Nano Dimension Ltd.

Good day, ladies and gentlemen, and welcome to Nano Dimensions' 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 Julian 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 Dimensions Chairman and CEO, Yoav Stern. Yoav, please go ahead.

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 and 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 and in the future will be able to be much faster. My goal is to be able to release full results of the quarter in the middle, around the middle of the quarter after, maybe even better, but for that matter, We, maybe different than others, are trying to even be earlier, and we release earlier results, at least revenue, a few days after the end of the quarter, which we will try to continue to do. So the good news is the second quarter early results will be out in a few days. Before I start through the presentation, just let me tell you that We spend a lot of time, millions of dollars on lawyers, on fighting silly fights with some shareholders. And 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 the share price will go up unless you will succumb to people who manipulated the shares and bought them for $2.50 and are trying to get 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 and silly complaints to courts. So we're moving forward and We'll speak at the end about other plans at M&A. It's all good news today. Let's start. First, the highlights. We had almost $15 million quarterly revenue, best quarterly revenue ever. Our gross margins have gone up to 47% on a non-IFRS, and year-on-year growth in revenue is 43%. increase in gross profit is beautiful. Huge percentage number, about 550%. And adjusted gross profit increase is 68%. So 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. And 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 agencies, 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, but 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 percentages. 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. And out of the loss in EBITDA of close to $22 million, almost 15 and a half of it is R&D, which means it's a decision. of the 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 almost 50% growth from last year, or 35%, 40% growth. Secondly, if you look at the adjusted EBITDA, net of the revenue expense, sorry, R&D expense, you see where it stands. That's what I just said. It's 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 So the fact that the shares went up from 14 to 18 caused us to make money as well. So 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. So we're not, and that's without risking the principal, which means we don't invest in certain tools and certain financial tools that we could, which would make us make maybe 60, 70 million dollars a year just from debt, because we don't wanna 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, which is good as well. You see it here in a graphic format, a 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 their employees. We built up an interesting graph here for you. Rather than just showing year over year over the last three years because our revenue history, really the substantial one is just over the last two years. We took the MTM of every quarter since Q2 2021, the last 12 months, and we show how the companies 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 year over year, because who says somewhere the end of the year and the 31st of 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. And you have here one, two, three, four, five, six, seven, eight, nine, six, sorry, eight data points. It shows you how healthy is the company and how healthy it's growing. And to remind you, all these lists, the last $48 million in one column before the last is close to 50% gross margin. And the last column is just taking the first quarter and multiplying by four to show you the run rate for the 2023. Here I did a little bit of a comparison of how are we, compared to the peers that are publicly traded. 3D Systems is down 9%, Statasys is down 9%, Test of Metal is down 9%, Mark Forge was a good company, up 10%. The peer group, this peer group, is on average down 7%. We are up 43% year-over-year quarterly. Now, 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. 50% growth, not over a year, but over a half year, which means In Q1 now, compared to Q3 two quarters, three quarters ago, it's 50% growth. And 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. And 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. Now, why is the machines important? Because the machine growth, machine sales is the infrastructure that enables eventually the recurring revenue to grow by themselves and continue. And the systems product line revenue increased 45%. I gave you on the right side here in comparison to a company called Stratasys, which reduced their sales of systems over the same period, first quarter of the year, by 26%. Of course, 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 strategies we're discovering major black holes in their reporting. They are not reporting everything and not reporting everything accurately, but that's a different subject. Now, let's speak for new products in technology advancement. We have new systems both in the micro-AM design. You see the machines, actually the new machines, pictures there. We have growing install base with Acumal, TTH, government defense agencies. DeepCube is starting to show results in the operations of the machines. And the most exciting things about 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 flows. Which 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 researches 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 strategies. 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 the shortcoming of their management. Not to speak about the plans, alternative plans that they put which are, as everybody here knows, quite improper for the shareholders so 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 strategies shareholders which will benefit from this transaction I'm welcoming all the strategies shareholders that are going to sell their shares to us. And 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 strategies as the major shareholders. So I hope to be partners moving forward. At this point, I would like to open Discussion for Q&A, please.

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. And 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. And our first question here will come from Sol Zellman with Jerry Care. Please go ahead with your question.