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

Hi, everybody. Good to see you again. We're going to speak today again about the acquisition of Stratasys as proposed, we spoke about it yesterday on a short video. I will give you a little bit more data today about the company. And what I'm talking today is aimed mainly to the shareholders of Stratasys and the shareholders of Nano. Why the shareholder of Stratasys should sell for the price because I think the alternative is not as good. And why the shareholders of Nano should be excited from the combined company. Now we'll start a little bit by details, then I'll give you the outline, then I'll dive into the details even more. There's good things in Stratasys and there's bad. Other than the CEO, which I have met, which I was impressed with and a gentleman, Yoav Zeif, which is new, just joined 2, 3 years ago. The good things about Stratasys the company is they have a very, very good distribution, go-to-market and marketing. They have control in the section of the market that is polymer additive manufacturing. They have good software. While it's islands of software, it's not really a whole system, we will make it a continent. So they built it over many years through a lot of acquisitions. And they have a very good position with $600-something million. But other things are not good at all. First of all, they only grew the company based on a material, which means it's a big mistake. I actually spoke with the ex-owners. They told me it was a mistake. And because the customers today are not asking only for polymers, they want materials like metal printing, they want ceramic printing. And they're going to all these customers, they have 200 distributors. And although they can sell these polymers, the market for polymers is full, their technology is outdated, not new. They wanted to get into new technologies. They bought companies, but they paid a lot. And they're still stuck with polymers. And the growth in the market where it goes into production is, first and foremost, in other materials. So that's not good. They did a lot of acquisitions, which they didn't really merge, which is a big issue. That's the reason their profitability -- one of the reasons profitability is not great at all. And it's not so simple to make it profitable. They don't have a business model that works across the board, sizable because they have machines that are selling at certain gross margin. Consumables, materials they are selling at much higher gross margin, which is kind of okay because they're selling it to the same customers. So it's like a razor and a razor blade. That's not bad. That's good. But 1/3 of the business is service business. They are actually competing with the customers. They are using their own machines to manufacture parts either as the prototypes mostly and a little bit for production because it's all polymers. So 1/3 of the business is competing with the customers. More importantly, it's 30% gross margin. And the rest of the business should be 50%, 60% gross margin. Doesn't work. Small company becomes actually a bunch of small companies together. It doesn't work. The result, no growth. Actually, the shrinkage of the top line, very high expenses, low profitability overall or it doesn't exist. Just to give you a little bit of a taste of no growth, if we look at their historical results, we'll just take 5 years, okay? 2018 to 2022. Revenue $663 million, $736 million, $520 million, $606 million, $651 million. And if I went before 2018, they were already at $750 million and went down from $750 million. It's like drunken zebra, the top line and the gross profit is a subsidiary of the drunken zebra, very difficult to run a company like this because there's no sustainability of a business model going forward. And I don't expect it to change in spite of you have great efforts and in the right direction, I must say. I like what he was doing here in the last 2 years because next year, they even said that they are going to be less than this year, revenue. So what am I going to discuss here today? That's kind of the background. So you'll know who we are talking about and what's the opportunity. But we looked at it over almost a year now, but that's really formal declaration because I looked at this for 4 years. I started to speak with the ex-Chairman and major owner of Stratasys in 2018, I think, or '19, and I learned about the company and then a year later, nothing happened, and I joined Nano. After 2 years at Nano, I start to say, listen, this company is a neighbor of ours and it's not being run well. And our team and ourselves started to study. We bought 15%, became a major shareholder, actually the largest shareholder, with a thought that we want to see how things advance, how is Yoav moving forward in the last 2 quarters of the year. And we came to the year-end of 2022. We looked at the result, we said, okay, the opportunity is still there. We had enough to study. We have bankers like Greenhill and Lazard, which are expert in doing the outline analytical work together with us, and we're very excited to move forward. It's also going to be great, as I said, to Stratasys shareholders, and we'll speak about it in a few minutes. So we will proceed with, hopefully, partnership with the management. I spoke with the others I told you. We agreed that we will proceed and inform each other how things are moving forward. If they agree to a proposal we send them, they asked for -- informally for a few more days. We're doing it friendly. We'll give them a few more days. But we didn't hear from them. So I want to talk to you and tell you, the shareholders, that if we're not going to hear from them soon, we're going to go all the way to you, shareholders of Stratasys. We are going to offer you a price which we think will be very attractive. And you'll make a decision if you want to sell it or not. Alternatively, Yoav and me are talking and we may decide beforehand on the price and then their Board will recommend to you. I'm not sure because I think they have a problem and the Board will speak about it. The ABC guidelines for executing our strategy is, first of all, first of all, as we merge, we're going to amplify the profit growth. We -- the market is sick and tired from companies that are growing in the top line and the bottom line is becoming worse and worse. The opportunity with the combination of Stratasys ourselves is we have the growth engines because we have the machines and the technology that they don't have outside the polymer field, which is a growing field. They have the distribution channels. We're going to apply our technologies over their distribution channels and their distributors and expand the sales but on a profitable manner because we'll just add to what exists in overhead. We don't have to build new overhead. We are, as a result, going to become a market leader by far, both in size and especially in the breadth of the technology per their size. And we're going to create long term -- actually, it's going to be medium-term and long-term share -- sorry, value and hopefully, it will be translated into share price for our shareholders, Nano, which are going to end up being shareholders of Nano Stratasys, one company. So upon closing, what we hope to offer to the 2 groups of shareholders is great cash that is not going to be there in the foreseeable future for the shareholders of Stratasys and a great upside for our shareholders. And by the way, for anybody of you, shareholders, and I'm sure many of the retailers not talk to me, they're already not paying attention to the Murchinsons -- or call them Murchin/Anson. They claim that we are doing this transaction in order to fight this proxy fight. This transaction started before they knew the name Nano, these people. And they only came to our vision frame in September, October, November, and we started this in -- before July. That's not to speak about me looking at this company 2, 3 years ago. So we're excited about it because we finally get to what we maintain the money for. And by the way, as you know, we looked at so many companies that by now, we have about 3, 4 other companies that we are talking to them, and I'm saying it all the time in our news release, so it's not new to you, that even if this deal doesn't happen, we're ready to move on other transactions because the prices are finally right. The market went down. We finally can buy things that is going to create return on investment for your shareholders. Not a return on investment of $4 a share by dismantling the company, return on investment with a multiple of EBITDA of 15x, 20x will be multiples over this $4. So very exciting. What else we can speak about? We can speak about what we think are the structural problems. We think the structural problems are going to be with the Board, unfortunately. The Board of Stratasys is an agency problem -- has an agency problem. It's a Board that's there for 10 years. It includes 3x years that have done all the mistakes that were done in the past. And by the way, mistakes have been done all the time. People who don't make errors end up doing nothing, nothing. I think I mentioned it before. If you don't make mistakes, you don't do anything. But the problem with making mistakes, staying on the Board, paying yourself whatever your payers have decided to be on the Board, your new CEO, which is not on the Board, by the way, and have these new ideas, for instance, dismantling mistakes that happened in the past. And the dismantling of the mistake will reflect bad on you ex-CEO sitting still on the Board. Certainly, you're not getting rid of the service business. Make a Board, which was purchased a $30 million business, which was purchased for $600 million. Eventually, it was paid only $400 million because some of it was based on performance, but they didn't perform. So all this are staying like, call it, piles of tar on the beach. You used to be in the past on Tel Aviv beach as well. Because you can't get rid them, they get sticky, and you can't clean it up. And Yoav Zeif is a smart guy. He knows what needs to be done. And I'm afraid that when we will offer the Board a very attractive offer for the shareholders for the same reason, they will want to stay incumbent. They know they're not going to be there afterwards. So I hope it's not going to happen, but if it will, shareholders of Stratasys, which I look at you as people I have to satisfy now in a very professional manner, we'll go to you. We'll offer you the offer. If you decide to take it, we'll have a great partnership with Yoav and his team, the whole management team because we are not doing it without the management team. And if you say no, that's fair. We'll stay friends, and we'll do other things. By the way, look at another company, 3D, which is a direct competitor of Stratasys, smarter because they did not stay only in polymers. They have other materials. They got rid of the mistakes they made in the past, and they made a lot of mistakes. They also had a lot of acquisitions that was wrong. They got rid of it. And things that didn't happen here. And we are going to do it. The benefit of those actions to be to our shareholders, obviously, but we will pay a fair price for the Stratasys shareholders. For people who are reading reports from analysts about this transaction, which have sprung out over the last week since we announced it. Some wrote things which I'm going to read to you, which doesn't make sense in a total way that I kind of asked myself where are they coming from. For instance, one of them wrote, an analyst, there's no -- he doesn't see synergies in the technologies in this merger. Well, of course, there's no synergies in technologies. We're not looking for synergies in technology. Synergies in the technologies between 2 companies, unless it's a technology that is complementary, is going to overlap and make things inherently unnecessary. We have complementary technologies. The synergies are in distribution channels. The synergy is in the ability to build a business model that delivers dollars from the top line to the gross margin, increase it from this low gross margin that they have, relative -- in relative terms and deliver it to the EBITDA. So we're not looking for synergies in technologies. We're looking for complementary behavior of technologies. Software, they have very interesting software. We have machine learning. Actually, we have deep learning -- machine learning is something else. Deep learning, which are the only ones that have it in the industry today is ourselves. They don't have it. We can combine it together, and we will make islands of software that they have all over the place from the acquisitions, the sporadic acquisitions, we'll make it a continent, as I mentioned, which is synergistic, which is a solution for what I'm talking about for a year now, 1.5 years. Cloud manufacturing, the network of doing all digitally until it actually gets to the printing stage, which is going to be on the edge device, like in the PDF industry, where you print the edge. So I would like to go and discuss with you certain response to this transaction that were by industry analysts. And let's start. Let's start say with a report from Credit Suisse, which did not -- at least I didn't see a response to this transaction. But Credit Suisse in August, only 5, 6 months ago in '22, said that the company is such a good state Stratasys that they gave it a $24 target price. $24 target price in August. Since then, the share over the last 3, 4 months is between $13 and $14.50. And $14.50, it went up because of our proposal. $24 down to a $13, $14. That's an analyst. But more interesting analysts, not from a major bank like this, from a small outfit somewhere in the Midwest. I don't want to give names because I don't want to make it personal. This analyst is writing a report about companies in the industry. And he writes periodically as analyst write report. So I'm going to have some quotes from his about Stratasys. And I will just -- I'm not talking about getting -- it's going to be long. So I'm not getting into the actual wording, which I read it and that didn't make sense. But I'll just quote the numbers. So in August 2, this gentleman from the Midwest said, the company is a buy recommendation with $29 target price. That was 6 months ago. In September 15, '22, he wrote Stratasys is buy with $26 target price. He also wrote a note in August that it's actually $28 or $29, so he was already kind of taking it down. Then this gentleman, after September 11, he writes -- when he writes $26. He gave Stratasys $19.25 recommendation. And then in March 10, '23, he's giving it $22 recommendation. Meanwhile, the share is $13, $14. So over a year, almost a year, there's a gentleman here that discussed and understands the business, understand and recommends to buy with target prices swinging from $29 all the way up to $19. I'm saying up, all the way to $19, and then up to $22. What changed over a year, can you make a decision, why am I mentioning this gentlemen, because I'm going to quote to you what he said about this acquisition. Very entertaining. He says Nano, he writes for all intents and purposes, is a [indiscernible] company, it's not an additive manufacturing company. Their DragonFly is not successful. It's occasional sales here and there, not gained any real momentum, and there's no synergies with Stratasys five technologies. Well, of course, we don't have synergies with technologies. I told you this 5 minutes ago. We don't want to have synergies with technology. We want to expand the technologies, complement them. And by the way, the -- us that we're kind of small or no success, he doesn't know that we have $45 million of revenue. He doesn't know that out of $45 million, half is additive manufacturing or metal, additive manufacturing of ceramics, additive manufacturing of printing heads, engines, additive manufacturing of electronics, additive manufacturing of dispensers for glue and other things and additive electronics. So no synergies? Guess who is Stratasys is selling to. They're selling to aviation. They're selling to aerospace. They're selling to advanced industrial. They're selling to medical, I've said. They're selling to Academy. They're selling even more to things that we don't sell. But all these 5, 6 that I mentioned to you, we sell as well. So the Lockheeds of the world and -- which is defense or the Airbuses of the world or the defenses of the world, we all sell to the same customers. The 200 distributors that they have are hungry for more products, which they can't supply them because they can only supply products -- sorry, machines that make polymer products. We can supply the rest of it. There's actually tension, which I know because I interviewed distributors of theirs. There's tension. I sent a guy that is an executive in this field, and he interviewed their main distributors. I didn't want to do it because I didn't want to interfere with the company's business. But remember I know the company for 4 years, so I know what happened in the past. The distributors are under pressure from reduction of margin and the reduction of margin is a fair request from Stratasys because they want to make more money. So there's a conflict of interest here. And the distributors, some of them have major portion of Stratasys revenues from them. Here we come, merge the companies, and we give to those distributors more products to sell, more margins for them, everybody is happy. But this guy doesn't think there's synergies. What else he doesn't think? He thinks that we're paying -- the price is too low that we offered, $18 a share. The price is too low. You recommended $29, then $26, then $19, then back to $22, can I rely on your price? Everything you recommended in this company, the price stayed at $14. Actually, it was a $18, went down to $13, $14. So I'm not sure if you know what you're talking about. And then he compares other companies in this industry and say, well, Velo3D and Desktop Metal, all traded at 4x revenue or 3x revenue. Oh yes, sure. They traded and they have cash, which is enough for between 2 to 4 quarters because they are losing almost the same amount in dollars of their revenue. So somebody is selling $80 million and losing $80 million. So, excuse me, those are not Nano, these are companies much more advanced than Nano. We are spending money on R&D as well. But those companies are losing money because they don't have gross margins. When you don't have gross margins, you'll never make money. And those companies are traded, well, they're traded because they are spot refugees. They are a result of the history of the market that was so crazy over the last 1.5 years. So no, that's not the comparison, sir. Bottom line, I have here about 4, 5, 6 reports of analysts, one of them is actually very interesting from September 2022, which claims that the biggest stumbling block has been the acquisition department of Stratasys. They have hoarding problems when it comes to 3D-printing companies. They just right away acquire, don't integrate and ends up not profitable. And they paid, for instance, for Objet, the Israeli company, 10 years ago, $624 million which they wrote off $450 million out of it. They paid about $400 million for the company MakerBot, which has now spun out. It's not even in the company anymore. And it's all before Yoav's time. Yoav is now trying to fix it. But he has a Board and the Board, which he's not part of, I'm not sure he's learning it to fix it fast enough. So we have this analyst that actually writes a much more realistic report. And again, I wouldn't give his name because it's not personal. I'm trying -- that's how we do due diligence besides learning things ourselves, we also read what other people write. And this guy is actually writing very, very smart. It doesn't say, by the way, there's no opportunity. This guy that is criticizing Stratasys so much says there is an opportunity because I think I mentioned one of my videos, there are certain people who look at an opportunity and see the problem. And there are certain people looking at the problem here and see the opportunity. I'm seeing all the problems for us as an opportunity. For you, the shareholders of Stratasys, it's an opportunity because somebody like us is ready to pay cash, so much more than the stock is trading in the direction it's going, opportunity. For Nano shareholders, opportunity. For the management of Stratasys, opportunity because suddenly, they'll be part of a larger company, not much larger because we are only $50 million. But within 2 years, I'm telling you, this $50 million is going to be a very different number, a lot of it because of the help of Stratasys go to market. So it's a beautiful transaction to be completed. You need to want it. I don't think that I'll be able -- I hope that you all will be able to convince this board and to have the transaction negotiated, and then it's much, much easier, quicker because the minute these things start to take longer, we may lose the opportunity. Because things are going down eventually because Stratasys will go down this year. They projected it. We are going up, by the way, this quarter, at least I'm seeing it. But the transaction just has to be fast. And if we'll go to the shareholders, it will take longer, but we'll do it. We'll go around the Board if they can't settle it with us. And then it will be your decision. As I started I said, I respect, of course, and I would love to be for a little while working with you shareholders of Stratasys. And later, I may come back to you and ask you to become shareholders of Nano Stratasys because you are serious players. Some of you have been here for a long time. Actually, some of Stratasys shareholders are our shareholders. And I know them, serious people. So if my vision will come true, we'll complete the deal, the shareholders will get the cash and then I'll get back to you and say, "Hey, why don't you put the cash and buy again. Now we have a combined company, it will be much more successful. Wouldn't this be nice?" I hope so. Thank you very much.