Nano Dimension — Leading manufacturing into the future

The group is building up the portfolio through a combination of in-house development and acquisitions which are summarised in Exhibit 2. We note that valuations in the sector are falling (see Exhibit 16), making vendor expectations more realistic, while Nano Dimension has plenty of cash to complete transactions so we believe the pace and scale of acquisitions should accelerate. In the interview above, management discusses the acquisition strategy and why it believes the time is right for the company to make a transformative acquisition. The company has hired Lazard as an advisor for strategic mergers and acquisitions, which highlights the importance of this activity.

This strategy has enabled the group to grow its revenues from US$3.4m in FY20 to US$43.6m in FY22 (see Exhibit 6). Revenues are derived from the sales of individual systems, which retail at c US$200–400k each, and associated consumables generating several tens of thousands of dollars per unit in sales annually. For a unit retailing at US$340k, this represents revenues of US$740k and gross profit of US$400k per unit over a 10-year period. At the end of December 2022, the group had US$1.0bn cash (gross) to further progress this strategy. We see continued growth in revenue and improvement in EBITDA margin as well as the completion of acquisitions with the potential to drive meaningful revenue and profit growth, both in their own right and in combination with the rest of the group, as key catalysts of share price improvement.

Nano Dimension is listed on Nasdaq because its main commercial activities are in the United States. The company’s headquarters are in Israel, with locations in the United States, Germany, Switzerland, Australia, the Netherlands and the UK. It employs over 500 people, around half of whom are engaged in R&D activities. This includes 35 AI specialists.

In additive manufacturing many ultra-thin layers of material, each of a precisely defined shape, are deposited on top of each other and each layer is bonded to the preceding one to create a three-dimensional object. The shape of the object in three dimensions is defined either using computer-aided-design (CAD) software or by putting an existing object to be replicated into a 3D scanner. Specialist software processes the 3D information into multiple ultra-thin slices and then combines this geometrical data with the specification of the additive manufacturing equipment to create a set of instructions for making the object. So for 3D printing, which is the most common additive manufacturing technique, the software will use information such as print head capability, material viscosity and number of print heads and nozzles to determine the path of each print head as it precisely deposits material on the preceding layer.

The quality of the finished part and the speed with which it can be manufactured depend on the material used, the additive manufacturing hardware and the associated software. Companies offering additive manufacturing systems therefore need to be proficient in all three disciplines.

Additive manufacturing techniques were pioneered during the 1980s, so the basic technology is not new. However, recent advances in the materials used, for example Nano Dimension’s development of conductive and dielectric inks for printing electronic circuits, mean that the techniques can now be used for making parts with similar characteristics to conventionally made parts that can be used for aircraft spares for example, rather than just plastic representations of parts used to see what an object will look like.

The conventional approach to making a low-volume item or prototype in a hard material, such as stainless steel or ceramic, uses computer-controlled drills to remove surplus material from a block of material. Machining is not suitable for parts with complex internal cavities, such as jet engine components, when investment casting techniques are required. Low volumes and prototypes of parts in soft materials such as plastics that cannot be machined need to made using moulds. The moulds themselves need to be created using machining or investment casting techniques. Creating a mould is expensive and time consuming and is typically carried out by specialist outsourced toolmakers. Moreover, complex shapes cannot be made using a mould, meaning that some objects need to be assembled from multiple simple parts, each manufactured using a separate mould.

Additive manufacturing technologies therefore have the following advantages over conventional ones:

Conventional techniques have been optimised over time to make multiple copies of parts very efficiently so the biggest drawback of additive manufacturing techniques is the time it takes to create each part compared with conventional processes. It is unlikely, in our opinion, that additive manufacturing techniques will ever become as efficient or economic as conventional techniques for high volumes of parts. However, designers of additive manufacturing equipment including Nano Dimension are constantly investigating ways of improving how quickly the equipment can make parts, raising the volume cut-off point when conventional manufacture becomes more cost-effective. Another drawback is the performance of parts manufactured using additive techniques. In the early days of additive manufacturing the parts produced were not strong enough to be used as replacements for conventionally made parts. The materials used have progressed significantly since then, so it commonplace to use additive techniques to make structural parts in metals, ceramics and rigid plastics. However, the range of materials available, for example speciality steels, is still not as extensive as those used in conventional manufacturing.

Emergen Research predicts that the global 3D printing market will grow from US$16.9bn in 2021 to US$99.7bn in 2030. This represents a CAGR of 21.8%. It notes that revenue growth is being driven primarily by the healthcare and aerospace industries. 3D printing technology deployment across various industries has been increasing because of technological improvements, which have resulted in more accurate manufacturing.

Additively manufactured electronics

Additively manufactured electronics is a highly specialised form of additive manufacturing. In its most basic form (Nano Dimension’s technology is more advanced, see below), a 3D printer is modified to use conductive ink so that it can deposit conductive tracks on a thin sheet of insulating substrate to create a PCB. The conductive ink is cured using UV light. The insulating substrate provides a support for the electronic components such as sensors, microprocessor chips, capacitors and resistors and the conductive tracks connect the components up to make a fully functional circuit.

In conventional PCB manufacture, the design of conductive tracks is typically created using chemical etches to selectively remove copper from a thin layer of copper bonded to an insulating substrate. Alternatively, areas of copper are selectively deposited on the substrate. Photo-lithography is used to define the areas where copper is either etched away or deposited with around 15 different steps required to pattern each layer. The manufacturing process is highly specialised, requiring significant capital investment and manufacturing know-how. It is almost always outsourced, often to manufacturers in East Asia. Outsourcing adds delay to the process, which used to be between one day and three weeks depending on the location of the supplier, but can now be longer given supply chain and logistics issues. The potential IP risk inherent in outsourcing prototype production to a third party discussed above is of particular concern in the defence industry and for designers of advanced consumer devices such as mobile phones. Companies involved in both of these industrial segments are consequently among the early adopters of additive electronics equipment.

3D printers for additive electronics manufacturing are typically the size of a fridge, do not use acid etches and do not require specialist operators so they can be installed within an electronics design department. They work well for prototyping, low-volume production runs and customised devices, but are not suitable at present for high-volume manufacture of PCBs because of the time it takes to manufacture each PCB (between six and 20 hours depending on circuit complexity for Nano Dimension’s DragonFly printer, Exhibit 4).

According to a report updated by DataM Intelligence in September 2022, the global 3D printed electronics market is expected to grow at a CAGR of 30.4% to US$2.5bn during the forecast period 2022–29. The report notes that the electronics industry has been an early adopter of 3D technology in design and production activities. The global printed electronics market is typically regarded as distinct from the additive manufacturing market. The potential addressable market for Nano Dimension may be larger than that predicted in Emergen’s 3D printed electronic report, which assumes that adoption of the technology will be restricted to low-volume applications, if the speed at which Nano Dimension’s equipment can manufacture circuits enables it to be deployed for larger volume requirements.

Having listed in 2014, Nano Dimension amassed c US$1.5bn in cash through a sequence of secondary offerings during 2020 and early 2021. It is using this cash to build up a portfolio of complementary additive manufacturing technologies (Exhibit 7), which is broader than most other companies in the sector. The strategy has also resulted in accelerated revenue growth (see Exhibit 6). As we discuss in the valuation section below, market dynamics indicate that the scale and rate of acquisitions are very likely to increase because vendor expectations are now more realistic.

While the range of potential applications is very broad, Nano Dimension’s first product to be launched was the DragonFly printer for making high-performance electronic devices, so it is deliberately focusing on applications that are of interest to companies involved in this sector, thus creating cross-selling and up-selling opportunities. It can now offer equipment for additively manufacturing parts made out of metal and ceramics and manufacturing parts with a resolution of only one micron, as well as equipment for automatically populating PCBs. It is also acquiring companies with technology that can enhance the performance of existing products. For example, DeepCube’s AI functionality (see below) will be incorporated across the group’s equipment portfolio to enhance yield. Global Inkjet Systems’ (GIS’s) expertise is being used to enhance the performance of the additive manufacturing equipment in the portfolio. In addition, management is selecting acquisitions to strengthen direct sales capability in particular regions. For example, Essemtec and Admatec enhanced the group’s presence in mainland Europe. Nano Dimension has created an organisational structure that encourages cross-selling, as demonstrated by Essemtec’s sales in the United States growing by 45% year-on-year during the nine months ended September 2022 (9M22). In addition, during the Q322 results call in early December, the CEO noted that the group had made the first sales of Admatec’s equipment in North America. Management is also integrating manufacturing across the group, and intends to make its additively manufactured electronics systems in Switzerland rather than Israel.

In July 2022 Nano Dimension acquired a 12% stake in Stratasys for an undisclosed sum because it gives shareholders exposure to ‘large, stable, more mature, mostly polymer-based additive manufacturing technologies.’ Management notes that it may increase or reduce the size of the Stratasys stake and stated at the Q322 results that it does not intend to make other investments of this type.

Nano Dimension complements its product portfolio with additive manufacturing services. Following the acquisition of Formatec in July 2022, Nano Dimension can make high-precision moulds, filters and mechanical parts for industrial customers, as well as designing and manufacturing multi-layer, high-performance electronic devices such as high-pass filters, RF antennae and amplifiers and multi-chip modules. Other companies offering prototyping services based on additive manufacturing technology include Beta Lab, Materialise (NASDAQ: MTLS) and Proto Labs (NASDAQ: PRLB).

Nano Dimension’s DragonFly printer is highly unusual because it can simultaneously print both proprietary conductive inks containing silver nanoparticles, which form PCB tracks, and patented dielectric inks, which form the insulating regions of PCBs. The inks are heated to remove surplus solvent and then cured using strong infra-red (IR) or UV light sources prior to the deposition of the next layer. Being able to print both the conductive tracks and the insulating areas means that the equipment can be used to make multi-layer (up to 17 layers) PCBs in a single pass. Most other 3D printers would have to create each layer of the PCB separately. Multi-layer boards are essential for complex devices such as mobile phones. This is because the only way to connect up components that are placed close together and have large numbers of inputs and outputs is to distribute the connectors across multiple layers and get the connectors to jump from one layer to another so they can cross over each other without touching. Importantly Nano Dimension’s proprietary silver inks show high levels of conductivity, meaning that they can be used to print the very fine conductive traces required for high-density boards.

Creation of PCBs with irregular shapes

The DragonFly printer can deposit the patented dielectric ink to create PCBs with holes in them and with curved edges (see Exhibit 8). This is very difficult using conventional manufacturing techniques where a panel of substrate, which is brittle, would need to be cut mechanically to create this sort of shape.

Nano Dimension’s DragonFly printer can also deposit the dielectric ink to form 3D structures such as pyramids. In the case of Exhibit 9, the equipment has printed tiny metal coils within the dielectric pyramids so the coils are pointing in specific orientations. The coils are printed using the conductive inks, which can also be used to print other passive components including resistors and capacitators. It would be extremely difficult to create the sphere phased array antenna using conventional manufacturing techniques because of the challenges associated with aligning the coils correctly. Embedding electrical components, whether these are printed components or conventional components inserted during the printing process, is beneficial because it improves reliability by protecting components from the external environment and eliminating the soldering process for attaching components to the board, which is a major source of device failure. It also results in PCBs with significantly reduced surface area, The dielectric can also be used to create rigid circuits connected with flexible sections. This enables PCBs to be bent so that they fit inside curved and complex geometrical products.

Although the printer itself is built out of standard components, Nano Dimension has submitted several patent applications regarding how these are deployed. The printer is integrated with a proprietary software package, which converts the information from different brands of CAD software used by electronic designers for specifying the topology of each layer into instructions for controlling the movement of the DragonFly printer heads and deposition of the inks. Nano Dimension has patents covering algorithms used in the software that result in substantial savings in inks and time.

The maximum size of circuit that may currently be deposited by Nano Dimension’s printers is 160×160×3mm. This does not cover all PCB applications, although management intends future generations of additive electronics printers to be able to output larger dimension boards. At present a single circuit takes between six and 20 hours to print, depending on its complexity. The length of time will be reduced in the next generation of printers, which are scheduled for release in 2023. Future generations of equipment will incorporate DeepCube functionality (see below) to further enhance yield and throughput and reduce calibration time. The next-generation printer will also include the ability to insert components while a PCB is being built up or after it has been completed. This new functionality is based on capability acquired with Essemtec (see below).

Our analysis of the competitive environment (Exhibit 10) indicates that ChemCubed and Nano Dimension are the only companies manufacturing equipment suitable for creating PCBs with multiple layers and very fine connective traces. The other companies in the sample are either developing equipment that can create and populate fairly simple PCBs using a single machine (BotFactory, nScrypt, Optomec, Voltera) or are developing equipment that be used for other printed electronic products such as displays. Voxel8 originally developed a system suitable for manufacturing a 3D object with embedded wiring, but changed to printing elastomeric materials and has been acquired by digital textile technologies firm Kornit Digital (NASDAQ: KRNT).

Following the acquisition of DeepCube in April 2021, Nano Dimension intends to integrate DeepCube functionality into its own additive manufacturing equipment to enhance performance. DeepCube’s pioneering inference accelerator improves the performance of additive manufacturing hardware. The software applies the same neural network training behind photo and speech recognition advancements to the manufacturing of parts. Multiple sensors detect defects that are too small for the human eye to notice and feed that information into an AI-driven decision-making algorithm, which corrects printing errors in real time. Importantly, DeepCube’s proprietary algorithms increase the speed of data analysis tenfold. As a result, the amount of computer memory required is substantially reduced, so the analysis can take place in real time within the print system rather than being transferred to a datacentre for processing. For example, embedding DeepCube functionality in next-generation equipment for printing circuit boards would allow a potential issue with the quality of conductive tracks to be identified immediately, automatically triggering corrective action, ensuring that the circuit board was usable rather than waiting until the complete circuit board had been manufactured and tested, at which point the faulty product would have to be scrapped. DeepCube enables print nodes to be connected to each other, so that machines are not only co-ordinated across a lab or across a global manufacturing footprint but they can also share learning inferences from each other for immediate adjustments to production flow. In February 2023, Nano Dimension was granted a patent relating to the neural network that supports its cloud-based manufacturing platform, taking the number of patents associated with DeepCube to 20 granted and 25 pending.

Nano Dimension’s Tera 250 equipment from the acquisition of NanoFabrica in April 2021 uses a projected laser source to cure an entire layer at once. Using light to define each layer gives better resolution than depositing material from a print head. Moreover, the laser beam’s shape and size is controlled with an adaptive optics system that is linked to an array of sensors creating a closed feedback loop, enabling its customers to create parts with a feature resolution of one micron. The equipment uses two proprietary materials. Its standard thermoplastic material is strong enough to be used for structural applications in the electronics, optics, automotive and aerospace industries and for micro-injection moulds. It also offers a composite reinforced with ceramic particles that is designed for use in harsh environments and for parts exposed to high levels of wear. It would be very difficult to create the complex curves and sharp edges on the impellers shown in Exhibit 11 and the internal cavities of the fibre-optic components in Exhibit 12 using conventional moulding techniques. The software associated with the equipment analyses the part to be made so that areas with less detail are built up more quickly than areas with fine detail. Nano Dimension claims that this technique results in print speeds that are five to a hundred times faster than other micro-manufacturing processes. For example, medical device start-up AntiShock created a working prototype of an electro-optical sensing medical device for preventing intravenous fluid overload that was built out of several small mechanical moving components that needed to be strong and accurate. The delivery time for five 3D printed parts was one day. Nano Dimension notes that using computer-controlled precision machining, making five parts would have taken three to four days. Machining a small dimension/highly precise part would have cost several hundreds of dollars, while using micro 3D printing cost 80% less. Future generations of equipment will incorporate DeepCube functionality to further enhance yield and throughput.

Nano Dimension’s main competitor in micro-additive manufacturing is venture capital backed Boston Micro Fabrication. Like Nano Dimension, it offers both photopolymers and ceramic materials. It can achieve a resolution of 2 microns.

Through the acquisition of Essemtec in November 2021, Nano Dimension designs, manufactures and sells production equipment for electronic assembly. Its product range includes modular surface mount technology (SMT) pick-and-place equipment, which puts electronic components into the correct place on PCBs and associated software; and high-speed dispensers that deposit tiny dots of materials such as solder paste, SMT glue and LED encapsulant onto the correct place on PCBs, reflow ovens and smart storage systems. These storage systems hold reels of surface mount devices and, on receiving an automatic alert from an assembly line that a reel of a particular component is running low, will locate a reel of replacement components and transfer it to an operator. Nano Dimension notes that over 60% of production line stops are attributable to logistics issues when the correct material is not in the right place when required. It claims that its smart storage system reduces these stoppages by 95%. The software associated with the SMT equipment calculates routines that will optimise the time taken to populate each circuit. Future iterations will incorporate DeepCube functionality to further enhance yield and throughput.

A report from Transparency Market Research published in April 2022 noted that the global market for SMT equipment was worth over US$5.6bn in 2020 and predicted that it would grow at a CAGR of 4.9% during the forecast period of 2021–31, reaching over US$9.1bn by 2031. Nano Dimension’s principal competitors in automatic electronic assembly equipment are Europlacer and Mycronic (STO: MYCR). Management notes that key differentiators for Nano Dimension’s SMT equipment are its small footprint, competitive specification and ability to provide a modular solution for low-volume customers that can be upgraded if required.

Nano Dimension is using the expertise acquired through the acquisition of GIS in January 2022 to enhance the performance of the additive manufacturing equipment offered by each of its subsidiaries. GIS develops high-performance industrial inkjet software, ink delivery systems and printhead drive electronics for industrial print systems. As one example of building on this expertise, Nano Dimension’s next-generation additive electronics printer will have multiple print heads, not just two, to speed up PCB manufacture.

GIS’s customer base includes original equipment manufacturers (OEMs), system integrators, ink/fluid manufacturers, large end users, research institutes and universities. Application areas include 3D printing and additive manufacturing, particularly bio-medical objects, bio-printing, flat panel displays, printed electronics and semi-conductors; direct-to-shape coating and graphics printing for customised decoration of automotive components; carton board; ceramic floor tiles; printing onto complex shapes such as bottles; corrugated print board; and short runs of wall coverings, furniture laminates and textiles. It is an expert in depositing the functional fluids required for additive manufacturing precisely and at speed. GIS will continue to sell to Nano Dimension’s competitors and to customers in sectors other than those served by Nano Dimension’s other businesses, because the skills involved are potentially transferable to Nano Dimension’s own additive manufacturing equipment. For example, techniques for printing onto the curved surface of a bottle efficiently can be used for printing conductive inks onto a curved surface.

Following the acquisition of Admatec in July 2022, Nano Dimension can offer technology for printing ceramic and metal parts layer by layer from ceramic or metal slurries. During the printing process, the individual layers are deposited using a patented feedstock system and cured using UV light. After the printing, the parts are cleaned and go through debinding and sintering steps. During the sintering step, the material consolidates under heat so it has very similar density to a part created from a block of ceramic or metal. Labour-intensive post-processing steps like grinding, lapping or polishing are not required. The technology is suitable for markets requiring high-performance parts such as medical, aviation, investment casting and scientific research.

Nano Dimension’s principal competitors in this sector are 3D Ceram and Lithoz. Both 3D Ceram and Lithoz offer equipment that is able to print multi-material components, which combine different ceramics, ceramic with metal and ceramic with polymer. Nano Dimension’s equipment can print three times more layers per hour than Lithoz’s equipment: up to 300/hour versus up to 100/hour. Management notes that Nano Dimension’s equipment is less expensive (US$200–400k/system) than equipment from its competitors. GE and Xerox both offer equipment that can print 3D metal parts. A report from 3dpbm Research published in October 2021 predicted that the global ceramic additive manufacturing market would grow from US$154m in 2020 to US$3.4bn by 2030, a CAGR of 36.5%.

Chairman and CEO Yoav Stern has served as CEO since January 2020 and chairman since May 2021. Mr Stern has spent most of his business career in the United States, running both public and private companies with global operations including in the UK, Germany, Australia, India and Singapore. For example, from 2011 to 2016, he was the president and CEO of US-headquartered video-surveillance systems developer DVTEL (now Teledyne FLIR), between1994 and 2002 he was executive chairman of aircraft parts distributor Kellstrom Aerospace and between 1989 and 1992 he was VP business development and M&A for Israeli technology holding company Elron Electronic Industries (TLV:ELRN). He is the owner of Doubleshore, which provides turnaround management, M&A and investment management services, and since 1997 has served as the co-chairman of Bogen Corporation, which is involved in audio and voice over IP electronics.

President Zivi Nedivi took up this role in April 2021. Mr Nedivi has been the chief executive officer of several technology companies, including Skypath, which provides a real-time solution for pilots for sensing and avoiding turbulence; Cyalume Technologies, which makes chemical-lighting solutions used by US and NATO military forces; Axiom Investment Advisors and Kellstrom Aerospace. He was also the chief operating officer of Lumenis, which provides minimally invasive clinical solutions for the surgical, ophthalmology and aesthetic markets.

Chief Product Officer and Head of Strategic M&A Hanan Gino took up this role in April 2021. Prior to joining Nano Dimension he was CEO of Kitov Systems, which provides smart 3D inspection systems, and president of Verint Systems’ (NASDAQ:VRNT) global security intelligence business. Prior to joining Verint, he spent 23 years at Orbotech where he was successively president of the assembly division, the PCB division and the flat panel display division.

President of Nano Dimension EMEA Zvi Peled joined Nano Dimension in May 2020. Prior to this, he was VP sales-Americas of FLIR’s security business unit. He has also served as president and CEO of Apollo Network Services, a private company that manages large projects in the field of defence, energy and transportation for Finmeccanica, and CEO of Flash Networks, which offers mobile data access gateways. Earlier in his career he spent 20 years with international defence company Elbit Systems.

Chief Financial Officer Yael Sandler took up this role in June 2015. Between 2014 and 2015 she was group controller of RealMatch. From 2011 to 2014 she was a senior associate at KPMG Israel where she gained valuable experience working with public companies and companies pursuing initial public offerings.

Shareholders

As a result of a sequence of purchases between 27 December 2022 and 19 January 2023, Murchinson and its related parties has become the largest shareholder with a 5.1% stake. We note that in early November, Bloomberg reported that 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 is less than the value of the cash balance plus the Stratasys stake. Having completed the sequence of purchases, Murchinson and the associated parties delivered a letter to Nano Dimension’s board requesting a special general meeting of shareholders in which agenda items were to include the removal of Yoav Stern and three other directors and the appointment of two new directors nominated by Murchinson. Nano Dimension rejected this request on the basis that it failed to comply with the requirements set forth under the Israeli Companies Law for calling such a meeting. At the same time, Nano Dimension’s board unanimously adopted a limited duration shareholder rights plan under which it will issue one special purchase right for every one ADS outstanding at the close of business on 6 February 2023. Each right will allow its holder to purchase from Nano Dimension one-half of one ADS (ie 0.5 ADS), at a purchase price of US$0.01/ADS, once the rights become exercisable. The rights will become exercisable only if an entity, person or group acquires beneficial ownership of 10% or more of Nano Dimension’s outstanding ordinary shares in a transaction not approved by the company’s board. The rights will expire on 27 January 2024. On 13 February, Murchinson announced a special general meeting of shareholders to be held on 20 March, a move which Nano Dimension states is not compliant with Israeli companies law and should be disregarded by shareholders. The company has engaged Lazard to serve as a corporate defence advisor in relation to Murchinson’s recent statements and actions. It has filed a lawsuit in the courts in Israel seeking a declaratory judgment that the Murchinson meeting is illegal and seeking damages in relation to Murchinson’s actions.

The second-largest shareholding is Yoav Stern’s stake which, should he exercise the final tranche of his Series A warrants, would give him a 2.7% share. Mr Stern also has 27,742,103 Series B warrants, which are exercisable at US$6.16/share and can be vested and exercised at any time. We estimate that Mr Stern would have a 12.1% share if all of his Series B warrants were exercised. In December 2022, the board held a special general meeting for shareholders to approve, among other agenda items, a change in the Series B warrants exercise price to US$2.46. The proposal was rejected. None of the other directors has a substantial equity stake in the company.

On 15 February 2023, Nano Dimension announced that it was putting into action its previously announced share repurchase plan. This allows it to invest up to $100m to repurchase its ADSs.

Revenues increased sharply in the first nine months of FY22 (9M22) compared with 9M21. This was the result of several acquisitions: NanoFabrica (now Fabrica) in April 2021, Essemtec in November 2021, GIS in January 2022 and Admatec/Formatec in July 2022. Management has not provided a breakdown of revenues.

Stripping out amortisation, gross margin reduced by 20.5pp in 9M22 compared to 9M21, reflecting the increasing proportion of revenues attributable to Essemtec, as well as lower quarter-on-quarter revenues during Q322 (see below) generated from a relatively unchanged fixed manufacturing overhead. Gross margin (excluding amortisation) was unusually low in Q322 at 25.7%. Management expects that gross margin will return to normal in Q422 or Q123. All categories of costs increased because of the acquisitions, although management notes that cash consumed in operations during Q322 was more than US$10m lower than the original budget as a result of careful cost control. We note that DeepCube, Fabrica and Essemtec generated pro forma losses for the year of US$66,200k, US$66,467k and US$65,691k respectively in FY21. Group pre-exceptional operating losses widened from US$28.3m in 9M21 to US$69.6m in 9M22. R&D expenses were a significant element of the losses, increasing from US$12.8m to US$38.1m.

Net cash (including bank deposits and loans from banks but excluding investment in securities and US$10.5m lease liability at end Q322) reduced from US$1,354.5m at end FY21 to US$1,047.9m at end Q322. 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/Formatec, payment of deferred consideration related to Essemtec and GIS of US$10.7m and US$6.1m invested in capital equipment, primarily office equipment. All R&D was expensed and the net increase in working capital was minimal at US$0.3m.

Q322 revenues were US$10.0m compared with US$11.1m in Q222 and US$10.4m in Q122. While revenues will have benefited from the acquisition of Admatec and Formatec in July, which collectively generated US$5.3m revenues in FY21, the third quarter was weaker because of the war in Ukraine, which resulted in a reduction in 9M22 revenues from sales of additive manufacturing electronics equipment to Russia and Poland of around US$1.5m compared with the corresponding prior year period. In addition, while Nano Dimension has had sufficient components to complete and deliver systems as required, continued component supply shortages globally have meant that some customers have requested delays in deliveries of the pick-and-place equipment used to mount electronic components on circuit boards. Nevertheless, demand for the group’s products was high, resulting in a record backlog of over US$9m at the quarter end.

On a preliminary basis, Q422 revenues were US$12.1m, which is 61% higher than Q421 and 21% more than Q322. It is the highest quarterly revenue in Nano Dimension’s history, contributing to a full year total of US$43.6m.

Nano Dimension has US$1.0bn cash on the balance sheet (excluding the stake in Stratasys, with a current value of c US$117m), over half of which is allocated for further acquisitions. 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 if it continues to complete acquisitions at a rapid rate. If we consider the existing revenue base, the calculation in the financials section gives pro-forma FY21 revenues of US$43.5m collectively from Essemtec, Fabrica, DeepCube and the original additive manufacturing of electronics devices activity. Adding in c US$10m for GIS (actual revenues for the year ending March 2021) and US$5.3m for Admatec and Formatec (actual revenues for the year ending December 2021) gives historical annual revenues of US$58.8m. Clearly the level of revenues that could be realised through management investing a substantial proportion of the US$1.0bn cash pile in acquisitions depends on what choices are made. Nano Dimensions paid 2.4x historical revenues for the Admatec/Formatec combination, 1.8x historical revenues for GIS and 1.5x historical revenues for Essemtec. Neither DeepCube nor Fabrica were generating revenues at the time of acquisition. (If the total consideration is included, these multiples become 2.4x for Admatec/Formatec, 2.9x for GIS and 1.4x for Essemtec, which are modest compared with the 3.2x CELLINK paid for Nanoscribe in May 2021 and 10.3x Desktop Metal paid for ExOne in August 2021.) Investing all of the current cash pile in acquisitions with a valuation of 2.4x historical revenues would create an additional revenue base of US$425m.

Management notes that purchase multiples were unusually high during 2021 because of special purpose acquisition company (SPAC) activity and have since come down to a level where vendor expectations are more realistic, so it is reasonable to expect a meaningful proportion of the cash pile to be spent on acquisitions and the pace of acquisitions to accelerate. Exhibit 16 shows that Nano Dimension has substantially more cash and equivalents available to complete transactions than its listed peers.

We note from our analysis of listed peers (Exhibit 16) that the range of historical EV/sales multiples for 3D printing companies is fairly large. In addition, the share prices of most companies in the sector have fallen substantially since the beginning of 2022, reinforcing management’s view that acquisition multiples are becoming more reasonable.

Based on reports from Emergen Research and DataM Intelligence, we calculate that the combined global additive manufacturing and 3D printed electronics addressed by Nano Dimension’s product portfolio will collectively be worth over US$102bn in 2030. A 1% share of this market would represent US$1.0bn revenues, while a 5% share would be US$5.1bn revenues.

We see continued growth in revenue and improvement in EBITDA margin as well as the completion of acquisitions with the potential to drive meaningful revenue and profit growth as key catalysts of share price improvement.

Disruptive technology: as most of Nano Dimension’s subsidiaries are involved in the development and sale of disruptive technology, there is significant risk surrounding potential new market entrants, customer adoption and assessment of future market demand.

Revenue and cash flow visibility: as Nano Dimension has grown rapidly through a sequence of acquisitions, five since April 2021, it is difficult to predict future revenues and cash flows. This issue is exacerbated by the likelihood that over half of the US$1.0bn cash and cash equivalents at end- December 2022 will be used to make further acquisitions, as yet unknown.

Acquisition risk: there is no guarantee that management will continue to identify targets at satisfactory acquisition multiples, be able to conclude any transaction or integrate any additional companies into the group in a way that benefits existing companies by either creating cross-selling opportunities or securing key technology.

IP protection: Nano Dimension has protected its IP through patents. As of early February 2023 the group had over 81 granted patents and 194 pending.

Component availability: like other electronics companies, Nano Dimension has been adversely affected by shortages of certain electronic components, although for Nano Dimension the issue has manifested itself as customers asking for equipment deliveries to be delayed, rather than reduced ability to deliver product. Supply chain issues may ultimately be of benefit to Nano Dimension because they are encouraging electronics OEMs to bring prototyping in house rather than outsourcing it to companies on another continent.