Sigma Labs, Inc.
Q2 2015 Earnings Call Transcript

Published: 7 Aug 2015

[Operator:]

Good morning and welcome to the Sigma Labs Second Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference over to Chris Witty. Please go ahead.

[Chris Witty:]

Good day ladies and gentlemen and welcome to the Sigma Labs’ second quarter conference call. Following management's prepared remarks, we will hold a Q&A session. With me today is Mark Cola, the company's President and CEO; and Vivek Dave, its Science Advisor. I would now like to provide a brief Safe Harbor statement which is also shown on slide 2 of our second quarter presentation which is being webcast. 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 of 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, 2014. All subsequent written and oral forward-looking statements are 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 now turn it over to Mark Cola. Mark?

[Mark Cola:]

Thank you Chris, and good morning ladies and gentlemen. Thank you very much for joining us today. We are quite excited to share some news with you regarding recent events and highlights, so I’ll direct you to slide 3 of our slide deck, titled Recent Highlights. And Sigma Labs', over the last quarter and a little bit since then has been working diligently on a lot of our programmatic efforts in meeting our milestones and deliverables for our current programs sponsored by our external customers. As a result of that, we were able to book revenue of about $0.2 million for the quarter as compared to $0.1 million for the second quarter in 2014, which is an uptick for us and a positive sign that we’re meeting our milestones and deliverables for these programmatic activities. Also, during the quarter, we were very pleased to have been invited to co-present with Honeywell Aerospace at the RAPID 2015 Conference in Long Beach, California. My co-presenter, Don Godfrey, a technical fellow with Honeywell and I presented on Advanced Aerospace AM Applications and specifically the talk was geared around the use of our upcoming DEFORM software and examples of its possible use were given on some AM applications Honeywell is working with. So we were very pleased to co-present that with Honeywell. The room was well-attended, the talk I should say was well-attended, the room was packed almost standing-room only and we were very pleased with a lot of the questions we got and interest on the upcoming software release. The other activities we have been working on for quite some time actually and were able to announce in the second quarter was the joint venture that we formed with Arete Innovative Solutions out of Cincinnati, Ohio. And Arete is if you’re not familiar with Arete Innovative Solutions, it’s led by Bill Herman, who is the former Vice President of Operations for Morris Technologies in Cincinnati, Ohio and as you’ll recall Morris Technologies in 2013, I believe or 2012 sorry was acquired by GE Aviation. And so Bill comes to us with formidable expertise in the area of operations for metal AM and as well as design for AM activities and so we’re very pleased to have Bill and his team on board and this joint venture has been basically put together to allow our company to benefit from Bill’s expertise and drive revenue growth on the contract manufacturing side of the business and utilizing our in-house capability with our EOS M290 system. And so Bill, effectively Bill will be in charge in running that contract manufacturing operations activities for us. We’re very pleased to have Bill on board. Additionally, and subsequent to the second quarter, although we were working through the second quarter to identify the right candidate to basically head up our business development activities, principally focused around our 3D PrintRite technology and we were pleased to announce that Ron Fisher has agreed to join our team. And Ron will be the Vice President in charge of Business Development for Sales and Product Strategy around our PrintRite3D technology and so Ron actually will - his hire date is Monday the 10 of August, so we’re pleased to have Ron join us. He brings considerable experience to the team in the area of sales and product strategy with his - some of his prior companies that he worked with, in particular Micro-Poise, which provided OEM systems to the automotive tire and wheel industry. So, we’re very pleased to have Ron, excited to with both Ron and Bill joining the team so to speak and we’re looking forward to, you know, revenue growth to accelerate in the second half of 2015, principally driven by those activities I mentioned and if you’ll move now to slide 4, I can talk a bit more specifically about that and those growth paths for 2015. And so on the software and services side, we mentioned Ron taking that leadership position to basically drive adoption of our PrintRite3D technology and so Ron’s already been engaging with us and we’re looking forward to him coming on board. We continued to execute on contracts that we have with the programmatic contracts I mentioned with external sponsors such as Honeywell and the DARPA funding funded program as well as the GE America Makes funded program, which has been slow to start and is finally been able to find some traction and we’re underway in the next few months and looking forward to some good progress there with America Makes. The DEFORM software, which I know everyone, including us, are anxious to get in the hands of customers has had a few fits and starts along the way but we’ve identified the issues and are recovering nicely from them and we’re anticipating a October 1 launch for that software product and the first version of which will go to Honeywell Aerospace in Phoenix, Arizona. And I guess there’s one last comment back to the PrintRite3D technology and products, we’re working, of course with Ron on board now, to identify basically a targeted customer list and very aggressively going to start pursuing installation of an installed base in the U.S., you know, for the very foreseeable future and our initial numbers look to be - target markets seem to be, you know, hundreds of new machine opportunities and so we’ll be pursuing that as I mentioned quite aggressively once Ron joins us fully. Moving on the production side of things, again we are {***0-10***} ***10-20*** Moving on the production side of things, again we are excited to have Bill Herman join us and his group from Arete Innovative Solutions and Bill, as I mentioned, is well respected in the industry and well connected in the AM metal community and we’re just underway now in the last month or so, and so we’re looking forward to an uptick in those activities and we’re already starting to see some considerable interest from potential customers. And then lastly, I wanted to mention that the upcoming fall conference that we’ll be hosting here that’s part of the Edison Welding Institute's Additive Manufacturing Consortium. They hold a conference four times a year and they’ve selected Sigma Labs facility here in Santa Fe, New Mexico to host their conference. This is a membership based organization, the AMC, and we will potentially have here in our facility upwards of 50 or so representatives from different companies interested in additive metal manufacturing. And so it allows us an opportunity to also showcase our capabilities by touring those representative companies through our facility. So it’s a great opportunity, we are very pleased to have been selected for this and we’re looking forward to that meeting. If you move on to slide 5, I’ll give just a quick overview of financial update and outlook. We ended the quarter in 2015 with about $2.2 million in cash and equivalents. Our stockholder equity as seen there about $3.3 million and again we continue to hold no debt. So we seem to be reasonably well positioned looking into the second half of 2015 and into 2016. So our path to profitability, we are expecting acceleration with the revenue associated with both our contract manufacturing activities and our PrintRite3D technology activities. As I mentioned, the America Makes program was slow to start. We have been able to finally get some traction there and that you shouldn’t seen that reflected in the second half financial numbers for 2015. And just in general, we are rather excited about the new energized and focused organization with these key hires and joint development activities we now have ongoing. The company appears to be well positioned and connected with the community. We are getting the right partnerships in place we believe to basically leverage the demand we are seeing for AM. And I think with that, I’d like to now open it up and take some of your questions and hopefully provide some further insight.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Rube, a private investor. Please go ahead.

[Unidentified Analyst:]

Good morning, gentlemen. First off as an investor in Sigma Labs, I certainly appreciate the hard work that everyone is doing. I originally have three questions, the first two were kind of tailed but you pretty much touched on it, Mark. It was concerning the pace of growth. The pace of basically the entire AM industry has I think caught everyone off guard and everyone is paying the price on it right now with basically wholesale slaughter of share prices in the AM industry world. So the points that you brought up with establishing basically is new sales effort. That sounds very good. The second part though is, there is still a large amount of discussion in the industry concerning movement forward for metal AM, but for a long while now Sigma Labs has not been included seemingly in those discussions with other companies and what they are rolling out, and it’s kind of looking like Sigma Labs is not being mentioned as the IPQA solution in the industry. And I’d like to know if you would talk just a moment about why is that? Is there some issue that has to be overcome and you are seeing that, and you now have to establish this sales force team to go out there and make it because PrintRite3D isn’t quite the complete solution that everybody wants. If you could talk a little bit about that, that would be great. The third question is, do you sincerely anticipate full production around use of PrintRite3D contracts forthcoming from GE and Honeywell. Thank you.

[Mark Cola:]

Great. Thank you, Mark. And actually I’ve – we mentioned at the start of the call, I’ve got Dr. Dr. Vivek Dave, here with me today and I think I’ll let him take one of those questions I think.

[Vivek Dave:]

Yeah. I can certainly address the industry acceptance. So here is the real situation with the entire AM industry as a whole in North America. A lot of the leading efforts have been in aerospace. There has been obviously significant growth in other areas as well, tool and die, even automotive and some other areas as well that are growing much faster now. Aerospace however has been the focus and certainly in the next three to five years, they’re going to have a huge installed base. If you look at Honeywell, GE, PrintRite3D [ph] others and we are in touch with all of those very intimately and as far as they’re concerned, certainly we are one of the premier in leading solution. So I don’t think it’s a case that – it’s certainly not a case that the technology is not there. I think it’s really the case that additive is still new in the aerospace industry even though they’ve been looking at it on a research level for a long time. But when I mean new, I mean production wise and so with any new technology going into production especially aerospace, it always takes longer than you hope. But are we in the loop and are we integrally linked, I would say absolutely we are. And so I don’t see any danger of disconnect there. I think it’s really a matter of within the end of 2015. Beginning at 2016, you’re going to see a huge acceleration because you’re going to see a lot of these efforts transitioning into production. And so hopefully that addresses your question, but I mean we have done very exhaustive market intelligence and we are aware of dozens of companies that either have machines or planning to buy machines. And I can tell you the North American demand for machines is hundreds of units, metal 3D printers. Now not all of those are going to want an advanced quality solution, but certainly we think a significant number will.

[Mark Cola:]

Thank you. And so I just wanted to add to that about the connectivity for Sigma Labs and our technology adoption. And to that point, I just want to again point you back to Sigma Labs participation in the DARPA sponsored program which is now in its second period and going on its fourth year, as well as now the America makes program which is finally as I mentioned gotten some traction and starting to take off which is again – they were led by leading and market customers like Honeywell, aerospace and GE Aviation. So we do stay connected and we are in the forefront of that technology adoption and leading the efforts basically to pursue Sigma Labs becoming the defect of standard for such technologies. And it’s a good thing that others are working on similar technologies. We are not just sitting here believing our own popular press and there is a need as Vivek mentioned and as those production deadlines loom nearer and nearer for folks, you will see some accelerating growth in those activities for us. Regarding your third question I must admit Mark, I lost track of that anticipated adoption, perhaps we’ve touched on that a bit but if there was anything further, we will be happy to address.

[Unidentified Analyst:]

I was just simply enquiring whether you sincerely felt that eventual – actual production run PrintRite3D contracts would be forthcoming from GE and Honeywell.

[Mark Cola:]

Yes. We fully anticipate and expect that, and we are planning for those and we are well positioned at the moment.

[Unidentified Analyst:]

Thank you much.

[Mark Cola:]

Thank you.

[Operator:]

The next question comes from Paul Shoemartin [ph], a private investor. Please go ahead.

[Unidentified Analyst:]

Hey, good morning. Most of my questions already got answered but what I would like to refer back to statement that Dr. Dave made, I think it was September last year. In terms of the applicability of PrintRite3D towards the ceramic materials because it appears that ceramic materials for the turbine blade could be a huge, huge area coming up. And I was wondering if there’d been any progress made towards validating your technology for the use of ceramic 3D printing.

[Vivek Dave:]

Yeah. There are many different technologies of course for 3D printing. We focused mainly on the technologies where you have a powder bit and a moving heat source that melts those powders and then produces a consolidated item. Now, in many of the cases the ceramic 3-D printing, it’s a little bit different and there is a powder bid, but then what they do is square to binder which is essentially like you could view it as a glue when then produces a green body which then gets put in a furnace or an oven gets centered and that’s how you get the financial component. So it’s a little bit different technology and they have different challenges, but for example certainly – they certainly need to measure shape. So certainly shape is a common need that they would have as well as any melting or fusion process would have. But I would say in terms of where we’ve had the greatest interest and early adopters has really been on processes involving melting and fusing of metal powders. But that’s not to say that, the geometric aspect of it could not be applied to ceramics. We just haven’t seen that demand yet, but the product is certainly capable of it.

[Unidentified Analyst:]

Okay. I would like to follow it up with two separate questions. One is there are some existing systems that are out there through these various grants. And I was curious if they would be continued be used by people like GE, Honeywell etc. but that there would now be new licensing fees as you move past the demonstration or validation projects into them using them for production.

[Vivek Dave:]

Yeah. Now, that’s exactly right and I’ll let Mark address that.

[Mark Cola:]

Yeah, so thanks for asking actually. I wanted to mentioned that and I appreciate the segway. And as we are – as you mentioned Paul that we’ve been in sort of a pioneering program face if you will with the lights of GE Aviation and Honeywell aerospace over the last couple of years. And they’ve been assisting us validate the underlying technology for our product, specifically inspect in our activities associated with GE in that area and then to form with Honeywell aerospace. But going forward and we’ll be formally announcing this shortly that we’ve began to basically generate and compile an early adopter program. So it isn’t completely sorted out yet but we’ve got out to those customers as well as new customers and begin to get a sense of their interest in early adopter program where we working with them would basically validate the benefits of the technology in segmented market segments. So market segments being end user areas such as in oil and gas, and aerospace as well as and other related market segments as well as OEM opportunities, and material supplier. So we’ve put that together and that a different licensing strategy behind it and so we are looking forward to both that early adopter program coming online here shortly as well as an OEM program that’s focused specifically. And the machine producers as well as those that are producing software for the AM industry. I hope that helps answer a bit of your question.

[Unidentified Analyst:]

It does if I could follow up with one last one since you’ve talked about machine producer, the agreement or involvement you have with additive industry and their metals slab perhaps. Perhaps you can comment in on this and perhaps you can’t. Do you have any plans to acquire a metal fab machine as part of the additional machines that will be used within your joint venture with Arete both to further develop it but also to be able to follow for more rapid production?

[Mark Cola:]

Yeah, so very interesting question. Thanks for asking. The metal fab is a unique machine. We are every pleased to be partnering with additive industries and our initial activities are to basically work with them as an OEM to evaluate our PrintRite technology and integrate it into their machine offering. The later question while an intriguing one might we eventually have a system here, I think I’ll not be able to comment on that at the moment.

[Unidentified Analyst:]

Thank you for your time.

[Mark Cola:]

Sure.

[Operator:]

The next question comes from Len, Doherty Retail. Please go ahead.

[Unidentified Analyst:]

Actually, a private customer. Good morning to both of you. I have a question regarding organization question, while I am impressed to see that you’ve got Bill Herman, who is essentially are going to be I guess get of VP of Operations even though he is not an employee and you’re adding around Ron Fisher Monday. I am concerned a big about who is heading up development. I would like to thank that Dr. Doug because I’ve been very in these impressed, the different webinars to his explanation of various technical issues. But I don’t see anybody mentioned in any of your financial reports as the Head of Product Development. So my question is specifically what role does Dr. Dove play in the company ***28*** {***28-37***} And so my question is specifically what role does Dr. Dave play in the company from a standpoint of product development? Is he just in a - Scientific Advisor means what and how many people are involved in the product development activity as employees versus contractors.

[Mark Cola:]

Yeah, so Lynn great question. Appreciate it and so let me have a stab at that. So we’ve taken the approach here. Of course, Dr. Dave is a co-founder with me of the company and yes, you’re correct, he is our Science Advisor, and so we’ve taken a three-pronged approach to the product development strategy and so Dr. Dave sets the high level science targets for us. We have Dr. Bruce Madigan who is a consultant to the company and has been for several years and so Dr. Madigan sets the engineering requirements and then we have further down on the rung we have a consultant by the name of Doug Chandler who comes to us from Oracle Systems, who is heading up and leading the software development activities and so that’s sort of the hierarchy of activities. We have science, engineering and then product strategy and development and so that’s partly an answer to your question. Q - Are you concerned that it sounds like nobody is - none of these individuals regardless of their credentials are employees. They’re consultants so they’re essentially, you know, people that don’t work for you and I don’t know to what extent you can control their full activities. Are any of these people going to or you intent to have any of these people become actual employees and is the reason that they’re not employees now because of financial constraints or just the approach that you’ve chosen to take in building the company, I know your last financial statement indicated you had what four full-time and at least one part-time employee.

[Mark Cola:]

Yeah, so, you know, we’re always mindful of budgets and but we also understand it’s going to take considerable funding to, you know, to meet our internal milestones and deliverables and so we believe we currently have the right now structure in place to help us as I said accelerate the growth. Am I concerned? No, I’m not concerned. I’ve known both of these gentlemen now for the better part of almost four decades and so no, we have very good working relationships and alignment of duties and so a thing seem to meshing quite well, yeah - sorry I think Dr. Dave wanted to add a comment.

[Vivek Dave:]

Yeah, I mean yeah so with regards to, you know, really pushing things aggressively I mean, you know, this team has accomplished some remarkable, you know, objectives on the science and engineering and software front and you know I mean we can’t disclose the exact number now, but let’s just say there’s been significant, you know, recent IP activity as well, significant new filings of IP that really I think will support and continue to support the core offering and so, you know, from a development perspective I think it’s really a matter now of the transition to production. I mean I think we have a really good handle on our first product offering. We really need to get it out there and obviously there will be improvements over time but I think we’re at a point where we really need to reap the rewards of the work we’ve done to date and to get it out into the marketplace. Okay. I still have concerns but I’m not going to push it any further. I just think that having employees as opposed to consultants is a better way to go because you just can’t control the activities of consultants as much as I think you can control employees and there’s a loyalty factor involved as well. Again, I’m into the organizational business so pardon me for pressing this point, but I just have concerns and I think it’s reflected by the pushing out of DEFORM and the issues that you’ve had with well I know that that is not uncommon in development of new technologies or the commercialization of new technologies, but I’m just concerned that having no VP of Product Development if you’re not it, Dr. Dave, you know, that to me just is something that I have an ongoing concern about until you have somebody who’s an actual employee with the title of VP of Development.

[Mark Cola:]

Thank you for sharing your concerns. Okay.

[Operator:]

[Operator Instructions] The next questions come from Gilbert Good from Western International. Please go ahead.

[Gilbert Good:]

Good morning and thank you for taking my call. So, this question really is kind of off in a different direction. As an investor, I recognize that your development stage company and you guys are doing a great job of bringing the company along, but as an investment advisor, one of the things that I look at is that in order for me to be able to solicit the shares to other of my clients, the stock has to be really priced so that it falls into the NASDAQ system so that it could be followed by analysts and, you know, we could promote the shares and I wonder if you have any thoughts as to how you might achieve that level at some point in the future?

[Vivek Dave:]

Yeah, great question Gilbert. Thanks for asking it and so we do obviously have an eye to that as well and are equally as frustrated about the share price and its current price I should say and so and I looking forward the idea here was let’s get the right mix and infrastructure of employees, consultants and contractors in place such that we’re beginning the trend out of as you said a development stage company and with an eye towards operationalizing both aspects of this business we have, both the contract manufacturing and the quality assurance product offerings through PrintRite3D. And so we believe now that we have that right the correct construct in place to basically generate and accelerate that revenue growth in both of those areas which, of course, will then assist and help translate into the right sort of opportunities and numbers we need to objectively sort of strategize and move out tactically on an uplift strategy that would put us firmly in the right position for our NASDAQ or other sort of senior exchange placement.

[Gilbert Good:]

Okay. Can you express any thoughts about the timeframe or is that something that really can’t be discussed.

[Mark Cola:]

No, not at this time but I think you will be able to discuss more over the next couple of quarters as we begin to reap the benefits of what we’ve put in place as I’ve mentioned here and you’ll see those activities moving forward.

[Gilbert Good:]

Okay. Thank you very much and thanks for doing such a great job.

[Mark Cola:]

Thanks, Gilbert.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Cola for closing remarks.

[Mark Cola:]

I want to thank everyone, all our shareholders today for and potential shareholders today for calling in and sharing their thoughts with us. We are very pleased and look forward to reporting on new and increased activities in these areas and the upcoming quarters. Thank you all again and we wish you a wonderful day.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.