What’s going on at Nano Dimension?

Nano Dimension Ltd. (Nasdaq: NNDM), the company known primarily for its Additively Manufactured Electronics (AME) technology, just sold new DragonFly IV systems to Northeastern University and another one to an undisclosed western global aerospace & defense contractor.

This transaction demonstrates the success in supporting academic institutions as well as end users of this technology (especially in the aerospace & defense segment), which are most often at the forefront of innovation. Northeastern University will be the first Massachusetts-based university to acquire this technology. Nano Dimension moved its US-based offices to the Boston area earlier this year to put its hi-tech solutions at the center of one of the world’s leading innovation hubs. The aerospace company is the ninth served by Nano Dimension’s products.

The system and specialized materials serve cross-industry High-Performance-Electronic-Devices (Hi-PEDs) fabrication needs by simultaneously depositing proprietary conductive and dielectric substances while integrating in-situ capacitors, antennas, coils, transformers, and electromechanical components. The outcomes are Hi-PEDs which are critical enablers of autonomous intelligent drones, cars, satellites, smartphones, and in vivo medical devices. In addition, these products enable iterative development, IP safety, fast time-to-market, and device performance gains.

The Nano Dimension’s global structure is growing rapidly and the company recently reported Q3 2022 revenue of $10M and a record backlog that was 646% higher than Q3 2021. Moreover, the Q3 2022 revenue run-rate indicates the potential for growth of approximately 300% in full-year 2022 over 2021. If this occurs, the Company’s revenue will be growing over 10 times from 2020 to 2022. Revenues for the nine months period ended September 30th, 2022, were $31.5 million, which represents a 964% increase over the nine months period ended September 30th, 2021. So why are some investors complaining on LinkedIn and why is there an aura of controversy surrounding the company? One reason may be that Q3 Nano Dimension also reported a total loss before tax of $67.1 million, bringing the YTD loss to nearly $100 million. Nano Dimension recently raised over $1.5 billion on the NASDAQ, before the stock value dropped from $15 to around $2.5, and, after completing some acquisitions in 2022, the company still has over $1 billion cash reserves. At this rate, though, the reserves may burn out quickly.

Yoav Stern, Chairman & CEO, reassured investors that the company’s business is sound: “The comparable increases of revenue of Q3 2022 over Q3 2021 (646%) and year-to-date over last-year-year-to-date (964%) – highlight the business’ continued success in growing dramatically, better than our expectations as expressed last year. We also finished the third quarter with a record backlog of approximately $9M. All our product lines’ revenue grew organically except for additive electronics machines in Europe: as a result of the Russia-Ukraine war, our revenues in Russia and Poland were reduced in the first 9 months of 2022 by approximately $1.5M (75%) compared to the same period in 2021.

“Additionally – he said – we understand from other customers there that the continued components’ supply chain shortages have caused them to request a delay in the delivery of additive electronic machines (which are used to mount those delayed components). Sales and deliveries in the USA of similar machines grew organically by 45% over the 9 months that ended September 30th, 2022, compared to the corresponding period in 2021. The Gross Margin is a bit lower than we anticipated, which is a result of the above-mentioned held-back deliveries in Europe without reducing the fixed manufacturing overhead. The inherent gross margin of that technology is above 30%, as it has been for years, and it is within the typical range for that industry segment. We sold 69 machines of this kind since 1-1-2022. The Q3/2022 lower gross margin is also a result of trading up old AME machines with new ones, which are transactions at lower gross margins than the regular new AME machine sales.”

Who’s taking over who?

While organic growth is taking place, some questions have emerged from investors as to the company’s financial situation, with the stock tumbling from a max of $15 to the current $2.5 over just a few months. This has happened to all AM companies that recently went public (Desktop Metal, BICO, Velo3D, Markforged…), even to the most virtuous among them in terms of generating growing revenues.

But Nano Dimension’s situation has attracted some controversy from some investors. So much so that the company just released a statement as “A Response to Recent Shareholder Activity and the General Meeting”, where it stated that it “has become a target and temptation for entities with an interest in taking over the Company for their business or personal needs. Their actions suggest they have the intention of dismantling the Company.”

This is a strong statement and not common to see from a public company. While the AM industry is young, with many players still looking to consolidate, and some “unorthodox” communication is to be expected, the story of Nano Dimension is a complicated one.

3dpbm visited and covered the company extensively over the years, especially under the previous management, that is before Mr. Yoav Stern took over as CEO. We had the opportunity to visit the R&D labs, see ongoing development on conductive inks and dielectric 3D printable materials, see the technology up close and understand its potential in rapid PCB prototyping. Our view was that like most AM technologies, AME would eventually be suited for direct PCB manufacturing, which is what the latest generations of the Dragonfly systems are targeting.

Banking on this potential for scaled-up adoption for direct electronics 3D printing, from 2020 to 2021, the management of Nano Dimension, led by Mr. Stern, raised $1.5 billion as stock value continue to grow. That was an amazing feat, which is why some consider Mr. Stern a financial genius. Other than the fact that Nano Dimension’s stock’s IPO was $80 in 2017, and that the stock’s value has been diluted over time as the company emitted new stock to raise funds and continue development, there are some similarities to what Ric Fulop did in the US with Desktop Metal. In this case, the company went public via a merger with a special purpose acquisition company, or SPAC, which is a publicly-traded company created for the purpose of acquiring or merging with an existing company.

Both Stern and Fulop sold investors on the fact that their companies and 3D printing technologies could lead to revolutions in manufacturing. As Desktop Metal’s founder and CEO, Fulop promised metal mass production and affordable metal 3D printing (not in that order) while Nano Dimension’s CEO convinced its investors that the company’s AME technology would enable the direct additive production of fully integrated electronic parts and products. Investors eagerly bought into these visions initially although the reality of what it takes to deliver them, combined with global socio-economic challenges, has since driven down the price of stocks, with Desktop Metal’s stock also down from its initial price of $10, now trading around $1.2.

There are also similarities to BICO, the company founded by Erik Gatenholm. The company also raised several hundred million by going public (on the Swedish NASDAQ) and its stock is down more than 80% from its peak price, however, it is trading significantly higher than the IPO. BICO also promises full integration of biotechnologies to increasingly automate and industrialize biotechnologies.

What all these companies have in common is that they started with highly innovative 3D printing technologies and a vision: metal additive mass production (additive manufacturing 2.0) for Desktop Metal, integrated electronic products for Nano Dimension, and bioconvergence for BICO. They raised money from investors who believed in that vision and then proceed to invest that money to acquire other (mostly additive manufacturing) companies that would help them deliver that vision.

Apart from declining stock value (something common to all pure additive manufacturing players this year – both those that recently went public (such as Fathom, Fast Radius, Xometry and others) and those who have been public for many years (like Stratasys, 3D Systems and Materialise) – Desktop Metal and BICO appear closer to delivering their founder’s vision than Nano Dimension is today. One reason why that may be is that both Desktop Metal and BICO are still led by their original founders (not without some controversies, in the case of BICO). Nano Dimension is led by a newly appointed managerial team while the company’s CO-founder and original CEO Amit Dror has now taken up the role of Chief Science Officer.

Investors trusted Mr. Stern with building a platform that could organically grow its AME technology and also acquire other companies to evolve into a market leader. This occurred so far only to a certain extent. Nano Dimension acquired companies like Nano Fabrica and Admatec, as well as a considerable stake in market leader Stratasys (which resisted an attempt to a hostile takeover), and other strategic electronics companies. However, it has not yet been able to fully deliver on what it promised: it turns out that acquiring a profitable and rapidly growing company in additive manufacturing is not a simple task: most AM remains an investment-driven market so if you want to reap the benefits in the future, you need to spend money today.

At the rate that Nano Dimension is currently burning cash, over $100 million per year (even as its revenues have grown over 10X in the first 9 months of the financial year), if the company doesn’t take action to further expand its revenue generation capabilities, it may rapidly burn through over $1 billion in cash reserves.

New drama

According to a recent press release by Nano Dimension, its capital has become a target and temptation for entities with an interest in taking over the Company for their business or personal needs. Their actions suggest they have the intention of dismantling the Company.

“We, Nano Dimension management, are aware of this and will protect the Company from any attempt to harm or impose measures that are not in the best of the Company and its shareholders. In the coming months, there may be further attempts to interrupt the Company’s conduct of business with the intention of inhibiting the Company’s ability to execute on its vision and strategy. Such attempts may be made based on the interests of specific shareholders and competitors, who are more focused on seizing Nano Dimension’s capital for their own benefit and their business affairs.”

A special general meeting of shareholders was completed on December 13th. The company denounces that “When the Meeting was called, a shocking smear campaign was launched, which we believe was designed to harm the Company and its managers. We believe that this was as a pre-emptive tactic to justify the sought takeover of Nano Dimension’s assets by a small entity, which itself has a history of trouble with regulators and authorities in the USA.”

Nano Dimension also said that, as a shareholder-minded company, the results of the vote will be respected. Furthermore, Nano Dimension will continue to execute on its vision through its M&A initiatives, R&D programs, and business development plans. These efforts have already yielded results, and we expect this to be more of the case in 2023 as we foresee notable opportunities in the industry that will enhance and expand Nano Dimension business – with strong and robust capital and other assets – and therefore benefit its shareholders.

Nano Dimension’s real potential

As an AM market research agency and trade publication, 3dpbm focuses its own analysis to its understanding of the company’s products and market potential. The sales of Nano Dimension’s Dragonfly electronic 3D printer have been increasing but the installed base is still limited to a couple of hundred systems worldwide. The company sold a significant number of machines in 2022 (69, as per Stern’s revelations earlier in this story) but this figure is still far too low for Nano Dimension to start generating profits.

Admatec and Nano Fabrica also have interesting technologies and products, with the first offering stereolithography-based AM of metals and ceramics and the second offering micro-stereolithography. These are both market segments with very high potential but still niche applications.

Both technologies enable the production of parts that are so precise and complex that they cannot be produced by any formative or subtractive process such as injection molding or die-casting, or CNC. So they have no real competition from traditional manufacturing but they also don’t yet have very high demand as manufacturers are still not fully familiar with these technologies’ existence.

The company’s goal of manufacturing entire integrated products, by combining end-use materials such as ceramics and metals, with electronics and micro parts, is fascinating and yet still very far away from full implementation and scalability. Just like Desktop Metal and BICO, Nano Dimension should try to acquire more companies to build its real revenue generation capabilities in the short term but finding companies that fit within this strategy is not going to be easy.

Against the tide

CTech a technology news site by Calcalist, Israel’s leading financial daily, sheds some light on the financial aspects of this matter. “The frustration of the investors in Nano Dimension – CTech’s Sophie Shulman writes – is mainly due to the fact that the company raised $1.5 billion in the last year and a half and promised to make strategic purchases, only to not make a single deal that would fundamentally change its business situation. As a result, it is also traded at a value of $610 million, half of the value of the cash in its coffers, which is at $1.2 billion.

Shulman reports that Calcalist has seen recommendations from the American consulting companies ISS and Glass Lewis, which unusually recommend the shareholders oppose the proposals put forward by Nano Dimension and which were approved by its board of directors. This – she continues – is a rather unusual event, since […] ISS and Glass Lewis, tend to recommend approving proposals that have passed the board of directors. However, in the case of Nano Dimension and its proposals, the wording of the consulting companies is unequivocal: ‘The new terms of the options for the CEO raise substantial doubts about the correct conduct of companies in such situations,’ ISS writes. Glass Lewis is even more emphatic: ‘This is excessive compensation with a vesting period that is too short,’ before adding: ‘The wording according to which Stern is risking his fortune in order to exercise the options is misleading. Stern will have to pay $50,000 for the right to exercise a package of options with a current value of $50 million. The shareholders should also be bothered by the acceleration clause in the vesting of Stern’s options in the event of a change in control of the company.'”

Shulman ultimately argues that Mr. Stern’s allies who sit on the Board of the company will help the Nano Dimension CEO take over the company at an advantageous price. Whether this will benefit or hurt investors remains to be seen.