Chris Witty - IR Mark Cola - President & CEO

Good morning and welcome to the Sigma Labs Fourth Quarter and Full Year 2015 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Chris Witty of Investor Relations. Please go ahead.

Good day ladies and gentlemen, and welcome to the Sigma Labs fourth quarter conference call. Following management's prepared remarks, today we'll hold a Q&A session. With me today is Mark Cola, the company's President and CEO. I would now like to provide a brief Safe Harbor statement which is also shown on Slide 2 of our fourth 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 results or 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. Please turn to Slide 3 of the presentation and I'd now like to turn the call over to the CEO, Mark Cola. Mark?

Thank you Chris, good morning ladies and gentlemen. I'm delighted to be able to speak with you today about our fourth quarter highlights and if you'd all turn to Page 3 of the presentation, I'd like to walk you through some of the highlights of 2015 and sort of discuss the year a bit and some other matters. So specifically we finished the year on quite an up note and we're very pleased with our performance in terms of revenue, as you can see we posted record revenues, as well as had gross profits of over a $1 million for the year. I'm very pleased with that performance and that of our staff here. We had several new orders in 2015 that we were delighted to earn business from GE, General Electric, as well as Honeywell. Aerojet Rocketdyne is a new customer and client of ours and we're very pleased to have them using our PrintRite3D Technology and in the service bureau space we threw our early adaptor program, gained the interest and support of Spartacus3D in France that is providing services to the aero industry in Europe. And also we continue to work with and are delighted again to be partnering with Additive Industries, the start-up OEM manufacturer of AM Printing Equipment, a photograph of which is shown on the first page of the slide and they are receiving a good reception for their equipment and we're looking forward to our continuing involvement as we - as they roll out their product and we begin incorporate and embed our product into their solutions base. Sigma Labs also participated in numerous industry events, a particular note was the Annual Fall meeting for the Edison Welding Institute's out of their manufacturing consortium. We hosted that meeting here in Santa Fe, New…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Aaron Tilden [ph], private investor. Please go ahead.

Good morning, Mark.

Good morning, Aaron.

Most recently HP is releasing a new MultiJet Fusion 3D printer, and I was wondering if your PrintRite3D will be able to perform ink process for the assurance with that MultiJet Fusion Technology?

Yes, great question Aaron, thanks so much. So we fully expect that our technology would be compatible. We've not had an opportunity to evaluate that entirely, but there is no reason that our underlying technology would not be compatible with what HP's offering.

Okay, thanks Mark. I got another question.

Sure.

I was wondering, do you still anticipate PrintRite3D production run contracts of GE and Honeywell as you indicated in the second quarter 2015 conference call? And if so what is the anticipated timeline to receive those production run contracts?

So production run contracts with OEMs such as GE, Honeywell and others are all continuing to evolve, and at this point in time they're moving, they're either in initial low rate production activities or moving into full rate production activity. So we continue to work with them and remain in lock step in anticipation of their full production needs. Timing-wise, that's not always exactly clear to us, but it looks like over the next 12 months we'll be anticipating further involvement with those entities you mentioned.

Okay, all right. Thanks.

Sure.

What about the 3D PrintRite integration with Materialise, Streamyx. Are we still good on a timeline for that, or?

So great question about Materialise, I made no mention of them here. However, in 2015 we successfully concluded our proof of concept activities with Materialise and demonstrated the ability of our technology to be embedded into their Streamyx product offering. And at this point in time I can tell you that we've met with Materialise and began initial discussions on the next base of work to basically begin to make the product robust and look towards commercialization opportunities.

Okay, that's very good. Thank you.

Sure.

Another question about your DARPA phase 2 with Honeywell. I know it's starting to end in mid-2016. I was wondering if the progress is looking good for potential phase 3 with that.

Yes, there is a great question. So we're actually doing quite well. We had a good review session with DARPA in the middle of February. DARPA remains pleased with the progress of Honeywell as the prime and its subcontractors, and things looked favorable for further opportunity with DARPA.

Okay. And I noticed on some slides that Honeywell seems to be placed in your RPQA Technology, kind of in the middle of that ICME framework. And I was wondering if you consider that to be a possible source of revenue should ACM framework continue adoption of course the AM industry, I've noticed things like GE, ICME, and places like Alcoha [ph] have adopted ICME. So I just wonder what your thoughts were on that.

Yes, another good question. And so the ICME approach is quite a valuable approach. It's a bit more long term and again we remain lockstep with Honeywell and their ICME activities, specifically through the DARPA funded and sponsored program, and that's partly why we are partnering if you will with 3DSIM and others because we know that there is certain aspects of all these that modeling plays a very important role. Long-term modeling would effectively be able to reduce cycle times to do process development for all of these OEM sort of customers. Ultimately, at the end of the day, that reduces time and of course cost. And so that's why we're working with modeling folks such 3DSIM and remain closely integrated with the DARPA team and their activities. There is a lot of other programs that are on the horizon that all play to this ICME space because they recognize the value of it. So back to your initial question, does it represent revenue opportunity for us? Yes, on all of the fronts. From involvement with these federally funded programs and ultimately downstream as they begin to adopt this technology, our technology, be rolled into their methodology and approach.

Excellent, thanks. Do you have time for a couple more questions?

I think we'd like to offer to some others?

Okay.

Perhaps one more if you like.

Is there any status on the BAM or dental implants technology? Is that still in play?

So regarding BAM and dental technologies, we maintain the intellectual property rights on those technologies as we previously announced. We've licensed the BAM technologies out and the dental technologies we have marketing agreements with other entities. But at the moment we are not actively pursuing any of those opportunity spaces and principally focusing our activities into the two divisional areas that I mentioned the PrintRite3D QA and the contract AM space. We believe those pay us higher dividends if you will by focusing on those at the moment.

Thanks so much, Mark.

You bet. Thank you, Aaron.

Our next question comes from Mark Rupe [ph], a private investor. Please go ahead.

Good morning, Mark. Congratulations on the 2015 efforts beginning to bear fruit. I've got four quick questions.

Sure.

Is Dr. Dave now completely gone from Sigma Labs?

No, he's not. Dr. Dave is still and has been a consultant with the company for many years, and he remains a consultant.

Okay. What would you say is a ballpark estimate of the revenue amount that you currently have in the sales process pipeline, just a ballpark?

I don't have that on the top of my head, but I can tell you that we have sufficient cash and contracts on hand that if we got nothing new today, which of course we don't expect that to be the case, we're comfortable for the next 12 plus months. We would finish 2016 on a positive note.

Okay. So it does appear that our in-situ sensor-based inspection for printing machines is going to be the way that things go. What current protection do your patents that you currently hold provide for competition that is definitely coming from printer manufacturer's own effort along those same lines, and what is your plan for competing against the printer manufacturers with in-situ sensor-based systems?

Yes, great question. And so everyone in that brotherhood now wants to have some sort of offering in the area you said of in either sensing or monitoring. And we continue to hold our position in terms of, everyone wants to collect data and everyone does collect data but what sets us apart and makes our PrintRite3D Technology unique is the ability to make the data we collect actionable for the end users. So at the end of the day it comes down to do you just collect data or you doing something with it? And in our case we are doing something in providing value to the customer in such that they can make a actionable decision on the printer build they just made and tell you whether it's acceptable of unacceptable and will meet their requirements and they can continue to put value added into those parts of they can set them aside in sort of a discriminator fashion. And so that's the unique opportunities base for us, others including the competitors which is great. I am glad we have competitors because it tells us we continue to be in the right space but in the same time what we find to our competitive analysis is generally when you scratch the surface there does not seem a lot of information underneath the pretty pictures that are displayed. Pretty pictures are important but at the end of the day if the information is not used in an actionable fashion to buy and accept product then it really is the difference between looking and seeing. Everybody is looking at the process but Sigma Labs is seeing what's going on in there and to that extent we have retained the services of the international law firm Kilpatrick Townsend to help us strengthen our portfolio of patents and through two approaches. One, to continue to give us the freedom to operate and two, to have sufficient blocking strategies in place to keep competitors from stopping us from working in this space. I hope that helps.

Yes, for sure. And so you know in some instances some of these sensor based systems are being touted as solutions and in comparison to what you just said it implies that they are not solutions. Are they end users of the machines who ultimately are going to have to be happy with us, are they aware of the differences between behind the pretty pictures reality of the system?

To answer your question they certainly are, they are obviously very savvy and technically savvy people and they understand they can do the same homework we do when they scratch the surface they find out that they are, that underneath there's not a lot there in terms of the analytic engine but however, that presents our unique opportunity space for us because we have that analytics engine and can provide that and hence we have launched the OEM adopter program and are in discussions with several OEMs at the moment because they recognize the unique opportunity to work with us to get that analytics engine behind it. I mean, at the end of the day it's all going to come down to organizations that are going to identify the space that the end-user is going to need to work with in because their compliance organizations are going to require, the regulatory agencies are all going to require some sort of compliance to back the design. Unless they can get those stepping stones or breadcrumbs in place which we can help them with they are going to have a hard time selling that to their ultimate customer. Now, they are quite savvy Mark, so they understand what's there and what's not. And at the end of the day let me just offer one more point, regarding our competitors that are touting a lot of these offerings, for the most part, we don't know that any of them are actually commercially available and on the street. Ours is commercially available and are installed on bases now and by the end of the month it will be over 10 systems which is a modest start but nonetheless it's larger than our competitors.

Yes, you got to start somewhere. So, last question in regard to the reverse split. The factor of one hundred on this, where did that come from? Are you not concerned that that is going to yield a share pool that is now too tight and then we will see a very high volatility in day to day trading?

The answer to your question, where did that come from is we were absolutely trying to make the math easy for folks. The math when you do a 100 to 1 is, you can do that in your head and we are trying to get the share price in our range that allows us the opportunity to move to a broader exchange. There are requirements to get on these exchanges, we have an eye to those and this was one of the key enabling steps for us.

Okay.

With that Mark I would like to open it up for others in the queue, if you have more questions?

No, that was it. Thank you very much.

Thank you, Mark.

Our next question comes from Kevin May [ph], a private investor. Please go ahead.

Hi Mark, my question was also regarding the reverse split. With the timing of it, are you guys in talks with institutional investors or does your revenue plan to take up technically which company with about a million in cash at this time? Do you guys have any near term plan to up your revenues or is there any discussion with these investors?

Yes, Kevin. You are breaking up a bit there Kevin but I believe the question was do we have plans to up our revenue. So a couple of things, one, just to go back to the reverse split. I mean again, in order to get on a broader exchange we know that our specific requirements depending on the exchange we would move to and we have an eye to that and we are actively monitoring if you will those requirements, how best we can meet those. Regarding upping our revenues, we are of course always interested in increase in our revenues and as I mentioned in one of my slides here today we have quite an active pipeline of opportunities for us on multiple fronts in terms of the PrintRite QA technology, so we are very excited about that and are looking forward to speaking to you in future quarters here about the, about those activities as they begin to mature.

Yes, I understand that. My main concern was just with the evaluation at approximately $37 million at the moment and the cash on hand is about $1 million. These individual investors, institutional investors rather usually they see a better balance sheet. Do you guys plan on utilizing your S3 in the near-term?

We certainly have interest in exploring that as opportunities present themselves so yes, we are keenly aware of that and that's why we put it in place and the opportunity presents itself, we will look into that.

All right, that's all I have. Thank you.

Thank you, Kevin.

[Operator Instructions] Okay, we have one more question coming from Tim House [ph], a private investor. Please go ahead.

Hey Mark, thanks for the call. I just had a question about Arete. Is that producing any fruit, is there any revenue or pipeline or anything like that that's filling up with those guys and your machine that you have it in house?

Yes, so great question. Arete Innovative Solutions and our resulting joint venture Arete Sigma was an opportunity for us to explore the contract AM side of it. We continue to remain active with Arete. Majority of the interest, and again this is more reflective of the state of the industry at the moment, the majority of that activity seems to be on the design frame in front right now, and so it hasn't resulted in contract AM revenues for us yet, but we anticipate that the changes we move through 2016.

Mark, could you tell us a little bit about how these sales happen? Is it subscription? Are these one timers? And for companies like GE and Honeywell that you're working with government contract, are there any non-government contract revenues that you're producing through those two?

Good question. Interesting, Tim. So on the revenue side for PrintRite3D, and I'll break it down by our operating division. On the PrintRite3D side, at the end of last year, in the fourth quarter, the majority actually all of those PrintRite sales were for, you asked the question how does that work, it includes both a hardware aspect and a software license aspect. The hardware sale side of that is a one-time fee and on the software side it's one time upfront fee with a 22% annual maintenance and license agreement associated with that. So all of those system we sold at the end of last year were sold in that manner. And so they all have a recurring revenue component to them on the software side. And regarding the GE Aviations and Honeywell government-sponsored programs, both of those entities have purchased systems and they're being specifically used and licensed for the use under those contracts. GE Aviation with America Makes and Honeywell through the DARPA effort. Hopefully that sheds a bit of light on how that works.

Yes, it does. The only thing I would wonder too is the future revenues. When the DARPA money goes away do you anticipate still having revenue coming in from GE and Honeywell?

I do.

Okay. And last question. I'm just wondering, employees.

Yes.

Non-contract full-time employees, how many do you have?

So we have - actually this week we have now 10 employees full-time, non-contract employees working with Sigma.

And do you see that going up?

I do, absolutely.

Okay, excellent. Thanks for taking the time, Mark.

Thank you, Tim.

Our next question comes from Charles Weivler [ph], a private investor. Please go ahead.

Yes. Good morning, Mark. Congratulations on your good year last year. My question, I'm going back to the reverse split. Normally reverse splits are viewed as a negative. I understand you're doing it to get into a better exchange. What is your timeline for getting into this exchange? I mean, just to do a reverse split and then not go for the new exchange would be seriously detrimental to the company and the shareholders.

Sure, sure. The company's timing is of course key to some of the requirements that these exchanges put forward, and without going into too much detail your pricing has to trade above a certain level for a certain period of time, x number of consecutive days, so on and so forth. And so we're keenly aware of that and are actively monitoring that. And yeah, I think I'll leave at that right now. We're not going to let this languish, and there were specific motivations to do that at this time as I have mentioned earlier.

Okay. Well, thank you Mark.

Thank you, Charles.

We have a follow-up question from Aaron Tilden [ph], a private investor. Please go ahead.

Hey, Mark. I'm back again.

Hi, Aaron.

Just real quick, and I do want to say congratulations on what I believe to be a successful year, and suddenly step up for a long-term success. I really do appreciate all your hard work and effort.

Thank you.

So the next question is, I noticed earlier this quarter Lloyds and TWA release some AM guidance notes for metallic parts. And I was wondering will you work with people such as Lloyd's and TWA into getting in process quality insurance into some of those guidance notes and standardization?

A really good question, and so it's quite appropriate. We've recently been actively engaged with the MTC, Manufacturing Technology Center, outside of I think it's Coventry or Birmingham, England, UK, and we are in active discussions with them about exactly that, joining the standards technologies organizations there to provide our insight and guidance as they begin to mature their industry standards. Now, quite timely question, we're certainly keenly aware of that and actively involved.

Okay, thank you. Another question, I noticed with Honeywell and Arcam recently, Honeywell presented at Arcam's Investor Call and last year Vivek was expressing the PrintRite3D does work with EMAP technology. Do you know if you guys are currently been invited on Arcam printer this time?

We are not currently or actively working in the electron beam space. However, again such as the earlier question was asked, there is no reason that our technology will not work with the electron beam technology. It just requires the appropriate sensors to be deployed, and once that's done we feel confident that we could add value there. We're just not actively engaged with anyone that's using Electron Beam Technology although we are in discussions with some, and I'll leave it at that.

Okay, all right. Thanks, Mark. Another quick question, recently there was the DOD solicitation for our PQA solution for AM parts, and I was wondering if you're actively looking into clients or such solicitations from limits [ph] and whatnot?

Great question. Yes, I did see that call. We did evaluate that opportunity space that was in SPIR call. Typically those programs unless they're what's known as a direct to phase two, are generally reasonably small tools of money made available for SPIR phase one. Generally they are $100,000 or less. It's a lot of work of 100K particularly for a small business like us. And so we decided that that was not the right opportunity for us. But to that point, last July, there was an industry event that was held by the Office of Naval Research where they're looking in the next year or so to come out with a much, much larger call, sort of on the order of DARPA sort of related program, that sort of funding level where we've not actively engaged with multiple primes to be considered for teaming opportunities there. So we're generally again focused on opportunities to get us to where we need to be faster than if we could do it on our own, and the one that you mentioned was not going to do that for us. Other opportunities as the one I mentioned, O&R, the upcoming O&R, it’s called Quality Made, might be an opportunity for us and we're evaluating that. But generally, our business models are aligned with stay focused on getting these operating divisions up and running and producing revenue recurring for us, and then look at these other sort of space. But again, back to if it makes sense and it gets us to where we need to be faster than we can do on our own, then absolutely we're all in. But, the one you mentioned didn't provide that opportunity for us.

All right, thanks again so much, Mark, for all your hard work and answering the questions.

Thank you, Aaron. Thank you for all your support.

All right, bye.

There are no further Mr. Cola, so I will turn the call back over to you.

All right. Well, thank you very much and thank you to all our enthusiastic shareholders and investors, and we look forward to talking to you next quarter. Have a wonderful day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.