Nano Dimension — Growth in a tough market

Nano Dimension (NASDAQ: NNDM)

Last close As at 22/05/2024

USD2.60

0.03 (1.17%)

Market capitalisation

USD576m

More on this equity

Research: TMT

Nano Dimension — Growth in a tough market

Nano Dimension made good progress growing revenue and gross margins in FY23. The company is now focused on reducing cash burn and moving to profitability, via its Reshaping Nano initiative, and is simultaneously looking to acquire in the additive manufacturing space to consolidate its position. Nano Dimension continues to buy back shares while they trade at a discount to book value.

Katherine Thompson

Written by

Katherine Thompson

Director

Nano Dimension cd7292bc2d47964bdd0ba88e191fa76bee0e2c4ea99e0c135133a94d23c8f231

TMT

Nano Dimension

Growth in a tough market

Technology

Spotlight – Update

25 March 2024

Price

US$2.73

Market cap

US$604m

Share price graph

Share details

Code

NNDM

Listing

NASDAQ

Shares in issue

221.4m

Net cash ($m) at end-2023 (including US$8.7m lease liability)

842.2

Business description

Nano Dimension offers equipment for additive manufacture of high-performance electronic devices, complex 3D ceramic and metal objects as well as miniature parts requiring a resolution of only one micron. It also offers complementary equipment for automated assembly of electronic devices and PCBs.

Bull

Additive manufacturing enables creation of more complex parts and is more efficient for smaller volume production runs.

Balance sheet strength positions the company well to consolidate the sector.

Strategy in place to improve financial performance and reduce cash burn, with gross margins already approaching 50%.

Bear

Currently loss-making.

Distraction of hostile behaviour from major shareholder Murchinson.

Difficult to predict market growth for disruptive technologies.

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Nano Dimension is a research client of Edison Investment Research Limited

Nano Dimension made good progress growing revenue and gross margins in FY23. The company is now focused on reducing cash burn and moving to profitability, via its Reshaping Nano initiative, and is simultaneously looking to acquire in the additive manufacturing space to consolidate its position. Nano Dimension continues to buy back shares while they trade at a discount to book value.

Historical performance

Year
end

Revenue
(US$m)

Adj. EBITDA
(US$m)

PBT*
(US$m)

PAT*
(US$m)

DPS
($)

P/E
(x)

12/20

3.4

(12.6)

(15.0)

(15.0)

0.00

N/A

12/21

10.5

(38.4)

(44.5)

(44.5)

0.00

N/A

12/22

43.6

(91.3)

(96.4)

(96.4)

0.00

N/A

12/23

56.3

(99.9)

(59.0)

(59.0)

0.00

N/A

Source: Company data. Note: *PBT and PAT are normalised, excluding amortisation of acquired intangibles, exceptionals and share-based payments.

FY23: Revenue growth and gross margin expansion

Nano Dimension grew revenue 29% in FY23 and expanded adjusted gross margin by 2pp to 48%. Adjusted EBITDA loss of $99.9m was larger than the $91.3m loss in FY22, mainly due to elevated costs relating to the tender offer for Stratasys and activist shareholders. Factoring in interest income of $46m and the gain on the valuation of its stake in Stratasys of $22m, the company reported a net loss of $54.6m for the year, compared to a loss of $227.4m in FY22.

Targeting substantial reduction in cash burn

The company’s Reshaping Nano initiative is targeting a reduction in costs of $25–30m per annum, with the first benefits expected in Q124. Combined with revenue growth and margin expansion, the company expects to reduce cash burn from $84m in FY23 (excluding share buybacks) to more like $12–20m in FY24, before turning cash flow positive in FY25.

Sector consolidation key to future profitability

Management highlighted the need for consolidation in the 3D printing industry, with high levels of cash burn a risk to several competitors with less robust balance sheets. Stratasys continues to consider Nano Dimension’s bid for the company. If agreement is not forthcoming, Nano Dimension has other opportunities in the pipeline.

Valuation: Well-funded for M&A strategy

Nano Dimension has $842m in net cash on the balance sheet. The shares are currently trading at a significant discount (c 37%) to Nano Dimension’s net cash balance plus the current value of its stake in Stratasys ($115m as at 21 March). As Nano Dimension makes progress with its cost reduction strategy and reduces cash burn, we would expect this discount to reduce.

Review of FY23 results

In the table below, we summarise the performance of Nano Dimension in FY23.

Exhibit 1: Nano Dimension Q423 and FY23 results

$m

Q423

Q422

FY23

FY22

Revenue

$m

14.5

12.1

56.3

43.6

Gross profit

$m

7.0

7.7

25.5

14.1

Adj. gross profit

$m

7.4

8.8

27.3

20.3

EBITDA

$m

(10.5)

(95.1)

(95.0)

(239.2)

Adj. EBITDA

$m

(22.6)

(25.1)

(99.9)

(91.3)

Operating loss

$m

(27.3)

(72.7)

(124.9)

(171.5)

Profit/(loss) before tax

$m

(1.2)

(86.9)

(55.6)

(228.0)

Profit/(loss) after tax

$m

(1.3)

(87.9)

(55.7)

(228.3)

Net income after minority interest

$m

(1.0)

(87.7)

(54.6)

(227.4)

Net cash

$m

842.2

1018.9

842.2

1018.9

Revenue growth y-o-y

19.4%

60.7%

29.1%

315.8%

Revenue growth q-o-q

18.9%

21.1%

N/A

N/A

Gross margin

48.6%

63.4%

45.2%

32.2%

Adj. gross margin

51.1%

72.6%

48.4%

46.5%

Source: Nano Dimension

Nano Dimension reported revenue of $56.3m for FY23, up 29% y-o-y. Q423 revenue of $14.5m was 19.4% higher y-o-y. In FY23, adjusted gross margin increased 1.9pp to 48.4%. Adjusted EBITDA strips out the income from revaluation of assets and liabilities (mainly the movement in Nano’s stake in Stratasys) of $21.9m, share based payments of $20.1m, exchange rate differences of $1.6m and one-off income of $1.6m from the Israeli government relating to items damaged in the war. The company generated net interest income of $45.9m in the year, benefiting from higher interest rates on its cash balances.

Nano Dimension’s 14% stake in Stratasys was worth $138.4m at year-end, based on a share price of $14.28. The share price has since declined to $11.86.

Net cash, including leases of $8.7m, was $842m at year-end, down from $1,019m at the end of FY22. The main moves in the year were:

Cash flow from operating activities: -$105.0m

Cash flow from investing activities: +$22.5m

Cash flow from financing activities: -$100.0m. This includes share buybacks totalling $96.4m ($10.7m in Q423).

FX: +$1.3m

Excluding share buybacks, cash burn for the year was c $84m.

Outlook for 2024

The Reshaping Nano programme is well underway, with the target of reducing annual costs by $25–30m. The company continues to expect effect to start to be seen in Q124 results and is targeting a reduction in cash burn from $84m in FY23 to more like $12–20m in FY24. We estimate this would be from a combination of factors:

Revenue growth: management expects FY24 growth of at least 15% but less than the 29% achieved in FY23.

Gross margin expansion: targeting growth in adjusted margins towards 60%.

Opex reductions from the Reshaping Nano programme. Adjusted opex before depreciation and amortisation was $127m in FY23 and we note that this included a high level of costs related to the tender offer for Stratasys in the summer and activist shareholders (c $19m).

Interest income: continued benefit from the cash position – monthly income is c $4m.

Capital allocation update

Consolidating the sector

While Stratasys continues to consider the bid Nano Dimension made for it at the end of 2023, management notes that this is just one of several options that the company is considering and emphasised the need for industry consolidation. With a much stronger cash position than its peers, Nano expects to lead this consolidation rather than be a target.

The table below shows the financial performance of four listed peers in FY23 and Q423 – all four saw revenue declines in Q423 and FY23. The table also includes their current financial position, which highlights the necessity for reduced cash burn and improved profitability.

Exhibit 2: Peer financial performance and outlook

$m

Year-end

Revenue

Revenue growth

Non-GAAP gross margin

Company

FY23

Q423

FY23

Q423

FY23

Q423

Stratasys

31-Dec

627.6

156.3

-3.7%

-1.9%

48.2%

48.8%

3D Systems

31-Dec

488.1

114.8

-9.3%

-13.5%

41.1%

41.9%

Desktop Metal

31-Dec

189.7

52.3

-9.2%

-13.7%

27.0%

34.0%

Markforged

31-Dec

93.8

24.2

-7.1%

-18.5%

47.4%

49.5%

Adj. EBITDA

Net cash used in operating activities plus capex

Cash & cash equivalents

Net cash/(debt)**

FY23

FY24 outlook

FY23

end FY23

end FY23

Stratasys

35.0

40–45

(78.3)

162.6

143.9

3D Systems

(24.5)

b/e or better

(107.9)

331.5

(54.6)

Desktop Metal

(69.1)

(30) to (10)

(117.8)

84.5

(59.5)

Markforged

(45.8)

(47) to (42.5)*

(52.5)

116.9

73.8

Source: Company websites. Note: *Guidance is for operating profit **Includes lease liabilities.

Share buybacks ongoing

In FY23, the company bought back 32.0m shares for a total of $96.4m, all of which are held in treasury. It has authority under a new facility for an additional $200m of buybacks and so far this year, has bought back a further 17.1m shares at a cost of $46.2m.

Business update

The company highlighted sales to key customers in 2023:

NASA: an Admaflex machine to 3D print ceramics and metal for sodium ion batteries.

US Department of Defense (DoD): a DragonFly machine for 3D printing of electronics. This is one of many deliveries to a branch of the US DoD.

Fraunhofer Institute (German research group): a DragonFly machine for 3D printing of electronics, one of several sold to the group.

Unnamed industrial company: largest order ever, for Additive Electronics for robotic assembly.

Large Western computer manufacturer: DragonFly machine for 3D printing of electronics, one the larger orders in the year.

A Western nuclear research group: a DragonFly machine for 3D printing of electronics

The company noted that R&D and product development during FY23 achieved the following:

DeepCube industrial AI: implemented in DragonFly IV, made available to third parties for use with their own machines, and a patent filed for large language model analysis of data generated by industrial machines.

INSU 200 – new dielectric material for AME (additively manufactured electronics). With better thermal and mechanical properties than previous materials, it can support more demanding applications in the defence and commercial markets and widens the addressable market for Nano’s DragonFly IV system. The material will be made available to customers in April 2024.

Fabrica GIGA series – launch of a new Micro AM (additive manufacturing) system.

Admaflex 130 Entry – launch of a new entry level machine for printing of advanced ceramics.

Flight Hub – improved software for AME design to manufacturing capabilities.

Exhibit 3: Financial summary

$m

2019

2020

2021

2022

2023

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

Revenue

 

7.1

3.4

10.5

43.6

56.3

Cost of Sales (including amortisation of capitalised IP)

(5.1)

(2.3)

(9.4)

(29.6)

(30.9)

Gross Profit

2.0

1.1

1.1

14.1

25.5

EBITDA

 

(11.7)

(12.6)

(38.4)

(91.3)

(99.9)

Operating profit (before amort. and excepts.)

 

(14.4)

(15.2)

(48.3)

(98.5)

(106.4)

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(145.2)

(40.4)

1.6

Share-based payments

(0.4)

(20.5)

(29.8)

(32.6)

(20.1)

Operating Profit

(14.8)

(35.7)

(223.2)

(171.5)

(124.9)

Net Interest

6.5

0.2

3.8

2.2

47.4

Exceptionals

0.0

(13.0)

13.7

(58.7)

21.9

Profit Before Tax (norm)

 

(7.9)

(15.0)

(44.5)

(96.4)

(59.0)

Profit Before Tax (FRS 3)

 

(8.4)

(48.5)

(205.7)

(228.0)

(55.6)

Tax

0.0

0.0

4.9

(0.3)

(0.1)

Profit After Tax (norm)

(7.9)

(15.0)

(44.5)

(96.4)

(59.0)

Profit After Tax (FRS 3)

(8.4)

(48.5)

(200.8)

(228.3)

(55.7)

 

 

 

 

 

Average Number of Shares Outstanding (m)

3.5*

42.9*

247.3

257.8

248.0

EPS - normalised ($)

 

(2.25)

(0.35)

(0.18)

(0.37)

(0.23)

EPS (normalised, fully diluted ($)

 

(2.25)

(0.35)

(0.18)

(0.37)

(0.23)

EPS - (IFRS) ($)

 

(2.38)

(1.13)

(0.81)

(0.88)

(0.22)

Dividend per share ($)

0.00

0.00

0.00

0.00

0.00

 

 

 

 

 

Gross margin (%)

28.1%

31.3%

10.7%

32.2%

45.2%

EBITDA margin (%)

N/A

N/A

N/A

N/A

N/A

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

Fixed Assets

 

13.0

13.1

78.1

139.1

170.4

Intangible Assets

5.2

4.4

0.0

0.0

2.2

Tangible Assets

7.4

8.3

12.2

22.4

28.8

Deferred tax and other

0.0

0.0

1.0

0.9

0.0

Bank deposits/securities

0.0

0.0

64.4

115.0

138.4

Restricted deposits

0.4

0.4

0.5

0.9

0.9

Current Assets

 

9.9

676.1

1,311.9

1,064.3

894.0

Stocks

3.5

3.3

11.2

19.4

18.4

Debtors

2.4

1.8

9.3

12.8

24.0

Cash

3.9

585.3

853.6

685.4

309.6

Bank deposits

0.0

85.6

437.6

346.7

542.0

Restricted deposits

0.0

0.1

0.1

0.1

0.1

Current Liabilities

 

(4.4)

(6.7)

(32.0)

(37.0)

(34.5)

Creditors

(4.4)

(6.7)

(16.7)

(27.9)

(34.4)

Short-term borrowings

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

(15.3)

(9.2)

(0.0)

Long-Term Liabilities

 

(6.8)

(15.5)

(13.7)

(16.1)

(14.1)

Long-term borrowings

(2.1)

(2.6)

(4.4)

(13.1)

(9.3)

Other liabilities

(4.7)

(12.8)

(9.3)

(3.0)

(4.7)

Net Assets

 

11.6

667.1

1,344.2

1,150.3

1,015.8

 

 

 

 

 

CASH FLOW

 

 

 

 

 

Operating Cash Flow

(11.7)

(12.6)

(38.4)

(91.3)

(99.9)

Working capital

(0.8)

2.9

2.7

(1.2)

(7.3)

Exceptionals and other

(0.2)

(0.0)

(7.0)

0.4

2.0

Tax

0.0

0.0

0.0

0.0

0.0

Net Operating Cash Flow

 

(12.7)

(9.6)

(42.6)

(92.1)

(105.1)

Net Interest

0.0

0.2

3.7

17.5

41.5

Investment in intangible & tangible assets

(0.6)

(1.4)

(9.8)

(9.4)

(10.6)

Acquisitions/disposals

0.0

0.0

(74.6)

(219.5)

(9.3)

Equity financing

14.6

679.0

805.7

0.0

(96.4)

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

(1.7)

(1.6)

Net Cash Flow

1.4

668.1

682.4

(305.3)

(181.4)

Opening net debt/(cash)

 

(3.8)

(1.8)

(668.3)

(1,351.2)

(1,018.9)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(3.3)

(1.6)

0.4

(15.0)

5.9

Closing net debt/(cash)

 

(1.8)

(668.3)

(1,351.2)

(1,018.9)

(842.2)

Source: Company data. Note: *Adjusted for 1:50 reverse split effective June 2020.


General disclaimer and copyright

This report has been commissioned by Nano Dimension and prepared and issued by Edison, in consideration of a fee payable by Nano Dimension. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Nano Dimension and prepared and issued by Edison, in consideration of a fee payable by Nano Dimension. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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United Kingdom

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Northern Data Group — First transparency milestone achieved

Northern Data Group released its FY22 results as scheduled, reflecting delays due to its transformation into a diversified high-performance computing (HPC) infrastructure solutions provider. Despite significant crypto price declines, the group achieved year-on-year revenue growth and adjusted EBITDA positivity, driven by investments in mining compute power and a small inaugural cloud computing contribution. Ethereum’s shift to proof-of-stake led to substantial impairment, driving an operating loss. That said, Northern Data was able to repurpose a share of the graphic processing units (GPUs) from Ethereum mining for cloud computing, enabling expected FY23 revenue growth of over 10x in the recently formed Taiga Cloud division. Investments in NVIDIA H100 hardware and requisite data centres, alongside unmet demand from target customers, underpin management’s expectations for at least a further 10x Taiga revenue growth in FY24. Buoyed by bitcoin’s FY23 and FY24 appreciation, Northern Data is well-positioned for strong diversified revenue and profit growth.

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