Sigma Labs, Inc.
Q3 2014 Earnings Call Transcript

Published: 4 Dec 2014

[Bradley Smith:]

Good morning and welcome to today's virtualinvestorconferences.com event. This is our last conference for 2014, the end of our fifth year of connecting investors and niche corps. It's also the first event under the name virtualinvestorconferences.com. This change reflects our stance should be on only retails investors. My name is Bradley Smith, Director of Marketing at PR Newswire and Vintage. On behalf of PR Newswire, our co-host, term investing (ph), we are very pleased you would join us for our next live presentation. As you round the agenda, we have a full day of senior executives sharing their company's vision. Before I introduce the next presentation, a quick few points. (Operator Instructions) At this point, I would like to introduce our next speakers, Chris Witty, Investor Relations; Mark Cola, President and CEO; and Vivek Dave, Chief Scientist at Sigma Labs. Chris!

[Chris Witty:]

Good day ladies and gentlemen and welcome to this Sigma Labs Investor Webcast. Following management's prepared remarks, we will hold a Q&A session. To ask a question, please follow the instructions on the webcast. With me today is Mark Cola, the company's President and CEO; and Vivek Dave, the Chief Scientist. I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements on historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call and in the company's annual report and Form 10-K for the fiscal year ended December 31, 2013. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise after the date of this conference call. I'd like to turn it now over to Mark Cola. Mark!

[Mark Cola:]

Thank you Chris. And today I really appreciate all our investors logging in and what I would like to do is walk us through some of the recent highlights this quarter and then I will turn it over to Vivek to talk about some of the development activities that are underway with the program and then we will summarize sort of with some financial information and I will be available afterwards for Q&A. And so with that, I would like to just begin with saying that the quarter has been quite good for us. We've rolled out and launched our initial software offering under our moniker of PrintRite3D INSPECT. This is the quality assurance software that is the first of a series of software roll-outs that we anticipate, and it will be addressing the first of three attributes that are sort of at the moment hindering the growth of the 3D metal market. And so that product is geared towards basically allowing the end user to assure the metallurgical quality of his deposits. And so with that we are quite pleased with the software. We are currently and actively marketing that software to potential customers. We are responding to requests for quotes and we anticipate the continued interest to accelerate. The other item I wanted to make mention of is this quarter we took delivery of our first metal 3D printer from Electro Optical Systems. It's a brand new state of the art model M290 3D metal printer. It was installed late last month and actually as we speak we are currently receiving formal training on the system and then we will begin the integration efforts with our PrintRite3D systems. What we anticipate is that our facility here in this first M290 to be a model system basically for -- and a showcase for our suite of products as we roll them out and we can of course then invite customers and bring in potential new customers to review and evaluate our technology right on site which will be a nice compliment because it will be integrated with and fully functioning with the new M290. The next item that I wanted to make mention of was the recent award for the contract from Honeywell Aerospace as part of our defense program with DARPA. And this is a follow-on effort Phase II to our Phase I effort. We are quite exited about this. It will run for about a year or year and a half. And we had -- we are having a kickoff meeting in early January at Honeywell, and this program will again expose us to a broader audience and also keep us in lockstep with some of the state of the art developments that are occurring in the whole area of process monitoring and rapid qualification. And this is important as our key customers move toward production over the course of the next 12 to 18 months. And we remain in lockstep with them as we roll out our products. The next item that I wanted to make mention of was a current project that we just received from the Edison Welding Institute out of Columbus, Ohio. Edison Welding Institute is a prime contractor on a NIST award, NIST being the National Institute of Standards Technology. And NIST is the organization that again sets the standards for technologies such as this that are new and upcoming and they are like many others interested in assuring the quality of the products that are produced and they've awarded this program to EWI. We are supporting that effort by bringing our PrintRite3D technology to bear. And as a demonstration of its capabilities and that program is about a 12-month effort. And we've just got underway in the last couple of weeks. As a matter of fact, we just deployed two of our PrintRite systems out at the Edison Welding Institute. Actually one of them was in support of this NIST program, and then the second one was in support of the -- what's called the AMC or the Advanced Manufacturing Consortium set of activities that Edison is sponsoring and EWI is a leader again in welding and joining technology. They have an EOS Model 280 system in their facility and we've joined as a member of the AMC and as part of that we provided one of our PrintRite3D systems including our INSPECT software and two weeks ago deployed that system and trained the staff on its use. And so now as part of the AMC as a member we now have exposure to their suite of programs that they will be rolling out over the next couple of years and our technology, the PrintRite3D technology will be available and made use of during those programmatic efforts which again allows us greater exposure to a broader audience of customers and our potential customers. So I think with that what I would like to do is turn the slide deck other to Vivek, and let him talk about the growth outlook for 2015.

[Vivek Dave:]

Okay, thanks Mark. And again thanks to all of our participants. As Mark had mentioned, we've had a couple of very significant awards which bode well for our 2015 outlook but which also will support our future growth and activities. The Honeywell award with DARPA where we continue to perform extremely well as part of the Honeywell team, EWI with NIST as Mark had mentioned. And this is particularly significant because the National Institute of Standards really is the standard organization as it were for many different technologies. They've been around for more than 100 years and really they are the -- essentially the final arbiter of standards and in a broad variety of industrial fields. So for our approach to be in that program is very significant because of course it's our intent to really become a standard in terms of technology looking at 3D printing. Another area where we have recently got an award is the NMSBA, the New Mexico Small Business Association, which has grants which essentially assist small businesses by leveraging capabilities at National Labs and that's another one that we are exited to support. But I think in terms of the major areas as Mark had mentioned, the Honeywell and EWI contracts are very significant for 2015 in our continuing efforts to demonstrate that our technology really is in an industry leading position. As Mark had also mentioned, it's been a very significant time period for Sigma in that we do have software for sale. We are receiving significant enquiries and we are very pleased with the number of RFQs, request for quotes, that we have responded to. So we are seeing a positive early market acceptance of the INSPECT software. DEFORM which you can see on that slide actually on the lower right, you see a CAD model, is our technology which will essentially allow users to measure and predict geometry on the machine tool or on the 3D printer. And that's really important for metal in particular because metal 3D printing again is done at very high temperatures, things move, things distort. It's incredibly important to know the shape of the part as you are making the part. And this will really provide a very strong capability and we are on track with the technical development for a first quarter launch in 2015. Mark also mentioned the installation and successful start-up of the M290 printer. This is very significant as well because there is a large and growing demand for contract manufacturing services on high-end precision parts and certainly we already have received several enquiries and not just from aerospace although certainly most of our customers are aerospace-based, but there's certainly significant interest in other industries. And we see that as a way of continuing to develop our product line but in addition generate other revenue streams based on high-end parts manufacturing. So I think it would be fair to summarize that in terms of the technical and growth outlook, we are maintaining our strategy of moving from a purely consulting enterprise to a commercial enterprise with products in supporting technology and that's been evidenced by the rollout of INSPECT, the soon-to-be rollout of DEFORM, and also the contract manufacturing capability we've added. And we certainly see a good potential therefore for sequential and year-on-year growth going forward. With that I will turn it back to Mark for some discussions on financial projections.

[Mark Cola:]

Great, thank you Vivek, and appreciate that update. That was quite informative. And so with that, I would like to just summarize that in terms of our financial position right now as you see listed there on the screen, we've ended the third quarter with 3.7 million in cash and equivalents. We have no debt at the moment. The -- we continue to manage our expenses conservatively. We are watching our spending. We are investing resources in really developing the business partnerships and some of these we've made mention of previously. We continue to do work with Materialise out of Belgium, the leader in AM software, and we are actively working with them to take our INSPECT software, which is again a standalone module that runs on our hardware platform, and convert that to a client server version. And so that is actively underway. The other partnerships that we've made mention of, of course are relationships with our marquee customers such as GE Aviation and our previously announced joint technology development agreement with them. GE has been quite helpful in testing and evaluating the INSPECT software which led up to our commercial release this past quarter. And we maintain a close partnership with GE as they move their process towards production readiness over the next 9 to 12 months. And then of course we've also made mention of the efforts with Honeywell Aerospace in the area of the DEFORM software module which addresses that second aspect of the quality assurance piece that we are addressing which is the geometrical attributes of the product as it's being deposited. And so Honeywell has been instrumental in assisting us with that development and acting as a beta test site for us, and we maintain strong relationships and ties with Honeywell as well. And lastly it says here that we are adding staff selectively. We did over the course of the summer and we've made mention of this before. We've added some engineering staff and resources to assist us with both the finalization and development of some these new modules, DEFORM and so on, as well as assist us with these programmatic efforts as they come on board, and of course there I am referring to the activities with EWI and Honeywell Aerospace. We are continuing to put those efforts and resources into R&D because we know that it's important to be -- to have a solid sound suite of software that addresses the immediate needs but we are keeping an eye to the emerging needs of our customer base as well. And as they move towards production again in the next 9 to 12 months. And then I think with that I think we look fairly well positioned for 2015 and beyond. The company has aligned itself well with partnerships as those that I had mentioned. We're of course always out there actively seeking new customers and opportunities to promote and market and sell our technologies and I think with that that sort of summarizes the good quarter we've had, and we are looking forward to quite a good year in 2015. And I think with that I would like to just thank everyone again for their attendance and appreciate their support. We certainly appreciate the support of our investors and shareholders. And with that I think we'd like to try and take some questions now. And I will sort of paraphrase the questions at first and then offer up some responses to them.

[Mark Cola:]

And so we have a question here from an investor curious about the status of the M290 machine and are we close with any contracts? And I think Vivek touched on that as well. The machine was just recently installed in actually the last two weeks ago, and we've now just received training on the system. Matter of fact, the representative is still here on site providing that training. And so we've been actively seeking and responding to quotes from customers. And as soon as that training's done we are looking forward to getting on with providing quality parts to customers. We also have a question here from an investor. When do we expect to generate parts from these branded machines? Well again just as soon as we can complete our training, and finish the integration of our PrintRite system into the M290, we will be prepared and ready to proceed. Let's see, there's a question here. Is there any news on the medical front with regard to any revenues there? Perhaps Vivek might want to comment on that. He already made mention of the recent award from NMSBA and how we are going to -- perhaps you want to comment, Vivek, on how we might leverage that and move forward with the exclusive marketing agreement we have with Manhattan Scientifics.

[Vivek Dave:]

Yes of course. So again this is with respect to a technology that we had developed for medical implants to enable them to heal more rapidly. As it is not within the core business of 3D printing, this is something that we had partnered with other entities, Manhattan in particular, to take to market. And so this NMSBA grant which was recently approved is in fact with collaboration -- in collaboration with Manhattan, and the objective there will be to further the clinical and medical testing studies necessary to really get this product into the mainstream leading up to what's known as an FDA 510(k) filing which would be the appropriate documentation necessary to the FDA to get this product either into the dental implant realm or for consideration for other implants. And so that's the current status of that technology.

[Mark Cola:]

Great, thanks Vi. We have another question here from a shareholder curious about what contracts does the company now have in hand? That was I believe we've addressed that. Of course just to reiterate, we currently have an active program with Honeywell Aerospace as part of their team effort on the DARPA Phase II program. We also have an active contract with the Edison Welding Institute as they are the prime on the 'America makes NIST' sponsored program, and I think that covers that. Another shareholder here is curious about our current status with Materialise and how do we see that collaboration proceeding? And so I made a brief mention to that. We are actively and have been actively engaged now for several months with Materialise as we effectively are working towards making our two sets of software compatible with each other such that our INSPECT software initially is in vision that our INSPECT software would be embeddable into the Streamics product offering; software product offering from Materialise. And the Streamics product offering is basically a enterprise resource planning tool or manufacturing resource planning tool and within that there is a quality module which our software is being embedded into. And so think of it as again I mentioned our current software INSPECT runs standalone on our hardware platform and the future goal here is such that customers can order a machine tool from the vendor of choice and have it packaged with Streamics software with our embedded INSPECT module within it. And so that's our future goal and that's what we are working towards. And of course then it would be our intent as we demonstrate success there to translate that to our other software modules as they begin to roll out. But that's our current status now. Let's see we have other questions here from shareholders. One interesting one here. What sets our 3D company apart from other companies currently working in 3D with metals? And that's a great question. And I believe the best way to answer that is what we offer and will be offering here in the very short future is not just 3D printing services but customers will be able to come to us and trust that we will be able to produce quality parts and of course be able to verify that because they all have the ability to have that objective evidence of compliance through our PrintRite software that it's been produced in accordance with the methods that they set forth. There are currently other manufacturers in the area of 3D printed parts, can of course produce the 3D printed part, but they can't assure the quality of the part right now while it's being manufactured. That's what sets us apart from everyone else. We've got a question here. Let's see, how did the Defense Conference go a few day ago? That's a great question. We were an invited speaker at the 2014 Defense Manufacturing Conference in San Antonio, Texas, that was Monday and Tuesday this week. The presentation was well received. It was well attended. And we are now responding to enquiries from potential customers that were present during the presentations. So we felt it went quite well and was quite well received. It was a nice opportunity for us to speak on behalf of the efforts within the DARPA program. Let's see. There's a question here. Who is our biggest competitor and in this field at the moment? And I guess the best way to summarize that is right now in terms of the quality assurance aspect of our business some of our biggest competitors of course are the machine producers who are making the 3D printers. They are actively working on quality assurance solutions as well. But I think the way this needs to be viewed is that from the perspective of the end user, the parts maker, they may have different types of machine tools on their floor. And so they might have an EOS machine, they might have several Concept Laser machines or SLM and they are all are trying to provide their own quality assurance solutions. But at the end of the day, the problem will become for them as how do you integrate this into one solution for quality assurance such that their customers can feel confident that they are getting the same quality product off of different machines. And therein lies again a unique selling point for us as we are a third party platform independent solution for the quality assurance needs of our customers. And so whether they have EOS or Concept Laser machines, if they have our quality assurance solution on all of those machines, their overall quality assurance program is reflective of one approach. And so we believe that's important and we are getting positive response and feedback from just that sort of approach with our potential customers. We've got a question here. What do we see as the biggest obstacle for getting more exposure outside of the newness of AM? And maybe I might let Vivek sort of have a go at that.

[Vivek Dave:]

Yes, I mean I think in terms of additive, I mean it's still despite the tremendous coverage and tremendous interest in the investor domain in additive, it would be fair to say that as a manufacturing technology for metal, and I am going to focus just on metal because that's mainly what we are concerned with, as a manufacturing technology for metal it's still pretty new. And really the early adopter customers are having to blaze a trail in a variety of ways, not just looking at the cost benefit of doing additive and really the cost benefit is definitely not the unit part cost because additive will, in a lot of cases, be more expensive than using other techniques. The real challenge in additive for metal is changing the design philosophy to leverage the full capabilities of additive because if you are just in a replacer part that you already have in the field, additive is probably not the right solution for you. If you are looking to create a part that has a totally new capability that is not possible to manufacture using other techniques then additive is the right answer. And I think companies are really becoming aware of that and so the design aspect is really going to drive additive in the future especially for metal and as you go to more exotic design the quality control issues actually become more important because now you are in a design space where you don't have a lot of experience and you really need to know that the part is good, the metal is good and the geometry is the right geometry. So we think it's really a matter of the industry fully appreciating and then leveraging the unique capabilities of additive.

[Mark Cola:]

Great, thank you Vivek. And we've got the -- we've just about run out of time here today folks, and we got lots of goods questions here we'd still like to provide some answers to. And so I want to again thank everyone for their attendance today and will pick up this Q&A in the board room activities following this presentation. So thank you again to all our shareholders, great questions. And we are looking forward to a good 2015. All right, thank you very much.