Freemelt Holding AB (publ)

Hello and welcome to today's webcast with Fremelt, where CEO Daniel Jidlund, CFO Martin Granlund and Darren Everett, regional president of Fremelt Americas will present a report for the second quarter of 2024. After presentation, there will be a Q&A. So if you have any questions to Fremelt, you can send them in via the form to the right. And with that said, I hand over the word to you guys.

Thank you. So once again, hi and welcome and thanks for investing the time with Fremelt. So agenda wise, this is of course, focus on the Q2 performance, but also the key activities and achievements after the quarter. And at the end of the session as well, you have the opportunity to ask some questions that we hopefully can answer. So this may be a bit of a repetition for some of you that has participated before, but just a quick reminder and recap on the Fremelt journey. So company wise, it started 2017. All the founders, they have extensive experience of the technology, electron powder bed fusion from Arkan. This was also the reason why they managed to, within such a short period of time, develop a completely new machine, which actually was the first open source machine in the industry. The strategy was to first go to the academia side to really drive and enable more research on new materials, new applications that could be suitable from an additive manufacturing perspective. And next part of the company's journey was to go public. We're listed at Nasdaq First North since June, 2021. And the purpose was to fund the industrial offering, which kicked off in 2022 and that has been worked on since then. Now we have a solid offering, I would say complete offering from research and up to serial production. And this is also now the third phase of this company, where we are ramping up the commercial side of it. So the focus now for the past 12 months has been much more on the commercial side. We have launched a third machine as well for application development, which is in the industrial offering of email. We have built and also empowered a regional structure and team, both in the US and in Europe. And Darwin will come back a bit on the US one later on. And I think what you can see on the slide here as well is a bit of the result from that increased commercial activity with a few orders over the past 12 months. So if we then zoom in on the key achievements during the second quarter, I think what you can see here, it's a good mix of machine and feasibility orders. So let's start then from the top. And I'm extremely happy for our first email, so the industrial machine into the US. If you remember, we had one in Europe already. So this is the second one, but the first one in the US. As I mentioned, I think a couple of times before as well, when it comes to the US, then the universities are extremely important for us to enter into the industrial applications because in all the cases, at least in the majority of the cases, there is an industrial partner behind the investment of the university as well. And in this specific case, it's for fusion energy applications. Talking about fusion energy applications, the second order, which is then a project order is UKAA. So this is the United Kingdom Atomic Energy Authorities. This is a phase two project, which means that we completed phase one during last year successfully. So this customer wanted to enter into the second phase, focus more on productivity, focus more on complex components. And this is also then for fusion. The third order and also a strategic agreement is with Sandvik, the mid-Sweden University and Fremont. So it's a three-party collaboration. It also includes the Fremont One. Why this is so important for us is that Sandvik, first of all, a global company, which is also providing tungsten powder. And if you have followed Fremont now over the past years, you have noticed as well that we have really stepped into tungsten applications and we have a unique position in tungsten applications as well, unique capabilities as well. And this is why it's first of all important for us to further secure supply of tungsten powder. Here we have secured supply chain for European supply chain. Secondly, if you take also, if you're printing parts, to generalize, you can say that roughly 50% of the cost is coming from the powder cost of printing a part. So of course, to get down the cost per printed part is important. And Sandvik, they provide a chemical reduced powder, which can substantially and also reduce the cost of printing tungsten parts, which of course is crucial moving forward. The Mid Sweden University is one of the most experienced users of electron powder bed fusion technology over many years. So together, I think here we have high expectations that we can develop a process in an efficient time that we can also then implement for industrial users. And then the fourth one is a Freeman 1 order. And as I said initially here as well, that in the US, it's critical to go through the academic side that will test the, first develop the material process, test the technology, and then also develop the applications for those industrial users. In this case, it's a customer that has acquired a Freeman 1 to develop material processes for defense applications. Okay, so let's then spend some time on the key events after the period. And as you can see here, we have had several ones. And I think this slide actually demonstrates well our increased commercial activity level over the past 12 months. If I start from the top here as well, we entered after the quarter into a strategic collaboration with 3DMZ. This is a Dutch company. I would refer them as a application center, which means that they work closely with industrial companies already. They have been into additive manufacturing for many years, but this is the first metal-based additive manufacturing that they're stepping into. So it's a new material that they're entering. And we are very pleased that they selected Freeman as a partner as well. So together now we will further engage with Dutch, especially Dutch industrial companies moving forward. The second one is a feasibility order. This is from the US. This is unfortunate at this moment. It's a confidential, we can't expose the name here, but this is regarding a defense application. So it's a company in the defense industry. And the focus here is refactoring metals. So actually here we have already kicked off this project and it's progressing really well. The third one is also a US customer. And this is, we can't expose this name either. In this case, it's not defense, but it's actually a fusion. So here the project is about to have a feasibility study for the material properties and the potential application. And the same comment as I did just on the one before, we have kicked off the project and I will say we are progressing really well here as well. The fourth one, and Darvion will actually come back and give you some further details on some of them later as well. The fourth one is also from the US. This is a consortium called Geordatech 4.0 Manufacturing Consortium. And this is a membership-based organization that is connecting manufacturers, academia, government institutions at the Geordatech University's advanced manufacturing facility. So here members have unique opportunities to conduct research, develop and pilot new manufacturing systems and also collaborate with both students and also other consortium members. So very important for FRIMA to start to be part of this and to engage within that consortium. We have also attended EWI's Additive Manufacturing Consortium. And EWI was established, or they actually established an advanced manufacturing center already back in 2010. And their purpose is really to accelerate and advance the manufacturing readiness of metal additive manufacturing technology. And they try to bring together then diverse groups of additive manufacturing, both end users, suppliers, researchers and stakeholders from the US to positively then impact the additive manufacturing landscape through organized and focused activities. So again, very important for us as a company to be a part of this move forward in our commercialization and industrialization of our offering. And then last, but definitely not least, I would even claim that this most probably is one of the biggest achievements in this company's history as well. That we have managed to develop this industrial machine EMALT. It's a complex technology, complex machine. To manage to do it in such a short period of time that the team has since they started. And to install it on schedule. And when I say on schedule, which was agreed on with this end user. So it took them only two weeks to do the installation, to do the training and to do the test bill and to hand over the machine for the end user to start to operate the machine. So very proud of what the team has accomplished here. So with that said, I would like to hand over to our regional manager for North America, Darren Ebert. And as I said, he will deep dive a bit into the intensified commercial activities and also some of the achievements so far. So please,

Darren. Thank you, Daniel. Thank you, Ledwin. It's been an exciting time. The last year has been a lot of fun and seriously kudos to HQ for the release and delivery of the email ID on time. It was an incredible experience to watch. And it shows a testament of our experience, like Daniel said. But as my counterpart said on the last webcast, the US Department of Defense is planning to invest $414 million in 2025, only just in advanced materials research. And this advanced materials research is new, as I'd say, accelerated mission for the government here because there's such a high urgency due to the geopolitical and cybersecurity threats that critical applications are a priority. And when I say critical applications, just a step back, that means if that part that fails, that's the part that we made on our machine, if it fails in operation on another system, like an airplane or a tank or a missile, then the failure is catastrophic, meaning to other people. So these parts off of our system have to be right. And when I talk about refractory metals, you can look over on the right and see the five squares. Those are the refractory metals that are our sweet spot. You can tell that other types of add of metal technology, they can use, they can process the other metals. We are focused on refractories and that is key to the defense industry because those refractory metals are used on weapons systems. And you can read about the news, there's a heightened sense of security in the US and we wish for peace, but we have to prepare and sometimes weapons keeps peace. So we are currently working and involved in communicating with the upper channels of the Department of Defense on these applications. And I can say it's been an amazing experience. The United States Metal AM community is phenomenal and has been very welcoming to us and are trying to find these applications with us that we can solve for everybody's benefit. And Free Melt America's team, our products and this timeline matches so well that I can say since, I've been involved in the industry since 1999 and this culmination of the need and the solution is coming perfectly for Free Melt and our EBM technology. So what we're seeing is the growing activity for Free Melt in defense, energy and medtech. And what I can say is these applications come with NDAs because they're confidential. So that's why we can't release a lot of names because every email customer or every feasibility study starts with an NDA. We can't announce their name, but we will when they're successful, I'll say. And so with a sign of the activity increase now is the increased number of non-disposures, quotes, agreements, requests for samples and we support each transition. So our technology, if you read through the systems, how we fit in the systems world is with these applications, they're currently being produced by traditional manufacturing. So to convert to additive manufacturing, it takes research and development of that particular part. So, and we have the systems for that and we have the customer base at the universities who are currently doing the research for our systems. So the research that needs to be done and the development, if there's any remaining after a feasibility studies can be easily accomplished through our other sources in the country, right? We have universities now and that is their focus and they're working with the same government and industry prospects that now we are involved with in the development phase with the e-mail ID and that's taking an application from research and producing a real part to solve a real application. That is what the e-mail ID is for and then when these parts get certified and qualified for production, then next year our e-mailed IAM will be ready to take it into production. So all of our systems will see equal growth throughout the entirety of our process. They will all grow together and we have the best materials as well, just to step back on materials. We have the key materials and we have headquarters support and you can see that based on the e-mail ID, we rarely miss a deadline and we're on time and we produce quality and we are only ready for evaluation. That's what we want from the government is to evaluate our products because we are competent in where we're at and we have the right team here. I haven't worked with such an experienced, dedicated team who has experienced exactly what they're doing in my career and it's an extreme pleasure and the momentum is huge and we have a great opportunity in front of us. And so as far as these activity that we're seeing, it's been quite a journey and you can see that every event that we attend, that we're invited to, gets better and better. Rapid TCT was the biggest AM event in the world, dedicated to AM, I should say, in North America at least. And it had all the major competitors there in laser and red fusion and electron beam too. And I can tell you, we remain confident in our products and our materials and our focus on just a few select areas of refractory metals that we still are very confident in the excitement over technologies matching. So what we see is at Georgia Tech, if we want to go back to that and why this is important is our customers, like I said, our university customers do research and they're doing research for the government on critical applications. That's what they do and they have been doing that for years. So really, Fremont is just entering the standard process of evaluation and R&D and production later that has been going on in this market forever. It's a standard qualification process if you want to get your part on an airplane, for example. And so the important thing to watch is, are we being invited to participate in these evaluations? And we are, and Georgia Tech is just one example of a consortium where all the suppliers of machines and materials and the users who have the needs, Department of Defense, the Defense Industrial Base, Department of Energy, they all culminate here in a consortium environment because that's where the solutions can be made real. Because the collaboration that exists by bringing everybody together in one room is just phenomenal. And the same thing happened at EWI two weeks ago in Buffalo, New York is an incredible experience. And they are heavy, heavy in the research, R&D. So that's a key point. In industry and government and universities, they will all need Fremont ones. They do research, all of them. And the North American feasibility studies that are coming up, they're confidential, of course, but they are all related to exactly what we're doing in defense and med tech and energy applications and defense applications. We got two of those and those are just the beginning. We have a request for more feasibility studies coming up and the Texas A&M collaboration project, which is an America Makes project is underway. It's ramping up, it's going well, we're supporting them. The collaboration also includes a Tungsten project, which we're ramping up for. And overall though, the activity that's ramping up for this quarter is amazing. We're joining American Makes and attending key events at Harrisburg University, who's into workforce development after production. So we're getting involved all the way downstream in workforce development, supporting that and all the way upstream in the research and our products suit that. We have the Advanced Materials Show and the SSF. So some great events coming up and a lot of invitations to participate and get evaluated.

Thank you. Thank you, Darren.

Martin. Thank you, Darren. Thank you, Daniel. So let's turn to the financial side, focus on sales and order intake. As you saw in the report, we had net sales of around 2.4 million SEC. There were two machine deliveries in the second quarter. The first one to University of Sheffield in England it was a secondhand machine with a lower value than what we're used to seeing. It's going to be used for researching fusion manufacturing mesh methods by the university. The second one was a delivery to Mid Sweden University, which Daniel touched upon before. This is a collaboration over time where Fremelt also contributes with in-kind with a machine. So a little bit less revenue than what we're used to see here as well. And the main focus in the near term is to collaborate with Sandvik and the Mid Sweden University to study chemically reduced powder to the benefit of users of the machines. What we see in the graph then is also on the aftermarket side that aftermarket recurring revenues are increasing over time it's higher than the second quarter last year in absolute terms. And I think this is the way it should be as our machine footprint increases. We should also see more aftermarket revenues. And this is of course service contracts, it's consumables, it's spare parts. We have a small portion of other sales, the gray area in the stacked chart. This is mainly feasibility studies, which as Darren explained in the longer term, we try to convert into future machine sales. So this is the first step together with those clients. The line in the chart is the order book. So that represents orders received, but not yet invoiced. So that's future income for the company. It's about nine and a half million in the second quarter. After a slump in the first quarter. And what we typically do with especially machine sales is that we invoice around 30% at order, 60% at delivery and the last portion after a successful functional acceptance test with the customers. But these revenues will be booked over the coming quarters. I would also like to highlight some other income booked in the period. It relates to a sustainability project funded by WISE, a Wallenberg initiative. It's to enable sustainable technologies with positive impact on our society. This was almost half a million SEC in the quarter. It doesn't show in the graph you see here, but it's booked as other income in the income statement. Then we can look at the next slide, which is cashflow. We saw an operating cashflow of negative 11 million in the quarter. So a similar trend as the second quarter of last year. We have seen a few quarters with positive operating cashflow or near zero operating cashflow, but as you can see, it's highly volatile. Looking at the, sorry, I should say that it's negatively impacted also by a little bit higher inventory as we prepare for future machine deliveries. And we also see a slight increase in receivables which impacts this number. On the total cashflow, it was around 30 million SEC in the quarter. The rights issue contributed with 52 million. It was completed in May. Then we saw investments of around 11 million in the second quarter, which was related to the email program, which continues to run in parallel with customer deliveries. And then on the bottom graph, the black bars represent the cash at the end of the period. And going out of the second quarter, we had around 47 million SEC on our books. The last slide I want to show you is to explain a bit on the balance sheet on the asset side and the trends we see on the non-current assets. So this is a stacked graph, the one on top. Where you see over time that the goodwill share is decreasing. We're depreciating goodwill at a fairly fast rate. So it's expected to be out of the books in 2026. And at the same time, we balance development work which goes into the books, which becomes a larger and larger part over time. And this is of course the development projects that we run for e-melt. There's also a very small gray part, which is patents. It's a small part of our balance sheet in value, but it is highly important for the company. It's important IP protecting our technology and making our offering unique in the market. On the bottom side, we look at the current assets. Inventory is slightly up in the second quarter as mentioned and also the receivables. And there's a big boost in the cash position as I just mentioned as well. I'll stop there. Thank you.

Okay. Thank you, Martin. So let's wrap up. So Q2, I would say was another quarter with high activity both on the commercial side, but also on the technical development side, especially then coming to e-melt. I think we had great progress both on the on our industrial offering e-melt, both on the commercial side, but also then on the industrial side, when we managed to install successfully the first e-melt machine in the company's history. We also re-emphasize, I would say, our leading position in tungsten and fusion applications, both here with a good mix of both machine orders and feasibility orders. And I think Darren especially spent some time on defense. We can really see that defense is ramping up their interest and also their demand for new innovative manufacturing technologies. And also here we could see it from a mix of both machines and feasibility orders. And then last but not least, I mean, we have managed to enter a few strategic and also critical collaborations that will be critical for e-melt on our mission to educate the market on additive manufacturing and to manage the substantially increased demand from the industry with feasibility studies. So once again, thanks for listening. And so let's open up for some questions if we have any.

Thank you so much for the presentation here. And as Daniel mentioned, we will go straight ahead to the question here. And the first one is for you, Martin. Revenue was quite low in Q2 despite two free melt one deliveries. Could you explain why that was?

Yes, the revenues were a bit muted and we saw lower income on those machines than what we're used to. And the University of Sheffield purchased a secondhand machine, regenerating lower income. And also the Mid University Sweden was part of a three-party collaboration where we also contribute in kind and get less income to be booked for that machine. So two machine deliveries, but both were of lower commercial value in this quarter.

Thank you. Both personal and other external costs increased quite sharp in Q2. What drove this and should we expect this cost level going forward?

Yes, you're right. So both personnel costs and other external costs were higher than what we saw in the first quarter. It's partly one-off effects, but we've also seen investments continue into the e-melt program, which drives costs in the second quarter as well. As we stated in the past, we also invest quite a lot in commercial activities and also in commercial resources. This is extremely important to generate the future sales. These are long sales cycles. We need to get the right connections and we need to have let the team that Diamond runs, for example, to do their work. And it's a long-term effort. It doesn't happen quickly. So we need to continue to invest in these commercial resources.

Thank you. I think the next one might be for you, Daniel. You have recently entered several partnerships and received multiple development orders, but machine sales have been lagging. How should we view this and what can we expect this result, or when can we expect this to result in machine sales?

Yeah, good question as well. I think as we have repeated enough for quite some time, this is a change. It's a market under change. It's a lot of education for those customers, why they should change to go from traditional manufacturing to additive manufacturing change. Sometimes it takes time. I think we have some tailwinds finally. We don't have to push and convince too much as the political situation helps there. But once again, coming back to a bit what Martin also said, when it comes to the first step of this kind of process, which is to start to do material research and application development, that type of business is very transactional. It's a long save cycle. It can be from 12 up to maybe 18 months. And it's quite difficult to project exactly when those orders will happen. And I think also I mentioned at the previous webinar as well in the past, this company has been, and still are quite technology heavy from competence and focus and so forth, which means that we in the past did not in a structural way build up enough pipeline to harvest from. Now I think for the past 12 months at least now, we have really started now to focus on market intelligence and to really ramp up and build up the pipeline that we slowly start to harvest from as well. And then definitely hope now with a especially stronger team under US can start to harvest even further on. And to come back on when we can expect, I mean, we haven't been providing forecasts before and I will not give a forecast now as well, but I think we're definitely getting closer due to the fact that we have been more focused on commercial activities to start to harvest more and more forward on this.

Thank you so much. Another question here for you Daniel, you described that the reason for the limited turnover despite good ordering intake is caused by the fact that final deliveries of machine orders have not yet taken place. Why is the reason why the deliveries has not been completed?

I think when it comes to deliveries, let's maybe explain a bit of the background here. First of all, when we get an order, we together with the customer try to make a rough estimate of the installation date. And in most of the cases, I mean, then we can deliver a machine, I would say at least the Freeman one between six to eight weeks, sometimes even faster as well if we have a machine in stock. But the customer, they are responsible to make sure that the location that they're gonna install this machine fit the purpose of using a 3D printer and also then handling powder. So in some cases, then it's quite some investments and also preparations required from the customer side, which then sometimes can be tricky to estimate the time of an, and I think this is what we have seen in some instances where the customer have had to delay the installation of the machine.

Thank you. Darren, this question is for you. You stated Freeman has a strong position in tungsten in the US. Can you elaborate why and if you see any increased interest and demand in tungsten?

Well, absolutely. This is kind of the beginning. Tungsten has been tried before in this industry for many years and cost a lot of money from a lot of OEMs to try to develop it and it hasn't been extremely successful, but we have a recipe that our European counterparts have been testing for quite some time and that's why we're confident, but the tungsten will remain a high growth material because it's still being traditionally manufactured and it's very difficult to take that and create the final part. So the advantage of electron being powder bed fusion to create these parts is incredible. Time savings and cost reduction and more importantly, you can deploy this technology anywhere around the world and print tungsten parts. Now, what is feeding the demand? It's from the Department of Defense and the Department of Energy and the Department of Defense with the heightened cybersecurity and geopolitical issues, the tungsten and tungsten being a major material that is used in ammunition, ammunition, missiles, rockets, hypersonics, these are all high heat applications. Any application that is extremely high heat, that's where tungsten or some similar refractory material may be. Refractory materials have a melting point over 4,000 degrees F and so every hot application is likely words to be found and it's only getting more so because even in electronics, it's getting hotter. Space environments, it's about thermal transfer. So we have a long, long runway with tungsten alone and that's why we're focused on it and I think we're the only OEM that has tungsten rated as a number one or number two focus material and in the United States, it's number one because of the demand, absolutely. Thank you.

Thank you so much. Moving on to the last question here. You mentioned, I think this is one for you Daniel, you mentioned that the increased demand exceeded your capacity at your application center in Möndal. Are your strategic collaborations the way forward now or do you see a long-term plan of increasing the capacity yourself?

Yeah, that is correct and I see that's really positive as well that we don't have enough capacity here now. We have five machines because this is driven of substantially increased demand, again, generated by the increased commercial activities that we have had over the past 12 months. So that's all positive. On the other side, I would say as well, I mean, we need to be thinking about how to be smart. I mean, Fremont is still a small company. We must be careful how we invest our money but at the same time, I mean, we don't want to say no to interested customers when we start now, as I said before, to get more of a tailwind and more of a push from the industry or maybe you should say pull from the industry and this is why we have decided to identify a couple of strategic partners. It could be existing customers using Fremont once, for instance, or totally new customers who has the same kind of ambition like Fremont to support customers with both material and also application development prior to investing in a 3D printer. So I think this will be our way forward as a company now.

And Ludwig, I have something to add.

Yeah, of

course. Sure, yeah. To jump back, every feasibility study that we enter has the goal of ordering a system. That's why we all go through the process and it's a time-consuming process but well worth it because it can be condensed pretty quickly. And they intend to order a system within three to six months after completion of feasibility study. Now, to go back to the demand that we currently have, the systems that we have doing project samples and feasibility studies is not enough at HQ. So in America, the next phase beyond feasibility studies is real tests of real parts, which requires an ITAR facility. We have to be in a government regulated facility. And so we are setting that up right now. We're shipping a system to an ITAR facility in August, and we will be able to do ITAR projects there, which is kind of like a phase two, phase three of an entire evaluation before you go into projects. So that is a fabulous sign. We wouldn't be making an investment unless we had the need in our paid projects and studies for ITAR projects. And that's where the demand is coming from. And we will have a facility real soon ramped up and ready to go. Thank you.

Perfect, thanks,

Darwin.

Thank you so much. That was all the questions we had. So I wanna thank all you guys for tuning in and thank you Freeman for answering our questions and showing us this presentation. Have a good week.

Thank you. Thank you.