Nano Dimension Ltd.

Good day, ladies and gentlemen. Welcome to Nano Dimensions' second quarter 2024 conference call. My name is Gaylene and I'm your operator for today's event. On the call with us today are Yao Stern, CEO and member of the Board of Directors, Tomer Pinches, CFO and COO, and Julian Letterman, VP Corporate Developments. Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements, and the Faye Farber 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. GALS will begin the call with a business update, followed by a question and answer session, at which time the management team will answer questions. If you wish to join the question queue, you may press star then one on your telephone keypad. I would now like to turn the call over to Nano Dimensions CEO and member of the Board of Directors, Yao's turn. Yao, you may begin.

The name is Yoav, and I hope people by now know me, but I've been twisted before. Hi, everybody. Thank you very much for joining us this morning, taking your time in the beginning of the day. It's a quarter that is a very strong quarter. The best quarter we have even though we had a strong quarter or a similar quarter last year. We are still about 2% above them, which we are proud about. We have gross margins that are up to 45%. The adjusted gross margins are similar to last year on a half a year, on a quarterly. On a half a year, they're up. On a quarterly, they're a bit down. but negligible. And more important than everything else to us, because we're aiming at positive cash and profits, is that our cash burn was down 54% from $31 million cash burn down to $11. And this is a result of a turnaround and reduction of expense The plan that we implemented in the first quarter of this year, not because we don't have the cash to fulfill our business plan for the next four, three, four years, but because we believe a business plan and a business model should lead to positive cash flow as fast as possible. And we are 64% of the way there. We also have some business updates, which are somewhat repeatable, repeating what I've said, what we announced before, but are very important. Announced that acquisition of dust of metal, innovative additive electronics products, an integrated inspection system, and the digital printing partnership between GIS ESCO graphics and theory we announced before, and it's very, very important as we integrate all our product lines into the wider industry. If you watch now the customer highlight slides, which is the next one, I kind of brought up here just a couple of names from two of our product lines. The reason why we bring many, many more names is we are not allowed to because many of our customers are sensitive to publishing their names. Some of them are in the space industry. Some of them are in the defense industry. Some of them are in other industries like computer, which are major players in the computer industry, but they don't want their name to appear. So I can just tell you that beyond this, two new customers today here that came this quarter. We have already close to 10, between 6 to 10 Western armies, which are customers of ours, between 5 to 7 three-letter agencies, secret service agencies, three-letter agencies as they call them around the world, only Western that are customers of ours. We have Some serious, from the largest defense contractor around the world, probably four or five of them, are our customers, not to speak about Hensel, from Europe, from Germany, which is our joint venture partner and a mutual investment. So we are slowly, slowly appearing now on the forefront of every industrial business chosen group of customers. If you're looking at the slide of creating an Efficient Industry 4.0, this is a very important slide. Not so much because of the data that appears there, which is the data of our company over the last, between three years to last year, but because of the title. Efficient Industry 4.0, ladies and gentlemen, we are not in the desktop, sorry, in the additive manufacturing industry. We are aiming and we will be, and we'll show you that, to be in an industry 4.0. The reason is we believe additive manufacturing is not an industry. Additive manufacturing is a pile of technologies. The industry we are in is an industry where we manufacture machines which are digital and converting the regular and traditional industry into a digital industry 4.0. As an example, If you take a very advanced CNC machine, Computer Numerical Control, it used to be Numerical Control before it was called Computer Numerical Control. These are also digital machines for the industry. And it's also edge device, and it's also creating an end result product, except it's going to reduction, reductive technology, not additive technology. But in our vision, This is a part of one industry, and as we grow and expand, you will see that we will start to be a player not only in additive manufacturing technologies. That's very, very important. One of the reasons for that is the additive manufacturing industry is, again, I shouldn't call it an industry. I should call it a pile of technologies, is considered to sell about $15 billion a year of products and machines. But out of the $15 billion, probably 12 to 13 are people who are using the machines and selling products by using those technologies. $3 to $4 billion is the people who are manufacturing the machines, not only manufacturing, doing the R&D and developing the technologies and manufacturing machines. So two-thirds of the market, or 75% of the market, are people who do not invest in R&D They do not build machines. They do not manufacture materials. And sure enough, look at the economy here. The people who are manufacturing products using our machines are making money, and 95% of the people who manufacture and develop the machines and the materials are losing money. That's not a normal circumstance, not a normal situation. It cannot hold water. Our portion of the industry, the machine developers and makers, has to consolidate. And you can get an example if you look years ago into the aviation industry, when there were many manufacturers of aircrafts, I'm speaking about commercial aircrafts, and the people who are flying them. The analogy is the manufacturer of the aircrafts are us, the machine manufacturers, and the airlines that fly them are the users of manufactured products. And the airline products, before regulation, was profitable. And the people who manufactured the products actually enabled them were losing money. And there were many of them. Who remembers the name Comet? And who remembers Douglas and McDonald's and McDonald's and Douglas? Today, everybody consolidated. And in the commercial airline industry, you have two manufacturers, Airbus and Boeing. And that would enable them to become profitable because they realized early in the game all the risk of the player's could not survive on their own. That is what's going to happen in our industry. I'm not sure it will be reduced down to two. I think it will be ending up more, but definitely not 350 companies manufacturing machines that everybody and every one of them, 95% at least, is not making money. The next slide, which is the acquiring of desktop metal slides, is one of our first steps. It's not our first step because we consulted before We did seven acquisitions before rest of metal, but those were smaller acquisitions and we waited for a long time for the big ones to come because prices were totally out of whack and totally unacceptable. Rest of metal, if you read their proxy statement, going for a shareholder's vote for this deal, described the process that we went with them in acquisition. We gave them nine proposals over the last two years to acquire them. Ladies and gentlemen, nine proposals. The last proposal, which is the one they took, is the lowest proposals of all the nine. Think about it. Traditionally, when you bid for a house and you don't get it, you increase your price, you increase your price until you get it. Well, here's the opposite. We reduce the price And every new proposal that we make, because the market shrunk in valuations because the companies did not make money and were not growing at the right pace. So we waited for this moment in time to start the acquisitions of the larger companies. The next slide is a map or a graph that shows you whether we believe we are positioned or will be positioned once we close this acquisition with desktop metal. And, ladies and gentlemen, we didn't finish the acquisition trail. Even this depth of metal, it takes us from being $60 million, $60, $70 million, to being $2 million complete, to being $230 million overnight. And it positions us in the high growth potential and with the broadest technology portfolio. But all these are just sub-level drivers that has to drive a business model into profitability. The next slide discusses how a little bit points of interest how we develop a premium high margin portfolio of additive material machine, additive manufacturing materials. And as I mentioned earlier, UCS venturing out into digital Industry 4.0, it's not necessarily going to be only AM. So AM is just one of the tools for digital industry 4.0. And you see here, we believe software and AI is the major driver after materials in this industry, and we're focusing our R&D efforts on that. Next slide discusses the reason, actually, if you wish. that we believe that the merger with the desktop metal is such a good transaction for us. You see in the middle, you see the overlap of distribution go to market. The verticals that we all go after are 80% overlapping, and they are a little bit non-overlapping, which is our PCB and electronic business, and they are identical. and consumer product business. All the rest is overlapping. You see on the right side a list of impressive customers. By the way, many of them are customers of both of us. And on the left, it gives you a little bit of a taste of the kind of solution and variety of solution we apply toward the segment where we can get into mass manufacturing and mass production. The mass is a little bit misleading. It's not mass in so much as manufacturing 40 million remote-controlled TV pieces a year. We're not going to get there. We're talking about high, medium volume and high amount of designs. So any industry that needs digital industry, that needs to change a lot of their product lines, And the product lines are not manufactured in millions, but they're manufactured in a lot of variety of designs. That's where we will play a major role. It's called high mix, low volume. Lastly, some acquisition details. We published it before, but just to remind you, it was this quarter, so it's worthwhile mentioning. Required 100% of dust of metal. It's all cash transaction. People ask us, why won't you pay with shares? The answer is two. One, our share is undervalued by far. I'm not talking about undervalued being 2.2 to 2.8 to 3.5. We believe it's undervalued in hundreds of percent. And using the share when it's undervalued, it's obviously dilutive to our shareholders. And moreover, it is also a fact. I'm sure you remember that we bought our shares ourselves because they were undervalued, just because it made sense to have less shares and then more earnings per share when earnings come up and more value per share. And the reason why I think you don't see it yet in the share value is because the whole corner of this industry, or the whole corner that's called this industry, is getting very bad attitude from the market because of the rest of the companies that, reduce their values dramatically and spend all their cash. That's the reason we're buying them. But it will change. Total consideration is between $135 and $180. It depends on a certain formula. It's expected to close at the end of the year. And the closing condition is mostly finishing the regulatory approval process with the American authorities. And getting a shareholders vote, positive shareholders vote by desktop metal shareholders. And it's in process right now. This is the point where we'll apply to you to ask questions and hopefully we'll be able to answer them. Operator, please.

We'll 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 the handset before pressing any keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Troy Jensen with CounterFix Gerald. Please go ahead.