Suddenly, AML3D is scoring big with the US Navy as it pivots business strategy
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AML3D (ASX:AL3) is disrupting metal part supply chains using its patented Wire Additive Manufacturing (WAM) process, which is proving to be big business as it secures lucrative contracts, including with the US Department of Defence.
Speaking with Stockhead AL3 CEO Ryan Millar said the Adelaide-headquartered AL3 has pivoted from being a supplier of parts 3D metal parts to now providing its original equipment manufacturing (OEM) machines and technology.
While it is a big pivot for AL3, it is paying off as the company taps into the lucrative North American market as the Biden Administration looks to renew the US’s manufacturing capabilities using the latest tech.
First a little background. AL3 was founded in 2014 by Andy Sales, who headed the company up until September 2022 when Millar took over as CEO.
Sales is now the chief technical officer of AL3 and cleverly combined his understanding of welding and metal deposition with the emerging field of robotics to start the company.
“Andy was doing a Master’s degree at Cranfield University in the UK and they were early innovators, using advanced robotics, combined with welding technology to additively deposit alloys into various free form shapes,” Millar said.
“That was the genesis of the journey into additive manufacturing, using a wire-arc, direct energy deposition process for AL3.”
AL3 listed on the ASX in April 2020, during the early days of the covid-19 pandemic.
Millar said the company’s patented wire additive manufacturing focuses on making large parts for industrial purposes.
“We occupy a niche in the additive space, and inside that niche there are very few players globally that are able to produce parts at a similar scale and do what we can,” he said.
“Additive manufacturing is a much more economical alternative to manufacturing parts.”
Time for a little engineering 101. Millar said traditional forms of manufacturing components and structures include casting, forging or subtractive manufacturing, where you get a big block of titanium, aluminium or steel for example and carve out a part through machining.
He said additive manufacturing is making that part almost to the size required (known as near net shape (NNS) manufacturing).
“One of the unique things about manufacturing with metal as opposed to a polymer of some sort is that each alloy melts at a different temperature,” he said.
“Copper melts at a different temperature to steel or titanium so as you are depositing this metal you need to have a deep metallurgical scientific understanding of the properties of different metals.
“Understanding all that is Andy’s skillset and that is a key part of building parameters within our software.”
Building on its unique expertise the company has established relationships with universities and scientific organisations including Flinders University, Deakin University, RMIT and the CSIRO.
With extensive experience in the tech space Millar came on as CEO after consulting to AL3’s board to try and understand its growth opportunities.
He started researching whether companies wanted AL3 to manufacture parts or were more interested in purchasing their machines and technology.
The patented machine called ARCEMY is a 3D metal printer, which comes in a range of different sizes and options from small to very large.
The patented WAM process combines an electric arc with certified welding wire, as feedstock, to produce medium to large scale, free-form parts.
“ARCEMY is essentially a very large robotic welding system, but what is driving it is our own software platform and the IP inside that platform is what makes our 3D printing system different to other 3D printing systems,” Millar said.
“Building out our tech roadmap, specifically around software engineering is where most of our investment and R&D is made, more than anywhere else.”
Millar found companies were particularly interested in buying the machines that AML build and its technology.
“There was a pivotal point at the end of last year where I re-wrote the strategy for the business, presented it back to the board and it was heavily focused on the US market,” he said.
“The US market is about 30% of the global demand and supply of additive manufacturing parts.
“Australia is about 3% of the Asia-Pacific market, which is also tiny compared to the US market.”
Post-covid and in a geopolitical uncertain world Millar said there has been great emphasis on rebuilding sovereign capability in the US, presenting an opportunity for AL3.
“When Biden Administration came into office one of their big initiatives was Additive Manufacturing Forward (AM Forward) initiative,” he said.
“It was about rebuilding the US sovereign manufacturing capabilities using advanced technologies.”
AL3 is now only a seller of its OEM machinery and technology, which is widely different to what they have been doing.
“But listening to the voice of the customer it’s our machines and technology which they want and logically, it makes perfect sense,” Millar said.
“Being based in Adelaide trying to fulfil parts for North American customers is super challenging.”
He said furthermore there is annual recurring revenue(ARR) in terms of maintenance and support of the machines, which sell for good margins and better than that of manufacturing parts.
“You sell 10 or 15 machines in a given period of time and that maintenance and support ranging from 10% to 20% is annual recurring revenue based on software upgrades, new features and so on,” he said.
The Adelaide headquarters is now used to prototype various parts for the US Navy and other large-interested Tier 1 companies from different industries such as oil and gas and aerospace, where AL3 has done a reasonable amount of work.
Millar said the US Navy’s submarine programs are accelerating very quickly and investment and momentum not seen since World War II.
“There’s a requirement to scale-up their submarine program,” he said.
He said the AUKUS security and defence partnership formed in September 2021 between Australia, the UK, and US to enhance cooperation in areas of defence, technology, and security in the Indo-Pacific region also put pressure to speed up manufacturing capabilities.
One of the significant aspects of the AUKUS partnership is Australia’s decision to acquire nuclear-powered submarines with help from the US and UK.
Millar said one of the best ways to build very large parts for submarines is through 3D printing.
“Looking at which are the best metal 3D printers globally to do that and we are one of very few that can build that size of parts with the required physical criteria, that they need to make,” he said.
The US Navy approached AL3 and after discussions it was decided to establish a subsidiary, AML3D USA.
“Operating in the US becomes a completely different world because you’re inside the country, connected to the customer and can see designs as a subsidiary of the Australian company,” Millar said.
“It becomes a lot easier to work with and service your end customer.”
Millar said AL3’s machinery and technology is designed to manufacture very large components out of “exotic alloy metals”.
“This means we can make very large things out with high anti-corrosive properties, so we naturally have a good, sweet spot in the vertical of defence, navy and maritime,” he said.
“It also means oil and gas is a good vertical for us and we are also focused on the aerospace industry and will continue to target those key verticals.”
He said as well as the US there are opportunities in the UK and Europe along with domestically, but the immediate focus is getting it right in North America.
“Whilst there are excellent opportunities in Australia, the magnitude of those opportunities is comparatively smaller when compared to the really big opportunities for us in the US”, he said.
Millar said the Defence Strategic Review, considered the most significant Defence report since WWII along with AUKUS presents opportunities for AL3.
“Obviously, AUKUS presents a phenomenal opportunity for AML3D,” he said.
“We fulfil a very important segment of manufacturing capability and we have an enormous opportunity to capitalise on some of the requirements for AUKUS pillar 1, which is part of the Defence Strategic Review.
“We need to position ourselves in the best possible way given we are a relatively small company.”
While the company has been hard hit by the tech downturn and yet to turn a profit Millar is confident in its prospects.
AL3 recently undertook a well-supported capital raise, which included a $3 million placement to sophisticated and institutional investors.
The company received subscriptions of more than $700k for the SPP, representing an oversubscription of more than 75% above the offer size of $400,000.
“It’s a fair statement to make, that capital raising in the market has been challenging in general, but I am pleased to say that we managed to raise capital quickly and easily from a very supportive investor base that understands the opportunity,” Millar said.
“From my perspective, we need to do what we say we are going to achieve and do. It’s not a case of continually watching the scoreboard, but of focusing on building a world-leading product and business that sets global standards, which will increase our business value and I expect that will be reflected in the share price.”
Millar forecasts the share price will rise longer term as the company achieves its objectives and markets improve.
“It’s not to sound arrogant or dismissive but AL3’s immediate focus is to achieve our growth objectives, and I am confident that we will,” he said.