Freemelt Holding AB (publ) (FREEM.ST) Q3 FY2025 Earnings Call Transcript & Summary

Hello, and welcome to today's webcast with Freemelt, where CEO, Daniel Gidlund; and CFO, Martin Granlund, will present the Q3 report for 2025. [Operator Instructions] And with that said, please go ahead.

Thank you, and welcome, everyone, to our Q3 webcast. Okay. Let's make a short recap about who we are and what we do. So again, Freemelt, we were founded in 2017. What we do? We develop, we sell and we service advanced 3D printers for metal application. We work with a technology called electron beam powder bed fusion, which is highly suitable for productivity because it's a really efficient technology. You can see on the screen here as well. A lot of people think this is lasers, different kind of lasers pointing. This is an electron beam moving 4 kilometers per second, melting more than 3,000 spots per second as well. So extremely suitable for high volume. It's also a clean, let's say, environment. It's a vacuum, which is optimal as well when you really have high needs of strong and complex materials. and it's also a hot process, so which is also avoids that you get swings from room temperature up to, let's say, tungsten where you need to get to over 3,400 degrees. So all in all, it's extremely efficient and also suitable for complex applications and materials, which is typically suitable and demanded in areas like defense, energy and also medtech. If we then zoom in on our 3 industrial verticals, they are all growing. And I would say both defense and fusion are currently positively impact from the current geopolitical situation that we are having. Defense, there, you can see they are really ramping up volume demand. And also here, I think the importance for if you put like local or national manufacturing, regional manufacturing to really keep control and take control of your manufacturing process, like in the past when you have outsourced subcomponents. Now you would like to take full control from the material to the end product. In Fusion Energy, we can also see a substantial commitment now from investors globally. And just to name a few, I mean, Bill Gates, for instance, and his fund is investing heavily now in fusion. You can also see that end users, although that the technology is not commercialized, but end users like, for instance, Google are committing to buy fusion energy in the grid when it will be available as well. So limitless and also clean energy, which you typically call fusion energy have been a key resource now as well for AI and cloud giants. If we look into more on a national level, I mean, both U.S. who recently announced their top 3 technology focus areas and where fusion energy was #2 at AI and Quantum. And also China just, I think, last week announced their 5-year investment plan and focus plan and where also fusion energy was included as well. So it really has become a top technology priority for the coming years. And I think you even can say that fusion energy now has become the new strategic technology race globally, where you have seen AI in the past and also space. And then lastly, MedTech, where the majority of the orthopedic implant OEMs, they are already transitioning to AM for the new applications. So all 3 of the areas have a structural and good growth underlying. Okay. Let's zoom in then on Q3, which was another strong quarter for Freemelt. We had a strong order intake and also sales and where we ended up with a record order backlog in this quarter. If we would summarize year-to-date, we are up 228% versus last year. And we have sold 12 machines this year. And I think we have an impressive installed base now of 40 machines. I think it's good to just recap and then keep in mind that the first machine was launched in 2019, and then we had a pandemic in between. So 40 machines now, which is really encouraging to see. What's also encouraging that we almost had a breakeven operating cash flow, which I think also proves that we have an underlying good operational efficiency and good cost control in the company as well. And then lastly, we had 2 strategic milestones in this quarter as well. The first one is to scale for growth, which is we enter into China, the fastest-growing market for additive manufacturing. And we also did hand over our assembly or production of machines to Scanfil, which also now has led us to have a more agile supply chain as well when we are continuing growing our business moving forward. So projects, I think this we have talked about many times as well. One of the key, let's say, indicators as well that the industrial side is really -- the demand and interest is ramping up is our commercial projects. So these are projects we charge to customers. And just to give you -- I mean, again, as we can only share the products that we have shared externally. So these are a few of them. Let's start with Saab, Saab Dynamics, where we have 2 ongoing projects, one that is directly between the 2 companies. And then one which is also -- it's a Vinnova project together with Linköping University. The focus is on pure copper and the direct project is in Phase II and is running according to plan. The Vinnova project will be ongoing until early 2026. Regarding one of our other prestige projects in fusion energy, and that's Fusion for Energy. Fusion for Energy is the European part of the largest R&D fusion product globally, ITER. And here, we're making great progress. This is about tungsten tiles for plasma-facing wall and here, I think it's really a great example where additive manufacturing, in this case, now electron beam part of the fusion adds its maximized value. So where you can even -- you can create material properties that are excellent because we would talk about hundreds of millions of degree Celsius. So it's really a hot environment, harsh environment, but also where you can -- you need to grade different kind of materials as well here. So you have tungsten first and then you have other materials to really, let's say, efficiently cool down the high temperatures as well. And to get those materials together here, additive is adding really great value. Regarding the implant OEMs, which is more in production scalability kind of phase, more in proof of concept. Here, one of the clients do have an e-MELT at their production site. One is renting one machine here in Gothenburg at Freemelt site. The proof of concepts, I would say, is on track. And here, I think we can expect some more tangible updates during mid or second half of 2026. As we have the ambition to become the global leader of electron beam powder bed fusion solutions, then, of course, we must be present in the fastest-growing market for additive manufacturing in China as well. And I think there is still a lot of perception of China being a high labor-intensive manufacturing country and maybe it is in some industries. But as I said before, China is the world's fastest-growing market in additive manufacturing as well. So it's just a must to be here. And actually, yesterday morning, I heard on one of the morning shows on Swedish TV that the former Minister of Foreign Affairs, Carl Bildt, he mentioned as well that China is expected to represent around 4% to 5% of the world's industry by 2030. And I think you can also see when you go to China and you see their manufacturing facilities, highly advanced. It's efficient manufacturing and that they already have in place. So they are becoming really, really more efficient from a manufacturing perspective as well. And when it comes to Fusion Energy, where, I mean, Freemelt, we have a strong position. We have worked now a couple of years first with the UKAEA now Fusion for Energy and support. I mean China, as I mentioned before, they're also investing a lot of money in fusion as we speak. And it's included in the 5-year plan. So we also see a great potential and value of the collaboration that we have with Jiuli that is highly experienced and exposed to energy applications as such in China and outside of China as well. Lastly, the Chinese population is getting more wealthy and which also means that they request more and more orthopedic implant surgeries as well. So why there is also an underlying strong increased demand for additive manufacturing implants. So with that said, I hand over to our CFO, Martin.

Thank you, Daniel. I'm very happy to present another strong quarter by the Freemelt team. In Q3, we had an order intake of SEK 18.5 million. So these are the accumulated value of the orders received in the period. We have an order book at an all-time high, SEK 23.4 million. The order book represents the orders we've received, but that we haven't yet invoiced. So this order book is going to be future receivables, then turning into future cash flows and finally turning into net sales in our P&L. So this is what -- an indication of what we'll report for the coming quarters. Strong net sales in the period, SEK 17 million. That's up 96% compared to the same period last year. For the year-to-date period, it's even stronger, up 228% compared to the same period last year. We see that the main part of sales, as you can see in the figure on the bottom right, the light green, 81% is from machine sales. We have 12% coming from aftermarket sales and then a small portion of -- from customer projects and other. What's important to note is the margins. So the direct margins in the P&L are a little bit worse compared to same periods last year, and this is for 2 main reasons. One is the sales mix, depends very much which machine we sell, what the margin for each sale of the machine is and also the outsourcing activity that has been ongoing since the spring, where we see that the initial builds of machines are slightly more expensive, but it's going to go down over time as the efficiency improves with our third-party outsourcing partner. Cash flow. Cash flow was also impressive. Operating cash flow of almost breakeven in the third quarter. This is, of course, the result of sales. So sales do come down as cash flow at some point. And we have seen -- the improvement is mainly due to reduction in receivables, meaning customers paying their invoices and also a reduction in overall inventory of trade goods. This is also a great improvement from last year. And as you can see from the graph, we've had a great improvement in the operating cash flow. The cash at bank at the end of period was SEK 45.1 million. And for the funding strategy going forward, an important part is the listed warrant, which is -- which was part of the capital raise in February 2025. It's going to expire in June. It has the potential to provide the company with SEK 50 million in additional funding, but it does require every warrant holder to take action and subscribe. And I just want to reiterate the favorable terms of the warrant, where the price paid is going to be a discount towards a volume weighted price, which is measured in the second half of May 2026. Subscription is in June and the maximum price for the warrant is going to be SEK 1.33. So just as a reminder for those of you who have this in your holdings that you have to take action if you are interested in being part of the future Freemelt journey. Thanks a lot.

Thank you, Martin. So let's wrap up Q3. So Q3 was another strong quarter regarding sales and order intake. And I think this also together with a strong Q2, we have ended up with an all-time high order backlog as well, which, of course, is extremely encouraging and important moving forward. We also achieved 2 major strategic milestones during the quarter. Again, from a commercial growth and expansion point of view, our presence now in China, the fastest-growing market for additive manufacturing. is extremely important. And I think we can also see that based on the first order that we also received on the machine within such a short, let's say, time after we entered into the collaboration with Jiuli, I think it just proves how Jiuli is operating and executing. Secondly, we also -- with the strategic agreement with Scanfil, we managed also to hand over according to plan with Scanfil, which is now independently assembling our machines as well, so which can -- will help us a lot when we continue to grow and also when we continue to grow as an industrial company as well. And I think we just must remind ourselves that we have sold 40 machines until now. And again, the first machine was launched in 2019. We had the pandemic in between. And only in this year, we have sold 12 machines now. So I think we've taken clear steps towards our ambition of being a leading E-PBF supplier. And then lastly, I think it's -- at this moment now, it's very energizing to be the CEO at Freemelt. I think we are well positioned to continue turning our technology edge into further commercial growth. And also the external factors that we are seeing now, the geopolitical situation is actually also helping the acceleration as well for the adoption of additive manufacturing. So with that said, thanks for listening in. And now we open up for questions, if you have any.

Yes. Thank you very much for that presentation. We'll start with the first question here. Could you give us a breakdown of your order book as of Q3 and also a time line for the machine deliveries?

I can respond to this one. So we don't provide a breakdown of the order book. We do mention in the press releases sometimes when we expect the delivery to take place. Typically, it takes between 3 and 5 months from received purchase order until delivery, and that's also when the machines end up as net sales in our books. We do invoice them in between. So machines are invoiced 30% at purchase order, 60% at delivery and 10% at install, which is a typical case. It's not always the case, but the typical case. And then I could highlight with regards to the order book that most of it is machine sales, but we also have a few rental solutions, which provide income over time, and those are for longer periods. So this is a small part of the order book as well.

Thank you for that answer. Will the transfer of production to Scanfil incur any further nonrecurring costs? And what impact on gross margin do you expect from the transfer?

Well, Scanfil has been building our products since October 1 on the premises in [ Ofedaberg ] They have been teach-- taught how to build these products. And initially, we do see that the unit cost is higher in the transition. It's going to go down over time. And Scanfil is also a partner, which helps us to industrialize the machines, helps us with procurement and purchasing. So I do see that the margins will improve over time when we work with Scanfil. And in terms of one-off costs, I mean, it depends very much what kind of initiatives we want to do with this third partner. So I think it's very much up to us what we want to improve, when we want to improve it and how much we're willing to spend on such improvements.

Thank you, Martin, for that answer. What are your investment plans for 2025 and also 2026?

I can jump in on this one as well. So we normally don't talk about the future investment plans in detail. But just as a broad outline, we I mean we have an application center in [indiscernible]. We have an application center in the U.S. And I mean, the projects that we're doing, we see interesting projects. We need machines in those application centers to perform those projects. So that's one area where we -- where it's likely that we need to do a bit of investment in order to be able to get new interesting customers and especially industrial customers as well for the future. And as we've spoken about in the past, the projects that we do, I mean, those are the really interesting ones, which we should keep an extra eye on.

In Q2, you made a breakthrough with increased traction in the market, driving record high order intake. And in Q3, your order book is at a record high level and order intake is at the same level, but with fewer machines sold. Can you elaborate on that and how you should think about the order values going forward?

I can answer that one. I think we can, of course, I mean, confirm what we communicated in the second quarter. I mean we are seeing, in general, an increased traction in the market. I think in Fusion, we have strengthened our position recently. And I think in defense, I mean, I think all of us can read in the news and see in the news that the pressure for change is great. When it comes to the order value per the respective orders, I mean, it's really depending on the type of machines that we sell, but also depending on the aftermarket that has been generated during the quarter. And during Q3, we did sell less machines, but the 2 of them were the industrial machine e-MELT which have a higher order value than our research machines. So yes, I think that's the explanation why it was different. So the mix of sales, I would say, is really depending on the outcome.

You write in the report that your production has now transferred to Scanfil, which reduces your investment needs in the future and ties up less capital. Can you elaborate on it further? And do you see any risk in the collaboration going forward?

Right. We -- well, it is a central part of our strategy, right? We've walked through this. It does minimize the capital tied up in the company. It increases our production delivery capacity for the future greatly, I would say. And it also mitigates future risks if we would do all this in house with competence tooling, production space, strategic purchasing, et cetera. It's much better to have a specialized third party to do this. On -- I mean, with the specific risks, we've already covered that in the short term, we do see somewhat higher unit costs. It's going to go down over time. We do see that we, of course, will be reliant on a third party. It's not all in our own hands, and it's a third party we have to manage properly. That's going to be extremely important for us going forward. And it also reduces our flexibility a little bit because, again, we need to provide firm forecast to our third-party production partner whereas when you have it in-house, there's always a bit of more flexibility and yes, easier to handle, if you like. But I would say those are the main sort of things to look at from our side.

Understood. And during the period, you visited your partner, Jiuli in China, and you have already received your first machine order. How do you see the collaboration going forward?

Yes. As I mentioned before, I mean, China is the fastest-growing market for additive. So again, it's a must for us to be there. I think Jiuli is maybe not the typical, let's say, partner to additive OEMs like Freemelt or like to be a reseller. I think Jiuli, they are a big manufacturing company in high-tech applications, mainly in energy applications. So I think, again, with the focus on fusion energy, then I think Jiuli, they have really strong and good capabilities to get a good presence there as well. I think also, I mean, the machine order that we received within such a short period of time as well after our collaboration agreement was signed. I think that also underscores how well the collaboration have started. So moving forward, I just expect this to continue in the same positive path that we have seen from the start.

And sorry, Martin, did you want to add something there? No? Okay. Sorry. And as you mentioned, there is great pressure for change in defense, and you have several ongoing projects in the sector. Can you tell us how they are developing and what we can expect going forward?

Yes. I think, again, as we -- as I mentioned before, there is a high need of advanced components in very complex materials as well, which is critical for defense. And here, I think AM will definitely have -- it will play a crucial role. I think I've also seen somewhere that AM now is expecting to actually grow substantially within the defense industry as such up to 19% of the total manufacturing at 2035. I mean we are currently running 2 projects, which I mentioned before about with Saab, and they are running according to plan. And we also got a new order with not the named defense customer, but who acquired agreement 1 machine for material development. So I think all in all, I think the projects and the collaborations, engagement that we're having in defense is running well.

And in what way do U.S. tariffs and government shutdown affect Freemelt?

Well, maybe I can provide some light on this, if I can. I mean, the tariffs is something which we roll over to our customers. That's our initial standing point. It remains to be seen what the sort of price elasticity is and whether the customers will accept this or not. I think it's very difficult to have a view on that. When it comes to the government shutdown, I mean, sure, it's -- it is problematic, but I think the signals we hear is perhaps that it creates uncertainty and the uncertainty as such is the problem, not necessarily anything else as a sort of first problem.

And compared to last year, direct margins have come down. What is the reason for this?

Well, I elaborated on this previously. So it's the sales mix, and it's also the fact that we've transferred production to a third party where we initially see slightly higher unit costs. So I'll just stop there.

And why should investors believe that 3D printing can move from prototype printing to serial production? And why would traditional manufacturing not be an alternative when, for example, printing tunnels for a fusion reactor?

That's a very good question. I think maybe before I start to answer that question, I think it's also important to remind of the fact if we take the total metal manufacturing industry globally, I think that is -- I've seen somewhere it's like EUR 880 billion business. Approximately 1% of it's manufactured by AM. So still, it's a huge opportunity, and AM will not take over will not replace conventional manufacturing in all this. But -- and I think also it's important to highlight as well. I mean, the conventional manufacturing has thousands, actually thousands of years behind a long legacy. And to change a massive industry like this, I mean, it takes time and often, it requires a crisis as well. And actually -- it's a lot about change management. And actually, now we have sort of a crisis. We have the geopolitical situation. So as I said before, I think now we can at least feel that there is some tailwind on that kind of change attitude. But I think it's also important to mention, I mean, additive manufacturing has been there for a bit more than 30 years. And I think if you look into the design of the machine as well, the machine design has really been set up for more prototype focused business. How you operate a 3D printer is that you stand at the printer and do all the preparation. You also -- after the print is done, you stand at the printer, do all the post-work. So you actually block the machine for productivity. And if you cannot produce as much as the -- you can do with conventional, then, of course, I mean, yes, the cost per printed part actually becomes too high. So I think that's one this is also a reason why Freemelt did actually redesign our machines. I mean we -- as you potentially saw on the first slide, and if you follow us, you have seen as well that we have an interchangeable modular system. So before the print, we prepare everything in a different part of the factory. We -- and after the print, we replaced this build module with the one that has been prepared. So really quick turnaround times to reduce the cycle time, which is key for production. So get more parts produced, so get down the cost for us. Secondly, I think also and more related to the complex design parts. I mean, some of the conventional, let's say, technology cannot manufacture parts where you, for instance, need internal channels for cooling, for instance, or graded materials like if you're infusion, for instance. So -- and these kind of things are not nice, but really the difference between the part to survive in this environment and doesn't. And then thirdly, and then maybe they more related to the fusion part of the question. I mean, fusion tiles, these are small tiles that you put into the plasma on the plasma wall. I mentioned before, it's like hundreds of millions of degrees. It's extreme heat and also thermal shock. I mean, conventional manufacturing, it creates stresses and also multiple failures in the interfaces between the different kind of materials that you need to have. So with additive and in this case, electron beam powder bed fusion, I mean, you can print fully dense tungsten parts and also engineer porosity where it's needed, where you need to add other materials. So all in all, I think you get better kind of material, you get less joints and less cracks and in the end, longer life. So from that point of view, additive is really having -- adding so much more value to, in this case, fusion tiles and conventional manufacturing.

Thank you for that answer. And I believe you already answered this question, but maybe you can add some more color. Why not just use traditional manufacturing for fusion tiles?

Again, I mean, fusion tiles at this moment is being manufactured with tradition. But as I tried to explain, I mean, you can get additional value with additive manufacture, you can get longer life. And what you don't want to do is to stop a fusion reactor when it's up and running and have a long, let's say, cycle times before you can run it again. So if you can extend the life of the reactor to be up and running with having better materials, et cetera, then of course, I mean, it's better for everyone in the end.

And I'll say one final question here before wrapping up. Do you get any powder sells from the installed base?

At this moment, so at Freemelt, we have taken an open source approach when it comes to our architecture and software, but also when it comes to powder. So most of the other, let's say, OEMs do have a, let's say, closed ecosystem. We need to buy the printer, the software and the powder. Freemelt taking a different kind of approach. So we collaborate instead with partners that can add most value from a powder point of view, and we work a lot with Sandvik, just to mention one. So with that said, no, at this moment, we don't get -- we don't sell powder to our customers, but we do that through our partners.

Okay. That concludes today's presentation and also a Q&A section here. Thank you very much, Daniel and Martin for presenting and answering all of our questions, and thank you for everyone for tuning in. Thank you.