Nano Dimension Ltd.

Good day, ladies and gentlemen. Welcome to Nano Dimensions' third quarter 2024 conference call. My name is Wyatt, 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, Tamar Pinchas, CFO and COO, and Julian Letterman, VP, 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 with the 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 Netadimension CEO and member of the Board of Directors, Yoav Stern. You may please go ahead.

Thank you very much, Ryan. Ladies and gentlemen, thank you for participating this morning and this afternoon. I want to preempt and tell you that I'm talking to you today from Frankfurt, which is one of the main annual events of which is the industry, the manufacturing industry trade show. And it's the most successful one that Nano has ever seen. I've never seen so much interest in both and what we're doing, both in the existing Nano and the excitement around the two acquisitions, some of which are already having people from other companies coming and visiting Nano. other company means other acquisition targets that we mentioned coming and visiting us. So with this excitement and looking forward to this excitement translating to numbers, I'll start by describing a little bit on the slide of the numbers mentioned that $15 million of revenue is the best third quarter ever and one of the best quarters ever we had. is 22% over last year, same period. Gross margin is 48%, which is up from 44. And adjusted gross margin, which is without non-cash expenses, is 51, up from 48. This is, gentlemen and ladies, extremely important because the business model of all companies in our industry suffer from gross margins and therefore from lack of profits. When we get to 55% gross margins, we start to show profits and substantial. And this is very, very exciting. And no less exciting is the net cash burn. Gentlemen and ladies, we turned around nano dimension from $16 million burning per quarter last year to $3 million net cash burn. And we're close to break even in cash burn. And this is only nano without the two acquisitions. smaller nano, which we cut expenses by reducing headcount dramatically and still not harming the revenue and the growth, which comes to show you that the direction to profitability, which we are committed to, is well ahead. Some business updates. Yes, we announced and close to closing desktop metal acquisition. And right after that, Mark Forge Acquisition, two of the main companies of this industry. In parallel, we have notable sales, first time to Applied Materials, University of Dayton, and the leading very well-known aerospace and defense company, which we can't mention its name for obvious reasons. In parallel to all this, we are in front of our annual general meeting, It will be held in December 6th. And, yes, we are fighting descendant shareholders from, I think, Toronto, which is trying to dismantle the company. And we, as a board, recommend to everybody, don't vote. The company is growing and will bring return much more than just taking it now, selling it in pieces, and trying to get pennies on the doors. The vote cutoff for this... General meeting is December 1st. The next slide will show you a little bit of the graphic presentation of the numbers. Slide number five is showing the revenue, the way it grew from last year, the gross margin growth, and the reduction in net cash burn from the same period last year. The three new Customers are not the only three new customers that we had this quarter, but we're just highlighting those for you because it means a lot for our growth of, again, I'm talking about right now, original Nano before Test of Metal and before Mark Forge, which is a whole new story, which I hope you'll hear about it in detail in the next conference calls. So those are not included here. If you would want to have a snapshot in slide number seven, you will see what we did with Nano over the years since you gave us the cash about three and a half years ago. And we were a steward of the cash and promised you we are not going to spend it until we get into large acquisitions. So we did spend it on smaller acquisitions. and for about two and a half years, and as a result of that, got attacked by a kind of activist or whatever you call them, shareholders that were practically interested in the cash that the company has. But we got to the point where we did use the large cash that we raised from you, and we used it for the good reason at the right prices. And we acquired two large companies, and if you look, how we moved from left side of the slide to the right side of the slide from one technology and one type of machine in additive manufacturing electronics into technologies with dozens of types of machines, more than 1,000 patents. We have the largest amount of patents which is spread all over the industry and that by itself in the future may create a profit center for us. We have technologies nowadays that include inkjet, binderjet, DLP, FDM, ceramics, composites, electronics, metal, metal casting, polymer, and micropolymer. We have only one technology that exists in this industry that we're still in look for, and we have plans how to reach it, and that's a technology that has to deal with not a technology for metals. We do believe very strongly in the metal business. The next slide, slide number eight, shows you these two large acquisitions, why we waited for so long. Look, ladies and gentlemen, since September 21, when we had the money and raised it, those companies that we now acquired were traded at between 15 to 35 times their revenue. 15 to 35 times revenue. And in this whole period, September 21 to May 22 to January 23, as the outliers from the different countries here tried to attack us for not spending the cash and for trying to distribute the cash to themselves, we waited. We waited as those last transactions started to lose value and lost it steadily over two years until we got to the NR24 and we bought them both at less than one time, at average one time multiple, one time sales multiple. And we believe we paid the right price and we bought them at the right time because if they were to proceed forward, they would be in trouble, which we believe they wouldn't be able to withstand by saying, standalone independent. Now that we brought them together, all three of us together are creating an industry leader, which you see in the next slide, number nine. On the left, you see how we build ourselves. The $56 million is the old nano, which is built from six, seven small acquisitions and 29% organic growth. I'm emphasizing the 56 from 22 to 23 grew 29%, not from acquisitions, from organic growth. And if you read different numbers in the material that this foreign company from Canada, I think, is publishing, it's all coming from somewhere that is not the numbers of the company. So we grew organically. Then we added and we're adding $190 million. All numbers here are based on 2023 performer numbers. That's desktop metal. And we're adding $94 million of Mark Forge together to create a new $340 million business based on 2023. And I'm telling you right now, we're not going to emphasize the high revenue. We may even reduce the revenue on account of being profitable. If need be, the $340 million will be reduced to numbers where the gross margins will be higher and the profits will come and appear, and multiples of profits will get the share up. In the right side of the slide, you see kind of analysis of five, six companies in the industry. In the left, the small VoxelJet, Velo, Prodways, which are smaller companies that were public. Two of them, VoxelJet by now is not public anymore. It's squeezed down to off NASDAQ. Velo is on its way from $77 million of revenue per year to $3 million revenue per year. and Broadway is going down from closer to 100 to less than what it shows here, and traded, by the way, in Paris Stock Exchange. In parallel, you see the three biggest companies in the industry on the right side, Stratasys, 3D System, and yes, us, with $240 million. But look at the difference in the amount of cash that each one of us has. We will be $340 million with $470 million of cash on the balance sheet, and the other two, you can see the numbers. That means we have the dry powder to turn the $340 million into a profitable and growing $340 million, not into just revenue, revenue growing by acquisition or otherwise, but no profits. The focus of this company moving forward into 2025 and forward is going to be Gross margin and profits in the bottom line. And the cash that we have will be used as less as possible to cover losses and as more as possible to create and generate even more profits. Last slide, which is slide number 10. Summarize everything. One, promises we made, promises we delivered. Two, we're executing a focused value creation strategy. Value creation, not value destruction. Value creation above what we have today, not liquidation. We're not going to close the company if it's up to us and distribute $2 a share, which is what's left to the shareholders. Three, nano-leadership and the board of directors are driving our progress. It is not an amateurish group from somewhere outside the border that is trying to liquidate, to find companies that can liquidate. This is a very serious board and a very serious management, which is now combined from three companies' management soon. And last but not least, Merchantson. Ah, Merchantson is the name of these Canadians, has no strategy and seeks to deprive shareholders of long-term value creation opportunity. Those Melchinson are the guys that during the two years that we were stewards of the cash, our share was traded lower. I agree, like the rest of the industry. So they bought for $2.50 a share, their shares, and they think that now they'll receive the cash and make money. But most of you shareholders, including myself, we bought for more than $2.50 a share. So the only way for us to make money is to grow the company and multiple the value of the share to numbers that will have a return on what our cost. And the cost of a lot of our retail shareholders, $150,000 in numbers, is not $2,500 like Melchison. It's $4,000 like mine, for instance, $4,500, $5,000, $6,000. We need to create higher value than that, and we shall. Last but not least, we remind you to vote, please. Vote for what our board recommends for you to vote, and we're not recommending extreme decisions. We're just recommending enabling us to continue what we're doing for you and for ourselves. I am a shareholder like all of you. My upset personally is in drawing the share to the numbers we spoke, not to the merchant's numbers of $2.50 a share. And we are hoping that you will join us in this important vote. Thank you very much. And I'm very happy if we can open this up for questions now.

We'll now begin the question and answer session. To ask a question, you may press star, then 1. on your telephone keypad. If you're 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. And our first question comes from Catherine Thompson with Edison. Please go ahead.

Hi, good afternoon. I've just got three questions. First question is, could you give us a bit of detail on the reaction you've had from your customers to the news about your two proposed acquisitions? Secondly, just a quick update from a regulatory perspective of where you are with both of the acquisitions, and just to confirm that you still expect to complete desktop metal in Q4 and mark forged in Q1 of next year. And then thirdly, just to also confirm, it sounds as if what you're saying is that you get to break even EBITDA, which I think you've referenced as being in Q4 of 2026. that that's going to be more through a process of cost synergies rather than revenue synergies. That's the three questions.

Yes, first question. Reaction of customers is, and you're asking me, as I said earlier, in the right time because I'm in the Frankfurt Formlex show, so I'm meeting a lot of customers, is extremely excited. I'm speaking not only of customers of Nano, existing customers that are happy to have an ability to have an expanded product line. But I'm not talking to customers of Markforged and Death to Meta, which are coming to me to discuss the future of their product lines. And excitement is all over. You feel the vibration in our booth. And I know it when I'm saying what I'm telling you now, because I've been in all the trade shows of the last, or most of the trade shows of the last three years. This is the most exciting one. Secondly, regulatory. Yes, we're finishing the regulatory work. We pretty much finished with Hasko Trudino. We finished with the vote, the proxy and the vote of Desktop Metal, which all voted for the deal. We are finishing the work with CFIUS and expect the transaction with Desktop Metal to close before the end of the year. Expect and hope. And so much as Mark Forge, we are a bit behind on that because we started later the transaction, but KBR, sorry, Hotspot with, you know, HSR is pretty much done. CFIUS is a parallel process to what we went through, so we hope it's going to be much shorter. And the shareholder vote of Mark Ford is supposed to occur in the beginning of, I'm sorry, in the beginning of December. Hence, we're still hoping to close the deal with them in the first quarter of 2025. And so much as profitability, I expect that the first few quarters you will see profitability and especially cash flow that's improving. The worst cash flow obviously will be in the month, sorry, or in the quarter when we will merge the three companies together because we, Nano itself, we are already in a very, very good cash flow position, but the other two companies are still burning cash. So the first quarter will be combined cash burn, but the minute we get control over the companies, And we are already in plan and discussion with their management. We intend to start to cut expenses dramatically. So when you get to the first of the beginning of 2026, we hope to either show profitability or show cash flow positive or both.

Great. Thank you.

Thank you.

And the next question comes from Sol Zellman with Jerrycare. Please go ahead.

Good morning.

Thank you, operators.

Thank you, Yoav. Yoav, you spoke about the various aspects that, you know, closing the desktop metal merger, the next step with Mark Forge, which, again, the elephant in the room is the fact that There's an AGM right now, and you speak about it, asking everybody to vote. But the big question is, if with this, the activists right now, if they're successful installing two directors into the board, is there any concern of them derailing, killing these transactions? Obviously, this is a big consideration for every shareholder in this AGM. I'd love to hear your feedback on that. And you also mentioned the aspects of the CTOs. What is that process? What does it mean for us as shareholders? And where is that process going to take us?

We'll start with the second question. The CFIUS is a typical process by a regulatory agency in the United States. We went through a CFIUS already answered most of the questions we expect. They told us they don't have more questions. So I'm speaking about a CFIUS with death of metal, so we expect this to finish in days. and we're hoping that we don't see any issue that will stop it unless there's something we don't know. But basically the question and answer processes came to an end as much as CFIUS reported to us in the last few days, which is good, which means they got answers for all the questions. Then we have to go to CFIUS with Mark Forge, and I expect that CFIUS with Mark Forge will be shorter because it's basically – it relates to Mark Forge and rather to Desto Metal. So they have to do, CFIUS has to do the checks on Mark Forge, but then the checks on Nano Dimension, they already have done it. So it's a typical process. All the companies that are foreign are going through that. It may take between a month and a half to six months. We are hoping that it will be closer to one to three months and rather than to six months. And it seems like it's moving in the right direction. As much as the elephant in the room, the elephant in the room is not an elephant, it's a cat. The elephant in the room is a cat that wants to invest, wants to dismantle the company, but all it is demanding in this AGM is to insert two directors which are directors, if you look at their backgrounds, and I know one of them very well from the past, have very, very checkered past and issues in the past, and they hope these directors will make some impact, I guess. As I told you, I know one of these directors. While his checkered past is an honest person, I don't see these directors coming in and destroying the company. First of all, there will be other six directors that will be a majority. The whole company has eight directors. I hope that they don't get into this board, but even if they will get in the board, it's a minority. Minority cannot affect decisions of the board by vote because they are a minority. Plus, once they get into the board, I believe that they will be thinking and worrying about the company, not about the elephant or the cat that got them into the board So this is about derailing. This is about how decisions are going to be made. How can you derail these deals? I don't even understand. The deals were signed in a commitment of the company, legal commitment. If you derail these deals as assuming you could by having majority of the board, which they won't have, then it's torturous interference in contract that was signed by the company already, committed by the company. So I don't see this being derailed at all.

They don't feel with the severe activist approach that they're taking that they'll try to find some way of derailing slash killing it. I mean, that shouldn't be a concern.

Well, they can also say that they plan to attack Iran and solve the problem of the Middle East. They can claim lots of things.

And you're at the helm? We're following that guidance, and we'd like to understand that that's not a concern when we're making our decisions. So I appreciate that feedback.

I'll tell you the truth and the fairness. I am a warrior, not from being a fighter. I'm a warrior for being worried. I'm always worried from the unexpected. I'm always getting up in the morning after not sleeping half a night because I'm thinking what could have happened that I didn't take into consideration. I'm worried about events that are happening in the business, and if some activist like this is claiming that they will derail, then it makes me worry. So I worry, and I go to lawyers, and I go to advisors, and I check, and everybody's telling me, you don't have to worry. They can't do it. So that is the message I'm delivering to you.

Great, thank you.

Thank you.

And the next question comes from Felix Ziegler with Felix Investments. Please go ahead.

Hi, thank you for taking the question. Wanted to get a better understanding of the M&A rationale here. The past five acquisitions for DeepCube, Nanofabrica, Ascentech, Global Inkjet, and Formatech They don't seem to have been integrated very well, given their revenue growth has really deteriorated under Nano's leadership. All those companies had gross margins of between, I believe it was 55% to 60% as reported by Nano. But Nano just reported a gross margin of 48.2% this quarter. So the synergies didn't seem to really materialize there either. So for Mark forged and desktop metal, um, I think right now they're experiencing negative revenue growth and they have a gross margin profile that is actually below what nano currently has. And they continue to burn astronomical amounts of investor cash and are therefore on the verge of bankruptcy. So how does it make any sense to be acquiring these businesses with investor cash? I think in your presentation you said the rationale seems to be the low sales multiple, but if we look at a company like Spirit Airlines, which had billions of dollars in revenue and just filed for bankruptcy, it's clear that that method doesn't work very well. A low multiple doesn't seem to be enough to justify buying a cash-burning business.

In addition to that, I think you're defining cash burn as... Sir, what's the question?

Yeah, so the question here is, you know, how is Nano doing what's best for shareholders? The stock hasn't provided any return for shareholders and it continues to trade below cash. at a negative enterprise value.

So there's the question.

So why do you continue employing a strategy that isn't working well for shareholders and why are you defining your net cash burn in a way that makes it look better than it actually is in an effort to almost confuse shareholders?

Okay, so I'll answer you. First of all, everything you said about the six acquisitions of Fernando in the beginning was wrong, false, lack of information. not understanding financial statements, not being able to be a sophisticated investor. Those companies had lower gross margins when we bought them, had lower revenue when we bought them. All the companies other than DeepCube, which we never intended to grow its revenue because it didn't have revenue. We bought it only as a technology, grew the revenue, and the combined revenue, I said 10 times, we grew 29% in organic growth from the first six, seven acquisitions. So that's the first point where you don't know what you're talking about. Point number two, the two companies we're acquiring now is true that they are not performing well. But the business of mergers and acquisitions, which is my personal business for the last 30 years, is knowing that what really you're acquiring and can you create synergies and acquisitions by that improving the performance of the company you're acquiring. And you're acquiring a set of more than 1,000 customers of the two companies. You're acquiring a set of more than 10 technologies which are very advanced, non-existing in other places in the industry. And you're acquiring them and reinforcing and changing the management to focus on profitability and and by the fact that you have three companies now focused in their headquarters in Boston and headquarters in Europe in one place, getting rid of a lot of facilities, getting rid of many, I shouldn't say getting rid, reducing certain businesses that are not profitable enough, and adjusting the number of employees to a number that is justified to a size of a company combining the three companies, is the way you create value for shareholders because by now, in spite of the fact that you paid low price for each company, you're creating high return for each low price you paid by merging them together properly. So this is the second point where you demonstrated lack of knowledge and principles and the fact that you give me an example of Spirit Airlines, I'll tell you something else. First of all, before I tell you this, The gross margins you mentioned of the company do not fit the gross margin of Nano. A minute before, you said the gross margin of Nano gives them growth. Now, you said the gross margin of Nano is higher than those companies. This is not true either. Mark Ford is a gross margin which is close to 50%, which is exactly like the gross margin of Nano, and we're going to take it higher. It is through the desk of metal with the average gross margin that they have is lower because they have different kind of businesses, some of them with too low gross margins. Those are the businesses that we're going to stop. Either if we don't improve the gross margins, we'll get out of those businesses and continue with the businesses that fit gross margins that goes beyond and above 50%. Last example you gave me, Spirit Airlines was losing or whatever. I don't even know how you get to an airline from him. Industrial business. Let me tell you something. Continental Airlines were not performing so well. Continental Airlines, you remember them? They merged with United. After the merger, the combined performed very well. The reason is when you combine company, change the management, change the strategy, you justify the merger both to yourself as a company and to your shareholders. Thank you very much. Next question.

Again, if you have a question, please press star, then 1. With no further questions, this concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.

In closing, I want to thank you again for participating in the conference today. Thank you for your questions, very interesting questions. Some of them gave me, especially the last one, an opportunity to go to a business school and basic business principles of how mergers and acquisitions can add value to shareholders. So thank you very much for the last question. This was very helpful for me. And I promise you, shareholders, that I have been working for the last year without a salary. Actually, it's a year and a quarter because my salary was not approved by the people north, some of the north of the border activists that refuse to approve my salary. So I work with no salary. My upside is holding shares and being a shareholder like all of you. And I trust and convince that the right to work on acquisitions by taking companies that have assets and values but are not performing well necessarily because of performance of management together and doing the right thing will add value to you as shareholders more than what you or somebody think the share value or the cash under the share, which is by now $2.5 when the share is traded at $2.1 or $2.2. So we actually have a business coming into being $340 million business, which will be valued based on its performance and the share will be valued much more than a 2.1, 2.2 or the cash under the share. That's my plan. That's my plan for myself because I'm making money based on the share I'm holding. And I did not receive from the company any free equity. And I hope that you shareholders will join us in this trail and travel towards success. Thank you very much.

The conference is now concluded. Thank you for attending Nano Dimension's quarterly earnings conference call. You may now disconnect.