Norsk Titanium AS (NTI) Earnings Call Transcript & Summary

Good morning. Welcome to the first half presentation for Norsk Titanium. I'm Carl Johnson, CEO. With me is Ashar Ashary, our CFO. And we have a short presentation to be followed by questions. This is a summary of our key highlights for the first half. The major breakthroughs have all been done through announcements -- been documented through announcements, but the long-range -- long-term Master Supply Agreement with the Airbus, signed an agreement with Boeing for delivered parts, for serial production order with the prime contractors for U.S. Department of Defense and announced a full rate production on some industrial parts. As you know, parts and production had been fairly flat for 2023. We are at an inflection point. We now have 26 parts in production at the end of the first half. Currently, we have 28 -- 26 parts generated a recurring revenue of $7.4 million, the 28 parts now that we have generated recurring revenue of $11 million annually. We're looking at proactive measures to shorten the adoption time and getting parts into production. And as the company moves into an industrial scale, we continue to look for ways to improve our efficiencies in manufacturing. Earlier this year, we raised $46.1 million in total gross proceeds of several transactions. We have a strong support from long-term investors, and we've been able to attract new investors as well. We're fully funded through our breakeven point in 2026, and we continue to focus on recurring revenue. So most of you have seen this slide probably before. The point here is that we offer a modern approach to generating forging equivalents without the heavy industrial aspects that go with it, reduced labor, reduced capital and reduced energy. 75% less energy, 75% less raw material and 90% less time. We have spent probably the last 10 to 12 years in developing our offering to our customers through material development, machine development, qualification of the process, releasing specifications and now we're at the point where we're cycling, as you can see in the second half of this chart, building the business case for each part and then qualifying that individual part and getting it into production. The times there are much shorter than the 10 to 12 years during 3 months to 6-month time frame to get into serial production with parts. This year, we've had a number of wins across all 3 sectors that -- or markets that we're looking at. In commercial, we've signed a Master Supply Agreement with Airbus. We signed serial production supply contract with Boeing, and we've demonstrated capability to one of our customers for parts that are 1.5 meters long using our second generation machine that is designated to G4 large. In defense, we've got our first serial production order for a prime contractor for the DoD. Northrop Grumman has completed their material qualification, and we've delivered quite critical components to General Atomics. We've also begun development of our process for Inconel 625 for the U.S. Navy through a contractor for the U.S. Navy. And then on the industrial side, working with Hittech. We've got long-term production orders for carrier trays. We've received a third production order from them with an annual recurring revenue of $2 million. And we've -- the last 2 parts we put on contract are entering into serial production as well. Not restating everything on the slide, but year-to-date, 28 parts in serial production, generating an annual recurring revenue of $11 million. This is 3x the number of parts we had in first half of '23 and 3x the annual recurring revenue. Now Ashar Ashary, our CFO, will present.

Good morning, and welcome to the financial presentation. I'll go over the numbers that Carl talked about in a more quantitative manner. So just a year ago, in late August, we only had 8 parts of serial production that generated $2.5 million in annual recurring revenue. Today, a year forward that we have a 3x increase in parts and serial production. We have 28 parts in serial production today, generating $11 million in annual recurring revenue. Their annual recurring revenue is over 4x what we had just a year ago. That speaks to the nature of the volume of the part that we -- the volume of the reoccurring nature of the contracts that we're adding to our serial production. We continue to focus on shortening the lead times, like Carl mentioned, to bring customers into serial production at a faster pace, referring back to the cycle, the product development and the cycle of the qualifications and transition those parts into serial production. I'm going to move over to the next slide. So these results are quite telling in my opinion. The revenue grew from $0.9 million just a year ago to today at $1.3 million in the first half. The one thing to note on this slide is the serial production revenue grew from $0.2 million -- or $0.3 million to $0.9 million. That's over a 4x increase in serial production revenue, which speaks again to the nature of the growth coming through serial production and parts in serial production. Overall, the EBITDA loss was about $12.1 million, similar to a year ago. The one thing that I would point out in our financial statements that you'll notice is unrealized loss from net financial expense grew significantly to negative $14 million. This transaction was the latest transaction we did with the warrants, brought the warrants into the financial liabilities of the balance sheet and the fair market value of those warrants are accounted for -- the changes in fair market value are accounted for in unrealized expenses in net financial expense. So overall, the loss, it shows a net loss of $27 million. But from an operations point, this is a financial transaction. So as we go forward, these losses will be reversed as the warrants are exercised later this year. Okay. Moving on to the cash flow side. We started the year with only $1.2 million in cash. We ended the first half with $23.9 million in cash. Carl talked about the various transactions that we did in the first half of the year, and that has improved our financial position quite considerably and funds us through our breakeven point. Our cash burn has increased slightly from $1.9 million to $2.3 million month-over-month, but that's in line with our expectations as we ramp up the production and we scale up our teams to deliver product to customers. We have limited amount of investments in our business. As everyone knows, we have 32 RPD machines that can generate 700 metric tons of titanium. So we're well equipped to take on the growth in the business. From the financing activities that we did earlier this year, we generated a net cash of $36.1 million, and that improved the financial or the cash position of the company. We did have a subsequent event and since [indiscernible] shares. The transaction is not fully reflected in the financials because the cash and the share capital was issued after June 30. At this point, I'm going to transition back to Carl to take you through the outlook section. Thank you.

Thanks, Ashar. Current market dynamics. So aerospace is recovering. Both the Airbus, Boeing are working hard to increase production rates. Ultimately, that will translate into hopefully additional orders for us. The interest we have is trying to help the supply chain of those large companies recognize that we are an alternative to the traditional manufacturing and can help them increase their production rates. If you look at the numbers here, I won't read them. The trend is very strong, very positive for aerospace. So our outlook, where our current annual recurring revenue base is $11 million based on the 28 parts in serial production, we're reiterating our year-end part of 60 parts in production, some high-value parts because of the nature of the business. Some parts are moving in, some parts are still in the mix, but some are coming sooner than others. So that we do expect that the high-value parts to slip into 2025 with the timing of the ARR of $50 million to be following suit. Our full year 2024 production revenue is expected to be between $10 million and $12 million. What we're doing to ensure or to facilitate part transitions, we've identified opportunities, supplementing the original parts that we had to make sure that we continuously are looking for parts that generate revenue at the margins that we're looking for. Some customer demand has accelerated other parts into our flow. And we're looking for additional ways that we can help our customers and help us get parts into our customers' serial production. We are looking at -- we have consultants who are former executives that can help us get access into the programs of record that we're looking for. And we're looking at generating our own interest through customer pull. For parts in serial production, in the chart, you see year-end -- year-to-date 2024 is 28 with a total of 60 at the end of 2024. Those 28 parts generated $11 million in revenue, and the $50 million is expected to be annual recurring revenue is in the first half of 2025. We are not changing our projection for 2026. We still believe our breakeven point is there at greater than $120 million -- or $160 million and 120 parts in production. So we presented this chart before, and it remains true. The one thing I would suggest is that the with that very narrow line on growth is a little broader band. We have parts coming in, parts going out. The timing is the same. The trajectory is the same. Some cycle times are a little bit longer than others in getting into serial production. But the overall trend is still true. And our growth to 2026 from parts, you can see we presented this chart before. We project $10 million to $12 million in recurring revenue this year. And in 2026, we expect to have 120 parts in production, generating an EBITDA of 30% and carrying us through to positive gross margins rising to 50%. So the summary is, we're expanding our parts production. We have the capacity. Our customers are taking notice. We're looking at ways to improve the -- their supply chain cycle times to make sure that we maintain control of our business. And we're targeting an EBITDA margin of 30% in 2026. So this is a reminder of the size of the market that we're looking at, 120 parts in 2026, just scratches the surface of the commercial, defense and industrial markets that we are addressing. And thank you. I think it's time now for questions.

Let me switch over to the questions. Okay. So the first question. The first question is Norsk Titanium missed their financial guiding. Do you still have enough bridge until you are cash positive from operations? I'll take that question. Yes, we don't see this -- we don't see the miss as a significant miss. We -- things are coming in and out, as Carl explained. The cash position is still intact, and we are still on track to breakeven end of 2025 and become cash flow positive generating from operations in early '26. So it doesn't change our outlook even though some parts are slipping in and out. So our outlook remains unchanged. Sorry, I'm just going through the questions. Airbus and Boeing, do we have -- or here, let me move this in. Do we have orders that -- there's 2 companies, best regards. Okay. So -- yes, so sorry.

No, go ahead.

So I'll just read out the question and then you can answer it, right? So Airbus and Boeing, do we have orders from these 2 companies?

We do. And we've begun invoicing Airbus. We are also producing and invoicing Boeing this year for a large production order that we announced where we're delivering directly to Boeing. And we continue to produce parts for the 787, we've been in production for 7 years. Those orders are still in production. So yes, we have orders from both.

Yes. So how many parts do we have on contract? So we have 28 parts on contract. The broad breakdown is about 7 parts are for Boeing. We have 2 plus 7, 12 parts for Airbus in production and 4 parts on the industrial side with Hittech. So is NTI considering switching to quarterly reports rather than only twice a year? So at this time, we continue to report half yearly as per regulations of the exchanges that we're listed on. We will continue to communicate with market the way we have in the past. It has been more frequent than quarterly in the last year. So we'll continue the way we're operating today, and we'll consider quarterly as we move more into -- as more velocity moved into through the company. Okay. So I'll bring this question up. It's a fairly long question. I'll read out, Carl, maybe you can take -- jump on this question. In order to reach guidance for this year, how do you foresee the ramp-up in second half? Looking into 2025, how do you see a ramp-up in order for -- to reach 2026? Can you comment on how your business with Airbus and Boeing has evolved during the first half and how the current trading with these 2 companies -- 2 important customers?

So let's see. How are we going to reach our guidance of 60 parts in the second half? We have taken some steps to make sure that we're in a position to accept orders. We have raw material inventory. We've done some preliminary design work for 4 parts. The parts that we expect to get to the 60 parts by the end of the year, we are already aware of. We have already submitted proposals for, and we anticipate that those ports will be ordered before the end of the year. Looking into 2025, how do you see the ramp-up in order to reach the 2026 guidance? So going in with a base in the first half of $15 million, we also anticipate another 30 parts next year. We anticipate these will be larger. We are working with supply chain and trying to get the attention of the programs that need the cost savings that we can provide them, that will bring us larger parts and shorter lead times for 2025 and 2026. Can we comment on how our business with Airbus and Boeing has evolved during the first half? We continue to be closely engaged with both Boeing and Airbus. Our development activity and qualification of individual parts is ongoing. I think, to our knowledge, we are the only supplier of additive structural components that either company is looking at.

There's a question here that says, how much additional cash do you expect from the capital raise done in the first half? So as I mentioned, in the first half, we did several capital raise transactions. We raised on gross proceeds of about $46.1 million. Out of that in the rights issue, we issued about 164 million warrants. And we have converted about $28 million of those warrants into cash and shares. We expect that the remaining warrants will convert in November, in the November window, and we're expecting to generate somewhere close to USD 13 million from those warrants. Okay. Just going to go through down the list here. We have 5 minutes. Okay. So it says, will you be able to reach your 2026 targets with your current part of machines? Or do you need additional machines or a new factory? Is your current cash position sufficient to finance your growth until 2026?

I think we answered the second half of that question and the installed capacity that we have in New York of -- total of -- we have a total of 35 machines, 32 of them are in New York. They have the capacity to meet our targets with -- I think we end up with still more than half as much capacity remaining to go after additional work.

Yes. And there's a follow-up question here is, are you affected by Boeing's current troubles?

So the Boeing's issues provided a distraction. But as we noted earlier, they are trying to increase their production rate on the airplane. We are on the 787. They're attempting to double that, that is very beneficial to us. Our engagement on that airplane and the fact that we have already got qualified parts on there is really good for us. And we continue to be engaged with them and evaluating additional parts almost monthly.

Okay. So there's a question here. When you push the $50 million ARR target out to first half 2025, are you thinking Q1 or Q2? And the follow-up question to that is, what is the current estimate for breakeven number of parts and ARR? When do you believe you will reach it? Do you want to take the first part on the question?

Sure. The current procurement time for reaching the $50 million, we anticipate will be in the first quarter of 2025. We know the parts, we've submitted our proposals for them, and we have sufficient volume that we will get the 60 parts and to the $50 million in the first quarter.

Yes. So the second part of that question is talking about the breakeven. I'll answer it not exactly the way the question is asked. But -- so we continue to control costs and we measure cost to basically how we're transitioning parts into production. Our breakeven point hasn't changed. So we continue to expect between $70 million to $80 million to be our breakeven revenue that we need to generate to breakeven in 2025. With the slippage of some of the parts that we're expecting in 2024 to slipping to 2025, that doesn't impact the revenue number as much. So we continue to stay focused on that. Again, $70 million to $80 million is our breakeven point in revenue. So if we get to that revenue point, we can control our costs within that band to get to breakeven by the end 2025. So that continues to be our goal in 2025. Why doesn't ARR correlate with actual revenues? At the end of 2023 ARR was $4 million and during first half '24, active revenue was $1.3 million. So again, the way to understand ARR is it's the total volume of the forecast for the full year of production -- for production for parts. As you know that Boeing and Airbus are both increasing rates as well, so that impacts ARR directly as well as we go forward. So it also depends on when in the year the production is slotted in, right? So if you lose -- if production is slotted in half year, so you get only half the annual revenue. So that's why it doesn't correlate directly. But it is a good guiding measure that shows the volume of business that it will generate as the years come, right? And these -- I would like to remind you that these revenues are sticky, right? So they occur year in, year out, year in, year out. So it's a measure to show 1 -- how many parts that transition to serial production, but also to show the volume of parts that that specific part number will generate for years to come.

I think specifically, the question here was we had $4 million in recurring revenue at the end of 2023 and we have sales right now at $1.3 million. So the interpretation of that is it's not the full year's revenue yet because we're not finished. And right now, as we invoice the terms of the contract, not all of those invoices are recognized at this time.

Yes. Thank you. That's a good supplement. Let's take this last question. So last question, can you say anything more on Airbus Wave 2 that was going to commence in Q2?

Yes. We are invoicing some parts for Wave 2. We are in qualification of the second part for Wave 2. It will be up to Airbus when they declare a qualification complete. But certainly, for our contributions to that, we are pretty much on the path that we were projecting.

Okay. With that, I think we're out of time. So we will close this presentation. So thank you for joining us.

Thank you very much.

Yes. And please send us your questions by e-mail, and we'll respond.

Thank you.