Nano Dimension Ltd. Q1 FY2023 Earnings Call

Good day, ladies and gentlemen and welcome to Nano Dimension’s 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 Julien 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 Dimension’s 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. The reason is because we've been extremely busy this quarter in a lot of integration and the 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, we’ll 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, maybe different than others, we are trying to even be earlier and we released early results with our 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 the presentation, just let me tell you that we spent a lot of time and resources dealing with certain shareholders and the quarterly results of last quarter and this quarter are proof that you, our shareholders, my partners, have a great company that is improving on a quarter-by-quarter basis. The share price will go up unless you succumb to people who manipulated the shares, buying them for $2.5 and trying to get out at $4. We're not going to get them. It's pretty much over. We are winning in every way possible in all disputes. So, we're moving forward, and we'll speak at the end about other plans and M&A. It's all good news today. Let's start first with the highlights. We had almost $15 million of quarterly revenue, our best quarterly revenue ever. Our gross margins have gone up to 47% on a non-IFRS basis and year-over-year growth in revenue is 43%. The increase in gross profit is impressive, with a huge percentage growth above 550% and an adjusted gross profit increase of 68%. So, what can I tell you? I'm proud of the efforts of both the sales and marketing operation teams, and I want to highlight the R&D efforts that are starting to show results. More importantly, we achieved 50% organic growth, which means the technologies and breakthroughs we developed internally are driving our advancement. Specifically, we sold to NASA. We have ten defense contractors and numerous government defense agencies purchasing from us. The DeepCube implementation into the DragonFly and now starting to go into other machines is working beautifully, justifying the smart deep learning that is enhancing the machines' accuracy and throughput. Going into the specific financials and in comparison to Q1 of 2022, I won't repeat the numbers I just mentioned; you can read them yourself. I will just highlight that the R&D expense is $15 million—it's a huge investment. Out of a loss in EBITDA of close to $22 million, almost $15.5 million of it is R&D, which reflects our decision to invest in the company's future. We can make this company profitable very quickly. The decision to continue to invest is illustrated by our revenue, which is at the rate of $60 million, marking almost 50% growth from last year. If you look at the adjusted EBITDA, net of the R&D expenses, you'll see that this is the first quarter ever in the company's history that we are profitable, with $22 million of net income. I'm not overly impressed with this number because it stems from our investment in Stratasys, with their share prices rising due to our bid. While it's better to see our shares rise than fall, we measure ourselves based on operational profits and EBITDA unrelated to financial gains. We have interest as well. The amount of money we have generates a profit of about $45 million a year from our cash without risking our principal. We aim to maximize returns on this capital as it gets prepared for business development, M&A, etc. The net cash operating expenses we’ve reduced are much lower than budgeted, which is positive. You’ll see a graphic comparison between the first quarter of the last year and this year on both revenue and gross margins, illustrating our growth. This graph highlights the company’s healthy performance over a two-year period, which provides a better understanding of our performance than just year-over-year measurement. Our revenue history sustained significant growth over the course of the last two years. Regarding peer comparison, 3D Systems is down 9%, Service is down 9%, the rest of the metal segment is down 9%. Meanwhile, Markforged is up 10%. Our peer group is, on average, down 7%, while we are up 43% year-over-year quarterly. If this does not convince someone that we have a future as a multi-billion dollar company with or without acquisitions, then I will never convince anyone. The next slide highlights the synergies from M&A, which I have already mentioned. I am very proud of our 50% growth not just over the year, but over a half-year period, meaning from Q1 now compared to Q3 two quarters ago. Since our last acquisition at the end of Q2 beginning of Q3 last year, all growth has been organic. The next slide illustrates our growth in machine sales, which is vital because our business model combines selling machines and then supplying materials and services. The growth in machine sales is essential for recurring revenue. The systems product line revenue increased by 45%, in contrast to Stratasys, which saw a 26% reduction in systems sales in the first quarter of the year. While you may not find it directly evident from their publications, we are uncovering significant reporting issues through our due diligence. Now, let's discuss new product and technology advancements. We have new systems in Micro - AM design, and you can see pictures of new machines there along with our growing installed base with Accumold, TTH, and DeepCube. We're starting to receive requests from the market for factories with other machine companies, requesting us to integrate the DeepCube deep learning engine into their operations. This justifies our pursuit of deep learning two years ago and purchasing DeepCube, as the need for this technology aligns with the current resurgence of AI in the industrial field. Without deep learning and AI, we would face immense barriers. The last slide, which is not connected to our company's performance, is about our ongoing acquisition. We are acquiring it for $20.05 and are looking forward to implementing our plans for the company, improving its outlook and addressing the management and board shortcomings, which have proven improper for shareholders. We aim to finalize this deal and look forward to significantly benefiting our shareholders. I hope services shareholders will sell their shares to us, while keeping a small portion so they can benefit as we implement our plans for Stratasys as their major shareholder. Now I would like to open the discussion for Q&A, please.

And our first question here will come from Sol Zelman with Gericare. Please go ahead with your question.

I have a very specific question, which you touched on, but I'd like to add to it and then get your feedback on it. I feel slightly that the market underappreciates the AI capabilities of the DeepCube subsidiary of Nano. My basic question is, just the knowledge and expertise of the DeepCube's team that alone can be monetized either by itself or even divested. Just looking at NVIDIA and Intel's race to dominate that sector, how does Nano fit in there? How do you see that growth opportunity compared to the other players in the market?

Okay. First of all, DeepCube business right now is a subsidiary; it's a division of Nano. When we purchased DeepCube, they were in discussions with Intel and NVIDIA for a purchase, both were interested in acquiring them. We managed to prevent this because the CTO and DeepCube Founder at that time, Dr. Eli David, one of the world's experts on deep learning, was on our board. That's how I knew about DeepCube so early, as it was only three years old at the time. So, yes, DeepCube could certainly interest NVIDIA or similar companies. As you mentioned, we're already receiving interest from external parties for DeepCube to be incorporated into their systems, not related to us. We are currently evaluating all options to maximize the value of DeepCube.

Understood. And that information will be available by what period of time? What are we looking at based on – again, it's a superhot environment. As an investor, I'd love to see what you guys – what your answer to that is? So, when would you?

You will hear about any advancements on the DeepCube side with agreements with outside companies as soon as they are reached.

Okay. I'm looking forward to that. Thank you very much.

Thank you very much.

And our next question comes from Katherine Thompson with Edison. Please go ahead with your question.

Hi there. Actually, this is a follow-on question on the DeepCube opportunity. I just wanted to understand. For you to maximize opportunity, is there a lot of investment you would need to do internally? So, would you have the right staff to help sell that software to existing customers, but also help them integrate that software with their own hardware?

Since we purchased DeepCube, we have structured a talented team that we believe can meet all the technological requests we are receiving from both external and internal sources. We have about 30 data engineers, data scientists, PhDs, and technicians, including special programmers capable of programming sophisticated algorithms efficiently. Our total cost for this team is significantly below $10 million per year, and we believe we have everything we need in-house, thanks to the collaboration between our teams in Israel and the software capabilities in our Cambridge Group in England.

Okay. Thank you.

Thank you.

And our next question will come from Rick Smith with Smith Capital. Please go ahead with your question.

Good morning, good afternoon. I don't know if you guys are aware; your filing last night says $25 per SSYS, is that a typo?

Yes.

Okay. On the last call, I'm sure you remember this, I asked you when the tender offer expired and you told me the date, and I asked if you promised. When are you guys going to move away from this initiative?

We’re not sure.

The market does not believe you.

Who is the market? You?

The market is the share price. SSYS right?

The market will believe us when we close the deal.

When you close the deal. Okay. Thanks.

Thank you, sir.

And our next question will come from Ram Reddy, an Investor. Please go ahead with your question.

Thank you for sharing a positive quarter. I have a couple of questions. The first is, when do you expect to receive the final judgment from the court or a settlement regarding the lawsuit between Nano Dimension and Toronto Group? The second question is, do you anticipate any analyst coverage in the near future? Please provide answers to these two questions.

Okay. Can you repeat the first question, please?

I want to know what is the timeline for getting the final judgment between Nano Dimension and Toronto Group lawsuit.

The Canadian Group? We don't have any settlement with them. Those shareholders were attempting to liquidate the company when the price was $2.5, and they wanted to stop all activities and take the money at $4 since 85% of our shareholders are at prices higher than that, which we don’t think is reasonable. I don't know what settlement you're referring to.

But I'm thinking right now, when will the judgment come from the court? Otherwise, your job is in the balance. We don’t know whether you’re going to be CEO at the next shareholders' meeting or not?

I'm sorry, I don't understand what you're saying. What is the question?

The question is, there is a lawsuit pending in the court right now?

There is a court case, which they are going to lose because they did not have the right to try to do what they did six months ago. As you can see, whatever they did has no impact on our business. The company is performing very well, so we don’t see them as a factor in our business operations.

But is there a date for the final court hearing on that? Is there any date set for that?

There are several court hearings, both in New York, where we sued them for manipulating the share last year. We discovered they cooperated with other funds, manipulating shares, which is a federal offense. We are pursuing this case vigorously. There’s also a court in Israel, where they attempted to enforce an action from six months ago, but they were unsuccessful. Once we obtain a court decision in our lawsuit against them in New York or Israel, we'll update you.

Yes, but until then, if the court says that the shareholders meeting conducted in March 2023 is valid, then you are out, right?

I don't know what you're talking about. I'm sorry, but nothing has happened. We continue our business as usual, the company is growing with plans for the Stratasys acquisition. If there are any court decisions, we will publish them.

And with that, this will conclude our question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Okay. I see there's a couple of other questions. Let them ask them. There's still time, so please.

Absolutely. Our next question will come from Eric Marcus, an Investor. Please go ahead with your question.

Mr. Stern, can you hear me?

Yes.

Mr. Stern, at the last quarterly meeting, I asked when you felt there would be a scheduled annual shareholder meeting to vote on shares and directors. You mentioned it would happen later this year. Can you provide an update on that?

I already provided an update; it was published last week in a news release.

Can you please tell us when that is?

Yes, it will probably be around September.

Alright. Thank you very much.

Thank you.

Now, with no remaining questions in queue, I'd like to turn the conference back over to the company for closing remarks.

Okay. Thank you very much. Thank you very much, everybody, for participating. It was a pleasure to speak with you. Thank you for the intelligent questions. If you would like to know more, please feel free to connect with us or even me directly. We'll be happy to speak with you. Have a good day, everybody, and good luck in the market.

The conference has now concluded. Thank you for attending Nano Dimension’s quarterly earnings conference. You may now disconnect your lines.