Nano Dimension Ltd. (NASDAQ:NNDM) Q3 2023 Earnings Call Transcript
Nano Dimension Ltd. (NASDAQ:NNDM) Q3 2023 Earnings Call Transcript November 28, 2023
Operator: Good day ladies and gentlemen. Welcome to Nano Dimension’s 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 are Yoav Stern, CEO and member of the Board of Directors; Tomer Pinchas, COO and acting CFO; and Julien 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 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 the management team will answer your questions. I would now like to turn the call over to Nano Dimension’s CEO and member of the Board of Directors, Yoav Stern. Please go ahead.
Yoav Stern: Thank you very much. Good day to everybody. This is the third quarter results for 2023. It’s the best third quarter in our history. It’s the best nine months in our history. We completed in the third quarter around the same revenue we had in four quarters last year, and fourth quarter, if proceeds as planned, will take us either close or on budget as we planned earlier this year, so very good, very happy, but we are starting a new stage, which I’ll speak about. Organic growth was 22%. The organic growth for nine months was 33%. I’m emphasizing organic growth because historically you’ve been asking me many, many times, you did acquisitions, that’s great, the acquisitions were small, but what about organic growth?
So in the last 12 months, it’s organic growth because we didn’t do acquisitions, which we are now, and I’ll speak about it separately, are getting into the larger play on M&A, but meanwhile we’re growing organically. We expect the end of the year to be close to 50% growth. We increased the gross profit. I would say it’s even more important. [Indiscernible] if you look at companies in our industry or in general, our gross profits were 200% higher than similar quarter last year and same for the nine months, but more interesting in the number themselves, the gross margins grew from 18% to 44% on a quarterly basis IFRS, and 38% to 48% on a non-IFRS, so we are practically close to 50% gross margin and we believe it will continue to grow, and I want to tell you something, it just didn’t happen by itself.
It happened with a lot of focus on changing our infrastructure and the cost of goods sold, in manufacturing, and I will talk about it if you have questions. Second thing that happened in the last few months is a major change in our corporate governance and management. The reason is some of the shareholders spoke with us and thought that it would be a good thing to do. IFS and Glass Lewis, the two reputable advisory firms spoke with us and we basically did what they recommended. We reduced the board size by two members, which was [indiscernible]. We added a very, very serious four-star general, Mike Garrett, to our board, so sitting on [indiscernible], and we have made the changes in roles where I--I don’t know if you know, but initially when I joined just two years ago, I was not even on the board.
I joined because of changes on the board and I didn’t have a choice, so I expect I’ll continue to do my CEO role as director and Dr. Yoav Nissan-Cohen is now the Chairman of the Board. We 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 companies, and we probably sold the biggest amount of machines to now one of the largest computer companies in the world, and no less important, because this is a major investment, is the product in R&D development bolstered by [indiscernible] materials, and I will take you here back two years ago when I told you, and some you remember it, the development of additive manufacturing and the network we are building of cloud manufacturing, while it sounds a lot to do with automation, robotics, software of course, at the end of the day there is one thing that’s important - materials and process.
As I told you in the past, when we reach a real milestone, it will be a material milestone. The first one has been reached. We came--we announced a new material for insulation, INSU 200, it’s a revolutionary material for electronics. It was announced in the trade show last--actually, in November, and it’s going to be out in the market in the beginning of the year, in January, and we’re very excited about it. This is not the final move here.’ Very soon, we’re coming with a totally different material which is much better than this one, and that one will take us into--we believe into 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 unless there will be questions.
Next, let’s talk a little bit about financials. I highlighted the gross margins, the gross profit. Interestingly here is to see that the adjusted EBITDA of $30 million, and I’ll show you in a second what is adjusted comparing to regular EBITDA, a third of it--sorry, more than half of it for the quarter is in R&D expenses. Sorry, actually it’s less, it’s a third in R&D expenses, it was more than half in Q3 2022. The reason is it’s very, very intended - we have reduced $3.5 million, which is 20%, almost 25% of our R&D expenses this quarter comparing to the same quarter last year. It was the first move earlier this year in an initiative which I described in the news release, and I’ll talk about of moving Nano Dimension to the next business model phase, and I’ll speak about it.
Another thing that you’ll see here, activist damages, we have activist investors that are busy damaging the company. We have spent until now, since the beginning of the year close to $17 million paying lawyers, accountants, experts, advisors for what we believe is a waste of $17 million. Be that as it may, our shareholders voted for us and we’re moving forward. On the gross margins, I spoke, but if you now go to the bottom line on this table, look at the number on the bottom. We only burned $7.7 million comparing to $20 million in the same quarter last year. This is where we are going, we are hoping next year--actually, already this quarter to cut another $30 million in our expenses, and to reach profitability at the end of the year next year.
But even if we are just growing from where we are today, a run rate of 60 organically, if we do an acquisition, it will obviously change the whole formula, which is very, very exciting to us. Next slide, you will be able to see the reconciliation when [indiscernible] exactly what is this large number, $66 million of net loss and why is it ending up just $7 million of cash burn? So if you start from the top, you’ll see what I colored in green is $11 million - 11.008 is interest income. We have about $45 million a year, maybe more, right--?
Tomer Pinchas: Yes, this year we are going to reach approximately $48 million of [indiscernible] income, it’s about $4 million a month, it’s more than 5% interest on an annual basis.
Yoav Stern: So obviously it’s a nice and effective way to grow our capital, and we are working on it. We have weekly management meetings for cash management. We do not invest, other than our course our investment in the industry and services. We do not invest in any risky investments, that’s not our charter, but we get returns of between 5% to 7% on our capital. Cash - when you have yellow - yellow fever? - you have yellow color, this is $14 million that in this quarter, third quarter is a negative number. All the numbers are reversed - negative is positive, positive is negative, because it’s an adjustment back, because Stratasys share price went down from $20 million to--sorry, $20 to $11 or so. You can speculate afterwards what’s the strategic meaning to that, but the way it affects our balance sheet is by reducing $40 million.
It’s of course non-cash, and funnily enough the way the company rules forces us to do it is we take the price of the share on the last day of the quarter. It doesn’t matter if the whole quarter or the month before, the average was 20% higher, it would take it from the last day. That’s the reason the swings are not something you should relate to, because they’re not necessarily representing anything. That leads 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 and the comparison between the quarters last year and this year. Look at the gross profit, it went up from 1.8 to 5.4 - it’s amazing, and net cash used in operations went down from 23.5 to 19.5. All the way down to net cash including after bringing back in interest, we only spent $7.7 million this quarter, and we’re moving ahead in the right direction.
Again, that’s without acquisitions. This is just from the fact that we are getting by now to be a company of $60 million in two and a half years, from $5 million to $60 million with gross margin of 50%. Next slide actually speaks about exactly this last point, how did we scale up? This is a slide I like very much because it’s not a slide per quarter, it’s a slide per quarter that shows the last 12 months and this quarter, so you see that in the Q3 of 2021, just two years ago, we were a $5 million company. If you look at Q3 now, two years later, we’re a $55 million company, $54 million company, and over the last three quarters, four quarters, it’s without acquisitions, so if you look at Q4 ’22, it’s from 44 to 54. Next slide shows--you know, all my compatriots that I’m listening in the industry are talking about headwinds, and last quarter of everybody was not good comparing to projections and in general, and if you guys are following other companies in this business, the public companies, and hear or see their results, why don’t we see it?
I’ll tell you why not, because we are diversified, because we structured the company to sell both to the electronic industry and to other metal ceramics industries and electronic manufacturing, additive manufacturing electronics and additive electronics, and of course electronics goes into many other industries. A lot of it is in defense - 35%, so this diversification leads us to this third quarter being where it is, and the fourth quarter which we are in right now looks pretty good. The revenue, on the left side you see it, and on the right side you see two colors, one is the adjusted gross margin non-IFRS, and one is IFRS, so numbers we saw before. I mentioned the peers in the industry, the growth up, here is the peers. We have here 3D, Desktop Metals, Stratasys, Markforged, and the average for the whole peer group, it’s an average of percentages, [indiscernible] percentages as it relates to the size of the company because obviously 6% in 3D Systems was a much, much bigger drop than 20% in Markforged, but the average of all those is 10%, and we are 20% above, so what I mean, growing.
Last but not least, where are we going? We call it reshaping Nano. The business model, it’s time for our business model to grow up and leave the kindergarten into elementary school, or if you wish, leave elementary school into middle school, which means we grew, we focused on acquisitions to build a coherent and integrated business, we are leading with a vision towards cloud manufacturing, so more acquisitions will multiply it back at $60 million dollars or close of revenue and close to 50% gross margin. It’s time to think and to adjust the growth in this model with profitability. That’s what we are calling by reshaping Nano. We decide about how to allocate capital, we decide about how to allocate expenses, we have purchased close to $100 million of our shares because we thought it was the right thing to do.
We may continue to do it because we have approval to do another $200 million, and we’ll decide about it during the year. In the last week, we reduced 130 people out of 530 - this was a very, very serious cut in expenses. Think about it, it’s about 23% or something like that. We did it worldwide, most of them in Israel. With all the difficulties of the war, of course we gave them [indiscernible]. We didn’t say goodbye and just left them alone, [indiscernible], but we have to do it because we are leading ourselves towards improved profitability and we’ll save close to $30 million annually, and we are not waiting for next year to start it. It’s done already this year. The second step will be to cut major expenses in overhead through consolidating facilities with acquisitions that we will do, and that will take us to the right place.
I just mention here the governance of the board. I spoke about it before, so I’m not going to repeat it, and I can tell you before closing that, first and foremost, I want to thank you, the shareholders for supporting us. I specifically want to thank the shareholders for supporting the Israeli division through a very difficult time that Israel has been and is going through, and we got a lot of support. We’re going through this war here with 15% of our employees in the reserve service and fighting in Gaza, but we performed. In parallel with that, we have another fight with some [indiscernible] shareholders that are wasting our time and our money and their time and their money, but it’s not as serious as in Gaza, so that one we get over with.
I’ll just summarize, opening up for questions, by thanking you again for the support, and we are ready to answer questions.
See also 12 Asian Countries with the Best Economy Right Now and ‘Greedy When Others are Fearful’: Warren Buffett’s New Stock Picks Since 2022 Market Peak.
To continue reading the Q&A session, please click here.
