Amaero Ltd (3DA) Earnings Call Transcript & Summary

So good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager, and today, I am joined by our Chairman and CEO, Hank Holland. Today's webinar will be a company update followed by a Q&A session. [Operator Instructions] I'll hand over to you, Hank, for some opening remarks.

Great. Thank you very much, Jane. Thank you, everyone, for joining. Very pleased to join Investors Day for a brief webinar after we announced yesterday a 5-year exclusive supply agreement with Titomic for spherical refractory and titanium alloy powders, very much following our strategy to align with key partners in verticals across advanced manufacturing. As you think back a little bit over a year ago, the first such long-term agreement was with ADDMAN or Castheon, the undisputed leader -- technical leader for printing C103 and refractory alloys. More recently, we announced a long-term agreement, again, exclusive, with Velo3D, the only made in U.S.A. metal 3D printing equipment OEM and very important to the U.S. government and the DoD for that reason. And now, as I mentioned, very grateful to announce the alignment with Titomic. It will be an exclusive supply agreement. Also importantly, it will be a development collaboration. We'll touch on, I'm sure, in a bit here. Much of what Titomic has done in the past is on the repair and maintenance side. It's actually what cold spray has been most widely used for. And as it relates to repair and maintenance, one of the nice things about cold spray is they can use angular or less expensive powders, less processed, less refined powders, if you will, than spherical powder, particularly gas atomized spherical powder such as Amaero. At the very same time, Titomic is hoping to significantly grow their business by making mission-critical in parts. And the specs that we have seen from defense primes for these first article in parts to be qualified are requiring spherical powder. We do expect this will be the case on a going-forward basis for these mission-critical parts. So it's a great opportunity for Amaero to align with Titomic. I think it's also a great opportunity for Titomic to establish a resilient and scalable U.S. supply chain of that spherical refractory and titanium powder.

Thank you for that, Hank. We've had a few questions that actually come through beforehand. So I'll jump to the first one. So how does the 5-year exclusive supplier and development agreement with Titomic enhance Amaero's positioning within the U.S. defense and aerospace supply chain?

Great. Thank you. So importantly, the way that I think of Amaero's opportunity is metal advanced manufacturing, broadly speaking. right? And so what we've got to do is reshore our manufacturing capabilities in the U.S., and this is particularly true on the defense and industrial base, think about submarine industrial base. We must have a "all of the above" strategy. So additive manufacturing or 3D printing is going to be an important part of that for mission-critical, high tolerance, smaller, more technical parts, if you will. And then there will be other modalities such as cold spray that in theory can be much more appropriate for larger parts. Cold spray is particularly applicable for conical parts, if you will, round parts. I think pressure vessels is something that Titomic has talked about in the past, many of which, by the way, are made of titanium. And so heretofore, they have not qualified these parts. We think there too, we can be very helpful to Titomic. Most of their high-value parts will be refractory and titanium. So there will be a lot of repair and maintenance that they do that will be stainless steel, that will be nickels, that will be copper nickels. That's not an area that Amaero makes powder. And so again, they will continue to work with other powder providers. And for repair and maintenance, I think much of that will be angular powders. But I think in these high-value mission-critical parts, you will see a significant role for spherical, refractory titanium powder, and Titomic is the player, the partner that we've chosen in that vertical.

Thank you, Hank. Just staying on that topic as well then. So can you give us a sense of the volumes you would expect from this agreement? Or how much of the current and planned capacity this takes up over the next couple of years?

Yes. So one of the things I said in our announcement and always trying to give investors a good sense of how we see the impact on this in near term, I think for FY '26, the Titomic supply agreement is probably 5% to 10% of our revenue. And we will have revenue this quarter. We will ship powder this quarter to Titomic as part of this agreement. However, I think the qualification period will take a bit longer. We will begin collaborating with them on first articles I would expect between now and the end of this calendar year. We've already identified four refractory alloys, of which they have had interest expressed from defense primes. We're going to work very closely with Titomic so that we can collaborate with them and bring powders -- develop powders, if you will, collaboratively, that are specifically geared at both the demand signal from the customer side as well as high-priority development programs. And so think about some defense labs that might be involved in that type of work. So we purposely have structured this flexible to benefit Titomic and to benefit Amaero. I would expect between now and the end of this calendar year, we would likely work on a couple of alloys together, and we would atomize, process, ship those powders to Titomic. Titomic in turn would produce in parts, produce critical coatings, whatever the case may be, we would collaboratively test those. And then we refine that with another couple of alloys, I would expect between now and the end of the fiscal year. So Titomic does not have any take-or-pay commitment. Again, we purposely positioned this very collaboratively. We want to see Titomic be very successful. And in turn, Amaero would be successful.

Thank you, Hank. This one has come through a few times actually. So just on the broader manufacturing strategy. So can you just provide a bit of an update on the broader U.S. manufacturing strategy?

Yes. So broadly speaking, I think of this as two separate strategies, defense industrial base and then all the themes that we're seeing for onshoring manufacturing. On the defense industrial base side, hypersonics, missile defense, strategic missiles, nuclear, a lot of interest on refractory alloys. We have started another project, which we've yet to announce with Velo3D, that is a munitions project, again, with a refractory alloy. And so a lot of opportunity that we see on the refractory side. And much of that will be in Air Force, Army. Air Force, as I said, as far as missiles, hypersonics, maybe missiles, hypersonics. Army, munitions and so forth. And then on the maritime and submarine industrial base, there, you've got a bit of titanium, but a lot of...

Have we lost you, Hank?

[Technical Difficulty] Wire Arc Additive Manufacturing or WAAM. There's other companies in DED. Again, these are large parts that will be particularly appropriate for maritime industrial base. On the titanium side, there are some very, very large onshoring manufacturing opportunities. And I suspect we'll talk a bit about it later. This is one of the primary reasons we want to pull forward our fourth atomizer and also invest in the Argon recycling, which will give us a further lead from a cost standpoint.

Thank you, Hank. Next one here. So beyond cold spray, what other advanced manufacturing modalities are you prioritizing for near-term growth?

Yes. I think immediately speaking, we've got a lot of other very interesting work that we're doing in additive manufacturing. So think about our partnership with Castheon/KAM/ADDMAN, think about our partnership with Velo3D, and this will be not only PARPs, but as I said, also munitions. Munitions is a very large market that heretofore Amaero has not been in. So stay tuned. We're doing some early work right now. And to the extent that work is successful, we hope and expect that it will be, I think that could be a significant incremental opportunity for both us and Velo3D. PM-HIP, very, very large manufacturing opportunity. It's an opportunity that's come at us more quickly than [Audio Gap] it's an opportunity that we're going to invest more heavily in and again, pull forward some demand as well as expand some capacity and then cold spray. And again, cold spray, most of the work that I would see that we would do there would be mission-critical, some of which could be coatings, think thermal protection, i.e., hypersonics, much of which will be in part manufacturing such as pressure vessels.

Well, actually, that's the next question that's come through just on the hypersonics program. So can you provide a bit of an update on the current state of the hypersonics program and the urgency and then how this relates to Amaero and Castheon's offtakes or Titomic rather is relevant?

Yes, so Trump administration and the DoD had just recently announced that they are green lighting all of the current hypersonic programs. So we had five different programs that run what we call research development, testing and evaluation, RDT&E. All of...

Sorry, guys. Is that me just cutting out with Hank? One second. [ David ], is that cutting out for you? Here we go.

Yes. Jane, I apologize. We have a storm here. I was dropped off the WiFi. So I apologize.

That's okay.

I'll pick up on hypersonics. So let me repeat that, if I may. So the good news is with the Trump administration, they recently announced that all of the current, of which there are five, hypersonic programs that are going through research, development, testing, evaluation, RDT&E. All of those programs will be advanced to production, which is a great thing for Amaero, a great thing for the need for high-temperature refractory alloys such as C103 and then substitute alloys such as cesium and other things we've been working on. Likewise, in the Sentinel missile program, the Sentinel program is one of the larger DoD programs in its history. This is the ICBMs that will replace the Minuteman. There too, you've got significant refractory opportunities. And then finally, missile defense. So with the priority programs of the Trump administration, the DoD, you're seeing significant need for high-temperature refractory and other high-temperature metals. You're on mute there, Jane.

Sorry, sorry. We're struggling today a little bit. Aren't we, Hank? Okay. Next one has come through. So now that 3DA are getting more established in the powder manufacturing space, can you go back and relook at the old joint venture with PPK in regards to the inclusion of BNNTs into the powder mix to create the next cutting-edge metal alloy?

Yes, it's an interesting question. And actually, I did have conversations with Glenn and PPK probably 1.5 years, it might have even been 2 years ago now. And we have not followed it more recently. Back then, the challenge, as you might recall, was really a cost issue. I think that's probably an area that PPK has made some advancement on. And it's certainly something that I would be happy to take another look at to the extent it would be consistent with our -- we want to stay very true to advanced materials and advanced manufacturing, and within materials, stay very true to advanced specialty powders, right? And so to the extent BNNT would play that role, it would certainly be something that I would be happy to revisit. It is not something we're currently engaged with PPK on.

Okay. Next one. Look, this one has come through a few times just on the capital raise. Perhaps you just want to give a little bit of background on the cap raise. I think we did announce that Amaero was fully funded, yes.

Yes. So let me pick up on that. So as you said, we, Amaero is fully funded -- prior to this capital raise, was fully funded as we had shared. And when we talked about Amaero being fully funded, that was fully funded to fund a AUD 72 million CapEx program that we had as well as to get us to EBITDA positive in FY '27. At the very same time, the Board met the Thursday morning before the capital raise. And a number of investment banks, and candidly, a number of funds directly had approached the company. There was a lot of interest in the space, as you know, defense industrial base, advanced materials, manufacturing onshoring in general. And so the Board took that up as part of its agenda that Thursday morning. And the real question from the Board was not so much is there an interest. Clearly, there was a lot of interest in Amaero. And we had seen other companies successfully have capital raise. We also were continuing to be very focused on improving the liquidity of Amaero and bringing on other lead funds where appropriate in Amaero. But the primary thing that drove the Board to reconsider was the use of capital. And what I would comment on is, and I take a lot of pride in this, as the largest shareholder, it's really, really important to me. Amaero has had a highly disciplined strategy for allocation of capital. Prior to this capital raise, we had raised $98.5 million going back to May of '22, so over a 3-year period of time. $70 million of that $98.5 million is on our balance sheet today in cash or tangible assets, right? So again, a very disciplined allocation of capital, very, very focused on minimizing dilution, given myself as the largest shareholder and others. And yet from the Board's perspective, it made sense to continue to lean in. As you know, we've been very forward leaning with the capital investments that we've made. We're 2 to 3 years ahead of other companies that have come to the defense industrial base manufacturing reshoring opportunity in the U.S. We commissioned our first atomizer in June of '24, our second one in June of '25. Our third one is ordered and will commission in June of '26. And the Board felt let's maintain this 1-year cadence. And we had planned to order the fourth atomizer in FY '27 and pay for it out of free cash flow in FY '28. So one of the reasons for this capital raise pull forward EIGA #4, commission that in June of '27. So you'll have June of '24, '25, '26 and '27. In addition to that, we've said now many times that we are the lowest cost producer in the U.S. for spherical refractory and titanium powder. And we're the lowest cost by a lot, meaning probably on the order of $20 per kg for titanium. So a significant cost advantage. At the very same time, scale gives you certain benefits that others won't have. So once we get out to having four atomizers, our cost of Argon is about USD 4 million per year, okay? The cost to install Argon recycling, the initial bids, of which we have two sets of design engineering bids, we've looked at this over the last 6 months is USD 8 million. I'm assuming USD 8 million to USD 10 million. So it's about a 2- to 2.5-year payback period, right, which is a very attractive payback period for that type of capital asset. Also importantly, Argon has got a cost of about $8 per kg for titanium. That's USD 8 per kg for titanium. That translates to a cost of powder of $20 to $25, meaning we could further reduce our powder price by $20 to $25 if we so desired and maintain the same margin structure by making this capital investment. So it gives us a lot of flexibility. There are some very, very large corporate opportunities that we've been engaged with over the last 6 months. One of those, in particular, I will tell you that since we made this announcement, we have further advanced it. The idea that we've shown and demonstrated our commitment to now have 800 tons of atomization capacity. That's 600 tons or three atomizers dedicated to titanium, okay? That would make us 6x the largest -- next largest titanium circle powder producer in the U.S. by way of example, and one atomizer dedicated to refractory and C103, right? So it positions us very, very uniquely, and that was the Board's perspective is, look, we're in a period of time in the market. The market is strong. There's a lot of interest in us thematically. We're 2 years into commercial engagement. We've got good visibility into this quarter. We've said AUD 5.5 million revenue for this quarter. We've said in the market, we've got very good visibility into next quarter's revenue. And so lean into that, take advantage of this opportunity, and accelerate these growth initiatives, and that's where the Board came out.

Thank you. There's quite a few coming through actually. So let me just jump into the next one. This one is on the U.S. Navy and Boeing scaling opportunity. So could you provide an update on the PM-HIP work for the U.S. Navy or the Boeing development collaboration opportunity? And would you look to expand capacity in this area if you win a large contract?

Yes. So PM-HIP is a business that -- and I really credit Eric Bono, Dr. Ron Aman, Fred Yolton, others on our team. I mean we -- on our team are the pioneering experts in this area. Dr. Dave Schmidt, we've got the most advanced numerical model, more advanced than the U.S. National Labs, right? We've got something that is a very significant differentiated competitive advantage. And that coincided with this demand signal because of the challenges that we have with forgings and castings. So we began this engagement with the U.S. Navy over a year ago. I believe it was June of last year in the quarterly, and we didn't make a bigger deal out of it, we announced a $1.1 million contract. We have, during that time, produced a number of parts, worked on a number of programs, and we are now coming to the conclusion of delivering first articles as I have announced. We haven't said for which U.S. defense prime, we have not said the type of part. What I would simply say is it is a part that has got a very, very high qualification standard. We would expect to deliver those first articles in September, October. We'd expect to have those qualified by the end of the year, and we have a number, plural, of production contracts in the wings upon successfully completing that qualification. Two things this really underscores, Jane. A, we're well ahead of many others, okay, getting first articles produced. But also it underscores PM-HIP is a very advanced -- from a technical readiness level, a very advanced technology. The last jet plane you flew on had jet engine parts that were PM-HIP manufactured. The International Space Station has PM-HIP manufactured parts, right? Satellites out today have PM-HIP manufactured parts. And so you've got advanced TRL that allows for immediate -- okay, again, immediate inclusion in the supply chain to relieve the challenges that we have in large forgings and large castings. So very exciting what we're doing in the U.S. Navy. Stay tuned. And yes, I think this will lead to other contracts. There's only one other company in the U.S. that's got the type of pioneering experience we have in this area. We're always looking at other opportunities. And this is an area, I think we've made a lot of continuing investments on the powder side of our business. We've now established a dominant first-mover advantage and a significant moat around our business. Don't be surprised to see us next invest more heavily in the manufacturing side of our business, i.e., PM-HIP.

Wonderful. Look, I know we're running out of time slightly. I'll just jump into a couple more. So this one is just on government grants. So is there any chance of the U.S. government Department of Defense grant or something similar?

So again, great question. And those who have been following the budget cycle in the U.S., there's significant change under put right now. In the past, the primary granting authorities for large CapEx capabilities was Defense Production Act Title III or IBAS, Industrial Base Analysis and Sustainment Office. And as you probably have been following, the Trump administration has restructured many parts of the Department of Defense, of the DoD, including a new Under Secretary of Acquisition and Sustainment, Michael Duffey. And we expect that Title III and IBAS will be significantly restructured. That is the way that we make these federal grants. Moreover, in the most recent reconciliation bill, the $150 billion of additional money for defense programs, much of that was targeted for these federal grants. And so yes, we are engaged with the DoD, we are engaged at a senior level, and we have been for some time. And we think the capabilities, much of which are unique to Amaero, are very well aligned with the priority initiatives. The other thing that I would say and our Congressman Fleischmann, who is on the Appropriation Committee, himself has commented on this in the past, Senator Bill Hagerty, also on the Appropriation Committee, very supportive of Amaero. And so I think you'll see congressional support for the company as well.

Hank, I know we're running out of time here, but I think the question I always ask, what's next. What should shareholders be looking out for, for the next sort of 3 to 6 months?

Right. So I would say, as we've been really, really clear, FY '26 is the year of transition for Amaero that we transition to scale production, we transition our commercial engagement and landing more contracts, and we transition to significant revenue. As we've mentioned before, albeit we haven't given revenue guidance, I believe most analysts out there have a revenue expectation of AUD 30 million to AUD 35 million for Amaero in FY '26. The company is very comfortable with that. We've given specific revenue guidance of $5.5 million for this quarter. We would expect that to grow modestly next quarter. I would expect about 40% of our revenue mix will be the first half of the year, about 60% of our revenue mix the back half of the year. Look for us to announce more commercial contracts. We are engaged with six or eight other parties. We are also engaged in a number of government contracts. And so I would expect that we will have a number of -- one or two -- I would expect a couple more contract announcements between now and the end of the calendar year. Obviously, we had one this quarter with Titomic. And then I would expect another few in the back half of the year. So by the time we get to the end of the fiscal year, I would expect that we would have six or eight long-term agreements, significant commercial contracts and then at that point, have good visibility into FY '27.

Wonderful. Well, Hank, thanks so much for your time. I know we've run slightly over, but -- and I think I note that a few people also had a few technical issues there, and I think it was cutting out a little bit. But if we have missed any of your questions, please feel free to reach out by the contact details on the bottom of our ASX releases, but we look forward to hosting you again next time.

Good. And sorry if there might have been any technical challenges. Thank you. Bye-bye.

Thanks, everyone.