Norsk Titanium AS (NTI) Earnings Call Transcript & Summary

Good morning, and welcome to the Norsk Titanium Second Half 2021 Earnings Presentation. My name is Mike Canario, President and Chief Executive Officer of Norsk Titanium. Joining me today is Ashar Ashary, our Vice President of Finance; and we're joining you this morning from a very beautiful morning in Oslo, Norway. It's actually quite a good thing to be traveling again and a very enjoyable morning here in Oslo. This morning, we're going to -- I'll give a little bit of an intro and some background on the 2020 performance of the company and the current outlook. And then I'd like to share with you our new investor presentation that we've developed that outlines the investment thesis around Norsk Titanium. And then Ashar will share some of the details of the 2021 financials. I guess, I have to start by saying the current events in the Ukraine and with Russia are at the forefront of everybody's thoughts right now. The global impacts of such continue to reverberate and we don't at Norsk Titanium see an immediate impact in the near term. Our supply chains are secure for 2021, but we can't, can't know what the long-term ramifications of the current events are. We hope and pray that cooler minds prevail, and we get to a more normal state. We were actually looking as we look right now at commercial air travel continuing its slow post-pandemic recovery, and I think there were some positive signs that we've seen recently and the fact that we're here in Norway today is part of that. Boeing, our customer, our major customer today of serial production parts continues to navigate multiple challenges, including regulatory issues with the 787 program. Some delivery challenges that they have with the 737 and a delay on their new 777X. These issues have resulted in reduced monthly aircraft deliveries impacting the entire commercial aerospace market. We're not alone in that. However, current projections from both Boeing and Airbus suggests that new commercial aircraft deliveries will return to pre-pandemic levels sometime between 2023 and 2025. Again, that's absent the current events that are ongoing. Despite Boeing's ongoing difficulties in the slow return to commercial aerospace, we have continued our qualification efforts at both Boeing and Airbus. In the fourth quarter, of 2021, we commenced production of the final qualification materials for delivery to Airbus during the first half of 2022. And although our largest opportunity continues to be in commercial aerospace structural parts, we have capitalized on the slowdown during the pandemic in the commercial aerospace market to expand our reach to the defense sector and other industries and further develop our product design capabilities. In the second half of 2021, we achieved a major milestone by delivering the first part designed with our RPD builder software development kit. RPD Builder is our proprietary front-end software design solution that reduces the part design to print time from weeks to a few hours. And that enables faster delivery of test prints to our customer. Using RPD Builder, we designed, printed and delivered 120-kilogram demonstrator part to High Tech, a Tier 1 supplier to the semiconductor industry for finished machining and testing. Test results are expected in the first half of 2022, and we're looking forward to further collaboration with High Tech. During the second half of 2021, we also delivered qualification materials to 2 major U.S. Department of Defense prime contractors from our Plattsburgh facility and secured follow-on orders for additional development efforts to complete material specifications that will enable use of our materials in their applications. It's a busy -- it's been a busy half year for the team, and we ended 2021 actively working with global Tier 1 customers across multiple industries and part complexities, all at different stages of RPD technology adoption. I'm excited to see the expansion of our capabilities into new markets while continuing our progress in commercial aerospace, and I look forward to building on these efforts in 2022 and beyond. And given that background, I'd like to turn to the presentation that we've got and we've developed for our investors. Please move to the next slide. We are truly -- our business thesis is innovating the future of metal manufacturing. And we -- the manufacturing of metal alloys has really not changed in hundreds of years. Norsk Titanium is here to change that. Next slide. We're inserting 3D printed parts into existing industrial supply chains. The intent is not to completely eliminate the current supply chain, but to reduce the cost, improve the performance of the product in terms of the environmental impacts and deliver significant cost savings. We have significant production capacity available. I'll walk through the details of that. And we have a plan and an effort going forward that leads to pretty significant growth in the, what I would call the midterm. Next slide. We're reimaging the way the metal manufacturing process works. We're focused on efficiency, significantly lower waste versus traditional materials. If you look at this illustration here, I think it shows it quite well. On the top is the traditional manufacturing supply chain from an ingot through the processing of metal forging press or in a casting to a finished part. And you can see there's a pretty significant amount of material that's removed during that process. At the bottom, you see our RPD technology, and we use significantly less raw material, we do it much faster, and we deliver the exact same part that the current supply chain is used to receiving. And so we offer pretty significant savings in terms of cost, lead time, energy efficiency and environmental impact. Next slide. We are the leader today in wire DED processing, and we have a significant head start. We have material specifications that are published, industry published. We're the only company in the wire DED space that has that capability. We have existing machines that are in place and in production. We are protected by a very significant global patent portfolio, and we are pretty unique in the industry in that our machines can produce the same part and we can produce the same part on any machine. We have the new software tool that we've recently released that accelerates our ability to transition a part from a current design to an RPD design, and we've got a very significant data backbone that supports additional developments as we move forward. Next slide. As I said, faster, cheaper, significantly less waste. That's a thesis going forward that supports the needs of the industry, frankly, the needs of the world. The reduction in consumption of titanium raw material or other alloys obviously leads to freeing up resources for other applications. The reduction of energy -- the reduction in needs of energy, clearly is a benefit that's needed. And almost everybody will tell you that the supply chain for high-end metal products is significantly too long. And so we address each of those key points. And I think it's a pretty compelling story to the industry. Next slide. Thanks to a partnership with the state of New York in the United States, we have production capacity to support all of our plans that we've projected for. The capacity that we have installed today will support over $300 million worth of revenue. In Plattsburgh, New York, we have the world's largest 3D printing facility, and we actually have a second smaller facility that we are now focusing on defense applications. In Norway, we have the -- is the center of our technology development and future efforts towards additional materials and additional technologies. We're -- we've got a fantastic team of technicians, engineers and support staff that is 100% focused on delivering the highest-quality product possible. Next slide. We are in serial production on the 787 and the -- I think this chart does a good job of showing that the economic and environmental benefits are quite compelling for our customers. We have specifications that can be used across industries, which is the cross customers in multiple industries, and we have very specific customer base qualifications that support individual programs. The cost benefits that we see versus traditional manufacturing are very significant. And when coupled with the environmental benefits that we can offer and the lead time benefits that we can offer that's the reason why we believe that there is a significant opportunity for us moving forward. Next slide. When we look to our business strategy and how to approach markets, why did we choose commercial aerospace as the launch, launch segment. It's a heavily regulated industry that has significant barriers to entry. It's also the most significant addressable market for our technology. And that's based on the economic benefits that we can offer to the industry and the need within the industry. And so you can see from this chart, it has a very -- it's concentrated in 2 major customers, commercial aerospace structures are, and it offers a very, very significant opportunity for us from a market size. The unfortunate side of it is, it's a multiyear qualification process and a multitiered process to move into significant production. So we focused our efforts on initiating those qualifications and initiating the timetable that's there and solidifying our technology, and we're now moving to expand down into other markets that we can get too quicker, and also other markets that offer compelling stories long term as well. So we have significant adjacencies here that we can exploit going forward, and we're moving fast towards that. Next slide. Our first industrial component is now undergoing customer testing. The picture on the left is an illustration of that component in its final stage. And we're making progress -- significant progress on the qualifications in the defense industry. We are quite happy with the progress that we've made in the last 6 months and we are very much looking forward to making some significant announcements as we move forward. Next slide. When we look to our efforts for the next year out to 2022 at the end of this year, we are on track to expand our serial production customer portfolio this year. We intend to be in production by the end of the year in multiple applications with multiple customers and in multiple industries. And we're highly focused on addressing each of those opportunities in the most compelling way that we can. Next slide. We're working the qualifications and the specific part campaigns that support our revenue targets. We're confident in the long-term customer opportunities. We're also quite confident in our mid- and near-term opportunities as well. We have strong customer campaigns to support the revenue targets that we have illustrated, and we're working every day to deliver that. With that, I'm going to turn it over to Ashar, who's going to talk about the financial performance.

Thanks, Mike. Next slide, please. So 2021, we -- as shown in the previous chart, we ended the year with $5.3 million in revenue recognition for 2021. The second half of 2021, we recognized $2.4 million most of the revenue for both the first half and second half were evenly split. The revenue breakdown for the second half as you'll see, the part production, we were affected by the 787 deliveries. So part production was lower, but we had a very strong performance in development activities and our revenue was $1.0 million in the second half of 2021. Operating expenses were evenly split between first half and second half. Total year expenses were $22 million, and we ended the year with an EBITDA of about negative $16.8 million. So over 2020, we had a significant improvement in our losses and the -- we've put in a lot of cost saving measures over 2020, which we see the full impact of them in 2021. Profit before taxes, again, year-over-year, a significant improvement mainly due to the conversion of the large debt that we had on our balance sheets to equity. You see a very high financial -- net financial expense in 2020 of $12.6 million, which is mainly interest on that debt. We converted that to equity and in 2021, we also had the benefit of improved currency gains in the NOK. So we ended the year with a net loss which is much lower at $16 million compared to the $42.9 million loss in 2020. Okay. Next slide. Cash flow has been -- most of our cash usage has been focused on expanding our commercial -- expanding into commercial aerospace and our development efforts, both in commercial aerospace and other industries, we started the year with $2 million in cash. In first half '21, we raised $42 million. During the second half or during both first half and second half, we spent about $20 million in operating cash. Again, it was even -- almost evenly split, slightly higher in the second half than the first half. We -- the average monthly cash burn for 2021 was at $1.8 million. We saw second half coming a little higher at $1.9 million, but that's mainly due to the collection of the grants. We have sufficient cash flow through 2022. And we -- and the balance sheet position remains strong as we end the year in 2021.

That's it. All right. Next slide. So in summary, we're delivering on the strategy that we announced about a year ago as we became a public company. We do deliver the superior product offering in the marketplace. We are very much focused on meeting our commitments to our customers, whether it's for serial production or for development opportunities. We have a very solid platform. We don't need additional dollars to support investment in equipment or facilities. We are fully facilitized to support the -- basically the long-term plans that we have here. We're working very strongly in expanding our technology leadership, we're quite happy that we're now up to -- as of the end of the year, we were at 148 patents. I can tell you we're at 151 today. We're pushing our technology leadership that's almost double what we had a year ago. And we have quite a backlog of patents in the pipeline. We're moving quickly to try and take our technology across the adjacencies that fit our profile, and we're quite excited about those opportunities in the defense and the industrial markets. The key effort for us this year, and I think one of the key milestones for everybody to watch is the move at Airbus that we're actually going to deliver industrial volumes of parts this year. And we're excited about that move. Airbus is excited about it as well. And we're quite happy to move very forward. Having said that, we're very excited about the year to come, irregardless of the sort of the global situation, we're very optimistic, where we're headed, we see the recognition from our customers in terms of our leadership position, and we're getting to that point of accelerated growth, and we're finally excited to finally get there. Okay. Operator, if we could move over to Q&A, and I can just -- I can read questions as we go.

The first question that I have is when do you expect to breakeven and what is the 3-year forecast for profitability? Ashar, I'll let you throw out that.

Sure. So our forecast for breakeven is in 2025. That's the first year we think we'll be all cash neutral in -- sorry, operating EBITDA -- we will be breakeven in 2025 with cash neutral in 2026.

Okay. What is -- what was the impact of the 787 delay with regard to revenues?

That's a good question. First half, we recognized about $260,000 approximately in revenue for deliveries to the 787 program. We've seen great cut through the year. Second half of the year, we only recognized, I think it was mere $11,000 in deliveries to the 787 program. We do have a good, healthy pipeline for 2022 on the 787 going into 2022. So we do see that coming back in 2022.

Yes. But I would also -- I would add to that, that compared to what we expected a year ago for 2022, it's probably on the order of $0.25 million to $0.5 million miss compared to what we had anticipated. But I think it's common across the industry when we look at that. Next question is how much grants, et cetera, do you think you will receive in 2022?

Yes. So the -- so we do expect to complete the Innovation Norway grant in 2022. We do have another grant from the tax authorities in Norway in 2022 as well that we expect to receive. So it could be anywhere from just from $2 million to about $3 million.

Next question is, how is your visibility on the 2023 revenue target of $15 million? And do you see industrial and defense technology adoption progressing faster than in commercial aerospace? Let me answer that question. We have visibility to the $15 million by customer and by product. What I will tell you is that shifts, right, as we get closer to 2023, I think we've seen a shift from certain customers to other customers. We're still confident in the $15 million number. Obviously, we have more activity going on than would project the $15 million. So I think we're pretty confident. On the industrial and defense technology adoption, yes, we actually do believe that the progression to serial production is faster. I will say that the individual opportunities that we see in those segments, though we will get there faster, won't get to double-digit millions quickly, right? I think we see individual programs that can be $2 million to $3 million each that can move into production quickly. Commercial aerospace has some opportunities that are in the $20 million, $30 million, $40 million per application. We haven't seen those applications yet, right? So that would be the difference. And that's why we're on the long path to commercial aerospace because they have the really large individual applications. We clearly are going to supplement here in 2023 and 2024, we expect to see meaningful revenues in industrial and defense. Let's see next question. You have enough cash to fund the current burn rate till the end of the next end of the year? How do you propose funding through to 2025 cash flow neutral? Ashar, you want to give a quick talk on that?

Yes. So we need about, as we stated when we raised the cash in 2021, we needed about $60 million to $70 million. We raised about $33 million in net cash in 2021. And that was prior to the loan conversions. So we are looking at another $40 million to $35 million to $40 million that we're going to attempt to raise during the year, and that will carry us to cash flow neutral.

Let's see. How has titanium prices develop lately? I think I'm sure there's been a lot of publicity about the fact that a significant amount of the titanium used in commercial aerospace does come from Russia today. What I can say is we haven't seen any change in pricing in -- from our perspective, at this point. And that's why I made the comment that in the near term, and we've secured our supplies for this year and into next year, we don't see any potential impacts from that. How that develops here over the next coming months, I don't know. There has been quite a bit of stability in the titanium market for many years. And that is because the commercial aerospace industry does dominate that segment. And Boeing and Airbus have secured very long-term pricing contracts. Now assuming that, that supply chain doesn't get completely disrupted by what's going on today, we wouldn't anticipate significant changes in that. But clearly, if there is a change, it will be something that impacts the entire industry, and we'll clearly react to that as it does. Let's see, how do you view the 2023 estimated $15 million split on Boeing Defense and others? We're not giving guidance on that right on today. There -- it will clearly be a split between, I would say, Boeing, Airbus industrial customers and defense customers. I'll clearly say that the commercial aerospace will carry a significant share of that. But we do expect material programs in those other areas. So we'll look to give further guidance as we get closer to 2023, but at this point, we won't go beyond that. And then the last question I have here is fundraising for this year? Will it be equity or debt or both or hybrid? I would say we're looking at all of those, I think we're going to evaluate the cost of each of those and what the opportunity space looks like. We are looking at alternatives from the standpoint of the markets right now are clearly very -- today, it's very difficult. We're not under the gun to raise money today. So I think we'll see how the markets look as we move forward through the year and make an appropriate decision at that time. And I -- we don't necessarily have to go raise the full amount through 2023 this year. I think we'll be prudent in that approach. And clearly, it's a focus of management in the Board today. And that's the last question I have. I'll hold just for about 30 seconds and see if anything else comes through. Okay. Well, listen, I thank you for your attention this morning. Really appreciate it. As I said, we're very excited to be -- and Ashar and I are very excited to be in Oslo this morning, and we've had a great week here in Norway. It's been great to be out and talking to the company and with investors and looking forward to spending more time out with customers now as travel is opening back up, and we look forward to things going forward. Sorry, we just had another question, Desktop Metals acquired ExOne at an EV to sales of 9x. How do you see the structure in 3D developing? So I'll make 1 comment about that. They acquired at 9x, and they're now trading at 3.5x.

Yes. Yes.

So ExOne got a very, very good price when they sold to Desktop Metals. The market has been pretty difficult for our -- us and our peers in the 3D printing world. I think there is definitely a focus in the overall 3D printing market on revenues, right? And customers that are going to deliver product as opposed to delivering machines or technology. So we actually think the market overall, even on the powder side is moving towards our model as opposed to the more traditional cell machine model and license so we think that's a positive for us going forward. We're very focused on delivering the revenue growth that will garner that attention within the market. And I think that -- I do believe that we are on the right track. Okay. Again, thank you, everybody. Really appreciate the attention, and thank you to the Norsk Titanium team for a fantastic half year and we're quite excited about 2022 and getting over the hub as we move forward. So thank you again.

Thank you.