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

Good day, ladies and gentlemen. Welcome to Nano Dimension's Investor Conference Call regarding its special tender offer for Stratasys, NASDAQ-listed SSYS. My name is Anthony, and I'm your operator for today's event. On the call with us today are Yoav Stern, Chairman and CEO; Yael Sandler, 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 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 by going through Nano Dimension's special tender offer for Stratasys along with comments relating to the Stratasys' other activities, including pertaining to Desktop Metal. This will be followed by question and answer session at which time the management team will answer questions. I would now like to turn the call over to Nano Dimension's Chairman and CEO, Yoav Stern. Yoav, please go ahead.

Thank you very much, sir. Hi, everybody. Thank you very much for participating. We have a very, very full agenda today. So please excuse me if I'll be speaking a little bit faster. Let's start by defining going my speaking to today, of course, I'm speaking to you, but my target audience is very clear. First of all, the Stratasys shareholders; secondly, as usual, Nano Dimension shareholders because those are the 2 shareholders group that are going to be involved in the combine that we are presenting. And of course, others, market players, analysts, we'll be happy to answer your questions, and we're also aiming to you. But mainly Stratasys shareholders. Before I get into the main subject, I want to have a very clear request and thank you very much in advance. We are not going to speak about anything else other than the Stratasys transaction, our proposal to acquire Stratasys and as it relates to Stratasys Desktop Metal transaction as it relates to the whole matter. We're not going to discuss the Toronto groups, whatever games they're playing, and we're not going to answer questions regarding that. But hence, I'll just tell you 2 points about the other 2 issues. First, the business situation, our business situation is great. Our last 2 quarters, Q4 2022 and Q1 2023 were the best quarters ever in the company on all growth organic. And our third -- second quarter, which we are into, the end of it soon, and we will release the second quarter -- the first quarter results as well as second quarter is also going according to budget, which means we are growing at more than 35%, 40% more than that organically for the last 3 quarters of the year. Great. Secondly, whatever the Canadians are doing or not, we are in an agreement with them. Just whatever false information you're getting about the legality of the Board, them changing the Board, the Board is the Board, it has been before. I have been the Chairman and the management while moving forward. We have a Board. We have -- sorry, and judged -- a court decision wording it. We are continuing as a Board, and we are allowed to complete the Stratasys transaction. So any information sent to you, gentlemen -- ladies and gentlemen, the Stratasys shareholders from Stratasys or from whatever else is in some northern country that it's illegal. It's totally legal by a judge. Moreover, the Stratasys shareholders that we're offering $18 a share is very simple. Their broker is going to get $18 for a shareholder only. If we are not going to add in the loss, we're not going to give the shares. So that's totally normal. And that is very, very important to understand before we get in the presentation. Now we get to the presentation. How do we get here? Well, we got here by being the main largest shareholder of Stratasys, and I'm talking as the largest shareholder of Stratasys. Unrelated, if we will win the bid to buy Stratasys or not, I'm very much against this very unqualified and doesn't look smart transaction in any case. Why? Why do we know so much about Desktop Metal? Well, first of all, as I told you, our shareholders, not Stratasys, we have been looking at -- Julien, more than 350 companies over the last 2.5 years?

At least that.

At least 350, out of which at least 50 we were talking with. And guess what? In November '22 and since then, we have been performing a due diligence on Desktop Metal. I'm talking about visiting them and then visiting us. We know very, very much about Desktop Metal. Not sure if we don't know about the more than of friends of Stratasys. And we have decided in the process to offer them an offer that we thought was demonstrating the fact that the company is in deep trouble and getting close to finishing their cash and not growing too much organically a little bit because they did so many acquisitions without control and then $100 million. So we said, guys, we locked this alternative. We refused for the request. That was early January. So we know very well, what to expect there. About Stratasys, we thought Stratasys have its own issues. It's a company that flat top line over the last 10 years, going up to 700, going down to 500, going up to 600. But we thought there's a lot to do with Stratasys for combined company of Stratasys and Nano Dimension, very, very exciting, and it's a much better company than Desktop Metal. I can tell you that. Still has its issue. So we offered $18 a share. Then we offered $19.5, then we offered $20. They refused for a friendly deal because they claimed 3x excluding publishing to you, ladies and gentlemen, the shareholders, the $20 a share for sure the lower numbers is too low for their valuation. Now the share is $15 or $14. And they're using the same share that you could get $20 for it and generating 16 -- or 17 million -- 16 million new shares to play with those shares, $800 million for a company that you'll see in a second, what is it doing to whoever is putting money there. That is interesting because a Board that says $20 is not enough is using this share at $14 to buy other company that by itself is overvalued. So they're paying with very expensive share because it's very low value, as you said, for a very distracting value asset. Moreover, I want to tell you that I'm not sure you know, ladies and gentlemen, I'm speaking about the shareholders of Stratasys that the Board committed to pay a breakup fee. Now when you do an acquisition of a public company in the United States, the company that's being acquired, if it's public, is committed to open up its shares and itself to new buyers, if you made an agreement with 1 buyer at a certain price because there's a commitment by law to offer if somebody else is coming to pay more. But in cases like this, a seller is putting a breakup fee. So the company is going to pay more is going to pay more plus a breakup fee, which will coverns supposedly the expenses of breaking the deal. But never or seldom or if at all, the buyer is committed to breakup fee. The buyer here committed himself that if -- the buyer is Stratasys, if it will be purchased by somebody else, means us, we will have to pay $32 million to Desktop Metal. Do we understand, shareholders, does -- what it means. $32 million is $0.50 per share, which means if I offer you $18, I could have paid you $18.5 instead of paying you $18 and then once I complete the transaction, now I have to pay Desktop Metal out of your money. This is what your Board has done. He's going to force you to reduce your share price by $0.5 because if this is successful, we'll buy the company, and we'll be owning $32 million, which should be yours. So I want to tell you something to summarize this slide. Even if this transaction is not happening between us and Stratasys, we will be against this transaction with Desktop Metal as strong as we can as the major shareholder, and we have been approached by other shareholders of Stratasys, institutions feeling the same way wanting to join us to oppose this transaction if we don't buy them. Next slide. $18 per share for Stratasys delivers immediate and certain all cash value at the premium. When I say certain, again, I'll repeat, this false data that Stratasys is spreading, including this morning, where there a little bit funny news on this that, well, you don't know if the transaction is not certain, it's very simple, ladies and gentlemen. You have a car. The car is great or not so great, but you're selling it. Comes a guy who wants to buy it. He gives you a check. You take the check, you give him the keys. If he comes and says he has money and one day, he'll pay you, you don't give him the keys and you may get the money or not. This is the case. You won't have a share at your broker, you don't have a risk. If the broker gets $18 per share, you get the share. If not, your share stays yours. So totally disregard what Stratasys was saying about, oh there's a risk here, there's a risk there. Not to speak about the fact that you have a judge behind us saying, you're allowed to do it. But put this aside. The all-cash purchase is, again, deceiving information from Stratasys' Board, it's 38% to 40% of outstanding share and it's a premium, huge premium to where your share was when we started. Your share was $13, $12.8, $13.2. And when we started and offered $18, $19, it went up to $16%, $17, if I remember right. So you're getting a great premium that the share hasn't seen for long, long time. This special tender offer is going to expire, ladies and gentlemen, on June 26 at 11:59 p.m. We will remind you of this, of course, in the next 4 weeks. So we want you to respond, we want you to participate and -- but you won't be able to if you are going to be delayed. Closing the tender is certain -- is subject to certain condition. Most of the countries are pretty standard. Some of them are conditions that the Board of Stratasys, put it like a poison pill, we believe it's illegal, so we don't think this will stop us, and we'll move forward. What are we offering comparing to what are you being offered by your Board, Stratasys people, Stratasys shareholder. It's really interesting. I must say that I'm quite excited because of what's happening because actually, the shareholders of Stratasys are having the best of both worlds. On one side, on the left in green, we're offering an immediate cash at a premium, 39% premium to the 60 days VWAP, the weighted average price as of March 30. March 30 was when we started this process, and we started to offer it to all shareholders. Unfortunately, because of the Board, we can't offer it to the shareholders, now we have to offer to 55% of the shareholders. Very nice premium. On the other side, you are being offered, look at the [indiscernible] of the red, 41% dilution. Each percent that is owned by one of you is going to be worth tomorrow, 0.59% of the combined company. It's a poor -- it's a vote of lack of confidence of the Board and its own strategy of developing the company. They are buying almost 50%, diluting almost 50%, 40-something in a company that's losing cash all over, and you'll see it in a second, pay a premium to a much smaller company even the rent -- forget the fact that it's losing so much money. They're paying for a company of $200 million revenue, and they are, Stratasys is $650 million, almost 50-50. So move to the next slide, it describes here, what does it really mean when a Board recommends to its shareholder to do a deal like this comparing to sell their shares for $18 is a beautiful return. The lack of conviction in their own plan, it's a lack of conviction in Stratasys stand-alone. By the way, I think I have a better conviction in what Stratasys can do stand-alone together with Nano and Nano's business is $50 million to $60 million. And said that we -- our money can -- we can be breakeven in no time just because we're investing in electronics is almost a different division of a company. And I'm convinced that Stratasys can do it without this U.S. dilution. The Board is not convinced. It's not a merger of equals. The gross margins, which is probably the most important factor in the financial reports and the financial performance of the company that will lead to profitability, return of investment, earnings per share is gross margin, much more by the way, than revenue. Of course, revenue is important for growth. But without gross margin, look in a second, and I'll show you about Desktop Metal, a company that grows without gross margin. But Stratasys is 44% gross margin. By the way, we can make it higher. But it's 44%, it's respectable. Desktop Metal minus 3%. So what are we talking about? How do you make money when you have minus 3% gross margin? So Stratasys members, you're bailing out Desktop Metal. They are running out of cash after destroying over $2 billion of cash shareholder value. And all this came because they were merging with SPAC, I call them a SPAC refugee. And by the way, there's about 5 SPAC refugees in our industry. We spoke with all of them. We're actually talking -- the only ones that we dropped out is Desktop Metal because we thought it's the typical SPAC refugee that we should not touch because of the numbers, the rate all over the numbers. But they did 10 acquisitions in 1 year, I think they did 12 to 13 in a few more quarters, and they never merged them and the company is like a pile of companies. Next slide, speaks about the contribution analysis of the merger, what is contributed by Stratasys and what is contributed by Desktop Metal. And remember, ladies and gentlemen, I'm talking to you as a shareholder of Stratasys. We have invested $170 million to buy shares in cash, and we are holding it loyally for a year now, almost -- and we didn't demand to replace their board, we didn't demand to replace their management. We're loyal shareholders. We never got a phone call from them over the last year. Nobody spoke with us, the largest shareholder, before we started trying to buy them. So Stratasys and Desktop Metal, what is the combination? Look, revenue in Q1. Let's look at Q1. I don't care about the future projections because, as you know, every company gives projections, the future is bright. The past is dead and the present for me is what matters. The present is Q1 2023. So we took Q1 2023 of the combined companies and then multiply it by 4. I know other quarters may be better, but we just took this quarter. We know what they did this quarter. Look at this. Stratasys revenue was $600 million, Desktop Metal was $165 million, ratio of 78% to 22%. The gross profit, again, multiply by 4, Stratasys is 262, 44%; Desktop Metal is minus $5 million, minus 3%. There's no ratio here. There's 0 to 100%. The EBITDA of Q1 multiplied by 4. Desktop Metal is minus $156 million. Stratasys is minus $7 million. By the way, Stratasys don't publish their EBITDA, they only publish EBITDA in non-GAAP and adjusted, we had to do some calculation because to understand what the EBITDA. But we understand Stratasys missing $1 million here or there, but it's a little bit minus, again, not justified, but not like 160 -- $156 million. So then you, look at this and say, those companies are merging almost as equal 50-50, 59-41. Even their valuation in the bottom, if you look. Their valuation, the [indiscernible] value is 56 to 44 -- and the fully diluted [indiscernible] is the 59-41. But Mr. Stratasys, Mr. Stratasys, you're paying for a company that is less than 1/3 of your size, that's losing hundreds of million dollars a year projected or at least multiplied this quarter by 4. You are basically mortgaging your future, it's not your future, you are mortgaging your shareholders' future. So we move forward. Stratasys and Desktop Metal, a tale of 2 companies, Charles Dickens, A Tale of Two Cities. This is worse than A Tale of Two Cities. Look at the blue, these are Stratasys. Now it looks pretty impressive. Fiscal year, look at the left upper quartile, 2021, '22, to remind you, Stratasys started at $750 million, only 4 or 5 years ago. They went down to $500 million . It's not so great, but it's a real company, guys. Stratasys is a real company. $500 million, $600 million, $650 million with certain growth of the gross margin. Okay. Look at Desktop Metal beside them. This is mostly from acquisitions. Now you look at graph #2, gross margin. Stratasys, steady nicely -- by the way, too low, and we have a lot to speak about what we would have done and will be doing to improve gross margin because we are focused on profit if we do the acquisition. And look at Desktop Metal, minus 91% gross margin, and lately, in 2022, 7% gross margin, a company like Desktop Metal, which is supposedly innovating start-ups, starting should have 60% gross margin. 7%, you'll never make profit ever, ever, ever. Item 3, Graph 3, operating cash flow, Stratasys generated operating cash flow up to '21. Unfortunately, and we know why, but we'll speak about it separately, they lost $75 million in cash -- operating cash. Look at Desktop Metal, as they grow the top line to $200 million, they grow the bottom line to minus $200 million almost. Net cash on the balance sheet, look at fiscal year '22 December, Desktop Metal had $77 million on the balance sheet, net of their debt. They have $120 million of convertible debt. Net, $77 million. They burned $39 million Q1 2023. They have 2 quarters to live and Stratasys bailed them out. Why? The tale of 2 companies continues. Look at the Q1 of 2023. This is real numbers. The revenue is $149 million. The revenue of Desktop Metal is $41 million. Gross margin -- not that it's not even 8% or 16%. It's minus 3% for Desktop Metal. If you combine those things, Stratasys is going down, and it's going to take Stratasys 3 years to fix it. Believe me, we spent 2 months in a negotiation discussion with Desktop Metal. I can from memory describe to you where the numbers are going and how long it will take to fix them. We saw the plan, and it doesn't look good. Operating cash flow, 2 companies together is almost above minus $50 million of cash flow, and the combined net cash that they have net of debt that Desktop Metal has is about $300 million, $320 million, losing about $50 million a quarter. That's in 4 quarters is $200 million, guys. This company will never do any acquisitions and will spend their money trying to run itself to the ground. And let's go a little bit back to history to reflect. Weak projections we've heard before, in Desktop Metal. This is from Desktop Metal presentation to the SPAC, when they merged with SPAC in August 2020. And look at what they projected, they -- in 2022, they projected to be $166 million in revenue and 0 profit, which means no loss. Go back please, 2 slides. And you look here, and in 2022, they were not 0. They were minus -- look at #3, minus $180 million in cash. They projected to be 0, which means profit or not a loss. Back to the slide that we were before. This is the people that told you that they'll be where they will be, and you are now merging with them. Growth that has happened to them mostly from acquisition and loss grew faster than the growth. Next slide, we'll also give you a little bit, even though I like Stratasys very much, I like the management, I don't think their board is doing good for the shareholders. But Stratasys announced in 2015, there'll be $1 billion, which was announced in -- based on Q4 2014 results. In Q4 2022, they will be $1 billion in 2026. And now a month later, after they spoke with Desktop Metal, they will be $1.1 billion in 2025. Guys, the market has changed. This is not what we were, where we were in 2021, early 2022. The market is moving back into profitability, return on investment. Who do you think cares if you are a $1.1 billion company when you combine with Desktop Metal and losing $200-something million in cash. Do you think the market will care and will give value to your shares? No. The market now wants us to be together with you and with the management coming from the combined company and merging 2 companies that are 0.25 miles apart their headquarters. The amount of money we will cut and take to the bottom line, you are taking instead the transaction with a value-destructing company like DM, spread all over the world from 10, 12 acquisitions. You'll spend $400 million in the next 3, 4 years, just to try to fix it. The next slide is speaking a little bit about what we plan to do, I spoke about it before, I don't want to get into a lot of details. But on the left side of the slide, you see something interesting. If you look what Stratasys used to be, these guys, the table is the merger of a once upon a time Stratasys is an object. Two companies together, $270 million, almost $300 million with growth of year-over-year of 30%, 35%, with EBITDA of 16% to 25% with gross profit of close to 60% with income, net income, I don't know if somebody remembers in Stratasys what is net income. Net income of 13% non-GAAP net income higher than that. And since then, guys, this was 2012, Stratasys went from $300 million to $7 million and within 2 years sliding back down to where it is today. And guess what, guess who sits on the Board, on the Board sits people who are managing this company on those times, who did those acquisitions on the Stratasys side. So go think about it. How can they admit to their mistake? So what are we going to do? Very shortly, guys, 5 points on the right. In the last 5 to 10 years, Stratasys was focusing on pumping up the top line, we're going to stop that. We're going to be focusing on gross margin. The gross margin will never grow the way they are today because they have a service business, which is 1/3 of the business, a 30% gross margin. It doesn't work. It doesn't work with the machine business. It doesn't work with the material business, something has to change there. And something has to change by the management and especially the Board stopping to think about growing the top line because that's not what's important. What's important is earning more dollars for the shareholders on a per share basis. We will integrate that our Nano growth engines, and we have growth engines, guys, believe me, as I told you, we grew from 5 to 45 in 1.5 years and now this year, I can't tell you yet, but we'll leapfrog forward. Look at our first quarter, if you wish, we released the early results and multiply it by 4, same thing I did for Stratasys. And in our case, it comes to a very high number. But first quarter multiplied by 4 is close to $60 million, and we were $43 million last year. So you can realize, we have growth engines, additive manufacturing, additive electronics, precision manufacturing, ceramics, metal, polymers, all organically growing for almost for a year. We'll drive a successful integration, and we will leverage the go-to-market of Stratasys with our product, not with our overhead. Our offer is going to disappear because I'm going to lead it and it's going to go down to the bottom line in a few quarters of the combined company. The immediate strategic focus will be gross margin, EBITDA and EPS. Ask me when we are going to be $1 billion or $2 billion revenue company, my answer is, I'll be able to tell you when we are going to earn dollars per share. And when our EBITDA is going to be 12% to 15%. I'm not going to tell you where are we going to be $1 billion because it's not important. What's important is how much money is invested in delivering money to the bottom line. We're getting close to the end, it's the last slide, and I'm summarizing. If you look in the green, we are paying -- look at the green, yellow on the right side. JPMorgan, which is the banker of Stratasys and advise them on the transaction with this Deutsche -- Desktop Metal, set the target price for the future to be $16 for the future. We are paying today $18, and that's their adviser. The closest bank to Stratasys, and we're paying above what they say will be the number in the future. Instead, of you getting 41% diluted and waiting for what I described above, which might take -- maybe you believe them there will be $1 billion in 1.5 years. They said it before. But they didn't say how much profit you'll have on $1 billion. Maybe they'll be $1 billion and lose $250 million. That's going to affect your shares. And by the way, think about the arbitrage opportunity. If you're really like their story, why won't you take $18 per share that we pay you now and reinvest it in Stratasys share, which were going to be $12 or $13, buying more shares with the same cash or buy Nano Dimension shares. We have traded at $2.5 a share, which is $1.50 under our cash value. And if you get $18 and buy 4 or 5 or 6 shares of ours, you will end up owning again half or more of Stratasys because we're going to own it. So you have a beautiful arbitrage opportunity, the shareholders of Stratasys, and the shareholders of Nano, of course, will be happy because you will join them by buying more shares, which will affect the share price, which will affect them as having new shareholders from Stratasys together with Nano eventually into one company. So that's what I had to tell you. And I'm apologizing again, it was a bit long usually a shorter presentation, and we'll open it up for questions now.

[Operator Instructions] Our first question will come from Rick Smith with Smith Capital.

Gentlemen, the shareholder base is much more sophisticated than I think you give credit. We understand the dynamics here and the market just does not believe you. Look at where SSYS is trading, right? And I believe the call started at 9 a.m. I'm not even sure there was more than 0.0 new information here. When does the tender offer expire?

26th of June.

Do you promise?

We do not promise. It's published and it's formal. We have documents in the SEC, filed.

There are some conditions that need to be met. And so they will be met by June 26.

We close, yes.

Our next question will come from Saul Volman with Gary Farm.

My question is quite simple. You addressed the $30 million, whether it's a poison pill or otherwise, you put it in there that you're okay with it, you're going to address it. You're going to do what you need to do about it. I have a different question. Can that be legally waived or challenged in court based on the way it's structured. It actually looks like it was put in there to combat the Nano Dimension tender?

You're very smart, sir, and the answer is, in our opinion, yes, and we're going to approach it the way you suggested.

Our next question will come from Sam Reich with SAB.

This is Sam Reich. So I appreciate the immediate value provided to the Stratasys shareholder. However, for those holding Stratasys, who believe in the long-term value creation, why would the ability for the Stratasys long holder to realize long-term value be better with this combination than versus the Desktop Metal combination?

I'll tell you because he will -- I propose he will sell the share to me for $18 and immediately turnaround and since Stratasys share is going to be close to $18 when we will buy it because the offer is the offer, but then we'll go down, I believe, because the Stratasys performance are still degraded and not good, buy the share back when it goes down, back after their offer from $18, well, let's say, you go back to $15, buy it back you've at $15. You've got $18 a share. Now you're buying more shares at $15, and you believe in the long term, you are part of the long term. We're just owning 55%. So we are, by far, the largest shareholder. We are the largest shareholders today, but 55%, we are the majority. And in the future, we'll evolve and hopefully we'll become a larger shareholder even at 55%, and this guys who believe in Stratasys will grow with us.

Our next question will come from Ryuta Makino with Gabelli Fund.

Can you -- you haven't really quantified much. Can you quantify the revenue cost synergy between Nano Dimension and Stratasys? And then maybe can you also talk about your EBITDA and gross margin target by 2025? I know Stratasys is saying with -- if they combine with Desktop Metal, they can get a 45% plus gross margin by 2025 and 10% to 12% EBITDA target. Can you exceed that? Is that something you're planning on doing?

I'm sorry, sir, something is wrong with your line. Can you just -- maybe you increase your voice and repeat it. I'm sorry.