Q4 2020 Sigma Labs Inc Earnings Call
Good day.
Good day and welcome to the Sigma Labs fourth quarter 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 Labs fourth quarter and full year 'twenty 'twenty business update and results conference call. Your hosts today are Mark <unk>, President and Chief Executive Officer, Frank Orzechowski, The company's Chief Financial Officer, a press release detailing these results crossed the wires on staff.
Noon at four one P M. Eastern today and is available on the company's website Sigma 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 are forward looking and 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 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 Rupert Mark the floor is yours.
Thank you, Chris and good afternoon, and thanks for joining our call today everybody.
Hope everyone is safe and healthy as we enter what we all hope to be the final alternative of the pandemic.
I know I'm excited for both the end of 'twenty 'twenty as well as the start of 2021 and the activity that we're seeing in the market, which I'll discuss shortly but first I'll ask Frank Orzechowski, our CFO to review, our 'twenty 'twenty results and.
Financial situations, and then I'll put the year on perspective, and discuss our roadmap 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 our view of our financial results for the full year of 2020.
Our revenue for the full year of 2020 totaled $807000 as compared to 400 in 2012 for the full year of 2019, primarily as a result on increased sales of our <unk> system.
Our gross profit for the full year of 2020 was 216000 as compared to 2019 gross profit of negative 172000.
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 'twenty, and 'twenty were $5 9 million compared to total operating expenses for 2019 of $6 2 million.
The decrease of 300000 in total operating expenses was primarily driven by decreases in R&D costs from 297000, resulting from substantially completed product development in 2019 low.
Our organization costs of 105000 due to direct reduced directors' compensation in 2020.
Savings of over $300000 in travel costs as a result on COVID-19 travel restrictions.
And lower depreciation expense of 88000 due to an increase in our fully depreciated assets.
Offsetting these decreases were increases in salary and benefit from 268000 stock based compensation of 100000 and and other operating expenses of 127000, primarily as a result of an increase on our D&O insurance premium for 2020.
Net loss before preferred dividends for the full year 2020 totaled $5 2 million.
Third to a net loss of $6 3 million in 2019.
After accounting for our preferred dividends of $1 8 million in 2020 and non in 2019, the net loss applicable to common shareholders. In 2020 was 7.1 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 five.
Dollars on 37 cents per share.
Cash used in operating activities for the full year ended December 31, 2020 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 billion and 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 on several areas. During the course of 2020, our cash totaled $3 7 million at December 31, 2020, as compared to $87000 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 one point well $1 million in cash proceeds to the accounts.
Our working capital at December 31, 2020 was $4 3 million compared to a deficit of 98000 at December 31 2019.
Trade accounts payable totaled 129000 at.
At December 31, 2020 versus 727000 at December 31, 2019, a decrease of 82%.
Our stockholders' equity totaled $5 2 million at December 31, 2020, as compared to 652000 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 and perspective.
I'll do that by contrast in the company and our market opportunity as it was a year ago to the company and the market opportunities that we see today.
As we enter 2021 I believe that three D 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 need to be validated with the result.
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 with <unk> for an initial system with Lockheed Martin space design and manufacturing Center was obviously, a great way to kick off the year.
Is it further validates our technology.
As you might know aerospace and space exploration is the largest and most advanced industry segment using three D metal printing for mission critical parts and.
In addition to Lockheed Martin we were 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 two 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.
Is it additive industries quad laser metal fab, one printer and from rate three D will be shipped to the customer from additive industries factory.
In addition, we also just received a contract for the initial system from our from our remarks it they Turkish OEM driven by our relationship with Materialise, We made a joint call on a box in last January due to Covid. It took over a year to get the first contract.
As with additive industries from three D will be a factory installed and shipped directly to the end user by remarks.
So we're off to a very different start to what looks to be a very different than here.
Past experience tells me that we're beginning to benefit from the leverage of the disturbing distribution model that we set out to develop at the beginning of the year.
And we expect that leverage will only increase.
Sigma reinforces our position as a leader for a third party in process quality assurance for three D metal printing.
So the question is what's happened and why is it different than years past.
Look at the market in the company at the start of last year versus today.
Entering 2020, the market was lacking in industry imperative and a compelling event to accelerate their 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 in rigid supply chains for manufacturing and deliver.
And the delivery of mission critical goods R. R.
And 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 additive manufacturing in three D 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 three D 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 center download and learn zoom.
Here are some recent forecasts from predictions in support of that statement.
And the World Economic Forum listed three D. Printing is one of 10 technologies that will accelerate due to COVID-19.
And power one of the worldwide, leading independent consultancies for focusing on industrial additive manufacturing forecast metal three D. Printing system sales will increase at a compounded annual growth rate of 31% and powder bed fusion M. D E D processes, representing 80.
Percentage of the system shipped.
From everything that we see happening it appears that the market is in expansion mode.
At the beginning of 'twenty 'twenty no one had a clear understanding of the effect of Covid on the world's economy. The.
On 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 have noted in the past several orders delayed or canceled due to COVID-19.
This year I expect many of those will resurface.
Regarding Sigma is readiness to fulfill our potential.
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 now Lockheed.
European Aerospace company in the Turkish OEM company.
Second we've expanded our product offering and we enter 2021 with print right three D printing three D Lite.
Print right three D D D greatly increasing our addressable market.
In addition, our seven O version will be introduced in the spring and it has several significant new features including for the first time real calibrated temperature Tunis standard that we believe will further extend our leadership position.
Last year at this time, we had two direct sales people and no partners that we're bundling our offering our product with their printers or software.
This year, we enter with an expanded very experienced sales team and supportive.
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 D. M. G. Maury.
Leading CNC machines for traditional manufacturing and they have over 100000 customers on the sales force of 800 people on the field.
And the only third party quality assurance monitoring system currently integrated with materializes M. C P.
We entered 'twenty 'twenty 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 on our technology and the pull sales of print right three D 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 are building a leverage sales and distribution model. My experience tells me that our current staffing level is capable of supporting two to three times. 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 board members deferred parts of their salaries to conserve cash.
A much different start to what we anticipate to be a much different than here.
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 three D metal printing.
Our first objective and a significant milestone that we expect to achieve an increasing revenue from our relationships with additive industries, DMG Maury and materialize.
All three 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 hardware profit provisioning of print right three D 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 were having increasing number of discussions regarding print right <unk> enterprise, which is a network solution for large production environments.
We expect to see continued penetration into the 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 Brent rate three D in their programs.
As part of a radical collaborations philosophy, you will see us continue to work with and contributor ideas on time to the international standards organizations to further their entire additive manufacturing industry.
Finally, our machine learning initiatives, coupled with a real time monitoring of the bill 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 Isps are 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 three D printing.
So we enter 2021, a different an optimistic company.
I realize that'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 for the it reinforces the need for a third party agnostic in process quality assurance system like free right three D.
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 print right three D to begin to move from prototyping and R&D into full production in 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.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment.
It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of Sean Lyles Private Investor. Please proceed with your question.
Hello, Mark. Thank you for this call and the update I appreciate it.
I just wanted to ask one more.
Do you expect in multiple units.
Production suite.
Contract too.
To be awarded to us.
That's a tough one to predict the timing of it Sean but as I mentioned in my comments, we've had more discussions about larger systems and network. Our network configurations of print right three D than we've ever had before I'm going to predict that it'll be sometime in the early second half of the year.
Okay.
Thank you for your answer I appreciate it.
You're quite welcome.
Your next question comes from the line of Harold Weber with Aegis capital. Please proceed with your question.
Hello, Mark Hi, guys, Mike Hello, Harold.
How are you.
The.
New.
Product lines that the print right light and this of.
This is to address a couple of things so about into a much larger market.
Market could you do me if anybody would like expand on what that kind of a customer that isn't how much larger. This market is what I said before we were talking about I don't know what it was at the Metro market. We're talking about over the next couple of years on about 10 20 billion five years. This market is much larger could you address that.
Well if.
If you look at three D metal printing it has several components several processes. The largest is powder bed fusion, which we participate in today and print right. <unk> 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 and our relationship with northwestern.
We were going to introduce print right three D D D or direct energy deposition that's another.
Three D metal process, that's used by companies alongside powder bed fusion, it's not as large of a market, but it's another component.
Right three D. Lite is targeted at the entry level user who is not.
It doesn't require at that time the full.
Features and functions of print right three day.
So it is print right three do you like gives us access to a lower end mid market print right. Three D. D. D gives us access to a whole separate market if.
If you look at the metal mm three D printing market between powder bed fusion in D E D.
Makes up about 80% of the three D metal printers that are 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 the E. D E T processing.
So these entry level machines this do they.
They purchased by a different industry sets no no. It's exactly the same it just provides an easier ramp for people to begin to use our technology.
Is it reasonable to say than debt most clients customers users have both types of systems.
More and more they're having both types of systems and there also Oems that developed both types of systems. If you look at DMG mowry. They have both the powder bed fusion of D. E. D machine. If you look at Mitsubishi They develop both machines. If you look at end users like a Baker Hughes they.
Multiple machines on multiple processes like D. E. D 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.
The applications.
Yes, and it provides a lower entry ramp for for new users that are.
Want to begin to test our technology.
Okay, well that's real good.
Okay, that's real good.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from line of Lee Alper with Hammock investors. Please proceed with your question.
Hi, Mark it sounds like more on the right track can you give us some color on how many bids you have outstanding at this point.
Some maybe estimate on.
Time to close.
Boy I'm, how many bids we have outstanding I can tell you is that our pipeline has probably increased two to three fold 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 two to three times, what we saw this time last year.
The time to close.
You know varies from.
From three months to 18 months.
If you remember we closed the Mitsubishi contract in about 90 days on 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 remarks, and that was close which was oh.
For 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.
Okay. Thanks.
Yeah.
Your next question comes from the line of Mark Rupe Private Investor. Please proceed with your question.
Good day Mark.
Yeah.
You know we've been following the company for a long long long time, now and you know a bunch of us feel like things are definitely moving in the right direction, but I thought I got three questions.
Do you just do you feel that 2021 is the year that Sigma labs moves to breakeven and then moves on beyond that to our profitability.
Second question is how in the World do you get the story of Sigma labs into product into a much wider.
Audience are much more sophisticated audience.
Then it has now.
And the third question has to do with the patents does a Sigma labs current patents protect the technology on the company against the competition that's out there that is.
Are actively looking at a 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.
Absent a different region frequency spectrum.
Yeah.
Boy Mark you pack a lot into a little bit of time. So let me see if I can parse it 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'll be it's gonna 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 is.
As far as the getting to a wider audience are you talking about from a shareholder perspective or from a customer perspective actually actually both but I was originally are intending it to be a shareholder perspective, you know we get great movement.
And Mark a cap on our company and on 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 awareness of the 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 on 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.
Your next question comes from the line of Ralph wheel with our wheel investment management. Please proceed with your question.
Hi, good afternoon Mark.
Uh huh.
One one simple question the U S.
Had ordered so contracts from whether it be air both from it could be she are Baker Hughes or area of gin and end.
And Lockheed.
And you're you've been getting one contract on one.
In order for one unit.
How long do you feel that.
Most companies will take once they get one before they go to 2345, but whatever.
Are they are they testing these for a period of time in different ways and I'd just like to hear your thought on that.
And it really depends Ralph on the.
Martin is one of the more sophisticated users.
And of a three day metal printing and probably has more knowledge in that area then 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 IND.
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 one printer or two printers from the same vendor they have less need so as their use of three day metal printing expands the value of our technology.
<unk> increases in the speed in which they will move from an initial purchase the multiple purses 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 Ed.
<unk> to your team.
Sales and marketing and will help expedite debt or is it just up to the companies could take their time.
No. It's a covenant day combination of both there clearly will help expedite it with their knowledge.
But.
They can't sell multiple systems and the companies that have single machines, we need to get the maturity of the overall three D 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 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 three D metal printing continues to move.
Move to full.
Full production.
And we see that happening more and more quickly than we ever saw before and as far as the field organization.
On the technical people in the sales people are more than capable of working with the customers and explaining the benefits of a third party profit in process quality assurance system, and having that consistent look and feel and I think that's becoming more.
More and more obvious to the industry as you see organizations like from Haufer do the studies on monitoring systems and quality assurance systems and reinforced the fact that companies have to step up the overall quality, if theyre going to take three D metal printing to the heights.
Debt.
That everybody believes that can get to.
Okay. Thanks Mark.
[laughter].
Your next question comes from the line of Devin you private Investor. Please proceed with your question.
Hey, Thanks for taking my questions I just have a question on the lower end machines for print right really like.
How are you thinking about the indeed are the end user if they're using a laura on machine would need.
For better quality assurance in general.
Say that again Kevin.
So if they have a lower end machine, what's the necessity to pick up print red light versus.
You know how much they care.
Okay.
Sure and so let's describe a lower end machine allure of machine is in the area of four to 500000 compared to a high end machine.
800000, or a million so we're not talking about a lower end machine that's under 100 K.
And the need for the quality assurance on that lower end machine is really dictated by the type of part that they're building and the application.
So we're dealing with one OEM.
<unk>, who has a midrange machines, that's used for dental type of applications and lower in medical applications their need for quality is as high as the need for quality of the higher end machine. There just stopped producing that the production level that the higher end machine is producing so.
It's.
It's it's still.
Mission critical part, it's just say.
Lower cost mission critical part and they don't need the full extent of the features and functions of print right three D to assure the quality that they're looking for.
Got it Okay, and then second question.
As you go out to these Oems and and.
And users.
Sitting here trying to pitch them on.
Cost savings at the end of the day on.
Can you quantify or qualify.
What you're picking 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 print right three D 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 a build to get to the point, where you have a quality part.
Costs you money every time you go through another cycle with print right three D. 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.
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 two years.
Got it okay, great. Thanks for taking my questions Youre welcome.
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 Rupe Port 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 three 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 and in cases of crisis and to avoid the shortages of critical parts. The second thing that's causing the acceleration of three D. Printing is a technology itself. The printers are getting better at the materials are getting better.
Science software is getting better the level of competency of the users getting better and that's all coming together at the same time Sigma our technology, our field organization on 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 of the segments that we talked about earlier.
And this is 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 from 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.
Okay.
[music].
Yeah.
Yeah.