Nano Dimension Ltd. (NNDM) Earnings Call Transcript

Our next presenter is a provider of intelligent machines for the fabrication of additively manufactured electronics, bridging the gap between PCB and semiconductor integrated circuits, a revolution at the click of a button. It's my pleasure to introduce Nano Dimension.

Okay. Hi, everybody. My name is Yoav Stern. I have Yael Sandler, Mssr. Yael Sandler with me here. I'm the President and CEO of the company. Yael is the Chief Financial Officer. Thank you for participating. We're going to speak about Nano Dimension. I personally joined about 6 months ago. My background is mathematics, computer science, electric -- mechanical and automation engineer. Spent many years of my life in the Air Force, but was in many, many multidisciplinary technologies. And my business over the last 25 years, mostly in the United States, is identifying multidisciplinary and very high-tech companies that need improvement in financing management, turnaround and growth. I've done it -- I've done 3 SPACs very successfully, and 2 of them are sold. One of them, I still own and Chairman of -- nonactive Chairman. So mostly in public companies. And Nano is the one I identified about 3/4 of a year ago, researched it, decided to invest. By now, I have invested myself and I joined as a CEO. Nano Dimension presentation here will be a unique one. I'm going to incorporate it here, mostly slides that are not made by me -- or us, which means 3 or 4 slides made by us in order to show you what we do. But the rest, I took from outside sources, market research firms, customers of ours that prepared slides and allowed me to put them here, and I did it uniquely because I decided that since I don't know who is in the other side of the line here and increase the credibility of what I'm showing you here is a very unique opportunity, everything is quoted from other sources. So what do we do? We make, build those machines that you see in the picture. We develop them. They include a lot of hardware, but the special source is in the software and the materials that in it -- that are using it. It's a printing machine that is using 2 materials at once, the electric material and conductive material, in order to print printed circuit boards. It's the only machine and the only company in the world that is able to print 2 materials, 1 based on polymer and 1 based on silver that is -- and able to do it together and produce the products you see here. The products you see here, many of you may identify. You have it in every remote control of your TVs. You have it inside your cellular phones. You have it inside your telephones at home, whoever still has telephone at home, and any other electronic device will have printed circuit board inside. On the printed circuit boards, there will be mounted electronic units, which are semiconductors, chips, CPUs, but the base is electronic circuit board. You see here many of those. All those were produced by the machine that you see here. The machine that you see and you saw in the first slide, and you see now again, is producing the parts that you see here and in the next slide. This is very unique because it takes a digital file from the designer, the engineer -- the electrical engineer, and converts the file into the end result. No chemistry, everything -- all the chemicals are in cartridges, like you do in your home with the HP or Lexmark printers or Canon. You buy the printer, you buy the ink every time you need it, and we call it inks. We have silver ink and we have dielectric ink, and you print your word processing file and ends up with the final result, except the final results here is a 3-dimensional entity which has circuits, which has electricity, which has components inside which works. This is, as I said, as I mentioned, and I'll mention it again, solely done by us. If you look at our competition and you'll try to see other people, there are companies that print 1 layer of circuit board. The only ones that they are printing circuit boards like this that can go from 1 layer 2, 3 layers, 5 layers, 20 layers, 50 layers are us. We print those circuit boards to the accuracy of 3 microns in 1 dimension and 20 to 40, 50 microns in other 2 dimensions. And nobody else can do that. And the reason why companies like Google and Lockheed and Raytheon and 2 or 3 secret services around the world and 20 universities already bought 55 machines over the first 1.5 years of -- 2 years of selling machines is because we are ahead of the curve. The next slide will show you where we are -- where the company was. The real sales started in 2018, $5 million; 2019 was $7 million. The machines that were better sites and improved after the first 1.5 years were only sold in the last quarter of 2019. So the machines that are now called DragonFly LDM is really sold for about 2, 3 quarters. We have 46 million shares outstanding, and we have $50 million of cash, $49.5 million of cash on our balance sheet with no debt. $70 million to $80 million were invested until January 1, 2020, in bringing the machines to where they are. And what we have today is more than enough to -- for more than 5 -- 4 to 5 years at the rate we're going. So we intend to use this capital in order both accelerate our product development to be ahead of the curve. And secondly, we're looking for acquisitions with the help of Needham & Company. We believe in this industry, which is growing very fast, with a lot of smaller companies with multiple technologies is going to consolidate, and we intend to be the one to do it. The next slide shows you the size of the market or mostly the structure of the market worldwide. The printed circuit board market is about $65 billion market. So all those circuit boards that I mentioned to you that are appearing on your units at home, TV, phones, et cetera, are done where it's covered with the pink color, which is in China, Japan, South Korea and Taiwan. This is a problem. The problem is that when you get to prototyping and -- which is the beginning process of every PCB, you now are seeing a dependency of the western world in sending prototypes back and forth, which takes weeks, cost a lot of money, not to speak about exposing the IP from United States and Europe to the Chinese and eastern environment, which become -- became more and more sensitive over the last couple of years, of course. This needs to change. And the only way to change it is to change from the old PCB industry production facilities, which are cheap, inexpensive, only one there in China because they are very capital-intensive and labor-intensive, into a digital industry, which is what we do. We convert a file to a final product. If you want to see the business model that justifies it, you see an interesting graph here, which shows you on the one axis, X axis, is the number of boards produced, quality; and on the Z axis -- or the Y axis is the price per board. And the more layers you have on the board, you see that our advantage is higher. Our advantage is what is represented by the fixed cost of manufacturing and broken gray line horizontal line. Everything above the horizontal line is our advantage. Now the graph, which I, again, took from outside sources only shows 4 layers. The more layers we have, the more complexity, the better we are. We are printing 18 to 20, 25 layers. So you can realize our advantage when the boards become very complex with a lot of layers is above the orange color line. And that's where our business model starts to play. The next slide, again, outside sources start to show you sizes of vertical markets. Educational research market is the first market we're going after today, mostly because of the corona, by the way, because 50% of what we sold before the corona was the defense industry. But we believe now that the corona is roaming around the world that first organizations that are going to recover and spend budgets, because others will not spend capital expenses, will be the education on research markets. And I can tell you that we're already seeing it because China is ahead of the rest of the world in recovery, and in China, we already sold now machines to universities. And the market there is growing and as you described -- as described here. The second market is what I mentioned 2 slides ago, the professional PCB prototyping market. In order to bridge the gap of weeks and weeks of back and forth in prototyping with China or other countries in that area, prototyping on the ground on the continents of Europe and United States, becoming a must, shortening the cycle, and that market is growing at this curve you see here. The third is the industrial market, which is the nondefense market. And the last one is a combination of all of them. What is not included here is the verticals according to what kind of market. And I want to tell you that from our experience, the defense industry, Homeland Security is the most attractive markets today. We can define them as part of the industrial market in general, but those are specifics within the industrial market. You can see a graph here with a source by E&Y that is showing on 1 axis what is the current applications is high demand and what is the future applications projected to be in high demand. And the 2 turquoise color circles and the ovals is where we play today. And as I said, in producing high-performance electronic devices like ours, the competition is still behind. So we're almost an early solution, and our limitation in penetrating the market fast is not because of competition or price, it's because we are educating the market that this actually can be done. Our machines, by the way, are sold for $350,000 a machine and about 60-or-more percent gross margin. Plus we sell the materials, the inks. So it's the Razor and the Razorblade model. We sell the machines and then on a recurring basis, we're selling the inks. This slide shows you the verticals we are strong at. Obviously, the industrial vertical is the defense, aerospace, drones, robotics, commercial aviation and in vivo medical devices. And we started a new business, which is the services. On the right side, you see NaNo-Services, which is we actually have 3 fabs that we build ourselves. Each fab is 3 machines, 1 in Israel, one in the United States in South Florida and 1 in Hong Kong, and we service people, and we produce the actual products for them if they don't buy a machine. Eventually after they pay enough times for the products, hopefully, they'll buy a machine. The next one is our geographical spread. You see that we are also spread vertically on the upper side, 41% in defense and 26% in universities, and more than half of our revenues in the United States. Now again, I'm going to skip 2, 3 slides, which will show you response from the industry media describing how people are realizing they cannot continue to rely on production in China, especially not early production short runs. They must have production on the ground because the crisis like we have today with the corona, plus the political crisis, companies found themselves with supply chains that are being cut off. So we are there to supply the machines. You put 10 machines of our -- in a hangar, and you have a fab for both prototyping and short-run production of PCB. The next slide shows you in short, the 6 major advantages of our machine. And by the way, since we're going through this presentation pretty quick, I'm recommending to you to go into our website, which is nano-di.com. N-A-N-O-D-I.com. And if you look at -- under Investors and Presentations, you will find this presentation, and bigger than this one, with all those, the slides you see here, you can read it in more details. The next slide speaks about testimonies -- set of slide testimonials. Three companies: Harris Corporation, from Florida; HENSOLDT Corporation from Europe defense; and the IIT from Italy, which is in medical, and I'm just flipping through the slides fast so you'll have some time for Q&A. You'll see in those slides -- and again, I'm sending you to the website to read the details, how our customers give testimony on our machines. How fast, in this slide, you will see we are developing products for them. Instead of 4 months, it takes a couple of weeks or less. The next slide, you see all kinds of devices that are building with our machine, the same machine with all these devices. In the middle, you'll see a picture of a small electrical engine that's being printed by our machine, electrical engine. The next one is from Italy. You'll see how the machine works in a lab. It's not a machine that needs special clean room. It's almost like a desktop printer and industrial size, and that's what it's used for medical devices, packaging. And finally, in the last minute or 2, I'll mention to you that the elephant in the room, of course, is the corona. We mitigated it in early -- between April to now. We intend to leverage it in the next 2 quarters because we believe that the academics and research institutes will start to buy and accelerate their purchase, and the growth is expected in 2021. In order not to spend -- overspend money on marketing and sales when the market is not there because many people are not in offices yet, unless it's China. We're accelerating our product development. Our strong capital position enables us to put money now into developing a product even faster and ahead, getting the machines into production, and the inks into reaching Mil-Spec, so they will fit end-user products, and we'll be there in the middle of next year. At this point, I want to stop and let you have your questions. And hopefully, I'll be able to answer them.

The first question is, can you explain in depth exactly what your company does and is planning to do?

I explained it. I'm not going to repeat it.

The next question is -- it's 2-part question. The first part is what will be the main reason for your customers to choose printed electronics instead of traditional products? And then the second is, do you dream to see a Nano Dimension machine in the Mars project in the future? And a smiley face.

I'm not going to relate to the second part of the question. I don't think it's relevant. And the first part of the question relating to the printed electronics, I explained in details. People use printed electronics because -- especially for short-run production and multi-variety. It's faster, it's less expensive. It maintains the IP. It is economically -- ecologically friendly to the environment, and it's much faster to build a production facility that converts digital files directly into products rather than starting into a production facility in the Far East, which cost millions to build, and you become dependent only if you send them 200,000 or 500,000 pieces to produce. If you need to produce 5,000 pieces -- and guess what, American, sorry -- Boeing and Airbus and Harris are not sending -- are not producing hundreds -- and [ 200,000 ] of airplanes nor do people produce drones in these numbers, so that -- the people are using us.

The next question is, it seems like there is a huge opportunity in the medical field as well. Are there any partnerships with biotech and/or medical device companies or imminent opportunities to sell to those companies, schools or hospitals?

Absolutely. Excellent questions. The last example that I gave, I gave from a product testimonial. It was from IIT from Italy. If you remember, I showed a picture of the machine inside the lab. I showed a picture of a man with about 20 devices on his body. That's exactly where medical devices in vivo and -- which means in the body and on the body, are using printed electronics in order to produce them. There are high variety, small quantities per piece, but many, many, many varieties of pieces. So that's where we play, and the answer is yes.

The next question is, where do you see focus product development versus selling fabrication services?

Selling fabrication services is something we started 4 months ago right before the corona, with the idea that when we sell fabrication services, we educate our customers to use machines like our except we are operating the machines for them. We make money on that. And then eventually, after spending time repeatedly reusing our services, they'll end up buying machines. And sure as hell, the corona arrived and made this even stronger because corona prevents larger -- large corporations from signing checks too quick. They are very careful with capital expenses now. Everybody is holding back. But using our services and spending $10,000, $15,000 for a round of prototyping is much easier, which enables us to educate the market and make money while doing that.