Q3 2023 Nano Dimension Ltd Earnings Call
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Good day, ladies and gentlemen, welcome to nano dimension third quarter 2023 earnings conference call.
My name is Betsy and I'm your operator for today's event.
On the call with us today.
Upturn E L and member of the board of directors.
Thomas pin huh.
E L L and acting CFO.
And Julian Lederman VP 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 yet 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 investors relations section of the company's website.
Yeah, Rob will begin the call with a business update followed by a question and answer session.
At which time the management team will answer your questions.
I would now like to turn the call over to narrow dimension CEO and member of the board of Directors you upturn. Please go ahead.
Thank you very much good day to everybody.
Are these is it.
Third quarter results.
23.
It's the best third quarter in our history.
It's the best nine months in our history.
We've completed in the third quarter above around the same revenue we had been four full quarters last year.
In the fourth quarter.
It's proceeding as planned.
<unk> will take us there.
At the close on budget.
As we planned.
Earlier this year so.
Very good.
Are you happy.
We're starting in mid stage, which I'll speak about.
The organic growth.
92%.
And then they go out for nine months instead of Jupiter.
So I think it's really organic growth because.
Currently you have been asking me many many times.
These acquisitions, that's great positions were small, but what about the organic growth. So that's the way it Myles it's organic growth.
Because we didn't do a position, which we are now.
Goodbye separately.
Getting into the larger play on M&A, but Meanwhile, we're growing organically.
We expect at the end of the year to be close to 50% growth.
We increased the gross profit I would say that's even more important because those cities alone. If you look at companies in our industry in general.
Gross profit was 200% higher.
The order.
Last year.
Same for the nine months, but in more and more interesting than the numbers themselves.
Gross margin grew.
The rule from 18% to 44% on an orderly.
Quarterly basis.
I first and what.
Where do you get to a 48.
On a non life right.
So well.
Yeah.
Close to 50% gross margin.
And we believe it will continue to grow and I won't tell you something it just didnt happen by itself.
What's happened with a lot of focus on changing our infrastructure and the cost of goods sold their manufacturing.
No I'm talking about if you have questions.
Second thing that's happened over the last few months.
It's a major change in our corporate governance and management.
Isn't is.
Some of the.
Shareholders, both with us and so that you'll be good things to do.
I S S and glass Lewis the same the tool.
First of all advisory firms.
With us and we basically did what they recommended.
The board size by two members.
Which we are which.
Stepped out.
We added a very very serious oh.
So in general my Dara to our.
Board so sitting on.
Thanks again.
And we have made the changes in <unk>.
Well I don't.
If you know, but I initially when I joined two years ago I was not even on their board I enjoying because of changes in the board and it didn't have a choice. So I step. They continued to do my CEO role of the director and the Doctor illness on corn is now the chairman of the board.
We will work together, it's beautiful I'm very very happy.
On the side of the.
Business.
Beyond the numbers and the corporate governance.
We had successes in the defense.
We have successes in space, leading space technology.
Well what it is.
And we probably sold.
Because the amount of machines to a not one of the largest compute.
Computer company in the World.
And not less important because this is a major investment.
It was brought up in R&D development.
Software by a competitor with materials and I don't think you'll hear back two years ago. When I told you and some of you will remember that.
The development of edits in manufacturing in the network with building of cloud manufacturing well it sounds a lot to do with automation and robotics.
Softer of course.
At the end of the day, there's one thing that's important materials and process.
And as I told you in the past when we reach a real milestone and it'll be material milestones. So the first one is.
It's been reached.
It's coming we came we announced a new material.
And so for ease of installation instead of 200 sort of evolution of your material for electronics.
It was announced in the trade show, but that's actually in November.
And he is going to be out in the market in the beginning of the year and begin the in the.
In January.
And we're very excited about it this is not.
They find them over here.
Very soon we are coming with a totally different material, which is much better than this one.
And that's one will take us into we've been living in to production.
Mass production on the electronic side.
We have a lot of other materials that we added on the additive manufacturing side, but I'm not going to get too deep into that.
Hum.
Unless there's any questions.
<unk> still got a little bit about.
Financials.
I highlighted the gross margin the gross profit.
Instant ink interestingly here is to see.
Yeah.
The adjusted EBITDA OXXO demand dose and I'll show you in a second on what is adjusted complaint irregular b, though.
A third of it.
Alright.
More than a half of it for the quarter and R&D expenses.
Sorry, actually it's less it's a third in R&D expenses was more than a half in Q3 2022.
The reason is.
It's very very intended we reduced three and a half million dogs wishes.
As a percent.
95% or so.
R&D expenses this quarter comparing to last quarter.
The last year.
It was the first of all earlier this year.
And initiative, which I described in the news release and I'll talk about Oh, moving none of the mesh into the next business modal phase.
I'll speak about.
And the other thing that you'll see here.
Actavis damages, we have activist investors that are busy damaging the company.
We have spend until now.
Since the beginning of the year close to 17 million daus.
Paying lawyers accountants experts advise us what we believe.
Is it a waste of selling 10 minutes at all.
Be that as it may.
Alright.
Shareholders voted for us.
And we're moving forward.
Oh, the gross margins I spoke what if you now go to the bottom line on this table.
Look at the number and the modem, we only burned $7 $7 million.
Brian to 20 in the same quarter last year.
This is where we're going but we are hoping next year.
Actually already this quarter.
$30 million and our expenses.
And so rich.
Got it.
Stability at the end of the year next year.
That's even if we are just growing from where we are today our run rate of 60.
Organically, if we do an acquisition it would obviously change the whole formula which is a very very exciting for us.
Next slide.
Slide you will be able to see.
A reconciliation understand exactly.
What is this large number $6 6 million of net loss and why is it ending up just $7 million of cash.
Yeah.
So it just starts on the top.
You'll see what I colored in.
Green.
$11 million 11, 008 as interest income, we have about $45 million a year.
Yeah.
Maybe more alright.
Yeah, we're going to reach approximately $48 million.
It's about a $4 million in months, it's more than 5% is.
Right.
So obviously, it's a it's a nice.
And effective.
Way to grow our capital and we are working on it we have a weekly management.
Meetings for cash management, we do not invest other don't of course, our investments in the industry and the services, we do not invest in any risky investment.
And that's not our charter.
But we get write downs of between 5% to 7%.
On our Cup adult.
Cash then you have a yellow.
Yellow fever.
You have a yellow color.
This is 14 million barrels.
In this quarter.
Our third quarter is a negative number at all the numbers are reversed negative as supposed to the positive and negative because it's it's an adjustment there.
Because services share price went down from $20 million, sorry, $20 to $11 or so.
He can speak about it afterwards whats the strategic.
But.
The weight effect.
Our balance sheet by reducing Fortinet, though of course noncash and funny enough the way that the accounting rules force us to do it is we take the price of the share the last day of the quarter. It doesn't matter, if the whole quarter or month before the average was.
20% higher when they take.
It gets on the last day. That's the reason the swings are not something you just relate to because they've done not necessarily representing anything so that leaves us to the adjusted EBITDA of $30 million minus $30 million.
And then you go for the cash flow and you start on the gross profit.
The comparison between the quarters last year and this year look at the gross profit that went up to 1.8 to $5 four it's amazing.
And net cash used in operation went down from 23, and a half to 19 and a half.
And.
All the way down.
Net cash.
Cash, including after bringing back in the interest we only spent 7.7 million daus just border.
And ER.
We're moving ahead in the right direction.
And again that's without.
Acquisitions. This is just from the fact that we're getting by now.
A company of six demand all seem to not be as from $5 million to 60 with gross margin of 50%.
Next slide.
Actually speaks about exactly about this last point.
How did we scale up.
Gives you a slide I like very much because it's not a slight per quarter.
The slides per quarter that shows the last 12 months this quarter.
So you'll see that in the Q3 of two thirds, where they wanted just two years ago.
We were five man dos.
Company.
If you look at your Q3 now two years later, we have $55 million company $54 million cutback.
And.
Over the last.
Three quarters full quarters is without acquisition. So if you look at.
Q4, 'twenty tours from 44 to 54.
Next slide.
Shows you.
Oh my.
Hum battery ups, I'm listening, but I mean industry talking about headwinds.
And last quarter or off everybody was not good.
Comparing to predictions and in general and if you guys are falling other companies in this business, but not the public companies and you hear or see their results.
Why don't we.
See I'll tell you why not because we are diversified.
Because we stuck to the company.
It will bolster the electronic industry and two other metals ceramics industries.
And electronics manufacturing.
Editing manufacturing electronics in Etsy, but its onyx.
And of course electronics goes into many other industries.
Lot of it is in defense, 35%. So this.
Suffocation.
Leads us to this third quarter being where it is in the fourth quarter, which we're in right now.
It looks pretty good.
No revenue.
In the left side you see it.
And on the right side you see two colors, one is the adjusted gross margin.
Not enough Iris and one is.
Yes.
So numbers we spoke before.
I mentioned the peers in the industry.
The growth.
It appears we have here three D desktop.
I'll start this is mark forged.
And the average for the whole peer group it's in.
Leverage off them.
So not necessarily incentives as it relates to the size of the company.
Obviously, 6% and three the system has been much much bigger drop.
The 20%.
Not my approach.
But the average of all of those is 10% and we are 20% above what.
What I mean right.
Last but not least.
What are we going we call it the reshaping nano.
The business model.
It's time for our business model to grow up.
Leave the kindergarten into elementary school, if you wish to leave elementary school in the Middle School.
Which means we grew we focused on acquisitions to build a coherent and integrated business.
We are.
Leading with a vision toward cloud money fixing so more acquisitions will multi play but.
60, a clause men and also revenue and close to 50%, 50% gross margin, it's time to think and to adjust the growth then.
Is this model profitability, that's what we're calling by reshaping nano.
We decide.
About how to allocate capital, we decided about how to allocate the expenses.
We have purchased about close to 100 million daus of our shares because we thought that the writing right thing to do.
We may continue to do it because we have approval to do another $200 million and you will decide about the journey there.
We nonetheless.
Weak.
What did you used.
The Honda and a 30 people out of 500 necessarily.
This is a very very serious cutting expenses.
Think about it it's about a 20.
3% or something like that.
We did it worldwide.
Cost of them in Israel with all the difficulties of the war of course, we gave them.
The right time, when we didn't say goodbye and just let them alone more than with full support but we have to do it because.
We are leaving ourselves toward improved profitability.
We will save close to $30 million annually and we're not waiting for next year. If the study is done already this year.
And then the second step will be.
Two cut major expenses and overhead.
Through consolidating.
Facilities with acquisitions that we will do.
And that will take us to them to the right place.
Yeah, I, just mentioned had the governance of the board.
Talk about it before so I'm not going to repeat it.
And I can tell you I'm before closing that.
First and foremost I want to thank you shareholders for supporting us.
I, specifically want to thank the shoulders.
We're supporting.
The easily envision.
So a very difficult time that.
It hasn't been and is going through.
And we got a lot of support.
And are we going through this war here.
With 16 talk with incentives for employers and their and the reserve service pricing in Gaza.
But we perform.
And in parallel to that we have.
Another fight.
With some descendants shareholders at the wisdom of time and money.
And their time.
Any.
But it's not as serious as in Gaza. So.
That's when we get it over with.
Yeah. So I'll just summarize their opening it up for questions, but thank you again for the support and we are ready to answer questions.
We will now begin our 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 they can't.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question today comes from Ron Rozenberg with recovered innovation.
Please go ahead.
Hi, Thank you for your time today I appreciate it.
I'm in the tactical but I'm in the tactical our defense sector and I'm curious how do you see the impact of the various conflicts globally and the significant increase in the defense budget spending on the additive manufacturing three D business I'm asking about that are as long as the industry at large.
Let me put it this way first of all the general.
Eh political and other situation both in Europe with Ukraine.
In Israel.
And I don't think it's Israel by now.
Yeah Air carrier here and a stomach the submarine the United States.
That's all there.
European and other business were visiting here over the last month.
It's a serious situation defense wise that affects the defense spending, especially of the European countries.
Would affect the United States, we see it in defense in general I'm, not talking about a M with the companies and defense that are having a very very successful here. We have a director from located so we're very very close to what's happening there now specific as to what you asked about editing manufacturing look.
Either they are in the fixed rate is in the industry is that the head of itself.
Book, Big and high and then deliver.
So the additive industry I would divide it now to two types of product.
And we we do sell the defensive as you understand it's our largest section.
The products that can actually get into the production line.
Not only for prototyping or not only for propulsion.
And the products that come out or whatever they do and the production cost.
Unit economics are still too high.
So for products that are for the first time, it definitely spill it and we feel that that's the reason we're so successful. So you ask why is.
That's the medal in the southern system, three D and the rest of them.
So successful this quarter and the old claiming headwind tend we tend to win.
Frankly.
I don't know.
I guess they feel headwinds.
I don't feel headwinds and I think.
Part of the tailwind is the defense industry.
I hope I answered your question.
Yes, thank you very much.
I'll now hand, the Q&A session I'm pretty Julien.
Hi, everyone. We were sent to question by an analyst Kathryn Thompson Who's the director of Technology Research at Edison group, She's been having troubles answering questions. So I'll read it exactly.
He has written it to me to ask on behalf of her given the technological difficulties. So I'll read it verbatim.
You'll have the questions for you one adjusted gross margin is now at 48% the program to reduce the cost base will this help grow the gross margin from this level or is the program more about reducing operating expenses. What do you think is the optimal gross margin you could achieve.
She has other questions, but I'll pause there first.
The cost reduction goes on both side its exactly you defined it or we have a group.
That's focusing on reduction of Cogs by reduction off.
It does.
On the fixed are aimed at assembly costs by better buying better supply chain everything that goes into the Cogs and wave.
But all efforts that deals with the general overhead.
Which includes marketing sales go to market.
Our support.
And especially what I don't like but.
Unfortunately, it including myself.
The offer that includes just general management and finance.
Including myself.
And including Us where we need to.
Squeeze it all if we do an acquisition as we are planning when it to squeeze it based on merger and cutting debt. So that's two things. The other question. You asked is what do you think gross margin should be.
Well, we have different kind of products.
Product lines should deliver gross margins between.
42 to 65, 68%.
It depends on what product line and what stage in the lifecycle of the product.
It is.
Most of our products are above.
50, 658%.
I'll ask just two more questions I'll just repeat them as they're written second question. How does your order backlog look going into Q4 23 are you able to give an indication of what you are targeting for organic revenue growth in the fiscal year 'twenty four.
I don't know I don't have.
Any any visibility into when before yes.
I will have it once we finish this year and once we have indications from the market. Obviously for Q4, we have visibility.
We expect it to be.
55 to 60 million daus.
It was a little bit of luck will be 60, if we want.
It's not going to be because we didn't know which it is because you know at the end of the year.
Sales have been good it rolls into the January.
But I hope, we'll get close enough that that's what they're trying to do it.
Gross.
The gross will do better than three obviously is for 43 two to one fixed is about almost 50% when before.
We'll know after live at the end of this quarter and into the beginning of the quarter next year.
The third and final question from Kathryn Thompson analysts at Edison is M&A are you able to say what types of companies you are considering any particular technology areas and operator, we'll hand it back to you after Oh I've answered. This yeah, we're looking at them.
Our companies, where they're falling profile.
Above 100 man those of revenue.
In the area of Idaho electronics and <unk>.
Electronics and <unk>.
Manufacturing that is not electronics.
And.
The market over the next 12 months is right ahead of us prices went down.
On average from.
Six times revenue for companies that have never made money.
Two a two times revenue for the same company that never made money either.
But the major difference between the valuation of the person valuation.
So we're seeing it all across the board.
Both are public companies I'm sorry.
And Paul.
<unk> companies.
There's not a lot of large private companies there's about three.
And as more private public companies with a large.
And we're talking.
As we speak probably was.
25 companies.
Yeah.
Operator, you can see about any other questions from the wider group.
Thank you.
Can I ask a question you May press Star then one on your telephone keypad.
Okay.
Yeah.
Okay.
The next question.
It comes from Zelman with Jerry Kent. Please go ahead.
Good morning, Thank you operator, and good morning, everyone on the call.
I would like to start by saying I Hope you your family your colleagues everyone's safe in Israel, a lot has gone on since our last call.
I would like to start with that recognizing that and making sure that hopefully everybody's okay and hopefully.
When it comes out about this in the long term safe and sound.
Yeah. Thank you very much it was always a small place so I don't want my family and our families. Okay. It's very difficult for me to say everybody is okay. Why don't we have a it's still 100 and some of the people.
And activity, but.
We're moving the right direction. Thank you very much.
Where you have a prayer and I'm sure that's globally I wouldn't like to go I, just I didn't know where I'd falling in the queue and if you'd have time for all of my questions. So just the way. The question just happened to work out you mentioned it in your your preference and then I heard it from.
I believe it was from Karen's question, where you answered that you would potentially be looking at companies with a falling profile.
I previously previously asked the question about during the Stratasys tender offer during that tender offer you had made mention of the fact that.
If if I may.
If you end up pulling door for Stratasys will end up falling to the low tens or things that maybe if they took the members here fast or where they are now do you see an opportunity to reengage due to their enterprise value arthritis, that's where it is right now.
Or is there concern based on what you see in the market there potential broken business model and we cash position, maybe can we continued to see each quarter after quarter and your warm in Greek.
Excellent question, let me answer you start by the second source.
One of the most.
Ceiling.
[noise] way overboard in cash is the way it services is doing.
Bottom line, you called it right and obviously our sophisticated they went in the cash flow and 327.
So a 184 to 184 in the Netherlands in nine months and we're bidding for you.
27 to 184 and nine months it is a let's say a Honda the 45 to nine.
It's about $15 million.
Months with $40 million for demand of the quarter that means they have about three or four quarters to go.
There's no surprise this year is where it is and as you said I've mentioned it.
And is there an opportunity absolutely.
First of all the price now will be much lower.
And the Provost the start ups you had in the past are still there.
I thought in the past that we can fix it sorry.
Sorry, we can fix it.
And I still think.
Because they did not.
Making major changes.
Other than some minor ones.
So it's unfortunately, but now I want to read the last thing.
Maybe it's not logical, but I'll say, it anyhow I'm, a little bit tired from non friendly transactions.
I'll start sort of reductions I offered services I think it was almost there.
Oh for a year ago.
The price.
Prices were much higher than what I would offer now.
Yeah on a friendly basis and as I've met with me.
They are about to be hostile with all kind of.
The media and you know.
I'm thinking.
We are the largest shareholder.
We are.
And we know a lot about other.
The sentiments and their shareholders group.
And.
If they were to do with our friends at those that are with me today I would do it tomorrow morning.
If they don't want to fight again.
Not sure it's all of the other opportunities in the market are very friendly to us.
And it's both the quote I don't want to speak about quality of life, which is part of it but it's the quality of business when it's not friendly that is being totally demolished.
Yeah.
I hope I answered your question.
You did I'd like to see how that pans out thank you very much.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to the company for any closing remarks.
Okay. Thank you very much everybody on the call have a good day.
<unk> day, we.
We thank you for your interest in please.
I.
She is the last year I.
I mean, that's a lot with our retail shareholders in over the.
Internet and all of our emails.
You all know I did a lot of.
Videos and once we have some interesting news, though they may continue to do it because it's a good way.
Which none against.
Institutional shareholders.
And I look forward to connect with everybody. Thank you very much.
Yeah.
Yes.
The conference has now concluded.
Thank you for attending man of dimensions quarterly earnings Conference call.
You may now disconnect.
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