Good day, ladies and gentlemen, welcome to today’s conference call to discuss Nano Dimension’s Year End and Fourth Quarter 2019 Financial Results. My name is Grant, and I’m your operator for today’s call. On the call with us today are Yoav Stern, President and 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. Yoav will begin the call with a business update, followed by a question-and-answer session, at which time Yael will answer questions regarding the 2019 financial statements.

I would now like to turn the call over to Nano Dimension’s President and CEO, Yoav Stern. Yoav, please go ahead..

Thank you very much operator and good morning, everybody. I hope the day ahead that we'll go through on the market will be a little bit better than the last few days. But the subject of today, luckily for all of us is our little world of Nano Dimension, by definition.

I will lead this call a little bit different than I guess, I understand it was led before. And instead of reading, what all of you can read, both by myself and by our CFO, Yael, repeating the numbers and going through the whole thing.

I will speak and give you a little bit of my perspective, I guess, along the lines of the news release that may be even deviating a little bit and expanding. And then when we'll open it for questions and answers, of course, the Yael is here with all the numbers and all the 2019 information.

So if people have questions relating to that specifics, she will be here to answer or to any other things that you want Yael to answer. And of course, I will be here as well to answer your questions.

So let's start by me just commenting that 2019 as analyzed backwards we can see a lot of issues that need to be and will be and are corrected and being done in different manner.

However, the growth of 39% from 2018 to 2019 is impressive and I can say it because it's not my doing, it's Amit and Yael and the rest of the team that were running 2019, which was a very difficult year, both because of the financing that had to go through and the cash situation of the company and with the help of the investment bankers and AGP specifically.

And they managed to increase the sales via the machines that were sold. Where still mostly the older machines brought which had issues and the issues that they had was mostly not with the performance once they performed, but with the fact that the MTBF was too low.

MTBF is mean time between failures, very famous I guess, acronym when you speak about manufacturing or operation of critical equipment like aircrafts and others and the mean time between failures was too low. Hence the reliability of the machines was too low, which means when they work there worked well, but they didn't work long enough.

And they ended up needing people to stand by the machine which was not the original intention. And still the machines, mostly through 2019 were those machines. The new machines called LDM stand for Lights-Out Digital Manufacturing was actually the first machine that is a real machine as per the intention of the R&D spent over four years.

And it's a 24X7 machine, which works with proper MTBF and proper reliability. This is adding to the performance of 2019 as a fact that toward the end of the year, the new machine started to be sold and we started – or they started to sell upgrades for those machines.

It's called LDM upgrade, which is important to note because the customers that use the older machine did not receive the upgrades automatically. But they had to pay between $30,000 and $55,000 for upgrades – $35,000 to $55,000 per upgrade, which is 10% or more increase in the price of the machine. And they chose to do it.

In the second release today that I am describing to you personally, I also give you a numbers of 41 – by now today which is in the first quarter of 2020, 41% of all the previous customers have already upgraded, paid for upgrade and 45% are in process of doing it.

If people will notice that 45 plus 41 is 86, this is not a mistake because there is about 14% which is about six machines that we didn't convince them yet that it's worthwhile to upgrade and I will report in the future what is happening.

Interesting enough, I would add the information that two customers originally which are two of our best customers said initially they don't need to upgrade. It was a German customer and a Japanese customer and they said the reason we are not – need to upgraded they said machine is working very well for us. The MTBF is working well and it's reliable.

Obviously, these two customers were working very much by the book, so even the older machines work for them, but it is two customers that are out of the ordinary that proves the ordinary. Most of the customers couldn't handle it and therefore the upgrade et cetera. The second thing I want discussed today is bad news that are actually good news.

The bad news which is good news is the fact that the go-to-market methodology of this company all through 2018, '19 was very wrong and it needs to totally reestablish it by both design and implementation. So that's a bad news.

The good news of that is the fact that once in my business of turning around companies you clearly identify what is the bad news, what is the problem? The issue is fixing it becomes much easier. The problems are usually when you have certain results – financial results that are not positive and you're still searching for what is the reason.

The issue of go-to-market through resellers does not fit situation where you sell a $350,000 machine which is a new technology with no competition and you're in the business of educating the market. It never worked before.

It never worked for Nano Dimension, and it's actually pretty surprising that the good out of the bad that they were able to sell through this network over the last two years.

The way it happened is they didn't actually – the resellers sold – helped a little bit by introductions, but most of the sales were done by two or three people in the company, which is impressive by itself, but it cannot continue this way. There will be no growth of revenue out of go-to-market that is wrong. So we are in the process of changing it.

It's a painful and arduous process. You can realize that resellers are not happy, many of them if not all of them bought demo machines, which are standing in their showrooms doing nothing. They didn't do a lot with the demo machines.

They didn't demonstrate too much, but they bought it because the company forced them to do it, which gave the company the first 16 machines that they sold in early 2018. So that was good at a time, but by now, these machines are standing there being threatened to go out to the market to be sold.

So we're negotiating with all of them, part of them are more mature and very understanding and they will move forward with us in different roles with the different structure of fees, much lower, but we like working with them. So we're working together part of them are a little bit more unhappy. But that is not stopping us.

By the end of the second quarter, I hope that we will be over this process. It may be a little bit earlier a bit later. But that's the range it will take at least half of this year to get out of this. It will affect our performance while we're still working on pushing forward the revenue.

So frankly, between us the effect of the coronavirus are much more than the effect of this process. This process should not cause us to reduce the top line or reduce our growth.

It hampers it a little bit, but it's all a matter of few months forward, few months backwards, I don't see it on a – overall affecting the total year as coronavirus definitely is affecting us now. We also, as part of that, let go – the company's historical sales organization, in the United States were let go in the middle of last year.

So when I came here, I found out that there's actually no, as they say, no feet – no feet on the ground in the United States and half of our revenues are coming from United States. So the process is now in parallel to what I described with the go-to-market tactic is to build our North American headquarters, which we announced.

We are in the process of very intensive hiring. I expect to be in United States, up from about three to four people today at about 15, 16 people the end of this year, which is most of the growth in personnel in this company is going to be in the United States.

Some will be moving from Israel or reducing a little bit in Israel, but mostly not – mostly it's just expansion of sales, marketing, sales support and the new Nano-Services Bureau, which we are in the process of establishing, and we'll announce it later.

So in parallel to building the headquarters in United States, we're of course, bringing a senior person to run – to be as Chief Revenue Officer for the whole company and also he will build up the operation in United States. It's a person that worked with me before in many roles.

He was ex-COO and ex-CEO with me and for me, I can't tell – give his name because he's coming from a very large North American defense contractor, but he's already committed and once he will be here in a few weeks, we will announce it.

The other couple of points that I will mention to you is, of course that we raised $3.9 million earlier in early February with the help of I think equity, investment bank and we are very happy with that.

The reason it's a debt – exact amount is that – that's what we –this is what we could do with a baby shelf registration that we had that I found when I came here, and we did it with a day and a half, even less by the day of a road show At the end of the day we had the investors that were favorable to what we presented to them and we're thankful for that.

And nothing – less important is we cleaned up our capital structure – the capital structure since September last year was very convoluted with convertible debt, with warrants, with all kinds of ratchets, with all kinds of limitations on further capital raised, and those were groups of investors from North America that we had to negotiate with them, and they eventually agreed.

And as we closed this $3.9 million, all debt was converted and no more debt on the capital structure and there's some warrants from earlier in 2019 from February, I think, February, March, but those are pretty much out of the money, so we feeling very comfortable that we can move forward on that front as well.

The last thing maybe before just a word about the coronavirus is that Nano-Services is services that we're establishing an operation of services we're going to give customers of actually producing for them high performance electronic devices and making money of it. We already doing it from a small operation that is here in Israel and making money.

And just to give you a perspective on that, if you look at three dimensional – three dimension printers manufacturers, in a different field, not in electronics, like Stratasys, like 3D Systems and others. In the Stratasys case they have about $650 million of revenue, and a close to 100 of that is from services.

They actually give services of prototyping and I'm very close to people in services and been discussing with them before. I joined this company a lot about the market Stratasys entry the 98% of what they do is prototyping. This is not companies that are doing manufacturing and their prototyping services are very, very successful and very profitable.

So NaNoS is going to do to the electronic industry similar proposition – is going to give a similar proposition – apply similar proposition – value proposition where we will work for customers and hopefully after a while customers that will work a lot with NaNoS, Nano-Services will look at buying a machine as a way to justify a return on investment on those services.

The last thing I want to say is the coronavirus, can disregard that. Luckily for us the effect is mostly on revenue this quarter. We had at least two transactions in China, which obviously did not happen. We don't believe those transaction are lost, obviously. But China was paralyzed.

And why is it lucky for us, is because we were not affected on the supply chain. We were very close – actually, we were – we already had a team on the way to China after negotiating from farther away with suppliers to replace certain supply chain items, reduced our cost of goods sold by a lot, by 20%.

And that stopped – that actually was going to happen the first two weeks of January, and we held it back. But as a result of that today, we still don't have supplies from China and we don't have issues with the delivery of our machines moving forward until the end of this year.

I think that's basically the summary that I wanted to give you before we open it up for questions and answers. So please operator. .

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Michael Brcic with National Securities. Please go ahead..

Yeah. Hi. Just a quick question on the distributors, those machines that they have sitting in their showrooms, are they – what are they going to do with them? They sell them back to you.

Are those machines are being upgraded to LDM? Can you just give us a picture of what's going to happen to those machines?.

We are negotiating with the resellers. And we'll find solutions that will be productive for both sides. Obviously, many of those resellers are going to work with us in the future. We're not intending not to work with them at all. But we definitely would not do one thing I can promise you. We're not going to buy them back. I have certain solutions.

I already discussed it with certain resellers. Obviously, I don't want to discuss it here because it's negotiations, but rest assured that this subject was part [indiscernible]. .

Got it, can you just give us a little picture of view of the industry? Which segments you're seeing – you see the biggest growth in this year? Is there anything that sort of stands out on where the future is for your machines?.

Yeah, the interesting segments that are obvious and again, we're speaking about overall the electronic industry. We are not in any other industry. But the electronic industry, once you define the term spreads between many, many industries, which are the verticals.

So the main vertical that is obvious is the Defense, Homeland Security, and Three Letter Agencies all over the world. First of all, those are companies that have a lot of designs ongoing, changing all the time and they respond immediately to the earlier sales of these machines. And with some of them were very, very close working together.

And if you look at our announcements and our board memberships and our announcements in the past, you can realize who and where and is many of them point number one. Point number two, when you speak about space and aviation industry, even if it's not defense, same criteria goes for them – go for them.

And we see them as customers and sometimes our customers' customers because some of our customers are suppliers to those industries. The third industry that we still don't see we're studying now, but we see the potential is medical instrumentation.

And I'm not talking about MRI machines or CAT Scans, I'm not talking about the big machines, I'm talking about more the in vivo medical devices that some of them have to go into the body or attached to the body and as many of them and are now built in high mix, low volume per type, but overall, it's very high volume, except there's so many types that you need to do the designs all the time.

So that's the third industry. And then, of course, a very, very large segment that I now like to call it an industry, but it's the R&D and academic institutions.

We're very, very focused and we have a lot of them that initially identify immediately that we are the first in the market and something so unique and we are very focused on selling, both if the academic institute or research institute that are not necessarily part of the academy and those – this is the fourth industry segment.

So by then I think I covered the main ones and there's more, but these are the main ones..

Great, thank you very much. Appreciate it..

You're welcome..

[Operator Instructions] This concludes our question-and-answer session. I'd like to turn the conference back over to Yoav Stern, President and CEO for any closing remarks..

Okay, thank you very much. More than what I've said until now, will be superfluous. So I just want to thank you very much for participating, listening and supporting us. I'm going to probably run away from here.

So I don't get stranded in Israel with the extreme measures again – the corona virus and I'm going to spend the next few weeks visiting customers around the world. And anywhere the corona will get closer, I'll just move to another country to visit another customer. So that's my plan, and I'll be in touch with you. Thank you very much. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..