NextTrip, Inc. (NTRP) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the Sigma Labs Fourth Quarter Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Chris Witty. Please go ahead.

Good day ladies and gentlemen and welcome to this Sigma Labs fourth 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, Science Advisor. 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, 2014. 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 now like to turn it over to Mark Cola. Mark?

Thank you, Chris. And welcome to everyone. Good morning and thank you for joining us today. I’d like to take a few minutes here and walk through a series of slides that we’ve prepared for you and highlight the recent events as well as recap some of the prominent events of 2014 and speak a little bit about our expectations for the oncoming year. And so with that, if you have access to the presentation, which I hope you all do, if you turn to slide number three titled recent highlights I’ll begin there and walk you through some of the more recent events and exciting events that are ongoing here at Sigma Labs right now. And so the first and foremost for us of course is the most recently signed technology cooperation agreement with Additive Industries. Additive Industries is an early stage company in the Netherlands with an exciting new technology for 3D metal printing that help migrate the industry away from the prototype machines that are currently available and allow more serial or mass production activities that take place. And so we’re very excited to be working with them and incorporating our PrintRite technology into their actual machine design such that when their machines are commercially available which they expect to be in about 12 to 18 months, it will complete with our PrintRite 3D technology already integrated into the machine tool. And there is of course more information to be found at Additive Industries’ website. The other interesting point of note was the - finally the contract from General Electric Aviation which was basically proposed and written around the whole premise of our technology of in process quality assurance in its formation of PrintRite 3D, and so that program has large implications for us as we begin to execute on that program with the prime contractor, General Electric Aviation, and two subcontractors but again OEMs in their own rights, Honeywell Aerospace and Aerojet Rocketdyne will be involved in these programs. And so it’s a great opportunity for us to demonstrate and our technology on multiple platforms and multiple material types with the culmination of that program effectively being the roll up of the technology into a set of curriculum both for an engineering level as well as the technician level. And so if you think of it in terms of building a disciple-ship for the technology we couldn’t have asked for anything better. And so we’re quite excited about this technology and as the program begins to take off and build steam we’ll of course keep you more informed about our progress there. The next thing of course is the most recent event that we attended; we were invited speakers at Edison Welding Institute’s Additive Manufacturing Consortium. The Edison Welding Institute is based in Columbus, Ohio, they’re a premier institute for welding and joining technologies. They have accepted our membership into their organization and it’s a great opportunity for us to again further demonstrate our PrintRite technology to another yet broad audience of AM users. And so our equipment PrintRite 3D equipment has been installed at the Edison Welding Institute on an EOS model M280 system and as Edison basically performs work on that system they’ll be in concert demonstrating our PrintRite technology to those end users that are also members of EWI’s AMC and for a complete listing of the membership in the AMC you can of course visit the Edison Welding Institute's website and specifically the AMC section for more details there. But we're quite looking forward to that opportunity. And of course the last part of that is we've been selected by Edison to host one of their meetings; it will be in the fall of 2015 here in Santa Fe, New Mexico; it's an invitation only for their members. And so great opportunity for us to host the meeting and showcase our technology as it’s performing on our EOS M290 machine here in Santa Fe, New Mexico. The other of course is our PrintRite DEFORM the long anticipated PrintRite DEFORM technology and we're moving towards our final testing and release of that product, it's moving along as expected we have had some unexpected delays that we're out of our control. But we've identified them, we're managing them and we're moving forward with that product launch. And of course the other thing of note here is the upcoming open house event here that again will be a good event for us to showcase our technology both to industry potential users and customers as well as officials both government and federal officials have been invited to the event. So we're quite looking forward to this opportunity to announce and roll out our new capability with our 3D metal printer from EOS. And then of course the last part is now that we have this machine in place and we have it up and operational and it is been outfitted with our PrintRite3D technology will be able to provide manufacturing contract services to potential customers. And so we have been fielding a number of requests for quotations and we're looking forward to some increased revenue from the contract manufacturing opportunities. So our focus this year will be on operationalizing that part of the business and expanding that as we move through 2015. Having said that I'd like to move on to slide 4 which specifically we're going to take a minute here and talk about DEFORM and how that fits into the larger picture of our software suite and of course it's the second of our software suite. The first being our PrintRite3D INSPECT which we launched last fall. And this is the second element of three. And with that I'd like to turn it over to our Science Advisor Dr. Vivek Dave, talk a little bit more about DEFORM and how that fits together with the overall sort of suite of software we have. Vivek?

Well, thank you, Mark, and greetings and welcome to all call participants. As Sigma Labs has consistently stated in previous presentations we're focused on overcoming the three barriers and obstacles to the widespread acceptance of 3D printing for metal parts. And those obstacles and barriers are quality, geometry and productivity. As Mark had mentioned INSPECT really addresses the quality aspect and that’s something that we've been working with a variety of top line companies to validate and verify and eventually incorporate into their production. The next major problem really is the geometry and although additive manufacturing is a computer driven process, digital design, digital manufacturing what you see in the computer is not necessarily what comes out of the machine. And so verification of geometry is critically important to ensure compliance to a print and to really guarantee that the as built model is what you see in the CAD or the should be model. So DEFORM solves this problem by looking at sensor data so we’re looking at data from the actual build as the part is being made and you can imagine essentially looking at cross-sections of the part as it’s being laid down layer by layer, we’ve verified compliance and then we’re able to take that and compare it to the CAD model and to really answer that critical question, is the as build part within the specification of the should be part, do they match? And so DEFORM involves integration of optics, mechanical systems and of course software to put all this data together and to present it to the user in a useful manner that really immediate flags problems. And so it’s a very valuable tool not just for compliance which is its main function but eventually we feel it will be very valuable as well for diagnostics, if something goes wrong why did it go wrong, what went wrong and more importantly where in the part did it go wrong. So, that’s DEFORM and if we now go to slide five how does this link into the overall quality strategy. And so again there is really two aspects, number one is quality, did I meet the requirement, and then second part of that is delivery, can I ship the part, have I met the objective evidence of compliance to the design intent. And so what are the key elements of this overall strategy? Number one, we offer a third party platform which is very critical because in manufacturing what you really want is an independent yard stick to measure quality, independent of the machine that made the part. And that’s a very widely accepted principle of quality assurance. You need an independent measure. The second part of this is looking at process control, not just based on knob settings on the machine because if you take five different machines they’re all going to have different settings. Looking at what’s really going on in the process is critical and both DEFORM and INSPECT establish a process window based on the in process dynamics not just the knob settings on the machine. But at the end of the day none of this makes any difference at all if we can’t meet the properties because at the end of the day quality is defined as does the part meet the requirements in the intended end-use environment whether it’s going into a jet engine, an automobile, whatever it’s going into, can it meet the requirements, does it have the properties, does it have the right material micro-structure, can it perform? So, the linkage between what’s going on as the part is being built to the final properties is another very important aspect of proving quality. And again INSPECT and DEFORM are designed from the ground up to address these sort of linkages and these issues. Lastly, we’re working in an area which is very regulated, biomedical implants would be regulated by the FDA, aerospace components would be regulated by the FAA, and similarly there is lot of regulatory oversight in some of these critical metal parts. So, part of the delivery aspect is the reporting and the compliance and the ability to provide objective evidence of compliance. So that’s a very important aspect which enables our customers to sell AM parts more readily and to overcome and anticipate any regulatory issues or hurdles. And what does this all mean in the final analysis, shorter qualification time, faster time to market for AM parts and at the end of the day it is all about cost. Currently, it can be as expensive to inspect the part as it is to make a part and often that multiplier can be greater than one, it could be twice as expensive to inspect as opposed to make. And so both DEFORM and INSPECT in the final analysis for our customers would really address that cost issue. With that I’ll hand it back over to Mark who would continue and discuss some of the further plans for 2015.

Thank you so much Vivek, greatly appreciate that, and hope you all found that quite informative. If you move on the presentation of slide 6 titled Growth Path for 2015 I wanted to review a couple of aspects as we look forward into 2015. Of course we continue to execute on our active engineering consulting programs the likes of which we've announced, the America Makes award with General Electric Aviation which is very key program for us because it demonstrates the complete picture if you will that Vivek just described for multiple OEM end users as I mentioned GE Aviation, Honeywell aerospace and Aerojet Rocketdyne, as well as multiple materials as well as multiple platforms. So it demonstrates the importance and the utility of having a third party platform independent yard stick as you will to use Vivek's analogy and demonstrates the utility of this across multiple platforms albeit all within the same industry Aerospace but nonetheless it's a great opportunity for us demonstrate. So we're quite excited about that. The other of course contract engineering is we were part of the period two team awarded effort with Honeywell Aerospace as the prime contracts a lead on this program. And so here again is another opportunity with again in the aerospace industry to further demonstrate the capability of PrintRite3D and how the different elements that we've began to develop and roll out PrintRite DEFORM and eventually PrintRite analytics which will be the database to house all this big data and how these fit together and basically answer the question how do you know you have the right quality, how do you know you have the right geometry and is your productivity -- are you getting everything out your productivity you can. And of course what are you doing with the big data that you're generating, are you mining those for efficiencies and so on and so forth. And then of course the last is the Edison Welding Institute's program that was sponsored by the National Institute of Standards and Technology or NIST. And that program has again been important because in each one of these programs we're exposed to a wider and broader audience that is now beginning realize the opportunities that they have in front of them as they move from prototyping activities which they are currently mostly in right now into mass or serial production opportunities and they are beginning to ask questions well how do I guarantee that I've met my design intent. And so we've structure and rolled out in a sequential fashion the software modules that we believe are most critical and important as they do their process characterization and as they move towards serial and mass production, and so that would of course to be our PrintRite3D INSPECT our PrintRite3D DEFORM and eventually our PrintRite3D analytics to handle the big data issues and questions. And so as I've mentioned we've already last fall issued our first release of our PrintRite3D INSPECT software module. We're actively marketing that software and it is trial and test and evaluation at General Electric Aviation as well as Honeywell Aerospace and we’re finishing up our DEFORM software module and of where we've began to identify our data users for that module as well. And we'll begin to roll that out in the very near future here. And of course the last part is the whole contract manufacturing parts making side of it or service provider and as you're all quite aware as the industry has identified AM manufacturing is critical to manufacturing growth in the United States. The service providers sector is going to need to basically expand and be prepared to fulfill the needs of the OEM end users such as GE Aviation and Honeywell Aerospace and others, as they begin to identify their second and third and fourth generation parts to be made with 3D printing or metal AM. And so, we believe it’s a great opportunity for us to operationalize that side of the business and expand that as quickly and as rapidly as we can and capture as much of that market as possible. And of course we already know that one of our unique selling points there is compared to our competitors of course would be that we have the PrintRite 3D technology already in house and ready to provide that to our end user customers. So, the growth opportunities for us in 2015 look quite promising both with sales and marketing opportunities as we bring our next PrintRite software module online. We’ll be actively marketing and selling that along with PrintRite 3D INSPECT and of course coupling that with our contract manufacturing, we see 2015 to be a bright and good year for Sigma Labs. I think the last slide if you will if you move to slide seven of eight titled financial update, I think just to recap 2014 we ended the year with 3 million in cash and equivalents. We of course have no debt of any type short or long term. Our fourth quarter burn cash burn was impacted as expected and we anticipated that with the purchase of our EOS M290 machine of course this is a quite a capital investment for us and the machine too itself as well as in the infrastructure required to stand up that machine. And so you will see that of course in the numbers in the 10-K filing. And so we believe right now looking forward to the 12 to 18 months we have the appropriate level of cash on hand to handle these growth initiatives that I mentioned, operationalizing our contract manufacturing opportunities and as well as direct sales and marketing of our PrintRite 3D opportunities as well as to meet our internal research and development activities to bring these final software products to market as well as work with some of our strategic partners as I mentioned one Additive Industries. And so the path to profitability for 2015 is looking quite promising for us. We’re anticipating a good year. The last bullet there we did want to mention that should the and when the opportunity presents itself we of course keep our eye to uplisting to a broader stock exchange as we begin to achieve the milestones that we’ve set out for the overall company goals. And so just to recap, we want to thank everyone for listening and our focus is on the business opportunities at hand that I mentioned and we’re quite excited about those opportunities. And of course the continued interest from our active and current customer base as well as new and potential customers as we bring the products to market and begin to actively sell into the different market spaces both aerospace as well as oil and gas and automotive and biomedical. So with that I think I’d like go to slide eight say thank you. We greatly appreciate all your support and interest. We’re quite excited about the opportunities here at Sigma Labs. We believe we’ll have the right technology to meet the emerging needs of the AM metal industry as they move from the prototype being opportunities that they’ve been working in into the mass production serial production opportunities that are lie ahead for them. And so I think with that, our presentation will conclude and take some opportunity here to answer some specific questions that you might have.

[Operator Instruction]. Our first question today comes from Rob Stone with Cowen & Company.

I wanted to touch base first on the OEM and other partnership relationship. I think last year at one point you were entertaining a relationship with Materialise. I wonder if there is any update on that and also other than Additive Industries are you in talks with any other printer OEMs, thanks.

Yes, thanks, Rob, great question and so we continue to work with Materialise to bring our technology to a state where it is compatible with their technology. And so that is still active and current. The Additive Industries opportunity with an OEM like that of course very new and start up and we're excited about that because they've taken a fresh approach to addressing how do you move from prototyping in this single point solution machines that are currently available and how do you address the needs of the larger manufacturing community. And while it is entirely possible to use a single point solutions such as the machine tools that are available today there is great opportunity and lot of efficiencies to be mined when you view it from a systems integration approach. And that’s the approach that Additive Industry has taken and of course it's worked quite well for other industries such as automotive who have mastered the idea of an assembly line quite some time ago now. And so their systems integration approach makes complete sense to us and so it resonated and we found it a good opportunity for us to be part of this as they begin to roll out their prototype later this year and then begin to move towards production of their machines. Regarding other OEMs I'm not at liberty to discuss that right now. But there is plenty of opportunity with the other existing OEMs, machine tool makers.

Okay, my next question is with respect to DEFORM development. You alluded to encountering some unexpected delays and difficulties. But you also said you felt the program was on track. I wonder if you could provide a little more color on what that was and how you overcame it.

So it’s a great question basically it took a little longer than we had expected basically to get our EOS machine up operational. And we overcame those difficulties and so we're back on track. Technically there has been no issues with it; it was more about having the machine available to us to do test and evaluation, final test and evaluation on it. And so it delayed us a little bit, that’s all.

Okay. And that’s actually a perfect segue into my last question which is with respect to thinking about the manufacturing services opportunity alongside your ongoing development work where you have just one machine in house. How do you think about allocating capacity to revenue generating parts and services project versus needing sometime I would imagine to run test parts on that machine for your own development.

Yes, so the wonderful thing about this machine is it can run 24/7, 365 it's not a human, there is little human intervention with this machine other than to load parts and powder into it and extract parts from the machine. And so plenty of opportunity during the evening time to basically run contract manufacturing service work for customers as well as have some time allocated for our internal R&D efforts, so I believe there is plenty of opportunity to strike the right balance there. And of course the best situation to be in is the machine is so busy we need to go get a second and third and so that’s what we’re looking forward to.

What was the total investment? You mentioned it’s in the 10-K but I wonder if you just have the figure handy for what you’ve spent altogether on the machine plus the improvement that we could think in terms of what a second set up would cost?

So we can -- so let me try and address it this way, some of this infrastructure set up of course would benefit a second or third machine install, but I think our overall capital investment in this machine is somewhere north of 900k.

Our next question comes from Susan Janssen, a Private Investor.

Could you please tell me if the printer has been paid in full?

Yes, and I believe we addressed that in slide seven where we said we have no debt and so we paid cash for that machine; we did not lease it, we own it out right. And the last payment was made in the first quarter of 2015. And so you will see that reflected in the first quarter financials.

And does the Weld Pool patent cover IPQA?

I’ll let Vivek address that.

Yes, so for all of our IP or for the vast majority of our IP it does include welding processes as well as additive manufacturing processes because really we’ve taken the viewpoint that additive manufacturing is a subset or a specialized instance of a welding process. And so, it would be applicable to welding as well as additive manufacturing.

My third is going to be, are the results going to be audited when they are released today?

Our 10-K, yes, of course was audited and so.

The next question comes from Paul Briard, he is also a Private Investor.

Yes, I understand that your software works with the laser 3D printers. Does it also work with the EBM printers such as what Archem produces?

Yes, that’s a great question, and again I’ll ask Vivek to provide some thoughts on that.

Yes, so to the extent that laser and electron beam are both welding processes they generate similar data. The key difference between the laser and the electron beam or at least the electron beam as its implemented right now with Archem is that you can’t really see down the same optics column as an electron beam because it’s operating in electrons and the laser is operating in photons. So I mean with the laser we have the advantage that we can actually see right down the same column that the laser is shining we just look at a different wave length of light than what the laser's operating at and we can actually image using the same optics that the laser uses to deliver the laser beam. So with the electron beam you just need to get a little more creative on the sensors but as long as you can get the sensor data the software is capable of dealing with many different welding processes and in fact in previous work for the U.S. Air Force we had demonstrated the ability to use at that point which was the predecessor of PrintRite on an electron beam process. And so we do have experience with electron beam and we have shown it to work.

Excellent. The other question I have is I understand that you have a shelf offering that you can access. Are you issuing any additional shares or basically is the capital and the share count going to remain static for the 12 to 18 months that you indicated?

So the shelf we put in place basically has several criteria associated with it that allow us to either utilize it or not and currently one of those criteria which is a market cap of 75 million is not being met. And so we cannot actively use that shelf.

Our next question comes from Kevin [indiscernible] a Private Investor.

Good morning appreciate your information this morning. Could you maybe go into a little more depth and maybe characterize our relationship in terms of our software suite of what we can provide to industry versus industry's readiness to accept our solution. It seems we sort of we have a solution to a problem that industry is not ready to address. Could you maybe characterize that a little bit for us?

Yes so I'll take a stab at it and I'm sure Vivek has some thoughts on as well. Vivek and my background are both from commercial industry prior to the national laboratories work we did. Our experience is quite relevant and so industry right now so where they are today. For the most part the majority of industry is all -- if you think of where they are today and where they want to be I think basically chasm or a gap that may need to get across. And left hand of that gap or chasm basically is prototyping for AEM today. And probably even very small lot size production and so there are all ineffectively the space where they are characterizing the process trying to understand it to the greatest extent possible and they know that they need to get across the chasm and the other side is AEM production or serial production. But they don’t know how to get across the chasm and think of our software modules and INSPECT, DEFORM and eventually analytics has been the element that forms the bridge that expand that gap from where they are today in prototyping space to where they want to be tomorrow in serial production. And we kind of address this as we went to the presentation today and Vivek mentioned design intent I mean even if they figure how they brute force it through and get some left hand side of gap to the right hand side with traditional post processing inspection. There is still going to have to demonstrate that they have objective evidence of compliance to the design intent. In other words did they make what they said they were going to make and can be verify and validate that to the regulator agencies that what they're doing today is incompliance with the design intent all those two words meaning the parts going to perform and it's an intended use. Today over here prototyping and repeatedly demonstrating the ability to reproduce a given product and what they want to be able to do is have a third party objective evidence when they go into production it says look I am doing today just like what I did yesterday in development. And so in development the way development will end for them and there is whole series of events called process characterization is it will commentate in an event called qualification. And they will qualify and let's use aerospace as an example, they will qualify their process, their operational element and to lock it all down at least the aerospace community will. And at that point in time they need to transition to what's called validation which means okay I've done it once and it's a part of a trick and it's called qualification and now I have to do it over and over again every day for the life of the product. And that’s called validation and the only way that they can do this other than in a very expensive post process fashion brute forcing it through is using our in process approach. And so they're starting to recognize this and that’s why we're getting pulled in to development activities that are ongoing at GE Aviation and Honeywell Aerospace and elsewhere as they begin to finalize their characterization test and evaluation and qualify their process for production. So we believe we're at the right time and in the right space and we believe we have the right tools to help bridge that gap to serial of mass production. I apologize if that seems to be a little bit long winded but I hope it was informative.

No, thank you very much. I appreciate it.

Vivek do you want to add anything to that?

Yes, so I mean right now to Mark’s point companies could brute inforce INSPECT parts that could do 100% [couple inspection] the problem is it’s going to cost them two to three times more than using an in process approach. So at the end of the day, what’s the [pain] message that’s going to force companies to adopt their technology, it’s inspection cost and the only reason that hasn’t kicked in yet is that companies are not producing millions and millions of parts using additive manufacturing yet. That’s going to change very soon and once that starts changing and those inspection bills come due then you’re going to really see the utility and the advantage of the in process approach. At the end of the day it’s going to be a pain message of cost which gets this technology introduced.

There appears to be no further questions, at this time, so this concludes our question-and-answer session. I would like to turn the conference back over to Mark Cola for any closing remarks.

Thank you very much Chad I greatly appreciate it. And thank you all to those who joined us today our investors we great appreciate your support and we look forward to bringing new news and updates as they occur. And wish you all a very good day. Thank you.

Thank you, Sir. The conference is now concluded. Thank you for attending. You may now disconnect.