Q2 2020 Sigma Labs Inc Earnings Call
Good day and welcome to the Sigma Labs second quarter 2020, <unk> 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 Senior managing director of MZ North America. Please go ahead Sir.
Thank you and good afternoon I like to thank you all for taking time to join US for Sigma lapse second quarter 2020 business update have results conference call. Your host today are Mark report, President and Chief Executive Officer, and Frank Where's The Koski, the company's Chief Financial Officer, a press release detailing these results crossed the wires. This afternoon.
World One P.M. eastern today and is available on the company's website Sigma last Inc. Dot com.
Before we begin the call presentation I'd like to remind everyone that statements made on the call webcast, including those regarding future financial results and industry prospects are forward looking at maybe subject to a number of risks and uncertainties that could cause actual results to differ materially from those describing the call. Please refer to the company does he see filings for a list of associated.
Yes, 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 signal lots, President and Chief Executive Officer, Mark report Mark floor is yours.
Thank you, Chris and good afternoon, and thank you for joining our second quarter earnings call today.
Hi, I'm very pleased to announce that we've achieved several significant milestones in the second quarter.
Move us towards our goal setting the quality assurance standard for additive manufacturing.
Although short term revenue has been delayed due to the effects of co bid on the worldwide economy as was somewhat expected we continue to execute on all aspects of our strategic and growth plan.
As part of this we have strengthens our balance sheet preserved our cash out international sales and marketing resources. All this to position the company for strong growth as the economy improves.
Before I go into details I'll ask Frank Aurs account ski our Chief Financial Officer to review, our financial results and then I'll provide some context around the quarter Frank.
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 can find myself to a concise review of our financial results for the second quarter of 2020.
Our revenue for the second quarter of Twentytwenty totaled $168000. This compares to revenues of $34000 for the second quarter of 29 team.
The increase in revenue was due to a print right Threed a unit sale to an end user customer as well as revenue recognized under our legacy rapid test and evaluation or Archie program during the quarter.
Our gross profit for the second quarter of 2020 was $110000 as compared to negative 27000 in the second quarter 2019.
Total operating expenses for the second quarter of 2020 were 1.53 million as compared to total operating expenses of 1.57 million for the same period and 29 team.
Salaries and benefits were 605000 for the quarter, an increase of 24000 or 4% over the second quarter of 2019, largely as a result salary increases that were effective in the second half of 29 team.
Our stock based compensation totaled $271000 for the quarter as compared to 220000 for the second quarter of 2019.
The increase is due to the vesting of 25% of the 2020 stock option grants awarded to employees during the month of children.
Investor and public relation expenses were 171000 for the quarter, an increase of 14000 or 9% over the second quarter of 29 team increased as a result of the you sort of consulting and twentytwenty as well as advertising costs associated with our enhanced Internet marketing initiative.
Office expenses totaled 79000 for the second quarter, a decrease of 105000 or 57% from the second quarter of 2019, primarily due to reduced travel is as a result of the cobot 19 pandemic.
Other operating expenses totaled 52000 for the second quarter 2020, and increase of 33% over the second quarter of 29 chain, primarily due to an increase and our director and officers insurance policy premiums.
Other operating income and expense totaled 507000 for the quarter, primarily consisting of new Mexico State tax incentives of 152000, and our Paycheck Protection program program loan of 362000, which we expect will be fully forgiven.
Cash used in operating activities for the six months ended June Thirtyth Twentytwenty totaled 2.4 million compared to 2.7 million in the first six months ended June 30 29 team.
Note that approximately 400000 of this amount was due to trade accounts payables carried over from 29 team due to a delay in our financings.
Net loss applicable to common shareholders for the second quarter, 2020 was 1.6 million or 49 cents per share as compared to a net loss of 1.5 million or $1.50 cents per share in the second quarter of 2019.
Now turning to our balance sheet, we have strengthened in several areas since 2019 year end.
Our cash balance totaled 2.4, or 5 million at June Thirtyth 2020, as compared to $87000 at December 30, Onest 2019.
Our working capital was 2.8 million at June Thirtyth, Twentytwenty as compared to a deficit of 98000 at December 30, Onest 2019.
Trade accounts payable totaled 295000 at the end of the quarter as compared to 727000 at year end 2019, a decrease of 59%.
And stockholders equity totaled 3.6 million at June Thirtyth Twentytwenty as compared to 652000 at December 30, Onest 29 team.
Our January in April offerings, together with exercises of preferred warrants have contributed net proceeds of 4.9 billion to the company during the first six months of 2020.
And with that I'll now turn the call back over to Mark.
Thank you Frank Okay, let's start with some of the more significant milestones that we achieved in the quarter.
First we signed a global agreement with a major printer manufacturer, who will designate their printers as print right three d. ready, allowing us to leverage their worldwide sales force of over 800 people, who will actively promote our technology as their preferred monitoring solution.
Currently we are under and dealing with the company. However, we expect to announce details about the agreement in the coming weeks and we do expect to see the first purchase order from the relationship this quarter.
And of course increased activity as the economy picks up and as we train the worldwide sales force. This is a major when for Sigma.
Second our Japanese distributor signed their first customer a fortune global 50 manufacturer will be using print right three D to ensure consistent quality on their SLM dual laser printer.
This sale serves as a critical beachhead for us to begin to open up the Japanese market for our technology. The sale is made with an agent under a new sales process, which I'll discuss some detail on a few moments.
Next we recently collaborated with Miss to outline how to handle.
Calibrate trend right treaty sensors to a traceable temperature standard as a result Sigma has performed the first ever standards calibration with three now National Institute of standards and technology. This is a strategic development because it opens the door to machine to machine calibration and then.
Labels machine matching for the additive industry, a major step to ensure quality in production environment.
Additionally, Sigma has become the lead author in developing the med Mal tool monitoring standard within the STM International framework, which is expected to go to balance in Q4 2020.
This standard enables a pathway to adoption by additional international standard bodies, such as ISO and Jason.
In 2021.
Something that many believe as needed to accelerate the use of adoption of three D printing.
Finally, and to me the most exciting achievement is that we validated our ability to seller technology using a new process called at Sigma Arty.
Lastly, our to ease of rapid test and evaluations required us to build a full production print right three d. system.
The cost to us of approximately $40000 shifted in most cases overseas and send an engineer and sometimes two to install the system other customer site and then work with the customer for several months educating them on fine tuning the system to their internal processes.
As I mentioned, a few minutes ago in Q2, we closed our first sale through an agent in Japan. So a very large company one of the most important aspects here is that the system will sold through an at Sigma RT a remote process were prospects sends us their cab file of their part and they specify.
Hi, the type of metal powder used to make sure it.
We built the part our Threed printer in Santa Fe and gave the customer remote access to print right three d. for two weeks.
No cost to build spring ship or install our system two weeks in for two months of purchase order in excess of $100000 net Sigma sold through a new agent in Japan.
That's a major reduction in the sales cycle leverage as a partner in more importantly, it's a repeatable model that we can leverage with all distribution partners as we build out a multifaceted distribution model.
Now when I step back and I look at the dynamics of the market I believe that we are seeing the beginning of the migration of Threed metal printing and therefore print right three D. Moving from R&D organizations universities and end users prototyping initiatives.
To end user serial production environments, and finally, all the way up to the printer manufacturers are Oems.
I believe that we're on the cuts or the industrialization of Threed metal printing and print right. Three d. is positioned as a critical component.
For the missing link in the additive manufacturing digital chain.
As a result, we're going to invest in strengthening our sales and marketing teams with the addition of it we haven't invested and we are strengthening with the addition of a director of business development for North America, Steve Animal.
He has over 20 years the sales experience an additive manufacturing. His most recent position was that Jay Bill a contract manufacturer, we where he headed up a business unit within their additive manufacturing group.
Prior to that Steve as director of partnerships and alliances for materialize and prior to that regional director for Threed systems and he's worked for various software companies. We are very fortunate to have them joined the company at such a critical time.
We have also brought in marketing talent to sharpen our messaging establish our brand than position Sigma trusted source of information critical to additive manufacturing industries accelerated growth in.
In response to the markets need for education, and collaboration will be launching a series of online on demand programs, including Youtube videos.
Podcasts and Webinars designed to provide education for end users on the value of IP Q way or in process quality assurance sharing our insights highlighting the benefits of our technology and most importantly, spotlighting our talented engineers in the breakthrough accomplishments.
They have accomplished in the last couple of years.
As a point of reference I thought I will explain why print like three d. in IP Q. They are important to end users into the advancement of additive manufacturing.
A threed printer builds parts through a process of lasers melting metal powder.
Having layer upon layer to form apart that might have been impossible to manufacturer with traditional subtractive manufacturing methods or creating a part was lighter and stronger and more durable they could have been previously manufactured.
The major issues holding back the adoption of Threed metal printing, our first as you might imagine lack of consistency or quality and that's even from printers coming from the thinking manufacturers.
Second is the lengthy product development time, all the time it takes to go from design to production.
Basically that's because it's been more of a trial and error than leveraging not always like sigmas collecting in our knowledge basis.
Third is the lack of standards in collaboration.
Right three d. and our DQSA methodology addresses these barriers head off in addition, due to the reduction of trial and error builds we're able to say the end user money through minimizing waste.
Reducing costs, leading machine time, reducing post processing costs and most importantly, compressing the time to market for delivery of critical parts.
As an independent software company, we're able to provide a consistent standard monitoring process across printers from different manufacturers. Therefore end users with their own factories or throughout their supply chain can be assured of a standard way to monitor and enforced quality and consistency.
On a different no, but I've been asked several times about covance effect on our business clearly short term, it's been detrimental to our ability to grow our revenue as fast as I had thought.
In Q2 alone we had approximately 500000 miles in revenue from six companies, where the customer selected print right three D and we're in the procurement process when capital expenditures were either frozen slowed down or face additional scrutiny.
In one particular case, a large oil and gas company, who had completed two successful RT. He is.
The expense or first one's update at Sigma Rts.
It's difficult to getting a purchase order to us within the second quarter, we expect that order momentarily for at least one and hopefully to initial production systems.
In another case in order was pulled up the last home and by a University in Europe. The order was actually coming through a prospective new OEM that we were introduced to buy materialize via our joint sales agreement. During my trip to Europe last January we also had forecasted in order for our quad with.
From an existing customer a renowned research organization, Germany that was the delayed into later this year due to lack of funding.
I believe all these orders will happen in the future I, just can't forecast or or predict the exact timing.
Even though it's painful in the short term many believe that one of the lasting effects of co bid will be the restructuring of our supply chains overtime supply chains have become too complex and too rigid and therefore vulnerable to times of crisis, the covance political unrest natural disaster or another.
Our unpredictable event.
Additive manufacturing moves the production of critical parts closer to the end user and gives manufacturers the ability to quickly respond to shortages or increased demand.
The end result is faster adoption of Threed printing and a larger addressable market for SYGMA and print three D.
And by the way this isn't true just for the United States, We have initiated initiatives in India, Japan throughout Europe in countries like Turkey, looking looking to lessen their dependency on other countries and increasing their ability to be self sufficient in times of crisis.
In closing, we are adding sales and marketing resources and executing on all aspects of our strategy to set the standard for quality assurance for additive manufacturing.
First our focus and universities in the R&D organizations worldwide continues to introduce our technology and the value of in process quality assurance to Tomorrow's manufacturing leaders.
Recently, we installed a system necessity, Mississippi state on a run a show machine and we will be installing at northwestern University on the DMG machine in the near future.
Second strategic alliances in joint selling arrangement such as we have with materialize are opening up opportunities around the world the new Oems such as the one I mentioned as well as a largely untapped retrofit market.
Third end users who are moving toward serial production are adopting sigmas I picoway technology to ensure consistency of parts regardless of printer manufacturer.
We continue to have ongoing collaborative initiatives with the international standards organizations, who are establishing needed standards for the industry.
And finally, and most importantly for our financial model, we're beginning to see printer manufacturers designate their printers as print right three d. ready a first step towards OEM in our technology and greatly increasing our profitability in our unit economics.
The end result will be multiple predictable repeatable revenue streams that will grow and accelerate with the pace of migration of Threed model printing from prototyping to worldwide industrialization.
I'm more convinced than ever despite the effects of pro bid that our goal setting the standard for quality assurance and additive manufacturing is well within the right within our reach.
The timing of course, I still difficult to predict did a covance impact on every aspect of our lives.
However, however, as I hope you see our strategy to sound our technology is being validated in all market segments and we continue to prove that we can execute manner that will drive revenue growth and shareholder value.
Thank you for your time today and with that I'll be glad to take a few questions operator.
Ladies and gentlemen, we will now have our question answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmations on will indicate that your last question Q.
Turning users using speaker equipment, it may be necessary for the pick up your headset before pressing the star Q.
One moment, please but we now offer question.
Well.
Our first question comes from how Weber with Aegis. Please proceed with your question.
Hi, guys, how you doing.
Thank you.
I'm glad to hear that is progressing.
Some questions with regard to the.
Customers.
Could you give me an I did the this is a manufacturer that youre going to be supplying the software and they are going to be offering. This with the is like as an OEM.
Products from as a new from that from the vendor as a new purchase add on or is this going to now be comedy working towards making this automatic for all customers or what.
So as I mentioned earlier that.
Right now, we're still under and be a waiting for final approval to do a more detailed announcement, but generally it provides the ability for their sales organization to quote and promoter technology as their preferred monitoring solution.
We have.
And arrangement, where then they come to us and we install the software and take the order and we expect that to move towards the second step towards a full OEM type of relationship sometime in the future.
When might you think that this is going to be more formalized so we could talk about it openly.
Sometime in this quarter, we expect our first order this quarter and I think is that first order come then we'll get into much more detail about.
The partner the strategy how to leverage their sales organization and what the ongoing outlook for the relationship will be.
Okay, Great could you expand a little bit on what you were talking about some of the other channels that you were developing.
Our revenue.
Sure.
We still there yeah.
Sorry, I had the some if something Doesnt my telephone there I thought we had dropped the line.
Yes.
We have signed the agent and Japan, who did that first deal I talked about them to a very large companies through the at Sigma arty.
We're working closely with a new distributor in India.
Happens to be we're working on to enter arrangement, there with a joint customer materializes.
And then we continue to look for.
Opportunities to integrate with software vendors, who have simulation technology that.
We can then use our predictive analytics with and their simulation and then compare the actual results in order for companies to fine tune their ability to deliver consistent part. So those are the current channels. We're looking at we also have direct salespeople in North America in Europe, and we've just expanded.
In the United States.
Okay, and this has encompassing I'm getting actual manufacturers of the machines as well as end users of the machines I noticed some large.
Aerospace avionics engineering companies that have many of these machines that you worked with.
Yes.
Specifically to the new director of North America business development is going after end users such as the ones you just.
Mentioned and also will be doing some strategic relationships with software companies, where the integration of our technology and there's full speed the adoption of additive manufacturing.
Okay and the situation about the certification about the calibration is that going to be a global thing that weekend thatll be accepted all throughout.
Yes, well, that's what we're hoping that split the synergy organizations are working towards and Thats why the leverage that we expect again.
But the calibration of multiple machines.
Through print right three d. is a major step towards consistency of output of the parts of those machines manufacturer. So we hope that will be accepted by the international standards organization and if you look at the barriers to acceptance when it comes the consistency quality.
Our collaboration.
Those are the things that we focus on and the standards as that last remaining piece.
And when might that come to fruition.
These are ongoing standards efforts, the one that I talked about what it was to be voted on in Q4, this year and hopefully it'll take effect next year.
No.
I appreciate your questions and if I could move on and I'd be glad to follow up with you privately and longer conversation, but I want to give some other people the opportunity to ask some questions. Okay great.
Thank you.
Thank you.
Next question comes from George the cargo a private Investor. Please proceed with your question.
Yes, hi, guys. Thank you for taking my call congratulations on the progress.
Two questions.
How would you describe.
Working relationship with materialize.
And one of the total number of shares outstanding please.
First of all onto the working relationship is very good as I mentioned during January we did joint sales with them.
Resulting in opportunities for us Fortunately, we believe this quarter and we continue to work with them and we expect to make some significant progress with the integration of our monitoring system and their emcp in the next two months and I think we'll have some exciting things to talk about the threat.
Shares outstanding standing I'll turn that over to Franco sure.
As of the Thirtyth of June and as of today, the total shares outstanding or 3 million 926362 shares.
Okay. Thanks, So much guide I think right rich.
Thank you.
Our next question comes from strong while another private Investor. Please proceed with your question.
Hello, Mark in Frank Thank you for everything you do right Sigma labs.
I've been invested for a long time and I just wanted to.
Asked I know are you familiar with the all three D.
And how does that compare to SGL b.
And as well the follow up question to that is.
Can SGL b.
Hi, great support free or is that something in your business model. You are are you guys looking into it all.
So let me take the second one first Ken print support free.
So.
We're working with.
Several companies.
Software company Ism hardware companies.
To do closed loop.
Were based on our predictive analytics, we can see a defect or anomaly.
Coming any process and then.
Send messages and signals to the printer to be able to address.
What is going to cause the anomaly or defect in the part that Theyre building if thats what you meant bye bye.
Being able to do it.
Automatically the answer is we're working towards that and we're getting very close and.
To being able to do closed loop.
In process quality assurance.
The first question I'm, not quite sure I understand and would you repeat it for me.
Sure now just asking if you're familiar with belly all three D.
And Oh, yes, thank you for that.
Okay. Thank you for that on the closed but I was actually talking about globally. All three d. can print support free structure on the print in the middle Oh, I see I see what you're asking yes.
So.
We're not a printer manufacturer so we don't.
Wow.
The customer our end user uses our technology to be able to.
During the process of the build even look predict detect so for them. So we can.
Look at support structures and inform the customer whether the support structures are or meet the requirements of apart.
But we don't have anything to do with building a part structure free or support for sure. Okay. Okay. I thought so all right. Thank you and one last question I know, we're talking about giving an example of if sigma took over 5% of market share for metal Threed printing that we would.
Bring in a certain amount due nowhere project, how much Sigma lab once fully matured as a product would be able to capture for the metal threed printing market.
I really don't have a from handle on that in the what you're quoting is an analysis that we did that.
Predicted the number of Threed metal printers that would be sold between 2021 in 2027 and for every 5% of that market, we would that would mean and approximately $100 million of revenue to the company.
Over that seven year period so.
I can't predict at this stage in the Companys life, what we might be able to garner I can tell you is that there is no other company in the world that is moving in the direction, we're moving to establish that standard and if we established at standard and the maturity of the end users comes to the point, where they have multi.
Printers for multiple manufacturers, we are the way to help them reduce costs and ensure quality.
Okay, well I appreciate your answers my questions. Thanks, Thanks, Sean.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to management for any closing remarks, you may have.
Well. Thank you very much for your timing your attention and your interest.
As always if you would like them to have a further conversation.
We'd be glad to accommodate do the best way to do that is to coordinate with them the and Chris Tyson and again, we thank you for your time any interest and I look forward to updating you on the progress that.
We will be making with the partners that were working with and I'll look forward to being able announced and provide more detail around the agreement that we recently side.
Thanks, again for time intention say stay safe and well talk to you and about three months.
Operator.
Ladies and gentlemen, this concludes todays web call may now disconnect. Your lines at this time. Thank you for your participation have a great. Thanks.
Okay.
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