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spk00: Ladies and gentlemen, welcome to Nano Dimensions' third quarter 2023 earnings conference call. My name is Betsy, and I'm your operator for today's event. On the call with us today are Yoav Stern, CEO and member of the Board of Directors, Tomer Pinhoff, COO and Acting CFO, and Julian 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 yet 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's 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 the management team will answer your questions. I would now like to turn the call over to Nano Dimensions' CEO and member of the Board of Directors, Yoav Stern. Please go ahead.
spk05: Thank you very much. Good day to everybody. This is the third quarter results for 2023. It's the best third quarter in our history. It's the best nine months in our history. We completed in the third quarter about around the same revenue we had in four quarters last year. And fourth quarter, if proceeds as planned, will take us either close or on budget as we planned earlier this year. So very good, very happy. but we're starting a new stage, which I'll speak about. The organic growth was 22%. The organic growth for nine months was 33%. I'm emphasizing organic growth because, historically, you've been asking me many, many times, you did acquisitions, that's great. The acquisitions were small, but what about organic growth? So for the last 12 months, it's organic growth. Because we didn't do acquisitions, which we are now, and we'll speak about it separately, are getting into the larger play on M&A. But meanwhile, we're growing organically. We expect the end of the year to be close to 50% growth. We increased the gross profit. I would say it's even more important. You don't see this a lot if you look at companies in our industry or in general. Our gross profits were 200% higher in a similar quarter last year. And same for the nine months, but more interesting in the numbers themselves, the gross margin grew from 18% to 44% on a quarterly basis IFRS and 28% to 48% on a non-IFRS. So we are practically at a close to 50% gross margin, and we believe it will continue to grow. And I want to tell you something. It just didn't happen by itself. It happened with a lot of focus on changing our infrastructure in the cost of goods sold and manufacturing. And we'll talk about it if you have questions. Second thing that happened over the last few months is a major change in our corporate governance and management. Reason is some of the shareholders spoke with us and thought that it would be a good thing to do. ISS and Glass-Lewis, the two reputable advisory firms, spoke with us, and we basically did what they recommended. We reduced the board size by two members, which we stepped out. We added very, very serious false general Mike Garrett to our board, so sitting on Texacon. And we have made changes in roles where I don't know if you know, but I initially, when I joined just two years ago, I was not even on the board. I joined because of changes on the board, and I didn't have a choice. So I stepped, continued to do my CEO role as director, and Dr. Yovne Sankoin is now the chairman of the board. We work together. It's beautiful. I'm very, very happy. On the side of the business, beyond the numbers and the corporate governance, we have successes in the defense. We have successes in space, leading space technology companies. And we probably sold the biggest amount of machines to one of the largest computer company in the world. And not less important, because this is a major investment, is the product and R&D development. Software biocompatible materials, and I'll take you here back two years ago, when I told you, and some of you will remember that, the development of additive manufacturing and the network we're building of cloud manufacturing, while it sounds a lot to do with automation, robotics, software, of course. At the end of the day, there's one thing that's important, materials and process. And as I told you in the past, when we reach a real milestone, it'll be material milestone. So the first one has been reached. We came, we announced a new material for insulation, Insta 200. It's a revolutionary material for electronics, It was announced in the trade show actually in November, and it's going to be out in the market in the beginning of the year and beginning in January, and we're very excited about it. This is not the final move here. Very soon, we're coming with a totally different material, which is much better than this one, and that one will take us into, we believe, into production and mass production on the electronic side. We have a lot of other materials that we added on the editing manufacturing side, but I'm not going to get too deep into that unless there'll be questions. Next, let's talk a little bit about financials. I highlighted the gross margin and the gross profit. Interestingly here is to see that The adjusted EBITDA of $30 million, and I'll show you in a second what is adjusted comparing to regular EBITDA. A third of it, sorry, more than a half of it for the quarter is in R&D expenses. Sorry, actually it's less. It's a third in R&D expenses. It was more than a half in Q3 2022. The reason is it's very, very intended. We reduced 3.5%. million dollars, which is 20 percent, almost 25 percent, of R&D expenses this quarter, comparing to last quarter, the same quarter last year. It was the first move earlier this year in an initiative, which I described in the news list and I'll talk about, of moving nanodimension to the next business model phase, and I'll speak about it. Another thing that you'll see here, Activist damages. We have activist investors that are busy damaging the company. We have spent, until now, since the beginning of the year, close to $17 million paying lawyers, accountants, experts, advisors, for what we believe is a waste of $17 million. Be that as it may, Our shareholders voted for us, and we're moving forward. On the gross margins, I spoke, but if you now go to the bottom line on this table, look at the number on the bottom. We only burned $7.7 million, comparing to 20 in the same quarter last year. This is where we are going. We are hoping next year, actually already this quarter, to cut another $30 million in our expenses and to reach profitability at the end of the year, next year. That's even if we are just growing from where we are today, a run rate of 60, organically, if we do an acquisition, it will obviously change the whole formula, which is very, very exciting for us. Next slide, you will be able to see the reconciliation to understand exactly what is this large number, 66 million of net loss, and why is it ending up just $7 million of cash? So if you start from the top, you'll see what I colored in green is $11 million. 11-0-0-8 is interest income. We have about $45 million a year, maybe more, right?
spk04: Yeah, this year we are going to reach approximately $48 million of investment income. It's about $4 million a month. It's more than 5% interest on an annual basis.
spk05: So, obviously, it's a nice and effective way to grow our capital, and we are working on it. We have weekly management. meetings for cash management. We do not invest other than, of course, our investment in the industry and services. We do not invest in any risky investment, and that's not our charter, but we get returns of between 5% to 7% on our capital cash. Then you have a yellow fever. You have a yellow color. This is $40 million that In this quarter, third quarter is a negative number. All the numbers here are reversed. Negative is positive, positive is negative because it's an adjustment back. Because Stratasys share price went down from $20 million to, sorry, from $20 to $11 or so. We can speak about it afterwards, what's the strategic meaning for that, but the way it affects our balance sheet, is by reducing $40 million. It's, of course, non-cash. And funnily enough, the way that the accounting rule force us to do it is we take the price of the share at the last day of the quarter. It doesn't matter if the whole quarter or the month before the average was 20% higher. We take it from the last day. That's the reason the swings are not something you should relate to because they're not necessarily representing anything. So that leads us to the adjusted EBITDA of $30 million. minus $30 million. And then you go for the cash flow and you start on the gross profit in comparison between the quarters last year and this year. Look at the gross profit that went up from 1.8 to 5.4. It's amazing. And net cash used in operation went down from 23.5 to 19.5. And all the way down to net cash including after bringing back in the interest, we only spent $7.7 million this quarter. And we're moving ahead in the right direction. And again, that's without acquisitions. This is just from the fact that we're getting by now to be a company of $60 million in two and a half years from $5 million to 60 with gross margin of 50%. Next slide. actually speaks about exactly about this last point how did we scale up this gives you a slide i like very much because it's not a slide per quarter it's a slide per quarter that shows the last 12 months at that quarter so you see that in the q3 of 2021 it's just three two years ago we were five million dollars company if you look at your q3 now two years later We have $55 million company, $54 million company. And over the last three quarters, four quarters, it's without acquisition. So if you look at Q4 22, it's from 44 to 54. Next slide shows you all my... compatriots, I'm listing them in industry, are talking about headwinds. And the last quarter of everybody was not good, comparing to projections and in general. And if you guys are following other companies in this business, the public companies, and hear or see their results. Why don't we see it? I'll tell you why not. Because we are diversified. Because we structure the company to sell both to the electronic industry and to other metal ceramics industries and electronic manufacturing, additive manufacturing electronics and additive electronics. And of course, electronics goes into many other industries. A lot of it is in defense, 35%. So this diversification leads us to this third quarter being where it is, and the fourth quarter, which we are in right now, looks pretty good. The revenue, on the left side you see it, and on the right side you see two colors. One is the adjusted gross margin, non-FRS, and one is IFRS. So, numbers we spoke before. I mentioned the peers in the industry. The growth outpaced the peers. We have here 3D, desktop, metal, strategists, Mark Ford, and the average for the whole peer group, it's an average of percentages, not necessarily percentages as it relates to the size of the company, because obviously 6% in 3D system is a much, much bigger drop than 20%. Mark Ford. But the average of all those is 10%, and we are 20% above what I mean growing. Last but not least, where are we going? We call it reshaping nano. The business model, it's time for a business model to grow up and leave the kindergarten into elementary school, or if you wish, leave elementary school into middle school, which means we grew, we focused on acquisitions to build a coherent and integrated business. We are leading with a vision toward cloud manufacturing, so more acquisitions will multiply, but at 60 or close million dollars of revenue and close to 50% gross margin, it's time To think and to adjust the business model, what's profitability? That's what we're calling by reshaping nano. We decide about how to allocate capital. We decide about how to allocate expenses. We've purchased about close to $100 million of our shares because we thought it was the right thing to do. We may continue to do it because we have approval to do another $200 million and we'll decide about it during the year. We, in the last week, reduced 130 people out of 530. This is a very, very serious cut in expenses. Think about it, it's about 23% or something like that. We did it worldwide. most of them in Israel, with all the difficulties of the war. Of course, we gave them the right time. We didn't say goodbye and just left them alone for support. But we have to do it because we are leading ourselves toward improved profitability. We'll save close to $30 million annually, and we're not waiting for next year to start it. It's done already this year. The second step will be to cut major expenses in overhead through consolidating facilities with acquisitions that we will do. And that will take us to the right place. I just mentioned here the governance of the board. I spoke about it before, so I'm not going to repeat it. And I can tell you before closing that first and foremost I want Thank you, the shareholders, for supporting us. I specifically want to thank the shareholders for supporting the Israeli division through a very difficult time that Israel has been and is going through, and we got a lot of support. And we're going through this war here with 12, 15 percent of our employees in the reserve service and fighting in Gaza. but we perform. And in parallel to that, we have another fight with some descendant shareholders that are wasting our time and our money, and their time and their money. But it's not as serious as in Gaza, so that's one we get over with. So I'll just summarize opening up for questions by thanking you again for the support, and we're ready to answer questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today. comes from Ron Rosenberg with Recovered Innovations. Please go ahead.
spk01: Hi. Thank you for your time today. Appreciate it. I'm in the tactical defense sector, and I'm curious, how do you see the impact of the various conflicts globally and the significant increase in defense budget spending on the additive manufacturing 3D business? I'm asking about nano as well as the industry at large.
spk05: Let me put it this way. First of all, the general political and other situation, both in Europe with Ukraine and Israel, and I don't think it's Israel by now, the fact that there's two air carriers here and an atomic submarine of the United States, and the fact that all the European and other leaders were visiting here over the last month. It's a serious situation defense-wise that affects the defense spending, especially of the European countries, but it will affect the United States. We see it in defense in general, I'm not talking about AM, with companies in defense that are having a very, very successful year. We have a director from Lockheed, so we're very, very close to what's happening there. Now, specifically to what you asked about additive manufacturing, look, additive manufacturing is an industry that got ahead of itself, broke big and high, and didn't deliver. So, the additive industry, we divide it now to two types of products, and we do sell to the fans, as you understand, it's our largest section. The products that can actually get into the production line, not only for prototyping or not only for proof of concept, and the products that cannot, or whatever they do in the production, the cost, the unit economics is still too high. So for products that are for the first kind, definitely fill it, and we fill it. That's the reason we're so successful. So you ask yourself, so why is, Test of Metal and Stratasys and 3D and the rest of them, not so successful this quarter, and they're all claiming headwinds, headwinds, headwinds. Frankly, I don't know. I guess they feel headwinds. I don't feel headwinds, and I think part of the tailwinds is the defense industry.
spk01: I hope I answered your question. Yes, thank you very much.
spk00: I'll now hand the Q&A session over to Julian Lederman.
spk03: Hi, everyone. We were sent a question by an analyst, Catherine Thompson, who's the Director of Technology Research at Edison Group. She's been having trouble answering questions, so I'll read it exactly as she has written it to me to ask on behalf of her, given the technological difficulties. So I will read verbatim. Yoav, the question's for you. One, adjusted gross margin is now at 48%. The program to reduce the cost base, will this help grow the gross margin from this level, or is the program more about reducing operating expenses? What do you think is the optimal gross margin you could achieve? She has other questions, but I'll pause there.
spk05: Okay. First, the cost reduction goes on both sides. It's exactly, you defined it. We have a group that's focusing on reduction of COGS by reduction of the manufacturing, the assembly costs, by better buying, better supply chain. Everything goes into the COGS. And we have a whole effort that deals with the general overhead, which includes marketing, sales, go-to-market, support, and especially what I don't like, but unfortunately, is including myself, is the offer that includes just general management, finance, including myself, and including others, where we need to squeeze it, or if we do an acquisition as we're planning, we need to squeeze it based on merger and cutting debt. So that's two things. The other question you asked is, what do you think a gross margin should be? Well, we have different kind of, Our product lines should deliver gross margins between 42% to 65%, 68%. It depends on what product line and what stage in the lifecycle of the product it is. Most of our products are above 56%, 58%.
spk03: I'll ask just two more questions. I'll just repeat them as they're written. Second question, how does your order backlog look going into Q4 23? Are you able to give an indication of what you are targeting for organic revenue growth in the fiscal year 24? I don't know.
spk05: I don't have any visibility into 24 yet. I will have it once we finish this year and once we have indications from the market. Obviously, for Q4, we have visibility. We expect to be between $55 to $60 million. With a little bit of luck, we'll be $60 if we want. It's not going to be because we didn't reach it. It's because, you know, at the end of the year, certain sales are being rolled into January. But I hope we'll get close enough. That's our projection on that. Growth for 2003, obviously, is from 43 to around 60, but almost 50%. 24, we'll know after the end of this quarter into the beginning of the quarter next year.
spk03: The third and final question from Catherine Thompson, analyst at Edison, is M&A, are you able to say what types of companies you are considering any particular technology areas? And operator, we'll hand it back to you after... Yav answers this.
spk05: Yeah, we're looking at companies with the following profile. Above $100 million of revenue in the area of either electronics and additive electronics and additive manufacturing that is not electronics and the market over the next 12 months is right ahead of us. Prices went down on average from six times revenue for companies that have never made money to two times revenue for the same companies that have never made money either. But the major difference between that valuation and the present valuation, so we're seeing it all across the board, both for public companies, I'm sorry, And for private companies, there's not a lot of large private companies. There's about three. And there's more public companies that are large. And we're talking, as we speak, probably with 25 companies.
spk03: Operator, you can see if you have any other questions from the wider group.
spk00: Thank you. To ask a question, you may press star then one on your telephone keypad. The next question comes from Sol Zalman with GeriCare. Please go ahead.
spk02: Good morning. Thank you, operator. And good morning, everyone on the call. Yoav, I would like to start by saying I hope you, your family, your colleagues, everyone's safe in Israel. A lot has gone on since our last call. So I would like to start with that, recognizing that and making sure that hopefully everybody's okay and hopefully everybody comes out of this in the long term safe and sound.
spk05: Yeah, thank you very much. Israel is a small place, so I don't want my family and our family is okay. It's very difficult for me to say everybody is okay when we have still 170 people in captivity, but we're moving in the right direction. Thank you very much.
spk02: You have our prayers, and I'm sure that's globally. I would like to go. I didn't know where I'd fall in the queue and if you'd have time for my questions. So just the way the question just happened to work out, you mentioned it in your preface, and then I heard it from, I believe it was from Karen's question, where you answered that you would potentially be looking at companies with a falling profile. I previously asked the question about during the Stratasys tender offer. During that tender offer, you had made mention of the fact that if you end up pulling the offer, Stratasys will end up falling to the low tens or single digits. I took the numbers here. Fast forward, we're there now. Do you see an opportunity to reengage due to their lower enterprise value of Stratasys where it is right now, or is there concern based on what you see in the market, the potential broken business model and weak cash position that we continue to see is being reduced quarter after quarter at an alarming rate.
spk05: Excellent question. Let me answer you, start by the second part. One of the most deceiving way of reporting cash is the way it's doing. Bottom line, you called it right, and obviously you're sophisticated. They went in their cash from $327 to $184 in about nine months.
spk04: I'm repeating, $327 to $184 in nine months.
spk05: That is, let's say, $140 divided to nine, about $15 million a month. About $40 million a quarter. $40 million a quarter. That means they have about three, four quarters to go. There's no surprise the share is where it is. And as you said, I've mentioned it. And is there an opportunity? Absolutely. First of all, the price now will be much lower. And the problems that Stratasys had in the past are still there. But I thought in the past that we can fix it. Sorry, we can fix it. And I still think, because they did not make a major changes, either than some minor ones, so it's an opportunity. But now I want to tell you the last thing. Maybe it's not so logical, but I'll say it anyhow. I'm a little bit tired from non-friendly transactions, hostile transactions. I offered strategies, I think it was almost half a year ago. Prices that were much higher than what I would offer now. On a friendly basis, they never met with me. It turned out to be hostile with all kinds of bad media. And, you know, I'm thinking we are the largest shareholder. We are and we know a lot about other sentiments in their shareholders' group. And if they were to do a friendly transaction with me today, I would do it tomorrow morning. If they want to fight again, I'm not sure. There's other opportunities in the market that are very friendly to us. And I don't want to speak about quality of life, which is part of it, but it's the quality of business when it's not friendly that is being totally demolished. I hope I answered your question.
spk02: You did. I'd like to see how that pans out. Thank you very much. Thank you.
spk00: This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.
spk05: Okay. Thank you very much. Everybody on the call, have a good day. Have a good trading day. We thank you for your interest. And please, since the last year, I am in touch a lot with our retail shareholders over the Internet and over e-mails. You all know I did a lot of videos, and once we have some interesting news, I may continue to do it because it's a good way to reach non-institutional shareholders. And I look forward to connecting with everybody. Thank you very much.
spk00: The conference has now concluded. Thank you for attending Nano Dimensions quarterly earnings conference call. You may now disconnect.
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