Nano Dimension Ltd. Q2 FY2024 earnings call

• Quarter is the best ever, 2% above similar quarter last year. - Gross margins up to 45%, cash burn down 54%. - Business updates include acquisition of Desktop Metal, digital printing partnership. - Customer highlights: close to 10 western armies, 5-7 three-letter agencies, largest defense contractors as customers. - Vision of being in Industry 4.0, not just additive manufacturing. - Details on acquisition of Desktop Metal, including 9 proposals over 2 years, last proposal being lowest. - Post-merger integration plans with Desktop Metal, teams from both companies working daily. - Focus on software and AI in Industry 4.0, R&D efforts in that area.

The second quarter was very strong, 2% above a similar quarter last year. Gross margins were up to 45%. Adjusted gross margins were up on a half-year basis but slightly down on a quarterly basis, negligible. Cash burn was down 54% from $31 million to $11 million due to a turnaround and expense reduction plan implemented in the first quarter.

• Focus on integrating Desktop Metal and considering more acquisitions within management capability. - Allocated close to $150 million for share buybacks, with buying decisions based on share price and avoiding inside information issues, to be done in the next few quarters.

Q: Hi, gentlemen, thanks for taking my questions here. I guess -- good morning, good afternoon. Just felt like the message this quarter was much more robotics and AI and software driven than it has been in the past, is that correct? I feel like there was a kind of notable tone change and kind of the direction of the consolidation that you guys want to pursue?

A: Yes, we believe that what will sell all of our machines and I'm talking now about all including Desktop Metal and others that we are negotiating, and talking about M&A, is the software. And the analogy, if you wish, Troy, is think about you developing your product, which is the paper, the analysis with the spreadsheets and with Word. You're totally focused on the software that enables you to do that. I don't think you know the name of the printer you have in your office. The software is driving your tool to manufacture our products, not the hardware.

Q: Understood. I kind of agree, I get it. And then how about just like your thoughts on the growth in additive versus growth in kind of the robotics market, when you think about in the next 12 months in front of you, is robotics the area that's driving growth and assuming less in additive or -- any extra color would be great.

A: I believe that in robotics automation and what we call Industry 4.0 and be it electronic -- additive electronics or even be it other -- I'm sorry, -- in other segments, we believe the growth there is not dramatic. Because it's established industries, but the growth exists, especially towards the digitalization of it. So it's 10%, 15% a year. It's much more established, and we like it that way. The growth in Additive Manufacturing is now and would be and should be specific to segments of the Additive Manufacturing. We believe segments of metal Additive Manufacturing will see much higher growth once the fitting formula for materials and materials from the printing and material for the end results product are working together well and we already see it happening. And secondly is what I mentioned here before, drive a very serious driver of growth in the SD manufacturing section of Digital Industry 4.0 is the software and the application that is enabling people to seamlessly design and send into printing without having to deal with different stand out and every company has its own design tool and the design tools do not face another company that needs to change, and it changed historically in the software industry, for instance, for PCs. It's all changed, and it will change here and drive growth.

Q: Hi, it's actually Katherine Thompson. The first question, I believe that you -- you've got teams already working with Desktop Metal to pull together integration plans for post completion. Is there anything you can say about that process and how that's been going?

A: Yes, the process is called or what we're calling it PMI, post-merger integration. And the way we run this process is we have teams from both companies working on a daily basis, both meeting in the same location, both headquarters are in Boston. So it's going to be actively straightforward to merge. But the teams are working together, [technical difficulty] teams and on all management levels to plan why do I say to plan because formally, we can start to run the combined company one day after - sorry, one day after the closing of the transaction. So before that, we cannot run Desktop Metal - Desktop Metal is run by it's management team, but I want to tell you something. We discovered as we get to know each other that the management team in Desktop Metal is excellent. They are going to be integrated with our management team and they are going to make decisions together starting the day after - the day of closing. And meanwhile, the PMI, the merger integration process is a planning process, very, very, very detailed. So when we hit the ground upon closing, we hit the ground running, and it works very, very well with between the two teams.

Q: Great. And then kind of on a similar topic. You mentioned the timetable to get to completion. Could you just give us a little bit more detail on kind of the rough timing for the different regulatory approvals?

A: Yes. There's two regulatory approvals traditionally that are taking some time. One is Scott-Rodino which is the regulatory agencies that make sure that in any merger, you don't have a monopoly creates [technical difficulty] we don't have - while we do have overlapping products - so there's no - and noncompeting products. So there's no issue more - we believe it's more formality. And then the CFIUS, which is the agency that look at every merger and acquisition nowadays between American company and a foreign company to make sure the emerging industries are not taken over by unfriendly, call it, national industries from all kind of places. That's not including us, we have from Israel, which is very close and very friendly. So we believe this will be passing as well without the major issues.

Q: Okay. And then one final question. I see that you bought back, I think, about $8 million worth of shares in the quarter. Are you still continuing to buy back shares for the rest of the year?

A: We have additional - close to $150 million allocated and approved by the Court in Israel and by our Board to buy more shares. We are buying or not buying based on a decision that is partly connected to the price of the share, partly connected to not having inside information because that prevents us from buying when there's certain important events happening in the public doesn't know about it. So there's many variables affecting the buying and selling - sorry, the buying of shares. But we do have a location, and we [do] have the permission to buy, and we'll do it as we see fit in the next few quarters.

Q: Good morning, Yoav. And good morning, team. Good afternoon. So again, thanks for the great presentation. I actually just came back myself from Boston. So it has been great to see you guys. But all good. We'd love to see what you guys are doing. And I trust that you guys are working diligently on that post-merger. Thank you for sharing the timeline for the integration with Desktop. And you have my support routing for the smooth process and success. I do have two questions on this, slightly different, but along the same track. First one is, you touched on it that over the last, I guess, we'll call it last couple of years that you put in the various bids, the valuation of 3D companies haven't been pushed lower in the general market - and that's according to my humble opinion, it's based on the market opinion that the - their disbelief of any meaningful recovery. So in your opinion, what kind of gross margin would indicate dynamic change in the business and provide sustainability for the future of the 3D industry? I mean just looking at the most recent press release, you have it currently at a margin of 45%, would you be happy with a number of 60%. And that's the dynamic change? Or would you feel that it would have to be a much stronger robust number to indicate there question number one. Question number two, is along the lines, like you had said, we're not going into M&A per se, just to have - do the acquisition as part of the integration to make sure that you're buying companies that you can actually make money with - it looks like the Nano vacated the poison pill allegations on Stratasys. Is that an indication that there's no longer an interest in pursuing that Stratasys buyout? And if that's the case, why not officially end the $16.5 offer from last year as it's just causing the overhang on the stock A: First one [technical difficulty]. And as I told you, when we get into Industry 4.0 and we're dealing with for instance, robotics, electronic additive and construction. Those are more traditional industries, they can live with 45% easy, even with 40% gross margins. If you're dealing with new technologies like we have in our electronics manufacturing of electronics and now with all of Desktop Metal, we must have, and you're right getting close as possible to 60%. And as you see, our gross margin is improving, and we have now a very, very big and serious work on the acquisition of Desktop Metal to increase their gross margins. So the combined - not for the whole company, but for whatever we have 15% to 18% investment in R&D, we must have 60% gross margin because otherwise, we will not have enough margin for profit. So your number was right. As much as the second question, Stratasys. Investment in Stratasys is strategic. I announced it when we did it in June, if I remember right, of 2022, and if I remember right, just give or take, when we did it or the end of 2022. And the offer to buy Stratasys is obviously not going to be executed with the number that was there from half a year ago. It's irrelevant by now. But the thinking that there's a strategic relationship between us and Stratasys and those strategic relationship can evolve moving forward is definitely there. We didn't give it up at all. We believe it's totally there. The relationship today with Stratasys management is very friendly contrary to last year, we gave up the takeover, and we believe everything that we will do with them should be based on how we understand each other today, and we do very well. Yoav Zeif and myself are talking regularly. So wait for future news when the time will come, I believe there's a strategic cooperation due between two companies like that. And we will be already a leader like they are leader in photopolymer. We are a leader in metal, electronics and others. So it's a good potential for cooperation.