3D Metalforge: Interview with CEO Matt Waterhouse

We spoke to Matt Waterhouse, CEO of 3D Metalforge (ASX: 3MF), on the great opportunities he is seeing in the additive manufacturing field and 3D’s unique selling proposition as a consultant to companies using additive manufacturing in their businesses.

See the full transcript below.

 

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Transcript

 

Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the co-founders of our publication. And joining me today from Houston, Texas is Mr. Matt Waterhouse who’s the CEO of 3D Metalforge, ASX. I think it’s 3MF. Matt, do I have the ASX code right?
Matt: You do. Thank you, Stuart.
Stuart: Right.
Matt: How are you doing today?
Stuart: It’s great. So today is Thursday the 4th of November, which would make it the 3rd of November in the afternoon in Houston.
Matt: Yes.
Stuart: A truly global company run by an Englishman out of Singapore, but with offices in Rotterdam, Houston, and I’m sure one other city as well. How did you end up with such a far-flung empire with 3D Metalforge?
Matt: Well, thank you for calling us an empire, I appreciate that. Thanks for having me today. So we essentially started as a Singapore company and then we started to expand into Houston just as a sales and engineering office, mainly because we were doing a lot of business with oil and gas. So when you’re doing business with those companies, they often have manufacturing in Singapore, but HQ and engineering is in Houston. So we wanted to start going upstream within these companies where they make more value-add engineering decisions. And then we were really excited to start expanding in Australia and get listed on ASX. So we are currently an ASX, Singapore, and Houston company.
Stuart: Right. So, yeah, throw in Perth while you’re at it. I think it might be a registered office. I’m not sure.
Matt: Yes, it is. We have a great business development guy in Australia who’s really starting to spread the word about us and we’re starting to get our first sales through in Australia. So we’re pretty excited.
Stuart: Well done. So you’re one of several companies involved in 3D manufacturing, additive manufacturing. For investors who don’t really know this sector all that well, sum up in a paragraph or so, the industry that you’re a player in and what you think your competitive advantage is?
Matt: Well, we were an additive manufacturer, so people often use the term interchangeably with 3D printing. 3D printing is sometimes the sort of home or the original part of it. And additive manufacturing is when it industrializes, or 3D printing of the actual act of printing. We’re a service provider and we offer a full service to clients, which is what differentiates us in the market. So for a lot of companies that want to get into additive manufacturing, we can help them with choosing the right parts, doing the design work, printing the parts, and then giving them a finished part, any testing certification. We also do things like storing parts in the cloud, so it supports distributed manufacturing. And we also train clients on how to get the most out of additive. And we think this distinguishes from being a company that provides a printer and then leaves the client to do all of that activity.
Stuart: Right. So if I can use an analogy from earlier in your career, once upon a time you were an Associate Principal at McKinsey.
Matt: Yes.
Stuart: I go to McKinsey because I need the brains of the men and women who staff that august organization. Well, if I wanna get into additive manufacturing, I want the best brains in the business, and I’m talking to one of them right now, right?
Matt: I love the analogy. I’m making notes. Yeah. We find a lot of companies are…nowadays they’re very excited about getting into additive. You know, they see the benefits of it that you can print parts just in time. You can reduce your inventory. And nowadays, a lot of companies are trying to get parts [inaudible 00:03:32] so they don’t have these long fragile supply chains that have caused so much trouble in the last year.
However, for a lot of companies, it’s still a new technology. So I think what we’re finding is a lot of companies are reaching out to us and saying, “Look, we want to get into this. We don’t quite know how. Can you help us?” And very often, even from the very first point, which is what parts are good for additive is not a sort of an easy question to answer. And it needs a good deal of expertise on technology and the geometry and the design. And then taking them through the process often makes it easier for companies to break into the technology with less capital, less people being involved, and less of a learning curve. So that’s the model that we think differentiates us in the market.
Stuart: And I imagine a business is reasonably brisk in part because it’s quite a risk on the part of some of your blue-chip clients. If a part fails that they’ve manufactured using additive manufacturing, in many cases, it’s mission-critical for whatever the machinery is. So they need someone to be able to pick up the phone and say, “Hey, what went wrong here?”
Matt: I prefer to think that they pick up the phone and say, “How do we get this right?” rather than, “Hey, what’s going wrong?” Yes, I take the point. The industry generally has moved from prototypes to what we call end-use parts. And within end-use parts, it’s gone on a growth plan from non-critical parts to critical parts. So we’ve been doing pump parts, valve parts, we’ve done downhole tools, we’ve done ship parts. So the sort of mission criticalness of additive is really increasing. And I think what that’s meant is first off, the benefits of additive are really starting to become more and more transparent. And secondly, a lot of the time companies reach out is when they do need that mission-critical part because a ship is stuck or a refinery is facing a problem because it needs a part.
And at the same time with the growth of standards, particularly API has just released a standard for additive manufacturing. This allows more and more companies to get into additive because they can see what standards are in play and what they need to make sure the parts meet in order to use them. So those dual things have really started to make additive manufacturing far more critical for companies than it used to be.
Stuart: And when I look at your business I can see three tailwinds that you’re benefiting from. The first one is the move, again, you flagged it before, onshoring, which pretty much took off with the arrival of the Trump administration several years ago, pushing more local manufacturing as opposed to sourcing stuff from the other side of the world. And then just in the last few months, we’re starting to see supply chains, particularly into the U.S. market, choked up for a variety of reasons to do with labor shortages and other issues. It’s fair to say you’re a big beneficiary of the current supply chain issues facing the U.S. economy, particularly in the oil and gas industry, would I be right?
Matt: I sorta hate to claim that we’re a beneficiary of other people’s problems, but we are able to help them out with a lot of the things that they’re facing. So it started last year, actually. We were designated an essential supplier early on in the COVID pandemic. So we were making medical parts and oil and gas parts, and refinery parts because people couldn’t access their traditional supply chains. And that has really carried on. We were expecting people to start settling down, but actually, the reverse has happened. I think more people are approaching us now because they’re still struggling with their supply chains. And I think my feeling is this won’t be a short-term change. I think people have realized, or companies have realized that if there’s a way to make their supply chain more flexible, more responsive, shorter, then it benefits them from cost and time. And nowadays, everyone is focused on keeping their equipment uptime. So if you can help with that, then it’s a sure-fire win for people.
And I think the other thing that sort of runs in parallel to this improvement in the supply chain is also the sustainability angle. So we’ve talked before about how additive can be more sustainable in the manufacturing of the part using less material, etc. But also if you’re able to transport the part less, make it near the point of use, then emissions can go down from transporting parts all the way around the world. I certainly know from previous experience just how painful it is, parts moving literally all the way around the world when you’re trying to commission a plant. It’s an absolute nightmare. And if you can combine that with a more sustainable solution, then I think it’s a win-win for customers.
Stuart: Certainly. And you’ve talked about potentially a 90% reduction just in the materials for products produced using additive manufacturing. That has got to be a huge win.
Matt: Yeah. So there are two reasons for that. One, you don’t… Traditional manufacturing will often start with a block of material and then cut it away, hence the subtractive label. Whereas we just use the powder that’s needed to build the part. And then secondly, you can honeycomb walls so you don’t need solid structures anymore. You can use a latticework or a gyroid infill, which is again, using less material, and it makes the part lighter. As additive moves into more expensive materials, then that becomes a real saving for people. It’s a fairly obvious point for a lot of people and companies get hold of it very quickly.
Stuart: In an environment where inflation is roaring up to about 5% of the consumer line, that’s just gotta be good, right?
Matt: Absolutely. And if steel prices rise and as you move into the more expensive materials, then it becomes a pretty good reason for companies to try out additive.
Stuart: Right. Now, a lot of blue-chip customers are starting to seek you out. You’ve flagged up ConocoPhillips, for example, in the oil and gas industry. You’ve got spare expertise in maritime, for example. Tell us how you’ve managed to get comfortable with folks of that caliber.
Matt: Well, we’ve done projects with Polar Tankers, which is the tanker arm of ConocoPhillips, and we’ve done that in conjunction with ABS and Sembcorp Marine. So that’s been really exciting. I think there’s a couple of reasons, firstly, we’ve been doing this for a long time, so we’ve got a lot of experience of how parts work, how to design parts, how to manufacture parts additively. So we often get involved in companies that want that early thinking.
Two, we’ve done a lot of work in the standards sphere. So we’re on the working group for the American Petroleum Industry for the 20S Standard for Additive. I’m the chairman of the Additive Manufacturing Technical Committee in Singapore. And I represent the committee on the ASDM and the ISO committees. All of that, I think, builds the connectivity with companies that are keen to break into this. And when companies are new to this, they very much look around for companies that know the space and have got proven credentials around standards and quality systems that are so important for larger companies.
Stuart: I’m intrigued by, in particular, by the API, the American Petroleum Institute. Obviously, for an industry that has as rigorous standards as oil and gas, when did the API figure out that they needed standards in the whole additive manufacturing field?
Matt: We actually presented to them together with ConocoPhillips and Chevron back in January 2019 and explained that this was a very good proposition for oil and gas. So a lot of the initial driving industries were medical and aviation, but there’s a lot of benefits for oil and gas as well. So there was very much an interest to both promote additive to the industry, as well as making sure that if additive parts were going to be used, they were properly qualified. So then we got approval from API to set the committee up, and then we’ve been working on the working group since then. And the interest level is phenomenal. I mean, API is a leading organization for oil and gas qualification and regulation. And when they start saying that additive is something that you can use and here’s a standard, then a lot of people sit up and pay attention. That’s been very interesting for the last few months.
Stuart: Yeah. It’s something to be proud of. You’re not only providing a great service to the customers but actually shaping standards for entire industries. That’s remarkable.
Matt: Yeah. We’re very proud of that. And think standards are very much the way to go because companies don’t often, or don’t always have all of the engineering capabilities to do all of the testing and certification qualification themselves. And at some point, if a technology is going to take off, there needs to be a body that people can look to that says, “Yes, this technology is good, and here’s how you can use it, and here’s what you should expect from it.” So, yeah, very good.
Stuart: So that brings me to the question that many investors are really keen to hear. Basically, you’ve got some of the smartest minds in the additive manufacturing world. And you’re dealing with customers who want to use more of your product, but being a service-based company, obviously, there are challenges with scale. How do you grow up to be ultimately a top 200 company on ASX where there are high margins and revenue growth and all the other stuff that people would wanna see?
Matt: Great question. Thank you for that. A couple of ways. Firstly, we’re going to grow until we’ve got a facility in all of the key centers for the industries that we serve. So that’s Australia for mining and resources, Singapore, Houston, somewhere in Europe, perhaps Rotterdam, and then somewhere in the Middle East, perhaps Dubai. And that services the industries that we support. Two, a lot of the work that we’re doing is at the early stages of testing, proving, qualifying parts, that once they go through our sales pipeline, we aim for them to become production contracts at the back.
So a lot of the…often we say up to an 18-month process of testing, qualifying, and proving to customers the quality of the parts. Once you’re through all of that, then you should be in a situation where you can manufacture the parts more cost competitively than when you were at the beginning of that pipeline. And thirdly, a lot of the research that we’re doing on our equipment is aimed at increasing automation, reducing the standby time, and reducing the labor components of supervising machines. So we think all of that is generating a more cost-competitive company that’s able to handle midsize production in the medium term.
Stuart: At the moment, we’re at a couple of million dollars a year revenue, so it’s very early days. Who would you compare yourself to at the moment in terms of where you are now, where you think you’re going in terms of other companies in the industry?
Matt: There’s actually not that many companies that do a similar proposition to us. A lot of companies that are in additive manufacturing tend to be supplying printers. We focus on service. And actually, the biggest challenge that I think all of us face in the industry is not so much comparing to other companies in a competitive situation, but persuading end-users to change over a part from traditional manufacturing to additive. If you look at the markets we sell into say the valve market or the pump market, these are $80 billion, $90 billion, $100 billion markets. Those are the challenges that we face. And additive is right at the beginning of those markets, and we are right at the beginning of that as well.
Stuart: An apt comparison here if I could be a little bit optimistic, is you’re like Bosch only in the 19th century, right?
Mart: That would be a nice analogy. I like that very much, thank you.
Stuart: Well, it’s early days. You’ve listed on the ASX last few. What motivated the decision to list here?
Matt: A couple of reasons, one-
Stuart: Sorry, it was early this year, forgive me. Yeah.
Matt: Yes. It was March 1st this year. A few reasons. Firstly, why ASX? We found that ASX is a very liquid market. We found it got good experience with foreign companies and it had good experience with early-stage technology companies like ours, so that was very attractive for us. Two, being able to enter the Australian market, which we feel has got a good opportunity for us with the resources sectors and the mining sectors. And actually, Australia is becoming a leading light in the sustainability sector. So there are a lot of reasons for Australia and a lot of reasons for ASX.
Stuart: And as you know, we’ve always grappled as a country with the tyranny of distance. We’re so far away from everything that, you know, we’ve got the most stretched supply chains in the industrialized world, basically. So yeah, we need all the additive manufacturing we can get, right?
Matt: Yes, I think so. And I think in the mining and resources sector, which is obviously a huge sector for Australia, there’s a natural fit for additive.
Stuart: Right, right. Well, Matt Waterhouse, well done. It’s been only five years at 3D Metalforge but you have achieved a heck of a lot in that time.
Matt: Thank you so much. We’re very proud.
Stuart: As Frank Sinatra sang a long time ago, it seems like the best is yet to come.
Matt: I hope so. Thank you for the optimism. I appreciate it.
Stuart: Keep up the good work. See you soon.
Matt: All right, have a good day. Bye-bye.