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Research: TMT
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.
Nano Dimension |
Outlining the path to profitability
Technology |
Spotlight – Update
12 December 2023 |
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Nano Dimension is a research client of Edison Investment Research Limited |
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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.
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Historical performance
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:
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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.
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Research: TMT
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.