Q1 2022 Sigma Labs Inc Earnings Call
Good day and welcome to the Sigma Labs first quarter 2022 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 <unk> Executive Vice President of MSA 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 first quarter 2022 business update and results conference call. Your hosts today are Mark report Chairman Jacob Brunswick, Chief Executive Officer, and Frank Orzechowski, The company's Chief Financial Officer, a press release detailing.
These results crossed the wires. This afternoon at four 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.
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.
At this time I would like to turn the call over to Sigma Lab's, Chairman Mark <unk> Mark the floor is yours.
Thank you, Chris and good afternoon, everybody and thanks for joining our call today.
As many of you May know this will be my last earnings call.
So it's a great pleasure that we announced the promotion of Jacob Roseburg to President and Chief Executive Officer of Sigma Labs.
Oh, that's the desired outcome of the search.
Started over a year ago and I'm very excited at the prospect of working with Jacob as I assume the chairman's role.
This move comes at a time, they clearly marks the beginning of a new direction for the company.
It's important to understand that Jacob was recruited specifically because of his background.
He brings an oem's perspective to Sigma and greatly broadens our understanding of what large manufacturers need to assure the highest level of trust in the quality and consistency of printed parts as they scale to hundreds of production system.
Yeah, he kept but instead a plan in place that leveraging Sigma core competency removes significant barriers of entry for the company as well as for end users and that's created a sense of urgency and developing relationships with Oems and other software companies material providers and post process.
<unk> technologies.
I believe that all the above for the first time positioned Sigma to have our technology.
The prisoners with that I'll be glad to turn the call over to renewed CEO Sigma labs, Jacob Prunes Berg.
Thank you Mark and thank you for all that you've done for Sigma labs, we could not be happier to have you as our chairman of the board and really look forward to continuing to work with you as we grow into the future.
The first quarter of 2022 at the beginning of a new era for Sigma labs.
An era in which we move from one off project sale to one that we believe is accessible at scale for supporting qualification and production across thousands of machines at hundreds of customer sites.
This transition will not happen overnight, but it is being accelerated faster than we anticipated in fact, we began to browsing market under our new subscription model. During the first quarter, we continued to grow our pipeline and we closed our first subscription sale.
The move to a subscription model does in fact change our revenue recognition from our prior immediate onetime model. However, we believe this will result in reoccurring scalable and more predictable long term cash flow overtime.
Additionally, the subscription model lowered the barrier to entry for customers and their subsequent scale to enterprise solution.
Allows us to connect to other software solutions in the market more easily.
Paves the way for <unk>.
More software only solutions through product expansion and embedded in tiered OEM solution that can yield a higher margin product.
I wanted to take a second and talk about the last bullet item I just highlight this on product expansion.
We believe this is the crux of our transition and we believe this will allow us to scale into production across enterprises with tens to hundreds of printers.
We have learned over the past year that we are dealing with a bifurcated market where print right three D. In its current state of hardware plus software.
It's a great comprehensive platform for universities research organizations and internal research and development groups of the most sophisticated industries.
However to set the standard for quality, we need to own the production segment of the market, where the economics and quite frankly their requirements are a bit different as.
As we continue to support this R&D space, we are using this great experience and the input of our customer base, an advisory board to deploy our technology largely in software only component geared towards mass production customers insights.
To address this production customer we are preparing to announce what we believe our exciting new products that will combine streaming machine health data for a major OEM.
Faxes camera data and on excess melt pool technology to provide a centralized home for all industry in process quality solution.
We believe with these new products Sigma labs will be at the center of quality and connection to any point solution for in process monitoring in the market.
Connected data is expected to allow users to simplify their quality operation easily identified gross feedback.
Utilize our machine learning and artificial intelligence platform and drastically improve the total cost of development and production.
Additionally, we believe this gives customers onboarding options for lower dollar solution as they grow into what we're developing is the quality standard for additive manufacturing.
As a reminder, from our year end 2021 called <unk>.
According to empower the metal am market alone has an estimated installed base or total addressable market of greater than 12000 metal am system today.
With a growth rate of approximately 20% year over year.
This yield. The addition of well over 2000, new systems a year.
The market for metal am without any additional dramatic growth rate off of Sigma labs has the opportunity to grow towards thousands of high margin installed as our partnerships become additive.
Time for us to go out and get this opportunity with our software only solution that can be easily deployed and supported its time to be the quality standard for the entire industry.
Paved the way for our company to grow with our advanced work with our research and University partners and are now poised to address the needs of the mass market.
Now I will have Frank review, the financials and I will close with our key Kpis to monitor as we go forward that will be judging ourselves by as we are.
<unk> our goals for 2025 and beyond to truly take the seat as the standard for quality and additive manufacturing right.
Thank you Jake.
Our detailed financial results are contained in our Form 10-Q filed with the SEC today and the press release, we issued contains key highlights of our financial results. So today I will provide a brief overview of our results for the first quarter of 'twenty to 'twenty two.
Revenue for the first quarter of 2022 totaled 52000 as compared to revenues of 458000 for the first quarter of 2021 .
The decrease in revenue was primarily due to the changes in our business model, resulting in decreased right. Three D unit direct sales, partially offset by an increase in revenue from our subscription based pricing.
Gross profit for the first quarter of 2022 was 12000 as compared to 330000 for the first quarter of 2021.
Total operating expenses for the first quarter of 2022 or 2.3 billion, while operating expenses for the first quarter of 2021 totaled $1 8 million.
The increase of $500000 is primarily attributable to an increase in salary and benefit costs of $445000 relating to the hiring of additional employees in an effort to expand the commercialization of our products.
Also contributing to the overall increase were increases in stock based compensation costs of 53000 related to equity grants to both our new and existing employees.
Our net increase in professional services of 35000, mostly due to consulting services related to our new business model and various corporate matters and increased travel expenses of 54000 as COVID-19 related travel restrictions eased compared to the first quarter of 2020 one.
Partially offsetting these operating expense increases were decreases in the operations expenses of 59000 <unk>.
Investor Public relations and advertising expenses of 14000 and organization costs of 19000.
Other income for the three months ended March 31, 2022 was 77000, primarily as a result, the benefits received from new Mexico state incentive programs.
This compares to other income for the first quarter of 2020 , one of 801000, which resulted from an unrealized gain on the revaluation of a derivative liability from our March 2021 financing.
Okay.
Cash used in operating activities for the quarter ended March 31, 2022 totaled 2.03 billion compared to 1.24 billion for the quarter ended March 31 2021.
The net loss applicable to common stockholders for the first quarter of 2022 was $2 2 million or 21 cents per share on weighted average shares of $10 5 million as compared to a net loss of 0.7 mill.
A million or nine cents per share on weighted average shares of $7 8 million in the first quarter of 2021 .
Our cash totaled $9 3 million at March 31, 2022, as compared to $11 4 million at December 31, 2021 .
Working capital was $9 6 million at March 31, 2022, as compared to $11 7 million at December 31 2021.
And at March 31, 2020 to our stockholders equity was $10 9 billion as compared to $12 9 million at December 31st 2021.
And with that I will now turn the call back over to Jake.
Okay.
Thank you Frank.
I do not expect anyone to jump out of their seats and excitement with our first quarter revenue numbers, but our transition had to happen at some point for us to go after the high volume opportunity we are now moving towards traffic.
We are tracking the following kpis on progress to plan going forward.
Additional OEM partners and our different tier solutions.
Most of our software ecosystem, a bundled solution and software only product offering.
Advances.
To our product suite to address traditional manufacturers production.
The addition, and a corresponding scaling at meaningful customers.
Expansion into adjacent market such as polymer production.
Tension of a runway by execution or executing on our new business model focused on reducing our operating expenses and allocation of resources to accomplish these goals.
In Q1, we entered into collaboration with Am F. G and adjacent additive I mean, that's software company. We also were named as a founding member of S. T. M consortium for setting process and material development standards and began working with Auburn University to support their grants from naphtha.
Our collaboration with long term strategic partner materialize has resulted in a technology platform that delivers an industry first ability to identify and address process and quality issues in real time.
Lastly, we added a printer OEM economy, three D to our print right <unk> certified program.
We are setting this business up with a solution and structure of that scale as we progressed there will be an opportunity to look at not only organic opportunity, but inorganic opportunities that align with our strategy.
At a recent Investor conference at the last one on one I was at the very blunt question.
Are you really going to do what it takes to set the quality to set the standard for quality and a M. Can you deliver a software only solution develop their relationships get aggressive with your pricing and do what it takes.
My answer was and is a resounding yes.
This is the only way to make our technology pervasive throughout the industry. It is the only path towards setting the standard for quality and additive manufacturing. It is the only path that we are focused on today.
With that I'll turn it over to the operator to open up the question line.
Operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would 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.
Thank you. Our first question is from Scott Buck with H C. Wainwright. Please proceed with your question.
Hi, good afternoon, guys and congratulations Jacob on the position.
Thank you.
My first question just on the the 50000 of revenue in the quarter should.
Should we is that all subscription revenue or is there something else in there and I guess, what I'm asking is this.
You know trough revenue.
And something for you guys to grow out of sequentially.
The revenue is a little bit of a mix, but it is our first subscription sale as well and frankly I don't know if you have a comment I can elaborate it on from there as well.
Yeah, Yeah. The the other components are.
Maintenance and support contracts are primarily that that we're realizing over time.
So that would be the other big piece that's in that's in that number.
Okay can you give me a little color on you know maybe percentage wise or is it just you know is it 50 50 is it.
70, 525, just trying to understand what you know what as software in there.
Yep.
Sure so.
The software the software piece.
Is.
It's roughly roughly 50%, let's say, 45% to 50% and the other at maintenance and sport and that in that number.
Okay. That's helpful and then the new stuff subscription client you signed during the quarter are they are you are you already building them I mean are they already yeah.
Using the software yes.
Yes, Okay. That's.
That's helpful.
And then on the pipeline you.
I think we've been conditioned to expect a meaningful ramp in activity in the second half of this year is that still the right way to think about them. The way this grows.
Yeah, I definitely think so.
As you look at it as a whole so our pipeline is definitely increasing we're adding new names do it so from the investment in the sales force we've had in the last year, they've really gotten us into the right rooms in.
In the right places and it's gotten us the feedback that we needed on what a scaled production monitoring means for them in their industries and how they want to buy so a lot of that feedback has gone into you know what you heard commented on our product and subscription model that you see today so.
So as we work with them to deliver on kind of the key kpis.
Kpis. They have we really expect them to continue to tackle what will be a total contract value growth year over year. So traditionally in the past we had one one time sales our revenue recognition for.
The subscription model that a little bit different on the Rev. Rec side going forward, but year over year, we still do expect the total contract value to grow them from a Sigma Lab's perspective, we've got a lot of bright future ahead of us and we're attacking that everyday from a commercial perspective.
Okay. That's helpful.
And then I'm curious it yeah, I would guess a cash burn kind of ticked up in the quarter, you know Frank and how comfortable are you with the cash level and do you have enough cash to get you to.
Two you know that kind of inflection point, where you start to see revenue really ramp.
Well you know, yes, well so the cash flow burn has picked up certainly it's picked up relative to the first quarter of last year.
Our cash burn is actually pretty flat to the fourth quarter of last year, because we did a lot of the add to the infrastructure was in the back half of 'twenty 2021.
So you know looking at the looking at the cash burn right, now and and and and Jake as Jake said you know there's we're looking at operating expenses now we've got a new model. We are refocusing. Some resources there is an opportunity here to reduce some of the overhead.
And we're going to take that opportunity, where where it makes sense for the organization. The other issue with cash flow is.
How is it impacted by sales going forward right. So if we were to take the most conservative approach to this with no sales, where we can get into a.
'twenty 'twenty three easily and with sales.
And reduction in incurred burned probably closer to the midpoint of 2023.
Okay. That's really helpful. Frank and then just last thing for me on gross margins I can't remember, whether or not last quarter. You discussed you know.
What.
Yeah. The gross margin ceiling is now following the business transition I mean should we view you as other SaaS companies, where you know 60 70, 80% gross margin is achievable.
Yeah.
Yeah, I mean, I think you're going to see that for sure.
Last year with with a perpetual model, we were around 65, 66% and our gross more right.
I think that that number is going to only improve over time as we as we transition to software only and the hardware component of the.
The offering gets less and less so yeah.
Yeah.
Youre looking at overtime upwards of 80 plus percent gross margin similar to what you'd find in a SaaS company.
Okay perfect guys I appreciate the time, thanks again.
Thank you.
Thank you. Our next question is from Michael Shaw with the Shaw family Office. Please proceed with your question Hi, Good afternoon in the fourth quarter you sold a couple of the polymer systems. What does it look like for additional sales going forward or are there similar needs or issues that have to be addressed like you have on the metal side of the business.
Yeah. Thank you for the question.
The polymer product is actually an interesting talking point here because it was actually.
It started with production mindset.
From the beginning so an aerospace company kind of had the directive for their supply base to create an offering and mimic some of our technology on the metals side to provide them production monitoring and so right out of the gate.
In this collaboration and our first beta site.
That was the crux of the development was building out a solution for production. So we had our first multi unit installation last year, we're just finishing up validation.
Now with the user as well as the <unk>.
Aerospace Corporation, and we're really approaching kind of the next steps would be enterprise installation.
For that technology, and then no mass market offering for that so that's progressing well and is very in line with our future vision of where we're going on the metal side. So it actually ended up being maybe a leading indicator there because it got a little bit of a head start in the way. It was approach from the very beginning.
That's great. Thank you very much.
Thank you. Our next question comes from Carlo <unk> with Dawson James. Please proceed with your question.
Hey, guys and welcome aboard.
I've talked about 70% of your revenues in the future coming from the Oems is that still the case and can you give us some.
An update on that and what should we expect when we see incremental growth from these revenues and when do you think we'll start seeing that.
Yeah.
Perfect Yeah, there I think theres two components. So there's a short term revenue component and a longer term revenue component that really kind of goes into the.
The retrofit market as it exists today, so Oems that have existing platforms in the field.
We don't yet have an embedded solution with them from what you can expect a see saw an economy three D add from a pre black Friday perspective.
We fully expect with the API is that are opening up with some of the really large Oems in this space that we'll make some positive movement, there with product offerings that align well.
With the market that can drive some of the more short term revenue gain.
From a product offering in both the software only as well as a hardware software combination. So you know look look for that and we'll look to update you as we progress there in the OEM space.
Second piece is b and.
Fully embedded offering where we are the solution off the line on a machine or maybe apart component or a licensed IP structure in an oem's offering so those those kind of fit.
Quote unquote longer term, but kind of within the next year.
And onward phase, where we actually go out the door on their next generation system. So with some of our partners. The first next Gen system is really launching towards the end of the middle point or second quarter of next year.
That's kind of when we can expect the every machine embedded software out the door to kind of start to pick up there.
Yeah.
Thank you.
Yeah.
Thank you. Our next question is from Harry Larry Harlem with Hollywood Family Office. Please proceed with your question.
Good afternoon.
My question is about three D seems to be counting their quality assurance system. So I'm wondering how does that relate to or impact your plans.
Okay.
Yeah. Thank you for the question.
Vale of three D is interesting there are newer player in the metal am space for an OEM.
And it's actually very exciting for us to see you know one of their their value propositions amongst.
The money they go to market with is the importance of quality assurance and quality monitoring.
So although Oems in the marketplace today, you know that being a critical part of things that go out on their machine.
Really closely aligns with how we see the market as.
As well that said, we really view them as a potential partner.
And on the other front of it we can do something that they cannot today, which is address our standard across all of their competitors' machines. In addition to theirs. So.
Like other Oems that have offerings in this space, we look to set a standard that can kind of correlate all of the machines across the marketplace and really give sites.
For every intensive purposes always have more than one OEM systems in them to standardize their operations across our unified platform.
You know for me exciting to see that as being something that's touted as a bigger deal in the marketplace and look.
Forward to the opportunity at working with Belo hopefully at some point in the future.
Alright, Thank you very much.
Thank you. Our next question comes from Lee Alper with Hammock investors. Please proceed with your question.
Thanks.
Uh huh.
You guys.
Quite a lot in the sales force last year and the revenues really weren't there in the first year, where the first quarter can you kind of give a little more color on that and also.
Add to.
Any thoughts about how long your sales cycle as well.
What are your new programs.
Thanks.
Certainly somebody commented a little bit before.
The investment in people, who had very deep connections to the industry and kind of the heavy hitters in the marketplace and experienced in production or or other OEM.
<unk> was extremely beneficial to us last year.
Some of them onboard in the later parts of the year.
It allowed us to get into the right room, I'm really quickly across the industry as I stated before and I think a lot of what that brought about was the right discussions we needed to have them on our product and delivery.
Customers and is echoed in kind of what you see in the plans are going forward here.
So I think our sales cycle wise is he is he commented.
A lot of that group came on towards the later part of last year.
Traditionally we saw sales cycle of our hardware and software solution and kind of that six to 12 month range from first interaction to deal structure.
I think as we progressed towards our software only offerings. The goal is to really shorten that cycle to make it easier.
To buy and implement them as.
It was close to instantaneously as possible and meet people with you know some offerings and the more economical range and then really our full quality standard package, they can kind of grow into as well so.
A lot of what you're seeing now is.
And based on feedback to really get that sales cycle about it short as we possibly can.
Going forward and.
The last comment I'll make and Frank made it on the kind of the runway question absorbed.
And that is really looking at allocation of resources.
Two important things and some of that team we brought on we've.
Repurpose to really support customer success within our blue chip customers today, and that's all about getting them to scale.
And supporting a lot of their feedback into our product.
As we go forward and really aligning around that and some of the Oems and partnership opportunities, we have going forward and so.
We're really excited about the contribution that they are adding to the team and really looking forward to.
The year is it progressive because I think we're in the right rooms, having the right conversations today and adding some key names to the pipeline.
Okay. Thanks.
Okay.
Yeah.
Thank you there are no further questions at this time I'd like to turn the floor back over to Jacob Bruns Berg for any closing comments.
Thank you.
So.
Be sure to Sweden clothing, but Mark mentioned my background from the OEM space before.
I came here because I viewed this technology for in process monitoring as one of the largest catalyst the additive industry adoption and I still believe that extremely strongly today.
So with that I really look forward to executing on our plan. We're excited about it and feel that there is the opportunity to really execute on growth going forward and look forward to updating you on progress in the upcoming quarters. Thank you everybody for joining have a good day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yes.
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