NextTrip, Inc. (NTRP) Q1 2022 Earnings Report, Transcript and Summary

00:04 Good day, and welcome to the Sigma Labs First Quarter 2022 Financial Results Conference Call and Webcast. Today's conference is being recorded. 00:13 At this time, I would like to turn the conference over to Chris Tyson, Executive Vice President of MZ North America. Please go ahead, sir.

00:24 Thank you and good afternoon. I'd like to thank you all for taking time to join us for Sigma Labs' first quarter 2022 business update and results conference call. Your hosts today are Mark Ruport, Chairman; Jacob Brunsberg, Chief Executive Officer; and Frank Orzechowski, the company's Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:01 P.M. Eastern today and is available on the company’s website, sigmalabsinc.com. 00:51 Before we begin the formal presentation, I’d like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company’s SEC filings for a list of associated risks, and we would also refer you to the company’s website for more supporting industry information. 01:17 At this time, I would like to turn the call over to Sigma Labs Chairman, Mark Ruport. Mark, the floor is yours.

01:22 Thank you, Chris and good afternoon, everybody and thanks for joining our call today. As many of you may know, this will be my last earnings call. It was a great pleasure that we announce the promotion of Jacob Brunsberg, the President and Chief Executive Officer of Sigma Labs. As this was the desired outcome of a search that started over a year ago, and I'm very excited that the prospect of working with Jacob position with Chairman's role. This move comes at a time, and it clearly marks the beginning of a new direction for the company. 01:59 It's important to understand that Jacob was recruited specifically because of his background. He brings an OEMs perspective to Sigma and greatly broadens our understanding of work -- large manufacturers need to ensure the highest level of trust in the quality and consistency, printed parts as they scale to hundreds of production system. Jacob has set a plan in place that leverages Sigma’s core competency removes significant barriers of entry for the company as well as for end users and has created a sense of urgency in developing relationships with OEMs, additive software companies, material providers and post processing technologies. I believe that all the above for the first time positioned Sigma that have our technology and thousands of printers. 02:51 With that, I'll be glad to turn the call over to renewed CEO Sigma Labs, Jacob Brunsberg.

02:59 Thank you, Mark and thank you for all that you've done for Sigma Labs. We could not be happier to have you as our Chairman of the Board and really look forward to continuing to work with you as we grow into the future. 03:13 The first quarter of 2022 is the beginning of a new era for Sigma Labs, an era in which we move from one-off project sales to one that we believe is accessible at scale for supporting qualification and production across thousands of machines at hundreds of customer sites. This transition will not happen overnight, but it is being accelerated faster than we anticipated. In fact, we begin to broadly market under our new subscription model during the first quarter. We continue to grow our pipeline and we closed our first subscription sale. 03:48 The move to a subscription model does in fact change our revenue recognition from our prior immediate one time model. However, we believe this will result in reoccurring scalable, and more predictable long-term cash flow over time. Additionally, the subscription model lowered the barrier to entry for customers and their subsequent scale to enterprise solution, allows us to connect to other software solutions in the market more easily, paving the way for more software-only solutions through product expansion and embedded and Tier 2 OEM solutions that can yield a higher margin products. 04:26 I want to take a second and talk about the last bullet item I just highlighted on product expansion. We believe this is the crux of our transition and we believe this will allow us to scale into production across enterprises with tens to hundreds of printers. We have learned over the past year that we are dealing with a bifurcated market where PrintRite3D in its current state of hardware plus software is a great comprehensive platform for universities, research organizations and internal research and development groups of the most sophisticated industries. However, to set the standard for quality, we need to own the production segment to the market, where the economics and quite frankly the requirements are a bit different. 05:10 As we continue to support this R&D space, we are using this great experience and the input of our customer base and advisory board to deploy our technology largely in software-only component, geared towards mass production customers insights. To address this production customer, we are preparing to announce what we believe our exciting new products that will combine streaming, machine health data, our major OEM, off-axis camera data and on-axis melt pool technology to provide a centralized home for all industry in process quality solutions. 05:47 We believe with these new products Sigma Labs will be at the center of quality and connections to any point solution for in process monitoring in the market. The connected data is expected to allow users to simplify their quality operation, easily identify growth defects, utilize our machine learning and artificial intelligence platform, and drastically improve the total cost of development and production. Additionally, we believe this gives customers onboarding options for lower dollar solutions as they grow into what we're developing as the quality standard for additive manufacturing. 06:25 As a reminder from our year-end 2021 call, according to AM power the metal end market alone has an estimated installed base or total addressable market of greater than 12,000 metal AM systems today, with a growth rate of approximately 20% year-over-year. This yields the addition of well over 2,000 new systems a year. The market for metal AM without any additional dramatic growth rate offers Sigma Labs, the opportunity to grow towards thousands of high margin installs as our partnerships become additive. It's time for us to go out and get this opportunity with a software-only solution that can be easily deployed and supported. It’s time to be the quality standard for the entire industry. We’ve paved the way for our company to grow with our advanced work, with our research and university partners and are now poised to address the needs of the mass market. 07:20 Now, I will have Frank review the financials and I will close with the key KPIs to monitor as we go forward that we will be judging ourselves by as we approach it, our goals for 2025 and beyond to truly take the seat as a standard for quality and additive manufacturing. Frank?

07:42 Thank you, Jake. Our detailed financial results are contained in our Form 10-Q filed with the SEC today and the press release we issued contains key highlights of our financial results. So today, I will provide a brief overview of our results for the first quarter of 2022. Revenue for the first quarter of 2022 totaled $52,000 as compared to revenues of $458,000 for the first quarter of 2021. The decrease in revenue was primarily due to the changes in our business model, resulting in a decreased PrintRite3D unit direct sales, partially offset by an increase in revenue from our subscription-based pricing program. 08:25 Gross profit for the first quarter of 2022 was $12,000 as compared to $330,000 for the first quarter of 2021. Total operating expenses for the first quarter of 2022 were $2.3 million while operating expenses for the first quarter of 2021 totaled $1.8 million. The increase of $500,000 was primarily attributable to an increase in salary and benefit costs of $445,000 relating to the hiring of additional employees in an effort to expand the commercialization of our products. 08:59 Also contributing to the overall increase were increases in stock-based compensation costs of $53,000 related to equity grants to both our new and existing employees, a net increase in professional services of 35,000 mostly due to consulting services related to our new business model and various corporate matters, and increased travel expenses of $54,000 is COVID-related travel restrictions ease compared to the first quarter of 2021. Partially offsetting these operating expense increases were decreases in operations expenses of $59,000. Investor, Public Relations and advertising expenses of $14,000, an organization costs of $19,000. 09:49 Other income for the three months ended March 31, 2022 was $77,000, primarily as a result, the benefits received from New Mexico State incentive programs. This compares to other income for the first quarter of 2021 of $801,000, which resulted from an unrealized gain on the revaluation of a derivative liability from our March 2021 financing. Cash used in operating activities for the quarter ended March 31, 2022 totaled $2.03 million compared to $1.24 million for the quarter ended March 31, 2021. 10:30 The net loss applicable to common stockholders for the first quarter of 2022 was $2.2 million or $0.21 per share on weighted average shares of $0.5 million, as compared to a net loss of $0.7 million or $0.09 per share on weighted average shares of $7.8 million in the first quarter of 2021. Our cash totaled $9.3 million at March 31, 2022 as compared to $11.4 million at December 31, 2021. Working capital was $9.6 million at March 31, 2022, as compared to $11.7 million at December 31, 2021. And at March 31, 2022, our stockholders' equity was $10.9 million as compared to $12.9 million at December 31, 2021. 11:22 And with that, I will now turn the call back over to Jake.

11:27 Thank you, Frank. I do not expect any one to jump out of their seats in excitement with our first quarter revenue numbers. While, our transition had to happen at some point for us to go after the high volume opportunity, we are now moving towards addressing. We are tracking the following KPIs on progress to plan going forward, additional OEM partners in our different tier solutions, growth of our software ecosystem of bundled solutions and software-only product offerings, advances to our product suite to address traditional manufacturers production needs, the addition and corresponding scaling at meaningful customers, expansion into adjacent markets such as polymer production, extension of our runway by execution or executing on our new business model, focus on reducing our operating expenses and allocation of resources to accomplish these goals. 12:24 In Q1, we entered into a collaboration with AMFG and adjacent additive MES software company. We also were named as a founding member of ASTM consortium for setting process and material development standards and began working with Auburn University to support their grants from NASA and FAA. Our collaboration with long-term strategic partner materialize has resulted in a technology platform that delivers an industry first ability to identify and address process and quality issues in real time. 12:55 Lastly, we added a printer OEM Aconity3D to our PrintRite3D certified program. We are setting this business up with a solution and structure that scales. As we progress, there will be an opportunity to look at not only organic opportunity but inorganic opportunities that align with our strategy. At our recent Investors Conference, at the last one-on-one, I was asked the very broad question. Are you really going to do what it takes to set the quality -- to set the standard for quality in AM? Can you deliver a software-only solution develop the relationships, get aggressive with your pricing and do what it takes? 13:34 My answer was and is a resounding, yes. This is the only way to make our technology pervasive throughout the industry. It is the only path towards setting the standard for quality in additive manufacturing. It is the only path that we are focused on today. 13:49 With that, I'll turn it over to the operator to open up the question line. Operator?

13:56 Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Scott Buck with H.C. Wainwright. Please proceed with your question.

14:30 Hi. Good afternoon, guys and congratulations Jacob on the position.

14:35 Thank you.

14:38 So my first question just on the $50,000 of revenue in the quarter, should we, is that all subscription revenue or is there something else in there. And I guess, I'm asking is this trough revenue and something for you guys to grow out of sequentially.

15:00 The revenue is a little bit of a mix, but it is our first subscription as well. And Frank, I don't know if you have a comment, I can elaborate from there as well.

15:10 Yeah. The other components are maintenance and support contracts primarily that we're realizing over time. So that would be the other big piece that's in that number.

15:24 Okay. Can you give me a little color on maybe percentage wise or is it 50:50, is it 75:25. Just trying to understand what is software in there?

15:43 Yeah, sure. So the software piece is -- it's roughly 50%. I'd say 45% to 50% than the other maintenance and support in that number.

15:59 Okay, that's helpful. And the new software subscription client you signed during the quarter, are they -- are you already billing them? I mean, are there using the software?

16:09 Yes.

16:11 Okay. That's helpful. And then on the pipeline, I think we've been conditioned to expect a meaningful ramp in activity in the second half of this year. Is that still the right way to think about the way this growth?

16:27 Yeah. I definitely think so. As we look at it as a whole, our pipeline is definitely increasing, we're adding new names to it. So, the investment in the sales force we've had in the last year, they have really gotten us into the right rooms, in the right places and it's gotten us the feedback that we needed on what scaled production monitoring means for them and their industries and how they want to buy. So, a lot of that feedback has gone into what you heard commented on product and subscription models that you see today. So as we work with them to deliver on kind of the key KPIs they have, we really expect to continue to tackle what will be total contract value growth year-over-year. 17:15 So, traditionally in the past we had one-time sales revenue recognition with a subscription model that's a little bit different on the rev rec side going forward. But year-over-year we still do expect the total contract value to grow from a Sigma Labs perspective. We've got a lot of bright future ahead of us and we're attacking that every day from a commercial perspective.

17:39 Okay, that's helpful. And then, I'm curious to hear. I would guess the cash burn tide ticked up in the quarter. Frank, how comfortable are you with the cash level? And do you have enough cash to get you to that kind of inflection point where you start to see revenue really ramp?

18:01 Well, yes. So the cash flow burn has picked up, certainly it's picked up relative to the first quarter of last year. The cash burn is actually pretty flat to the fourth quarter of last year because we did -- a lot of the add to the infrastructure was in the back half of 2021. So looking at -- looking at the cash burn right now and as Jack said, you know, there's -- we're looking at operating expenses now, we've got a new model, we are refocusing some resources, there is an opportunity here to reduce some of the overhead and we're going to take that opportunity where it makes sense for the organization. 18:41 The other issue with cash flow is, how is it impacted by sales going forward. Right? So if we were to take the most conservative approach to this with no sales, we can get into 2023 easily and with sales and reduction in current burn, probably closer to the midpoint of 2023.

19:07 Okay. That's really helpful, Frank. And then just last thing for me on gross margins. I can't remember whether or not last quarter you discussed what the gross margin ceiling is now following the business transition. I mean, should we view you as other SaaS companies where 60%, 70%, 80% gross margin is achievable?

19:32 Yeah. I mean, I think you're going to see that for sure. Last year with our perpetual model we were around 65%, 66% in our gross margin. I think that number is going to only improve over time as we transition to software only and a hardware component of the offering gets less and less. So yeah, you're looking at over time upwards of 80 plus percent gross margin, similar to what you find in a SaaS company.

20:07 Okay. Perfect, guys. I appreciate the time. Thanks again.

20:12 Thank you.

20:12 Thank you. Our next question is from Michael Shaw with the Shaw Family Office. Please proceed with your question.

20:19 Hi, good afternoon. In the fourth quarter you sold a couple of the polymer systems. What does it look like for additional sales going forward? Are there similar needs or issues that have to be addressed like you have on the metal side of the business?

20:34 Yeah. Thank you for the question. The polymer product is actually an interesting talking point here, because it was actually started with production mindset from the beginning. So an aerospace company kind of had the directive for their supply base to create an offering that can mimic some of our technology on the metal side to provide them production monitoring. And so, right out of the gate in this collaboration and our first beta site, that was -- the crux of the development was building out a solution for production. So we had our first multi-unit installation last year. We're just finishing up validation now with the user as well as the major aerospace corporation. And we're really approaching kind of the next steps, which should be enterprise installation for that technology and then mass market offering for that. So that's progressing well and is very in line with our future vision where we're going on the metal side. 21:39 So, it actually ended up being maybe a leading indicator there because it got a little bit of a head start in the way it was approached in the very beginning.

21:48 That's great. Thank you very much.

21:52 Thank you. Our next question comes from Carlo Corzine with Dawson James. Please proceed with your question.

21:59 Hey, guys. Welcome aboard. You've talked about 70% of revenues in the future coming from the OEMs. Is that still the case? And can you give us an update on that? What should we expect when we see incremental growth from these revenues? And when do you think we'll start seeing that?

22:19 Perfect. Yeah, I think there's two components. So there is a short-term revenue component and a longer-term revenue component that really kind of goes into the retrofit market that exists today, so OEMs that have existing platforms in the field, that we don't yet have an embedded solution with. From what you can expect [indiscernible] or the Aconity3D add from a ready perspective. We fully expect with the APIs that are opening up with some of those really large OEMs in the space that will make some positive movement there with product offerings that align well with the market that can drive some of the more short-term revenue came from a product offering in both the software-only, as well as a hardware, software combination. So look for that and we look to update you as we progress there in the OEM space. 23:15 The second piece is the -- in fully embedded offering where we are a solution off the line and a machine or maybe a part component or out licensed IP structure in an OEMs offering. So those kind of fit ‘longer term’ but kind of within the next year and onward phase where we actually go out the door on their next-generation system. So with some of our partners, the first next-gen system is really launching towards kind of the middle point or second quarter next year. That's kind of when we can expect the every machine embedded software out the door to kind of start to pick up there.

23:57 Thank you.

24:02 Thank you. Our next question is from [Harry Larry Holib] (ph) with Holib Family Office. Please proceed with your question.

24:09 Good afternoon. My question is Velo3D seems to be touting their quality assurance system. So I'm wondering how does that relate to or impact your plans?

24:24 Yeah, thank you for the question. Velo3D 3D is interesting. There are newer player in the metal AM space for an OEM and it's actually very exciting for us to see one of their value propositions amongst the many, they go to market with the importance of quality assurance and quality monitoring. So of OEMs in the marketplace today that being a critical part of things that go on their machine, really closely aligns with how we see the market as well. 24:57 That said, we really view them as a potential partner and on the other front of this, we can do something that they cannot today which is address a standard across all of their competitor's machines in addition to theirs. So, like other OEMs that have offerings in the space, we look to set a standard that can kind of correlate all the machines across the marketplace and really give sites set for every intensive purposes, always have more than one OEMs systems in them to standardize our operations across a unified platform. 25:36 For me, exciting to see this being something that touted as a bigger deal in the marketplace and look forward to the opportunity of working with Velo, hopefully at some point in the future.

25:46 Great, thank you very much.

25:52 Thank you. Our next question comes from Lee Alper with Hammock Investors. Please proceed with your question.

25:58 Yeah, thanks. You guys invested quite a lot in the sales force last year and the revenue is really weren't there in the first year or the first quarter. Can you kind of give a little more color on that? And also add to your thoughts about how long your sales cycle is for your new programs? Thanks.

26:23 Certainly. So as we commented a little bit before the investment in people who had very deep connections to the industry and other heavy hitters in the marketplace and experience in production or other OEM was extremely beneficial to us last year, especially some of them on-boarded in the later parts of the year. It allowed us to get into the right room really quickly across the industry. As I stated before, and I think a lot of what that brought about was the right discussions we needed to have on our product and delivery to customers. And is echoed in kind of what you see in the plans going forward here. So I think sales cycle wise, as you commented, a lot of that group came on towards the later part of last year. Traditionally, we saw sales cycles of our hardware, software solution in kind of that six to 12 month range from first interaction to deal structure. 27:27 I think as we progress towards our software-only offerings. The goal is to really shorten that cycle to make it easier to buy and implement as close and instantaneously as possible and many people with some offerings in that can more economical range and then really our full quality standard package they can kind of grow into as well. So a lot of what you're seeing now is effort and based on feedback to really get that sales cycle about as short as we possibly can going forward. 28:00 And the last comment I'll make and Frank made it on the kind of the runway question absorbed, and that is really looking at allocation of resources. So two important things, some of the team we brought on, we've repurposed to really support customer success within our blue-chip customers today and that's all about getting them to scale and supporting a lot of their feedback into our product as we go forward and really aligning around that and some of the OEMs and partnership opportunities we have going forward. 28:38 And so we're really excited about the contribution of they're adding to the team and really looking forward to the year is a progressive. I think we're in the right rooms, having the right conversations today and adding some key names to the pipeline.

28:53 Okay, thanks.

28:57 Thank you. There are no further questions at this time, I'd like to turn the floor back over to Jacob Brunsberg for any closing comments.

29:07 Thank you. So I'll be sure to closing. But Mark mentioned my background from the OEM space before I came here because I viewed this technology for in-process monitoring as one of the largest catalyst additive industry adoption and I still believe that extremely strongly today so with that, I really look forward to executing on our plan. We're excited about it and feel that there is opportunity to really execute growth going forward. And look forward to updating you on progress in the upcoming quarters. Thank you everybody for joining. Have a good day.

29:44 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.