Nano Dimension — Material reduction in cash burn

Nano Dimension (NASDAQ: NNDM)

Last close As at 19/07/2024

USD2.29

−0.11 (−4.58%)

Market capitalisation

USD507m

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Research: TMT

Nano Dimension — Material reduction in cash burn

Nano Dimension’s Q124 results confirmed that the Reshaping Nano initiative has made good progress, with significant reductions in operating costs and improved adjusted gross margins materially reducing the adjusted EBITDA loss and cash burn compared to Q123. The company bought back $52m worth of shares in Q124 and expects to continue to do so while the shares trade at a discount to book value. M&A is still firmly on the radar and discussions with potential targets are ongoing.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Nano Dimension

Material reduction in cash burn

Technology

Spotlight – Update

7 June 2024

Price

US$2.64

Market cap

US$579m

Share price graph

Share details

Code

NNDM

Listing

NASDAQ

Shares in issue

219.2m

Net cash ($m) at end Q124 (including US$12.2m lease liability)

780.3

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’s Q124 results confirmed that the Reshaping Nano initiative has made good progress, with significant reductions in operating costs and improved adjusted gross margins materially reducing the adjusted EBITDA loss and cash burn compared to Q123. The company bought back $52m worth of shares in Q124 and expects to continue to do so while the shares trade at a discount to book value. M&A is still firmly on the radar and discussions with potential targets are ongoing.

Historical performance

Year
end

Revenue
(US$m)

Adjusted 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.

Q124 shows good progress with cost reductions

While Q124 revenue declined 11% y-o-y, the adjusted gross margin improved 2.7pp to 49.8%. Operating costs were cut substantially year-on-year as part of the Reshaping Nano initiative, which aims to right-size the cost base after a series of acquisitions while retaining resources for R&D innovation. This reduced the adjusted EBITDA loss to $13.6m from $23.7m in Q123. Factoring in interest income of $11.3m and the loss on the valuation of its stake in Stratasys of $25.8m, the company reported a net loss of $35.0m for Q124, compared to net income of $22.0m in Q123. Net cash burn before share buybacks reduced to $7m in Q124 compared to $27m in Q123. Management is targeting a reduction in cash burn (before share buybacks) from $84m in FY23 to more like $12–20m in FY24, before turning cash flow positive in FY25 and reaching break-even in H225.

M&A under discussion, share buybacks to continue

The need for consolidation in the 3D printing industry remains evident, with a lack of profitability and high levels of cash burn across the peer group. Stratasys continues to consider Nano Dimension’s bid for the company and Nano is actively pursuing other target companies in its M&A pipeline. In the meantime, the company continues to buy back shares while they trade well below book value.

Valuation: Well-funded for M&A strategy

Nano Dimension has gross cash of $793m on the balance sheet, putting it in a strong position to consolidate the sector. The shares are currently trading at a significant discount (c 34%) to Nano Dimension’s net cash balance plus the current value of its stake in Stratasys ($874m as at 6 June). As Nano Dimension makes progress with its cost reduction strategy and reduces cash burn, we would expect this discount to reduce.

Review of Q124 results

In the table below, we summarise the performance of Nano Dimension in Q124.

Exhibit 1: Q124 results highlights

Q124

Q123

Revenue

$m

13.4

15.0

Gross profit

$m

6.2

6.6

Adjusted gross profit

$m

6.7

7.1

EBITDA

$m

(44.2)

11.9

Adjusted EBITDA

$m

(13.6)

(23.7)

Operating loss

$m

(19.0)

(31.2)

Profit/(loss) before tax

$m

(35.0)

22.0

Profit/(loss) after tax

$m

(35.0)

22.0

Net income after minority interest

$m

(34.8)

22.2

Net cash

$m

780.3

968.9

Revenue growth y-o-y

-10.7%

43.5%

Revenue growth q-o-q

-7.5%

23.6%

Gross margin

46.2%

43.9%

Adjusted gross margin

49.8%

47.1%

Source: Nano Dimension

Nano Dimension reported Q124 revenue of $13.4m, down 10.7% y-o-y. Management noted that Q123 revenue included some catch-up revenue after supply chain disruption in 2022. Adjusted gross margin increased 2.7pp to 49.8%. Adjusted EBITDA strips out the loss from revaluation of assets and liabilities (mainly the movement in Nano’s stake in Stratasys) of $26.0m, share-based payments of $3.5m, exchange rate differences of $1.3m and non-recurring income of $0.1m. Adjusted EBITDA improved from a loss of $23.7m in Q123 and $22.6m in Q423 to a loss of $13.6m in Q124, reflecting progress from the Reshaping Nano initiative to reduce the cost base. The company generated net interest income of $11.3m.

Nano Dimension’s 14% stake in Stratasys was worth $112.7m at quarter-end, based on a share price of $11.62. The share price has since declined to $9.67.

Net cash, including leases of $12.2m, was $780.3m at quarter-end, down from $837.7m at the end of FY23. The main moves in the quarter were:

cash flow from operating activities: -$13.0m;

cash flow from investing activities: $9.1m;

cash flow from financing activities: -$57.1m. This includes share buybacks totalling $51.6m ($10.7m in Q423, $96.4m in FY23); and

FX: -$0.6m.

Excluding share buybacks, cash burn for the quarter was $7m (calculated as the change in cash, cash equivalents and bank deposits of $58.5m adjusted for share buybacks), with monthly cash burn reduced to $2.33m, down 75% y-o-y.

Reshaping Nano update

The Reshaping Nano programme is well underway, with the target of reducing annual costs by $25–30m. After a series of acquisitions over the course of 2021 and 2022, the company has reviewed its cost base and is rationalising it where appropriate, while retaining sufficient resources to support R&D innovation and continue to grow the business. Adjusted operating costs in Q124 totalled $22m compared to $32m in Q123, down 31% y-o-y. Including share-based payments, R&D costs more than halved year-on-year to $9.1m, sales and marketing costs declined by 13% and general and administrative costs declined by 13%. Management confirmed that further reductions in the cost base should be achieved through the rest of the year. The company is targeting a reduction in cash burn from $84m in FY23 to closer to $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.

Interest income: continued benefit from the cash position – monthly income is c $4m, although this will decline as the net cash balance reduces and if interest rates start to fall.

Management confirmed that it was targeting break-even towards the end of H225, based on revenue growth of 25–30% in FY24 and FY25.

Capital allocation update

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 in Q124, bought back 19.0m shares at a cost of $51.6m. With the $579m market cap of the company well below the $874m value of net cash and the stake in Stratasys, management believes that buying back shares represents a good short-term return on investment. In the longer term, it views investment in R&D and M&A as likely to be more material drivers of shareholder value.

Continuing with M&A discussions

Nano Dimension made a bid for Stratasys at the end of 2023 and this is still under consideration by Stratasys, with the management of both companies in ongoing discussions. While there is clearly demand for additive manufacturing, as evidenced by the revenues generated by the main industry players, the industry has not yet figured out a way to grow profitably. Consolidation is one route to bring some financial discipline to the sector and, with its strong cash balance, Nano Dimension is well positioned to be a consolidator rather than a target.

Business update

The company highlighted sales in Q124 to:

InCap, a Finnish electronics manufacturing services provider – this is a new customer. InCap will be using the tool for radio frequency products.

A Western defence agency – a repeat sale.

ProActive Engineering – a new customer for advanced electronics.

A US leader in ‘new space’ – a repeat sale.

A new customer in ‘new space’.

A US defence contractor – a repeat sale.

Patent granted for DeepCube’s industrial AI

DeepCube is currently developing an end-to-end AI platform for industrial usage that can be used beyond additive manufacturing. The software platform is intended to run autonomously on customers’ premises and continuously improve itself, so that accuracy improves with usage.

In Q124, a US patent was granted for DeepCube’s ‘System and method for mimicking a neural network without access to the original training dataset or the target model’. The aim of this method is to train and improve AI models on customer premises without Nano Dimension having direct access to the new data or model. DeepCube has filed 50 patent applications across eight jurisdictions to date, with 27 already granted. Also during Q124, DeepCube signed up a new customer for its AI services – this is for use with a third party rather than a Nano Dimension machine.

Digital printing partnership

GIS, the company’s inkjet systems business, has partnered with Esko-Graphics, a supplier of software and hardware for packaging design and print, and Fiery, a provider of digital front ends for industrial and graphic arts printing, to provide a one-stop shop digital print solution.

Essemtec product enhancement

In May, the company announced an enhancement to its Essemtec additive electronics product group, introducing a new jet-on-the-fly capability, which can improve the speed of additive electronics dispensing by up to three times. The jet-on-the-fly capability enables the precise dispensing of solder paste dots ranging from 250μm to larger sizes even within tight spaces such as cavities. Using this new capability, average speeds of 180,000 dots per hour per board are possible, with specific packages such as ball grid array reaching up to 400,000 dots per hour.

Exhibit 2: 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)

(30.0)

Short-term borrowings

0.0

0.0

0.0

0.0

(4.5)

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)

1.3

Closing net debt/(cash)

 

(1.8)

(668.3)

(1,351.2)

(1,018.9)

(837.7)

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 2024 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 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Research: Healthcare

OSE Immunotherapeutics — Strong momentum in deal flow

OSE Immunotherapeutics’ FY24 has started off with a series of major wins, significantly bolstering the company’s clinical pipeline and liquidity. We believe the partnership with AbbVie (announced in February) for OSE-230, targeting chronic inflammation, the €8.4m public funding for Tedopi secured in April and the recent expansion of its R&D agreement with Boehringer Ingelheim (BI) are all positive endorsements of OSE’s discovery platform. Moreover, we expect the c €91m in non-dilutive inflows from these announced deals to extend OSE’s cash runway into 2027 (previously 2026), an important consideration given the still tight biotech funding environment. While some optimism from these announcements is already reflected in the share price (up 88% ytd), our revised valuation for OSE (€19/share) indicates potential for further upside with the upcoming milestones, including the Phase III initiation for lead asset Tedopi and Phase II readouts for Lusvertikimab, both anticipated imminently.

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