Nano Dimension — Outlining the path to profitabililty

Nano Dimension (NASDAQ: NNDM)

Last close As at 23/02/2024

USD2.72

0.01 (0.37%)

Market capitalisation

USD687m

More on this equity

Research: TMT

Nano Dimension — Outlining the path to profitabililty

Nano Dimension reported Q323 year-on-year revenue growth of 21.6%, an adjusted gross margin of 48.0% (+20.4pp y-o-y) and an adjusted EBITDA loss of $30.1m. Despite the Israeli/Palestinian conflict, Nano Dimension maintains its outlook for FY23 and has launched an initiative to improve company profitability. It has also made improvements to corporate governance. With a substantial net cash balance and a material stake in Stratasys, the company is focused on optimising capital allocation, balancing M&A, share buybacks and investment in R&D.

Katherine Thompson

Written by

Katherine Thompson

Director

Nano Dimension1

TMT

Nano Dimension

Outlining the path to profitability

Technology

Spotlight – Update

12 December 2023

Price

US$2.26

Market cap

US$533m

Share price graph

Share details

Code

NNDM

Listing

NASDAQ

Shares in issue

236m

Net cash ($m) at end September 2023 (including US$9.0m lease liability)

863.1

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.

Additive manufacturing is more efficient for smaller volume production runs.

Sequence of acquisitions gives Nano Dimension a broad additive manufacturing portfolio.

Bear

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 reported Q323 year-on-year revenue growth of 21.6%, an adjusted gross margin of 48.0% (+20.4pp y-o-y) and an adjusted EBITDA loss of $30.1m. Despite the Israeli/Palestinian conflict, Nano Dimension maintains its outlook for FY23 and has launched an initiative to improve company profitability. It has also made improvements to corporate governance. With a substantial net cash balance and a material stake in Stratasys, the company is focused on optimising capital allocation, balancing M&A, share buybacks and investment in R&D.

Historical performance

Year
end

Revenue
(US$m)

EBITDA
(US$m)

PBT*
(US$m)

PAT*
(US$m)

DPS
($)

P/E
(x)

12/19

7.1

(11.7)

(7.9)

(7.9)

0.00

N/A

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

(88.8)

(96.4)

(96.4)

0.00

N/A

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

Good organic revenue growth in Q323

Nano Dimension reported Q323 revenue of $12.2m (+21.6% y-o-y) and revenue for the first nine months of FY23 (9M23) of $41.9m (+32.8% y-o-y). A Q323 adjusted EBITDA loss of $30.1m was after spending $10.6m on legal and other advisory fees relating to activist shareholders and the tender offer. Net cash at the end of Q323 stood at $863.1m after buying back shares worth $66m in Q3.

Reshaping Nano – plan to drive profitability

The company has launched an initiative to reduce costs, with the aim of reaching operating profitability in FY25 and positive cash flow possibly before that. All areas of the business are under review, including improvements to manufacturing processes and the supply chain, rationalising manufacturing facilities and optimising operating costs, with clear financial targets for each product area. The company estimates that it could achieve annualised cost savings of $30m, with the first benefits becoming evident from Q124.

Corporate governance improved

Taking on board feedback from the proxy advisory firms and shareholders, the company has reshaped its board, separating the chairman and CEO roles and increasing the proportion of independent non-executive directors on the board.

Valuation: Well-funded for M&A strategy

Nano Dimension has $863m in net cash on the balance sheet. Now that it is no longer bidding to acquire Stratasys, management is seeking alternative acquisition opportunities. The shares are currently trading at a significant discount (c 46%) to Nano Dimension’s net cash balance plus the current value of its stake in Stratasys ($117m as at 11 December).

Review of Q223 results

In the table below, we summarise the performance of Nano Dimension in Q323 and 9M23.

Exhibit 1: Nano Dimension Q323 and 9M23 results highlights

Q323

Q322

9M23

9M22

Revenue

$m

12.2

10.0

41.9

31.5

Gross profit

$m

5.4

1.8

18.4

6.4

Adj. gross profit

$m

5.8

2.8

19.9

11.4

EBITDA

$m

(76.6)

(69.5)

(84.5)

(142.5)

Adjusted EBITDA

$m

(30.1)

(24.2)

(77.3)

(64.7)

Operating loss

$m

(36.0)

(33.8)

(97.6)

(98.8)

Profit/(loss) before tax

$m

(67.1)

(67.1)

(54.4)

(141.1)

Profit/(loss) after tax

$m

(66.9)

(67.1)

(54.3)

(140.4)

Net income after minority interest

$m

(66.6)

(66.9)

(53.5)

(139.8)

Net cash including lease liabilities

$m

863.1

1,037.4

863.1

1,037.4

Revenue growth y-o-y

21.6%

646.1%

32.8%

964.4%

Revenue growth q-o-q

-17.5%

-9.9%

N/A

N/A

Gross margin

44.2%

18.0%

44.0%

20.2%

Adjusted gross margin*

48.0%

27.6%

47.5%

36.1%

Source: Nano Dimension. Note: *Excludes amortisation and share-based payments.

Q323 revenue was 22% higher year-on-year and 9M23 revenue was 33% higher year-on-year. The company noted that this growth well exceeded the performance of peers over the same period (3D Systems Q323 revenue -6.4% y-o-y/-8.5% in constant currency; Desktop Metal -9.1% y-o-y; Markforged 20.2% yoy; and Stratasys flat y-o-y/+3% y-o-y in constant currency excluding disposals). Adjusted gross margin improved by 20.4pp y-o-y to 48.0% in Q323 and was 11.4pp higher yearonyear for 9M23 at 47.5%. The Q323 EBITDA loss of $76.6m included the loss on the company’s stake in Stratasys of $40.2m (its 14.1% stake fell in value from $172.2m at the end of Q223 to $132.0m at the end of Q323). The adjusted EBITDA loss, which excludes FX gains/losses, share-based payments and revaluation of assets and liabilities, was $30.1m compared to $24.2m a year ago. The company spent $10.6m on legal and proxy-related costs in Q323 ($17m in 9M23). Interest income was $11.1m in Q323 and the company estimates that it is earning interest on its cash of c $4m per month.

Net cash at the end of Q323 was $863.1m, down $80.5m from Q223. The company used $19.5m cash in operating activities, received $11.8m in interest, spent $3.4m on capex and $66.0m buying back shares.

On 19 October, the company received approval from the Israeli Court to extend its share buyback plan for another 12 months. This permits the company to buy back up to $200m of its American depositary shares.

Business update

Managing the business during Israeli/Palestinian conflict

The company noted that inventory in a storage facility in Israel had suffered damage from the Hamas attacks on 7 October. It does not expect this to affect its supply chain or the ability to service existing customer commitments and damage should be covered by insurance. Around 15% of staff in Israel have been called up for reserve duty. Despite this, the company is working hard to meet scheduled deliveries for customers and remains confident in its outlook for FY23, aiming for FY23 revenue in the region of $55–60m (+26–38% y-o-y).

Product development

During Q323, the company made the following progress with its product roadmap:

Released Flight Hub software: this enables users to create advanced 3D electromechanical structures specifically designed for fabrication using additively manufactured electronics (AME) machines.

Developed biocompatible AME materials for medical applications.

Opened Fabrica Micro-AM systems to third-party materials.

Developed a new entry-level Admaflex system.

Unveiled INSU 200, a new dielectric material with industry-leading thermoelectric properties for use in Nano Dimension’s DragonFly IV AME system.

Reshaping Nano – initiative to drive profitability

The company has launched an initiative to reduce its cost base and drive profitability. The target is to reach operating profitability by FY25 and positive cash flow possibly before that. The plan is to leverage synergies across the different product lines and set clear financial objectives for each business within the group. The company estimates that it can achieve annual cost savings of $30m, with the benefit starting to be seen from Q124. It recently reduced headcount by 130 (c 25% of headcount), which should generate a meaningful proportion of the savings. It also includes ongoing improvements to manufacturing processes and the supply chain and a review of manufacturing facilities to ensure optimal utilisation.

Optimising capital allocation

The high level of bid activity in the summer (Nano Dimension’s tender offer for Stratasys, 3D Systems’ bid for Stratasys, Stratasys’ proposed merger with Desktop Metal) ended with no deal reaching completion. Since then, the share prices of all companies have declined, with Nano Dimension’s share price holding up better than its peers.

Exhibit 2: Share price performance

Year-to-date performance

Share price ($)

Change

Company

Peak (date)*

Now

Peak to now

3D Systems

-22.0%

10.59 (13 Jul)

5.94

-43.9%

Desktop Metal

-50.6%

2.26 (12 Jun)

0.67

-70.4%

Nano Dimension

-2.4%

3.31 (28 Jul)

2.26

-31.7%

Stratasys

0.6%

21.3 (14 Jul)

12.06

-43.4%

Source: Edison Investment Research, Refinitiv (as at 11 December). Note: *Peak since M&A activity started.

Nano Dimension still holds a 14.1% stake in Stratasys, currently worth $117m. While the company is still interested in making acquisitions, CEO Yoav Stern confirmed that he has no appetite for ‘unfriendly’ bids as these are too costly and time consuming. He reiterated the company’s criteria for an acquisition, ie a company generating annual revenue of at least $100m with AME and additive manufacturing capabilities, and noted that valuation multiples had fallen from c 6x revenue to more like 2x revenue. The company is currently talking to c 25 potential targets.

As well as considering acquisitions to grow the business, the company is keen to balance this with the appropriate investment in R&D and buying back shares.

Corporate governance update

At its AGM on 7 September, shareholders approved the re-election of all directors proposed by the company and rejected the proposals from Murchinson and related parties.

On 15 September, the company announced that it would separate the roles of chairman and CEO, appointing Dr Yoav Nissan-Cohen as chairman of the board with Yoav Stern continuing as CEO and director. Dr Nissan-Cohen originally joined the board in December 2022. Colonel (Retired) Channa Caspi stepped down from the board for medical reasons, reducing it from nine to eight directors. Effective 15 October, the company appointed General (Retired) Michael X Garrett to the board. General Garret is a retired US army four-star general with nearly 40 years of service. On 18 October, taking account of recommendations from Institutional Shareholder Services and Glass Lewis, two directors (Igal Rotem and Amit Dror) stepped down from the board. The board now consists of seven directors, of which six are non-executive independent directors.

The EGM originally scheduled for 13 December (to approve chairman, CEO and non-executive director compensation) has been cancelled, due to the need for the business to focus on meeting customer requirements during the ongoing conflict in Israel. The company also noted that work on its ‘Reshaping Nano’ initiative will require time from finance and operations staff. The EGM will be rescheduled when the impact of the conflict subsides.

Exhibit 3: Financial summary

$m

2019

2020

2021

2022

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

Revenue

 

7.1

3.4

10.5

43.6

Cost of Sales (including amortisation of capitalised IP)

(5.1)

(2.3)

(9.4)

(29.6)

Gross Profit

2.0

1.1

1.1

14.1

EBITDA

 

(11.7)

(12.6)

(38.4)

(88.8)

Operating profit (before amort. and excepts.)

 

(14.4)

(15.2)

(48.3)

(98.5)

Intangible Amortisation

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(145.2)

(40.4)

Share-based payments

(0.4)

(20.5)

(29.8)

(32.6)

Operating Profit

(14.8)

(35.7)

(223.2)

(171.5)

Net Interest

6.5

0.2

3.8

2.2

Exceptionals

0.0

(13.0)

13.7

(58.7)

Profit Before Tax (norm)

 

(7.9)

(15.0)

(44.5)

(96.4)

Profit Before Tax (FRS 3)

 

(8.4)

(48.5)

(205.7)

(228.0)

Tax

0.0

0.0

4.9

(0.3)

Profit After Tax (norm)

(7.9)

(15.0)

(44.5)

(96.4)

Profit After Tax (FRS 3)

(8.4)

(48.5)

(200.8)

(228.3)

Average Number of Shares Outstanding (m)

3.5*

42.9*

247.3

257.8

EPS - normalised ($)

 

(2.25)

(0.35)

(0.18)

(0.37)

EPS - (IFRS) ($)

 

(2.38)

(1.13)

(0.81)

(0.88)

Dividend per share ($)

0.00

0.00

0.00

0.00

Gross margin (%)

28.1%

31.3%

10.7%

32.2%

EBITDA margin (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

 

 

 

 

Fixed Assets

 

13.0

13.1

78.1

139.1

Intangible Assets

5.2

4.4

0.0

0.0

Tangible Assets

7.4

8.3

12.2

22.4

Deferred tax and other

0.0

0.0

1.0

0.9

Bank deposits/securities

0.0

0.0

64.4

115.0

Restricted deposits

0.4

0.4

0.5

0.9

Current Assets

 

9.9

676.1

1,311.9

1,064.3

Stocks

3.5

3.3

11.2

19.4

Debtors

2.4

1.8

9.3

12.8

Cash

3.9

585.3

853.6

685.4

Bank deposits

0.0

85.6

437.6

346.7

Restricted deposits

0.0

0.1

0.1

0.1

Current Liabilities

 

(4.4)

(6.7)

(32.0)

(37.0)

Creditors

(4.4)

(6.7)

(16.7)

(27.9)

Short-term borrowings

0.0

0.0

0.0

0.0

Other

0.0

0.0

(15.3)

(9.2)

Long-Term Liabilities

 

(6.8)

(15.5)

(13.7)

(16.1)

Long-term borrowings

(2.1)

(2.6)

(4.4)

(13.1)

Other liabilities

(4.7)

(12.8)

(9.3)

(3.0)

Net Assets

 

11.6

667.1

1,344.2

1,150.3

 

 

 

 

CASH FLOW

 

 

 

 

Operating Cash Flow

(11.7)

(12.6)

(38.4)

(88.8)

Working capital

(0.8)

2.9

2.7

(1.2)

Exceptionals and other

(0.2)

(0.0)

(7.0)

(2.1)

Tax

0.0

0.0

0.0

0.0

Net Operating Cash Flow

 

(12.7)

(9.6)

(42.6)

(92.1)

Net Interest

0.0

0.2

3.7

17.5

Investment in intangible & tangible assets

(0.6)

(1.4)

(9.8)

(9.4)

Acquisitions/disposals

0.0

0.0

(74.6)

(219.5)

Equity financing

14.6

679.0

805.7

0.0

Dividends

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

(0.0)

Net Cash Flow

1.4

668.1

682.4

(303.5)

Opening net debt/(cash)

 

(3.8)

(1.8)

(668.3)

(1,351.2)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

(3.3)

(1.6)

0.4

(28.7)

Closing net debt/(cash)

 

(1.8)

(668.3)

(1,351.2)

(1,018.9)

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

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.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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20 Red Lion Street

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: TMT

discoverIE Group — Resilience from focus on strategic growth markets

discoverIE’s H124 results reflected improving profitability despite the expected lower demand due to customer destocking and the weaker economic environment. With normalisation of the order book effectively complete and strong growth in design win activity, the company is well positioned to grow as customer confidence returns. discoverIE is making good progress towards its margin targets and maintains its outlook for FY24. The company has an active pipeline of acquisition targets, which should further drive growth and operating profitability.

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