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Nano Dimension’s FY22 results show that its ‘buy-and-build’ strategy has delivered a quadrupling of revenues during the year. The pace of revenue growth may potentially accelerate following Nano Dimension’s recent bid for 3D printing giant Stratasys.
Nano Dimension |
Record revenues in FY22
Technology |
Spotlight – Update
27 April 2023 |
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Nano Dimension is a research client of Edison Investment Research Limited |
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Nano Dimension’s FY22 results show that its ‘buy-and-build’ strategy has delivered a quadrupling of revenues during the year. The pace of revenue growth may potentially accelerate following Nano Dimension’s recent bid for 3D printing giant Stratasys.
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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. |
FY22 performance boosted by acquisitions
Revenues quadrupled year-on-year during FY22 to US$43.6m. While this was primarily the result of the Essemtec acquisition in November 2021, we note that Admatec, Essemtec and GIS have all exhibited revenue growth post-acquisition. Group pre-exceptional operating losses doubled to US$98.5m. R&D expenses were a significant element of the losses, representing US$75.8m of the total. Net cash (including bank deposits, lease liabilities and bank loans) reduced from US$1,351.2m at end FY21 to US$1,018.9m at end FY22, giving ample funds to pursue much larger-scale acquisitions than have been completed so far. Share prices in the sector have reduced significantly since end FY21 (see our March initiation note for details), making vendor expectations more realistic, so it is reasonable to expect the pace of acquisitions to accelerate.
FY23 outcome depends on Stratasys response
Last month Nano Dimension made a formal, non-binding offer to acquire the outstanding 85.5% stake in Stratasys (Nasdaq: SSYS) it does not already own for US$18.00 per share in cash (US$1.1bn total consideration). It has subsequently increased this offer to US$20.05/share (US$1.2bn). This potential transaction would be transformative because Stratasys generated US$651.5m in revenues and US$36.1m adjusted EBITDA in FY22.
Valuation: US$1.0bn cash on the balance sheet
Nano Dimension has US$1.0bn cash on the balance sheet, which is similar to the US$1.2bn cash it is offering for the share in Stratasys it does not already own. Management has stated its intention to pursue other sizable acquisitions if the Stratasys offer falls through. Consequently, it is not valid to carry out a valuation based on a comparison of market capitalisation/historical sales multiples because Nano Dimension’s revenues are likely to grow much faster than those of its listed peers. The shares are currently trading at a significant discount (c 58%) to Nano Dimension’s cash balance plus the value of its stake in Stratasys.
Financials
FY22 revenue growth driven by acquisitions
Revenues quadrupled year-on-year during FY22 to US$43.6m. While this was primarily the result of the Essemtec acquisition in November 2021, the group has benefited from organic growth as well. For example, Essemtec’s revenues have grown by 8% over the 12 months since the acquisition.
Revenues dipped from US$10.4m in Q122 and US$11.1m in Q222 to US$10.0m in Q322 before picking up in the final quarter to reach US$12.1m, which was the highest quarterly revenue in Nano Dimension’s history. Revenues were lower in Q323 because of the war in Ukraine, which resulted in a reduction in revenues from sales of additive manufacturing electronics equipment to Russia and Poland. In addition, while Nano Dimension had sufficient components itself to complete and deliver systems as required, continued component supply shortages globally meant that some customers requested delays in deliveries of the pick-and-place equipment used to mount electronic components on circuit boards. Revenues recovered in Q422, partly as a result of the sales initiatives management had instigated to compensate for the absence of sales in Russia and Poland, and partly because component supply shortages had eased a little, encouraging customers to take deliveries of equipment that they had previously postponed.
Stripping out amortisation, gross margin reduced by 2.6pp year-on-year to 42.8% in FY22, reflecting the increasing proportion of revenues attributable to Essemtec, as well as a dip in revenues during Q322 generated from a relatively unchanged fixed manufacturing overhead. All categories of costs increased because of the acquisitions. Group pre-exceptional operating losses doubled to US$98.5m. R&D expenses were a significant element of the losses, increasing from US$41.7m in FY21 to US$75.8m. A review of the value of the cash generating units to which goodwill is allocated resulted in an impairment of goodwill, intangibles and property, plant and equipment of US$40.5m.
Record quarterly revenues in Q123
The recovery noted in Q422 was sustained in Q123, despite the first quarter typically being weaker than the others. On a preliminary basis, Q123 revenues totalled $14.6m, which is a 40% increase year-on-year and a 21% increase over Q422, which had been the highest quarterly revenues ever at the time. Significantly, this quarter-on-quarter growth has not been inflated by new acquisitions.
Ample cash to transact a transformative acquisition
Net cash (including bank deposits, lease liabilities and bank loans) reduced from US$1,351.2m at end FY21 to US$1,018.9m at end FY22. The principal factors contributing to this drop were the operating loss, the payment of US$18.2m (net) for GIS and US$12.9m for Admatec and Formatec, payment of deferred consideration related to Essemtec and GIS of US$10.7m, US$177.8m for the stake in Stratasys and US$9.4m invested in tangible assets. This included R&D equipment, new European headquarters in Munich and additional space to accommodate the R&D activity in Israel. All R&D was expensed and the net increase in working capital was relatively modest at US$1.2m.
Nano Dimension’s large cash balance compared with its rate of cash burn puts it in a better position than many of its listed peers to complete a sizable acquisition. We have updated our table comparing Nano Dimension’s cash position compared with its peers (Exhibit 1) because the share prices of all of the companies shown, except Stratasys, have declined further since our initiation note in March. Stratasys’s share price has picked up since Nano Dimension’s offer.
Exhibit 1: Peer share-based multiples
Name |
Performance vs 31 December 2021 |
Market cap |
Historical revenues (US$m) |
Last reported cash and equivalents* (US$m) |
Last reported cash and equivalents*/annualised net cash used in operating activities (x) |
Nano Dimension |
-35% |
625 |
44 |
1,032 |
11.2** |
3D Systems Corp |
-59% |
1,190 |
538 |
569 |
8.3 |
Desktop Metal |
-57% |
676 |
209 |
76 |
0.4 |
Markforged Holding Corp |
-82% |
190 |
101 |
168 |
2.3 |
SLM Solutions Group |
+11% |
624 |
116 |
34 |
1.5 |
Stratasys |
-39% |
1,007 |
651 |
328 |
4.3 |
Velo3D |
-71% |
441 |
81 |
80 |
0.6 |
Voxeljet |
-69% |
18 |
31 |
16 |
1.5 |
Source: Refinitiv. Note: Prices as at 24 April 2023. *Including short-term bank deposits and short-term investments. **Excluding Stratasys investment.
Progress against strategic objectives
Further acquisitions completed
Nano Dimension is using the c US$1.5bn in cash raised through a sequence of secondary offerings during 2020 and early 2021 to build up a portfolio of complementary additive manufacturing technologies, which is broader than most other companies in the sector. GIS, acquired in January 2022, develops high-performance industrial inkjet software, ink delivery systems and printhead drive electronics for industrial print systems. Nano Dimension is using the expertise acquired with GIS to enhance the performance of the additive manufacturing equipment offered by its subsidiaries including Admatec, which was acquired in July 2022. Admatec deploys additive manufacturing techniques to print ceramic and metal parts layer by layer from ceramic or metal slurries. The specific additive manufacturing technology that Admatec deploys, digital light processing (DLP), is the same as that deployed in Nano Dimension’s Fabrica 2.0 equipment, which prints parts with a feature resolution of one micron, so the company is combining aspects of the two systems to enable customers to print high-resolution ceramic and metal parts.
Initial stake in Stratasys followed by bid for entire company
In July 2022, Nano Dimension acquired a 12% stake in Stratasys (Nasdaq: SSYS) for an undisclosed sum to give shareholders exposure to ‘large, stable, more mature, mostly polymer-based additive manufacturing technologies’. Nano Dimension subsequently increased this stake to 14.5%, and in March made a formal, non-binding offer to acquire the remaining shares at US$18.00/share, representing a total consideration of c US$1.1bn for the outstanding stake. It has subsequently increased the offer, first to US$19.55/share (US$1.2bn cash total consideration) and then to US$20.05/share (US$1.2bn), which it states is its ‘best and final offer’.
On 5 April the company announced that, while it remained willing to negotiate a consensual transaction at the ‘best and final offer’ level of US$20.05/share, it was preparing to commence a special tender offer at US$18.00/share with the goal of acquiring a stake of at least 51% including the stake it already held. In parallel, Nano Dimension intends to seek relief from an Israeli court confirming that according to Israeli companies law, Stratasys’s poison pill cannot be triggered in response to this special tender offer. This action relates to the limited duration shareholder rights plan that Stratasys has in place to encourage anyone seeking to gain a significant stake to negotiate directly with the board.
Potential transaction enriches portfolio and substantially increases customer base
Clearly this potential transaction would transform Nano Dimension’s financial performance. In addition, the deal will complement Stratasys’s more mature, mostly polymer-based additive manufacturing technologies with Nano Dimension’s portfolio of predominantly niche emerging technologies. Importantly, the deal would give access to Stratasys’s network of over 200 sales partners and its extensive customer base, which includes Airbus, General Motors and the US Navy, cutting the time needed to introduce Nano Dimension’s products to a wide marketplace. Nano Dimension notes that it is in discussions with two other potential additive manufacturing targets as well, although it is prioritising Stratasys.
Advances in technology
As discussed above, R&D expenses are a significant element of group losses. Management is investing in materials, software and hardware development to drive organic growth in FY23 and beyond.
Materials science breakthrough
In November 2022, Nano Dimension signed an agreement with Tethon Corporation to develop new materials for its Fabrica 2.0 micro-additive manufacturing system. The agreement is focused on materials with high-performance and specialty specifications, including the ability to cope with high temperatures, materials that are transparent and carbon nano tubes. The development of these materials should further open markets and applications such as electrical connectors, medical devices and microfluidic chips.
Next-generation ceramics and metals printer
In January 2023, Nano Dimension delivered its first Admaflex130 Evolution system to the Karlsruhe Institute of Technology (KIT) in Germany. The company believes that this is the world’s first stereolithography-based 3D printer to print metals and ceramics in one platform, as well as the fastest ceramic 3D printer available. KIT intends to use the system to make packaging for integrated photonic circuits as it needs submounts for its assemblies where the shape of the finished product conforms accurately to the design specification, that do not expand when heated and have good long-term stability.
New patent for AI cloud manufacturing
In February 2023, Nano Dimension was granted a patent relating to the neural network that supports its DeepCube cloud-based manufacturing platform. This patent is significant because it enables machines networked together to share learning experiences, so techniques for improving yield, for example, can be implemented across a company’s installed machine base. The award took the number of patents associated with DeepCube to 20 granted and 25 pending.
Expansion of customer base
Nano Dimension has reported some significant customer wins during FY22 and Q123. These include a supplier to the US government defence industry, a Fortune 500 computer manufacturer, a Western intelligence agency, a European army, the NASA Marshall Space Flight Center, Northeastern University in Massachusetts and the Fraunhofer Institute.
Shareholder action
In September 2022, Nano Dimension’s largest shareholder, Murchinson, made a non-binding proposal to acquire the rest of the 3D printing company in a transaction that would value the company at roughly US$995m. This offer was less than the value of the cash balance plus the Stratasys stake and was rejected by management. As a result of a sequence of purchases between 27 December 2022 and 19 January 2023, Murchinson and its related parties increased their stake to 5.1% and then delivered a letter to Nano Dimension’s board requesting a special general meeting of shareholders. Agenda items were to include the removal of CEO and Chairman Yoav Stern and three other directors and the appointment of two new directors nominated by Murchinson. (See our March initiation note for more detail.) At the end of March, Nano Dimension filed a lawsuit in New York against Murchinson and its associates for improperly acquiring and misusing their shareholding interests in Nano Dimension. The lawsuit seeks to immediately halt the defendants’ unlawful actions and to compensate Nano Dimension for the misconduct. On April 17 Nano Dimension announced that an Israeli court had ruled that the company’s existing board of directors can continue to lead and govern the company, including with regards to completion of a transaction with Stratasys. The court also decided that two observers will be appointed on a temporary basis, though Nano Dimension intends to appeal to the Israeli Supreme Court against this decision.
Exhibit 2: 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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Triple Point Energy Transition (TENT) invests in a portfolio of energy transition technologies aimed at reducing CO2 emissions in power generation, storage and consumption. We view dividends as fully covered by cash flow in FY23 and forecast that dividend cover will reach 1.2x by FY25. NAV return for the 9M to December 2022 was 7.8% and we see scope for growth in NAV/share given TENT is still rolling out its portfolio of cash-generative assets, all else being equal. Its existing investments include run-of-river hydropower assets in Scotland, a debt provider to a rapidly growing portfolio of battery energy storage systems (BESS) and combined heat and power (CHP) plants co-located with food producers. Led by Jonathan Hick, TENT’s team focuses on specific high-return/less commoditised niches in the energy transition sphere. In our view, the fund is trading at an unwarranted discount to NAV with an attractive dividend yield of nearly 9%.
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