had M&A and investment activity. We acquired a relatively small company, but probably with the largest potential to grow from all the acquisition we acquired until now. It's called Admatech Chromatik in Netherlands with an amazing additive manufacturing technology for metals and ceramics based on DLP direct or digital light processing. It is something we looked for for a long time. Size of the company was relatively small, less than $10 million in revenue, but it was a subsidiary for many, many years of a much larger company that was in different business. So it was growing kind of behind the scenes. And we believe that the growth potential is more than anything we acquired until now, and it will be already manifested As we go forward this year, they'll finish one and a half quarter under us, which are already ahead of their projections last year. On the Fabrica side, the first AM company we acquired a year and a half ago, major advancement in the material. And if people remember, I told you early in the game that whoever speaks about editing manufacturing in general and editing manufacturing electronics specific as a technology of robotics automation, missing the points any manufacturing main core technology is materials materials process and process and a major advancement here in fabrica which will was the main kind of blocking of substantial sales because it took us until now since we acquired them to develop the new materials so that's very good AME application development I should say what's not written here, we have a very, very exciting advancement in the materials and AMA as well, which enabled the application development. We have three new materials that are much better than the previous materials that are going to be released to the market at the beginning of the quarter, next quarter, and they are going to be applied for all the models of the machines we have, including backwards compatibility. which is very, very important. Customers are very excited. We had just a month ago, customers users conference in Munich. We had 40 people, 24 customers, and including very high profile ones, which I can't mention for obvious reasons, and excitement was felt across the board. And finally, last but not least, In spite of the amount of cash we have, we are still operating the way we operated last year and so much as the acquisitions. We're frugal. We're not spending money on acquisitions, which are foolish. It's multiples that are totally unacceptable, which was done by everybody around us. And we relate the same way to management of our overhead, which is not acquisitions. Of our manpower this quarter, beginning of the third quarter. That was not easy in a company that is growing and where the employees and executives know that we are relatively comfortable cash-wise. I still, and we still, myself, insisted on reducing the headcount because we felt when a company grows so fast, there's enough fat that we can cut, and it resulted in a reduction of $10 million expenses level on this quarter, comparing to the original budget, which we're very proud of. Now back to focusing on the numbers, which are important. So the revenue is $10 million this quarter, $31.5 million for the three quarters. Gross margin is deceiving because obviously the IFRS includes a lot of non-cash expenses and for shares, granting, et cetera, but look at the 29. Even the 29, which is net and it's real gross margin, is a bit lower. Our typical gross margin is about 40 and it's a combination of margins of above 60 for the new machines and about 40, 38 for the more machines that are in a later stage in their life cycle as products. So why is it lower this quarter? The answers are pretty clear and I'll speak about it in the next slide. Our EBITDA, if not minus $24 million, includes about $13.5 million of investment in R&D. That basically means that if you guys told me that if we didn't have the belief in the huge multi hundred million dollars potential of the additive manufacturing electronics, which demands still an investment of about $13 million a quarter in R&D, we could close, cut that, or sell that, and within two, three quarters we'll be making money. We're not going to do that because we're not going to give up the opportunity which we believe will lead us to where we promised it will lead us. So it is still important to know that as we look at the EBITDA, half of it, more than half of it is an investment in R&D, and the rest, by the way, was investment in developing the growth market after the acquisitions. The net cash used in operation is $22.3 million, which is more than $10 million less than projected. Our projected run rate for the whole year was above $100 million cash spent on the investment. And as you see, 22 is a rate of about $80 million to $90 million a year. Our backlog is untypically high. And the reason is, will be discussed in the next slide. and our cash is, actually I can speak about it now, and our cash is 1.05. Now, the reason the backlog is high is because in Europe, the results of the conflict in Ukraine and the result of the supply chain callbacks caused our customers, didn't cause us problems, but customers that bought machines asked to deliver them either this quarter or even next year. So a lot of revenue from this quarter was held back and postponed, but it is on backlog, which means signed purchase orders. So you will see the results in the next quarter. This is also, by the way, a reason why the gross margins were reduced in this type of product, because it's all, by the way, in very gory details in the news release, because as we sold out of the door less machines, certain overhead in COGS which was fixed is, of course, manifesting itself in percentages of revenue as higher number of COGS, lower number of gross margin because the revenue is lower. But that is going to correct itself between the next quarter already and maybe even during the next two quarters. Some information about this acquisition I have mentioned before. As you heard from my voice, we're very excited about it. The activity and the type of materials are shown here in the picture. We are expanding already the portfolio and we're expanding the go-to-market. We applied all our go-to-market forces, salespeople around the world, They already, since the acquisition in July, had a course and training in these machines, and we're starting to sell them in North America, which was almost not sold. And we're expecting very, very positive results from growth, as I mentioned before. This is just a manifestation of what I mentioned earlier about R&D. There's no way a company can be profitable when it invests 52% of its revenue in R&D. A business model which we are running on a five-year basis is showing that profitability on a quarterly basis will happen in 2025. And at that time, the ratio of the R&D to the revenue is going to be down below 20. So as a I should correct myself. The R&D is not 50% of revenue. It's 52% of operating expenses, which is much less than 52% of revenue. But you have the actual numbers in the left, so that's easy. R&D is $18 million a quarter. Out of this $18 million a quarter, my estimate is the R&D for AME is much more than a half. actually closer to $14 million. So it's obvious why I said before that we are very encouraged with the results in the products in AMA, which are coming to the market in the next two quarters, because that's what's going to lead us to the growth as expected and profitability. This is just a comparison of our cash divided by our annual run rate. So if you take us and three competitors in the market, by the way, they're not direct competitors, but at least they're in the same market, you can see that we have 14, almost 14 years if we continue to burn cash the way we are, and we're not going to. As you already heard, we cut it even this quarter. But assume we continue at $88 to $90 million a year, we have 14 years without acquisitions. And then the other companies have between less than a year to, around two years. So we're very comfortable that we're not going to go back to the market to raise more money. And we are comfortable that it's not going to take 14 years to spend this money. A, because we're spending more of it on acquisitions and wait for the news. It's coming this year and earlier. I mean, 2003 and earlier, 2023 and earlier. And it's all aimed for profitability with spare cash as we need. As much as revenue for the three months and nine months, I mentioned before on the right side, you see the, on the right side is the quarter, and on the left side.

In the right side, it's the gross profit from the year to date?