Q2 2021 Sigma Labs Inc Earnings Call
[music].
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.
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 <unk>, President and Chief Executive Officer, and Frank, whereas the Koski, the company's Chief Financial Officer, a press release detailing these results crossed the wires. This afternoon of 401.
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.
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 Rupe part Mark of 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 excited about Sigma this future.
Ever been.
I realize the those 2 sets of minutes are at odds with each other.
But it's often the case in emerging markets, such as additive manufacturing and new technologies like print right 3 D. Both can be true.
1 quarter doesn't change our strategy, we fully intend to run the rates not get distracted and stay focused on our long term opportunity, which in my experience and opinion is larger than I previously thought.
Explain why I'm, so confident in the future after Frank Orzechowski, our CFO reviews, our financials Frank.
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 brief overview of our results for the second quarter of 2021.
Our revenue for the second quarter of 2021 totaled 144000.
This compares to revenues of 168000 for the first quarter of 2020, while.
While the second quarter revenues.
Decreased slightly over the same period last year year to day revenues for the 6 months ended June 30 of 2021 totaled 602000, an increase of 55% over the same period last year.
Our gross profit for the second quarter of 2021 was 28000. This compares to a gross profit of 110000 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 of 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 $2.1.7 million, while operating expenses for the first quarter of 2020 totaled 153 million an increase of $640000.
Our salaries and benefits were 985000 for the quarter, an increase of 380000 over the second quarter of 2020, largely as a result of average full time head count increasing by 10 over the same period last year.
Stock based compensation was 116000 for the 3 months ended June 32021, compared to 271000 for the same period last year of 155000 or 57 per cent decrease. This decrease was 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 32021.
Our research and development expenses expenditures of 281000 were incurred during the 3 months ended June 32021, compared to 112000 in the same period of last year.
69000 increase the increase was primarily attributable to C. T scans related to new development work ongoing enhancements and bug fixes related the print rate 3 day version, 7 <unk> and purchases of lab supplies and parts of materials.
Our organization costs for the 3 months ended June 32021, total to 159000 as compared to 80000 for the same period in 2020.
This increase was due to an increase in shareholder services costs related to the special shareholders meeting held in May of 2021 and stock options expense for non employee directors, whereas in 2020 of those options were not granted to the directors until July.
Legal and professional fees incurred during the 3 months ended June 32021 were 244000 compared to 212000 incurred in the same period last year the.
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 91000 for the 3 months ended June 30 of 2021 compared to 52000 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 of 2021 was $295000. 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 of liability since on the issuance date of the warrants we did not have enough authorized and uninsured shares available to settle the warrants if exercised.
At our May 24th Special stockholders meeting, we received approval to our increase our authorized shares of common stock and we therefore extinguish the liability and reclassified it to permanent equity.
Cash used in operating activities for the 6 months ended June 30 of 2021 total $3.2 million compared to $2.4 million in the second quarter ended June 30 of 2020 the.
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 increase 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 <unk> 18 per share as compared to a net loss of $1.6 million were <unk> 49 per share in the first quarter of 2020.
Our cash totaled $14.7 million at June 30 of 2021 as compared to $3.7 million at December 31, 2020, and $2.5 million at June 30 of 2020.
Working capital totaled $15.6 million at June 30 of 2021 as compared to $4.3 million at December 31, 2020, and 650000 at June 32020.
At June 30 of 2021 of our stockholders equity was $16.4 million as compared to $5.2 million at December 31, 2020, and $3.6 million at June 30 of 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 will look forward and talk about what supports my belief of 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 1 off of circumstances that were totally out of our control and let me explain a couple of them.
In 1 case, where youre doing it that Sigma Rte, which some of the you might know is the final step in the sales process and that Sigma Artie is a rapid test and evaluation of where we take the customers the CAD file and build a part on a printer incentive fee.
We then give the prospect of remote access to an instance of print right 3 D that monitors the part during the build process. In this particular case the laser on our system sales just as we started the build we ordered a new laser but because of shortages and delivery delays. It took almost a month to get into.
Stalled and calibrate our printer.
Due to the last month of the deal flow out of the quarter. The prospect was actually here in San Jose last week and review of the data from the completed build with their engineering team.
After a successful visit we expect the purchase of order soon.
In another case the contract was being done through of trading company in Asia that required full cash payment from the end user before they would issue of purchase water.
The payment was delayed due to an internal issue and slipped out of the quarter. We are now scheduled to install of that system in early August and expect the purchase order soon.
Well of these kinds of unforeseen circumstances or occurrence of can happen in the.
The individual reasons may be interesting and in some cases informative in the aggregate they were 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 from bad luck.
The pace of recovery.
I expect the volatility to decrease as our pipeline growth the industry matures and the effects of the pandemic are in the rearview mirror.
So that's the story of in Q2, it's pretty straightforward and had little to do with the industry's potential our strategy, where the need for our technology.
1 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 are also seeing a renewed sense of urgency from our prospects as a matter of fact, the peso has been challenging for 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.
M continued capture of the world's imagination.
There's also a growing consensus that a standards based third party quality monitoring system like print right <unk> is required to ensure consistent quality and accelerate the adoption of <unk> metal printing parts.
This consensus is being reinforced by regulatory bodies driving standards of living 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.
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 I asked and I'm sure that is on your mind is win why now what's the pedal, but fundamentally different between Q2 of the second half of 2021, what's changed.
The following specific Sigma factors give me confidence that the past is prologue and that the second half of the year, we will set.
The 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 print right 3 D and have much more confidence in their ability to make money.
Our key Oems DMG, Maury and out of industries.
Are both seeing more opportunities for our technology and as your 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 from increased quality risk management to avoid catastrophic disaster and potentially year and money to spend.
We are seeing more quotes from multi system installations of 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.
At 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 the great sense of urgency.
As a matter of fact, we end of every day as huddle with the saying be safe be well, let's go amazed of the world I believe that we're on the path of doing that.
Frank and I will be glad to answer the questions that you might have.
Thank you, we'll now be conducting a question and answer session.
We'd like to be placed from the question queue. Please press star 1 on your telephone keypad of confirmation tone will indicate your line is in the question queue..1 moment, please while we pull for questions.
Our first question today is coming from Scott Buck from H C. Wainwright. Your line is not a lot.
Hi, Good afternoon, guys. Thank you for taking my question.
I am curious it sounds like you guys made a handful of hires could you give us a little color on where you are hiring and maybe what the hiring outlook is.
Actually on the sales side for the remainder of the year.
Sure. We just hired another sales person in Europe, we hired the technical support engineer in Europe.
Hired a couple of engineers here in Santa Fe, and we also hired 1 or 2 people.
Full time and part time on the on the manufacturing 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 the each North America and Europe a year ago.
Great that's helpful. Marc and second can you.
You help remind me or remind us what the sales cycle is and give us the center 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.
All of the but.
Of course, right now the sales cycles in some cases as long depending on whether they're starting their initiative and the other cases of short depending on the competency of the buyer. So for instance, the the deal that we did do this quarter was a 4 month sales cycle, we have a couple of that of <unk>.
Tended longer than that what we're seeing though.
Given our focus on the 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 will 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 the sense in order of magnitude maybe what the pipeline looks like at the end of June versus March and then you know.
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 1 from me guys.
How should we be thinking about cash burn for the remainder of the year.
Consistent with the first half or should we start to see a little bit of improvement as we get into the later stages of the year I'll ask Frank to engine that Frank.
Thank you.
Ultimately, it's going to depend on sales, but from an operating expense standpoint.
Purely from there youre going to see the cash burn will increase a little bit and the reason why is because some of the hires in the expenditures were made later in the quarter. So it wouldn't be the run rate wouldnt 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.
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 as you know as.
As booking the revenues and in collecting the cash.
Okay, Great that was very helpful guys. Thanks again for the time.
Thanks Scott.
Thank you. The next question today is coming from Jon Gruber from Google Mcveigh. Your line is not of life.
Good afternoon.
Well that was the ultimate dog ate my homework quarter, given given that.
How does that change your outlook for the full year on the revenue side and maybe you can give us some guidance on Q3 revenue given the lot of these things you say are nonrecurring.
John Thanks for the question.
It is the ultimate target my homework quota.
However, if we look going forward and we look at the the 1 time 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 1 hand, but we see the pipeline as I've mentioned.
The increase every month right now we're seeing our sales people get much more proficient at moving things out of the pipeline or moving them and based on qualification and as I said, we see the regulatory pressure is.
Especially in the space exploration in aerospace.
Having a ripple effect from 1 customer to another customer on the supply chain. So all of those point to a very positive second half of the year as far as specific revenue guidance.
I am not going to provided 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 Didnt werent able to close in Q2 and add some to that.
Thank you.
Thank you. Our next question today is coming from after the cargos from symmetry group. Your line is now live.
Hey, I had just a quick question could you provide some color on how the relationship with Materialise is developing or not developing.
Yeah, no it's developing.
They've had given COVID-19 and in Europe, it's slowed down a little bit from the transaction perspective. However.
1 of the deal 2 of the deal is actually that we are expecting this quarter due to the materialise relationship where the customer is using MCP as a control system. We also have 2 OEM possibilities that we're working on the second half of the year that are also using.
Serialized was control platform and.
And we were brought into both of those deals by materialize.
And finally, we're working jointly on the integration of print rate <unk> 2 of the control platform to give better.
Control of the printing process, both to the end user and also to make some of the machine decisions.
Moving towards closed loop. So we worked with them very closely the relationship is yielding.
Some good opportunities for us and we expect that to continue in that manner.
Excellent.
That's encouraging news.
I appreciate it thank you Youre welcome.
Yeah.
Thank you next question today is coming from the Scott Bilodeau from Walrus Partners. Your line is now live.
Oh I think several of my questions have been answered I just wonder could you you mentioned a couple of deals slipping is the way you can quantify what those are or give us the.
Just to find out of the dog that didn't need the homework what kind of grade we would have got for the homework.
Oh boy, it's a very good question. So I guess that the best way to quantify that is in addition to the of couple of deals that I mentioned that had specific causes to them.
I believe that both DMG and additive.
And 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 of 4 of 5 deals that we were counting on.
And you can do the math from there.
Got it.
Great.
And then.
Any of you know as you've brought on new.
As you mentioned you got the 3 North American sales groups too in Europe.
Coming.
Coming online.
As expected the funnel looks really kind of as you'd expect the sushi.
Obviously, the 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.
Okay.
Maybe characterize that if if you're comfortable doing so of course. So let's go ahead of the salespeople first in.
I've been doing this for a long time and sales success of salespeople.
It 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.
Second half of the year.
The 2 sales people that work.
The teams that we brought on board in North America.
1 we let go.
Due to lack of visibility to understand and grasp of the technology. The other 1 is doing very well relative to the pipeline and he expects to make a good 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 of point favorably.
So the.
If you look from a sales perspective, I'm very comfortable when you have 6 teams in the only lose 1 or 1 is the.
Non performing or not expected to perform that's a really good percentage.
Of course, the proof is in the putting in the second half of the year. The other thing is that I mentioned earlier.
6 month, Mark as a really important mark for a sales person.
As a sales manager manager yesterday, it'll have a pipeline and are forecasting in the third quarter that they're here the prevalent at the rate higher.
Got you.
Alright, I appreciate it Youre welcome. Thank you.
Thank you we reached the end of our question and answer session I would like to turn the floor back over for any further of closing comments.
Great well. Thank you again for joining the conference call as I said it would of its an understatement of say I'm disappointed but is also an understatement to say that I'm not excited.
To see a lot more activity and I expect to see us to execute.
As the market turns of Covid becomes less of an issue.
As I mentioned earlier sales force gives us.
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 empty.
Thanks again.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.