Nano Dimension Ltd (NNDM) 2021 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. (Operator Instructions) Welcome to today's conference call to discuss Nano Dimension's Third Quarter 2021 Results. On the call with us today are Yoav Stern, Chairman and CEO; and Yael Sandler, CFO.

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 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.

Yoav will begin the call with a business update, followed by a question-and-answer session, at which time Yael will answer questions regarding the third quarter 2021 financial results. As a reminder, this conference is being recorded, November 24, 2021.

I would now like to hand the call over to Mr. Yoav Stern. Mr. Stern, would you like to begin?

Sure. Thank you very much. Hi, everybody. Thanks for participating. I'll speak as focusing on subjects that are interesting or I think are very interesting and of course, let you ask questions where you want to recommit to other subjects.

So first of all, definitely, this quarter and this 9 months, the best quarter in 9 months since I came into this company, which was a little bit more than 1.5 years ago. But when I came to this company, within 2 months, corona started. So yes, we have a great advancement, things are moving forward. But it compares to last year, which was a lousy year. More importantly than that, though, and that's where the real movements being seen or can be seen. And it goes to show you that like in many other companies versus specifically ours, you don't necessarily see everything in the numbers yet.

We announced DragonFly IV at the half year delay, but in a very successful release. We participate in Productronica show in Germany last week, which was not allowed for 2 years because there was no shows. And even last week, when all Germany started to struggle with a new wave, half of the people didn't arrive. We still had DragonFly IV released and immediately 2 purchase orders already achieved within a few days. Great excitement about the performance of the machine. And we were at the top of the show, and we had a relatively very big amount of leads. So we're very excited about it.

Importantly, a few weeks before the show, we announced and we completed an acquisition of Essemtec, which was on the show as well with our name combined with theirs. Essemtec, we purchased for $15 million to $19 million, depends on the certain performance later, can go a little bit higher, but no more than $2 million to $4 million higher. And it's close to $25 million business profitable and growing, which is what we like to pay. We're not in our M&A going to allow ourselves to glide into the, what we believe are overly -- overpayment resulting from many things in the market, which we can discuss if you ask me.

We are picking and choosing, we are buying and building, and we'll continue to do so, and we are very proud and very fortunate to have Essemtec team from Switzerland joined us. They're going to continue to grow, we expect, and we're going to merged their technologies with ours with synergies, which will become a major component of breakthrough in printing 3-dimensional electronic devices with mounting components in the process of printing, and a clean nonintrusive way to the environment. So we continue with M&A along these lines -- similar lines. And you will probably hear quite a lot of news in the coming months about this subject.

A few words on issues that I think you would be asking about, and I'm going to preempt your questions, so the people who intend to ask those questions. Can we get the answer now and/or ask follow-up questions, but I'll try to be helpful as possible.

The price of the share, you can have lots of theories about why the price of the share went down when the news are so good. But my experience shows that when you have a year, when people made money in many investments in the public markets, and one of few shares went down, when you get toward the end of the year, people sell the shares that are on the way or were down compared to what they purchased them for, in order to take the tax losses. Mounted off against the money they made in [100] shares and not paying taxes at the end of the year. They have to do it in order to evade wash sales, what's called. They have to sell and wait 30 days at least before they rebuy them.

So even people that want to hold our shares and have a smaller amount of shares are maybe doing that, which is causing certain price pressure. Based on volumes that I see as the share went down, they are very low volumes. So I don't see -- I can't guess about any other reason other than that. But my guess is as good as anybody else. I've seen these things happening before in very similar situations.

To people of you and we have very loyal -- many, many loyal shareholders, which we admire and work for. We have some other shareholders that are obviously a bit frustrated because of the price of the share. As I said earlier and repeat in every call and every news that our -- investment in us is a long-term investment, and people who expect quarterly results to have an effect or a major effect. In the short term, I'm going to be disappointed. That's how I originally had the shareholders that joined us and investing in the company.

So for people sending e-mails all over the place, claiming that there's buyout options and buyer offers, there's no buyout offer for the company by any company. And we are not going to buy shares from the market with money that was invested in the company by shareholders, who I met personally who invested in order for us as a team to perform outside -- the upside, which will be 3x or 4x their investment, but over a few years, not over a few quarters.

So we don't intend to buy shares from the market with money given to us by investors. When we will be profitable in the future, and we will be accumulating profit, from the profit, we may choose to buy shares in the company, but it's not going to happen on any time soon. So if there were going to be questions about it, I answered them.

And other than that, I will -- I'm going to refer to you guys to ask us questions that will be directing us to interest to your specific interest, please?

(Operator Instructions) The first question is from [Puneet Maheshwari] of [Zenkai Capital].

I have a question regarding the sale of current DragonFly IV. And in one of the Webex, one of the executive who joined for Amazon, he mentioned, 1 of the top 4 players are interested in buying the machines, and they visited a machine a couple of years back. And the tech was not up to the speed. And I believe in 2 years, we have made great strides and latest launch.

How are we with the -- one of those customers? Did they show the interest? And how we -- and if you can elaborate it further more on how was the reception of the machine in the recent launch?

I didn't meet any customer that didn't want the machine 2 years ago and want it now. So the answer to your first question, that I don't know. The people that I meet and we meet that are interested in the machine now. I'm very excited about it. The 2 beta sites, which were with customers that had machines. The previous machines were very successful and the customers are very happy with the performance of the new machines.

The next question is from [Jeff Rice of Smallcap Investments].

From what I'm seeing, it looks like Nano Dimension is branch announcement to be more of an AI company and a robotics company versus just a PCB company. I was wondering if you can elaborate on that, especially with the robotic arm that you've mentioned that?

And then my second question, just to touch on what you said earlier. I know that you've said no buyout on the table now, which I agree with the current share price. Does it make any sense? Also I know that you previously said at the price, someone offers the price that made sense, then obviously, that's a different story. What about if someone like HENSOLDT or L3Harris wanted to minority ownership? Would that be a possibility? I appreciate the insight.

What was the second question? What was the question? Can you repeat, sorry, the line was not so good. Can you repeat it?

Yes, sir. I was wondering, let's say one of our partners L3Harris or HENSOLDT or semicon. If they wanted to take minority ownership to put some money into Nano Dimension to have a small stake in the company, would you be open to that?

Okay. I'll answer your 2 questions. The second question is, I don't know when they will offer me, I will consider it, and I'll bring it at the Board, and we'll decide, but nobody offers this to me until now.

On the first question, yes, you're absolutely right. We are very, very much tilting into becoming a deep learning, artificial intelligence-led industrial machine 3-dimensional machine company. We believe that the whole additive manufacturing, both electronics and [additive] manufacturing industry, while developing better and better machines and more accurate machines with higher yields, et cetera, et cetera. which the holy grail of moving seriously into production without adding an artificial robotic brand or if you want to call it, machine learning brand that we'll be able to overcome the inherent conflict and problem of production. Production is an analog process. It's not digital process ever. At the end of the day, something cuts something or something drops something or something melt something that adds to something. And all these are analog processes which, by definition, are not being binary or digital cannot be totally accurate like 0 or 1.

So being nonaccurate, having deviations, having statistical formulas and statistical combinations of some things are within the limitations and something without the limitations. The yield is being affected by a statistical process, in order to overcome that you need to have a brand that is analyzing in real time the statistics and able to decide in real time what to do with deviations, either it can correct them or it's divisions that are too wild and it has to stop the process and restart a new product.

So we believe that the holy grail of manufacturing through additive processes, 3-dimensional, minimum ecological effect, reducing cost of material, reducing time to market can be achieved not only by machines, but by machines that will be led with deep learning, machine learning and not even artificial intelligence in a regular manner. But the more advanced artificial intelligence were processes and algorithms are self-learning and self-correcting.

That's the reason we purchased DeepCube by now half a year ago. We are very advanced in the last months in starting to integrate in the many aspects of our machines, and acquisitions machines for our acquisitions, and we are very, very excited about it. Thank you very much for the question.

The next question is from [Rich Brun].

Congratulations on the progress you have and leadership at Nano Dimension. Based on your observation today, what do you think is the single greatest challenge for Nano Dimension? Is it the quality of the material, the consistency, the production capabilities, the software development? Or do we still have the COVID lingering effects on internal progress, and what is Nano Dimension doing about it?

The last item you mentioned, COVID, it is there. It is lingering, it is challenging. But it's not a strategic channel. It's not a long term. If you look at the history of pandemics in the world, and I'm not an expert on that, I'm just reading a lot. An average pandemic is 3 to 5 years. So everybody that thought, including myself, by the way, that the dynamic will disappear within a year, reality is in our face. But it's not strategic. I wouldn't even define it as a challenge. It's a quarterly challenge, semi-yearly challenge. We'll get through it.

So we'll sell a little bit different ways or a little bit slower. That's not the point. Other challenges, technological challenges is material development, which I've said for a long time, we have great advances in material events. We believe -- I believe that the secret sauce in this whole industry that's called additive manufacturing is materials, and so much as people try to be proud which they should be proud in the very sophisticated machines they're developing because that's what you see. You see a machine that's moving and doing making miracles. And robotic and automated without people involvement. It's true, but that's not the major challenge.

The major challenges are materials. In all the additive manufacturing industry, the challenge between having materials that are easily jetable or easily deposited and fit the deposition process of added manufacturing, are not necessarily the materials that after being manufactured, fit the end product with a type of performance that the end product is needed.

In many ways and many times, there's a conflict between materials that are easy to use when you create the product and the materials you need to use when the product is actually performing in the field. That is true for all additive manufacturing and then specifically for additive manufactured electronics. But we are -- even since I came here 1.5 years ago, just to give you examples, the materials were only working within 0 to 45-degree Celsius. By now, we are between 0 to 200, and soon we're going below 0 and above 100, and we're moving ahead where we are and [actually for him] I'm very, very encouraged about that.

And in parallel, we're doing M&A, which is balancing that risk as well because, for instance, the purchase of Essemtec, which is now generating beautiful revenue and great gross margin is complementary to what we're doing, but it has no dependency in materials at all. Actually, I shouldn't say at all. They have a little bit of dependency on soldering materials and glues, but it's minor comparing because it's not involved in building parts for materials involving assembly parts and using glues or soldering paste. So this balances the risk of the materials in the other part of the business.

Okay. So with that challenge on materials, is this something that can be solved through aggressive research and development or through acquisitions?

Yes, both.

Okay. And just one thing. I see that you added for the acquisition strategy, a Type NG. And I don't know if that's specific to DeepCube? Or are we also seeking opportunities in that direction when it comes to the Type NG acquisitions?

What type, sorry?

Type NG, I noticed on your presentation, there's a Type NG acquisition strategy. I'm not in sure if it's specific to be DeepCube or...

No, no, no. We don't have -- yes, if you want to call it Type NG, we are looking for, NG is really used for new generation. We are looking for companies today, yes, you're right. that are in additive manufacturing, which is adjacent to the additive manufacturing electronics like deep like Fabrica, which we purchased. And like Essemtec, except Essemtec is within electronics, Fabrica is adjacent to electronics. But those companies are selling their machines through our distribution channels, they are similar to ours, but more importantly, the application of machine learning and deep learning is very, very similar manner that we're using it for the AME machines without additional investments.

So we'll be able to leverage the knowledge and the systems of machine learning we have by applying them to companies in additive manufacturing that we are looking to purchase, which was not the case before we had the DeepCube group. Once we had it and we in the due diligence, that's the reason we actually purchased it.

We realize that we can expand our market segment and not stay only in as additive manufacturing electronics, but be also in additive manufacturing in areas that are like additive manufacturing of micromechanical parts, et cetera, et cetera. So that are the additional and you're right to identify that.

All right. And I just want it to coverage investors that we're going to do this right, not fast and trust the process.

The next question is from [Eric Marcus].

Good morning, Mr. Stern, I guess good afternoon in Israel right now. Thank you for your opening comments. I'm going to address my questions to some of those early comments. And with all due respect, I'm a long-term shareholder and a long time senior tech exec. And my concern stems from the fact that right now, Nano's market cap is about $1.1 million, but the cash on hand is $1.3 billion. So the logical extension there is that the market is not valuing the company above $0. That's very concerning as a shareholder. I want to really understand how the company is going to protect shareholder interest.

And I understand your comment reasoning that shareholders are selling to take tax losses at year-end, but that really does not address the 50% loss in share value that we've seen in just the last 5 months. I think there are things that, in fact, could be being done beyond what is being done today.

For example, what about a joint venture with a large PCB client forward integrating into a fab plant? What about supporting the new global marketing VP, which I think is a wonderful acquisition with a well-thought-out $100 million marketing strategy instead of the $25 million a year that's currently being put into marketing?

What about looking at a significant acquisition, not just a $25 million to $40 million acquisition, but something very significant over $100 million in the AI or robotic or additive manufacturing business?

I don't understand why senior management is allowing the share price to simply go into free fall when there are aggressive things that could be done to address shareholder value. I would appreciate your comments, Mr. Stern.

What is the question, please?

You want me to repeat it again, sir?

No. You gave me a lot of good ideas, but asking what are you asking me?

I want to know what you're willing to do to stop the free fall of the stock shares. I want to know what aggressive proactive action instead of sitting on $1.3 billion while you're -- while the market is evaluating your company at negative value? What are you prepared to do to protect shareholder interests?

I've given you 3 ideas. I'd like to know what your ideas are. What are you going to do to protect shareholders?

We're going to use part of your ideas, and we have more ideas to develop the business of the company, and we're going to continue to do so. And I'm not going to describe more ideas because of competitive reasons and competition on M&A. But your ideas, the 3 that you've mentioned are actually very good ideas. All of them are in the works.

I'm just very concerned about management appearing to sit on the sidelines for the last 6 months, while the stock price is in free fall.

Okay, sir. I don't know where you're sitting, but I'm getting up every day at 8. And I'm going back to sleep at 11. Out of that hours, I'm working probably 95%. I traveled within the corona within 10 countries around the world, and you can buy more stock. The stock will go up.

Next question, please.

The next question is from Byron Meo of 1031 Private Exchange Group.

I'd like to know roughly about how much money went into the production of the DragonFly IV. What is -- these are 3-part questions. And then what does it sell for? And what is the lifespan before it took place by a next-generation type in your expectations?

You're asking what is the price to manufacture a DragonFly IV? And what is the, what do you call it, the sale price?

Yes. Obviously, it took a lot of money in research and development that goes in and gets capitalized and the expense of the machine. And obviously, there's a sell-through.

So I'm trying to figure what kind of profit you can generate from the machines? Obviously, you have to keep advancing the technology to stay ahead of the game. So I'm just -- I think that one of the reasons why the stock is selling for below the cash values because people are questioning cash burn and profitability, you're not the only company to sell at that.

A lot of the biotechs are selling at that way. So I'd like to kind of analyze the cash burn and the profitability from the development of the DragonFly IV.

Well, you can't analyze it from the development of the DragonFly because we invest much more in R&D than needed for development of the DragonFly IV. The DragonFly IV was a machine that the time of development was about a year and the money that we invested in that is very low amount of millions of dollars. We invest much more than we invested in DragonFly because we're developing a set of generation of products moving forward that are beyond the DragonFly IV except we'll take them between a year to 3 years to be brought into market.

And therefore, back to your question, the DragonFly is sold for a gross margin that's above 60%, which is beautiful and very, very attractive for a machine like that, and it will return the investment easily. The issue is that the amount of money we spend in R&D is not based on the DragonFly IV revenue, is based on a long-term plan. And that's the reason. As I explained before, more similar, you're right to what you said about biotech companies we have enough money to develop the long-term product strategy, including new products, and we are not in a position to be under any cash flow pressure or cash flow that is depending on profitability of machine.

Eventually, the business plan will get the company as a whole to a profitable return on investment position, but it's not going to happen in the next year. I can tell you that.

No, I understood that all along to be a 2023 type or '24 inflection points and all that. But I think the cash burn, you've hired a lot of people, you've hired a lot of research use. And I think what is the cash burn on a yearly basis, where you are presently outside of your cost of goods?

$70 million.

There is a follow-up question from [Jeff Rice of Small Cap Investments]

Mr. Stern, I wanted to interject here. I understand everyone's frustration on the share price. No one, I imagine, is happy right now. We've personally participated in [$12.80] operating for the $500 million, okay? So that's over down 65% on the floor.

Now on the long-term vision, I expect us to at least double or triple our investment in profit. So while we're down about $300,000 or $400,000 personally, I expect us to come out on the other side, making about $400,000 to $500,000.

Now one thing that we could do is maybe get some insider buys for management, some foreign force to show confidence that, hey, we back you guys, we're going to buy in, we're going to stop the bleeding and we're going to reverse this.

Now none of thing that actually that we can do is also, I have more conference calls to get it run on the same case because there's a lot of anger and hostility and return on these other things along any course?

Sorry, I didn't understand the last sentence.

That we all need to get on the same page and maybe communicate better instead of arguing with each other. I know everyone is frustrated right now ...

Who is arguing and I had a conference call just 10 days ago, how long do you -- every -- how long do you want to have a conference call?

All right. All right. I'm trying to respectful.

How long do you want to have a conference call?

It's not an automatic [enterprise]...

So I'm asking you want me to answer you or you want me, what do you want me to do?

What I wanted to do is get the stock back over to $10. That's what I want you to do.

Well, I can't hear you. Your line is not so clear. It was not clear before either.

I want you to get the stock back to double digits.

I'm not getting the stock anywhere, sir. I'm a CEO of the company. I'm running the business. I'm meeting with investors, I am communicating with investors and with shareholders. And the stock is being bought and sold, and project a value or project a price. So with all the respect, sir.

It's negative right now.

That's what going to continue to happen. My money is invested here. My time is invested here and the company is successfully moving forward, and the market will follow on.

Okay. So what about -- is there any protection against the hostile takeover since the company's worth negative dollars right now?

There is no protection against hostile takeover because they had amount of shares and the volume that's being traded. If somebody was going to start to buy aggressively to get to an amount of shares that will give them control, all of you will gain a lot because the stock will go back to $20. And by the way, if you had to be hostile and they will want to replace management, including myself. And on the way there, the stock will go to $20 and all of you will make money. I am the last one that will hold in. I mean, I'm a shareholder of a public company, and the purpose of me of my purpose is to make sure beyond running the company and making sure the constituencies are heavy, including customers and employees is, first and foremost, that the shareholders will make money, that includes myself.

So I'm not here to oppose any takeover. People can offer to buy the company or can buy shares in the market before offering, the price will go back to $20. That's all.

There is another follow-up question from Byron Meo of 1031 Private Exchange Group.

I'd like to just comment that in sympathy with what's going with this particular company, I follow all the 3D companies. And if you look at DDD, if you look at Desktop Metal, even though they print different things, the whole growth industry has taken a huge hit. Desktop came public at $10 went to $34 or something like that, and it's now $7 or $8 or $7 or $6.5.

So I mean what's going on between the growth phase and the macro environment stuff, he doesn't have any control over? And -- but what he does that control over is the use of the cash, the cash burn, and the move towards profitability and acquisitions, as the countries get squeezed.

One question I did have was Austria just went into a lockdown and Germany is contemplating going into another lockdown. Do you forecast at least another 6 months of tumultuousness because of this? Or do you think this is not going to be as severe as the last one?

My guess -- thanks for the question. My guess is as good as yours. I just see back from Germany and Austria, while they were on the way to lock down. It did not prevent me from traveling there and being where I need to be. We are in the process of opening a subsidiary in, an R&D and commercial center in Munich soon. We just purchased as you know, a company in Central Europe, Switzerland, which is very close to Germany and Austria. We are in negotiations with an Austrian company. We have visitors from Germany and Austria they are supposed to be here next week.

Yes, all this can be affected and all things back. But as I said to one of the questions earlier, it's not a strategic holdback. It's a local holdback. I think in the long term, and I speak long term, I'm not talking 5 years. I'm talking about half year, a year. Things are on the direction to be better. But as I read the news, the way you read them, but what's happening in the countries that just came back from a day ago, and came big healthy, thank you.

Yes, it has an effect, but we are looking at this as the environment, and we are looking to find solutions for every effect like that. I believe it's not going to have, call it, major effect on our business. It will have a certain effect.

The next question is from [Bob Sagarino].

My question is about developing technology competition. How are you faring right now with other competition? I heard a mention of a company called IOTech that can handle different types of materials. I haven't really found much of anything else on that particular company. But I was wondering if there's -- what companies are nipping at your heels? And are you still at least a year ahead of everybody?

IOTech is a company with revenue of less than $200,000 a year, maybe less than $100,000. We know them very well. They were trying to sell themselves to us, wanted above a $100 million. We said no. They have an interesting laser deposition technology, which we may license from them. They don't have machine or any competition that is materially affecting us.

As you may remember, we have already more than 65 machines -- full machines sold with customers around the world. So that's not -- this is then a very interesting technology, but we're actually working with them. Other than them, we do not see mature competition as mature as what we have, and it was verified in the Productronica show, which was 2 weeks ago, 10 days ago. We see a lot of small company start-ups that are trying to get there, but not in a material way.

There are no further questions at this time. Mr. Stern, would you like to make your concluding statement?

Yes. Thank you very, very much for participating. Market is by now seemed open. So I'm sure all of you needs to go to work. And I will follow up as much as one request that was here that I'll do more conference calls as much as I'm concerned, the more, the better. I just don't want to take too much of your time. So we'll find opportunities to have as many conference calls. So we'll be in touch. Thank you very much.

Thank you. This concludes the Nano Dimension's Third Quarter 2021 Results Call. Thank you for your participation. You may go ahead and disconnect.