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AL3 makes large sale, enters new market: US utilities

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Published 10-DEC-2024 11:24 A.M.

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13 minute read

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 6,810,029 AL3 shares at the time of publishing this article. The Company has been engaged by AL3 to share our commentary on the progress of our Investment in AL3 over time.

AML3D (ASX:AL3) has already delivered $14M of contract wins in the defence industry.

It has also signed deals in the aerospace industry - including with Boeing.

Now AL3 has won a $2.3M competitive tender in the US energy/utilities industry.

The sale proves they can quickly enter a large, new market.

And in the US - to a large public US energy utility that services 10 million residents.

It’s a higher end dollar amount deal too for AL3 - almost their biggest system sale ever.

AL3 uses automated 3D printing in a large free-form environment to produce metal components and structures for commercial use.

AL3’s technology combines robotics, welding, automation and software.

The company sells both “systems” so customers can print their own parts (equipment plus ongoing services and maintenance), and “individual parts” (often these are a ‘taste test’ for a customer before they commit to buying their own system and making their own parts).

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Customers seem to really like AL3’s services, as evidenced by a continuous stream of new sales.

Yesterday, AL3 made its first sale into the energy / utilities industry.

A ~$2.3M sale to US utility provider, the Tennessee Valley Authority (TVA).

That's ~31% of last year's revenue in one single contract.

And it hasn't even officially opened its US facility yet - where the TVA’s new 3D printing system will be built.

This official opening will happen very soon following AL3’s $30M capital raise to make the facility bigger to service customer demand.

We think the initial traction in the energy and utility industry will be a strong signal for other potential customers in that sector too.

Over the last 18 months AL3 has sold ~A$15.8M of 3D printed parts and 3D printed systems.

After yesterday's announcement that number is ~$18M

Here are the large markets AL3 have entered, and ones still to come:

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AL3’s plan was initially to expand into the defence, marine and aerospace sectors - which it has managed to do.

In a recent announcement, AL3 CEO, Sean Ebert said that the AL3 has already won $14M in defence sector contracts.

Defence traction started quickly for AL3, and we are expecting further new contracts after they recently raised $30M to accelerate their defence sales.

AL3 sales have been primarily to the US Department of Defence and its supply chain partners. (including submarine parts).

AL3 has Master Licensing Agreements (MLAs) in place with Blueforge Alliance (US Navy) and Boeing Space and Defence.

(an MLA is essentially AL3’s ‘security clearance’ as it allows the sharing of sensitive IP across a large list of potential parts to print - as and when the customer requests it - it also makes ongoing sales much simpler to process)

AL3’s MLA with BlueForge to 3D print parts for the US Navy looks like it's about to start generating contracts for AL3...

Three weeks ago AL3 said that they have been “guided to expect significant growth in US demand following the award” of a US$951M contract to Blue Forge Alliance.

Which prompted AL3 to raise $30M (at 19c) to more than double the original capacity of their new USA facility.

(which is expected to officially open on the 12th of December - although that official opening hasn't stopped AL3 winning contracts).

Once the USA facility is officially opened, and armed with a few paying customers already in place, this is where we expect to see more contracts coming.

But, yesterday’s AL3 announcement was our first big taste of AL3’s expansion into oil & gas and energy.

As a reminder, AL3’s sales strategy has two prongs:

  1. ARCEMY systems with a recurring revenue component (software licensing, support etc)
  2. Contract work where AL3 makes the parts themselves.

This sale is an example of this first prong of AL3’s strategy, and we hope its the first of many new sales that include the recurring revenue component.

Here’s more on AL3’s latest ARCEMY system sale to the Tennessee Valley Authority.

Who is AL3’s new customer?

We think AL3 is only just getting started in the US, having previously signalled its intention to enter new industries.

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The Tennessee Valley Authority (TVA) is a large federal public utility in the United States.

AL3’s Arcemy X system will be installed at TVA's Muscle Shoals, Alabama service facility.

This ARCEMY X system will be the first built at AML3D's new US Technology Centre in Ohio, which is due to be operational in two days according to a recent interview with AL3’s MD Sean Ebert.

(More on that interview below)

And AL3 has now got a very strong balance sheet to expand its US facility, following the recent $30M capital raise.

But for now, here’s what we really like about yesterday’s AL3 sale...

The contract includes two years of service and maintenance, with an option to extend - part of AL3’s recurring revenue model.

We see this is a big win for AL3 because the material sale:

  • Diversifies AL3’s customer base - to now include a major US utility.
  • Represents nearly a third of last year’s revenue numbers - we are hoping AL3 can continue this sales momentum.
  • Flow on effects - it could trigger other US utilities to follow suit, increasing the already brimming sales pipeline.

The TVA has a rich history - it was initially established by US President Franklin Delanor Roosevelt in 1933 as a federal agency to promote the development of the US heartland’s economy.

Since then it has evolved into a public utility company, which provides services to over 10 million residents.

States, or portions of the following states, all rely on the TVA for power: Tennessee, Alabama, Mississippi, Kentucky, Georgia, North Carolina and Virginia.

It’s a big organisation, so this deal could bring added business to AL3 if all goes well with this first order.

As a federal organisation, we also like the optics here, as AL3 continues to secure big blue chip customers.

More proof that AL3 is highly effective at navigating sometimes complex tendering processes that are part and parcel of working with large organisations.

So with a growing list of big clients, a $30M raise tucked away, a new facility opening in the US, AL3’s MD Sean Ebert sat down for an interview with veteran finance journo Alan Kohler to explain how it’s all coming together.

Here’s more on that.

A few days ago MD Sean Ebert sat down for an interview with finance journo Alan Kohler on his Eureka Report.

It's a pretty good listen, but if you don't have a spare 20 minutes to listen in full, here our key takeaways from the interview:

  • Sean mentioned the major pivot in the company’s business model ~1.5 years ago to scale up in the US. Sean then mentioned that the change in business model has so far delivered ~$15.8M+ in sales.
  • Sean talks about a US peer that is working with it on the submarine industrial base program for wire arc technology. The peer he mentions is Lincoln Electric - capped at US$12BN.
  • Sean breaks down the current business model, selling 3D printing systems, contract printing & the services/software maintenance sales. He gives a pretty good breakdown on the type of services and also mentions that gross margins for the sales are ~60%.
  • Sean talked about the advantages of 3D printed parts. He mentioned it took AL3 about 4-6 weeks to produce a complex operating part for a submarine which would have taken two years to produce if it was cast (conventional manufacturing). He also mentioned that AL3’s product was ~30% stronger.
  • Sean mentioned that “the majority of demand” in the US was for system purchases and that the US facility in Ohio should be ready to go live on the 12th of December. He also mentioned the facility capacity would be doubled AND that AL3 was looking for a second facility in the US to cope with the expected incoming demand...
  • Sean talked about “pretty strong levels of interest” from the players in the UK defence industry. Sean confirmed that $5M of the cash raised from the recent placement would go into a facility either in Germany or in the UK to be able to contract print.
  • Sean talked about trying to get to breakeven ASAP. He mentions $40M in the companies sales pipeline which is mostly outside of the defence industry.
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(Source)

Reminder: what is AL3 doing in defence and space

AL3’s initial major traction has come from selling into defence.

And this is the sector they are going hard at, particularly in the US.

The US Navy is now officially demanding that their parts suppliers adopt metal 3D printing technology.

Here is a quote from US Navy Rear Adm. Jon Rucker:

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(Source)

And US defence spending just keeps going up.

US organisation Blue Forge Alliance has one job.

To modernise the US Navy’s supply chain and industrial base.

(including adoption of 3D printing).

And they just received US$951M from the US Department of Defence to do it.

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(Source)

AL3 has a Master Licensing Agreement in place with BlueForge to 3D print parts for the US Navy.

AL3 has previously said that it is being “guided to expect significant growth in US demand following the award” of this US $951M contract to Blue Forge Alliance.

Once AL3’s US facility is up and running we are hoping that expected demand translates into big dollar value deals for AL3.

And it looks like the right time for AL3 in the US...

Elon Musk wants to radically reshape defence spending and efficiency

President Elect Trump’s new “first buddy” Musk said that US defence spending needs to be allocated to "entrepreneurial companies” over the traditional US defence juggernauts.

(entrepreneurial companies like AL3?)

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(Source)

We mentioned earlier that high ranking navy officials were also calling for an adoption of 3D printing tech...

In that article above with the US Navy Rear Admiral, AL3 was the only metal 3D printing company to get a mention.

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(Source)

What’s clear to us is that there is a big push by the US Department of Defence to re-shore defence supply chains and adopt 3D printing.

AL3 already has sales momentum into the US defence sector.

So far over the last 18 months AL3 (including yesterday’s sale) AL3 has sales of ~$18M primarily to the US Department of Defence and its supply chain partners, including submarine parts:

Screenshot 2024-12-10 110959

US facility expected to open in “two days”:

So AL3’s MD Sean says the US facility should be open and ready for business in “two days”.

This comes following AL3 having just pulled off a $30M capital raise and committed to doubling the US facility’s capacity.

We are hoping that the US facility coming online is the trigger for that momentum to snowball into mega deals for AL3.

As mentioned earlier, AL3 has been “guided to expect significant growth in US demand” after its key customer Blueforge was awarded a US$951M contract that includes pushing US Navy supply chains to adopt metal 3D printing.

Here is the US Department of Defense US $951M contract announcement for BlueForge Alliance:

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(Source)

In September, AL3 signed a Master Licence Agreement (MLA) with Blue Forge Alliance, a company working with parts suppliers to the US Navy.

Remember, MLAs enable the exchange of sensitive technical data between suppliers and expands the suite of 3D printed products that AL3 can offer its customers.

An MLA is like being given a special recipe book for all the parts, one that only a select few companies can have (it’s highly sensitive information after all).

Now BlueForge has an additional US$951M of cash to push down into its network of suppliers....

AND recent media is hinting that a large chunk of it will go into “additive manufacturing” (AL3’s tech).

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(Source)

AL3 really appears to be in the right place at the right time, with the right relationships and contracts already in place (and now a big bank roll to execute).

The incoming US administration is pushing to reshore supply chains, encourage local manufacturing and increase government efficiency.

We think smaller, more nimble, efficient companies will benefit (especially US based ones... like AL3 is now).

How does AL3’s tech work? What we learned from our site visit...

AL3’s technology combines robotics, welding, automation and software.

AL3 tech “3D prints” complex industrial parts for the defence, oil & gas and aerospace industries, and sells these 3D printers to industries looking for on-site custom solutions.

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AL3 strategy has recently moved from being a seller of just 3D printed parts to sellers of BOTH 3D printed parts and 3D printing systems.

These systems are the revenue drivers for the company, together with the ongoing software, maintenance and licensing revenue that comes with it.

AL3’s systems are able to 3D print parts that are harder, better, faster, stronger.

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We have been to AL3’s Australian facility in Adelaide to check the systems out and its genuinely amazing to see these things in motion.

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We saw the largest ever custom AL3 ARCEMY 3D printing system ever built, before it was to be shipped off to the USA:

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As well as some of the product software looks like:

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To see our full site visit write up read: Our AL3 site visit and what we learnt.

How does yesterday’s news impact our AL3 Investment Memo?

Yesterday’s news advances Objective #2 from our AL3 Investment Memo.

Since we first put out our Investment Memo, AL3 has managed to deliver 2 ARCEMYsystem deals.

So the company has already made significant progress relative to what we were hoping they could achieve.

Objective #2: More sales of ARCEMY

We want to see AL3 sign more large contracts via sales of their ARCEMY system (3D printing system).

AL3 already has good traction with the US Navy via the US Department of Defence and we also want to see an expansion in jurisdictions and industries.

It also has a value added reseller agreement with ~$35BN capped Philips Corporation which has a large reach in the US

Milestones
🔄total 8x new ARCEMY contracts
🔲New ~$1M contract (New customer in US defense industry)
🔲New ~$1M contract (Aerospace)
🔲New ~$1M contract (O & G)
🔲New ~$1M contract (New customer in non-US jurisdiction)

What we want to see next from AL3

More sales out of the US

Now for AL3 it’s all about the US scale up.

AL3 has previously mentioned it will be doubling the capacity of its US facility AND is only days away from having the facility ready for operations.

We are hoping that the US facility coming online brings with it big new contracts to fulfil (and hopefully big $ revenue amounts attached to those deals).

We are also hoping to see some of those lucrative ITAR contracts that AL3 have mentioned get converted into sales.

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(Source)

UK/European expansion on the cards?

AL3 has also previously flagged the opportunity of expanding into the UK.

The majority of AL3’s sales are out of the US, so expansion into a new market is completely new upside from a revenues perspective.

We are looking forward to newsflow from the company’s push into the UK/European market.

What could go wrong?

The short term risk for AL3 is sales and sales delay risks.

If AL3 fails to deliver more sales and its financial performance suffers, the market may start to price in lower growth potential for the future and re-rate AL3’s share price lower.

Sales risk

There is always the possibility that AL3 does not close more sales, and its financial performance suffers as a result.

Source: “What could go wrong” section - AL3 Investment Memo 27 June 2024

Our AL3 Investment Memo

In our AL3 Investment Memo, you can find the following:

  • What does AL3 do?
  • The macro theme for AL3
  • Our AL3 Big Bet
  • What we want to see AL3 achieve
  • Why we are Invested in AL3
  • The key risks to our Investment Thesis
  • Our Investment Plan


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