Nano Dimension Ltd.

Good day, ladies and gentlemen. Welcome to Nano Dimensions' full year 2023 results conference call. My name is Scott, and I'm your operator for today's event. On the call with us today are Yoa Stern, CEO and member of the Board of Directors, Tomer Pinchas, CFO and COO, and Julian Letterman, 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. Replay the company's website. The OAS will begin the call 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 CEO and member of the board of directors, Yoav Stern. Yoav, please go ahead.

Thank you, Scott. Good day, everybody. I hope everybody is watching this black and blue slide, which is opening. We can move to the next slide, discussing the forward-looking statement. I'm going to leave it on for a few minutes rather than read it for all of you like a just scan through it, I'm sure most of you understand what it says and it protects all of us from sliding into issues or information that is confidential and or not accurate. So we'll go to the next slide and here we'll start. I'm going to divide my presentation to a few kind of chapters, if you wish. First, I'll speak about the results, of course. Second, I'll speak about not our industry. I will call it our business domain, and you'll understand why I'm separating between industry and business domain as I get to that chapter. A little bit about customers and analysis of our, again, business domain as it relates to it. plans forward, a few words, and then the most important part will be Q&A in order for you to be able to express your areas of interest, which I will relate to as best as I can. So to start with, you see the highlights of 2023. Indeed, a fantastic year for Nanodimension. We grew 29-30% year-over-year, where the year before we grew even faster. We are by now close to $60 million of revenue. More importantly, or no less importantly, our gross margins are growing steadily, by now close to 50. We are showing improvements in almost all variables of the financial reporting of public company. I give them higher weight function to the fact that the gross margin is improving because this is the key to the door where profits, positive EBITDA and earnings per share. People have to remember, The world, the public markets are basically tired from companies that are just growing on the top line. Now, it's important to grow on the top line and we will continue to do so because in a funny way, if you don't have a top line, you don't have a middle line, you don't have a bottom line. Actually, a middle line is expenses. But we will focus through internal efforts as we did until now and through acquisitions deliver the dollars to the bottom line. Before we go into just numbers, just a few slides about break the routine of going just through numbers about success stories and case studies with customers. The first one is NASA, which is not the first time we're doing business with them. I'm showing these pictures not in order to divert the attention from the fact that The numbers and the financial reporting is what's important in these calls. Rather than having 25 slides of products, I'm just moving through slides, going back to the next one about the branch of the US Department of Defense. I'm showing those slides just to give you a little bit of a taste of what kind of customers and what kind of products we have, but It's not to divert the attention from the fact that this is all about studying the numbers. The next slide will show a Fraunhofer Institute, which is, I'm sorry, which is a very, very famous worldwide institute originated from Germany that is using our machines and they have also in a way tried to compete with our editing manufacturing electronics by developing their own machine, realize that our machine is much ahead, which is kind of a reinforcement when such an institute tried to do AME and eventually buys our machine. The next slide will tell you about an unnamed industry leader. Again, we have issues with giving the names of companies that we are selling them, especially when it's very large transactions. In this case, this is an industry player in the space area, and we have a successful combined sales to them. The next slide speaks about very large Western computer manufacturer, hardware manufacturer. All of you know the names. Also, multiple machines, we sold them. Next slide is Western Nuclear Research Group. The next slide is starting with description to you about how and what we reached that made these customers excited enough to buy machines and multiple machines. So this speaks to the product and R&D development. I kind of broke it down while there's many more achievements this year. I broke it down to what is kind of highly important for you to realize. First of all is DeepCube, of course, which is advancement in deep learning, machine learning, and applying all what you're hearing in this field in the general world into industrial applications. It's a very specific use of AI, and the AI has to be very, very advanced because it does interpretation not only of raw data, which is not language, not more complicated than languages, but it does interpretation of alphanumeric, which is not language. So it's more complicated than language because it doesn't have the rules that language has. And we are able to do it and install it in machines and improve machines dramatically in so much as maintenance, accuracy, repetitiveness, and eventually throughput. We have new machines from Fabrica. We have a very serious development in our Flight Hub, which is the software that really drives everything. I gave this example in the past. When you think about developing a story, you write the story on your word processor, and then you convert it into a PDF, be it a story or a legal document, and then you send it to your lawyer or you send it to the publisher. because you wrote the book, you don't really know and don't really care, frankly, what is it printed on. It's printed on the printer that happened to be at your lawyer's place or at your company's other location or at your publisher. What you're exposed to is the software with which you are using in order to design the document. The same thing we identify in the editing manufacturing. Everybody will talk to you about robotics. Everybody will talk to you about machines that are doing this or doing that. At the end of the day, this industry will be led by the applications of software that enables people to design, redesign, prototype, negotiate a transaction, see the transaction happening, and eventually it will be printed somewhere. So this business domain, the way I call it, and again, I'm getting close to explain to you what I mean by business domain, is led by two variables, two forces. One is material and process, because without the right materials and process, there's no printing, and not proper printing of products in mass manufacturing. And the second is the design software for those printers, not designed, we're not going to replace electronic design software or mechanical design software. We are adding the software that enables the designers to use advanced printers. But eventually, once they do that, the software is what will be in front of them. The next slide. By the way, Additive Flow is another company we bought, which is part of this sophisticated software that enables the design and the analysis, finite element analysis of every design. Next slide is the growth. This is back to numbers. This slide shows every column is the last 12 months for that date. So if you look on the left, it's Q4. First column is Q4 2020, which means it shows the full year 2020 results. It was the year I joined and the corona joined us as well in the same year. And if you look at the column on the total right side, on the extreme right side, it shows Q4 2023, which means it's the result of the last 12 months until that date, which means full year 2023, which we're reporting today. And you see the growth. It speaks for itself. It's a very unique situation. There's no company in our business domain that is showing this over the last four years. Next slide is, finally we get to the chapter that will speak about our quote unquote industry. What you see in this slide is the Nano's growth comparing to, we chose four peers here, five peers actually. You see that during 2003, every one of our peers has lost revenue comparing to the year before. We're the only ones that not only growing, but growing leaps and bounds. Now, why is it not an industry? This is not industry players. Let me explain to you a very, very important point here that I think our compatriots are missing. Mark Forge studies this test of metal 3D systems. Actually, it is four competitors and one average, not five. I'm sorry. But it's worth probably five, six more public competitors. They're not really competitors. They're participants in a business domain. We don't see them in front of customers. We don't see them competing with us. And the reason is, it's not really an industry. This is a business domain of companies that use similar technologies to manufacture or produce, call it parts or items. Similar technologies, not the same. Some use additive manufacturing in three-dimensional polymers, FDM as an example. Some use DLPs. Some use, like us, use additive manufacturing electronics by inkjet for PCBs. But the reason it's not an industry is because an industry is set by who do we sell to. And we sell to vertical markets that are different, some overlap. But an industry, for instance, is the space industry, or the industry is aviation, or the industry is medical, and others, electronic cars, or just automobiles, or the energy industry. Those are industries. We are in the business of selling machines to different industries. So you cannot say there's a headwind in our industry because, for instance, the defense industry didn't have headwinds this year. So all the competitors are saying they're shrinking because there's headwinds. There's no headwinds. It's just for one reason or another, their revenue in selling into different industries has shrunk, either because the industry is not big enough or the market is not big enough or... because there were some issues with the sales and marketing, or the product was not fit for the product market fit. But there's no industry hindrance when you speak about additive manufacturing. Additive manufacturing is a bunch of technologies that are all acting in the same business domain, and the business domain is where we develop and manufacture the materials and the machines. We sell it to different industries. In a certain situation, The defense industry may have a headwind and our sales in defense will shrink. Not the case today. It's actually the opposite. In our case, we're saying the electronic industry. Electronic also is a domain because electronic exists in computer, electronic exists in space, electronic exists in medical, electronic exists in everything. It's not an industry. It's a business domain. I overspoke about this and I hope people understood it. And that's the justification for my claim. There's no headwinds. People who sell like competitors to the dental industry, which is an industry, may have headwinds in the dental industry and may not. But what is that to do with defense? Okay, next slide is reshaping nanoproblem. In spite of us or our growth, We decided to reshape Nano, and that's to do with expenses. Cut expenses in a very dramatic manner. We did it in the second part of Q4 2023, which means only one quarter ago, and we reduced between $25 to $30 million in our annual cost. Our cash burn, look at it in the last three years. It's going down from where we we're in the midst of development of everything we're doing today, into 2023, which went down almost by 50%, and it goes down now into 2024 by almost 80%, and I'm talking now about Q1, which is already in the pace that we're discussing. I mean, obviously, the rest of the year is ahead of us, But we expect to be between 12 to 20, 24 million dollars in the worst case cash burn. And that's considered the fact that we have a billion dollars in cash. It's not even a variable in so much as our survivability or ability to grow, our ability to deliver value to the shareholders because we are very well financed. We have If we end up with $10 to $12 million cash burn a year, then a billion dollars in cash, which is going to be used for acquisitions and for R&D, we're in excellent, excellent shape. Having said that, I don't want to go back on the slides, but every entity in this business domain that I described to you is losing cash and not having cash. to lose more. So let's speak again a little bit about the environment of our business domain. There's about 10, 12 public companies in this business domain. Some of them are large institutions, large organizations like HP and General Electric. But if you summarize this industry, the claim of all these analysts is the industry is $15 billion, give or take, growing to $30 billion in 2030. Well, first of all, it's not an industry again. because it's combined from 10 different industries that are growing or not growing. Our business domain grows. Well, let's speak about which business domain we really are. We are manufacturing machines and materials. Out of this $15 billion, there's no more than $2.5 billion of companies like us, and it's growing. But all of them are losing money, maybe other than one or two which are private, so I don't know the exact numbers. but I have an estimate based on talking to them. And all the publics are losing money, and all the public companies have no more cash for more than, at the best case, a year and a quarter in one case, and all the other cases are less than half a year. So there's no surprise where the shares are traded. The only surprise is why are we traded below our cash, but that's a different story. Next slide speaks about the replenishing and repayment. the stewardship of the stewardship I would like prefer to call it corporate governance replenishing our corporate governance and capital allocation. Corporate governance is as we grew becoming more and more serious company rather than a small public company like a biotech that is mostly focusing on technology we start to focus on corporate governance on the fact that we have to fit the corporate governance to the size and growth of the company we split the roles of me being a ceo and a chairman which was not something i liked anyhow because there was no choice when we were smaller in the corona days we brought dr yoav nissan cohen a great background in semiconductors industry and the ex-ceo of tower semiconductors we refreshed our board membership by reducing it by two people that we requested to leave because they were not fitting a serious professional organization in the American market. But we had to replace them with the four-star General Garrett, the ex-commander of the U.S. Army Command, with a lot of experience in a very large organization. On the capital allocation side, did not buy large companies, not because we didn't negotiate, we do, we did, but because the prices were not right. So we get to the point today where the prices are becoming right because of what I told you today. All our competitors are basically having reduced time and very strictly defined time to live if they continue to lose cash and have no cash. And if they will raise money, they will dilute the existing shareholders. So while we had the cash and didn't spend it, we decided to spend close to $100 million to purchase our own shares at below the cash value, which improves the company's balance sheet and enterprise value. And we approved for ourselves another above the 96 million which we already spent, another $200 million of potential buyback, which if we use it, it will be when the shares traded below cash value. At this point, about 25% below cash value. And we will balance, the board will balance its decisions the use of capital between acquisitions, buyback shares, and investment in R&D and go-to-market in order at the end of the day to have enough cash to bring value to the share as expressed in share price and as delivered to the shareholders. That's our plan for the next year. At this point, I spoke enough, 20, 25 minutes. I would like to give the baton back to Scott to manage the Q&A session.

Thank you. 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 are 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. And our first question today comes from the line of Ashok Kumar with Think Equity. Please go ahead.