Nano Dimension Ltd. (NNDM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Nano Dimension Investors Update Call. [Operator Instructions] As a reminder, this conference is being recorded April 29, 2021. Before I turn the call over to Mr. Yoav Stern, I would like to remind everyone that statements contained in this conference call, which are not historical facts, contain forward-looking information with respect to plans, projections or future performances of the company, the occurrence of which involve certain risks and uncertainties, which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include dependence on economic and political conditions in Israel, the impact of competition, supply constraints as well as certain other risks and uncertainties, which are detailed in the company's filings with the various securities authorities. I would now like to hand over the call to Mr. Yoav Stern. Mr. Stern, would you like to begin, please?

Thank you very much. Welcome, everybody. Good morning, good afternoon. We're getting together again after a few days, and we're going to discuss another acquisition [ that we made ] a few days ago, again, obviously, this acquisition, the previous acquisitions -- acquisition of DeepCube we were working on for the last 4, 5 months, and they happen to come to fruition together. And let me spend a few minutes describing the company we acquired and why we acquired and talk about the plans for the future. The company is called NanoFabrica. It's a company that developed, over the last 4 years, a very innovative machine that prints in 3-dimension parts that are small in very, very high accuracy. So when we say small, anything between 1/8 of an inch, to maybe 1/2 an inch, with accuracy of 1 to 2 microns. And they built a machine that prints them in multiple formats and in high speed. So the machine is aimed at the micro-mechanics industry and additive manufacturing. And it is aimed to serve both [ as prototype and machine-backed ], with a high speed as entering into manufacturing as well, which is extremely important because the market size is huge. Now the company's performance -- sorry, the company's technology is based on a [indiscernible] -- sorry, [indiscernible]. It means injecting light over a polymer [ into a slide ] that is causing the polymer to form into a steady-state. And it is a very advanced technology, which is very efficient, and the company has few patents on that, that includes the ability to project the lighting in a way that keeps the ultra-fine accuracy of the details and the features. So it's a very precise machine for very small parts. In the news release, we published some pictures to give you kind of an idea of what we're talking about. The machine -- the company is aimed at exactly the same vertical markets which we are aiming, selling our additive electronics machines -- additive manufacturing electronic machines. So by definition, we are leveraging immediately while we are selling to the defense, aviation, aerospace, advanced medical, advanced -- to more [ even ] advanced industrial markets, verticals. This is exactly the same customer base that is using -- need to use NanoFabrica machines. Moreover, we expect, in the next while, to integrate their -- I have said before, DLP technology, digital light processing technology, with our ability to add electrical conductive materials, so we'll have a very unique combined technology. So while they are, today, in the micro-mechanic parts, we are going to get together with them at the micro-mechanic electronical -- electronic parts, which, again, will be sold to the same industry verticals. So the company is already in the process of moving to our facility under the same roof. The transaction has been completed, and the structure of the transaction is described to you in the news release. I don't want to repeat any details just in principle. It's a bit less than $60 million in total. And out of that, a part is paid in cash and a part is paid with shares. The shares that are given to the founders is going to be on a standstill for about 2.5, 3 years, which means they can't sell them. And the idea by selling -- by [ claiming all their shares ] is, of course, to align their interest with the interests of Nano Dimension. So as we move forward after the acquisition, the founders and the employees that are working in the company will depend -- our success is dependent on the price of the share, and obviously, the performance of the company, first of all, would affect the price of the share. So this is a very, very important alignment of interest. [ There's a reason to be structured that way ]. Before opening this for questions by you, any question you want, let me just state something of the principle and for people who have been wondering why are we, in the last 2 transactions, paying part of the process by cash and part by shares, and would it be the same way moving forward? So let's start with the last. There's no same way moving forward. Every deal is a deal by itself. And there should be a reason and a justification to pay the -- sorry, to buy a company and pay by cash. And there should be a reason and explanation to pay it in shares or a combination or any which way. And it's not cookie-cutter that every deal is the same. On the contrary, what we did is unique. Specifically for the last 2 deals, the reason why we chose to pay a part in shares [ even if ] we could have paid the whole thing in cash is 2 reasons. First of all is the one I mentioned before. So people are continuing to work with the company. We want them to have shares, and we don't want them to create [ an exit in cash that we pay them ]. They become very well-off by the payment, and now they continue to work with us, but they already [ made their exits ]. So it's really not an exit. We're giving them our shares. Their shares are limited. They can't sell it in the market. So it's not diluting the market by flattening the market with shares. By the way, it's not a lot of shares. We're speaking about very few million shares, when [ we might have ] 250 million shares. So we're speaking about 3 million, 4 million shares. But even that, it is not flooding the market because they are bound by the agreement to hold it. That's the first reason, and it's very important when you deal with companies that you're actually buying the machine or buying the technology or the patents. But at the end of the day, you're investing in people, and you want the people to be motivated. Second reason why we chose to pay in shares, sometimes, is the price of the share. If, say, we have about $6 per share in cash and say, the share is traded around $8, so if I have to pay $1 million in cash, I have to pay $1 million in shares. [ Effectively, I'm paying ] in shares that is valued at $8 and I have $6 a share in cash. I'm actually paying about a 33% discount on cash by paying shares. So that's attractive. The share is traded at a premium over the cash and over whatever value the company has beyond the cash. So the premium is actually a discount on the payment [ comparing to cash ]. [indiscernible] and the negotiations, the share [ has not ] divided the price of the day of closing. So for instance, over the last 30 days of closing, the share is going to be valued at an average over the last 30 days. And let's say, in the last 30 days, the share was higher in price, the average is going to be higher than the share of the day of closing. Therefore, we're going to pay even less shares, which means more discount over cash. So that's -- again, if you don't see it on a piece of a spreadsheet, it's sometimes difficult to realize it. But people can put it on a spreadsheet and see that what I'm describing is basic arithmetics. Sometimes, it's worthwhile to choose to pay in shares to get a discount over the cash that you would be paying otherwise. And especially, if you're able to transact and to negotiate the transaction such as that the people who get the shares are committed not to sell them for 4 months, 6 months, 12 months, 36 months. It's even more attractive because the shareholders, our shareholders, myself, I'm not being diluted because the shares are not being thrown into the market. So that's a short explanation of what I would say, M&A 101, for people who were wondering where is it coming from. Back to the present transaction of NanoFabrica. The company has already had 3 machines with customers in 2 different continents. The customers are very sophisticated. I cannot name the names. Obviously, some of them is because of defense and security sensitivities and some of them because of commercial sensitivities. But we bought the company that's not in an R&D stage. It, obviously, has continued to do R&D and is evolving the evolution, the technology and the machine is evolving. But the machine is in the stage [ where it's ] already commercial. And we look to expand the sales of those machines over the next year. Moreover, as I mentioned in the news release, the founders of the company, part of the payment is based on the performance of the NanoFabrica machines over the next year, so beyond shares [ that they are holding and that are standstill ]. So they are very, very motivated to expand their business. They're going to be leveraged by our distribution [ channels and ] go-to-market because we're selling -- we'll be selling their machines and our machines to the same customers. So it's very, very exciting. At this point, I think I will stop because I want to, as usual, [ a usual manner ], to direct the following-up of the presentation based on your questions. But I'll just add one thing, which is interesting and exciting. Of course, the acquisition last week of DeepCube and which I explained at length, about the importance of machine learning and deep learning and integration thereof into our machines, is going to apply exactly the same to the machines of NanoFabrica. Those machines are going to be converted by our technology now of DeepCube into smart machines, self-correcting, self-training, with high yield and high throughput. So -- and [ to be ] part of this network of digital fabrication of microelectronics and micro-mechanics learning -- each machine is learning from each other, being now a neural network of machines. So it plays the same way. So the 2 acquisitions have synergies between themselves, [ beside, of course, selling synergies for the Nano Dimension region ]. So operator, I'll stop right here, and then I'll open it up for Q&A, please.

[Operator Instructions] The first question is from Richard Anderson of IDA.

My questions focus primarily on revenue. And I know that you've been reticent to give firm revenue guidance. But I'm just wondering if there will be any revenue -- do you expect any revenue from NanoFabrica in the next year? The second question concerning revenue is you should be sitting right now still on about $1.4 billion. And I'm wondering [ with ] your investment activities, do you foresee them being able to pay off, at least offset some of your costs? So an idea that, that will lower your quarterly cost because you're making some money off of your investment of that money.

The answer for this first question is yes, regarding does NanoFabrica expect to sell machines this year. The answer to the next question is no.

Okay. Yes. I was wondering if -- to follow up on that. I've read that a part of Microsoft's venture capital made an investment in NanoFabrica, and I'm wondering if you can explain any of these particulars, in that will money be owed back. Do they get a part of revenue of NanoFabrica? If you could explain that because that seems to be -- that was a fair amount, more than 50% of the money that was used to found NanoFabrica.

Both -- of my knowledge, the investors in NanoFabrica include Microsoft, include a venture fund called i3, which is a venture fund that has Microsoft money, so [indiscernible] investors both directly and through a venture fund that is managing the money, plus it includes other investors which are founders of [ 3-dimensional ] printing companies and other printing -- investor printing companies, the people who are investors [ after creating exits ] for themselves in the past. So all those were investors of NanoFabrica, and all those were paid by a combination of cash and shares.

The next question is from [ Jack Merck ] of SFW Capital.

Congratulations again [ with the move ]. I like it. On the earnings call in March, you discussed having a letter of intents and signed and your interest in pursuing Type A and Type B acquisitions in the PCB industry. I was wondering, again, if you can elaborate if you are still pursuing Type A and Type B companies and the type of revenue that these companies have because I imagine, they are larger companies with already established book of business.

It's just [ like, a, increase ] of the industry. And yes, they have revenues, and the revenue is anything between a $40 million to $150 million per each.

And my second question is, is it your belief that the investors who bought into the $12.80 offer are still holding?

I have no idea. I have no idea.

The next question is from [ Eric Metz ].

I have a couple of questions to you, more about vision and strategy. Can NanoFabrica printer accuracy can be adjusted from micron to nano precision in the future?

From what to what? I'm sorry.

From micron to nano precision.

Not to my knowledge. And by the way, if it was, and if it would be a big investment in technology to do that, I would not be interested because the target markets that we are selling it are not interested in nano -- in a nano accuracy. They are interested in micron accuracy.

I understand. The other question is what do you think about developing or acquiring a company for 3D-printed semiconductor chips?

3D-printing of semiconductors, what?

Chips.

Chips?

Yes. Chips. Semiconductor chips.

I don't know what you're talking about. I'm sorry.

1 second. Okay. So other question. Can DeepCube's AI be used to assist engineers to create 3D circuits?

No. The DeepCube technology of deep learning and machine learning is aimed at running and converting a machine to be an intelligent machine, [ which is ] correcting its own mistakes, errors, while it's performing the printing process. It's not -- there's nothing to do with the design of circuits.

Okay. Going back to the last question. By chips, I meant integrated circuits, 3D integrated circuits, semiconductor circuits.

What is the question?

What do you think about developing or acquiring a company for 3D-printed integrated circuits? Like [ for those small chips ], for example, CPUs or GPUs. Now -- right now, we have a very big shortage on the market for those type of things.

We're not in the semiconductors business. And we may be in the future, but right now, we're not in the semiconductors business.

The next question is from [ Jordan Star ] of [ LS Equities ].

My question is how long does it take to produce the DragonFly machines, especially with the new ones coming out, assuming that orders do come in? How long is that going to take to turn the machines around...

A few weeks [ for a ] machine. We have no limitations on production and assembly capability right now for the foreseeable future, which means when somebody buys a machine for $400,000. Until now, we deliver the machine within a few days. And if we have -- and as we have and as we are starting to see and we're expecting to see, once corona is phasing out, more machines are being ordered. Then even if the machine is being delivered, not in a few days, but in a few weeks, then it's not an issue for somebody who's buying such an expensive machine. In any case, the customers need to plan the timing for us to come to install the machine. It takes a couple of days. But with the corona, we can't even -- they don't allow companies to let people in the country, not to speak about into the facility. So the production rate of the machine is not a bottleneck at all.

Okay. My question was just that as you go to mass production, in that direction, assuming people will need a lot of machines at once...

As we go into mass -- we are in production. If you want to expand it, you double the size of your facility and you build more machines because the machines are being built as subassemblies and then you assemble the subassemblies. It's very well-organized. The supply chain is easy for us because we don't manufacture in China. [ When the only ] limitation is neither political nor tariff, we manufacture in the western world, so we don't see a problem there.

[Operator Instructions] The next question is from [ Bob Singaranito ] of [ PI ].

Nice acquisition. My question is are you in the process of due diligence on any other companies you are looking to purchase or merge with? And will the next one have revenue?

Yes, and maybe.

The next question is from Herman, Brian of ViewTrade Securities.

With integration on NanoFabrica, is it integrated into your existing machine? Or is it an option to be able to purchase both machines or a bundle?

No. The idea is that, initially, they will be able to purchase both machines as a bundle. But in the next generation of our machine, we will integrate the technologies into one machine, but it is not going to eliminate the existing of each machine stand-alone.

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

Sure. Again, everybody who participated, we have quite a lot of people on the line as usual, which makes us very happy. We want to thank you for your support. Thank you for your questions, which are always encouraging us to think deeper and to respond in a most accurate manner possible. We are looking forward to be with you on the line soon again for good reasons, I should say. And we appreciate the fact that you enable us to carryforward the vision. We believe that value is trying to climb up, and we are very happy about it. And thank you very much.

Thank you. This concludes the Nano Dimension Investors Update Call. Thank you for your participation. You may go ahead and disconnect.