Nano Dimension's (NNDM) CEO Amit Dror on Q2 2018 Results - Earnings Call Transcript

Nano Dimension Ltd ADR (NASDAQ:NNDM) Q2 2018 Earnings Conference Call August 6, 2018 9:00 AM ET

Executives

Miri Segal – MS-IR

Amit Dror – Chief Executive Officer

Yael Sandler – Chief Financial Officer

Analysts

Jon DeCourcey – Canaccord

Eric Martinuzzi – Lake Street

Ilya Grozovsky – National Securities

Michael Brcic – National Securities

Operator

Good day and welcome to the Nano Dimension Second 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.

I would now like to turn the conference over to Miri Segal of MS-IR. Please go ahead.

Miri Segal

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Nano Dimension’s second quarter 2018 financial results. 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 contain forward-looking statements and the Safe Harbor statement outlined in today’s 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 Dimension’s CEO Amit Dror. Amit, Please go ahead.

Amit Dror

Thank you, Miri, and thank you all for joining us this morning. We’re pleased to report that during the second quarter we continue to step up the execution of our global sales and channel expansion plan, while also improving our revenue generation. We’re gratified that since making our DragonFly Pro 3D printer commercially available last November. We’ve been able to deliver sequential revenue growth every quarter. Specifically during the second quarter of 2018, we generated 71% of sequential revenue growth and we expect this trajectory to continue during the second half of this year and beyond.

Importantly during the second quarter, we made solid progress towards strengthening our revenue potential into key markets the United States and China. In the United States recognizing the importance of government sales into various agencies, we successfully obtained a certified vendor standards for commercial and government entity code, which is also known as a CAGE code from the Department of Defense Logistics Agency. As a registered and approved vendor Nano Dimension is now position to pursue and conduct business directly with the U.S. federal government and its many agencies including the various Department of Defense entity.

With regards to the potential impact of the certification on revenue generation, one of our targeted defense customers immediately purchase a DragonFly Pro printer as soon as we receive the CAGE code. We believe that the defense sector represents a significant addressable vertical for additive manufacturing. As a first mover in additive electronics that is now armed with this certification. We expect to rapidly increase our penetration within this key vertical.

As part of our sales channel expansion plan in the United States, we recently added Fisher Unitech, another world class value add reseller with significant market coverage. Fisher Unitech joins our Tier 1 reseller network, which already includes Fathom and TriMech to enhance our overall geographical presence and the speed up our revenue generation in the U.S. We’re confident that Fisher Unitech’s geographical reach solid position in key verticals and excellent brand recognition will significantly contribute to our growth in the U.S.

Recognizing the importance of Asia-Pacific and China in particular, we take significant steps during the second quarter to expand our presence and coverage in the region. First, we opened a fourth Customer Experience Center in our new Hong Kong facility. This Customer Experience Center is located in the Hong Kong Science and Technology Park, which is home to some 670 technology companies with more than 10,000 research and development employees.

In addition to addressing the immediate potential in Hong Kong, our facility is strategically located close to Shenzhen, which is known as the tech capital of China. We plan to leverage this new Hong Kong facility to enable easy access for customers from Mainland China that can now get hands on experience and training with our latest solutions. To further expand our footprint and sales coverage in China, during the quarter we entered into a strategic agreement with Aurora 3D a leading Chinese reseller. This partnership builds on our existing relationship with GIT in Taiwan one of Aurora’s subsidiary.

I think a renown partner of Aurora’s caliber brings instant coverage from a company with a proven track record of growing sales of industrial 3D printers and successfully supporting customers throughout China. We believe that this collaboration will serve as a significant growth catalyst for both organizations in China. To further enhance our demand generation globally and expedite market education, during the second quarter we participated in 14 trade shows and conferences comprised of five in North America, seven in Europe and two in Asia-Pacific. We believe that our direct participation of these trade shows together with a resellers expand our lead generation and prospect acquisition capacity and increases our overall brand awareness.

Our strategic reseller recruitment plan is already bearing fruit by quickly expanding our access to key markets. For example, during the quarter we attended a large trade show alongside our Korean reseller HDC in Seoul.

And we took part in dedicated conferences in additive electronics with CADvision in France and with CDT in Turkey. We currently have 12 value added resellers around the world. And we expect to increase our network over the next 12 months with greater focus on Europe.

I will now hand over the call to our CFO, Yael Sandler, to review our financial results in detail.

Yael Sandler

Thank you, Amit. Good day everyone and thank you again for joining us. Reported revenues of $1,088,000 for the second quarter of 2018, representing a 71% sequential increase over the previous quarter revenues of $635,000. The increase was primarily attributed to growth in commercial sales of the DragonFly 2020 Pro 3D printer, which began in the fourth quarter of 2017.

Research and development expenses for the quarter declined to $2,063,000, compared to $2,548,000 in the first quarter of 2018 and $2,955,000 in the second quarter of 2017, as the company successfully reduced its out of the headcount as part of our transition from initial product development stage into full commercial operations.

Sales and marketing expenses for the second quarter increased to $1,086,000, compared to $786,000 in the first quarter of 2018 and $463,000 in the second quarter of 2017. The increase was mainly attributed to headcount increases and related expenses and marketing and advertising expenses associated with our accelerated commercial operations.

General and administrative expenses for the second quarter of 2018 were $609,000, compared to $885,000 in the first quarter of 2018 and $1,040,000 in the second quarter of 2017. This favorable trend is primarily attributed to a decrease in professional services and fee expenses.

We reported a net loss of $3,770,000, or $0.04 per share for the second quarter, compared to a loss of $4,123,000, or $0.05 per share, in the first quarter of the year and $4,737,000, or $0.09 per share, in the second 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 growing our sales operations and commercial expansions. Our expected burn rate through the end of the year not including manufacturing costs, which are related directly to our revenue generation plan is about $1.3 million per month.

The CapEx for the second quarter of 2018 was about $610,000. And depreciation and amortization expenses for the quarter were about $480,000. Share based payment for the second quarter was about $71,000.

We ended the second quarter of 2018 with $11,601,000 in cash and cash equivalents compared to $6,103,000 on the end of 2017. The increase mainly reflects the proceeds received from the issuance of our ordinary shares in the first quarter of 2018, less the cash used in operations during the first half of the year. We ended the second quarter with approximately $2.5 million of product inventory, which we expect to tune in the ordinary course.

With that, I will turn the call back over to Amit for final remarks.

Amit Dror

Thank you, Yael. As I mentioned previously, we’re confident in the advantages of our product offering in our position in the market and our ability to execute our sales strategy. It is clear that the commercialization process of our printer, which was launched late last year coupled with the establishment of a stronger global presence, is beginning to gear positive sequential revenue growth.

Accordingly, we’re confident that we will continue to deliver improved results. I believe that there is a gap between our actual progress and market perception and I would like to address it. We’re running the third consecutive quarter of sequentially growing sense within an addressable market that we believe to be open ended. While we understand that this is only the beginning, we’re confident that this trend will continue to improve sequentially. We’re pleased that Nano Dimension receives wide support from industry leaders and resellers alike, who understand full potential of our product and services.

As a first mover in professional grade additive electronics, with no direct competition inside, addressing a market that expects to have some 50 billion connected devices within the next 24 months. We see huge potential for Nano Dimension. This tremendous and exciting opportunity is not reflected yet into their results, but as we gain traction and market recognition, it will become more evident. I remain confident in our ability to further accelerate our execution and substantially improve future results.

With that, I will turn the call back over to the operator and we will be pleased to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jon DeCourcey with Canaccord. Please go ahead.

Jon DeCourcey

Hi guys, congratulations on the quarter again and the continued progress here. Just a couple questions to touch on. First, can you touch upon the number of resellers that you are currently add? I know you mentioned the Aurora relationship as well as the Unitech relationship. And tell me where you are at this point and also whether you think you’re on place to achieve the target of double this year, I think I was to get to 20.

Amit Dror

Well. Jon, we have currently 12 value add resellers. And we do try to focus on Tier 1 value add resellers the target of 20 by the end of the year is achievable. It’s hard to know exactly going to be that number, maybe a bit more, maybe a bit less. But give or take yes, we’re in the right direction.

Jon DeCourcey

Okay. That’s really helpful. And then secondly on that same note, kind of how long does it take to get a new reseller more or less up to speed to kind of the fully operational and delivering printer sales in a new relationship. Is there kind of a lag time that you built-in or is it kind of once the – wanted to go, it’s a go.

Amit Dror

It’s more than wanted to go, it’s a go because we do require some time to train them and to get them up to speed. The progress takes several months. And it’s a tricky. It could be three months, but it could also be seven months or eight months. And so if you need a rule of thumb or number of – I would say two quarters to get them up to speed. With that in mind, it also depends on their resources and their initial knowledge, right. We talk about a 3D printer that can print electro mechanic object and they required both types of information. Yes, that’s about.

Jon DeCourcey

Okay, great. And then switching gears to the DoD certification, that was obviously exciting news – exciting piece of news for the company kind of a game changer in terms of potential customer base. Can we talk about how this might expedite the sales process or federal agency customers in the U.S., but then additionally just elsewhere as well even in other industries?

Amit Dror

Well. Firstly it’s a another type of recognition and the door opener towards a sector that we all understand is significant. And we see that more and more including the impact it hasn’t our pipeline looking forward especially or specifically in the U.S. for that case. I can probably elaborate and say that all the R&D focused organizations whether they’re universities, research institutes, Longview companies especially defense, but also aerospace, automotive, they are the early adopters. Such organization can be found around the globe and this is testified by the initial order we have announced.

Jon DeCourcey

Okay, great. That’s really helpful. I think that’s all that I have for now.

Amit Dror

Thanks, Jon.

Operator

Okay. The next question comes from Eric Martinuzzi with Lake Street. Please go ahead.

Eric Martinuzzi

Yes. I have a question about just trying to better understand the Aurora Group relationship as well as the Fisher Unitech relationship. Hoping just from a 2018 perspective you could compare the two distribution partners for me.

Amit Dror

Okay, okay. So – okay, it’s a good question. I’ll do it a step down, okay. You just mentioned two Tier 1 resellers. One in the U.S. of course, Fisher Unitech a well known all over the U.S. entity that have lots of customers. They distribute solid works. They distribute other printer than obviously the value added is clear with access to customers and ability to support us. And then we have the other side of the world where we actually have the second – what appears to be the second largest market because when we think about those early adopters that are willing to invest in early stage and solution for production or new technologies for that matter, the two main markets globally today are the U.S. and China.

So moving to Aurora with that question, Aurora 3D is a division of a very large group of tens of billions of dollars called the Aurora Group initiated in Taiwan operates both in Taiwan and China. And it’s basically supplying all kind of office equipment, electronics and stuff that, stepped into 3D printing and 3D printers a few years ago became one of the largest Tier 1 resellers in China for I believe initially for Stratasys, but now they do much more than that.

And with their presence, knowledge in industrial type of printers, we believe that we have a way to accelerate our China penetration. The work in China is very different than the work in the U.S. While in the U.S. we all know how to make business, in China it’s harder. They have different code of rules and younger companies, smaller companies that cannot establish their own strong presence within China, can benefit a lot from collaborating with Tier 1 partners. And we believe that Aurora is definitely one of those Tier 1 partners can really make a difference for Nano Dimension.

Eric Martinuzzi

Okay. So you’re kind of tapping into this ecosystem of people already have a good footprint in book 3D printers as well as CAD software distribution. And I think you said Fisher Unitech in your press release there that they did by DragonFly, Aurora Group I assume did the same thing. If you had any follow on sales to either of those resellers beyond their initial?

Amit Dror

Well. It has just begun. I can say that Aurora is basically the next level of relationship because we started with GIT in Taiwan, which is also a reseller just for Taiwan, which is owned by the Aurora Group. So following the first activity we had with one of their subsidiaries that was successful. We moved onto Mainland China. So in a way you could say it is the second printer we sell to Aurora Group that matter.

Regarding Fisher, the relationship has just been established. And yes, obviously they will acquire a printer like most of our resellers because that’s the way for them to learning the technology and be effective as they move on and make sense to their customers.

Eric Martinuzzi

Okay. Stepping up to the strategy level, you previously – as of last quarter, you had couple of Co-Chairman here, now you have a single Chairman with Mr. Reichental. Has there been any change to the strategy of the company or is there a strategy review process taking place with the consolidation in the Chairman office.

Amit Dror

Well, I can say that we have completed the transformation that is started a long time ago, the long time meaning above more than a year ago when Avi Reichental joined the board and gradually became a Co-Chairman. The activity that we’re leading and we focus on in the company, which is related to execution and sales is something that Avi is tremendously helping me to lead with his experience. So in a way, it’s just another milestone, transformations have been completed. So there hasn’t really been a change just the ongoing activity.

Eric Martinuzzi

Okay. And then as far as the second half of the year, you talked kind of general terms about growth expected to continue, obviously, you had better than 70% sequential growth between Q1 and Q2. What’s a good way to think about it from a revenue perspective or I know you don’t like to talk about units, but we just had a quarter here will be did $1 million in revenue – sorry, $1.1 million in revenue, Street expectations for that to increase to $1.4 million in the third quarter. Are you guys come through with that? Is that something that’s doable in your mind?

Amit Dror

Well, doable. Yes. Can we make a hard commitment, well, you know our position in that? Can I assume and share with you my assumption, but the second half of the year is going to be significantly better than the first half. Yes, that’s what I believe and we have some evidence, as we see the pipeline continuous. We don’t have enough clarity to actually give predictions, but we do make a progress in that and I hope that soon enough within a few quarters, we will be able to share even better predictions.

Eric Martinuzzi

Understand. Good luck in the second half.

Amit Dror

Thank you.

Operator

The next question comes from Ilya Grozovsky with National Securities. Please go ahead.

Ilya Grozovsky

Thanks. So, Amit, just wanted to kind of understand a little bit of the dynamics better inside of the quarter. How many units contributed in terms of sales for this quarter?

Amit Dror

Okay. I will let you, Yael, going to the numbers. Go ahead, Yael.

Yael Sandler

In the second quarter, we saw seven units and leased additional one.

Ilya Grozovsky

And leased – so seven sales, one leased.

Yael Sandler

Yes.

Ilya Grozovsky

Okay. Was there ink revenues in the quarter?

Yael Sandler

Few thousands.

Ilya Grozovsky

A few thousand. Have you gotten a better sense of the ink usage in the systems that you already have out in the – at the customers, kind of what – can you tell us about their usages of ink?

Yael Sandler

Well assumption regarding the ink consumption, which is about $20,000 to $30,000 per year per printer and this assumption hasn’t changed.

Ilya Grozovsky

Okay. And then in terms of the units that you sold in the quarter, were they all direct sales and the leases. Were they all direct or did any of them go through any of your partners.

Yael Sandler

Somewhere it four resellers, somewhere two resellers and somewhere like it was a mix.

Ilya Grozovsky

Okay, great. That’s it for me, thank you.

Operator

The next question comes from Michael Brcic with the National Securities. Please go ahead.

Michael Brcic

Hi, guys. Just a couple quick questions, now that you’ve got the registration for the U.S. military. How big do you see that market being for your printers?

Amit Dror

Well, we believe that this could be quite big. We can only – we already, I mean, see that the pipeline looking into the U.S. is filling up with potential sales to different government agencies entities. I can’t go specifically into numbers, but we believe that as we look at the second half of this year, it’s going to be not just a positive trend, but also a significant portion over sales in the U.S. And Michael, I apologies for giving you specific numbers, but it’s just something that has really just kind of started and started hitting and we don’t have the clear numbers, but the trend is very positive.

Michael Brcic

Cool. Totally understand that. To how – what is the universe of big Tier 1 resellers out there for your product. I mean, you’re looking to get 20, but what is the ultimate size do you think you can get to have anything you be at two or three years from now.

Amit Dror

Okay. So the potential can go into three digits. We could probably have 150 maybe more. I don’t think, this is something that we want to this stage. I’ll explain our policy. We try to find those partners that our investment in them is effective. What I mean by that is that, it requires sometime and attention for us to onboard those resellers to a lever where they become effective. And we’re still not that a large company and we want to make sure that the partners that we choose, the chipping investment, chipping manpower, dedicated manpower and we work with us on acquiring the knowledge that can make them effective for their own interest and ours, which is to sell the printers to customers able to support them. And my point in this is that we don’t try to get as many resellers that we can have, what we’re trying to do is to figure out their territory that we have the right resellers.

Okay, we could have had more than three, four, five resellers in the U.S. at this stage, we could double that number. We don’t think the right way to go. So that’s why the numbers we’re talking about are – for the next 24 months are in the lower tens. And to be honest, it doesn’t really matter, if it’s 15 or 25 or 35, what really counts is how many dedicated sales persons that really know the work each one of those resellers have that they’re getting out there in the – are doing the job of selling the printers effectively.

Michael Brcic

Yes. Got it. Finally, last quarter you mentioned dedicating your salary for the rest of the year to buying stock. Is that still the plan?

Amit Dror

Yes. It is and I’m happy with that decision.

Michael Brcic

Yes, it was very good timing. Thank you very much. Good luck. Talk to you next quarter.

Amit Dror

Thank you, Michael.

Yael Sandler

Thank you.

Operator

Okay. I’m seeing no further questions in the queue. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.