Nano Dimension Ltd. (NNDM) Q1 2018 Earnings Report, Transcript and Summary

Good morning, good afternoon and good evening and welcome to the Nano Dimension’s First Quarter 2018 Financial Results conference call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Miri Segal, MS-IR. Please go ahead, ma’am.

Thank you, operator. Good morning everyone and thank you for joining us to discuss Nano Dimensions first quarter 2018 financial result. On the call with us today are Amit Dror, CEO; and Yael Sandler, CFO. Before we begin, may I remind our listeners that certain information provided on this call may forward-looking statements and the Safe Harbor statement outlined in today earnings press release, also pertains to 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. Amit will begin the call, with the business update, followed by Yael, who will provide an overview of the financials. We will then open the call for the question-and-answer session. I would now like to turn the call over to Nano Dimensions CEO Amit Dror. Amit, Please go ahead.

Thank you, Miri and thank you all for joining us this morning. In the first quarter we stepped up the execution of our global sales, channel expansion plan and improved our revenue generation. We sold more printers in the first quarter than we did in the fourth quarter of 2017 and we expect to increase sequential sales growth every quarter for the remainder of this year. We’re gaining good sales funnel and geographic coverage traction, suggesting that the current execution of our plan is working. I would like to share some more details on our recent progress. We have increased the size of our sales team in the United States, and plan to expand it further during the second quarter. We recently added TriMech, a Tier 1 reseller with over 20 locations on the East Coast of the U.S. We believe that recognized top resellers like TriMech and Fadam [ph] together with several additional resellers that are being actively recruited will enhance our coverage and speed up revenue generation in the U.S. We also opened a third Customer Experience Center at our Headquarters in Santa Clara. The new Customer Experience Center makes our technology readily accessible for Silicon Valley customers and further accelerating our sales process. In the first quarter, we participated in six trade shows, four in the U.S. and two in Europe. We key noted, each of these events with an on stage presentation of our first mover capabilities. We believe that our presence at these trade shows increases brand awareness of our products, provides us with numerous new prospects and strengthen our relationship with strategic customers. The U.S. represents the largest addressable market opportunity for us. As such, we are gratified to experience a significant increase of our sales funnel opportunities. That largely benefits from defense and tech companies and research institutions. In the Asia-Pacific region, we have made significant progress during the quarter. We launched our commercial activity with customers in Hong Kong and Singapore and successfully recruited tier 1 resellers in Korea and Taiwan. We established a local sales presence in Hong Kong and successfully recruited an experienced regional director who's already in the process of building the local sales team. We are also planning to open a customer experience center in Hong Kong to accelerate our sales in Greater China. As is the case in the United States, we are pleased with substantial expansion of our Asia Pacific opportunities sales funnel, which is led by increasing Chinese innovation centers and research institutions. We believe that our innovative technology aligns well with China's policy of investment in innovation. And now that we're directly present in the region we expect to monetize these opportunities progressively throughout the remainder of 2018. As part of our strategy to grow sales and expand coverage through resellers, we're continuing to successfully recruit and train value added resellers. We currently have 10 value added resellers around the world and we plan to double that number through the remainder of this year. In February, we launched our first sales and application training course of resellers, during which we work with resellers from Canada, Germany, France, Australia and Russia. Next week, we will conduct the second training course for newly recruited resellers from Korea, South Africa, Taiwan, Turkey and the U.S. This training gives our resellers the necessary tools and knowledge to provide sales and technical support to customers, as well as the knowledge and confidence necessary to promote sales. We've experienced excellent collaboration with our value added resellers, and they're glad to add a new and parallel product that expand their portfolio. We feel confident executing our strategy of leveraging resellers as a primary sales channel. To illustrate that let me share with you our sales expectation per reseller, which is dependent on geography and size. From our larger resellers, we expect that they sell up to 10 printers per year once they're up to speed. While smaller resellers who are more territory focused are more likely to generate up to five printer sales per year. For now, we have prioritized our efforts on first recruiting larger resellers. Now I'd like to talk about the recent key leadership addition to our executive team. I'm proud to introduce our new Chief Technology Officer, Dr. Jaim Nulman, who now actively lead Nano Dimension’s technology research and product development. Jaim previously served as a Vice President at Applied Materials where he spent 15 years in several corporate and product division positions. He successfully commercialized Applied Materials semiconductor manufacturing products with impressive market penetration of $1 billion in less than five years. Dr. Nulman brings to Nano Dimension his many years of diverse executive leadership in operations, product development and automation technologies. With over 100 publications, 50 patents, a Bachelor of Science from the Technium [ph], Master of Science and Ph.D. from Cornell University and an Executive MBA from Stanford University. I'm confident that Jaim will be an impactful addition to our senior management. Now I will hand over the call to our CFO, Yael Sandler to review our financial results in detail.

Thanks, Amit. Good day everyone and thank you again for joining us. The company ended the first quarter of 2018 with $14.767 million in cash and cash equivalents compared to $6.103 million on the end of December 2017. The increase mainly reflect the proceeds received from the issuance of the company’s ordinary shares in the first quarter of 2018 less the cash used operations during the first quarter of 2018. As part of our preparations and actual commencement of commercial shipment of our ground breaking Dragonfly 2020 Pro 3D printer we ended the first quarter of 2018 with total inventory of more than $2.2 million, which we expect to tune in the ordinary course. Nano Dimension reported revenues of $635,000 for the first quarter of 2018, which marks an increase from the previous quarter revenues of $440,000. This is attributed to an increasing commercial sales of the Dragonfly 2020 Pro 3D printer, which began in the fourth quarter of 2017. Research and development expenses for the first quarter of 2018 were $2.454 million compared to $2.415 million in the first quarter of 2017, and $2.602 million in the fourth quarter of 2017. The decrease compared to the fourth quarter of 2017 was mainly attributed to decrease in payroll and related expenses. The increase compared to the first quarter of 2017 resulted primarily from an increasing depreciation expenses, rental and maintenance expenses. The R&D expenses for this quarter are represented net of government grants in the amount of $21,000. Sales and marketing expenses for the first quarter of 2018 were $786,000 compared to $459,000 in the first quarter of 2017 and $772,000 in the fourth quarter of 2017. The increase compared to the first quarter of 2017 was mainly attributed to an increasing payroll and related expenses, and marketing and advertising expenses. G&A expenses for the first quarter of 2018 were $885,000 compared to $901,000 in the first quarter of 2017, and $767,000 in the fourth quarter of 2017. The increase compared to the fourth quarter of 2017 was mainly attributed to an increasing professional services expenses. Net loss for the first quarter of 2018 was $4.123 million or $0.05 per ordinary share compared to $4.489 million or $0.09 per ordinary share in the first quarter of 2017, and $4.202 million or $0.07 per ordinary share in the fourth quarter of 2017. We are diligent about controlling our operating expenses and maintaining a consistent cash burn rate, while actively shifting resources from R&D to sales and marketing. The company’s ongoing expected burn rate through the end of the year not including bill of materials, which directly related to sales is about $1.3 million per month. The CapEx for the first quarter was about $215,000. Depreciation and amortization expenses were about $490,000. The share based payment expenses were about $224,000. With that, I will turn the call back over to Amit for final remarks.

Thank you, Yael. We believe that the commercialization of our printer late last year coupled with the establishment of a stronger global presence is beginning to bear sequential revenue growth. And we are confident that each subsequent quarter we will deliver improved results. And while I am very disappointed that the pace of actual progress lags everyone’s expectations, I believe that there is a gap between our actual progress and market perceptions that I would like to address. We are only in the third consequent quarter of sequentially growing sales, we understand that this is only the beginning. We strongly believe that this trend will continue to improve sequentially. Nano Dimension receive wide support from industry leaders and resellers alike who understand the full potential of our product and services. With no direct competition to our product to-date in the market, that expect to have some 50 billion connected devices, we see a truly open ended potential in Nano Dimension than what is reflected to-date. Accordingly, I remain confident in our ability to further accelerate our execution and substantially improve results. To demonstrate my confidence in the strength of our company and its future growth, I'm committing the entirety of my salary for the next six months to purchasing additional Nano Dimension shares in compliance with all applicable security laws. With that, I will turn the call back over to the operator. And we will be pleased to take your questions. Operator?

Thank you, Mr. Dror. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Bobby Burleson of Canaccord. Please go ahead.

Hey, guys, this is John Decorsy [ph] on for Bobby. Congratulations on the continued progress. Just a couple of questions on our end that I was hoping to address. First off, have you broken out I haven't been able to see yet the printers versus ink revenue in the quarter. And additionally any color that you can give on how many printers do you actually sold in the quarter?

Hi, Bobby, in the quarterly press release, we don't break between the sales of the printers and the sales of the ink.

Yes, well regarding the number of printers. So we have currently 10 Pro printers out there and more to go on this. I'm sorry I mean, 10 printers are there all together and more to go in second quarter.

Okay, that's helpful. So I'll go back and look at the -- where it was at the end of last year and figure that out. And then, my second question was in terms of you gave the reseller kind of expectations once they're fully up to speed, which is really helpful and good color. Can you kind of give a little bit more commentary on what that kind of means to be fully up to speed, do you have kind of a timeline in mind for some of these larger resellers once they're up and running is it kind of like a year lag time or are we talking several years out?

Okay. The short answer should be that it's kind of a year timeline. But to be more specific, what we're doing with the resellers is a process on one hand we give them -- we provide them information, and we start the training for the sales people and technical support. They actually invest hundreds of thousands in terms of investment to acquire a printer, to train the right people. And then they start doing the work and are going through their portfolio. And they also go through their own learning curve on that process. How long should that take well, it changes from few months to a year in order to actually start seeing them bring in proper revenue. So I hope that gives you a better picture of how it goes.

Okay, great. Well thank you very much, I'll jump back in the queue.

Thank you.

The next question will be from Eric Martinuzzi of Lake Street. Please go ahead.

Good morning. I was curious to know, yesterday you had a press release, a negative press release regarding your Co-Chairman, Itzhak Shrem. The press release specifically talked about him being detained for questioning in later release under restricted conditions. But you also made it clear that there was no part of the investigation pertained to the company or his activities or position with the company. But I have to wonder, is his ongoing service as Co-Chairman at risk here.

Right, look Eric, we have been informed that our Co-Chairman was detained by the Israeli police for questioning and I spoke to him and later he was released under restrictive conditions. Mr. Shrem claim that he is a victim of the matter investigated, while losing his personal money. To our knowledge this incident is not related in any way to Nano Dimension. We hope that this incident will be behind Mr. Shrem very soon. Other than that I can tell you that we are constantly working on this with our legal consultant. So as soon as we have more information we will make sure to keep everyone posted in accordance with our legal advisors advice.

Understand. I wanted to go back to you, committing your -- the entirety of your next six months' salary to the purchase of Nano Dimension stock. I think that’s highly admirable. I was just curious to know if there was a consorted effort across directors and officers or other members of the company as far as pursuing something similar or is this just an initiative that you have taken on yourself as CEO to set an example?

Well, I have taken this initiative on myself to set example and I think I am doing the right thing because it’s the right thing to do. I hope people would follow.

Are there -- certainly this is a company that good ways out from cash flows breakeven, you guys did raise the money in the most recent quarter that obviously has bolstered the balance sheet here. I think Yael talked about $14.8 million as of the end of the quarter. Do we have any sense of a change in the cash flow rate now that we actually have -- we’re commercially shipping the units, I think historically we have been consuming about $1 million a month. Can you comment on the cash burn expectation?

Well the total cash burn expectation has not changed in recent plans, we still burn about $1.3 million per month and not including the bill of material. This is obviously excluding the gross margin. So as the gross margin increases and improves our cash flow from operations obviously it will decrease the total cash used in operations.

And that does bear repeating, I was happy to see that, I know it’s not a huge milestone in the life of the company, but to see positive gross profit dollars reported, I think that’s the first time that’s happened, so congratulations there. Another question for me, the Customer Experience Centers, I mean, you have now got three of them out there, I think we’re, Israel, Ventura, California and then Santa Clara, California. What are the lessons learned, are you picking up some things as you have these experience centers out there things that you are doing to translate maybe customer visits into pipeline.

Well the Customer Experience Centers are used as demonstration centers for potential customers and they definitely come. Visitors that visit those Customer Experience Centers, they are excited about our technology and it helps the marketing and sales process they get to touch the technology. And I don’t have a clear number of how this is translated, but it’s definitely one of those channels that we’re using in order to improve the access of those prospects to the technology and to the product.

Understand. Well congratulations on the sequential growth in revenue here in Q1 versus Q4 and good luck for the remainder of the year. That’s all the questions I have.

Thank you, Eric.

The next question will from Ilya Grozovsky of National Securities.

Thanks, guys. Just a follow-up on the Customer Experience Center, can you just give us a sense of the traffic that you are getting in terms of customers at these -- at the locations?

Well, yes in our headquarter in Israel, we have visitors approximately twice a week and it ranges from high level of companies that come over and just engineers that come over. We always have the printers running and working sometimes they are doing specific things for those customers visit, and sometimes we’re just using them to print other things and we show how it works. On exponential, which it is the first California visitor center, we have lots of traffic because it’s located in a building that has a lot of traffic of resellers and other business related to 3D printing and the new one has just been opened. So I don’t have that many figures about it, but it’s -- we have nice offices now in Santa Clara probably next time we speak I’ll have more figures because it’s really new.

Okay. And then also, Yael, what was the share count in the quarter, I didn’t see that in the press release?

At the end of the quarter it was 96.5 million ordinary share, which is $19.3 million ADS.

Okay, thanks. And then finally you had said, Amit you didn’t break out the ink versus printers is that -- and I get that, but can you confirm that if there even was ink sales in the quarter, without giving a specific number?

Yes, there was.

Okay, great. Thanks a lot guys.

The next question will be from Bill Morrison [ph] of National Securities. Please go ahead.

Hi, thanks, and congratulations on the progress. Real quick, can you characterize your funnel sequentially you said it’s going to increase meaningfully. Can you shed a little light on how far that has increased? That’s number one and then number two, how many of those resellers are now up to speed gone through the training program? That’s all, thanks.

Okay, regarding what we meant about the pipeline and the increment then it’s -- I am trying to figure out how to answer your question, Bill, without giving the exact numbers, which is pretty tricky, but let’s just say that, we should be able to move soon enough to the seven digits on revenues. Okay, and moving forward from there to your questions about up to speed resellers then we already had some -- at least one reseller who sold a printer and it still a progression, I don’t see any of them that I feel is fully up to speed. But at least one of them is almost up to speed and the others would come pretty soon it’s in the process.

Beautiful, thank you.

The next question will be from Michael Brisick [ph] of National Securities. Please go ahead.

Thank you, good day. I have a couple of questions, obviously the market has lost some confidence and you have addressed that with the delays. And also with you confidence in buying more shares, I think if you could spend a little time on what makes your printer so special in the sense you have said you have no competition. But your current or perspective customers are doing something now. And why it makes sense for them to actually buy your printer and maybe also some of the different uses that are unique to your printer.

Okay, so I will start with saying that when we think about this whole concept of smart collected devices that have those either sensors or antennas and obviously circuit boards inside them all those products today do not have an answer of 3D printing by any other 3D printer today that makes us unique. We are the only 3D printing company that offers technology companies who are building the next generation of products, an in-house solution that helps them reduce the time to prototype these new devices and in many cases to create solutions that cannot be made by any other means of manufacturing. So that is a very unique position. And we're happy and really feel comfortable with being the only one there. So that's for the technological side of it. Could you please repeat the second part of your question?

Maybe just go through some of the unique uses in different industries that make your printer attractive?

Okay so let's say -- so we're working with some large corporates, who are using the printers on sensors like inductive sensors all kinds of radiation sensors, which are 3D printed, right. Antennas, RSIDs. Unique connections printed like printed circuit boards, but with unique angles that cannot be made in other means. We have the example of Harris Corporates, which is working with us in collaboration in order to miniaturize communication components and antennas for mini-satellites. And we are working with some companies on the smart automotive industries where there is a lot of need for unique angles and connectivities for those new smartcards, which are full of sensors and antennas.

Great, actually I think that will be very useful and I can point people to this conference call to get a sense. Because it's I think a lot of it is just people don't quite understand. Can I just go to -- you have 10 resellers now. How many of those are big and how many of those are small based on your earlier definition if you like?

Roughly speaking, because I don't have the whole list in front of me, I would say it’s about half and half at the moment. But as we move towards new geographies, we’re really targeting more the higher ones.

Got it. I think that's it for me. I really appreciate you making that gesture about the salary and the stock. So, thank you.

Thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. And will also bring us to the conclusion of the Nano Dimension's first quarter 2018 financial results conference call. We thank you for joining today's presentation. And at this time, you may disconnect your lines.