Amaero Ltd (3DA) Earnings Call Transcript & Summary

Good morning, and welcome to the Amaero Limited Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I am joined by our Chairman and CEO, Hank Holland. Hank will be providing a company update, followed by a Q&A session. [Operator Instructions] Hank, I'll hand to you.

Thank you, Jane, and good morning, everyone. As announced on Monday, Amaero was pleased to provide a number of operational and commercial updates. The company has completed commissioning of its second EIGA Premium. The EIGA Premium is the most advanced atomization technology. The technology produces a higher yield of the most valuable powder used for laser powder bed fusion, and it reduces Argon gas consumption by 50%. The company has reaffirmed its prior guidance that revenue growth is accelerating in the current quarter, and that revenue is expected to significantly scale in FY '26. Amaero reaffirms its guidance and is pleased to share that with contracted sales from long-term agreements and from received purchase orders, including an order for 27 metric tons of titanium spherical powder, the company has visibility to approximately 80% of its planned revenue for Q1 and Q2 of FY '26. The company announced that the AUD 28 million improvement to Amaero's flagship 9,200 square meter manufacturing facility in Tennessee will be substantially completed on schedule by the end of June. The third EIGA Premium atomizer that was ordered in December '24 is on schedule to be delivered in March of '26 and to be commissioned by June of '26. Three years ago, Pegasus and I led the investment in Amaero and reset the company's strategic direction. We relocated the business from Melbourne to Tennessee in July 2023. We attracted a leading technical team with pioneer experience in atomization of refractory and titanium alloy powders and in PM-HIP manufacturing of large near-net shape parts. We committed to an ambitious capital investment plan that included the commissioning of the most advanced atomization technology. We embarked on a series of strategic capital raises that totaled AUD 98.5 million over 3 years. I led the first 3 capital raises, and the last 3 capital raises were led by 4 premier Australian institutional investors. I'm unaware of another ASX company of Amaero's size that has such strong institutional support. We secured AUD 35 million equipment financing with favorable terms from Export-Import Bank of the United States. Amaero's financing was the sixth loan approved for the Make More in America Initiative, and Amaero was the first ASX-listed company to secure financing from an EXIM Bank program. The culminating result. Amaero has commissioned the largest capacity and the lowest cost U.S. domestic production of high-value refractory and titanium spherical powders. We are pleased to host an event at Amaero's facility on June 2 with U.S. Congressman Chuck Fleischmann. As a 9-term member of the U.S. House of Representatives, Congressman Fleischmann serves on the Appropriations Committee and chairs the Energy Subcommittee. As we recorded and posted to our website the nearly 1-hour conversation between myself and the Congressman, I would recommend that you listen to the recording. It's an interesting commentary on the Trump administration's and Congress' priority policy initiatives. Also, I'm excited to share that U.S. Senator Bill Hagerty will be visiting Amaero on Tuesday, July 1. Senator Hagerty serves on the Senate Appropriations Committee and has been a strong advocate for Amaero. As we look forward to FY '26, Amaero's leadership team will have 2 primary priorities: number one, scale production throughput; and number two, sign new commercial contracts and long-term agreements. I'm confident that Amaero will differentiate itself in FY '26. We will end the year with approximately $63 million of tangible assets and cash on our balance sheet. That is June 30 of the current fiscal year. During FY '26, we will add approximately $35 million of additional tangible assets to our balance sheet, thus expecting to end FY '26 with approximately $100 million of tangible assets and cash on our balance sheet. We are fully funded, and Amaero has a differentiated market position; Amaero's proven, established technology that can be immediately adopted; Amaero addresses critical vulnerabilities in the U.S. domestic supply chain; and Amaero has capacity to scale production throughput. As for our commercial success, FY '26 will be the year that we scale revenue. With the advent of Velo3D long-term agreements, coupled the purchase order of 27 tonnes of titanium spherical powder, we have strong revenue visibility for FY '26. As guided prior, we expect revenue growth to significantly accelerate in Q1 FY '26. And with that, I'd be happy to take any questions, Jane.

Thank you, Hank, for that. [Operator Instructions] Let me just jump into them now. So just a question here on the second atomizer. So can you provide a progress update on the recently commissioned second atomizer and its near-term production goals?

Yes. So as a reminder, people, we have 2 production areas that we have completed. One production area which houses the first atomizer we commissioned a year ago will be dedicated to C103 and refractory alloys. An adjoining production area that is much larger has been built to have room for up to 5 atomizers dedicated to titanium production. Our current CapEx plans include 3 atomizers dedicated to titanium. But again, we have room to the extent we have the long-term demand to expand to 5. The first of those atomizer is dedicated to titanium. The second, overall, we just commissioned, we announced this week. We are starting July 1, full production with 1 shift. So we will have 2 atomizers going full production on 1 shift of production. We would expect to add an additional shift likely late the first quarter of the fiscal year, early the second quarter of the fiscal year. Right now, we've got our current plan calls for slowly ramping up production over the calendar year. One of the decisions that we've made strategically, Jane, is we're investing forward for where we expect the demand signal to be a couple of years from now. And as a result of that, we will always have about a 50% of our capacity utilization unused, right? And thus, be in an enviable position to accelerate ramping that production if the demand calls for it. We talk a lot about the defense industrial base. One of the really interesting opportunities in the U.S. right now that really the catalyst was Trump's shift in tariff policy. But more broadly, what you're really seeing now is a focus of companies to realign their manufacturing footprint better with their end markets. So by way of example, if you go look at Stryker's most recent earnings call, both the Chairman, CEO and the CFO made a point of saying the #1 strategic priority of Stryker is to better align their manufacturing footprint with their end market. What are they saying? 75% of knees and hips, right, of orthopedics, are sold in the U.S. However, 100% of the manufacturing of those orthopedics occurs in Ireland, and 100% of the supply chain is in Europe and Canada. They estimate a $200 million tariff hit for the back half of this calendar year; on an annualized basis, $400 million. And we're seeing a lot of examples of this. We all read in the press about Apple by way of example, but a lot of industrial companies scrambling with a sense of urgency to relocate manufacturing and the supply chain back to the U.S. to better represent their end markets. So big, big opportunity and part of the reason we're standing in front of this from a capacity standpoint. Given the opportunity, we will further accelerate our production.

Thank you, Hank. This question is actually just in regards to the announcement on Monday. So can you provide some more detail on the counterparty behind the 27-tonne titanium spherical powder? And what is the expectation for ongoing orders from this party?

Great. So as a general practice, where we have long-term agreements, we will provide details in accordance with those agreements. We'll identify the counterparties and so forth. In this case, this is a purchase order as opposed to a long-term agreement. We have not announced the counterparty. We don't plan to announce the counterparty so long as it is simply a purchase order. I will tell you that the purchase order right now is for 6 months from July to December. The party has indicated a preference to extend that for 12 months, which we've indicated and given them the right to do, and I expect that we will. And moreover, they've indicated a desire to enter into a long-term agreement. What we're trying to balance is signing long-term agreements where we have highly strategic counterparties, coupled with short-term demand that enable us to scale our production. This particular counterparty has got another proprietary patented capability that could be complementary to our business. And so we'll continue to engage them beyond simply the powder sales. But for now, we have no plans to announce the counterparty. Again, if this develops into a longer-term purchase order and/or a long-term agreement, we certainly would. And by the way, clarifying, and I've heard some comments that perhaps it wasn't clear. So just in the spirit of trying to provide clarification, we announced, as you know, Jane, maybe 6 or 8 weeks ago that we expected to have 1 or 2 commercial announcements before the end of the quarter being June 30. We have essentially made those now, in case that wasn't obvious. So the first of those 2 was the Velo3D long-term agreement that was announced. Very, very consequential in my mind. Velo3D is the only made-in-U.S.A. metal 3D printing equipment OEM; hardware manufactured in the U.S.; software written in the U.S.; data stored by a U.S. company; and they've never sold equipment into China. So given our relationship with the DoD and the U.S. government is viewed very favorably that we're supporting this counterparty and that we've built a collaboration. We will have what I would say are significant sales in the first and second quarter of this year for C103 refractory to that party. And then the second of those commercial announcements we had alluded to was this 27-tonne purchase order. So I would not expect that we would have any other commercial announcements between now and June 30.

Hank, there's quite a few questions just coming through on tariffs. So can you give us an update on the impacts of those proposed tariffs? And are you seeing increased inbound interest and opportunities from customers looking to secure that U.S. supply?

So let me take 2 parts of that. The tariff side that could adversely affect us from a supply chain and the tariff side as far as generating and creating demand, right, of this manufacturing coming back in the U.S. On the [ startium ] side, some of our bar, say, for example, titanium bar, we have 2 supplier relationships. We have a mill in China that we have a relationship with; and we have a long-term supply agreement, as you might recall, with Perryman, one of the premier titanium manufacturers in the U.S. So we have both China supply and we have U.S. supply. The fact of the matter is, today, even with a 60% tariff, which is the current tariff for titanium that we import from China, even after that tariff, the cost of our Chinese bar, okay, is much lower than our U.S. bar. Our U.S. bar is 50% more expensive than our titanium bar even with a 60% tariff. Now we have certain applications that require what's called DFAR material, or U.S. allied sourced material, particularly defense applications, of which we are using U.S.-sourced bar. We have other applications that are more price sensitive, of which we are using Chinese bar. So yes, there, we are paying a tariff on the Chinese. Even there, it is less expensive. On the demand signal side, it has had a -- it's hard to overemphasize the very significant impact it has had on inbound interest. And I would say in the near term, the interest is fantastic. It will likely lead us to accelerate our production plan over time. And then there are certain opportunities that would be transformative in nature. I think the nature of those always are that I would give it -- you never give it too high of a probability until you get much higher down the road on these very, very, very large opportunities. But these are multinational companies that are, again, are looking to realign their manufacturing footprint with their end demand, and there are dozens of those type of opportunities.

Thank you, Hank. Bear with me. There's quite a few coming through. I'm jumping around. So what role do long-term agreements with Castheon/KAM/ADDMAN and Velo3D play in providing revenue stability and scalability?

Yes. It is a fantastic question, and it's exactly the way that I think about it. I want -- I don't want to have -- I think long term, if you think about our revenue mix, what I would expect is about 80% of our revenues will come from long-term agreements, and about 50% of revenues from DoD or the U.S. government, and about 50% of revenues from commercial, right, non-DoD, non-U.S. government. That will give us a higher multiple on a valuation as an A&D company and yet diversify that risk in the event you get into an appropriation issue, a budget issue, a change of administration, whatever else might be the case. On the long-term agreements, what we want with long-term agreements is not just revenue, not just purchase orders, but we want to align with highly strategic partners, and we'll look at this kind of vertical by vertical. In the case of Castheon, we align with the unequivocal technical expert for printing C103 in refractory in Dr. Youping Gao. That is a great offensive move, and that is a great defensive move, kind of blocking others, if you will. Likewise Velo3D, right? The fact that they are the only U.S. equipment OEM, it's a great offensive move. And by the way, they also went through a restructuring last year. They're going through significant new investment right now really on the uptick, so a very interesting time to engage with them as well. Dr. Arun Jeldi, the CEO, I've got to know quite well. So those are examples of highly strategic. I would expect this time next year that we would have another 3 or 4 of those type of long-term agreements in place. Such when we sit here this time next year, I would also be able to say, I've got 80% revenue visibility through the first and second quarter of fiscal year '27. And what I think you're going to see is our revenue expectations are internally kind of in line with consensus. We've not given guidance, but I would say it's in line with consensus. That is a very significant increase, right, from what our revenue has been. Again, I say with confidence this year will be the year that we scale revenue. I would then expect 100% year-over-year growth into '27, 100% year-over-year growth from '27 into '28, given the demand and the nature of the market that we're satisfying.

Hank, there's quite a few questions here coming just through on qualification and whether or not we've obtained the T64 qualification. Do you want to just make some comments on that?

Yes. And so there's lots of different areas on this. And we think about from a strategy standpoint, again, almost like the question about long-term agreements, think about a portfolio. There will be certain opportunities that have very, very long qualifications. So probably the longest qualification would be in a rotor part aerospace. It could be 2 or 3 years to get qualified with Boeing, right, in that type of application. You've got other applications such as printing suppressors, which is a great AM application. And very timely, given change in the legislation in the U.S., we can qualify with a printer in a matter of weeks, right, for that type of application, printing suppressors. And then you've got other opportunities that fall in the middle. A medical application might be -- for an existing part where you're updating a material, it could be 6 to 12 months, right? And we are approaching that -- along the way, we're in different parts of qualifying with different companies on different applications. If you look at where we are for FY '26 revenue, I do not see any qualification impediments. That is I'm highly confident we can achieve FY '26 revenue and the goals that we have with our current qualifications and current qualification strategy.

Okay. Moving on. So how is Amaero engaging with U.S. and allied governments to strengthen its role in securing domestic and NATO alliance supply chains?

So we have not done much at all as it relates to NATO alliance supply chains. As everyone is probably well aware, we're seeing a big uptick in spending in Europe. So we are receiving some inbound inquiries. I would say they're very early and premature. On something such as the titanium side, that would be a pretty low bar. And I would expect that would have applications in missiles, scram jet engines, things such as that. On more advanced applications such as hypersonics, I think that is going to be a U.S.-only opportunity for the foreseeable future. I think given export controls and other things, hypersonics, strategic missiles, where you might see a use of C103 and refractory is in the space complex in Europe. So whether it is on satellites or whether it is space launch. But specific to NATO, I would not say that we're highly engaged at this point. The one exception to that is there's a lot of press on AUKUS, right? And both on the AUKUS itself as far as acquiring the capability, but also the industrial collaboration. I'm a realist. And so I look at what am I really seeing on the ground? What's really happening? I can't say that I'm seeing anything of consequence relating to AUKUS from an industrial opportunity standpoint. And I wish I was more positive. And we will not explore or pursue an AUKUS opportunity unless there's a contract in hand. We've got too many other opportunities. We just don't have the resources to do that. What I think we will end up doing is with a U.S. contractor that has a contract in hand for AUKUS, that would likely be what would take us back to participate in AUKUS type. As you know, Jane, we're very active with the U.S. Navy, the naval nuclear side and the U.S. nonnuclear side. We've got significant members of the U.S. Navy through our facility, probably 3 weeks out of 4. And I would expect announcements over this fiscal year that will be consequential relating to the maritime and submarine industrial base. But in the near term, I would see that being more U.S. Navy focused and U.S. Navy centric.

That answers a few of the questions that were in there as well, actually. So moving on. With increasing production capacity, what gross margin profile do you expect across key product lines like titanium and refractory powders?

Yes, great question. So if you -- on a long term, so think FY '30, right, you stabilize the business. On a long-term basis, this is a good business from an operating margin standpoint, and it's a specialty business. So think about this as a 23%, 24% EBITDA margin business, all right? Good long-term operating margins. If you then take the powder side of the business and the PM-HIP side of the business, the highest gross margins are going to be C103 and PM-HIP. The lowest gross margin, albeit still attractive, is going to be titanium. So think of titanium, if you've got a SG&A of 12% and you've got EBITDA margin of 24%, so you're at a 36% contribution margin, okay, overall, think of titanium as being 32%, and think of C103 and PM-HIP being north of 40%, right, on a contribution margin. Obviously, gross margin would be higher than that, right? But C103 and PM-HIP would be the most attractive parts of the business from a gross margin standpoint. Again, titanium, attractive, about a 20% EBITDA margin or about a 32% contribution margin. That probably takes you to around a 42% gross margin. So still very attractive and much more attractive than the commodity metals such as stainless steel or nickels, but not as attractive as a very high-value refractories.

Thank you, Hank. Okay. Do we anticipate expanding outside of Tennessee or pursuing partnerships to bring your PM-HIP or additive manufacturing technologies closer to the end user?

Wow, these are great questions. They've been sitting in some of our meetings. So Matt Sermon, who is the Program Executive Officer for the submarine industrial base maritime industrial base in the U.S., one of his very favorite charts he uses in their presentation is he's got a map of the Continental United States. And it shows this zigzag line that makes about 50 turns. And his point of it is, this is my average part. My average part takes over 2 years to manufacture. But of those 2 years, it's waiting in queue for 18 months, right? And as we move this part all over the country for various processing, it gets in queue. It only is actually being worked on maybe 6 months of the 24. And so part of the conversations that we're having with the submarine and maritime industrial base as well as some other larger commercial opportunities is do you co-locate some of these capabilities. And it is more likely, given that we've got a very favorable cost of electricity, right, in Tennessee. We've got a very favorable workforce, cost of the workforce, et cetera. It's more likely they would come to us than we would go to them. But we are looking at -- and we're in a 312-acre industrial park that's got 10 extra parcels that are available for development, right? And we could -- what would have taken me, by way of example, 3 years to build in Melbourne, I build here in 12 months, right? What would have taken me in Melbourne 2.5 years to get a transformer, I got here in 10 months, right? And so the speed of which I can do business in a place like Tennessee, not to mention Australia, but even a place like Massachusetts or California or New York, right, is much quicker. So I think it's a great point in co-locating. Keep in mind, Jane, that where we try to differentiate ourselves is we now have the largest capacity production, but very important -- and the lowest cost production. So we've got competitors for titanium at $140 a kg, they lose money. If I wanted to, I could price titanium well below that and make money. And we'll continue to invest in initiatives that will bring down that cost further. And we've got a road map of what some of those initiatives are.

Thank you, Hank. I'm jumping around again. So how does the committee approval for the Defense Appropriations bill impact expected contracts or revenue for FY '26? And then secondly, what are the chances of the House or Senate approving?

So let me clarify the question in case it's not clear. And certainly, if I was following Australian politics, I wouldn't be clear, right? So it's hard to expect that given all the nuances of our process, people in Australia are fully versed on this. FY '25, we've got -- a fiscal year in U.S. government starts October 1 of each year. So we're currently in FY '25, it ends the end of September. Back in March, we passed a continuing resolution through the end of FY '25. By the way, DoD, Department of Defense, has never, in its history, operated an entire fiscal year under continuing resolution, right? This is highly unusual, if you will. Because you're under continuing resolution, you adopt baseline spending from the prior year. So what you're seeing right now in the continuing resolution, which is the first bill that is being considered, that the House has now passed. The Senate, I believe they hope to get the entire bill done by July 4. I think it's highly unlikely. I think with some luck, you get it out of the Senate in the first half of July. It will have to be passed before our debt ceiling expires, right, which would be early to mid-August. That includes an additional $150 billion for defense add-on to current FY '25. And then it's basically a tax bill beyond that. So what we call the reconciliation bill is that FY '25 bill. FY '26, the markup just came out of the House. And I would not have said it publicly. I'll let people go listen to the interview that we had with Congressman Fleischmann. He comments on Amaero, he comments on our support, but I'll let others hear his words rather than me say that myself. Congressman Fleischmann is on the Appropriation Committee. Senator Hagerty, who will be here on the first, is on the Senate Appropriation Committee. And I would expect that Amaero would receive strong support in the FY '26 budget, given how highly we align with the administration's policy. It is expected that the FY '26 will be the first $1 trillion DoD budget, right? So about a 12% increase. They're cutting certain areas. Remember all these DOGE measures. The areas that they're increasing are -- there's 5 areas they're increasing: Hypersonics, missile defense, submarine industrial base, AI and unmanned. The first 3 of those directly align with our initiatives, right? Hypersonics, missile defense and submarine industrial base. So I think we continue to be highly aligned with this administration's strategic policies.

That answers the next question that was actually there as well. So with the strategic -- this one has come through a few times actually. So what is the strategic interest in Amaero like in the U.S.A. with the defense sector attracting investor interest? And are financial sponsors or trade buyers making inquiries?

So I would never comment on inquiries or conversations we may be having. But what I would say is to the extent you follow the financial press, it's very well reported that the defense industrial base and the manufacturing supply chain ecosystem are amongst the most sought-after investment themes for private equity investors in the U.S. But unlike Australia, the U.S. has a very, very large private equity sector, right? And if you look at a company like Amaero and you say, how do we monetize this investment? And obviously, I don't monetize this investment by selling on the open market. We'll monetize this investment as I have investments in the past and that we'll engineer a capital market transaction. That could be a private equity firm taking us private. That could be relisting in the U.S. It could be a merger, it could be an acquisition. There's any number of ways that would happen. I would say that we are highly desirable, right, given our sector. Now candidly, I don't think that we will be in a position that it will make it that interesting to consider overtures until we are solidly profitable and because I want to get credit, if you will, for that forward growth. So typically, you'll get paid a year forward. As we go into FY '28, we will establish -- we'll be profitable before that, but we'll establish strong margin structure at that point in time. So I think we're still a couple of years away from seriously engaging in those type of conversations, but it is a very popular theme. And Amaero is quite visible in the unique and strategic nature we hold. So probably one could conclude there has been interest expressed.

Hank, this one's just looking forward a little bit. So what are Amaero's top strategic priorities heading into FY 2026 beyond ramping up production? Are there new markets or technologies in focus?

So I would say that the leadership's primary 2 priorities for fiscal year '26 is we now will embark upon scaling production. So up to this point, we've been operating 1 shift on 1 atomizer. As of July 1, we'll be operating all out, full production of 1 shift on 2 atomizers. We'll then be adding a second shift later in the quarter or probably more like the second quarter of the fiscal year. Because we've invested forward in our capacity, right, we've done this very intentionally. We're establishing capacity a couple of years ahead of where the demand signal is, at any given time, we'll be operating at maybe 50% capacity utilization. And the benefit that gives me when I'm having these large strategic conversations right now is no one -- and I underscore -- no one else, U.S. domestic production has capacity to scale at the pace that we do to meet the demand of some of these larger customers. So number one, scale that production; number two, begin to anticipate and stand up our equipment that we could scale much more rapidly to meet that demand signal. And then that goes to the second initiative, which is going to be new long-term agreements, new commercial contracts. But I've said in prior calls, given our pipeline, I would expect between now and the end of the calendar year, 1-plus announcements each quarter, so maybe 2 or 3 announcements between now and the end of the calendar year. I would expect between now and this time next year, another 4 or 5 of those announcements we would make. So we have good visibility at that point going into FY '27.

Hank, I think that might be all the questions answered there. If we've missed any of your questions, please feel free to reach out via the contact details, which can be found on the bottom of our ASX releases. Hank, I'm not sure if you've got any final comments.

No. As always, thank you very much for the trust and confidence, and Jane, thank you for moderating this.

Not a problem. Thank you, everyone.

Thank you. Take care.