NextTrip Inc (NTRP) 2021 Q2 法說會逐字稿

Good day, and welcome to the Sigma Labs Second Quarter 2021 Financial Results Conference Call and Webcast. Today's conference is being recorded.

At this time, I'd like to turn the conference over to 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 Labs' second quarter 2021 business update and results conference call. Your hosts 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 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 Labs' 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. It would be an understatement to say that I am disappointed by the lack of revenue in the second quarter. However, it's also an understatement to say that I am about excited about Sigma's future as I have ever been.

I realize that those 2 sentiments are at odds with each other, but it's often the case in emerging markets, such as additive manufacturing and new technologies like PrintRite3D. Both can be true.

One quarter doesn't change our strategy. We fully intend to run the race, not get distracted and stay focused on our long-term opportunity, which, in my experience and opinion, is larger than I previously thought.

I'll explain why I'm so confident in the future after Frank Orzechowski, our CFO, reviews our financials. 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 today, I will provide a brief overview of our results for the second quarter of 2021. Our revenue for the second quarter of 2021 totaled $144,000. This compares to revenues of $168,000 for the first quarter of 2020. While second quarter revenues decreased slightly over the same period last year, year-to-date revenues for the 6 months ended June 30, 2021, totaled $602,000, an increase of 55% over the same period last year.

Our gross profit for the second quarter of 2021 was $28,000. This compares to a gross profit of $110,000 for the second quarter of 2020.

The gross margin of 20% in the quarter is largely reflective of the timing of expenses incurred in connection with installations versus our ability to recognize associated revenue.

Our year-to-date gross margin for the 6 months ended June 30, 2021, was 60% and is within our targeted range for the year. This compares to a gross margin of 22% for the same period in 2020.

Total operating expenses for the second quarter of 2021 were $2.17 million, while operating expenses for the first quarter of 2020 totaled $1.53 million, an increase of $640,000.

Our salaries and benefits were $985,000 for the quarter, an increase of $380,000 over the second quarter of 2020, largely as a result of average full-time headcount increasing by 10 over the same period last year.

Stock-based compensation was $116,000 for the 3 months ended June 30, 2021, compared to $271,000 for the same period last year of $155,000 or 57% decrease. This decrease is primarily due to stock options awarded to employees in June of 2020, whereas with the exception of stock grants given to new employees in 2021, stock option awards were not made to employees during the 3 months ended June 30, 2021.

Our recent development expenditures of $281,000 were incurred during the 3 months ended June 30, 2021, compared to $112,000 in the same period of last year, a $169,000 increase. The increase is primarily attributable to CT scans related to new development work, ongoing enhancements and bug fixes related to PrintRite3D version 7.0 and purchases of lab supplies and parts and materials.

Our organization cost for the 3 months ended June 30, 2021, totaled $159,000 as compared to $80,000 for the same period in 2020. This increase is due to an increase in shareholder services cost related to the special shareholders' meeting held in May of 2021 and stock options expense for nonemployee Directors, whereas in 2020, those options were not granted to the Directors until July.

Legal and professional fees incurred during the 3 months ended June 30, 2021, were $244,000 compared to $212,000 incurred in the same period last year. This increase is primarily a result of an increase in recruiting fees related to the new hires made during the period, partially offset by decreases in legal and accounting fees.

Our other operating expenses were $91,000 for the 3 months ended June 30, 2021, compared to $52,000 incurred during the same period last year. This increase is primarily a result of higher insurance premiums in 2021.

Our other income for the 3 months ended June 30, 2021, was $295,000. This income resulted primarily from the gain on the revaluation of the derivative liability from our March 2021 financing. Generally accepted accounting principles initially required us to record the fair value of the warrants issued as a liability, since on the issuance state of the warrants, we did not have enough authorized and unissued shares available to settle the warrants have exercised.

At our May 24 Special Stockholders' Meeting, we received approval to increase our authorized shares of common stock, and we therefore extinguished the liability and reclassified it to permanent equity.

Cash used in operating activities for the 6 months ended June 30, 2021, totaled $3.2 million compared to $2.4 million in the second quarter ended June 30, 2020. This increase in cash usage is primarily a result of the increase in our operating expenses, as just discussed, plus an additional investment in certain inventory parts due to increased lead times as a result of COVID-19.

Net loss applicable to common stockholders for the second quarter of 2021 was $1.85 million or $0.18 per share as compared to a net loss of $1.6 million or $0.49 per share in the first quarter of 2020.

Our cash totaled $14.7 million at June 30, 2021, as compared to $3.7 million at December 31, 2020, and $2.5 million at June 30, 2020.

Working capital totaled $15.6 million at June 30, 2021, as compared to $4.3 million at December 31, 2020, and $650,000 at June 30, 2020.

At June 30, 2021, our stockholders' equity was $16.4 million as compared to $5.2 million at December 31, 2020, and $3.6 million at June 30, 2020.

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

Thanks, Frank. Now let's take a closer look at what happened in Q2, and then we'll look forward and talk about what supports my belief about the future, despite the bumps in the road.

In reviewing the quarter, it's important for you as investors to know that we have not lost any of the opportunities that we were expecting. In Europe, the slowness of the recovery related to COVID has had a negative impact on some of our direct deals. It has also slowed the sales ramp-up of our OEMs that are European-based.

However, other delays were due to several one-off circumstances that were totally out of our control, and let me explain a couple of them.

In one case, we were doing an @Sigma RTE, which some of you might know, is the final step in the sales process, and @Sigma RTE is a rapid test and evaluation where we take a customer's CAD file and build a part on our printer in Santa Fe. We then give the prospect remote access to an instance of PrintRite3D that monitors the part during the build process.

In this particular case, the laser on our EOS system failed just as we started to build. We ordered a new laser, but because of shortages and delivery delays, it took almost a month to get it installed and calibrate our printer.

Due to the lost month, the deal slipped out of the quarter. The prospect was actually here in Santa Fe last week and reviewed the data from the completed build with our engineering team. After a successful visit, we expect the purchase order soon.

In another case, the contract was being done through a trading company in Asia that required full cash payment from the end user before they would issue a purchase order. The payment was delayed due to an internal issue and slipped out of the quarter. We are now scheduled to install that system in early August and expect the purchase order soon.

While these kinds of unforeseen circumstances or occurrences can happen, and the individual reasons may be interesting and, in some cases, informative, in the aggregate, they are disappointing and frustrating, to say the least. However, I believe that the second quarter is not in any way representative of our opportunity.

It has more to do with timing, some bad luck and a pace of recovery. I expect the volatility to decrease as our pipeline grows, the industry matures and the effects of the pandemic are in the rearview mirror.

So that's the story on Q2. It's pretty straightforward and had little to do with the industry's potential, our strategy or the need for our technology.

One of the things that I've learned over the years is that quarterly results do not reflect the market momentum or level of activity that a company has with its customers and prospects. I can assure you that we have more people and more activity with more opportunity than we've ever seen.

In the last few months, we were also seeing a renewed sense of urgency from our prospects. As a matter of fact, the pace has been challenging for our engineering team to keep up with.

So let's first step back and look at the overall market opportunity, and then I'll drill down and inspect the Sigma-specific metrics that we track. According to industry sources, over 80% of major manufacturers have an additive manufacturing initiative. AM continues to capture the world's imagination.

There's also a growing consensus that a standards-based third-party quality monitoring system like PrintRite3D is required to ensure consistent quality and accelerate the adoption of 3D metal printed parts. This consensus is being reinforced by regulatory bodies, driving standards within specific vertical industries.

In addition, there are several trends that we believe will increase the demand for our technology and benefit both the printer OEMs and the end user manufacturers and, therefore, the entire industry.

Our technology continues to be validated by end users, OEMs, R&D organizations and universities each and every month. Finally, we believe that we are well positioned to achieve the goals that we have set for the company.

The question that I ask, and I'm sure that is on your mind, is when, why now, what's fundamentally different between Q2 and the second half of 2021? What's changed? The following specific Sigma factors give me confidence that the past is not prologue, and at the second half of the year, we will set a pace for a great 2022.

Our pipeline continues to increase as our marketing activities begin to produce real opportunities. Our sales teams now have 6 months experience selling PrintRite3D and have much more confidence in their ability to make money.

Our key OEMs, DMG Mori and Additive Industries, are both seeing more opportunities for our technology, and as Europe opens up, should begin to produce independent revenue streams.

Our increased focus on aerospace, space exploration and Department of Defense-sponsored procurements is generating opportunities that are driven by regulatory pressure for increased quality, risk management to avoid catastrophic disaster, and potentially year-end money to spend.

We are seeing more quotes from multisystem installations, and I remain cautiously optimistic that we will see some come to fruition before the end of the year.

In conclusion, the leading indicators are pointing in the right direction. The market is advancing directionally as we thought, the opportunity for our technology is growing with the market. Our team, which has expanded from 10 to over 30 employees since the same time last year is fully engaged with customers and prospects.

And finally, the management team is fully committed to staying the course and executing on our plan with a great sense of urgency. As a matter of fact, we end every day's huddle with the saying, "Be safe, be well, let's go amaze the world." I believe that we are on the path to doing that.

Frank and I will be glad to answer any questions that you might have.

We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Scott Buck from H.C. Wainwright.

I'm curious. It sounds like you guys made a handful of hires. Could you give us a little color on where you're hiring and maybe what the hiring outlook is, especially on the sales side for the remainder of the year?

Sure. We just hired another salesperson in Europe. We hired a technical support engineer in Europe. We hired a couple of engineers here in Santa Fe, and we also hired 1 or 2 people, full-time and part-time on the manufacturing and logistics side.

From a sales perspective, we now have 3 sales teams in North America and 2 sales teams in Europe, and that compares to 1 in each North America and Europe a year ago.

Great. That's helpful, Mark. And second, can you help remind me or remind us what the sales cycle is and give us a sense of the visibility that you guys have into the business over the next 6 to 12 months?

Well, I'll try, but given the last quarter, I don't know how successful I'll be. But what we see right now, the sales cycle in some cases is long, depending on whether they're starting their initiative, and in other cases is short, depending on the competency of the buyer.

So for instance, the deal that we did do this quarter was a 4-month sales cycle. We have a couple that have extended longer than that. What we're seeing, though, given our focus on aerospace, space exploration and defense, the procurements are being driven by regulatory pressure, and that regulatory pressure appears to be shortening the sales cycle.

Of course, this quarter and next quarter, we'll determine whether that's true or not, but that's what we see happening within the industry.

Okay. That's very helpful. And then in terms of pipeline, can you help give us a sense in order of magnitude, maybe what the pipeline looks like at the end of June versus March and then versus the year ago quarter for whatever that's worth?

Sure. Generally speaking, if we look at the pipeline for the second half of the year, it's at least double of that, triple than what we saw in the first half of the year.

Okay. Perfect. And then last one for me, guys. How should we be thinking about cash burn for the remainder of the year, kind of consistent with the first half? Or should we start to see a little bit of improvement as we get to the later stages of the year?

I'll ask Frank to answer that. Frank?

Well, I think, ultimately, it's going to depend on sales. But from an operating expense standpoint purely from there, you're going to see the cash burn will increase a little bit, and the reason why is because some of the hires and the expenditures were made later in the quarter.

So it wouldn't -- the run rate wouldn't be reflective of the entire first half, but -- so we do see it increasing a little bit on the OpEx side. However, given the sales and the revenues that you were looking to book in the quarter, I think that it's not going to be significant and, in fact, offset some of those increases. And you might see it come down. But the wildcard is booking the revenues and collecting the cash.

Our next question today is coming from Jon Gruber from Gruber & McBaine.

Well, that was the ultimate dog ate my homework quarter. Given that, how has that changed your outlook for the full year on the revenue side? And maybe you can give us some guidance on Q3 revenue given a lot of these things you say are nonrecurring?

Jon, thanks for the question, and it is the ultimate dog ate my homework quarter. However, if we look going forward and we look at the onetime issues that we dealt with in Q2, we are very positive going forward in Q3 and Q4.

You have to expect me to be a little bit hesitant on one hand, but we see the pipeline, as I mentioned, increase every month right now. We're seeing our salespeople get much more proficient at moving things out of the pipeline or moving them in based on qualification.

And as I said, we see the regulatory pressure, especially in space exploration and aerospace having a ripple effect from one customer to another customer in the supply chain. So all those point to a very positive second half of the year.

As far as specific revenue guidance, I'm not going to provide it today, but I'll go back to what I said earlier. The opportunity is larger, the pipeline is larger, and we expect to capture the deals that we missed or didn't -- weren't able to close in Q2 and add some to that.

Our next question today is coming from Anthony Charos from Symmetry Group.

I had just a quick question. Could you provide some color on how the relationship with Materialise is developing or not developing?

Yes. No, it's developing. They've had -- given COVID in Europe, it's slowed down a little bit from a transaction perspective. However, 1 of the deals -- 2 of the deals actually that we are expecting this quarter are due to the Materialise relationship where the customer is using MCP as their control system.

We also have 2 OEM possibilities that we're working on the second half of the year that are also using Materialise as control platform, and we were brought into both of those deals by Materialise.

And finally, we're working jointly on the integration of PrintRite3D to the control platform to give better control of the printing process, both to the end user and also to make some machine decisions moving towards closed loop.

So we work with them very closely. The relationship is yielding some good opportunities for us, and we expect it to continue in that manner.

Next question today is coming from Scott Billadeau from Walrus Partners.

Several of my questions have been answered. I just wondered, could you -- you mentioned a couple of deals slipping. Is there a way you can quantify what those are or give us a sense just to find out if the dog didn't need the homework, what kind of grade we would have got for the homework?

Boy, it's a very good question. So I guess that the best way to quantify that is, in addition to the couple of deals that I mentioned that had specific causes to them, I believe that both DMG and Additive -- not I believe, I know that they both would have had more activity.

So I believe that the best way to quantify is that we probably slipped or missed the opportunity on 4 or 5 deals that we were counting on. And you can do the math from there.

Got it. Great. And then any -- as you've brought on new -- as you mentioned, you got 3 North American sales groups, 2 in Europe coming online. As expected, the funnel looks kind of as you'd expected. You obviously need a little learning curve to find out what -- how it flows through the funnel.

But in terms of what's going in the top of the funnel, are you -- maybe characterize that if you're comfortable doing so.

Of course. So let's go to the salespeople first, and I've been doing this for a long time and sales -- success of salespeople is difficult to gauge. But usually, about 50% of them actually make it and begin to make money for a software company.

So we started increasing our sales team last year. We added a very senior person. He's produced very well this year, and he expects to have a great second half of the year.

The 2 salespeople -- or teams that we brought on board in North America, one, we let go due to lack of visibility to understand and grasp the technology. The other one is doing very well relative to pipeline, and he expects to make a good amount of money in the second half of the year.

When we look at Europe, the existing sales team is very good. We just added another sales team in the second quarter, and we'll see how he produces. But the initial signs all point favorably.

So the -- if you look from a sales perspective, I'm very comfortable. When you have 6 teams and you only lose 1 or 1 is not performing or not expected to perform, that's a really good percentage. Of course, the proof is in the pudding in the second half of the year.

The other thing is -- that I mentioned earlier, that 6-month mark is a really important mark for a salesperson. As a sales manager, if they don't have a pipeline and aren't forecasting in the third quarter that they're here, they're probably not the right hire.

We reached end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Great. Well, thank you again for joining the conference call. As I said, it would -- it's an understatement to say I'm disappointed, but it's also an understatement to say that I'm not excited.

I expect to see a lot more activity, and I expect to see us to execute as the market turns and COVID becomes less of an issue, and as I mentioned earlier, our sales force gets up to a point where they can execute and bring in deals.

So with that, again, thanks for your time and attention. And if you have any follow-up questions, please don't hesitate to call me or get in touch with MZ. Thanks again.

That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.