NextTrip Inc (NTRP) 2020 Q4 法說會逐字稿

Good day, and welcome to the Sigma Labs Fourth Quarter and Full Year 2020 Financial Results Conference Call and Webcast. Today's conference call is being recorded.

At this time, I would like to turn the conference over to Mr. Chris Tyson, Executive Vice President of MZ North America. Please go ahead, Sir.

Thank you, and good afternoon. I'd like to thank you all for taking time to join us for Sigma Lab's Fourth Quarter and Full Year 2020 Business Update and Results Conference Call. Your hosts today are Mark Ruport, President and Chief Executive Officer; Frank Orzechowski, the company's Chief Financial Officer.

A press release detailing these results crossed the wires this afternoon at 04:01 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 forward-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's President and Chief Executive Officer, Mark Ruport. Mark, the floor is yours.

Thank you, Chris, and good afternoon, and thanks for joining our call today, everybody. I hope everyone is safe and healthy as we enter what we all hope to be the final turnover of the pandemic. I know I'm excited for both the end of 2020 as well as the start of 2021 and the activity that we're seeing in the market, which I'll discuss shortly.

First, I'll ask Frank Orzechowski, our CFO, to review our 2020 results and financial situations, and then I'll put the year in perspective and discuss a road map for 2021. Frank?

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

Our revenue for the full year of 2020 totaled $807,000 as compared to $402,000 for the full year of 2019, primarily as a result of increased sales of our PrintRite3D system. Our gross profit for the full year of 2020 was $216,000 as compared to 2019's gross profit of negative $172,000. Our 2020 gross margin of 27% includes costs associated with our legacy RTE programs as well as parts and materials upgrades for certain existing customers reflective of engineering enhancements throughout the year.

Our total operating expenses for 2020 were $5.9 million compared to total operating expenses for 2019 of $6.2 million. The decrease of $300,000 in total operating expenses was primarily driven by decreases in R&D costs of $297,000, resulting from substantially completed product development in 2019. Lower organization costs of $105,000 due to reduced directors compensation in 2020, savings of over $300,000 in travel costs as a result of COVID-19 travel restrictions, and lower depreciation expense of $88,000 due to an increase in our fully depreciated assets. Partially offsetting these decreases were increases in salary benefits of $268,000, stock-based compensation of $100,000 and other operating expenses of $127,000, primarily as a result of an increase in our D&O insurance premium for 2020.

Net loss before preferred dividends for the full year 2020 totaled $5.2 million compared to a net loss of $6.3 million in 2019. After accounting for preferred dividends of $1.8 million in 2020 and none in 2019, the net loss applicable to common shareholders in 2020 was $7.0 million, a loss of $1.83 per share and a net loss applicable to common shareholders in 2019 was $6.3 million, a loss of $5.37 per share.

Cash used in operating activities for the full year ended December 31, 2020, and totaled $4.8 million compared to $5.5 million for the full year ended December 31, 2019.

Cash provided by financing activities for fiscal 2020 was $8.7 million, consisting of $2.9 million in net proceeds from our public and private offerings and $5.8 million in net proceeds from the exercise of preferred warrants.

We have strengthened our balance sheet in several areas during the course of 2020. Our cash totaled $3.7 million at December 31, 2020, as compared to $87,000 at December 31, 2019. Subsequent to the close of the year, we completed a public offering of our common stock, which resulted in net proceeds to us of $4.5 million. In addition, in February and March, the exercise of outstanding common warrants provided an additional $1.1 million in cash proceeds to the company.

Our working capital at December 31, 2020, was $4.3 million compared to a deficit of $98,000 at December 31, 2019. Trade accounts payable totaled $129,000 at December 31, 2020, versus $727,000 at December 31, 2019, a decrease of 82%.

Our stockholders' equity totaled $5.2 million at December 31, 2020, as compared to $652,000 at December 31, 2019.

In conclusion, we believe that our year-end cash position, together with the additional funds raised to date in 2021 and the absence of any debt, positions us well to execute on our 2021 business plan.

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

Okay. Thanks, Frank. So let's start by putting 2020 in perspective. And I'll do that by contrasting the company and our market opportunity as it was a year ago, to the company and the market opportunity that we see today.

As we enter 2021, I believe that 3D metal printing is beginning to fulfill its promise as a disruptive technology and take its place alongside traditional manufacturing processes. And as I hope you'll agree, Sigma is a much different company than we were a year ago, with everything in place for what we believe to be a very bright future. However, I do realize that at some point, potential needs to be validated with results. In that regard, I'm pleased to tell you that we're off to a very good start in 2021.

Our announcement last week of a direct contract was for an initial system with Lockheed Martin Space Design and Manufacturing Center, was obviously a great way to kick off the year, as it further validates our technology. As you might know, aerospace and space exploration is the largest and most advanced industry segment using 3D metal printing for mission-critical parts. In addition to Lockheed Martin, we are involved with several other space exploration initiatives and I expect it to be a growing industry segment for Sigma.

Regarding new contracts, I'm also pleased to announce that we followed up Lockheed Martin with 2 additional contracts this quarter. The first is with a European aerospace company, again, for an initial system which is a direct result of our relationship with Additive Industries. Additive Industries' quad laser MetalFAB1 printer and PrintRite3D will be shipped to the customer from Additive Industries factory. In addition, we also just received a contract for the initial system from Ermaksan, a Turkish OEM, driven by our relationship with Materialise. We made a joint call on Ermaksan last January. Due to COVID, it took over a year to get the first contract. As with Additive Industries, PrintRite3D will be a factory installed and shipped directly to the end user by Ermaksan. So we're off to a very different start to what looks to be a very different year.

Past experience tells me that we're beginning to benefit from the leverage of the distribution model that we set out to develop at the beginning of the year. And we expect that leverage will only increase as Sigma reinforces our position as the leader for third-party in-process quality assurance for 3D metal printing.

So the question is what's happened and why is it different than years past? Well, let's look at the market and the company at the start of last year versus today. Entering 2020, the market was lacking an industry imperative. And a compelling event to accelerate the transition from R&D and prototyping to full industrialization. Due to COVID, many companies as well as the country have realized that they can no longer rely on complex and rigid supply chains for manufacturing and deliver -- and the delivery of mission-critical goods are therefore, subject to shortages in times of crisis. They must have the ability to manufacture critical parts on demand closer to where the end part will be needed. We believe that out of manufacturing and 3D metal printing is the perfect solution to this problem.

Just like we saw the acceleration of distance learning, e-commerce, virtual meetings, et cetera, on the consumer side, we're beginning to see the acceleration of 3D printing on the industrial side. It's just taken longer. After all, it's a lot more complicated and difficult to change a complex supply chain that took a decade to optimize and to download and learn Zoom. Here's some recent forecasts and predictions in support of that statement. And the World Economic Forum listed 3D printing as 1 of 10 technologies that will accelerate due to COVID.

Ampower, one of the worldwide leading independent consultancies focusing on industrial additive manufacturing, forecast metal 3D printing system sales will increase at a compounded annual growth rate of 31% and Powder Bed Fusion and DED processes representing 80% of the systems shipped.

From everything that we see happening, it appears that the market is in expansion mode. At the beginning of 2020, no one had a clear understanding of the effect of COVID on the world's economy. The industries we serve, aerospace, oil and gas, automotive, were hit hard by the pandemic and many reacted by freezing or dramatically reducing their capital expenditures. Sigma, as I've noted in the past, had several orders delayed or canceled to the COVID. This year, expect many of those will resurface.

Regarding Sigma's readiness to fulfill our potential, I'd like to highlight a few differences between now and a year ago. First and foremost, our technology continues to evolve and be validated by organizations such as Mitsubishi, Baker Hughes, Fraunhofer, Airbus and now Lockheed, the European aerospace company and the Turkish OEM company. Second, we've expanded our product offering, and we entered 2021 with PrintRite3D, PrintRite3D Lite, and PrintRite3D DED greatly increasing our addressable market. In addition, our 7.0 version will be introduced in the Spring, and it has several significant new features, including, for the first time real calibrated temperature to a MIS standard that we believe will further extend our leadership position.

Last year, at this time, we had 2 direct salespeople and no partners that were bundling or offering our product with their printers or software. This year, we enter with an expanded, very experienced sales team in support of an OEM agreement with Additive Industries whose quad laser machine is heavily used in aerospace and automotive industries, in support of the worldwide agreement, as a preferred monitoring system for DMG MORI, a leading CNC machines for traditional manufacturing, and they have over 100,000 customers and a sales force of 800 people in the field. And the only third-party quality assurance monitoring system currently integrated with Materialise's MCP.

We entered 2020 with 19 employees. In the last few months, we now have added up to -- for a total of 30 employees to support our partners, ramp up our production capacity, create demand and awareness for the company and our technology and to pull sales of PrintRite3D through the channel.

As you can see, we are planning for and investing in growth. It's important to note, however, that we had to get the critical mass, so we have the resources to support our partners, both in Europe and North America. However, since we're building a leveraged sales and distribution model, my experience tells me that our current staffing level is capable of supporting 2 to 3x the number of partners. So the relationship is not linear.

Finally, last year, at this time, we did some difficult financing to keep the company viable. In addition, our employees and our management and Board members deferred part of their salaries to conserve cash. It's a much different start to what we anticipate to be a much different year.

I'd now like to turn to 2021 and discuss how we intend to lay the foundation for growth, not just for the year but for the rest of the decade. These milestones and objectives are all in support of us achieving our mission of becoming the de facto standard for in-process quality assurance for 3D metal printing. Our first objective and a significant milestone that we expect to achieve is increasing revenue from our relationships with Additive Industries, DMG MORI and Materialise. All 3 relationships have begun to build independent revenue streams. And the activity is picking up both in North America and in Europe.

We expect to announce a new OEM relationship this year. In addition, over time we expect the OEMs to take over the harbor provisioning of PrintRite3D components, resulting in increasing gross margins. Another important milestone, not just for Sigma but for the additive manufacturing industry is multiple system contracts from global manufacturers going into serial production. We are having increasing number of discussions regarding PrintRite3D Enterprise, which is a network solution for large production environments.

We expect to see continued penetration into international R&D organizations and universities with advanced additive manufacturing programs. I believe that this is a very important milestone in support of our goal to set the standard for quality. Future additive manufacturing leaders will be trained on the value of third-party agnostic in-process quality assurance systems when they use PrintRite3D in their programs. As part of our radical collaboration philosophy, you will see us continue to work with and contribute our ideas and time to the international standards organizations to further the entire additive manufacturing industry.

Finally, our machine learning initiatives, coupled with our real-time monitoring of the build process across printers from different OEMs produces a consistent data set that can be used to feed the front-end design, simulation and durability processes and analysis. Our goal is to announce several relationships with additive manufacturing ISVs or software vendors, where our data and the data we collect and analyze is used to ensure the quality during the build process can be used to improve the overall economics of 3D printing.

So we enter 2021 a different and optimistic company. I realize it's just a start, and we still have a lot of work to do in order to build a predictable revenue streams. But it clearly validates our business plan and our technology. It reinforces the need for a third-party agnostic in-process quality assurance system like PrintRite 3D and it demonstrates our ability to execute on a global level.

So with that, I hope you agree with me that the time is different and the time is right for Sigma and PrintRite3D to begin to move from prototyping and R&D into full production and serial production with multiple systems from multiple companies around the world.

With that, I'll be glad to answer any questions that you might have.

(Operator Instructions) Your first question comes from the line of Shawn Lyles, private investor.

I just wanted to ask, in what quarter do you expect a multiple unit production -- serial production contract to be awarded to us?

It's a tough one to break the timing of it, Shawn. But as I mentioned in my comments, we've had more discussions about larger systems and network configurations of PrintRite3D than we've ever had before. I'm going to predict, and that will be sometime in the early second half of the year.

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

The new product line, the PrintRite Lite and this stuff, this to address, you were commenting some about it, a much larger market. Could you do me a favor and like expand on what that kind of a customer and is and how much larger this market is? Before we were talking about, I don't know what it was. The metro market we're talking about over the next couple of years, I don't know, $10 billion, $20 billion in 5 years. This market is much larger. Could we address that for some of us?

If you look at 3D metal printing, it has several components, several processes, the largest is Powder Bed Fusion, which we participate in today. And PrintRite3D was originally designed to work and optimize the quality assurance and monitoring of the melt pool for Powder Bed Fusion machines.

We announced last year in a relationship with Northwestern, that we were going to introduce PrintRite3D DED or direct energy deposition. That's another 3D metal process that's used by companies alongside Powder Bed Fusion. It's not as large a market, but it's another component. PrintRite3D Lite is targeted at the entry-level user who is not -- doesn't require at that time the full features and functions of PrintRite3D.

So PrintRite3D Lite gives us access to a lower end mid-market. PrintRite3D DED gives us access to a whole separate market. If you look at the metal 3D printing market, between Powder Bed Fusion and DED, that makes up about 80% of the 3D metal printers that are being shipped today. So it's hard to quantify how much bigger that opens up the market opportunity for us, but it allows us to provide an entry-level machine, and it allows us to move into the adjacent market for DED processing.

So these entry-level machines, is this -- do they -- are they purchased by a different industry set?

No. No, it's exactly the same. It just provides an easier ramp for people to begin to use our technology.

So is it reasonable to say then that most clients, customers, users have both types of systems?

More and more they're having both types of systems. And there are also OEMs that develop both types of systems. If you look at DMG MORI, they have both a Powder Bed Fusion and DED machine. If you look at Mitsubishi, they develop both machines. If you look at end users like a Baker Hughes, they have multiple machines and multiple processes. A DED process is often used for repairing metal components as opposed to a Powder Bed Fusion for building metal components. So you're seeing a combination coming both from both the OEMs and also being used by the end users.

Okay. So the bottom line is this helps expand our market applications?

Yes. And it provides a lower entry ramp for new users that want to begin to test our technology.

Okay. Well, that's really good.

(Operator Instructions) Your next question comes from the line of [Lee Alper] with [Hammock Investors].

Mark, it sounds like we're on the right track. Can you give us some color on how many bids you have outstanding at this point? And some maybe estimate on time to close?

How many bids we have outstanding? I can tell you that our pipeline has probably increased 2 to threefold over this time last year, if not greater than that. The exact number of bids is tough to keep track of. But the overall pipeline is 2 to 3x what we saw this time last year.

The time to close varies from 3 months to 18 months. If you remember, we closed a Mitsubishi contract in about 90 days, the Lockheed Martin contract was not much longer than that from a close perspective, even though they've been looking at our technology from afar for a long time. But we have other opportunities like Ermaksan that was closed, which was over a year in the making.

So the one thing I can tell you, the number of bids is increasing, the pipeline is increasing and the time to close is decreasing.

Your next question comes from the line of [Mark Roup], private investor.

We've been following the company for a long, long, long time now, and a bunch of us feel like things are definitely moving in the right direction.

So I got 3 questions. Do you feel that 2021 is the year that Sigma Labs moves to breakeven and then move then beyond that to profitability?

Second question is, how in the world do you get the story of Sigma Labs and the product into a much wider audience, much more sophisticated audience than it has now?

And the third question has to do with the patents. Does Sigma Lab's current patents protect the technology in the company against the competition that's out there, that is actively looking at different spectrum frequencies for observation for in-process quality. Are the patents going to protect Sigma labs for those that are playing around with the same manner of observation, but perhaps in a different region of the frequency spectrum?

Boy, Mark, you packed a lot into a little bit of time, so let me see if I can parse that for you. As far as breakeven and profitability, we haven't given a lot of guidance on that. It's going to come down to how hard we want to push our growth and how the market responds. So it will not be this year. And we can't predict exactly when it will be. It's going to be dependent on the level of activity we get, the investment we want to make and the time it takes to reap the benefits from that investment.

As far as the getting to a wider audience, are you talking about from a shareholder perspective or from a customer perspective?

Actually both, but I was originally intending it to be a shareholder perspective. We get great movement and market capital in the company. And then, of course, it just all fades away because nobody wants to actually stay invested in Sigma Labs.

So I think the answer is also both. So we are getting to a wider audience today. We've increased our marketing and our visibility and the awareness of the benefits of in-process quality assurance. We now have the leverage going into the market. I believe as we expand our presence and deliver results, we will get to a wider audience when it comes to the investors. And one will lead to the other.

As far as the patents and how they protect us, we've been very active in putting together a packet portfolio and what they call a thicket around our technology. I do believe that it will protect us from competition in some regards to what extent is yet to be seen, but we believe the patents are a valuable asset for the company.

Our next question comes from the line of Ralph Weil with R. Weil Investment Management.

One simple question. The -- you had orders or contracts or what from whether it be Airbus or Mitsubishi or Baker Hughes or [EraGen] and Lockheed. And you've been getting one contract, an order for one unit. How long do you feel that most companies will take once they get 1 before they go to 2, 3, 4, 5, whatever? Are they testing these for a period of time in different ways? And I'd just like to hear your thought on that.

It really depends, Ralph, on the sophistication and the level of competency of the company that's acquiring the system and doing the testing. So for instance, I'm going to say that Lockheed Martin is one of the more sophisticated users and -- of 3D metal printing and probably has more knowledge in that area than 90% of the company's worldwide.

I believe that they will move very quickly from one system to multiple systems if we prove that we can do what we say we can do and address their needs. I believe the same is true with some of the other companies that we're dealing with when it comes to space exploration and aerospace and defense.

So this initial system, it takes a while for people to understand the value and to be able to -- as they get multiple printers from multiple vendors, they understand the need for an agnostic third-party quality assurance system. If they have 1 printer or 2 printers from the same vendor, they have less need. So as their use of 3D metal printing expands, the value of our technology increases and the speed in which they will move from an initial purchase to multiple purchases will compress.

So it really is, as the industry matures and the customer matures, the opportunity to increase the speed from initial purchase to multiple purchases will shorten.

Do you feel that the additions to your team in sales and marketing will help expedite that? Or is it just up to the companies to take their time?

No, it's a combination of both. They clearly will help expedite it with their knowledge. But they can't fill multiple systems into companies that have single machines. We need to get the maturity of the overall 3D printing market to the point where you have multiple companies with multiple factories with multiple machines. Then you have the industry imperative coming down from the regulatory agencies and other components of the industry that are telling people that they have to have a consistent view of quality across those machines.

So you will see time being compressed as the competency of the user increases and the use of 3D metal printing continues to move to full production. And we see that happening more and more quickly than we ever saw before. And as far as the field organization, both the technical people and the salespeople are more than capable of working with the customers and explaining the benefits of a third-party in-process quality assurance system and having that consistent look and feel. And I think that's becoming more and more obvious to the industry as you see organizations like Fraunhofer do studies on monitoring systems and quality assurance systems and reinforce the fact that companies have to step up the overall quality if they're going to take 3D metal printing to the heights that everybody believes they can get to.

Your next question comes from the line of [Devin Yu], private investor.

I just have a question on -- for the lower-end machines for PrintRite3D Lite, how are you thinking about the need that the end user, if they're using a lower-end machine would need for better quality assurance in general?

Say that again, Devin?

So if they have a lower-end machine, what's the necessity to pick up PrintRite3D Lite versus how much they care about the end product?

Sure. And so let's describe a lower-end machine. A lower-end machine is in the area of $400,000 to $500,000 compared to a high-end machine, $800,000 or $1 million. So we're not talking about a lower-end machine that's under $100,000. And the need for the quality assurance on that lower-end machine is really dictated by the type of part that they're building in the application. So we're dealing with one OEM who has a mid-range machine that's used for dental type of applications and lower-end medical applications. Their need for quality is as high as the need for quality of the higher-end machine, they're just not producing the production level that the higher-end machine is producing. So it's still a mission-critical part, it's just a lower cost mission-critical part, and they don't need the full extent of the features and functions of PrintRite3D to assure the quality that they're looking for.

Got it. Okay. And then second question. As you go out to these OEMs and end users, I assume you're trying to pitch them on cost savings at the end of the day. Can you quantify or qualify what you're pitching and then how much time it typically takes to prove that to a customer?

Sure. So when you look at the return on investment, one of the first things you have to look at is risk management. So that's a large component that's difficult to quantify. Once you get past that, we focus on machine time, machine downtime, material waste and cycle time. And as an example, if you're using PrintRite3D and you are going through the qualification process for a part, the amount of cycle times it takes you to go from design to simulation to build to get to the point where you have a quality part cost you money every time you go through another cycle.

With PrintRite3D, we're able to reduce that cycle time and get you from prototype to qualification to production much more quickly than you can without a technology like ours. So between material waste, machine downtime, cycle time, we're able to quantify the benefits to an end user.

As far as the return on investment, actual time it takes to get to that return, that's all dependent upon the specifics of the manufacturer and what they're producing. But from what we've seen so far, the return on investment for one of our systems is less than 2 years.

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.

I'd like to thank everybody for their time today. I would like to reinforce the fact that the amount of activity that we're seeing within the industry is increasing tremendously. And if you step back and say, why now? I believe it's the convergence of 3 things. The first, an industry imperative that manufacturing has to be more agile. It has to be able to build parts and critical parts on demand, and they have to be built closer to where the end user is going to be requiring them. And that's particularly in cases of crisis and to avoid the shortages of those critical parts.

The second thing that's causing the acceleration of 3D printing is the technology itself. The printers are getting better, the materials are getting better, the design software is getting better, the level of competency, the user is getting better. And that's all coming together. At the same time, Sigma, our technology, our field organization and our partners are ready to take advantage of that opportunity.

So we do expect 2021 to be a very different year than 2020. We do expect to see more OEMs, additional sales to all the segments that we talked about earlier. And as people have asked, multi-unit sales to end users in the aerospace, defense, automotive and oil and gas industries.

So with that, I appreciate your time today. We look forward to answering other questions that you might have. And we look forward to updating you on what we believe will be a very successful Q1 and the start of 2021. Thanks again for your time.

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