Nano Dimension Ltd. (NNDM) Earnings Call Transcript

Good day, ladies and gentlemen, welcome to Nano Dimension and Desktop Metal's Joint Investor Call in light of this morning's announcements of an agreement for Nano Dimension to acquire Desktop Metal. My name is Drew and I'm your operator for today's events. On the call with us today are Nano Dimension's Yoav Stern, CEO and Member of the Board of Directors; and Tomer Pinchas, CFO and COO, along with Desktop Metal's, Ric Fulop, CEO, Chairman of the Board and Co-Founder; and Jason Cole, CFO. 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 and Ric will begin the call with news on the combined company and deal, followed by a question-and-answer session, at which time the management team will answer questions. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the call over to Nano Dimension's Yoav Stern and Desktop Metal's, Ric Fulop. Yoav and Ric, over to you.

Thank you very much. This is Yoav Stern speaking. I will be kind of speaking through the presentation but I will divide it, as Ric and me agreed before and soon you'll hear from him. Start by apology for being 4 minutes late. We have a lot of people that wanted to come on and coordinated between 2 or 3 continents. So my apologies. We're very excited today. It's a very exciting event. Ric and myself has known each other for 2 years and more. We started this journey, I calculated, more than 1.5 years ago. A lot of things happened during this 1.5 years but the journey started in a visit here by Ric and Jason 1.5 years ago. And we came here today after this 1.5 years, really well cooked, well prepared, knowing what we are trying to do and having behind us a lot, a lot of discussions about vision, mutual visions, integration, technologies, business, cash, cash flow, et cetera, et cetera. I will start and, call it, not in a regular way of business. I'm going to answer your question, which probably will come up later. So I'll answer it now with a metaphor. The question that will come out later would probably be Mr. Stern, about 1 year ago, you were against the deal between Desktop Metal and Stratasys. And you said it's not the right company. And as a shareholder of Stratasys, we are 15% shareholders, of course, then and now. I was against this deal. Let me explain to you what didn't change and what changed. First of all, I was interested in this deal before Stratasys started their transaction, as I told you, 1.5 years ago. I didn't think the deal is right for Stratasys. But it's a very, very different question, do the deal fit us the way we are structured and Ric and Desktop Metal. It's 2 very different companies and Desktop Metal is a very different company today than it was 1 year and 1.25 years ago. I'll use the metaphor and then will continue the presentation. The metaphor is, here is a guy that decided to go and buy a property, which is on the best location on an island overlooking the beach and it is just having a house that's not very well in good position. It was there for a few years. It needed renovation. It was renovated. And asking for $10 million. So it's a bad deal. A year later, the location is still the same prime location. The house is half renovated already, cleaned up by Jason and Ric. And move forward, the price is not $10 million, is much less. And is somebody still thinking, why is it not a good deal? Well, you have the answer. And now we'll go into the real presentation. Ric, we will start with the next slide and I -- would be very helpful if you can start to go through what we do together, what you do and what we complement you and how do we need to proceed in the next 2 slides on product and technology side.

Wonderful. Thank you so much, Yoav and excited to be here. So this is setting up a very interesting set of products that are fully complementary. We have 0 overlap between our 2 product portfolios. However, we do have very innovative technologies on both sides. Our company, on the Desktop Metal side, is a market share leader in binder jet technology, not only for printed castings but also for ceramics and for metals, with north of -- significant -- a significant position in the 80% range and leading solutions. You see here some of the applications that we were a leader in, in these next 2 slides. And it really dovetails very well with the portfolio that our friends at Nano Dimension have built. The inkjet electronics technology that they have is very applicable to our binder jet solutions across the board and can give us lots of new functionality. They are very, very good at printed electronics, best in the world. And they're also very good at micro fabrication, which is a really interesting technology that is very much a blue ocean and a high growing market that is just starting to emerge and develop. They're also very much a leader in the ceramic side via photopolymer, which is very well suited for investment casting. And that generates a lot of cross-sell opportunities across our portfolio, with us being in the sand casting side, them on the investment casting side and shared customer bases that have platforms across. So I think that it sets us up with a modern, fully refreshed portfolio of best-in-class products, where we are the leaders in these different segments and it really positions the company well to grow from here, especially being very well capitalized. Out of this combination, we're going to come out extremely well capitalized and Yoav is going to get into that.

Okay. I move 2 slides and I would like -- Ric, you're doing it so much better than I am. I want you to speak about the next slide, which is the transaction that creates -- which includes also the amazing array of customers, et cetera, et cetera.

Yes, absolutely. Look, we're combining 2 leaders here, with domains that really span not just the applications but also new materials that other folks don't print today. And these capabilities are really very much paramount for us to enter mass production. I think today, we have these systems, on the Desktop Metal side, being used for all sorts of things. If you buy a Tesla or a BMW, it was probably made with our technology at one level or another. If you look at some of the more modern rockets or jet engines from Pratt & Whitney or Rolls-Royce, there's components that were made on our systems and so on and so forth. If you look at anything that has printed electronics, chances are that Nano Dimension had a part in it. And those are growing markets. We've got polymer technology that's very applicable to the substrates that they use in that segment, which is going to be another technology synergy between our companies. And we have a very large base of customers at DM, several thousand customers. We have the largest installed base of auto metallurgy-based printers, almost 1,350 at the moment. And we expect significant cross-sell across our segments and also augmentation of our go-to-market capabilities. One of the things that we were lacking at DM is more go-to-market capabilities. So this gives us just the resources to continue to expand that but also work together with our colleagues at Nano Dimension, who also have several thousand customers. And I'm sure we'll be able to find revenue synergies between the 2 companies here on the cross-sell side. It also augments our management team and a track record to deliver better solutions for mass production. And I think that we have shared values on technology development and innovation. And we've got a very strong customer service and support team at Desktop Metal that installs industrial equipment and I think we'll be able to leverage that. I don't know, Yoav, I can keep going or...

No, no, no. I will just -- I will draw the attention of the audience here to this slide, which kind of having a very modest way proprietary AI-powered software platform. People maybe remember our DeepCube, which is a data swallower as much as being able to and leading to a combined huge amount of megabytes and triple bytes and whatever bytes you want in order to learn how each machine can fix itself and correct its own errors. The merger with Desktop Metal enable this department to have a heyday when they have so many machines distributed, so many customers with so much data that they can be pulling out into the engine and apply the engine into the specific machines, not only Nano now. Nano is smaller amount of machines comparing to Desktop. And now create this vision of cloud, digital manufacturing where there's edge devices in all kind of technologies, polymers, micro polymers, ceramics. Those are edge devices. And in the center, there is a platform that manages the go-to-manufacture, if you want to call it, design for manufacturing, pricing and send it to the edge devices, which we are now having much more, the 2 companies, where it will be printed. I've given this example before, like think about the printing industry 40 years ago, 20 years ago, comparing to you today sitting at home or sitting in the office, preparing a brochure, converting it to PDF potentially and sending it to somewhere in Malaysia where they're going to print it. There is a printer in Malaysia but the design is done in your office. The software is the front end. The cloud is carrying the design. And in our case, it will carry even more, it'll carry the design and design for manufacturing. And we have by now ample edge devices that will be spread. So if Lockheed needs a spare part in Northern England, they're not going to have an inventory in Northern England. They're going to have a machine made by Desktop Metal, which is binder-jetting a part from metal for the F35 and it's doing it based on the design of this part sent in real time to Northern England without having inventory on the ground or needing to have inventory for spare parts, right, like you work today with PDF documents. So that's a very, very exciting news for the combined company. Look, just on this slide under portfolio of materials, 28% of the combined company is selling materials. And selling materials is like the razor and the razor blade, obviously. And we're looking forward to increasing these percentages as customers are going to use more and more our machines and more and more into production, which, by definition, consumes more materials. So look at the amount of materials that we are now as one entity controlling and manufacturing, the enablement of the Industry 4.0, which I've mentioned. And the most important thing, synergies do not start from R&D. We can have very different R&D groups, which we'll have and we'll continue to have. Synergies are critical in go-to-market and customers. We all -- other than maybe one vertical, selling to similar verticals, to industrial automotive, to R&D and academia, to medical, to aerospace and defense, to electronics and PCB. This is where the company and as much as business model, is aiming the combined now to focus not on the top line growth, which we believe will happen by the combination and the strong marketing. But on converting the top line into bottom line, both through improved gross margins and improved net margins. It will take some time, more than a year, definitely but we have a very clear road map. The next slide, is showing you a general idea where our pricing is and where is -- recurring revenue is and the product lifetime margins that we're aiming to. And guys, I have been telling this in different industry conferences, a company of our type that is innovative and wants to continue to create innovation and leverage its innovation, needs to have eventually at least 50% gross margins. We at Nano have 48%, 49%, adjusted for the typical things. Our friend, Ric and the team has lower ones but getting better and better over the last 4 months -- sorry, 4 quarters. And this is the example I gave you earlier about the real estate property that is being renovated in a beautiful, sustained manner and we see a very bright future for the next 8 quarters in this direction. Not least is our spread around the globe. Our spread around the globe means 2 things: a, we are there close to our customers; b, we have a lot to save, look at the colors, the DM, red color and Nano Dimension, turquoise color. You will see existence of us as 1 company in the same locations in 1 color and in less locations in each continent. There is overhead and facility savings that are just causing my blood to boil and with excitement. And I'm looking forward, for instance, in Europe to focus around what Desktop Metal has been built there. It's a very big entity. They don't have a place in the United Kingdom. So we'll keep that. But in Central Europe, we're going to try to consolidate and leverage the ability to have employees working from 1 location or maybe 2. And this by itself means both added innovation by integration of people and reduced costs. The next slide is a very, very important slide that positioned -- positions our 2 companies together, call it one, comparing to the other ones in the industry. Ric, do you want to speak to that or as you wish?

No, it would be my pleasure. Absolutely. Thank you, Yoav. So look, we have an industry that has a lot of players. Not a lot of companies are profitable yet in our industry. And some have better growth profiles than others, some are better capitalized than others. And I think that what is very unique about this combination is that it creates the absolutely best capitalized company in the industry with excellent growth potential. And it's really, really well positioned for the future. So the applications that we have are in production, not in prototyping. They're not in tooling. They're very much in the high ground and in next-generation of adoption in additive manufacturing, which are larger markets that are less penetrated and not as commoditized as some of the other players that you see in the market. So we're very well positioned. And I think that this is a seminal transaction that's going to mark the move for a lot of new activity that will happen over the next 2 years. So I think it's very much a landmark transaction in our industry.

Great. Next slide, we'll describe just the general belief of where the market is going. The numbers are changing. I've read, believe me, all the -- I don't know if all the research over the last 3 years but I read dozen -- probably at least dozen researches. And the numbers goes from $15 billion market today to $30 billion in 2028, some claim to $40 billion. I don't relate to this too seriously. What I am saying is $20 billion as per today is a huge market. And out of this, at least 2/3 is taken by the people who are using our machines, are using our technologies. And maybe 1/3 or less is taken by us, the people who invented technologies and who develop them. Obviously, each market segment needs each other. The market segment that include us, the innovators, the developers is not profitable. If you look -- and we looked at 350 companies in this section of the industry. And what will happen now is it will go through a process that will make us -- and in this case, when I say us is -- us, this segment of the market profitable. Otherwise, there will be no machines and no technologies for the users to use. So it's a process that has happened in other industries when innovation get to a point where people understand they have to speak about and start to build business models that are profitable. It happened in the airline industry. If you remember, there were a lot of aircraft manufacturers, Douglas, [indiscernible], Comet in Britain, others in other places. I'm not talking about the Russians, the developments -- that are falling from the sky, speaking about airplanes that are flying. So today, there's only 2 manufacturers, Airbus and Boeing. Why? Because they need to be profitable. Now do I see such a consolidation in our industry? No, I think there will be many more players than 2 but there will be less players than 350. And we are in a direction to do it. And as Ric mentioned before and this is published in the news release, we are now on a pro forma basis for 2023, a $246 million company with about $680 million in cash. Guys, we're not going to use this cash just to grow. We're going to use this cash to improve and deliver dollars to the bottom line. Don't expect it within the first 3 or 7 -- 6, 7 quarters. It will take us 2 years to get there but we're steadily growing together with growth. And what enables us to do it is the fact that we are, call it, riding on the back of the dragon. And the dragon is this trend that is a must in this section of the industry that will lead to profitability of the innovators and the manufacturers of the technology because without that, there will be no market. And this dragon, we jumped on its tail, on its back and we are hoping to be carried with it forward into the goals I've just described to you. The next slide is a slide that describes our experience in acquisitions, ours means Nano Dimension. A similar slide not less impressive can be presented -- the experience that Ric and his team has in their acquisitions. They, I think, did 13 ones during the year '21 and '22. We did 7 during the -- mostly '22, '23 but a couple of them in '21. And you're dealing here with 2 companies that are not egomaniacs, driven by we can do all for everybody. We can't. We must jump forces. Our management team is combined from, at least 1/3 from companies we acquired. Now when we join with Ric and Jason and the team, we'll probably be sharing the top leadership between the 2 teams. Our impression from the team after deep due diligence over the last 4, 5 months is very high. And that's the plan. You're not dealing here with start-ups that are taking -- you are taking risk as investors, well, will they know how to merge? Yes, we know how to merge. We specifically merged all the companies and then grew by 29% organically over the last 12 months during 2023 and forward. So this is in order to calm your mind because everybody knows that M&A is very exciting, especially the A, which is the acquisition. But the M is really what counts, the merger. Once you have the excitement of the transaction, the M is a work of quarters and years of daily chores of merging and doing the right things. So this is 2 companies that the M has been a way of life for them. And in many ways, Ric started before us. Transaction summary terms. Very quickly, we are buying 100% of Desktop Metal. We're paying cash. We are paying $5.50 a share. It's a premium between 27% to 20%, depends on which average do you look and how many days. There's a certain adjustment of this price that can happen within the next -- between now and closing, that can take it down in case there will be a certain loan that we are very committed and very happy to give Desktop Metal in case they need a reinforcement of the working capital, as we hope that they will already grow as we start to not merge the companies because we have to wait for closing but we are definitely starting to cooperate in a way that will lead hopefully for growth on both sides. If the price is adjusted, we will know it in January or later and I'm not sure it will happen. The total consideration, if we pay as the $5.50 quote, it's $183 million. And if it ends up being the lower at quote, it's $135 million, which leaves us as a combined company with between $670 million to $690 million, give or take $1 million in cash and the transaction is expected to close at the end of the year, based on delays, maybe a few months later. But our goal, Ric and me are committed, work like dogs to finish it as soon as possible because the faster we'll finish it, the faster the effects of this plan will be able to be implemented. We have to go to CFIUS and HSR. We don't think there will be issues with HSR or CFIUS and we're looking forward to do it in a quick manner. The last couple of slides, Rich -- sorry, Ric, you want to speak about the creation of a leader in the manufacturing -- additive manufacturing? You have been there in a way but now it's even more.

Absolutely. Look, this is forming one of the largest companies in our market, well over 1,000 patents. They cover not just multi-material printing but additive manufacturing of electronics. They cover mass production with investment casting, with sand casting, with different types of consolidation of ceramics or metals, like centering. They cover centering technology, simulation technology, AI technology, where, like what Yoav described, in the system that they've been building. So across the board, it's a super innovative technology portfolio. It is by revenue or any metric that you look at, number of patents, employees, it is very much one of the more formidable companies in our space. And I would say that -- I commend Yoav and his team, they had one of the best performing numbers last year with significant double-digit organic growth, something that none of the other companies that are publicly traded in our space were able to match. So they have been doing a good job at managing the business and growing it. And I think combined, we can benefit a lot from each other's capabilities and it's going to form a very formidable juggernaut in our space that I think has very bright future in front. So I think our shareholders will be excited. Yes.

That's great. The employees are big part, obviously, of this because here we're speaking numbers and you're seeing numbers here and it's all numbers and the technologies. And I don't want to finish this presentation without saying that, while it's an adage and you can say it's a phrase that everybody is using and maybe it's overused but it's all about the combined employees of the 2 companies. Obviously, when you have a merger like this, some may get a little bit nervous. Every change is frightening a little bit. This change for our employees is a change for the better. We are not a company in the past that we buy and we cut costs in order to deliver. That's not -- this is not a roll up. We buy and build, B&B. Not Airbnb. B&B. We buy and build. And we cannot do it without the employees of all levels, top management, middle management, other employees of both companies that are spread in 3 continents and in 4 countries at least. And those are the wheels of this machine. $246 million in revenue, will have, as I said before, $660 million to $690 million in cash, 28 recurring revenue, 28%, very exciting. And again, the employees and the installed machine base talk for themselves. The next slide show you how the -- very, very simply, graphically presented how the companies are combining themselves based on 2023 numbers. And just repeating the previous slides in a graphic way that can give you a better feeling, as a picture is like a thousand words. The last slide that I want to have mentioned -- mentioned is the fact that we did a lot of work on paper of what we think we can cut, not as much as squeezing the operation but keeping the same operation pretty much but we have a lot of overhead and facilities that can be reduced. For obvious reasons, there's no reason to double up, neither in Europe, not in the United States. Both our headquarters are in Boston. I think is, what Ric, about 30 minutes from each other? And we have manufacturing facilities that can be consolidated and add value by reducing cost, either by most manufacturing in-house but manufacturing also in the right locations around the world where we are, where it's cost less to manufacture, be it in Cambridge when it's very effective to develop software, same with Israel, be it in Texas, et cetera, et cetera. So we have the road map. It's not the end of the road map, it is the beginning of the road map, which is based on due diligence. And I can promise you that within the next 2 -- couple of quarters when we'll be preparing ourself to hit the ground running and upon closing, we will have more detailed and more accurate plan of how to deliver dollars on the top line to the bottom line. I came to the end of what I wanted to say before we open it for questions and answers. Ric, you want to summarize yourself as well?

No, I think this is extremely well laid out. Thank you, Yoav and I'm looking forward to the Q&A.

That's great. By the way, at this point, all management team is staying, of course. And we are in the process of deciding how to allocate management to roles, expanded roles and to geographies. And we'll have -- obviously, we have ideas. We're not going to put it here on paper but it is on paper. And we will learn much more about each other in the next couple of quarters when the regulators are giving us the approval. And we're going to have the best combined management team, I would like to believe, in the industry. Drew, will you please open the session for questions and answers?

[Operator Instructions] The first one comes from Troy Jensen with Cantor.

First off, congratulations, Ric and Yoav on this transaction. So a couple of questions. I did jump on late, I apologize but who's going to be the CEO of the combined company?

Myself. Yoav.

Yoav, you will? You'll be?

Yes.

Okay. And Ric, will you be going on to the Board?

Ric is going to be both -- join the C-suite and is invited to the Board.

Okay. All right. Perfect. Well. Congrats guys. So a couple of quick questions. I guess I'm still a little bit confused here. It's, I think, $5.50 is the peak price. It could be down as much as a $4.07, I think I read in the press release. Can you just talk what are the levers again guys to drive -- I mean at $4.07 it's like take under, right, versus where the stock is versus $4.50 (sic) [ $5.50 ] is obviously a nice premium for investors. But can you just go through what's going to drive the adjustments to the takeout price?

Yes. The adjustments are based on the potential loan that may be used, we're not sure. If it will be used, it will reduce something like what used to be $0.08 -- $0.80 from the price, from $5.50 down to $4.70. And then there are certain transaction expenses and other expenses that are not included in the calculation of the price until now, that if will be added, we don't know exactly what they'll be, may take the price down to $4.07, which means we'll pay some of them but the price will go down. That's the 2 variables. .

I can give you some, just for clarity sake, I can give you some color on this. So we're adjusting for the decremental side of expenses to close the transaction. Our internal estimate is that, that will be about $11 million. So when you do the math, it should bring it to -- well, I have to do the exact calculation. But in no event will expenses be more than $15 million. So that puts it in the $5 and change category, $5.07 or something like that. There -- then guys at Nano have been very generous to extend a financing facility in the event that we would need it sometime in 2025, in the event that the transaction gets -- does not close for a significant amount of time or I guess the regulatory approval gets extended or anything like that. So if in sometime in 2025, we need that, we have the ability to tap it. If it's fully used, if we use the entire financing facility, then that would reduce it by $0.80. Our estimate is that we won't need it but it's there if we need it.

Got it. So from Nano's perspective, they're just kind of paying some of this in the form of a loan if you guys do need it but I understand. My next question is going to be for you, Yoav, I'd just be curious, what does the balance sheet look like after it? And I'd be curious of the burn rate and kind of how much cash you guys are going to need to run this combined business? And what I'm getting to is, I'm trying to figure out how much dry powder you have, to consider this, to continue this consolidation story you got?

The dry powder we have is close to $700 million. And combined company consolidated would be negative cash flow for at least the next between 6 to 8 quarters but improving. We already -- on Nano side, we already improved and we're at the rate of less than $15 million a year. But you obviously realized that just the cost of this transaction with our friends, the lawyers and the bankers has by itself added to the cash flow or the negative cash flow. But it will take, to come to a positive cash flow, it will take at least 8 quarters. That's our estimate at this configuration. Now since we are expecting a lot to happen to the top line from the combination, this may change and we will be able to talk into that in the beginning -- at end of this year and the beginning of next year once we close.

Okay. So, well, good luck with everything.

Troy, thank you very much for your question and thank you very much for the show.

The next question comes from Katherine Thompson with Edison.

I just wanted to ask a question. You talked about $30 million run rate cost synergies. And you also talked about that being on top of the cost reduction plans that both companies have in place. Is there any -- are you expecting to both continue with those existing cost reduction plans? And then once you're combined, work on the extra $30 million? Or is there any kind of benefit to holding fire on further cost savings now and doing the whole thing as a combined cost saving effort later when you know what the combined business you want -- how you want it to look?

We are going to design the continuation of the cost cutting today but it will be designed based on the assumption that in 2 quarters we are together.

Okay. Okay. So it's revising it slightly then?

Yes.