Q1 2020 Earnings Call
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Actual results conference call today's conference is being recorded.
Todd I would like to turn the conference over to Chris Tyson Senior managing director of MZ North America. Please go ahead Sir.
Thank you good afternoon I'd like to thank you all are taking time to join US for Sigma Labs first quarter 2020 business update 'em results conference call.
Yesterday, our Mark report, President and Chief Executive Officer, and Frank Where's the Cascade, the company's Chief Financial Officer.
Yes, released detailing these results crossed the wires. This afternoon I for one P.M. eastern today and is available on the company's website signal labs Inc. Dot 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 or forward looking at maybe 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 Companys FCC filings.
List of associated risk and we would also refer you to the company's website for more supporting industry information.
This time I like to turn the call over to signal Labs, President and Chief Executive Officer, Mark report Mark the floor is yours.
Thank you Christian good afternoon, everybody and thanks for joining us today.
Question that is on everybody's mind is what is the new normal.
No I'm not talking about cold and going to the movies are getting on an airplane.
I'm talking about signal was when it comes to revenue and results.
And on certain times I believe the company should provide more rather than less information.
Can't predict the future with any more certainty than anyone else.
During these times of uncertainty will endeavor to provide you with more information.
You to measure the size of our market opportunity, our progress and our ability to execute.
So let's start painting the picture of signals, new normal bike answering the questions that you're most interested in.
What does Q1 tell us what does revenue looks like going forward.
What are we done with expenses in cash management to reduce our burn rate.
And extend or a runway what does the current status or Archie E.
What progress are we making our strategic milestones and how will that affect the company short term and long term.
Well I hope that covers most of your questions. Because we have limited time, if I've missed I'll be glad to answer them during the Q and I didn't the extent possible as a public company.
I've been very consistent my belief that we will have increasing revenue quarter over quarter for the foreseeable future I first made that statement in early Q1.
Nothing has changed in that regard we did increase Q1 revenue over Q4, just not as much as we had planned.
Also didn't factor in a pandemic shutting down most of the world.
Most of Q1, we're working towards a forecast of over $400000, even with cobot gaining momentum in late February in early March.
I felt comfortable with that worked out.
We had one order for two machines are roughly $200000 that was committed to us by one of our very successful Archie customers.
It was under NDS.
And they ended up pulling the water in the last stays with the quarter based on a corporate mandate to freeze all capital expenditures.
But he happens to be a supplier to the aerospace industry. So you can understand the reluctance to spend money.
That order what does put an over 400000 and we do expect the older sometime in the future, but we just don't know when.
So we did experience from negative short term effects directly attributable to cope with.
I expect that this was the case with most companies in the little that we can do to mitigate that risk.
Analyzing our current pipeline.
I feel very comfortable in saying that I believe we will increase our Q2 revenue.
Over Q1 by 50% to 100%.
We actually have enough activity currently to generate more revenue than that in Q2.
However, given the uncertainties of times on what happened was that purchase order into Q1.
It's only prudent to be on the conservative side.
Of course, we can't predict whether this may change given the uncertain the impact of Kobin and what it might have on our customers suppliers and thus our business.
I wouldn't like to explain one other factor regarding recognize revenue.
As many of you know probably three d. as an integrated software and hardware solution that's connected to a printer.
We recognize revenue for system upon shipment.
In order to ship the system last week of the quarter, we have to order components, but did that quarter.
The lead time for some over component was up six weeks.
And because we're retrofitting printers from different manufacturers there are several permutations and combinations of hardware. So it's not like we can order five or 10 of the same unit facility to water.
We have to forecast or inventory requirements based on which opportunities are most likely to close them what.
And as you know that's both both the science or an art.
On the other hand to preserve our cash we need to closely manage or inventory.
So there will be situations, where we have received a firm order for them not shipped the system and therefore recognize the revenue in that quarter.
Yeah, if and when we experience a situation like that revenue number could swing dramatically.
Well just move into the next quarter and will not be material to our revenue for the year unless of course it happened in Q4.
On the other started an equation our expenses and Casper.
Raised $4.1 million in gross proceeds year to date.
Frank will explain our cash usage in Q1 was unusually high due to trade accounts payable that has build up from 2019, when our financing was delayed until the end of January.
Additionally, we incurred several other onetime expenses in the quarter.
When normalized for Q1 cash usage.
Ordinary payments, we have actually reduced our cash burn by 100000 hours a month by taking the following actions.
First reduced executive management overhead, but the most recent changes.
We differ at all board of directors cash compensation till the end of year.
All employees deferred 15% of their salaries and commissions for five months maybe.
Made from September.
We've reduced our IR pure cost we've reduced our travel both to recover that also before cobot.
We reduced our cost of goods by approximately 33%.
Or $20000 per standards system like Reconfiguring the platform without any degradation a prosperous thing.
And finally, we put transitions as I've mentioned in the past from expensive Archie he is.
Two straight forward agreements with 90 day acceptance criteria, which dramatically lowers our cost of revenue.
All these actions were designed to lengthen our runway preserve our cash as we continue to build our pipeline and increase our revenue.
On the strategic front, we continue to make progress with multiple hardware Oems.
Software vendors and with end users moving towards zero production.
I expect to be able to update you on progress are those opportunities on our next call.
I've had several questions about RTT.
That we discussed in the past the first thing, though is that our every Archie we've done has progressed positively for the first one would materialize. So the last one under a D.A. in Japan.
All are expected to result in building revenue stream sort of the future. So here's a quick update on their status.
We just are about the ship Airbus.
The system next week, well, we'll begin the Archie to where they will go through qualification process for production part.
We continue to collaborate with her team on a weekly basis.
The global energy and Technology company that we've talked about often is near successful completion of their RT too.
And we expect to move forward with them at the conclusion of the state.
For those of you not familiar an Archie too because the test and evaluation on a second different type of printer, sometimes with more lasers in the first merger.
Materialize, we expect to close or first joint sales this quarter to new OEM, who will be deploying the integrated offering what the printer.
And then we have three or to use that are under N D age.
First as a major contract manufacture and that's the one that postponed its purchase order.
The second is a major international machine manufacturing company.
And we have concluded Archie to conclude or certification on the printers and we're currently negotiating contract terms for a strategic alliance. We expect to include those discussions this quarter.
In the last was Archie you for a major Japanese tool manufacturer.
And that's going very well expect to conclude that this quarter early next.
So the picture looks as follows Oh, we have increasing quarter over quarter revenue.
We have reduced our expense run rate.
Lowered our motion monthly cash burn by 100000 hours a month.
Every Archie he that we haven't done then.
Husbands successful and we believe will lead to future business.
Yeah, we've transitioned from expensive or to use the straight contracts with the option for a 90 day evaluation period.
So given that you might wonder why wouldn't we stopped doing Archie that they've been so successful and what's what are we going to replace them with.
Well a year ago, we had to do our genes in order to get access the different printers from different manufacturers improve that our technology work.
That was the only way that we could do real test at customer sites.
We were essentially that's trying to dig in companies that we didn't have a relationship with the trust us and worked with us.
Today, we're in a much different situation.
However, prospects still wants the tried before they buy.
So we'll be producing the at Sigma Archie.
Our prospects will be able to sell qualify.
Interactive web process.
Gauge, whether engineering team to read user requirements.
And then some does the cats trial last metal powder, and we will initiate a build on our printer and give them remote access to prudently three D for a period of time and they'll be able to exercise the system remotely.
So they will help full access to the latest trend right Treaty production series building their product, they're part with their metal.
That's a substantially more efficient and cost effective for both the prospect of SYGMA and.
And we hope will produce the same results.
So we have everything going in the right direction now, it's a matter of timing in trajectory.
We believe.
The macro level the thing that will help the trajectory, it's a cobot crisis and the how would expose major weaknesses in the current manufacturing supply chain.
Over time, they become too complex and too rigid.
And can't respond quickly any type of disruption being quoted a war political unrest or a natural disaster.
The lack of agility results in shortages of critical parts and components in order to mitigate this risk many experts seeing acceleration of the adoption of Threed printing as manufacturers move production closer to where the part as needed.
Tom Friedman author in New York Times Journalists said when asked what will be different when we get through this second answer on his list was three D printing will explode.
We see this change positively impacting our business and 2021 and beyond this company to build new three D printing factories closer to where the parties need it.
Many envision factories that can be changed in a matter of days to address specific Burgess. This will increase was the mantra three d. metal printing.
And I say in 2021, because it takes a while for these factories to be built into equip them or threed printers.
And the effect on various industries is uncertain.
Conclusion, the picture of the company.
I've tried to paint for you is one that's cautiously optimistic for the short time.
What we believed to be increasing quarter over quarter revenue of 50% to 100% and increasingly optimistic long term. That's we believe that three d. metal printing will become a more significant percentage.
The worldwide manufacturing capacity.
With that I'd like to turn it over to Frank Where's the Koski he'll give a brief overview of our financial results right.
Thank you Mark.
Our detailed financial results are contained in our form 10-Q filed with the FCC today and the press release. We issued contains key highlights of our financial results. So today I will provide a concise review of our financial results for the first quarter of 2020.
Revenue for the first quarter of 2020 totaled $221730.
This compares to revenues of $64450 for the first quarter of 29 team.
The increase in revenue was due to print right three D. unit sales to research universities as well as revenue recognized under the legacy rapid test and evaluation or Archie programs during the quarter.
Our gross profit for the first quarter 2020 was negative $22973.
Our first quarter 2020 gross margin is primarily a function of ongoing support of the legacy rapid test and evaluation programs, including equipment upgrades and additional travel and labor costs and early on in the first quarter and as Mark noted. We have ended this old traditional program and the remaining legacy our teams that we have.
I will be winding down over the next couple of months.
Our total operating expenses for the first quarter of 2020 were 1.6 billion.
Total operating expenses for the first quarter 2019 totaled 1.5 million.
Cash used in operating activities for the first quarter ended March 31st 2020 totaled 1.5 million compared to 1.1 billion in the first quarter ended March 31 2019.
As Mark noted this was unusually high due to trade accounts payable carried over from 29 team doing due to a delay in securing our financing and is not representative of what management spec expects going forward.
In addition, we made several one off nonrecurring payments in the first quarter, including paying off the remaining balance of our note payable at our annual NASDAQ membership fee.
Our net loss for the first quarter of 2020 was 1.6 million or $1.30 cents per share as compared to a net loss of 1.5 million or $1.60 cents per share in the first quarter of 29 team.
Cash totaled.
Point Sixmillion at March 31, 2020, as appose as compared to 2.1 billion at December 31st 2019, and 1.9 million at March 31 2019.
And after the close of the first quarter, we further fortified our balance sheet and the form of $1.5 million offering that we closed on April six.
I'm also happy to report that we are an active negotiations with OEM partners for strategic alternatives. We currently see the immense value in our enterprise and look forward to providing an update on that front as they develop.
That I will now turn the call back over to Mark for closing remarks.
Thanks, Frank and before we open the line for Q and they like to thank our chairman John rise for his dedication to Sigma during his time, a CEO when I look forward to working closely with them as we execute on our plan.
The increase revenue an increase shareholder value. So thank you John and with that I'd be glad to answer any questions that you might have.
Thank you.
We will not be conducting a question answer session. If he would like to ask a question. Please press star one of your telephone keypad.
The confirmation Tony will indicate that your line is in the question Q <unk>.
We also press star to if you'd like to remove your question from the Q.
Any participants using speaker equipment that maybe necessary for you to pick up your handset before pressing the star Keith.
In moment claims, but we know poll for questions.
Our first question comes from David Levine with Trickle Research. Please proceed with your question.
Hi, Mark are you doing.
Good day been hurt you. Good so I just want to make sure I understand that sort of yard E. Alternative I guess so.
Going forward.
Somebody will send you a design and send you the whatever powder. They they prefer are used to that particular design and then you're going to create the port Forum and then send it to them for evaluation is that how that's going to work.
Oh, well actually did better than that and if you recall I spoke onetime I forget exactly what call. It was on about the user who told us that they were using the system more than ever before from home because it became their eyes on the manufacturing process when they couldn't be on site.
So we thought about that.
He said well, what if that prospects it sent us a cab style and also the powder they use and we will build the part our printer and while while it is being built.
We will give them remote access to <unk> right three D that aligned with the printer and they can monitor the the build.
They're part with their metal on our printer and have the same experiments. They would have if we install the system on their machine and they built that part you only difference it will be built on our machine as opposed to theirs, but the same powder in the same part so we'll be able to provide a part that has.
Defects or anomalies and it will be able to tell us we can detect those in real time as the part is being built and then when they get done or they can do a correlation and do their own C.G. scan on that part to ensure that our analysis and the actual builds correlate.
One was close where if not exact or better.
And that's a sort of.
The process you start have begun to roll out or have you already you've already done that with some people I'm just wondering if people are.
Excepted to that are out how how they're out there. So we know.
Well, we don't know yet we have done the at home Archie with one customer and it became or they either customer Alpha are also customer for that program, we'll be rolling out the web site of the program in about two weeks and that will allow somebody to self.
Qualify go through the process.
Yes, I'd like to go through the program worked with our team set expectations and then we'll send those the CAD style and the powder and we'll see how it works. It's the closest thing that we can do to putting it to be alternative of traveling and put it system on site and then the and I think it's going to be more productive.
For the customer a prospect, then I'm, giving us time on their friend or the do installation.
That's great. Thank you.
Thank you.
Next question comes from George Postcard, <unk>, a private Investor. Please proceed with your question.
Hi, guys. Thanks for taking my Cool my question is around materialize.
I mean, if I heard properly we expected to close the first deal with materialize.
In the current quarter Q2.
Generally how are we going around.
How are we team we would materialize.
Well, it's just too materializes existing base is it to a new base and how would you describe the status of that joint selling campaign.
That's just to a new customer to both materialize into six month.
They brought us in a in January.
The joint sales call to a new three D metal printer manufacturer.
Who is looking for both the control and.
Monitoring system and they selected us actually sold pre sold the first system.
The will be implementing our combined system on their machine hopefully sometime at the end of this quarter.
Okay. Thank you very much and one final cool I was intrigued by the discussed the ongoing discussions referred to by the see see if.
Oh, the strategic investment in seek them out.
Yes that by a traditional OEM manufacturers that we're in discussions with.
What's the profile of the company well companies Pru, we're in discussions with first strategic investment in Sigma.
Yeah, George when we're looking at all all of our opportunities when it comes the funding meeting our capital requirements of the company.
And the profile varies from financial investors to industry strategic investors. So we're not quite sure which way we're going but we're looking at all alternatives that are in the best interest to the shareholders in the company.
Okay. Thank you.
Thank you.
Ladies and gentlemen, as a reminder, she would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Tony close with capital Securities Management incorporated. Please proceed with your question.
Thank you for taking my question.
I did can you give us the share count right now and I'd [laughter], you know I tried to looked a little bit the history, all but it's going up and down so much it's hard to keep track.
And also with respect to options I know, there's there's a new executive usually those options involved.
What their conversion price is and how many.
And then I have a park to also if that's or elsewhere.
Sure before you get to part two I'm going to ask Frank to answer part one.
Sure.
Yeah. So.
Currently currently right now.
We have 3.086 million and whatnot and 51 shares.
Outstanding.
With respect to a total warrants.
And options outstanding.
We're doing a common underlying those those securities.
It's it's another.
5.4 million.
Outstanding.
Which would be a fully diluted number of 8.5 million and that takes into account the financing that we closed on April.
What would the <unk> revenues will we received word that all exercise.
Converted right now if I were all exercise, we'd expect to receive about 7.5 million.
That's good.
Yes.
Okay. Thank you and that and then park to.
If you I got on the call. The late I apologize if I missed this but did you give guidance for revenue going forward I read both your very well written letters to shareholders and.
But.
I'm wondering if you did give guidance or any any kind of guidance you you might offer at this time.
Sure and what I said earlier was that I expect quarter over quarter revenue growth of 50% to 100%.
So if you take the to 22 that we did this quarter I'm, 50% growth would put around 350 in the 100% growth put around fourth that thing. So that's the bandwidth.
Of course, I have some caveats around that regarding what might happen, but we're not sure regarding co. But then also when it comes to shipping and recognizing it's different than sometimes booking the revenue because of the lead time, but I feel very confident.
That we have enough opportunity for foreseeable growth quarter over quarter, 50% to 100%.
That would be really excited.
And Oh, I'm not personally to worry about cobot because.
The Chinese Communist Party flu, there's no more severe than the Hong Kong wasn't 68, 60 dog or the Asian flu was 50 758 or for that that are the 2018 flu, which killed 80000 Hospital was 485000 until 188 children I can only five.
Three children under 18 that have died from this.
Not that not that I'm not that but to put it in context I've never in my life see a government.
So coercive Lee.
To stop and economy.
Okay and I appreciate your comments, but.
I think I've answered your question with the 50% to 100% you have to baked goods.
It sounds exciting I'll go to stick around for sure.
Great.
Thank you.
Our final question comes from Bill Chapman, a private Investor. Please proceed with your question.
Good afternoon, guys, Mark Oh, you mentioned your Oh, a new client with a with your arrangement with the materialize now does that imply for me and all of US that be closed loop is is or something that is a marketable.
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Oh, we're getting awfully close bill we okay do it.
And so the intent of our relationship is to move towards close loop and then offer the closed loop solution to new Oems that are coming into the market.
Retrofit market.
That's the intent or relationship and we wouldn't be signing up new customers. If we didn't expect to be able to offer that.
Okay. That's great. Thank you.
Thank you.
At this time. This concludes our question answer session I'd now like to turn the call back over to Mr. Mark report for his closing remarks.
Oh, Thank you I hope that we've answered your question I know some of your long term investors and some are you are new to Sigma I'd like to tell people that when they look at the company consider us as an 18 month or two year old start up that did its work last year in the laboratory and with excess.
Ends of our teams and now we're rolling out in commercializing our product.
We wouldn't have.
Hit the 400000 in Q1, if it wasn't so the last minute issues that were in countered by our customer.
And you can imagine if you're a main supplier to aerospace and whats happened to that industry, how we'd love to get you are to spend your capital right now, but even regardless of that we expect to see the revenue growth I talked about we've taken the actions to reduce or expenses or cash burn.
And we're looking for up or soon to seize to fun and getting new capital into the company that are friendly to the company in the best interest to the shareholders with that I do think it's an exciting time to be looking forward for Sigma.
And I look forward to sharing with you the update next quarter.
Thanks again for your time and your interest animal speak to you in about two months.
Ladies and gentlemen, this concludes todays teleconference. Thank you for your participation and have a great thing.
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