NextTrip, Inc. (NTRP) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon. And welcome to the Sigma Labs Earnings Conference Call for the Second Quarter ended June 30, 2017. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A replay of the call will be available approximately one hour after the end of the call through September 14, 2017. I'll now like to turn the conference over to John Marco, Managing Director of Core IR the company’s Investor Relations Firm. Please go ahead sir.

Thank you, Anita and thank you everyone for joining today’s conference call to discuss Sigma Labs’ corporate developments and financial results for the second quarter ended June 30, 2017. With us today are John Rice, the company’s Interim CEO; Murray Williams, the company’s CFO and Mark Cola, the Company's President and CTO. At 4:13 p.m. Eastern Time today, Sigma Labs’ released financial results for the quarter ended June 30, 2017. If you have not received Sigma Labs’ earnings release, please visit the investor’s page at www.sigmalabsinc.com. During the course of this conference call, the company will be making forward-looking statements. The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earnings, revenues, cash or other statements relating to the company’s future financial results, any statements about plans, strategies or objectives of management for future operations, any statements concerning proposed new products, any statements regarding anticipated new relationships or agreements, and any statements regarding expectations for the success of the company’s products in the U.S. and international markets, any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the forgoing. These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Some of these risks are described in the section of today’s press release titled cautionary note on forward-looking statements and in the public periodic reports the company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Sigma Labs assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. I will now turn the call over to John Rice, Interim CEO. John

Good afternoon. And welcome to all our shareholders and participants joining us for today's call. I am John Rice, the Chairman of your company's Board of Directors, and as of two weeks ago also the Company's Interim CEO. The purpose of this call is to report on the company's financial results and corporate development for the second quarter and specific and for the first half of this year in general. The narrative of this half year commences in January with the company's launch of a strategy to grow Sigma by building the 3D digital ecosystem from design to delivery. The minutes of that strategy the company worked with investment bankers and a successful public offering in February, that simultaneously generated $5.25 million in net proceeds, uplifted the company stock to NASDAQ in panel three new and independent members of the four person of Board of Directors and not incidentally, significantly stepped up the sophistication and complexity of Sigma Labs. The course of the company's narrative run in through the second quarter has two themes. One is continuing product and customer development. And two, a strategic business opportunity analysis within tub management of the Board and how best to drive towards building a digital ecosystem. And I'd say at the outset of this narrative that the management and the Board are not satisfied with the low level of first quarter sales and further even though we almost doubled our sales rate in the second quarter over the first, we are not satisfied with that outcome either. This narrative of the last seven and half months demonstrates or evidence that Sigma is successful building the strong technology platform and does have impressive product performance and test and onsite demonstration. And yet is a need of leveraging these assets into much better sales and earnings. As reported in the months leading up to the earnings call in May, the company entered into a strategic alliances with Morf3D and Jaguar Precision Machine, these have included joint projects as well as convertible notes issues by both companies for capacity building, alignment among the three of us, and the three companies have collaborated in prototype development for third party customers. And have been consulting and assisting each other with strategy and customer development. And furthering our product and customer development in the second quarter, the company achieved two major product milestones. It released PrintRite3D INSPECT, version 2.0 and we released our software developers kit INSPECT 2.0 for use by our OEM partners. When the company unveiled PrintRite 2.0 in May of the Rapid TCT, 2017 conference, Sigma was able to connect with both OEM 3D printer manufactures as well as end user early adopter prospects, and build industry buzz around this new end user friendly cloud accessible iteration. And in a similar fashion the role of our version 2.0 software developers kit for OEM significantly enhances our product value to the OEM customers as well as their customers. Important operating team announcements in the second quarter include, first, a contract with Solar Turbines Incorporated, which is a subsidiary of Caterpillar Inc, and they will implement PrintRite to produce gas turbine component. Second, Sigma further expanded its footprint in the Asia-Pacific region, following our agreement executed in April with Creatz3D in Singapore, Indonesia and Vietnam, in June we executed agreement with Enervision in South Korea and in Beijing with Yida Beijing Sifang Technology, a leading metal reseller in AM with multiple offices in China. These agreements expand our earlier adopter and our OEM program indoor reaching of the world within which we believe 3D growth opportunities will scale according with these economies very large technology manufacturing capabilities. Third, in June we announced that our PrintRite3D INSPECT version 2.0 was installed in Honeywell Aerospace in their advanced manufacturing engineering center. Honeywell is an industry leading in developing and further in the use of end process monitoring for Metal AM. For us, Sigma expanded its installed base with an installation Woodward Inc aircraft turbine engine's group Zeeland, Michigan. And fifth, we've recently signed Jeta Enterprise as a new manufacturer’s representative for sales of Sigma Labs contract printing and AM services in the Northwest including Oregon and Washington. Jeta has a strong customer base in Aerospace and Medical Devices which is you know are two of our Tier 1 target market. Meanwhile during the second quarter management and board worked out a strategy on how best to accelerate the drive towards building Sigma and digital ecosystem. The team assessed the company's key strength and we concluded that we believe our technology leads the industry. And we also concluded that the best way to preserve and extend this lead is to double down on our technology development. With 2.0 and its enhancement to come, we are delivering actionable information and ease of operation for our end users. And we are continuing to drive hard towards the industry grail of closed loop control using ITQA. We analyzed our patent in IT protection as we've announcing on a regular basis to shareholders. And we believe to be a formidable protection of both freedom of use and defense against infringement. In implementing our strategic double down on both Sigma's technology and our ongoing efforts to grow Sigma into a robust ecosystem through exploring mergers and acquisitions. In July and early August we changed our management lineup to add more capacity to do things and to them better. One, we appointed Sigma President and former CEO Mark Cola as the Chief Technology Officer. Mark's new role is lynchpin of the future success of our company because his responsibilities including continuing the refinement and drive towards close loop control of the technology of which he is principal architect and the leading visionary. Going forward, Mr. Cola will be furthering and expanding Sigma's digitalization in the context of growing industrial Internet of Things. We appointed me John Rice who as served as Chairman of the Board of the company since April to serve also as its Interim Chief Executive Office. As Chairman of the Board and CEO, my tasks are to oversee the company with an internal and external strategy. Our internal strategy is to focus on technology, sales and efficiency. I had a history of successful operation in finance and experience as CEO and as an interim CEO with respect to these tasks. Now consistent with disclosures in our filings with SEC, our external strategy is to seek to identify compatible businesses to potential acquire that will be synergistic with our business. And although there is no assurance that any acquisition will be consummated, we continue to work at that. And further on this topic on August 8, 2017 we engaged Garofalo & Associates, a firm specialized in merges and acquisitions owned and controlled by Frank Garofalo, a Director of Sigma to provide services to the company as corporate development consultant and financial advisor. As of now there are no agreements in place with respect to acquisition by Sigma Lab of any third party and there can be no assurance that any agreement will be entered into and if entered into that any acquisition or other transaction will be consummated. In conclusion, the Board and management team believe we have excellent technology and are supported by an excellent team of technologists. We believe that we've accomplished a hard-won understanding of rapidly changing marketplace and we believe that our early adopter and OEM strategies are now gaining traction. And we know that we need to perform better. We are reconfiguring ourselves within senior management and the board to focus on three very defined targets. Product development with sales and support integrated as a team. Business operations and expansion through acquisitions. And yes of course as previously mentioned there is no assurance that any acquisitions will be consummated. That is our plan and we are sticking to it. Now our CFO, Murray Williams will discuss our financial results for the quarter and six months ended June 30. And then we will be open for questions. Murray?

Yes, thank you, John. I'll begin with the discussion of the results for the three months ended June 30, 2017. And then discuss the results for the six months ended June 30, 2017. During the three months ended June 30, 2017, we recognized revenue of $290,553, as compared to revenue of $93,824 during the same period in 2016. The increase in revenue was primarily due to contracts in 2017, including Honeywell DARPA Phase III, Aerojet Rocketdyne, Solar Turbines, Pratt and Whitney, and Woodward which accounted for the majority of the $196,729 increase in revenues when comparing Q2 2017 to Q2 2016. In addition, the Q2 2016 revenues were lower due to the completion of the GEA America Makes Program in Q1 2016, providing no revenues from that contract in Q2 2016. Our General and Administrative expenses for the three months ended June 30, 2017, were $594,193, as compared to $480,697 for the same period in 2016. The $113,000 increase is primarily due to increases in legal fees and the increase in interest and finance costs on the $1 million promissory note originated in October 2016. Our payroll expenses for the three months ended June 30, 2017, were $300,661, as compared to $252,895 for the same period in 2016. The $47,766 increase is due to us having more employees in Q2 2017 than Q2 2016. Our expenses relating to stock-based compensation for the three months ended June 30, 2017, were $166,773, as compared to $59,362 for the same period in 2016. The $107,411 increase was due to more stock and stock options being used to pay for services as a mechanism for us to preserve cash. Our Research and Development expenses for the three months ended June 30, 2017, were $118,853, as compared to $11,907 for the same period in 2016. The $106,946 increase is the result of continued improvement and development of our software and technology. Our net loss for the three months ended June 30, 2017 increased $246,895 and totaled $988,741, as compared to $741,846 for the same period in 2016. The increase is primarily due to the $375,619 increase in expenses that we just discussed which were partially offset by the $116,221 increase in gross profits, which is primarily due to the $196,729 increase in revenues in Q2 2017 compared to Q2 2016. During the six months ended June 30, 2017, we recognized revenue of $440,756, as compared to $452,279 recognized during the same period in 2016. The $11,523 decrease in revenue was primarily due to the completion of the GEA America Makes Program in 2016, providing only three months of revenue in 2016 but no revenue in 2017. However, new business in Q2 2017 from customers like Honeywell DARPA Phase III, Aerojet Rocketdyne, Solar Turbines, Pratt and Whitney, and Woodward made up for the majority of the reduction that resulted from the completion of the GEA America Makes Program resulting in $11,523 reduction in revenues from 2016 to 2017. We generated revenues and financed our operations during the six months ended June 30, 2017 and 2016 primarily from PrintRite3D system sales, DARPA Phase III, Aerojet Rocketdyne and Solar Turbines programs, engineering consulting services we provide to third parties, and through sales of our common stock and debt securities. Our General and Administrative expenses for the six months ended June 30, 2017, were $1,237,988, as compared to $876,185 for the same period in 2016. The costs of the February public offering that generated net proceeds of approximately $5.25 million, legal fees, and the interest and finance costs related to our $ 1 million promissory note, are the primary reasons for the $361,803 increase in G&A expenses. Our payroll expenses for the six months ended June 30, 2017, were $677,282, as compared to $468,484 for the same period in 2016. Employee additions are the main reason for the $208,798 payroll expense increase. Our expenses relating to stock-based compensation for the six months ended June 30, 2017, were $306,405, as compared to $130,913 for the same period in 2016. The $175,492 increase is the result of us using more stock and more stock options to pay for services in an effort to preserve our cash. Our Research and Development expenses for the six months ended June 30, 2017, were $167,615, as compared to $50,978 for the same period in 2016. The $116,637 increase is the result of our increased efforts to continue to develop and improve our software and technology. Our net loss for the six months ended June 30, 2017, increased $720,193 over the prior year and totaled $1,932,706 as compared to $1,212,513 for the same period in 2016. Our revenue only decreased $11,523, but we experienced an $862,730 net increase in expenses the details of which I just previously mentioned. And we recorded other income of $201,774, primarily from the receipt of New Mexico state employee incentives, and non-cash income and expenses related to derivative liabilities and debt discounts. As of June 30, 2017, we had $3,384,499 in cash on its balance sheet, compared to $398,391 in cash as of June 30, 2016 and we had a working capital surplus of $3,374,359 as of June 30, 2017, as compared to a working capital surplus of $110,799 as of June 30, 2016. Our February 2017 raise continues to give us the financial security and the ability to execute our business plan and it has given us a good strong balance sheet with approximately $5.5 million in assets and approximately $1.3 million of liabilities as of June 30, 2017. That along with our 2017 contract wins like Pratt and Whitney, Aerojet Rocketdyne, Solar Turbines as well as our pipeline of potential customers and our upcoming focus on execution, gives us a greater opportunity for accelerated top line growth in future periods. Again it is prudent to note that there is no assurance that any acquisition will be consummated or that any potential customer in our pipeline will become actual customers. In the first half of 2017, we maintained strong margin coming in with 58% gross margin on revenues of approximately $441,000 and cost of sales of approximately $186,000. We believe our strong margins will continue throughout 2017 and beyond. All of these things combined with tight management of our overhead expenses put us on solid path towards profitability. I thank you all for your time and your continued support. And with that I'll turn the call back to John.

Thank you, Murray.

You are welcome.

So we remain unsatisfied with our second quarter performance and yet we are very confident about our prospects for continued growth through the remainder of 2017. We believe that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for PrintRite3D related technologies and seek to identify compatible businesses to possibly acquire synergistic elements for our business. Although of course there is no assurance that any acquisitions can be consummated. So now it is time to open the call to questions. Operator, please do so.

[Operator Instructions] The first question comes from Aaron Tilden, a Private Investor. Please go ahead.

Hi, good afternoon, John. I had a question I guess when Mark Cola was doing a call he said he is trying and still locked with GE, I was wondering that's still true or do you still have engineers that are currently working with GE after the America Makes project that ended.

Well, Mark is sitting right beside me so I'll ask him to answer the question.

Hi, Aaron, thanks for asking the question. You are absolutely correct the America Makes program ramp through the first quarter actually slightly into the second quarter this year and that was where our focus of our efforts have been as with contemplating and completing that activity and so now we are actually looking forward to new opportunities with GE although we don't currently have any.

All right, all right. I guess my question Mark would be concerning working with other partner of manufactures, I am personally concerned about the HP set fusion machine, do you have any -- I don't need to tuck my evaluation or you have tested your part all I was saying by any chance.

No. We are not currently active doing any work with HP type printers. No, not at the moment.

The next question comes from Sigma Labs, Inc Please go ahead.

Good afternoon, gentlemen. Hope you are having a good day today. Over the years we've kind of had all the same kind of questions and are kind of still that way. But in particular now we have wrap of the America Makes projects with the GE and that group and report that put out led to some consternation among the investors and that it was either not well written or ambiguous but can you expand on the implication of that report for Sigma Labs and PrintRite3D because it appeared that you could read it one way saying, the study did in fact find the PrintRite3D did exactly what it claims to do and you can also read it another way saying that it did not meet the hurdles that they were looking as a function of product. Can you expand on that please?

Well, Mark, we want to read that report I mean in the former message not the latter, I think for beginners, there are two factors and Mark Cola will also weigh into this. There is problem that we have with how it was written of course and also we've moved passed it, the technology that we provided at the time of functioning and workable and the report doesn't make that as clear as it should have. The technology that we have today in version 2.0 is virtually impossible for them to misunderstand if we were to run it today the same test, what's your comment Mark.

Yes. You are exactly right, John. The version of software and the system they had is almost four years old and I can't comment on the writing because that's just their style and but with respect to evaluating the technology it's absolutely is evaluated with respect to the version they have. But to John's point as well with respect to 2.0 we would and we are currently actually running that analysis through our current version of software. And we hope to report on that back to America Makes sure that we've been in contact with America Makes about providing an indemnity to that study that would basically provide clarification on the current algorithm and their capabilities in version 2.0 today. So we are working on that and hope to have that back America Makes for dissemination shortly.

Okay. Just one other question. When a company has a product that is a solution or absolutely needed solution to an industry such as PrintRite3D the whole suite, you kind of would expect companies would be rushing to your door for your product and we have the metal AM industry now right on the cusp of actual production operations and yet it still seems to be the case that it is a major slog for Sigma Labs to get PrintRite3D accepted. I mean you guys have done great to getting at out there for evaluations but it just seems to have a hit wall out there. Is it still your anticipation and belief that just a little bit more effort and the logjam is going to break free or has some new event occurred whereby PrintRite3D does not quite seemed to be the solution that these people need.

Everything we are seeing in over the past year has seemed to be progressing towards the goal that you articulated that people want to go into production and needing those technology. That said they are still on the cusp where their prototype has been done and they are exploring whether or not go out and buy 10, 20 or 30 machines. They haven't placed those orders. And until the folks who are in prototype mode anticipate production actually place the orders for the producing machines, they will in our opinion continue to wait and see.

How does that relate to the number of machines that are already in used out there? I mean retrofitting existing machines I'd think that if they saw PrintRite3D being a very, very valuable product that they would go ahead and move forward with retrofitting existing machine but that doesn't seemed to be happening as well. Is that also in the mix of them contemplating that they are going to go until full production direction or is there some other issue.

Well, remember, the existing machine base is substantially a prototype base, these are machines that produce early prototype products that allow them to test and evaluate the product and so on and so forth but not in the production mode and given that the traditional approach to quality, there is a tendency to let's make 10 and cut out five. When you go into production you simply can't do that. That the yield problem that is going to be created in production can really only be answered with in process quality monitoring. And it ultimately with ITQA that controls the machine.

The next question comes from Paul Newark with Retail. Please go ahead.

Yes, I wanted to go back a little bit from the most early statements where you were dissatisfied with the amount of sales in Q1. We've heard over the last several conference calls that you are expecting nine months for PrintRite to gain traction. Is there anything you can point which can give me as an investor continued confidence that within the next nine months, next three quarters we are going to see a significant increase in sales of PrintRite?

That’s hard question for the CEO of a public company to address. So let me see if I can tiptoe through that minefield. What we've seen in the past year is the phenomenon that prior questioner was identifying which is with the size of installed base out there why isn't Sigma Labs technology moving more quickly into the market. Now one of the things that we are seeing in recent months is manufactures are coming into the picture who are not aerospace per se but manufactures of parts for other industries for interest and also aerospace, who are interested in delivering more prosaic product and they are bringing our equipment for evaluation with an anticipation of ordering machines much more quickly than the very larger Tier-1 brand name aerospace companies. So we feel we may be seeing a middle market emerging here and they may well end up -- moving more quickly into the space than the big Tier -1. So there is grounds to believe that we have a horizontally expanding and extending horizontally more quickly than we had thought and we definitely are seeing the aerospace community moving more slowly than they had thought.

Okay. Following that up a little bit there is a $0.5 million convertible loan given to Morf3D so they can release one of the more modern EOS printers. I am curious as to the utilization of the EOS printer that Sigma owns and how what capacity of use that's running at, what the percentages are in terms of cash generating for the company, what the percentage use of research and development, just to get a sense of what we've got and we are investing in.

So Mark I am going to need to refer you on that. I don't have the specifics on the actual use other than the R&D purpose that we used it for.

The generality of our machine is here that it is an R&D machine that it is primary use. At the same time we've done some more with in Jaguar for individual customers, we've done some local work for the laboratories. But its primary use Sigma is learning information that I think is probably key to going to the close loop control and that's our lab.

Shouldn't be there any percentages given because for several years we've been talking about this machine and there have been reports of people making request for quote and for printing from Sigma as well as the R&D within the various projects. And I am just trying to get a sense of how it makes more sense for Sigma to go ahead and make this $500,000 loan to more where that is designed more part of and intend to merge with Morf3D, I am just not clear that whole transaction and the need for in terms of Sigma having bought rather expensive machine and I understand the need for R&D but the loan and the questions about what the alternative path might have been but that will be water under the bridge.

Understood. So the importance of the series EOS series for 100 machines to Morf, Morf is in the prototype business and we believe capable of expanding very quickly into low volume production run with additional pieces of equipment. And Sigma is an IPQA company and so our natural alliance with them, it is logical for us and necessary for us to be able to reach out and work with people who are working at the high end of the research spectrum moving into production. The machine we have in Santa Fe is necessarily primary R&D because our technology is cannot be developed in a vacuum. We need to be working in the exact same conditions, the exact same equipment, the exact same material, the exact same challenges that are our customers and what would be OEM or end users like Honeywell. We need to be doing all of the things they are to provide them what they need. So the 290 and Santa Fe will continue to be 90% R&D and 10% revenue. And when we need production level work that will be in a strategic alliance with Jaguar machine and more in other as time develops.

The next question comes from Tao Smith, a Private Investor. Please go ahead.

Thank you. Good afternoon. I fully understand that there can be no assurance at any potential acquisitions that are being considered will actually be consummated. But I am wondering if you could give us some guidance as to the status of the possible alliance with more 3D and Jaguar.

I have tried to do that as best as I can within the limit of public company reporting. In the world of no assurances, we continue -- these companies are strategically important to us. These relationships are strategically important to us and like all courtships we are considering continuing to invest ourselves in the courtship.

I understand. At least it's still live, it's not dead, is that correct?

We are continuing to invest ourselves in the courtship. I am holding flowers.

I understand the difficulty and the dilemma. If I may ask one other question. It would appear that the date there have been no sales of printers with PrintRite3D embedded by additive industries or the other run name OEM, is that correct?

Mark?

That's correct. Now, we continue to work with their engineering groups to effect integration of our PrintRite both hardware and some cases hardware and other most cases or all cases the software and so we right now are on a track that we are anticipating if their schedules don't slide to the right, it looks like a first quarter second quarter deployment of printers with the PrintRite technology inside of it. Sorry that was first and second quarter of 2018

And additive is an early stage company themselves.

Correct.

This concludes our question-and-answer session. I'd like to turn the conference back over to John Rice for closing remarks.

Well, I want to thank everyone for again for your time today. We are excited and passionate and buoy we committed to the future of achieving the promise of Sigma Labs into delivering lasting shareholder value to you, our loyal shareholders. So thank you again for your time. Thank you for your continued support. And we look forward to continuing report and what we hopeful to ever increasing achievements in the coming months.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.