NextTrip Inc (NTRP) 2020 Q3 法說會逐字稿

Good day, and welcome to the Sigma Labs Third Quarter 2020 Financial Results Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Tyson, Executive Vice President of MZ North America. Please go ahead, sir.

Thank you all for taking time to join us for Sigma Lab's Third Quarter 2020 Business Update and Results Conference Call. Your host today are Mark Ruport, President and Chief Executive Officer; and Frank Orzechowski, the company's Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:01 p.m. Eastern today and is available on the company's website, sigmalabsinc.com.

Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects are looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information.

At this time, I would like to turn the call over to Sigma Lab's President and Chief Executive Officer, Mark Ruport. Mark, the floor is yours.

Thank you, Chris, and good afternoon, everybody, and thanks for joining our conference call today. Q3 was a very successful quarter for Sigma Labs. We executed on every part of our plan and continue to get great validation from both end users and OEMs for our technology and the need to address the issues of quality, consistency and standards within additive manufacturing.

Additionally, we have expanded our product line and market opportunity, we've strengthened our balance sheet and we've added sales and marketing resources. We have also entered into global agreements that I believe will generate independent revenue streams for years to come. Not bad for 90 days and 20-some people. In spite of COVID, which has impacted our short term revenue, we have put the company in a fantastic position for a very successful 2021.

Before I go into details on the above, I'll ask Frank Orzechowski, our CFO, to review our financial results, and then I'll provide some color and context around the quarter. Frank?

Thank you, Mark. Our detailed financial results are contained in our Form 10-Q filed with the SEC today and the press release we issued contains key highlights of our financial results. So for today's call, I will provide a summarized review of our financial results for the third quarter of 2020.

Revenue for the third quarter of 2020 totaled $249,000, this compares to revenues of $171,000 for the second quarter of 2019 -- third quarter of 2019. The increase in revenue was due to increased PrintRite3D unit sales, including the first sale of our newly released PrintRite3D Lite unit during the quarter. Gross profit for the third quarter of 2020 was $150,000 as compared to negative $8,000 in the third quarter of 2019.

Our total operating expenses for the third quarter of 2020 were $1.4 million as compared to total operating expenses of $1.6 million for the same period in 2019. The decrease in our operating expenses is primarily due to lower R&D costs during the period as well as reduced travel expenses as a result of the COVID-19 related pandemic.

Cash used in operating activities for the 3 months ended September 30, 2020, totaled $1.2 million compared to $1.8 million in the third quarter of 2019, a decrease of $0.6 million. Cash used in operating activities for the 9 months ended September 30, 2020, totaled $3.7 million compared to $4.5 million for the same period in 2019, which represents an 18% decrease primarily as a result of a $967,000 decrease in our net loss.

Further note that included in the year-to-date 2020 cash usage is approximately $400,000 related to trade accounts payable carried over from 2019 due to a delay in our financing at the beginning of the year. Our net loss applicable to common shareholders for the third quarter of 2020 was $1.9 million or $0.42 per share as compared to a net loss of $1.6 million or $1.20 per share in the third quarter of 2019. Preferred dividends contributed to $740,000 loss in the quarter.

Now turning to our balance sheet. As Mark mentioned, we have strengthened it in several areas since 2019 year-end. Our cash balance totaled $4.5 million at September 30, 2020, as compared to $2.5 million at June 30, 2020, and $87,000 at December 31, 2019. The increase in cash during the period was a result of warrant exercises from our January 2020 private placement of convertible preferred stock and warrants.

Our working capital was $5.2 million at September 30, 2020, as compared to $2.8 million at June 30, 2020, and a working capital deficit of $98,000 at December 31, 2019. Our trade accounts payable totaled $182,000 at September 30, 2020, as compared to $295,000 at June 30, 2020, and $727,000 at December 31, 2019, a decrease of 75% from 2019 year-end.

Our stockholders' equity totaled $6.1 million at September 30, 2020, as compared to $652,000 at December 31, 2019. And I would note that our January and April offerings, together with exercises of preferred warrants have contributed net proceeds of $8.4 million to the company during the first 9 months of 2020.

And with that, I will now turn the call back over to Mark.

Thanks, Frank. Obviously, some good progress there. All right. Let's start with a short review of our value proposition and strategy. Then I'll discuss why we're so pleased and excited about our progress in the quarter and our positioning.

We believe, as do many others that additive manufacturing will play an increasingly important role globally for decades to come. The need to produce customized mission-critical parts on demand that are lighter, stronger and more durable and manufactured closer to where they're needed will only increase with time.

As we know from our own individual consumer habits, once we get used to instant gratification, ultimate customization, unrestricted availability, we never go back. Just look at the number of Amazon packages arriving at your house every day.

HP just recently conducted a study, which I have to assume is a little bit more scientific than my Amazon package study and found that 85% of manufacturing respondents plan to increase their 3D printing investment. And 75% of the respondents say that 3D printing helps their company be more agile, is more -- and is a viable alternative to traditional manufacturing. So clearly, the focus and attention on additive manufacturing continues to accelerate.

In order for metal 3D printing to fulfill its potential, 3 things must be addressed. Quality, consistency and standards. Our product, PrintRite3D and now our recently introduced PrintRite3D Lite and PrintRite3D DED address those issues head on.

Our patented In-Process Quality Assurance or IPQA technology can not only detect and classify defects and anomalies during the printing process, but with the advances that we're making with our machine learning initiatives, we can predict when certain defects are likely to occur.

And as many of you know, PrintRite3D is agnostic to the type of 3D printer. And because we're agnostic, we're able to ensure a standard level of quality across different printers from different manufacturers. Many of you have heard me in the past make the analogy to systems or security of systems management software running across a heterogeneous computer and enterprise.

Although every computer manufacturer had their own security and systems management software, the only way to secure the enterprise was with a standard based third-party independent software application. With 3D metal printing, the only way to assure quality and consistency is with a standards-based third-party In-Process Quality Assurance solution like print right 3D.

So what progress have we made? And why are we so confident and excited about the future? First, as I mentioned earlier, we've expanded our product line and market opportunity with the introduction of PrintRite3D Lite and our initial contract with Coherent OR Laser. And PrintRite3D DED, Direct Energy Deposition and our partnership with Northwestern University's advanced manufacturing program.

Both products increase our market opportunity and will allow us to increase our footprint and extend our brand in the broader additive manufacturing market. Second, we announced that both DMG MORI and additive industries have certified their printers that's PrintRite3D ready. This is a significant milestone for the company. And it introduces leverage into our business model. It also dramatically shortens the sales cycle.

From a sales perspective, contrast being brought into an opportunity early by a trusted partner, like DMG or additive, during the initial sales process versus trying to sell to the manufacturer after they've acquired the printer and have been convinced by the printer OEM that quality is not an issue with their system.

Next, we announced a contract with the major oil and gas services company. And as many of you have speculated after 2 RTEs, one on a single laser EOS printer and the other on a dual laser SLM printer, the customer Baker Hughes purchased their first production system for their additive manufacturing facility in Houston. This is one of several out of manufacturing facilities Baker Hughes operates around the world.

And finally, we just announced our strategic alliance with in 4 points to help ensure a consistent level of quality for their factories of the future. This is particularly exciting to me and that I believe it will put the country on a path towards self-sufficiency to manufacture critical parts in times of crisis.

Now I'd like to bring you up to speed on a few other accomplishments. We installed a PrintRite3D system at Airbus to begin the qualification process on a GE concept laser machine. We also successfully installed the system at Mitsubishi on an SLM 280 3D printer. We did the installation remotely working with their engineers at a significantly lower cost of the company.

DMG North America acquired a system to certify their new laser tech dual laser machine. We anticipate the certification process to be completed by the end of the year. We finalized the quad laser in situ process monitoring design and configuration for the MetalFAB1 at additive industries to become PrintRite3D ready.

We also integrated PrintRite3D with the MCP control at Materialise, which sets us on the path to closed-loop control. And we continue to collaborate with international standards groups. We developed a black body temperature calibration source and partnership with NIST using the PrintRite3D system, again, all in the last 90 days.

As you can see, we have a lot to be proud of regarding our accomplishments for the quarter. The question, of course, now becomes how and when do these accomplishments translate into recurring revenue streams and profitability for Sigma.

Well, I can't pinpoint the timing, but I believe that it's inevitable and sooner rather than later. Each of the partnerships I mentioned provides leverage to sell multiple systems that are capable of generating significant revenue starting in 2021.

DMG alone has approximately 800 salespeople and 100,000 customers worldwide. Our strategic alliance with IN4.OS is a direct result of DMG certifying their printers as PrintRite3D ready. In fact, DMG North America had a virtual conference last week, and over 600 attendees listened to the presentation, introducing their laser tech 30 dual SLM printer as being PrintRite3D ready. As a matter of fact, the presenter was actually filmed in front of one of their printers, and our system was adjacent to it.

Additionally, the large multinational manufacturers that are now going into production with our systems are all expanding their additive manufacturing initiatives, and each one presents a multimillion-dollar opportunity for expansion. We recently submitted a budgetary quote for a 10 system purchase, which we will address with PrintRite3D enterprise.

Now I'm not forecasting that yet. However, I believe it's a clear indication of the intent and that we'll see repeated by all our large users. And as one user said, I can't imagine a production system without PrintRite3D.

These revenue streams are independent and additive and pun intended. Lay 1 OEM doing 10 systems a year on top of another doing 15 or 20 on top of a few global end user expanding their additional facilities add resellers in Japan and India doing a few systems each, and the numbers for 2021 get very exciting. The difference between a leverage model versus our 2 salespeople selling each system by the cells is night and day.

The focus now is clearly on leveraging our position and entering 2021 with momentum. I intend to have everything in place on July -- January 1 for Sigma to have an outstanding year and reach the debt benefits of the investments that we've made, not only in our technology, but more recently in our sales and marketing initiatives.

There is no other in process quality assurance solution on the market with proven patented technology that is positioned as we are to benefit from and grow with additive manufacturing as it takes its place along traditional manufacturing and reaches full industrialization. And as noted from HP study, and other industry studies, the pace of adoption is accelerating.

So in conclusion, we're poised, ready, excited and eager to face the challenges and opportunities in front of us in '20 and '21 and beyond. I think it's going to be a great year for Sigma.

So with that, I'd be glad to answer any questions that you might have.

(Operator Instructions) Your first question comes from the line of David Lavigne with Trickle Research.

Mark, great information. That was really all very helpful and, I think, positive. Can you talk a little bit -- it seems to me that the last couple of announcements, you've alluded to it a lot in the call, but with respect to [D] being coherent. I'm curious if you have -- can give us any sense of how much broader, sort of, you reaching down and reaching across, I guess, has expanded the addressable market. And I'm also curious whether or not those entrees were things that you, sort of, came about as a result of, kind of, customer inquiries or customer discovery or if it's just the places you knew you had to go?

Yes. A good question, and I appreciate it. So the first one, PrintRite3D Lite, it was actually in my trip in January to Germany when we visited OR Laser. And it became clear that the economics of them incorporating our technology into their printers who was not viable for them.

And we had other customers ask about what we call pit only, which is now PrintRite3D Lite, and we decided that if we could qualify a version of that and bring it to market with an organization like coherent working with us that we would do sell. So the first one was clearly out of demand from a customer or a prospect at that time that we visited.

If you look at the printers that we operate on today with the full version of PrintRite3D, those are the higher end metal printers. And so the mid-market or the mid lower market of 3D metal printers is about twice the size of the higher end market. So we think it's a tremendous opportunity, many more machines, but the cost is much less.

PrintRite3D DED or Direct Energy Deposition, that was actually a requirement that came out from one of our customers, and we have the opportunity to work with Northwestern University who acquired a system and agreed to help qualify that with us. The DED market is not as big as fusion market, but it's a nice addition to our portfolio.

And as you see, we expand -- we're expanding horizontally and vertically, vertically into lower end and mid-tier printers and horizontally into different processes. So I don't know if we've quantified the total opportunity. But I would say it's at least the size of the opportunity that we have on the high end 3D metal printing.

I'll have 2 more questions, but I'll be quick. Did you say that the system you installed for Airbus was a GEs?

We installed on a GE concept laser machine.

So that's sort of surprising to me and maybe just because I misunderstood this all along. But I've always, sort of, thought that the relationship with GE, and I don't know if relationships is on the right word, but have a thought of GE as being a little bit adversarial to things that you're doing or maybe GE just sort of forging its own path and not thinking that it needed anything that you were doing. I mean, that sort of seems contrary to what I thought in that regard. So I'm wondering if I thought it wrong or if you've kind of created a milestone there.

No. We're not working with GE. We're working with Airbus and Airbus has many different types of 3D printers in their supply chain. They can't control the manufacture of the printers. So they're a perfect example of why you need an agnostic third-party quality assurance because when they qualify a part for the FAA and come up with its core criteria, they have to be able to meet and certify that criteria regardless of printer. So our installation at Airbus had nothing to do with GE specific. It just happened to be on a GE concept laser machine.

So -- okay. Well, I'll talk to you later about that. I've got some other questions about that. Can you tell us how many systems were actually sold in the quarter? I mean, does it sound like -- I guess I wasn't thinking that were actually PrintRite sales. Is that something you can address?

There a couple -- there are a couple of regular PrintRite systems, then the PrintRite3D Lite system.

(Operator Instructions) Your next question comes from the line of Elliot Levine with private investor.

This is Elliot Levine. I wonder if you can give me an idea of what would you expect your percentage of sales of revenues in 2021 to be software versus hardware and then what would you expect it to be 2 or 3 years from now?

Yes. Great question, Elliot. We talked -- I talked earlier about leverage. And so we're getting leverage in the sales model now. We get real leverage when we move to a software-only relationship with an OEM because then we're able to move the cost of goods the hardware to the OEM, and we're just basically selling bits and just transmit them all over the wire. So the gross margin goes up to over 90%.

So the answer to your question, for 2021, our hardware should be about 50% to 60% of our total revenue with software, 40%. And I'll ask Frank Orzechowski to qualify this, if I said anything incorrect. And then we see the hardware component decreasing in 2022 and beyond and the software component increasing in 2022 and beyond.

As a matter of fact, one of the reasons I like PrintRite3D Lite is that it's a lot easier for the OEMs to take over the hardware provisioning with the light system than it is with the full system. So you'll see us increase the software revenue and decrease the hardware revenue as we get the leverage with the OEMs and the distribution model.

So you would say, let's say, 3 years from now, 2023, that the percentage of hardware -- if your total revenues are, for instance, $20 million, your -- you would say that the hardware would be maybe 20% and the hardware (sic) [software] would be 80%. Is that what you're implying?

The hardware would be 20% to 30% and the software would be 70%, 80%.

I see. Okay. I have another question, but I...

Sure, go ahead.

What do you estimate your burn rate is at the present time?

Well, if you looked at the results, and again, I'll ask Frank just to double check me here, we're burning -- what do we burn $1.2 million for the quarter?

Yes, $1.2 million. It's about a little over $400,000 a month now, about $415,000, call it, for operating activities.

Right. I would expect that to come down in the next couple of quarters, just like we brought it down in the last couple of quarters.

So you would expect it to go down because of increased revenues?

Yes.

Increased revenues, it's also -- Mark alluded to the Mitsubishi installation and the fact that we did that remotely. And with COVID-19, we have begun to do a lot of our installations now remotely, and that is -- that has saved us a turn -- we couldn't travel to begin with, but it has forced us to be more efficient and rethink how we do things. And so we expect ongoing savings in the future by some of the efficiencies that we've now built into our processes.

So that means assuming that the burn rate is, let's say, $1 million in the October to December quarter. Your cash at the end of the year, would be somewhere in the order of around $3 million.

Between $3 million and $3.5 million.

Do you think we're getting -- I think we're getting dangerously close to the point where we need some kind of an offering?

Well, there's a lot of things that come into play in trying to answer a question like that. And so right now, we don't have any plans to do an offering short term. We always think it's prudent be prepared and raise capital to fuel growth. But at the current time, we don't have any plans, but we will raise capital when we see the need to in order to fuel our growth and to meet our plans.

Your next question comes from the line of [Ralph Wheel] with [R. Wheel] Investment Management.

Mark and Frank, nice report. How do you see the aerospace industry unfolding going forward? And what is needed for Airbus to come into fold and to give you the business that you've been working on?

Thanks, Ralph. One of the reasons that we brought in Steve Immel for business development in the United States was to go after aerospace because we haven't had a focus on it. So we see it contributing revenue and opportunities for us in the future.

Also, I think it was noted in the additive industries press release that they have a significant foothold within the aerospace community. And we anticipate they will bring us into more aerospace opportunities. So we see that as an increasing opportunity for us.

And the second one on Airbus, Airbus was hit tremendously hard as were most airplane manufacturers and airlines with COVID. And that slowed them down considerably. They probably lost a half a year in our project. And so that was the first reason for the slowdown. Now that we're installed, we expect them to hopefully certify their first part and begin to go into production early part of next year.

So it was a combination of macroeconomic events hurting their industry and then it just took Airbus a little bit of time to react. But now that they're installed, I think they'll be making up time pretty quickly.

Could you comment a little more on -- and I'm not sure what it is exactly. IN4.OS project with the smart factory of the future. And how you will fit into that?

Sure. IN4.OS is a private company as they are contract manufacturing or they do both traditional contract manufacturing and now making a major push into additive manufacturing. They're a DMG customer on the CNC side and now became a DMG customer on the 3D metal printing side. And we were introduced to them during -- because of that relationship and put together a strategic alliance with them.

And we'll be ensuring the quality of the components coming out of their additive manufacturing facilities as they begin to build them across the country. And they're not sure and we're not sure how many they're going to build, but it's going to be more than a couple and it will be to complement their other traditional manufacturing contract facilities that they have.

Your next question comes from the line of Anthony Charos with Symmetry.

Mark, great job, guys. I was wondering if you could speak a little bit about the closed loose solution, where we are. And I don't think a lot of people understand exactly the potential of that. And I was hoping you could just comment on that a bit.

Sure. So when you think about closed loop, you think about the monitoring process, instructing the 3D printer during the process to make certain corrections. And that's important because it saves machine time, it saves material. It reduces cycle time during the manufacturing process.

Today if a monitoring system sees something, we notify through messaging and other things, the operators and they choose what they'd like. In the future, closed-loop will notify the machines operating system. And the machine will then, let's say, change the laser power on a certain laser in order to correct a defect or anomaly that's in process.

So it greatly automates the production cycle and reduces the cycle time. The first installation or instances of us closing that loop right now is with Materialise. And because we've integrated with their MCP, we're getting close to being able to demonstrate that and bring it to market.

It's our plan to do that with all of the 3D printer manufacturers that we develop relationships with. So it's a major step in the evolution of 3D printing. It reduces the cycle time, and it makes the process that much more efficient.

Your next question is a follow-up from David Lavigne with Trickle Research.

So Mark, you were talking about just kind of just sort of hypothetically orders and bits and pieces from this place in that place and another. But as I started looking at it now, and we've discussed this before, but I'm having a hard time envisioning maybe, say, additive shipping if I go ship 30 machines next year.

I'm having a hard time understanding the scenario where they would ship a machine without PrintRite. And I guess maybe as kind of an extension of that, I know we've talked a little bit in the past about even situations where you had OEMs that were maybe potentially voiding warranties if companies are adding PrintRite. Do we approach a point at some point where the warranty is predicated on PrintRite?

Well, there's a lot to unpack there, David, but when they give it a shot. We believe that the end users will demand from printer manufacturers that they do not void warranties if they put a third-party product, whether it be ours or anybody else is on the printer.

And I believe that as large end users who have a heterogeneous printer environment who adopt our technology will put the pressure on the printer manufacturers, not to void the warranty. And of course, when they -- printer manufacturers do that, they hurt their own customers. So I think that's going to be a self-correcting type of situation.

As far as additive industries and what they ship. In the past, of course, they've shipped without our monitoring system. And one philosophy is you come up with a process and you lock down that process and you use that process to produce a certain part. That takes a lot of the agility out of the advantages that additive manufacturing or 3D printing brings to the marketplace.

So I think that as customers begin to see the ability to manage quality and not have to lock down the process that you'll see more and more printers being shipped with monitoring system like ours. And we'll go after both the new sales of our additive and the additive customer base. So we'd love it if they ship it with -- ship a copy of our product with every printer.

And if you take additive aside, the vision we have is to do an embedded non-optional software-only OEM deal, an embedded non-optional software-only means that every printer that goes out will have our software incorporated into their computing infrastructure. And we then get ultimate leverage both in the sales model and in the financial model.

Your next question comes from the line of Harold Weber with Aegis.

I was wondering if you could try and illustrate a little bit some other companies that are out there doing not exactly what we're doing, but that are value-added in these spaces and the type of valuations they have. Because people here say it doesn't make sense, the company is worth $10 million, it doesn't make any sense. People saying, "Hey, if it's going to be any good, it would be a 10x or 100x that." So I was hoping you could enlighten us on just give us comparisons of things that have worked a little bit further down the road and once developed with them.

Boy, I don't have a comparison on the top of my head for a third-party software company that's attached to the additive manufacturing industries.

Not necessarily in the additive manufacturing, but there are many companies that are out there creating manufacturing improvements along many lines that we're trying to cross.

Yes. And I apologize, I don't have a good analogue for you relative to somebody to compare us to. All I can tell you is that we're at the early stages of the 3D metal printers and the manufacturers and end users looking across a heterogeneous set of printers and trying to come up with a standard way to be able to manage that infrastructure.

There are other large companies that are doing end-to-end digital threads that tie together the design and the simulation all the way to the quality. But those are big initiatives within large organizations. So I don't have a good comparison for you.

Okay. Well, going back to the size of the markets that you're obviously trying to penetrate and increase we had discussed this a while back. The ad going out a year or 2, you were talking about sales in the space and the -- I forgot what the number was $5 billion? $6 billion? $10 billion?

And then the hardware or the software side, yet our -- like you say, let me be ideas have it embedded within the OEMs, that's great, right? So based on the math that I have heard before you're talking about, let's say, it was about $100,000 a machine for the set up per unit. Is that still in the general area...

For a single laser...

Machine we're talking about $1 million machine, you were saying the software package was about $100,000. Is that still about correct?

The cost of PrintRite3D, which is an integrated hardware and software package for a single laser machine is about $100,000. About $50,000 of that or half of it is hardware. So the software component is $50,000 and the hardware component is about $50,000.

So one customer would ultimately want some multiple sales to how many of those pieces of hardware do they need? They have 10 printers? Do they have 10 software programs and 10 hardware or one hardware and software programs?

It would depend on how many lasers on each machine, but it would be a one-to-many relationship. So we would have one hardware server, a larger server or PrintRite3D enterprise that could support 10 printers, depending on the number of lasers that the printers have.

Okay. So with that type of model, I'm assuming you're pursuing, that would be 90% of your recurring money would be on the phase -- on the software rights, which is a 90% -- 80%. 90% profit, right? Is that basically correct?

I don't know if your math is exactly right, but your direction is 100% correct. You'll see the movement, as we discussed earlier, going more towards software and the margins go up dramatically as we drop the hardware component.

But let me be clear, we'll always have a hardware component for end users where we go after the retrofit market. So we're looking for a balanced model where you have a software-only to OEMs and then a hardware-software to end users and retrofit.

Is there a different market that you're pursuing that would be more weighted one side versus the other? Or that's agnostic?

It doesn't matter.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Mark Ruport for closing remarks.

Well, everybody, I appreciate your participation today and your interest in what we're doing. What we tried to accomplish in the conference call tie the things the milestones and achievements to leverage in the revenue that we expect to see in the future. And I think we've positioned the company to take advantage of the opportunities that are there, and I appreciate your interest. And if you have any follow-up questions, please don't hesitate to follow-up with me or MZ or with Steven Gersten, our IR person. So thank you very much. I appreciate your time and attention, and we look forward to speaking with you in 90 days.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.