NextTrip, Inc. (NTRP) Q3 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Sigma Labs Third 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 the Sigma Labs’ third 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 Dr. 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 third 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 now like to turn the call back over to Mark Cola. Mark?

Thank you Chris, and good morning ladies and gentlemen. Thank you all for joining us today. We’re quite delighted you’re able to participate on our earnings call. And with that I’d like to direct you to slide 3 of our presentation today, titled Recent Highlights. I’d like to now spend a few minutes talking about highlights for the quarter and the activities involved for the company at this time. Specifically, we were quite pleased and delighted to see and have our revenues reflect our hard work here. And the revenues of course are up versus the same quarter last year. And that’s quite pleasant for us. The other activities that we engage in during the quarter which we believe are moving in the right direction are the launch of two programs we have, an early adopter program which is targeted to customers interested in and participating and using our technology in return for the opportunity to get new releases of our products as they become available and provide feedback on these Beta release versions as we roll them out. And so, the likes of the program itself is targeted towards end-users. And those end-users could be service bureau entities as well as OEMs that are actually fabricating products for their own use. The other program which we’re quite pleased to announce is an OEM directed partner program wherein we’re interested in engaging directly with OEMs that fabricate either the AM machine tools themselves or software products that are used by the OEM machine producers. And so, both of those programs have allowed us to reach out to a broader audience and begin to engage and demonstrate our technology and validate it across multiple market segments. The third bullet on the list there was an event that we hosted here at Sigma Labs, the last week of October. It was the Edison Welding Institute’s Additive Manufacturing Consortium. What it allowed us to do is bring together leaders in the field of AM both end-users as well as OEMs wherein attendance. And we had the opportunity to showcase not just our PrintRite3D quality assurance and process control technology to quite a broad audience. In attendance there was about 50 or 60 companies represented here. And it also allowed us an opportunity to showcase our 3D or AM printing capabilities, are our contract manufacturing side of the business. And in both cases it was extremely well received by the attendees. And we’re following up on quite a few leads that came out of that and are looking forward to working with some new as well as existing customers. The other item there that I wanted to make mention of is, later this month actually next week, Sigma Labs would be attending the Formnext Show in Germany. And at that point in time, it will allow us to basically showcase again our PrintRite3D technologies and talk about our Additive Manufacturing capabilities. The show is being held in Frankfurt, Germany next week starting Tuesday, 17. Also, next week, Sigma Labs has been invited as VIP to the launch event for Additive Industries prototype new AM machine which they’re rolling out on Monday 16, November. And so, Sigma Labs, as a strategic partner of Additive Industries has been invited as a VIP to that event. And I’ll physically in attendance for that. We’re quite excited about the opportunities with Additive and looking forward to the event. The second to last bullet there is talking about during the quarter we met our commitment and milestone to release our first version of our product software known as PrintRite3D CONTOUR. It was formally known as PrintRite3D DEFORM, we’ve changed the name to better reflect the application itself to the geometric monitoring of an AM build. And so, with that release we installed our first version of that with our one of our pioneer customers Honeywell Aerospace in Phoenix, Arizona. And that installation was well received and Honeywell is currently exercising the software. And of course, I just wanted to note that given our first bullet, where our revenues have shown an increase, I believe that we’re expecting that to accelerate in the end of 2016 and carry us on into the New Year. With that I’ll direct you to page 4, and talk about some of the revenue drivers as we head into 2016. We continue to maintain our long-term relationships with some of our pioneer customers such as GE Aviation and Honeywell Aerospace which I just mentioned and of course materialize. And Sigma Labs has been working continuously with all three of these to both evaluate and demonstrate the products as the move forward into their production activities as well as with materialize to incorporate embed our Inspect Technology into their Streamyx product offering. And so we’re quite pleased with the relationships and the progress we’re making with these pioneer partners of ours. Item two there, new business again, I’ll just briefly mention the early adopter program. We are currently and actively seeking new early adopters to join our program. We currently have signed Spartacus3D. Spartacus3D is a service bureau in Clayette, France, part of the Farinia Group. And they have customer ties to Airbus and Saffron, respectively the leading Aero-frame and Aero-engine manufacturers in Europe. And so we’re quite pleased to be working with Spartacus. As a matter of fact, we shipped our first PrintRite system to them last week and are working with them to schedule installation of that in early December. On the OEM business side, the third bullet there, as I mentioned, we are continuing to work with Additive Industries. We’ll be at their launch event next Monday, 16 November. And we continue to have discussions with several other OEMs around the globe none of which we can yet announce. But we’re quite pleased with the progress in those discussions at the moment. And then of course the last bullet on this slide number 4 is the contract manufacturing side of our business. And the revenue is for prototype work continues to increase. We are quite pleased with that progress. And we expect that to increase into the New Year. I’ve also already mentioned briefly that the recent events hosted here for the Edison Welding Institute allowed us to basically demonstrate our capability to quite a broad spectrum of attendees, the likes of Lockheed Martin were in attendance and Radion and others. And so we’re looking forward to further interaction with them. And of course the last part of this bullet really speaks of the whole point of the installed machine capacity we have here with our EOS printer allows us to accelerate and move forward on our own internal research and development, and testing regarding our quality of assurance and process control software and technology known as PrintRite3D in addition to providing that to these AM customers that are looking for enhanced quality assurance of their products. Moving on then to slide 5, just a quick financial update and outlook for Sigma Labs. As I mentioned we ended the third quarter with approximately $1.8 million in cash, about $2.9 million in shareholder equity and we continue to maintain no debt on our books. Overall, the gross profit is increased and continues to increase faster than revenue as we ramp up the business and we expect that to continue into the near future. The path to profitability for us seems to be on track as we continue to mark our course with system sales. As I mentioned, we shipped, I mentioned one but we’ve actually shipped three systems last week, one went to Additive Industries; one went to Spartacus and a third one was shipped as well to Europe. So, with these adoption programs in place and some key positions being filled in the company, we’re feeling quite pleased with our progress and that we’ve got the right wind in our sales to carry us into 2016 quite nicely. And then just lastly, I want to make sure that I mention that it wasn’t just a passing event for the Edison Welding Institute AMC but we continue to be recognized and as a leader in this area and that was reinforced multiple times during our day and half event here with Edison’s AMC and their member companies. So, that reinforcement was well received and by the staff here for all their hard work. And we’re quite pleased with that feedback. And I think with that, on slide 6, I would just like to say thank you to all of our investors and particularly I would like to thank all the executive management, the Board of Directors here at Sigma Labs for their continued support and assistance as we build this and grow this company, and of course, our staff for all their due diligence and commitment to the company and its success. And of course thank you to you again, the investors. And I believe with that, we’d like to open it up and take a few questions from our investors. I’m sure you have a few things you might like to ask us.

[Operator Instructions]. And our first question will come from Rob Stone from Cowen & Company. Please go ahead.

Hello, good morning Mark.

Good morning.

The first question I wanted to ask is kind of a high-level one, we’re almost to the end of the third quarter earnings cycle. And results have been pretty grim as for a lot of larger Additive Manufacturing 3D printing companies. I wonder if you could just provide some color on what your sense is of the industry climate and how this uncertainty or extended purchasing cycles for the OEMs of equipment in particular maybe impacting the ability for Sigma Labs’ product to see up-take.

Yes, so, interesting question and timely as well as you mentioned. We’re of course aware of that and we’re working closely with some of these marquee customers of ours to sort of anticipate their needs looking out into 2016 and beyond. And so, we do see a little bit of that slow down. I think as the larger corporations sort of wrestle with the make-buy decision and a lot of them jumped in early on as GE Aviation did a while back with their make decision. And the Acquisition of Morris Technologies and to pull that technology in-house and where that makes sense is for critical applications such as GE and their fuel nozzle. But we stay close to GE and aware of their needs. I think what you’re starting to see is the result of maybe a bit of a slowdown as they sort of gingerly move towards their production activities for these critical items. Because what they don’t and again, this is Sigma Labs, and only our opinion is that, they don’t want to have a misstep as they move into production because that would certainly hurt any future designed for AM activities they might have for second and third generation parts. So, I think you’re just seeing some cautionary steps on their part to sort of slow down and take account of where they’re heading. Because these first parts are very critical as you know for any industry as they move into a new technology. Because a misstep could basically set them back quite away.

My second question is on some of your partnership side. If I understand correctly the systems you’re referring to three so far that are shipping this quarter are going direct to various end customers. But you mentioned working with Materialise to integrate into Streamyx. Do you have a view on when you might start to see revenue flow through from the Materialise relationship for example?

Well, I don’t have an accurate number but I would anticipate that to be the end of the first quarter or second quarter next year before we start to see up-ticked activity there from that integration activity.

Do you expect Materialise to be showcasing the integration at Formnext or?

Materialise integration at Formnext, no I don’t expect that. What I do expect at Formnext is showcasing by Additive Industries of our partnership and interaction or future interaction activities as well as another unnamed entity at the moment.

Okay. And a couple more questions related to the financials if I may. Your operating expenses were up some versus the year ago quarter or so, overall activity so that’s natural. How should we think about the run rate of expenses now in the fourth quarter and as you look into next year, do you need to add resources or people?

Yes, so, for the fourth quarter I think you’re going to see things about the same. We put a lot of effort in the third quarter to get our, meet our deliverables and our commitments on the PrintRite3D CONTOUR activities and those resources are nicely in place and we want to keep the momentum that we have moving forward as we roll out now second generation of our Inspect product which has been out there now for about a year. And so, the same level of effort and looking forward in the next year, we probably need to increase a little bit on the software development side so that we can continue to further meet our commitments. The other thing, we’re delivering those systems to customers and there is going to be a need to increase activities there in terms of field support and services for them. We were dedicated to these customers and ensuring their success. And we want to demonstrate that.

Great. And finally, how much cash did you use in the quarter, basically what portion of net result was non-cash or cash flow for Q3?

I don’t have that on top of my head, I’m sorry.

Okay. That’s all I had. Thank you.

All right, you bet. Thanks Rob.

[Operator Instructions]. Our next question will come from Paul Tomarken [ph], a private investor. Please go ahead.

Good morning, Mark. In some of the prior conference calls, you had reinforced the idea of being in lock-step with GE. There was, recently in a publication in Alabama, an indication that GE has already installed somewhere around a dozen of the EOS printers. I’m just curious in terms of the PrintRite systems that GE has because there has been no report of shipping any to them. The ones that they have are that they acquired through the early work with Morris Technologies. Is there any restriction on those, use of those systems so that when they go into production that becomes an event for Sigma or do they have free use of those systems?

So, interesting question Paul. And maybe a question for you, when you say do they have restricted use, what, can you clarify what you mean by then, you mean?

Contractually with Sigma, was there some sort of agreement within the joint technology development agreement that would limit their use of the system to developing the technology or were they free to use these systems in the production of parts for sale such as the fuel nozzles that are to be manufactured at the Auburn plant?

Okay, thank you for clarifying, yes, thanks Paul for the question. And so, GE has two of our PrintRite Systems. They were purchased by GE not Morris. And the joint technology agreement we have with GE does restrict them to use these systems in research, test and evaluation environments. And they are not to be used for production. The licensing they have is strictly for that research test and evaluation purposes. So, any new systems that would be installed at GE would be for production purposes and have different licensing arrangements associated with them.

Okay, thank you. As regards to your REIT Sigma joint venture, you mentioned here that you are ramping up the contract printing within them, there was some mention as to in-house use for further development. Isn’t that these machines can be 24/7 lights out. Can you comment as to roughly the percentage of the use of the EOS machine at the current time whether using it 50%, 30%, something like that and break it down unto contract printing versus in-house research and development?

Sure. At the moment we’re seeing an up-tick in the machine usage. And in terms of the prototyping, sort of to put a rough sort of magnitude, it’s about a coin flip right now, it’s about 50%. And we’re anticipating that of course to increase as we begin to spread our wings with the REIT Sigma activities, it’s taken a bit longer than expected to get that up and activate it if you will. And so, we’re looking forward to filling that machine capacity hinges. I would just want to comment on one thing you mentioned about 24/7 lights out. That might make good press but that’s not entirely true. The machine of course is got to be down when you load and unload a machine, and for any routine maintenance. So it’s not as easy and straight forward as 24/7, 365 and just come up with 8,600 hours a year or thereabouts of actual use time. You got to have some time to do some work on the machine, and so, just a point of note.

Yes, right, I was not expecting for 24-hour use.

No worries, I understand. Thank you.

The last thing is, goes to really something you just said. You said that the EWI Meeting, you had lot of reinforcement for your position as one of the leaders in quality assurance. Can you expand on what that statement means, what that translates into?

Sure. What that means is that we’re one of the only entities out there with a product on the market that addresses both the process control and quality assurance aspects of 3D metal printing. All the OEMs are of course very active in this area but to our knowledge, our competition hasn’t brought anything to market yet. And so, we have a nice lead at the moment and we anticipate keeping up that lead and that kind of goes back to Rob’s question about outlook for resources and we’re going to need to, in order to stay ahead of them, our competitors, we’re going to need to put the right emphasis in resources in place to maintain that.

Okay. I’m not sure that I understand how your position was reinforced at the meeting which is something I think you said precisely?

How our position was reinforced where the folks in attendance either have machines or make machines or make the software. And so, they don’t have a competitive product that they can choose from right now. So, it was…

Okay, I think that’s more, clear. Thank you.

Sure, you’re welcome.

Thank you very much.

[Operator Instructions]. We have a question from Tim Hawse [ph], private investor. Please go ahead with your question.

Hi Mark thanks for everything. I just had a question about the pace of up-tick, do you - is this how you expected it because, are there things that you’re doing to ensure things like GE, some of the names that you mentioned here, are that, they are getting those machines in their factories? Do they need you? I guess, those are some of the questions I have that, if you have an answer for that?

Sure, so, thanks for the question Tim. I think back to Rob’s point about things perhaps slowing down a bit and people taking stock of what they’re doing. I think it all sort of concatenates at the level of just the general trend for these early adopters which tends to be Aerospace and Defense sort of applications. They take a very cautious approach to their technology maturation. And so, they of course have to deal with whatever burning issues of the day with a long-term line of sight to, what do, they really need at the end of the day. And that of course is to be able to - initially first get into production and then secondarily over time begin to address and reinforce the question of is my process in control. And if so, how do I know that and that’s where the real pay-offs are for Sigma Labs, as they start early with these products and begin to understand is my process in control. Well then they can move to answering the questions of, do I have a quality assured product and if so, how do I know it. And that’s where Sigma Labs is really working hard to help them understand. It’s important to get in with these programs since while we have the early adopter program and begin to learn and understand the AM process now using tools such as ours. And then how do you use these tools later on to validate over and over that you continue to produce a quality product. And there regulatory agencies are going to eventually demand that sort of quality reassurance. And I think Vivek, maybe you want to add a thought or two on some of the compliance activities that we’re aware of from the likes of say the FAA?

Yes, sure. Well, again, thanks to everyone for the great questions. So, here is the dilemma and this also may help answer the question why does it take so long to get something into Aerospace that’s new. When you look at traditional materials, things that come from a mill or come from a foundry, or come from a primary metal processing industry? The material is created at the mill, at the foundry. It arrives in Boeing or GE or Lockheed Martin shop, they machine it, they weld it, they assemble it, they put it together they ship it. Additive Manufacturing is totally different. I was just at a conference on the International Society of Air Breathing Engines in Phoenix. And it’s appearing as if the FAA is going to take the position that for Additive Manufacturing, the material is created in the printer, in the box. That’s a radical departure from traditional aerospace materials when you think about that, most of the time the materials created somewhere else that comes into your factory, you process it, you turned it into a park and you ship it. So, I think the industry is trying to wrap their head around that. Quite frankly the regulators are trying to understand that too. And so, I think at least in Aerospace that’s what you’re seeing, a little bit of uncertainty as to exactly what is the goal, how high is the bar and then what do I need to meet it. But at the end of the day, I think all of that is good for us because the direction things are going to be going in are more scrutiny, more inspection, more proof, more evidence that the process is under control, not less. So, at least as far as we’re concerned, this is a positive move. And certainly to ensure the safety of the flying public, we think it’s a positive move as well.

Thank you. And I had another question about the revenue mix, somebody asked about it earlier I guess. But maybe if you could break it down into actual sales, what you have partnerships, you have with DARPA and that, is that something you guys have handy here or even how do you see it in the future, what do you see as your majority source of revenue in the future?

Sure, great question. And so, at the moment we continue to be weighted towards our programmatic activities, the likes of as you mentioned the Honeywell DARPA led effort, which is in a period 2 activity right now, GE Aviation led America-Mix [ph] activities, as that program has been slow to start but now has gotten some wind in its sales. And so, the majority of our activities tend to be weighted towards those activities as we transition away from those into an operating company where we effectively have two divisions, PrintRite3D division delivering products, software, hardware and so on, either as a third party add-on to the existing installed base or in the OEM product offerings themselves and the second part being the contract manufacturing. So, right now, again we’re still transitioning away from principally an R&D based company as these products roll out and moving forward as an operating company. And so, we anticipate over the near future, those sort of balance is shifting over the course of 2016 and 2017. We’re always going to want to have some finger in the either the federally funded programs to some extent, to maintain and demonstrate our leadership position. But over time to answer your question, we expect those to reduce and the contract manufacturing and the PrintRite3D sales activities pick-up and take the company forward.

Great. Thanks I appreciate the time.

Yes, no worries. Thank you.

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Cola, Chief Executive Officer for closing remarks.

Well, once again, thank you all for taking time out of your day to share with us and learn about Sigma Labs and the activities over the last quarter. We’ve made some mention of our anticipations looking - and expectations looking forward into 2016 and beyond. And we look forward to speaking to you at our next earnings call. Thank you very much. And have a great day.

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