Amaero Ltd (3DA) Earnings Call Transcript & Summary

Good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, the Investor and Media Relations Manager. And today, I am joined by our Executive Chairman and CEO, Hank Holland. Good morning, Hank.

Thank you, Jane, and good morning, everyone. As announced, Amaero has provided updated financial guidance that includes the company had expected to achieve EBITDA breakeven in FY '26. The company now expects to achieve positive EBITDA in FY '27. The company has reaffirmed that the capital expenditure plan for the 3-year period ending with FY '26 is unchanged at approximately AUD 72 million. The company has reaffirmed that following the recent AUD 22 million placement and the AUD 36 million equipment financing from Export-Import Bank of the United States, it is fully funded. The company has reaffirmed that it is positioned to transition to commercialization in FY '26, that revenue growth is expected to accelerate in the current quarter, that firm orders and commercial activity indicate continued acceleration of revenue growth in Q1 FY '26 and that revenue is expected to significantly scale over the period of FY '26. Overall, the priority policies of the Trump administration and the Republican-controlled United States Senate and House of Representatives offer strong support for strength in the defense industrial base for reshoring domestic manufacturing and for improving the resiliency of domestic supply chains. In March, Congress passed the Full Year Continuing Appropriations and Extensions Act of 2025 that averted a government shutdown and largely extended FY 2024 spending levels for FY '25. Though defense spending was increased by $6 billion, the increase was offset by statutory increases in military wages. The appropriation bill was structured to give the Department of Defense more input on how the budget was allocated and the Pentagon submitted funding tables on April 30. As a result of the extended continuing resolution, funding for new starts and for restarts was paused for 6 to 9 months, and this resulted in a delay of contracting for many programs. After a pause for 2 quarters, Amaero is seeing revenue growth accelerate in the current quarter, and the company has firm orders and a strong pipeline of commercial opportunities that suggest further strengthening of revenue growth in Q1 FY '26. Though the pause resulted in a delay in contracting and revenue recognition, the increased federal defense budget and the realignment of priority programs is expected to be a positive for Amaero. The House recently passed a reconciliation bill that includes $150 billion in defense spending. With this spending, the defense budget in FY '26 is expected to exceed $1 trillion or an increase of 12%. The Trump administration and the Pentagon have identified hypersonics, missile defense, submarine industrial base as priority programs in the DoD budget, all of which align with Amaero's business. Perhaps more importantly, the administration's tariff policy and its commitment to incentivize the reshoring of manufacturing and supply chains has companies scrambling to relocate manufacturing to the United States. Companies that have announced plans to invest in domestic manufacturing include Apple, IBM, NVIDIA, Johnson & Johnson, Eli Lilly, Merck, Roche, Bristol Myers Squibb, Novartis, TSMC, GE Aerospace, Siemens, Mitsubishi, Hyundai Steel, Stellantis and Kimberly-Clark to name a few. In the first 100 days of the Trump administration, $5-plus trillion of investments in the U.S. were announced with 451,000 new jobs expected. As for Amaero, we are engaged with very large multinational companies that have committed to relocate advanced and additive manufacturing from Asia or from Europe to the U.S., and they're looking to secure long-term contracts for domestic supply chain. As Amaero has leaned in and made significant capital investments to establish a first-mover advantage and to establish the only expanding and scalable refractory and titanium spherical powder production in the United States, we are well positioned to pursue strategic partnerships and long-term strategic supply agreements. As mentioned in the quarterly activity report and again in today's announcement, the company has a robust and growing pipeline of commercial opportunities. I expect that we will announce an additional 1 or 2 agreements by the end of June. And I would expect we will announce additional long-term agreements and commercial contracts in the first and second quarter of the fiscal year. The leadership team is relentlessly focused on where we need to be a year from now and 3 years from now. FY '26 will be a transformative year for Amaero. Our focus in FY '26 will be scaling production and creating commercial alignment with highly strategic partners. I would be happy to take any questions, Jane.

[Operator Instructions] Hank, there's been a couple of questions that have come through just about capital allocation and also specifically now that the company is fully funded following obviously the EXIM Bank announcement recently. And I know you've covered a lot of this already. But perhaps in summary, can you just elaborate on how the funds are going to be allocated across the growth initiatives off the back of being fully funded?

Yes. It's an important question. And as I said in the announcement today, we have reaffirmed that we are fully funded, notwithstanding the delay of some of this revenue. We've also reaffirmed that our 3-year capital expenditure plan of AUD 72 million remains the same. As a reminder, and as announced prior to the market, the $72 million, looking at some notes here is broken out approximately AUD 28 million for our facility improvements. Those will be finished by the end of this fiscal year. So literally, over the next week or so -- I'm sorry, the next month or so, we're finishing the office component of the facility, which was the last of the improvements. The remaining AUD 44 million of that AUD 72 million is capital equipment. We've been very judicious as far as buying that equipment as late as we can. We've consistently seen what we had first shown as a budget for FY '24, '25 and '26 continue to move back. So again, the overall budget is unchanged. I think importantly, not only are we fully funded, if you look at Amaero versus capital that we've raised, we've raised $98.5 million in the last 3 years. Also, we secured the EXIM Bank loan, as you mentioned. Much of that is on the balance sheet today in the way of cash, intangible assets. I think this is one of the really interesting differentiating things about Amaero is we have significant assets on our balance sheet. And we essentially, with the $72 million, will fund the capability that will take us to terminal revenue on the order of USD 250 million in FY '30. And that is unchanged, notwithstanding some of the slowdown that we've seen in hypersonics, other things. Again, our terminal revenue expectation has remained the same. Our terminal margin structure has remained the same. So I think it's a great opportunity for us. Many of these capital investments, as you know, Jane, we began 2 and 3 years ago. So other companies that are just now investing in anticipation or trying to take advantage of this reindustrialization in the U.S., that is going to take some time. The other thing that I would add is from a technical readiness level standpoint, our technology is ready to be inserted today. whether that is PM-HIP manufacture of near-net-shape parts or our powder production. And so we don't have to advance what's called TRL or MRL manufacturing readiness to sign these contracts. Another reason I think you'll see us accelerate more quickly than perhaps some expect.

Wonderful. And obviously, still a very interesting set of questions coming through regarding the U.S. policy changes and particularly the reshoring of commercial activity. So given that this is so novel and nascent, I might just get you to address again how this has affected or even how it's most significantly benefited Amaero given its unique position with government and defense-related programs.

So one of the important things about Amaero that maybe we haven't emphasized enough. From the very beginning, it's always been our plan to be "a dual-use" company. And so I would expect over time, about 85% of our revenues will come from long-term agreements. I think a year from now, we'll have 10 to 12 of these agreements in place. And as we look into FY '27, we'll have much better visibility, right, looking forward to FY '27 because so much of our revenue will be sourced from long-term agreements. Moreover, I would expect long term, about 50% of our revenue would come from defense and about 50% from nondefense. And that is an important mix, from a multiple standpoint of how the company will be valued, but also from a risk mitigation standpoint, it's an important part. Most probably are aware of the defense industrial base. The U.S. is significantly increasing its investments in defense today. As a percent of GDP, we're at a trough spending level since World War II in the U.S. So we are increasing our spending as a percent of GDP, and we're also increasing it in absolute dollars. As mentioned, FY '26 is expected to be a $1 trillion defense budget, about a 12% increase over FY '25. And the priority programs align very, very well with Amaero's business. More interesting in many ways, though, is what's going on, on this reshoring side that you touched on. And much of this opportunity, I would describe as nondefense. We are engaged right now in discussions and somewhat advanced discussions with very, very, very large multinational companies. And these companies, in many cases, 75% of their end market is in the U.S. So they're currently manufacturing in Asia or they're manufacturing in Europe, and they've got a Europe or a Canadian supply chain, but they're selling into the U.S. as an end market. So by way of example on Stryker's recent early announcement, they announced a $200 million tariff hit for the back half of this calendar year, $400 million annualized. And the Chairman and CEO and separately, the CFO made a big point of saying a top, top corporate strategic resolve at this point in time is to realign their manufacturing footprint with their end market, i.e., mitigate this tariff risk. And you're seeing this GE Aerospace, right, just made a big announcement about their investments in the U.S. Obviously, all the pharmaceutical companies are moving to the U.S. And the problem is there's only so much existing manufacturing or manufacturing that can be quickly scaled. And the same is true on the supply chain. I mean, take titanium spherical powder. There is not one other producer in the United States, bar none, not a single one who is expanding their business today and has the capacity to scale the way that Amaero does. And so I think you're going to see some really interesting announcements being made by Amaero as well as some of these other companies in the coming months. But the Trump policy has created a very significant opportunity for us. And by the way, the last thing I would add, most of the focus to date has been on what I'll call the sticks, right, tariffs, punitive policies, if you will. By the way, in many cases, aligned at our allies to level set trade policies as well as trade differentials with our allies. I think longer term, there will be a grand bargain. I think those tariffs come down to about 10%. I don't think they come down below that. In many cases, our allies will have to drop non-tariff trade barriers to U.S. goods. U.S. financial services companies are not allowed to operate in Canada. Everyone on this call travels to Europe. How many American cars do you see in Europe? Ranchers and farmer in America are not allowed to sell into Asian markets, including South Korea and Japan, amongst our closest allies. So a lot of these non-tariff barriers will need to come down. The next thing, though, that you'll see a shift to in the U.S. is going to be what I call the carrot part of the strategy, right? So far, it's been the sticks, but it's going to be carrots. It's going to be significant tax incentives, tax credits to further incentivize this investment in the U.S. Again, I think it bodes really, really well for Amaero and where we're positioned.

Thank you, Hank. Just a couple of questions here on the progress with commissioning of the second atomizer. So perhaps if you just got any other notes sort of operationally that you might want to touch on.

Yes. So as you might recall, we're going to -- the long-term plan is to have 4 atomizers, one dedicated to C103 and refractory alloys and 3 dedicated to titanium. The one with C103 in refractory we commissioned June a year ago. The second atomizer, which will be dedicated to titanium, landed about 3 weeks ago, and we expect it will be commissioned by the end of June on schedule. The third atomizer, which will be the second dedicated to titanium was ordered late last year, and we expect to land in the first quarter of the calendar year. And then we would expect to order a fourth here shortly, meaning before the end of the calendar year. So we will stay on our front foot. We're going to continue on the accelerator, continue with this first-mover advantage, which also, I think, creates a defensive moat around our business. It discourages other from stand up capital investment, given how much we've already committed. Today, we are twice the size of the next largest producer in the U.S. By the end of June, we will be 4x. A year from now, we will be 6x on our way to 8x. So again, if you're one of these large multinationals and you need significant scale from a supply chain standpoint, there really is nowhere else to turn from a domestic supply standpoint.

Thank you, Hank. And I think just finally, news flow catalyst that investors can look forward to.

So most importantly, the focus is going to be on the commercial side. And the commercial side, I would comment on two different buckets. I've commented explicitly, we see revenue growth accelerating the current quarter that we're in. I feel very, very good about that. Moreover, we have firm orders, and we have significant pipeline of business that would come in the first quarter of the fiscal year. So I feel very good about continued acceleration in the first quarter of fiscal year '26. And this is across all three aspects of our business. So if I look at the first quarter of '26, where we already have firm orders, it's C103, it's development refractory alloys, it's titanium, it's PM-HIP. All of these areas, we're seeing significant orders already booked in the first quarter of fiscal year '26. If I then say where would we expect announcements, there's really three types of commercial contracts that we're working on. The first of which I would call strategic partnerships. Think about what we did with Castheon, what we did with Velo3D, other agreements that we will work on where someone has a differentiated position in the marketplace. In the case of Castheon, it is the undisputed expert for printing C103 and refractory alloys. In the case of Velo3D, it is the only U.S. manufactured 3D metal printing company where the hardware is manufactured in the U.S., the software code is written in the U.S. and the data stored by a U.S. company. Very important to the U.S. government, very important to DoD. They also are the only equipment installed by SpaceX, right? So they've got great early adoption in space. So very strategic. We have some other similar strategic alignments and engagements we're working on. We're then working on numerous long-term supply agreements that we may call them preferred, i.e., greater than 80% or exclusive. But essentially, they will be exclusive agreements. And then the final piece has to do with Department of Defense contracts, commercial contracts, which a program of record. Here, we've alluded to in the past, projects in hypersonics or missile defense, submarine industrial base as well as the naval nuclear propulsion side, and we've got programs in all three of those moving forward as we speak.

Sorry, I know that was one of the last ones, but one just popped up again. So just asking if we can provide an update on H.R. McMaster's involvement with the company.

Yes, H.R. remains involved. He and I have regular communication, particularly as it relates to the -- what I would call career executives, undersecretaries and so forth. We've got on our team, Mick Maher, who you might recall, we brought in on the strategy and the commercial side, and this will tie back in the question about H.R. McMaster. The President has appointed for acquisitions and sustainment, a gentleman named Michael Duffy, will be under Secretary for Acquisition and Sustainment in the Department of Defense. Under Secretary, Duffy has assembled a team of 6 people that meet at the Pentagon every Monday. It includes Mick Maher from our team. David [indiscernible], these are all undersecretaries for sustainment for industrial policy, DoD, Commerce. Many of these are relationships that are very close with H.R. And one case happens to be H.R.'s godson by way of example. So H.R. remains very involved. He is a great, great resource for our company. And I think one of the things that he's well respected for, he's a very respectful person, but he's also plain spoken. And so I think both sides of the aisle appreciate that. He's been particularly helpful on Capitol Hill as well. And on top of that, he's a long time good friend. So I very much appreciate H.R.'s involvement.

Wonderful. Hank. Well, that's what we actually have time for today. So I want to thank you all for joining us. If we have missed any of your questions, please feel free to reach out via the contact details on the bottom of our ASX releases, but we look forward to hosting you again soon.

Thank you, Jane. Take care, everyone.