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6/3/2024
Hello and welcome to today's webcast where Fremelt will present the Q1 for 2024. Joining us to present are Daniel Gidlund, CEO, Martin Granlund, CFO, and Jim Monroe, Director of Defense. After the presentation, there will be a Q&A. So if you have any questions, you can submit them to the form to the right. And with that said, I hand over the word to you guys.
Thank you. So thanks everyone for joining our webcast for Q1 2024. And thanks for investing your time with Fremelt. Let's go through the agenda quickly. Martin, can you go to the agenda?
Yes, there is a bit of delay. So apologies.
Okay, perfect. Thanks. Okay, so agenda-wise, just a bit of a recap of 3ML2VR. Then, first, the key topics are regarding the key events during Q1. but also a few events that happened after Q1 as well. And then we have a special area that we will spend a bit more time today, and that is regarding defense. So that's our focus here. And then we end up with a financials and also a Q&A in the end where you have the opportunity to ask some questions. Okay, let us start with a bit of a recap. So Fremont was founded 2017 by six founders with extensive knowledge when it comes to additive manufacturing and also extensive knowledge about electron powder bed fusion, which is a technology that we are having. The first step for this company was to develop a technology for the research industry, as we have talked about many times. It's really about to educate the potential users about the use of additive. And this is why the research industry and the universities is such an important customer base for us. And here we had our first open source machine launched 2019. Then the company went public in June, 2021. And the intention since then has been to develop the industrial offering, first an application development machine, and then also serial production machine. So with that said now, I think we have a very solid foundation, a very compelling offering as well that covers the whole process from material research to serial production. So the next step of this company has been to really move more into a commercial focus, why we have started to recruit some more commercial competence, both in product management, but of course, also when it comes to sales as well. We have also raised our view a bit in regards to where we would like to be and how we would like to be perceived by 2030 with a 2030 strategy. And we have also now worked on setting up an operating model and an organization structure that we can also be quite agile and grow fast moving forward. So please, if you go to the next slide. If I would summarize the quarter one 2024, I would actually take a step back first and zoom in on the second half of 2023, where we really started to increase our commercial focus, also increase the number of commercial capabilities and also the activities. And I think this is what we now start to see the result from. Unfortunately, we cannot share all the ongoing commercial projects, but we have five machines in our lab in Gothenburg that are fully utilized now 24-7. So I think the three communicated orders that we had now in Q1, in general, I think it represents really well the progress, activity, and also the business mix that we had. If I start with the two industrial ones, I mean, the first one is about Saab. Saab, in this case, in defense application, what we do here is really to work with Saab in what we call a feasibility process. This is to look into the possibilities with a new material for a certain kind of application. I mean, Saab is an industrial customer. It's a leading customer in this specific segment. So I think just the fact that they're investing with opportunities with Fremont's technology is highly rewarding. The other one is an Italian customer called VRAM. Here it's about an order of an email ID, so the application development machine. I would refer to VRAM as an application center in Italy who has the purpose of really trying to help the the italian metal manufacturing industry to become more innovative in how to manufacturing products and at the same time also take more of an educating responsibility regarding additive manufacturing but also in electron powder bed fusion in in this case so very important agreement for us and the third one is an academic order so this is the university of sheffield This is a prestige order as well because of the fact that if you take the University of Sheffield, they are actually one of the most experienced EBM, so electron bed melting institutes globally. And what they will focus on is mainly on tungsten and in this case also fusion, so in energy. So once again, very rewarding to get them on board as well. I would also say that, you know, in general, when it comes to Q1, we have seen a continued increase in interest in tungsten. And mainly, I would say then as well in defense and energy applications. So what I also just referred to in those examples. So I think this is just re-emphasizing on what we have already started to see during 2023. And also, of course, I mean, the fact that our commercialization and also the educational efforts that we started during last year now starts to pay off. And then last but not least is that we secured also 100% rights issue of 66 million, which will enable us now to execute on our 2030 strategy forward. If we then move to a couple of significant events after Q1, but which ones that we have communicated previously, But before I go into each of them, I also again want to re-emphasize of the importance of getting machines into prestige universities and also advanced manufacturing centers, especially in the US, as they are actually key enabler for the industrial growth. So what they do is that they actually develop and they even decide upon the technology standards and also make the selections that then the industry then will apply to. So I would say that pretty much more or less all cases in the US, when we get orders through those research institutes or university centers, then there is an industrial customer and application behind that request. And hopefully if it turns into success, then the industrial client will invest in 3D printers as well. But first, and I would say even a breakthrough order of our industrial machine then in the US is for Prestige University. At this moment, we have not and cannot expose the name, but we will do shortly. But the focus, I can say, is regarding tungsten materials and the applications are in defense and energy. The second order is also for the US. So this is another prestigious university. This is the University of North Texas. Here as well, similar kind of focus on usage as the first one I mentioned as well. So tungsten and defense. And then the third order, and I'm of course also excited about the two first, but what's really exciting here is that this is also, let's say, result of a successful phase one. So here now we enter into a phase two agreement with UKAAA. So we have seen a positive development process in the material feasibility phase and now we move more into the application development. So now it's really to develop components for the plasma facing wall within a fusion reactor. So if we go to the next Martin. So Fremont of focus, as we have communicated many times, is three materials. It's copper, it's tungsten, and titanium. And all of them are highly beneficial for our technology. Based on these materials, we have identified various applications with certain kind of conditions and certain kind of demands that would be of interest. And to repeat what I've said many times before, the metal manufacturing industry is in front of, or maybe to a certain point already in a transformation, to move into new, more innovative and efficient manufacturing technologies. But also with the current geopolitical situation that we are having now, this is giving a bit of an extra tailwind at the moment for additive manufacturing. And I would say even especially for a couple of customer segments as the energy sector, semiconductors and defense. And as I said initially, defense is the application that we will highlight in today's webcast. And I will say that we can see a global trend in an increased interest and also demand from defense and from the industry as such regarding innovative manufacturing. We have communicated agreement with Saab, as I mentioned earlier today as well. But we can also see that in the US, there is huge investments in this specific area and where Jim in the next couple of minutes will deep dive a bit as well. But I think also the defense industry is also facing higher demand currently than they can supply. So, I mean, the sense of urgency here is really high to implement more efficient and innovative manufacturing technologies. And the Freemant actually are technology. And also our materials are well positioned in this sector. So this is one of the reasons why we now have focused on finding the best people within this industry. And that's why I'm very thrilled to introduce you to our Director of Defense in North America, Jim Monroe. So please hand over to you.
Thank you, Daniel. I appreciate the accolades. I appreciate the warm introduction. So yeah, as Daniel said, my name is Jim Monroe. I'm the Director of Defense in North America. But I have over a decade of experience selling into the not only the U.S. Department of Defense, but also world allied countries as well. Done significant work with with Australia. Also recently. sending expeditionary additive equipment into the Ukraine. So there's a lot more. There's a very substantial need right now in the defense industry. So You know, one of my biggest passions as a former Marine, U.S. Marine, is supporting the warfighter. So in doing that, I've participated in, you know, just even over the past two years, over a dozen military trials where we prove out the capabilities of different technologies and electron beam offers something that the other technologies don't, and that's the ability to process some of these higher heat and novel materials such as tungsten and tungsten alloys potentially. So that's very much needed. But I have, yeah, over a decade's experience, almost two decades with my military experience in the U.S. market. Right now, I am in direct communication and speaking with regularly a wide range of potential customers, everything from company commanders, battalion commanders, all the way up. to the chief of staff at the White House in OSD, the Office of the Secretary of Defense and Undersecretary of Defense for Sustainment, Research, Engineering. And as having over a decade's experience specifically with additive, I have a good understanding of where the sweet spots are and where the sweet spots for Fremelt lie. And we are taking the necessary steps and implementing with universities and getting that data out there to help propel and increase our adoption rate substantially as we move into our 2030 plan. Thank you. Next slide. So really what's driving this, the growth in this industry is, you know, the U.S., we have sent so much of our stockpiles of ammunition and energetics to support the war in the Ukraine and to support current political conflicts. And it has reduced our stockpiles to historically low levels. So now we're racing to meet the modernization needs of not only just the U.S., but other partner companies such as Five Eyes Countries. And we have commitments to do such things. And currently, there's not enough labor. So the government wanted three submarines produced this year. With the current workforce and technology, the US defense industrial base and organic industrial base could only produce one. So we are in a position to provide critical parts And we're also seeing new verticals, not new verticals, but verticals such as the space market, the space sector. No pun intended, but that is literally, you know, almost the curve of growth is increasing. almost a vertical line in terms of opportunities. So, yeah, it's really encouraging to see there. And we're currently engaged with a number of space companies, companies in the hypersonics market. I can't go into too much detail, but there's definitely very promising applications there. We are, or let me take a step back. More specifically, I sit on a White House council or steering committee for additive manufacturing and advanced manufacturing technologies. And this is a conservative estimate of the $414 million in 2025. The aim is about 20% year-over-year growth in capital additive manufacturing. capital purchases in the government, but I am seeing some historically large purchases, purchases of single platforms, multi-unit orders of $96 million by the US government in the past year or two. So as we move into the future, I only see that continuing to rise. And the defense market and the USDOD, they want to standardize on specific technologies and machines. So we have our foot in the door. We are really working to be the go-to, especially for the advanced properties we get with Electron Beam. And the ability to print tungsten, titanium, copper, and then also some of these novel alloys that the defense market uses. Our competitors are fledgling, especially laser powder bed fusion, where electron beam offers really key advantages for printing these materials. And the applications that it opens up is absolutely amazing. So yeah, we're in a great a great position right now. And one of the other things we're doing is making sure that funding gets out from the US government to the defense industrial base. So as we see the Department of Defense and the tier one primes begin to embrace and adopt electron beam, the industrial base, your commercial shops that support the DoD are going to need to bring in our technology because it's gonna be called out on spec sheets. So, yeah, I'm seeing all positive signs for growth and continued growth, more importantly. And we have really some key applications and some key materials that make us really in an opportune position for growth moving into the future. So, thank you. Thanks, Jim.
Thank you, Jim. So let's turn over to the finances of the last quarter and referencing the last year. So in the first quarter of this year, we saw a similar sales development as we saw in the first quarter of 2023. So sales was limited. We've also broken down the sales according to category into machine sales, aftermarket sales and other sales. Just to illustrate the fact that 3MILT is still very much dependent on machine sales for its top line, whereas our strategy is, of course, to increase the aftermarket sales in the years forward up to 2030. And the industrial machine eMILT is going to be an enabler in that respect. As you probably know, we book sales in our P&L after the final invoicing has been done. So cash flow, order book, and then of course the P&L sales are important to look at in combination. We've seen a small uptick in the order book that is orders received but not yet invoiced. And as you know, we've also received a couple of orders in April for 5 million SEC and 6.6 million SEC. So if you look at April then, which is outside the first quarter, then the order book looks even better. Turning to cash flow. So the black bars on the right, that's our cash balance in the accounts. First quarter of last year, we did a directed rights issue where you see money coming in and there's been an outflow of cash up until the end of the first quarter this year, where we had a balance of 17.5 million krona. And this is according to plan. We had quite a heavy investment a year. And this is all, of course, or mostly related to e-melt. And e-melt investments continued in the first quarter of 2024. Looking at the operating cash flow, which is a green line on the right-hand side, a couple of quarters we had zero or slightly positive operating cash flow, whereas the total cash flow is more negative. So operating cash flow minus 7.4 in the last quarter and total cash flow minus 16.7. And those are, of course, investments then into emails. The cash position post Q1 looks better. We completed a rights issue where we had money in the bank as of beginning of May. Turning to the balance sheet then, just highlighting a few things in the balance. Goodwill, you don't see goodwill in the graph, but we have quite a lot of goodwill in our balance sheet, which is depreciated over five years and it will be completely written off in 2026. So it's good to keep track of this balance sheet post because it's, of course, written off over the period and it's a non-cash item affecting our P&L. The balanced development work, those are the black bars on the right-hand side. So we have invested into e-melt, and as you can see, it's a bigger and bigger part of the balance sheet which grows, and it's development work being made by staff, by consultants, and also some purchases related to those projects. We've also highlighted patents as the gray bars. almost insignificant or very difficult to see. And we've recently changed the depreciation time to 15 years instead of five, which was previously and this is to highlight the value of the 16 patent families that that Fremelt has. This is a great asset. It's not reflected in the balance sheet, but it has a lifetime of 20 years and we should reflect the write off with actual use. So that's why it has been changed recently. We've also highlighted inventory as the green bars. It's increased a little bit in the first quarter to slightly over 11 million. And that represents building machines for which we expect orders. We've also seen two orders in April, which we need to deliver. So that's a small uptick in inventory for the period. I'll stop there and turn back to you, Daniel.
Okay, thank you, Martin. So just to wrap up of Q1, and I would actually go back to what I said from the start, that our commercial, let's say, investments that started in end of 2023, so more commercial focus, more commercial capabilities, I think GIMS is a great example, and then increased commercial activities. Now we started to see some results from that as well. The other part is that we also now start to see some more engagement from the industrial side. We have been very research focused in the past and I think Saab is a great example. As I said before as well, I mean, we have fire machines pretty much working 24-7 on similar, let's say, projects, doing feasibility studies, application development for customers, and these are typically industrial customers. So the industrial, let's say, traction and interest in our technology is increasing rapidly. and then of course I mean we had a breakthrough when it comes to our first industrial machine delivered to or not delivered but sold into Europe that's going to be delivered now in July and we also after the quarter we also had our first to the US as well and then last but not least also we succeeded with the rights issue which also then means that we can continue or to execute on a 20-30 strategy. Thank you very much and yeah we open up for some questions.
Thank you so much for the presentation here and as you mentioned we jump to the questions right ahead here. How does the new order from the UK Atomic Energy Authority differ from the first? What does phase two mean of your cooperation?
Yes. So typically, I mean, phase one is about the feasibility of the material. So then it's more focused on material studies to really see if the materials can have the right kind of properties for the application. This was done in phase one with success. So now in the phase two, now we move more into building the components that's going to be then used in this application. So here then it becomes more of, if you call it an application development rather than feasibility of the material.
Thank you. As you mentioned in the presentation as well, you carried out a rights issue in Q1 that gave approximately 66 million. What will the money primarily be used for?
Yeah, I mean, we, again, as I mentioned a couple of times during this call, I mean, we are ramping up our commercialization efforts. So it's really about expanding that commercialization activities in people, in marketing. And I think it's also worthwhile just to repeat and remind as well that the It's a lot about educating the market. First, educating the market about additive manufacturing as such. Secondly, to educate the market about Fremont. Who are Fremont? I mean, we're still a small, pretty new company from Sweden, so we need to work a lot with marketing. We need to work a lot with reference customers as well. So that's why we also need to invest the real time and make sure we start well there. And then last but not least, I mean, we will also work with industrialization, industrialization of our industrial offering. We need to just accept and understand it's new products we put to the market. We need to really attend them. personally with people, but also to do updates and upgrades of those machines as well. So I think these would be the main use of the device issue.
Thank you. During the court, you received the first order for e-melt in the USA. Can you describe what the order means for free melt and what potential do you see in the U.S.? ?
I mean, the order as such, of course, it's always great when someone takes the first step. And in this case, now in the U.S. So it means a lot. First of all, as I said, you know, we need reference cases. We're going to grow and sell more machines based on successful customer cases. The second part, as I also touched on before, it's even more of excitement when it's in the U.S. And Because of the fact that the research institutes, the universities, the advanced manufacturing centers, like in this case, they are very important, let's say, party. in getting the confidence to the industrial side as well. I also mentioned before, in most of the cases when a university invests in a machine like this, there is already an application available and pretty much an industrial customer looking for that as well. If we then make this to a success, then the likelihood for having a serial production demand of that application is relatively high then. So it means a lot. And then, I mean, the US market as such, I mean, I would say that's the single biggest market for us. And I think also what Jim has informed and talked about today, So the demand is here and now, I mean, in defense, but also in other kind of applications as well. And I think U.S. definitely have a very professional and structured investment program for semiconductors when it comes to energy applications and defense applications and more so as well. And they are acting now. So that's why the potential in the U.S. is very, very big for Fremont.
Thank you. We actually received a couple of more questions regarding the US market here. Are there any other EPBF players targeting the defense market in the US? And if so, what traction have they gained so far?
I mean, I can only refer to what, of course, I mean, what has been publicly communicated. And of course, I mean, there are the EPBF suppliers available. There are nine total in the world. And I mean, GE is the, after the acquisition of Arkham, is the single biggest one. But with that said, I think also, again, The different suppliers and OEMs have a bit different kind of technologies, although it's EPVF. So I think here at Freemans, we stand out a bit on that note. We have really focused more, I would say, than others on tungsten, which I think has been really successful for us. As Jim mentioned as well, tungsten is definitely one of the main materials. And at this moment, I would say that we are definitely the number one in that area as well. But with that said, of course, I mean, when it comes to vacuum chambers, when it comes to electron beam melting, of course, the opportunities, I would say, is, of course, also there for other OEMs within EPBF as well, for the defense applications.
Thank you. Does the SOB order help you in attracting new defense prospects in the U.S.? ?
Oh, that's a very good question. If you don't mind, Jim, can you answer that question?
Does the salt water help attract clients? Yeah. So in regards to corrosion resistant materials?
Yeah, I think the fact that. The fact that they are having an agreement with someone like Viment, yes.
Absolutely, yeah. Obviously, you know the corrosion within the Department of the Navy, the Army, there are corrosion resistance, just SOPs, standard operating procedures for you know, all different, you know, military assets. So, you know, being able to print some of these novel alloys and alloys that don't require as much preventative maintenance or even replacement parts, it's a big opportunity, you know, for Fremelt, you know, and producing parts on demand. in these austere environments and sometimes areas of contested logistics. But yeah, it's definitely a driver.
Thank you. You have a long-term ambition to reach turnover of one billion SEAC by 2030. What are the most important steps you need to take to achieve this goal?
I think we just need to continue on our commercialization journey now with the customer segments that we have defined. I mean, once again, it's about to educate the market to really identify new industrial, let's say, serial production opportunities. Why we need to continue to harvest on the research side, so really penetrate more on the research side. But of course, I mean, now when we get our first customer references in place to really get, you know, successful customer references, so we can continue to grow our industrial segment. I mean, the industrial segment, of course, this is where you get volume orders. In the research side, it's more individual. So to really to get in there. And then secondly, I mean, to get happy customers so we can get recurring business and get an aftermarket business as well added on top of the transaction visit from selling the machines.
Thank you. Sales in Q1 came in a little bit lower than expected. What is the reason behind this?
I think it depends on who expected what, because we have never communicated any kind of forecast. But what I can say is that I think we have... I mean, it's a cyclic business and transaction business that we have in place coming back to the university. I mean, it's a long sales cycle. And therefore, I mean, it's quite difficult to really at this moment expect some sort of recurring business. let's say average sales volume as well. I think the good part is the fact that now we start to get some pipeline in place. I mean, I think I mentioned before as well, I mean, If you go back to 2022, I think we had quite more of an ad hoc sales approach. We didn't build a strategic pipeline. But now when we have invested in more commercial resources, now since end of last year, I think we have increased. really started to build up more of a structured kind of pipeline. And of course, also now start to get these kind of feasibility projects that of course should result in something as well. So I hope we can start to harvest from that moving forward.
Maybe I can add on to that, Daniel, just from a finance point of view. I think maybe the expectations are from publishing a machine order in January and the fact that we didn't deliver it during the first quarter. And as I stated a little bit earlier, we only recognize revenue in the P&L after delivery and after the final invoice. So perhaps that's sort of the expectation in the question. But just to clarify how we bookkeep things. Thanks.
Thank you. Moving on to the last question here. Do we see any concrete factors that suggest that Freeman's declining share price will turn to its success in the foreseeable future? And if so, which ones?
Yeah, I mean, first of all, I think the concrete ones now, as I said before, I mean, really now the 2030 strategy for us more forward is to really get into the industrial sector. Here, I think we have started now to prove also that there is an interest in three months industrial offering as well. First, I mean, as I said, we have fire machines in operation doing feasibility studies for various applications. We have Communicator UKAA. We have Saab as well. So, of course, that's the area that, of course, should take us to the next level as a commercial company. I think also it's important to say that we of course have worked closely with a couple of strategic partners over a couple of years as well. That has been fundamental for us now to establish our focus and also our development of the industrial machines as well. So of course we hope to have them materialized during this year as well. And then just to continue to establish our footprint in the research segment that we can also then capitalize first to get more education about Fremelt as a company and Fremelt's technology to the industry that we can continue to penetrate and gain more market share in that area as well.
Thank you so much for presenting here today and answering our questions. And thank you all for tuning in. I wish you a pleasant week.
Thank you. Thank you. Thank you. Thanks. Bye-bye.