Nano Dimension Ltd. (NASDAQ:NNDM) Q1 2019 Results Conference Call May 15, 2019 9:00 AM ET
Amit Dror – CEO
Yael Sandler – CFO
Conference Call Participants
Eric Martinuzzi – Lake Street
Brian Kinstlinger – Alliance Global Partners
Michael Brcic – National Securities
Orin Hirschman – AIGH Investment Partners
Good day ladies and gentlemen. Welcome to today’s conference call to discuss Nano Dimension’s First Quarter 2019 Financial Results. My name is Andrea and I’ll be your operator for today’s call. 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 a business update, followed by Yael, who will provide an overview of the financial results. We will then open the call for the question-and-answer session. Please note that this event is being recorded.
I’d now like to turn the call over to Nano Dimension’s CEO, Amit Dror. Amit, please go ahead.
Thank you, Andrea. And thank you all for joining us this morning. In the first quarter of 2019, we continued our efforts to increase our growth. We participated in 10 conferences and tradeshow events worldwide, including in the United States, China, France and the Czech Republic. We have presented Nano Dimension [indiscernible], as well as [indiscernible] together with the resellers.
We continue to see high level of interest from a range of industries. Our customers are earlier adaptors, which are coming mostly from government and non-government, research institute worldwide, purchases from research institutes, such as Max Planck in Germany, Chungbuk Technopark in Korea and others in the U.S. and China, are indicating that the disruptive technology we are offering is aligned with the future plans of the variety of industries, including aerospace, automotive, telecom, medical, electronics consumer and defense.
We constantly improve our focus on valuable applications for customers and recently we presented new unique use cases I’d like to share. 3D printed side contacts for PCB that reduced the space usage on the PCB surface. This feature can be used mini PCBs with socket inserts. 3D printed capacitors within the PCB that reduce costs and space usage and a fully functional 3D printed IoT device that presents our asset capabilities and offers a significant time saving on IoT development cycles. These are great examples of where our value for customers comes in handy, both for rapid prototyping of PCB devices, as well as for developing the next generation of advanced products.
I’d like to share details on our recent key customers from the first quarter of 2019. We sold the system to a U.S. Departments of Defense Tier 1 supplier where the need for PCB prototyping is strong. A top 10 PCB manufacturer, PTM Technologies, acquired two additional DragonFly Pro systems, bringing it to three systems. We see significance in having strategic customers becoming repeat customers and trying a vote of confidence. We realized that PCB prototyping is the clearance ROI for our products. And while many of our current sales are going to research institutes, we expect to see in the future multiple sales to commercial companies that would benefit from using our products for shortening their PCB development cycles.
In the first quarter of 2019, we pointed a new reseller, AMTECH from Czech Republic, which is a provider of equipment and materials for electronics production. This strengthened our position in Europe and more specifically improves our access into the electronics and automotive sector in Eastern Europe. In the first quarter of 2019, we have made our first sale to the advanced Japanese PCB markets. CMK Corporation, one of the Japan’s largest PCB manufacturers, acquired a DragonFly Pro system. This comes after a significant technical due diligence that ensured CMK they could leverage on our solutions to reduce their development cycle for printed wiring boards, which is another name for populated PCBs.
Now, I want to take a moment and elaborate on the meaning of this accomplishment. As most of you know, the Japanese PCB and electronics market is one of the largest, advancing and innovating markets in the world. And as such, one of the more attractive markets, which bears great potential. We entered this market by selling to a well known leading company in our field. And after a period of deep learning together, as past experience taught us, entering in new and significant markets requires learning process and adjustments. I’m glad to say that so far the process was very smooth and I hope it will yield additional successes. Altogether, we sold eight DragonFly Pro systems in the first quarter of 2019.
Prior to handing over the call to our CFO, I’d like to address a concern that was raised by some investors. With the stock price under $1, is the risk that Nano Dimension would be de-listed from NASDAQ? Our answer is no. We don’t think there is a real risk. I’d like to explain why. The company received a notice from NASDAQ indicating that the company was not in compliance with the NASDAQ listed group 555082. After 30 days, we bid below $1. To clarify, this was not a de-listing notice. The company has been granted a 180 calendar day compliance period until September 16, 2019, to regain compliance with the minimum bid price requirements. Now, to regain compliance, the closing bid price of the company’s ADS on NASDAQ where it continues to trade needs to meet or exceed $1 per ADS to at least 10 consecutive trading days. If the company is not incompliance by September 16, 2019, the company maybe afford a second 180 calendar day compliance period.
I’d like to reassure you that we monitor the closing bid price of the ADS and consider various options to resolve this issue. For example, the company may decide to change the ratio between the ordinary share and the ADS. While the current ratio is 5:1, leaving the company’s discretion to change the ratio and consequently increase the ADS price above $1. Accordingly, the company does not foresee an immediate risk for delisting.
I will now hand the call over to our CFO, Yael Sandler, to review our financial results in detail. Yael?
Thank you, Amit. Good day everyone and thank you again for joining us. In the first quarter of 2019, we stepped up the execution of our global sales and presented revenues of 1,689,000 compared to $1,705,000 in the first quarter of 2019 and $635,000 in the first quarter of 2018. This represents a significant growth of 166% in comparison to the first quarter of 2018, which is attributed to higher commercial sales of DragonFly Pro systems.
Research and development expenses for the first quarter of 2019 were $2,152,000 compared to $2,021,000 in the first quarter of 2018 and $2,548,000 in the first quarter of 2018. The increase compared to the previous quarter was mainly attributed to an increase in material expenses and the decrease compared to the first quarter of 2018, was mainly attributed to a decrease in payroll and related expenses and the decrease in rent expenses, mainly due to shifting resources from R&D to manufacturing and liquidations.
Sales and marketing expenses for the quarter were $1,364,000 compared to $1,220,000 in the fourth quarter of 2018, and $786,000 in the first quarter of 2018. The increase compared to the fourth quarter of 2018 was mainly attributed to an increase in payroll and related expenses. The increase compared to the first quarter of 2018 was attributed to an increase in payroll and related expenses, as well as marketing and advertising expenses.
General and administrative expenses for the first quarter were $1,791,000 compared to $685,000 in the first quarter of 2018, and $885,000 in the first quarter of 2018. The increase is attributed to our February 2019 public offering, in which we issued warrants and rights to purchase that were classified as financial liability, resulting in issuance expenses of approximately $1,224,000 that we recognized as general and administrative expense. After eliminating those expenses, the G&A expenses in the first quarter were $567,000, which represents a decrease compared to both the fourth quarter of 2018 and the first quarter of 2018, mainly as the result of a decrease in professional services expenses.
In February 2019, we closed the public offering in the United States with gross profits of approximately 12 million, in which we issued ADSs, warrants and rights to purchase additional ADSs. The right to purchase and the warrants contain the cashless exercise mechanism in case the company will not have an effective registration statement in times exercise and therefore, are classified as financial liability that is measured expert value for profit and loss. The difference between the fair value as of the issuance date and the fair value as of the end of the quarter was recognized as finance income in an amount of approximately $3.6 million.
The company reported a net loss of $1,476,000 or $0.01 per share for the first quarter compared to a loss of $3,967,000 or $0.05 per share for the first quarter of 2018, and $4,123,000 or $0.05 per share in the first quarter of 2018. 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 operation and commercial expansion. The CapEx for the first quarter was about $480,000 and depreciation and amortization expenses for the quarter about $650,000. Share based payments for the first quarter of 2019 was about $100,000.
The company ended the first quarter of 2019 with $10,222,000 in cash compared to $3,753,000 on the end of 2018. The increase mainly reflects the proceeds received on the public offering in the first quarter of 2019 less the cash used in operations during the first quarter. We ended the first quarter with more than $3 million of product inventory, which we expect to turn in the ordinary course.
With that, I will turn the call back over to Amit for final remarks.
Thank you, Yael. Our main goal is to increase our market share and we plan to do so by continuing to expand and nurture our reseller network, present new use cases and applications to our customers and compress our selling cycles. We understand that scaling-up is a gradual process. Having said that, it’s important to note that we continue to lead this transformative field and receive increasing validation from our customers. There is no direct competition to our offering in the markets. Our unique solution excites the market and we expect the growth to continue.
Now, I will turn the call back over to the operator, and we will be pleased to take your questions. Operator?
We will now begin the question-and-answer session [Operator Instructions]. And our first question comes from Eric Martinuzzi of Lake Street Capital. Please go ahead.
Hello and thank you for taking my questions. Congratulations on the good first quarter. I wanted to start up, you didn’t as publicly mentioned it in your press release, but I just wanted to ask. Earlier in the first quarter, I believe it was around the timing of the equity offering. You talked about 2019 anticipating revenue of $14 million to $15 million. Are you still comfortable with that revenue range for 2019?
In 2019, we expect sell significantly more systems than in 2018. That, together with sales of consumables and services, should allow us to significantly increase our growth and revenue. Considering the seasonality of capital equipment purchasing by our customers, the sales in the second half are expected to grow more significantly in comparison with the first half and we’ll see where that takes us. So, we’re optimistic but we don’t have figures.
And then for the units that were sold in the first quarter, I understand it was eight units sold in the first quarter. You didn’t explicitly call out the amount of revenue that was generated from consumables but if we look at the average revenue per unit that was sold in the first quarter comparison to perhaps a year ago. Was there any noticeable change in your average revenue per unit versus a year ago?
So the average sale price today of the system was relatively high this quarter due to some strategic phase during the quarter, and it may be lower in the coming periods. It was certainly higher than in the previous years.
And then seasonality, we’re still relatively new in the commercial life of the DragonFly Pro 3D printer. But typically for a company like this I would anticipate an increase in unit sales throughout the year, so Q2 greater than Q1 and so on. Are you comfortable with that type of seasonality as far as the unit sales projections?
Although, we don’t have figures to share, looking towards the second half, for sure; in terms of Q1, Q2, it’s hard to give a specific estimation.
And then as we look to the cash usage in the quarter, I think that my calculation. It looks like it was about $4.2 million change in the cash balance between December 31 and March 31, inclusive of the equity raise and the expense associated with the equity raise. So first of all, is my $4.2 million calculation correct? And then what is your expectation for the second quarter as far as cash usage?
We assume it will be about the same in the second quarter, and it will scale up revenue, which will decrease this on quarter-to-quarter. The cash usage is a bit higher. We also had some depreciation expenses and I can walk you through the exact number later in Q1.
And then last question for me, the sales and marketing expenses, it was a little bit higher. I know you’ve called in your prepared remarks, Yael, that part of that was driven by an increase in payroll and related expenses in comparison to the fourth quarter of 2018. What is your expectation for that in the second quarter, is that up, down, flat?
It’s supposed to be about flat, maybe a slight increase. The first quarter increase was mainly due to our expansion in the Hong Kong region and Asia Pacific region, which was an initial — people that we trusted so the major increase has already happened.
Our next question comes from Brian Kinstlinger of Alliance Global Partners. Please go ahead.
I want to follow-up on pricing. Can you describe what lead to the higher pricing you said there was a certain sale or two? And then as you look for the remainder of the year and even longer-term. Should we expect pricing is going to increase at least overtime as your sales are away from resellers? I don’t know when resellers are going to try also discounted somewhat. So maybe talk about the long-term pricing opportunity.
So as I said this quarter, average sale price was relatively high and we hope this trend will continue, but it’s higher than our assumptions. So we don’t expect this to be such a big number in the following quarter. And it was due to two sales out of their eight that were really in high prices and strategic sales. And we do expect it to grow in comparison to the average sale price in 2018, but this quarter represents really high trend.
If I look at again you said consumables aren’t there but per system you were generating about $211,000 of revenue. As we look long-term, maybe not this year. Is that an achievable number or is that even high long-term?
So I would like to divide my answer on that into two parts. On one hand, we are taking the product towards production and with that to increase its value for customers. And definitely in the future, let’s say next year, yes, we do believe the number for, let’s call it a next generation or an evolutionary stage of the product, will be higher. On the other hand, there is an aspect that we do not control, which is competition. We don’t have competition it may come at a certain point and it could affect the pricing point. So generally, the trend is to go to a higher throughput, higher yield product for which we could ask for higher pricing and I hope that answers your question.
And then during the March quarter, were any of those eight sales to customers that already have one system, at least 20 systems?
Yes, TTM Technologies, which is as far as I know, the largest PCB manufacturer in North America. And I believe the only top 10 or isn’t top five is a repeat customer. They acquired a DragonFly Pro a while ago, and that actually came after they were a better customer. So now they just acquired two additional systems and basically increased their install base to three systems.
And that was the only one of the eight. The other seven were new customers?
Our next question is from Michael Brcic of National Securities. Please go ahead.
Most of my questions are answered, but regarding the consumables. Are you seeing any different patterns than what you had seen before as far as new features concerned?
No, we originally estimate about $20,000, $25,000 in revenues per system per year and we see usage that supports this number.
Finally, could you talk a little bit about the pipeline size and interest that you’re getting out there that’s showing you that the number of sales will continue in the second half of the year?
I’m trying to think how to answer this question. Just give me a second here. I want to phrase it in my mind before I actually answer it. Well, let me give it a try. At this stage, we’re gathering more and more sales opportunities and the pipeline is drawing on one hand. And then on the other hand, on the process of sales, we shared with you the numbers. We still have a strong need to basically improve the conversion rates of those sales opportunities. So in terms of how many valid sales qualified opportunities we’re having, we are at the level of low hundreds. At the level of how many of the opportunities we convert, we were at the numbers that we shared with you.
So, do we see the pipeline increases? Absolutely, yes, we see it increases with more than several every month. And it comes mainly from sectors of research institutes, whether its governmental, whether its industry or whether its industry related research institutes coming from different industry segments we mentioned previously, whether its defense, electronics and others. And then there are some specific segments where the ROI for PCB prototyping is the improvement and in those segments we actually see more specific cases of PCB prototyping related purchases.
[Operator Instructions] And our next question will come from Orin Hirschman of AIGH Investment Partners. Please go ahead.
Just to follow up on one of the prior questions, if I look at the balance of this year and maybe even beyond. What’s more important to you at this point? Is it retaining existing customers to buy more systems or is it new customers, or is it — you can lead down, how should we think about?
In order not to just say both are important, I would say that when we’re referring to strategic customers, whether there’s new ones or existing ones, they are the most important. And let me give you two examples. I specifically pointed out the sale we made to CMK Corporation in Japan, so that was a new one. Do we see that as a strategic and extremely importantly? Absolutely, it opens a new important mark for us. And then the other example I pointed out was TTM, which is a great delegation for usage by a repeat customers. So that is also an extremely important one. So my answer would be we do not differentiate the importance by whether it’s a new one or a repeat one, but more of who the customer is.
And how do we get to the next level in Japan? What do you envision, seeing the possible scenarios, whether we have to go through six months of test with the customer, what are they looking for?
Well, actually it’s already been through long cycle of tests by CMK. In fact, the announcements about them using the machine came after they’ve been using the machine for a few months within the quarter, but they already made tests within our premises previously before that. So it’s not so much about what would that first customer do as much as how far we will be able to take it with other customers. The Japanese market from my experience have had a chance to work in Japan is something you take one step at a time very carefully it’s a delicate build-up of relationship. And so far, we’re doing extremely well. So I cannot make any commitment. But I hope that within the next few months, we will be able to share the next steps.
This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today’s presentation. You may now disconnect.