Norsk Titanium AS (NTI) Earnings Call Transcript & Summary

Good morning. Welcome to the Norsk Titanium First Half 2022 presentation. I'm Mike Canario, President, Chief Executive Officer of NTI; and I'm joined today by Ashar Ashary, our Vice President of Finance. We are happy to share with you our results. Please note, our customary disclosure applies to the information in this presentation. The presentation and disclosure are fully available on our website. Thank you. Our vision at Norsk Titanium is innovating the future of metal. We are industrializing a new cost-efficient and environmentally-appropriate production process for the manufacturing of structural metal components. The fundamental approach to metal manufacturing hasn't changed in hundreds of years. Our rapid plasma deposition, we call RPD, process is designed to be used in the existing metal manufacturing supply chain as a direct replacement for a titanium block casting or forging. We are the global leader in wire-based direct energy deposition 3D printing with a broad patent portfolio and published industry standards, the only company with industry standards published. Our technology investments have delivered a digital platform for us to rapidly convert customer drawings to additively manufacture components significantly faster than traditional processes. Our first market, commercial aerospace, is the largest consumer of titanium for structural uses in the world. It's by far our largest opportunity. Success here leads us to apply our RPD technology in defense and industrial markets and ultimately to other hard alloy applications. So it's been very clear from the beginning that Airbus and Boeing are the most key customers to the company currently and in the future and a high priority for us as we go forward. We launched our software development toolkit, RPD Builder, in the first half of 2022. By applying our 14 years of process development experience to automated part programming, we can ensure that we can deliver RPD preforms in days, not weeks or months, that consistently meet the highest material performance standards. This has been a significant improvement for us and for the industry as we move forward. 2022 is a critical transition year for Norsk Titanium. Our multiyear qualification program with Airbus is coming to completion, and the expansion to defense and industrial markets is ongoing. Our goal is to establish serial production contracts with multiple new customers by year-end. We are on track. To that end, we are progressing very well on the technical requirements our customers have given us. At Airbus, we've progressed quite well with material qualification for our machines. The material has all been printed. It's been in the process of being tested and those tests are expected to be completed in the fourth quarter. Airbus also requires a full-scale production trial of our first 2 parts. We are required to deliver 150 ship sets of our first 2 parts within 6 months, and we should initiate the manufacturing of that trial in the coming days. For our defense customers, our first prime contractor, we've progressed through the material qualification stage and received a contract for the development of the first large-scale production part. We've completed full-scale testing on some smaller parts, and we expect initiation of serial production orders by the end of the fourth quarter. We also announced during the first half completion of the first full-scale testing with General Atomics on a UAV part that is of significant structural intensity, and we are working now with General Atomics on progressing to our next components. We achieved a major milestone in completing our registration with the U.S. Directorate of Defense Trade Controls, which allows us to move to serial production on defense programs. Finally, in the Industrial segment, we announced a collaboration with a company called Hittech that provides equipment for semiconductor manufacturing. We developed -- rapidly developed a large-scale part that has now completed testing at their customer, and we're on track to initiate production in the fourth quarter of this year. So we're making great progress on our 3 key milestones in our 3 key markets. We're truly fortunate that through a unique partnership with the State of New York in the United States that we have the installed production capacities to support our growth up through about $300 million of revenue. You see a picture of our facility in Plattsburgh, New York right there, that is the world's largest 3D printing facility, and that facility will be focused almost solely on producing production, serial production parts for our customers. Additionally, we have a smaller facility in Plattsburgh that we focused and segregated for defense applications. In Norway, we have our research and development capability and a team there focused on next-generation materials and machines and software development. We also have the ability to produce product in Norway and are qualified to produce for our current Boeing 787 program. So we're very fortunate that the company has all the installed capacity that it needs to support the growth that is in the near future. And now I'm going to turn it over to Ashar, who's going to talk about the financials for the first half. Ashar?

Thanks, Mike. Just going over the profit and loss statement. As a broad comment, we continue to meet our financial expectations. Overall, the total revenue and other income in the first half of 2022 was $0.9 million. Revenue from serial production and development revenue during the first half of 2022 was $50,000, which was lower from the first half of 2021, mostly due to reduced deliveries on the Boeing 787 aircraft from Boeing to their customers. We expect development revenue on the other hand to pick up during the second half of the year. Other income was $0.9 million in the second half -- sorry, in the first half of 2022. This was mostly recognition of the Innovation Norway grant. Again, this was lower in the first half over the first half of 2021 due to higher grant recognition in 2021. Operating expenses in the first half of 2022 was almost the same as the first half of 2021 at $10.9 million versus $11 million in 2021. Despite rising costs, we were able to maintain our cost level during the first half of this year. Overall, EBITDA is lower at $10 million, mainly due to the decline in the grant recognition over the first half of 2021. As you can see, there was a positive effect of unrealized gains on the foreign exchange impacts between U.S. and Norway. There was $13.5 million -- $13.4 million impact during the second half -- during the first half of 2022, and this is mainly due to the strengthening of U.S. dollar over the Norwegian kroner. Overall impact on profit and loss was we are showing a net profit of $2.1 million, again, mainly contributed from the positive foreign exchange impacts. On the cash flow side, we continue to invest our resources in commercial expansion activities. During the first half of 2022, our average monthly cash burn rate was $1.6 million, which is lower than our targeted $1.9 million a month. We expect second half of 2022 to pick up cash burn slightly given the activities ongoing. This will put us back at the average $1.9 million cash burn rate. We started the year with $22.9 million and spent approximately $9.6 million in operating expenses, $0.5 million in small equipment and minor technology upgrades and approximately $1.5 million financial impacts from ForEx changes and interest recognition. We ended the first half year with approximately $12.1 million in cash. Mike, back to you.

Thanks, Ashar. Our transition from development to qualification to production are on track. Our customers have very extensive and time-consuming processes to validate our technology, and we're coming to fruition on those. We can't predict specific timing of individual contracts. However, we are quite satisfied we are taking the steps for completion of that process from development and qualification through to production. We offer through our rapid plasma deposition process better economics, better lead times with significant benefits to downstream processing for the metal manufacturing supply chain. But in today's world of reduced raw material availability and high energy costs, we offer a real positive environmental impact. Each rapid plasma deposition machine that runs at full capacity will save 2 gigawatt hours per year of energy. In today's environment, that's something desperately needed. Our mission is to enable fast, clean, sustainable metal manufacturing. The market opportunity is significant, and we believe we have the technology and business model to succeed. At Norsk Titanium, we believe we are the right company at the right time. And with that, I'll take any questions.

And the first question that I see is, "Understanding that testing is booked as an offset to cost, can you give a number of these offsetting costs in the first half?" I'll throw that over to Ashar, if you could provide a response to that one?

Yes, sure, Mike. So that's how we were accounting for the development of mostly through 2021. However, in 2021, when we did the annual reports, we changed our accounting of the development revenue. We now actually book -- we actually recognize development revenue as revenue. So in the first half, we only showed about $10,000 of development or recognized about $10,000 of development revenue. We do expect that number to change through the second half of this year as we continue to perform on the development programs and qualification programs with our customers.

Great. Thanks, Ashar. Next question is, "How healthy is your book-to-bill?" Let me try and hit that one real quick and Ashar, if you could provide anything beyond what I say. If we look at our backlog, a traditional measure of our backlog. Today, our production program is on the 787. We have what's called requirements contracts on the 787, meaning we supply as needed, as the customer needs product. So we get 100% of that business. Today, I think most recently, about a month ago, the 787 program did restart production, but there's a significant backlog of prebuilt airplanes and components. So demand, if I look at the actual backlog demand, is quite low for the 787 over the next 6 to 12 months, and then we'll get back to what we'd say is normal rates. We have a series of development projects with deliveries and milestones set up over the next, I'd say, 6 months or so that we have a very strong backlog for supporting those revenues. And then we're expecting, as we've been talking about, we're expecting quite a few new serial production starts here over the next couple of quarters. And that's when we would see a pretty strong backlog for 2023 and beyond. But at this point, I think the significant -- the most significant revenues that we have in backlog are the development contracts that will be coming due here over the next 6 to 12 months. Ashar, anything else?