3Q24 Accountability: Right & Wrong
As an analyst we believe it is critical to hold ourselves accountable to our calls and recommendations. Post earnings, we publish a quarterly recap note called Right & Wrong, recapping the quarter, reviewing where we were right and where we were wrong with our companies under coverage and our early thoughts for Q4.
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Where I Was Right
Materialise MTLS 0.00%↑ (STRONG BUY): Materialise MTLS -0.41%↓ reported robust Q3 results with revenues and profits exceeding consensus expectations. Most impressively the company reported an acceleration in growth with revenues growing 14.6% Y/Y, which was lead by 24.5% Y/Y growth in Materialise Medical segment. Furthermore, driven by impressive margin expansion in the company’s Medical segment and strong cost controls in the quarter, adjusted EBIT grew 89.1% Y/Y. Materialise also highlighted the fundamentals across all 3 segments remains strong and “conservatively” reiterated 2024 guidance.
We are extremely impressed with Materialise’s Q3 performance, which also exceeded our higher than consensus estimates. Above all, the most impressive story of the quarter is the robust performance in Medical, which set a quarterly revenue record. We believe the company’s new US medical plant that is currently serving trauma applications is a large driver to this outperformance, but as Management indicated they are not even scratching the service yet. We believe there is significant room to run in the Medical business, and now the question lies on what do adjusted EBITDA margins look like longer term at this higher run rate. Furthermore, we are upbeat on the company’s ability to growth their other two segments (Software and Manufacturing) despite operating in a challenging industrial environment. We expect these segments to show higher growth as the macro improves. "POUNDING TABLE” We believe another flawless quarter of execution proves Materialise is one of the most compelling stock opportunities in our universe. Materialise is currently trading at historic low valuations despite their ability to accelerate growth in a tough macro environment. The company is currently trading at ~8x EV/EBITDA multiple based on 2025 consensus estimates, which compares to the 5-year average of 40x. Furthermore, we believe Materialise is well on their way to coming in at the high-end of their guidance range. Investors are going to pleased with the accelerating growth and robust performance in the Medical segment. That said, we believe Materialise shares have over 170%+ upside and remain STRONG buyers.
View our latest MTLS reports and full downloadable financial model.
Red Cat RCAT 0.00%↑ : Last week, Red Cat finally announced they were awarded the entire U.S. Army's Short Range Reconnaissance (SRR) Program of Record contract. We predicted they had a very good chance to win this transformative contract in our initiation report in September. The contract includes the production of 5,880 systems (includes 2 drones per system) over five years, priced at $45,000 per system, resulting in what we believe is worth $232M (does not include spare parts / services). This marks a major milestone, showcasing Red Cat's innovation and capability to deliver on the U.S. Army's evolving operational needs. We believe this significant achievement provides Red Cat global credibility as a leading defense drone player, which is expected to catalyze interest from other military branches, such as the Navy and Marine Corps, as well as government agencies and allied defense organizations, including NATO. On the conference call discussing the contract win, one member of the Management team who spent 16 years with leading US drone company Aeroviroment highlighted after their first program of record win, they went from serving 3 countries to 52 over that time frame. We believe these international and domestic opportunities are of significant size that could exceed the SRR2 contract.
As you can see in the chart below, RCAT stock as skyrocketed post announcement. In our report published post this massive win, we updated our model, but noted Management did not provide any changes to formal guidance. We anticipate they are waiting until their next earnings call to provide more color on prepayment size and timing related to this contract. We believe Red Cat will receive the first prepayment of ~$50M in 1H25. Although our initial estimate of $100M in incremental revenue per year might have been a big aggressive. We believe conservatively this contract alone adds $50M + additional domestic / international wins. Based on our higher revenue assumption our price target using a sales multiple of 7.5x off 2026 estimates gets us to $15.75. We believe this valuation could be viewed conservative, reflecting a sales multiple of 7.5x, which still positions Red Cat at a discount compared drone industry peers like Skydio, which recently raised $170M at a $2B valuation (20x sales)….AND Red Cat beat out Skydio in the SRR2 contract.Furthermore, our initial DCF valuation arrives at a similar price, but we are waiting to publish this until we get more color on opex levels post contract win.
So what to do with the stock? While fundamentals support a much higher stock price, our biggest fear is the company does a dilutive capital raise at these elevated levels. Prior to announcing the SRR2 deal, they filed a $100M shelf registration and recall the company ended their last fiscal quarter with ~$8M in cash on the balance sheet. However, on the call, Management indicated they believed the use of debt instruments and the contract prepayment would be enough cash to fund the company going forward. We are likely going to play the momentum into earnings, but likely sell our position before the company announces as timing of revenue contribution or spending plans could disrupt upside near term. Long term, we believe there is significant upside for RCAT.
View our latest RCAT reports and full downloadable financial model.
Protolabs PRLB 0.00%↑ (BUY): Protolabs reported robust 3Q24 results with revenues beating expectations, and improving gross margins drove profits comfortably ahead of analyst expectations. However, driven by a soft manufacturing environment Protolabs provided 4Q24 revenue guidance slightly below consensus expectations, but their EPS forecast came in ahead of analyst estimates. Driven by much better profitability results and outlook in a tough macro environment, shares have traded up significantly post earnings.
We were not surprised by the improving demand commentary in August and September, which was shown in our 3Q24 Pricing Analysis and indicated pricing improvement on their platform in the middle of August through the end of Q3. CONGRATS to our premium subscribers who got this info weeks in advance! That said, we were more impressed by the $0.15 EPS beat, and robust cash flow in a softer manufacturing environment. Although a little bit discouraged with average revenue per customer being down ~2% Y/Y, we believe the company is positioning itself for meaningful earnings leverage once we return to a more favorable manufacturing landscape. In turn, we remain bullish on Protolabs long-term, and believe when growth returns the company will be in a robust position to see strong revenue growth return and translate into stronger earnings growth. We believe the combination of Protolabs Factory and Network business positions the company as a clear leader in the digital manufacturing space. We expect the combination will allow Protolabs to acquire new customers, and more importantly grow wallet share per customer given the company’s internal manufacturing capabilities. Although we suspect we need the manufacturing landscape to improve in order for Protolabs to trend closer to our price target, we believe patient investors will be rewarded at these levels. As a result, we are reiterating our Buy rating and $60.05 price target.
View our latest PRLB reports and full downloadable financial model.
Xometry XMTR 0.00%↑ (SELL): Xometry announced strong 3Q24 results with revenues and adjusted EBITDA that exceeded both Management and consensus expectations. Furthermore, the company surprised by reporting a positive Non-GAAP net income for the first time as a public company. In addition, 4Q24 revenue and adjusted EBITDA guidance came in-line with expectations. What also likely excited investors is Management indicated they expect to grow their marketplace revenues 20%+ in 2025, and be full year adjusted EBITDA profitable. Given the strong 3Q24 execution in a soft manufacturing environment, better than expected profitability and the upbeat 2025 outlook shares have traded up meaningfully since reporting results.
We are not surprised by these results given the robust price acceleration we saw on Xometry’s Marketplace in our 3Q24 Pricing Analysis that has also continued through the month of November. Given the macro headwinds, we applaud Xometry for these strong results and being able to grow 19% in a challenging manufacturing environment is quite impressive. Xometry Marketplace continues to flourish and is likely taking share in the low-end prototyping market domestically and internationally. While we were also impressed with Management’s opex cost controls, which drove the surprised positive net income in the quarter, we believe the limited Marketplace gross margin expansion is concerning given the robust sequential revenue growth. We view gross margin expansion as critical to meeting their 20%+ adjusted EBITDA target, which we believe is a pipe dream. Furthermore, Xometry provided upbeat 2025 financial targets, but spending multiple years in Investor Relations, we believe this sets an unnecessary high bar for when the company provides 2025 guidance in 4 - 5 months. We doubt the company has strong visibility that far out and a lot can change for a company during that time. In turn, we remain cautious on the company’s long term revenue and profitability outlook, as we believe the emergence of Protolabs Network business to put pressure on growth and the company will struggle to expand revenue per active buyer, which declined again Y/Y in 3Q24. We expect these strong results will excite investors, but likely once again inflate profitability expectations. Our bearish thesis remains intact as we believe the company’s inability to increase revenue per active buyer will force the company to continue to accelerate spend to grow and underwhelm investors profitability expectations.
View our latest XMTR reports and full downloadable financial model.
Ondas Networks ONDS 0.00%↑ (BUY): Ondas reported mixed 3Q24 results as revenues came in slightly below expectations, which were led by extended timelines related to the Class 1 railroad network upgrade. However, the company secured $14.4M in purchase orders for their Optimus drone solution and new counter unmanned aerial system (C-UAS) Iron Drone in Q3, which almost all of it is expected to be fulfilled in Q4 / Q1 of next year. Given the robust growth in backlog, the Company sounded very upbeat on their outlook and growth accelerating in 2025 driven by their Autonomous segment. Shares traded slightly down ~1%+ on these results, but the overall market was down and we suspect investors are likely encouraged given the robust backlog and visiblity.
Despite minimal Q3 revenues, we were encouraged with the robust order growth in the Autonomous division, and do believe the company is seeing greenshots in the Network business. Although our biggest concern around additional capital needs remains present, our positive outlook on Ondas long term remains unchanged. We believe Ondas Networks and Ondas Autonomous are strongly positioned in two robust secular tech trends that are both still in the early innings of adoption. Furthermore, we are incrementally more upbeat on the company’s outlook under a new Trump Administration who we suspect will invest significantly in the military and boarder security, as well as put an emphasis on sourcing domestically. Although investors need to be patient as we expect sales will be lumpy over the next couple of years, we suspect patient investors will be rewarded with a 3-5 year horizon. Our robust outlook drives our bullish stance on Ondas shares and price target of $1.60.
View our latest ONDS reports and full downloadable financial model.
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Where I Was Wrong
Symbotic SYM 0.00%↑ (HOLD): Symbotic delivered impressive FQ4 2024 results, which significantly surpassed consensus expectations and the company achieved its first quarter of positive net income. Revenue came in at $576.8M, well above Management’s prior guidance ($455-475M) and consensus estimates $470.2M. Furthermore, the revenue upside, robust gross margin expansion and strong cost controls resulted in adjusted EBITDA of $54.6M, which also far exceeded Management guidance ($28-32M) and topped Street expectations ($31.1M). These results underscore accelerated deployments for the company’s AI-enabled robotics solutions and effective cost management driving profitability. The upbeat momentum extended into guidance for Q1 2025, with revenue projected between $495 - 515M, which was ahead of consensus ($495.7M). However, adjusted EBITDA guidance of $27 - 31M was below consensus expectations ($42.2M). Driven by the company’s strong results and transition to profitability propelled shares up meaningfully, reflecting investor confidence in its growth trajectory and profitability.
While Symbotic’s FQ4 results and profitability milestone are commendable, we maintain our neutral rating on the stock due to concerns about valuation and elevated profitability expectations. Valuation remains a concern as it already reflects significant optimism about future performance by trading at ~75x EV/EBITDA based on 2025 estimates. Symbotic’s current forward multiples appear stretched relative to peers, particularly given its FQ1 adjusted EBITDA lagged behind consensus expectations and analyst were calling for adjusted EBITDA to grow form $106M in FY24 to $260M in FY25. While the company’s strong execution and market leadership are undeniable, we believe these factors are fully priced into the stock at current levels. In addition, we believe the company is planning to accelerate sales and marketing spend in 2025 to expand into new verticals and geographies. We would not be surprised if these expenses are likely higher than investors are anticipating and could impact profitability expectations. That said, we continue to view Symbotic as a clear leader in the warehouse automation space that has a massive $20B+ backlog driven by Walmart and growing customer list. Given results can be lumpy quarter-to-quarter due to the size of these deployments, we believe patients investors will have better opportunities for more attractive entry points.
View our latest SYM reports and full downloadable financial model.
Tekna TEKNA.OL (BUY): Tekna reported what most would perceive as discouraging 3Q24 results. Sales in 3Q24 were down ~16% Y/Y driven by lower than expected advanced material sales into 3D OEMs due to sluggish new printer growth, as well as lower Plasma system sales as projects continued to be delayed. Furthermore, total bookings in the quarter were down 44%, which is very concerning. The company also removed their initial guidance for revenue growth and margin improvements on a Y/Y basis in 2024. As a result, shares continue to trade at historic lows.
Although discouraged with these results, we believe their are signs showing for a recovery in 2025 and our view on Tekna’s long-term opportunity has not changed. In-line with almost all of our other industrial tech universe, we were not surprised macro headwinds continue to impact results, and specifically their additive manufacturing customer segment. We cover the 3D printing space closely, and this market has been in a 2 year industry decline driven by uncertainty and high interest rates. With rates set to come down, and hopes of improving manufacturing environment under the Trump Administration we are cautiously optimistic 2025 could be a much stronger year for their additive segment. Furthermore, we believe the Trump Administration could have a positive impact on Tekna’s Plasma System division, given Trump’s robust relationship with Elon Musk. We believe SpaceX is likely one of the multiple customers evaluating their PlasmicSonic Systems and access to government funding / grants could materially impact Tekna’s business. Lastly, we were encouraged by Tekna’s traction in aerospace and medical material segments, which were up 25% and 35% Y/Y, respectively in what is perceived soft manufacturing environment. After a few weeks into Q4, Management highlighted their Materials segment order book is showing signs of recovery in these segments, and consumer electronics segments, which gives us further confidence in growth returning in 2025.
All that said, we continue to believe Tekna is in the early innings of a multi-year super cycle as demand for their advanced metal materials and plasma systems grow across applications in 3D printing, consumer electronics, aerospace and medical. In turn, we are confident double-digit growth will return in 2025 and beyond. In addition, we believe with a recovery in demand, the company now has a clear path to profitability, which could be reached on a quarterly basis in 2025. We continue to view the near term challenges as an attractive buying opportunity for long-term investors. Assuming Tekna can execute on their aggressive growth trajectory, we believe there is 200%+ upside potential in the stock and remain buyers.
View our latest TEKNA.OL reports and full downloadable financial model.
Nor Right or Wrong
Cognex CGNX 0.00%↑ (BUY): Cognex reported mixed 3Q24 results with revenues in-line with Management expectations and analyst estimates, as well as strong cost controls drove better than expected adjusted EBITDA and FCF. However, a continued more challenging macro backdrop resulted in 3Q24 guidance coming in slightly below analyst expectations. That said, the 3Q24 guide seems to be better than feared, and coupled with robust cost controls that led to strong free cash flow generation shares traded up 2-5% on these results.
Despite persistent macro headwinds across their factory automation businesses (specifically Automotive), we were pleased to see the company return to positive organic revenue growth (~7%). Furthermore, we believe Managements upbeat tone around logistics and growing opportunity around AI markets, as well as AI applications keeps our long-term bullish thesis intact. Machine vision is a critical getaway that blends the physical world with software, and we believe the rise of AI within manufacturing and distribution environments will directly grow demand for intelligent vision systems globally. We also believe AI will drive adoption across next gen consumer electronic devices, automotive vehicles and semis, which we anticipate will lead to capacity expansion across Cognex’s key verticals in the coming years. Coupled with the ability to generate strong earnings and cash flow in softer macro conditions, we see meaningful upside potential for “patient” long-term investors once manufacturing conditions improve. In turn, we reiterate our buy rating and price target of $64.14.
View our latest CGNX notes reports and full downloadable financial model.
Impinj PI 0.00%↑ (HOLD): reported another solid quarter with 3Q24 results coming in above Managements and Street expectations. Furthermore, Impinj provided better than expected 4Q24 revenue, EPS and adjusted EBITDA guidance. We are impressed with Impinj’s Q3 performance as they report another beat and raise quarter, which includes revenues growing 46.4% Y/Y as RAIN RFID deployments accelerate across a broad set of industries. Given Management’s upbeat tone, this momentum is not expected to stop in the near term. That said, while we expect estimates to go up modestly following Q3 results, shares have traded down recently to the 150 day moving average, but have since bounced. Although we believe Impinj’s growth and improving profitably deserves a rich multiple we believe investors likely felt valuation was stretched. We continue to believe shares are fully valued and reiterate our HOLD rating. In the event of a “meaningful” pullback we would use the opportunity to consider building a position given Impinj’s long term growth opportunity. Or as shown below, we believe if shares retreat back towards the 150 day moving average, traders could take advantage of another near tearm bounce scenerio.
View our latest PI reports and full downloadable financial model.
AutoStore AUTO.OL (BUY): AutoStore reported 3Q24 results with revenues and adjusted EBITDA exceeding expectations despite the challenging macro environment continuing to postpone delivery times and project deployments. Driven by results that came in above Managements guidance provided at their Investor Day, as well as better than expected profitability, shares traded up ~8% on these results.
We are not surprised by the 3Q24 results given the macro challenges many of our industrial tech company’s have indicated during Q3 earnings. We continue to believe sluggish sales is purely driven by a timing issue, and not an indication of slowing demand. Given the size of these deployments, we believe it is a normal course of business for sales to be pushed out due to timing and macro factors. However, we believe they will create buying opportunities for long-term focused investors. Although Management did not have a sense of when market conditions will improve, we are cautiously optimistic growth can accelerate driven by a more bullish outlook as a result of lower interest rates.
Driven by ~70% gross margins and lean partner driven operating model, the company is consistently reporting adjusted EBITDA margins north of 45%+. AutoStore is currently trading at ~13x EV/EBITDA based on 2025 estimates, which is below our industrial tech comp group (~35x) and their closest public peer Symbotic (~75x). We believe as macro conditions improve, current estimates will end up being conservative and likely drive multiple expansion. Our robust outlook drives our bullish stance on AutoStore shares and 24.34 NOK price target.
View our latest AUTO.OL reports and full downloadable financial model.
Research Disclaimer: We actively write about companies in which we invest or may invest. From time to time, we may write about companies that are in our portfolio. Content on this site including opinions on specific themes and companies in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.