Liquidmetal Technologies' (LQMT) CEO Tom Steipp on Q2 2016 Results - Earnings Call Transcript

Liquidmetal Technologies, Inc. (OTCQB:LQMT) Q2 2016 Earnings Conference Call August 9, 2016 4:30 PM ET

Executives

Tom Steipp - President and CEO

Tony Chung - CFO

Analysts

Operator

Good afternoon. Welcome to the Liquidmetal Technologies’ Second Quarter 2016 Conference call. My name is Robbie, and I will be your conference operator this afternoon.

Joining us on today's call are Liquidmetal's President and CEO, Tom Steipp; and CFO, Tony Chung. Following our remarks, we will open up the call for your questions.

Before we proceed, I would like to provide the company's Safe Harbor statement with important questions regarding forward-looking statements made during this call, as follows. All statements made by the management during this call that are not based on historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements include, but are not limited, to those made by Mr. Steipp and Mr. Chung regarding the company's cash, revenue outlook and technology development. While management has based any forward-looking statements made during the call on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties and other factors, many of which are outside the company's control that could cause actual results to materially differ from such statements.

Such risks, uncertainties and other factors include, but are not necessarily limited to, those set forth under Risk Factors in the company's Annual Report on Form 10-K for the year-ended December 31, 2015.

Accordingly, you should not place any reliance on forward-looking statements as a prediction of actual results. The company disclaims any intention and undertakes no obligation to update or revise any forward-looking statements. You are also urged to carefully review and consider the various disclosures in the company's Annual Report on Form 10-K for the year-ended December 31, 2015, as well as other public filings with the SEC since such date.

I would also like to remind everyone that this call will be available for replay starting later this evening via a link available in the Investor Relations section of the company's website at www.liquidmetal.com.

Now, I’d like to turn the call over to the company’s President and CEO, Mr. Tom Steipp.

Tom Steipp

Thank you, Robbie. Welcome everyone and thank you for joining us on today's call. As I've communicated in the past, our vision is to build an industry based on Liquidmetal technology that enables world's most innovative customers to design and produce parts that add significant value to their solutions. During this call, I'll go over the progress that has been made toward this goal. Tony will review the financials for the second quarter and then I’ll finish with some closing thoughts as we move forward on our initiatives.

We are now over half way into 2016 and are very excited about the progress we are making towards providing a global solution for our amorphous alloy technology. Here are some of the highlights. During 2016, we closed on nine orders, six of which are prototypes, three are production parts. Three of those were in the first quarter; six in Q2. We're working closely with ENGEL to expand markets in Europe.

In March, we signed an agreement with Eontec and Mr. Lugee Li for a cross-license in the investment of $63 million. On May 19, our shareholders approved our increase of the authorized shares to $1.1 billion. We are continuing to test, evaluate and incorporate Eontec capabilities in ways that will accelerate adoption of our technology in the world market.

To put the progress we have made in perspective, let me go over the items that I just highlighted. Getting our message out to design engineers and procurement professionals is critical to the adoption of our technology. Our sales and marketing team spends a significant amount of time educating these professionals on the capabilities of our technology and how to apply it to their product applications.

During these customer visits, our sales team has presented our technology to hundreds of individuals. The number of quality RFQs, prototypes and production orders is increasing steadily.

On another front, our partner, ENGEL, has been spreading the message of our technology very effectively throughout Europe with an ENGEL-sponsored symposium in their Stuttgart facility in January and participation in a March trade show in Hanover, ENGEL has captured the interest of many potential customers.

With all of this early interest, Liquidmetal has started conversations with potential MSRs in Europe with plans to establish sales representation there by year-end. As our volume of RFQs has grown, the resulting workload on the sales and engineering teams has increased significantly. There is a real need for additional capacity on the front-end of our business and we are now recruiting additional talent. Specifically we will be adding application engineers to focus on developing customer designs with our MSRs. Additionally we will be adding product design engineers.

Here is the factory to more quickly turn customer orders into molds which will produce prototype and production parts. These additions will allow us to accelerate the opportunities that we are seeing and to assure that those customers that place orders with us receive excellent service and on-time delivery of their prototype and production parts.

Now let me switch over to the funding front. As a recap, in March of 2016, we announced a stock purchase agreement with Mr. Lugee Li that will provide the company with up to $63.4 million of cash. We received the initial $8.4 million upon signing the transaction and we are currently working closely with Mr. Li to close on the remaining $55 million. I will keep you appraised on the progress as the milestones come to fruition.

In conjunction with this agreement, we announced a strategic relationship with Eontec, and a global manufacture with deep expertise in volume manufacturing of amorphous metals. Eontec has focused on developing low-cost alloys and machines that are capable of making large parts, which address different applications, price points and material performance requirements than our own. These Eontec capabilities complement our focus on production of high performance parts for demanding applications in our targeted North American and European markets.

Combining manufacturing capabilities allows us to address a much broader range of market opportunities for automotive, medical and industrial customers. Mr. Li, Chairman of Eontec, and I strongly believe that the future of both companies would be enhanced by sharing capabilities that our companies have developed throughout the years. Since forging the relationship in March, our management team and engineers have visited Eontec’s manufacturing facilities, evaluated their alloy and machine capabilities. As a result, we now view them as a qualified supplier for several of our existing projects.

After the final investment of $55 million is received, we will have the capital necessary to accelerate business opportunities that have lagged due to resource constraints.

With that, I'd like to now turn the call over to Tony.

Tony Chung

Thanks, Tom, and good afternoon, everyone. Our financial results for the second quarter of 2016 continue to reflect our investments in the infrastructure and the resources required to build-out our manufacturing capabilities. With that said, let's go over our financial results for the second quarter ended June 30, 2016.

Revenue for the second quarter of 2016 showed a decrease to $34,000 from $39,000 during the second quarter of 2015. Selling, marketing, general and administrative expense was $1.8 million in Q2 of 2016 and $1.9 million in Q2 of 2015. R&D expense increased to $623,000 from $455,000 in Q2 of 2015. The increase is mainly due to increases in our internal projects related to the continued development of our technology and related production processes.

Now, I would like to go over some of our non-cash and non-operational expenses during the second quarter of 2016. The change in value of our warrants resulted in a non-cash loss of $879,000 as a result of continued changes in the valuation assumptions of the warrant liability, mainly increases in market share prices of our common stock. The change in the value of our option liabilities resulted in a non-cash gain of $2.4 million as a result of a shortening of the remaining exercise period of the options.

As we've disclosed in our 10-Q, due to the reclassification of these instruments to permanent equity, they are not expected to result in earnings volatility in the future periods.

Turning our attention to the balance sheet. We ended the quarter with approximately $8.1 million of cash and $1 million of short-term restricted cash.

Lastly as Tom alluded to earlier, on May 19, 2016, our shareholders approved our charter amendment to increase our authorized shares to $1.1 billion, paving the way for Mr. Li to fund the remaining second, third tranche in the amount of $55 million.

We are working diligently with Mr. Li to complete this transaction and I look forward to providing investors with updates in the near future. This completes my financial summary. For a more detailed and complete analysis of our results, please refer to our June 30, 2016, Form 10-Q which we filed earlier today.

I will now turn the call back over to Tom.

Tom Steipp

Thanks Tony. Before we end this call, I’d like to share some final thoughts. 2016 is clearly a pivotal year for us. The hard work of solidifying the current technology, assembling world-class partners and hiring a new talented marketing and sales team is complete. We now have some exciting examples of customer value being created in places like Connexions and a host of other customers that we cannot mention by name.

The basic value proposition has been validated but capitals to expand the current model has until recently not been available. That's the reason that there is so much excitement here regarding the major funding transaction. Our collaboration yields a strong new partnership with Eontec and the capital to accelerate our sales activities in North America and the EU. These events are significant accomplishments that will shape our strategy for years to come. The team here has a sense of revival and an excitement about our future.

Before closing, I'd like to mention two specific items. The first is our revenue for the quarter which as Tony mentioned was a modest $34,000. But what he did not specify was that bookings for the first quarter of the year were $144,000 and for Q2 were $221,000. We have mentioned on prior calls the length of time between the orders and shipments. This is just the reality of our business but I wanted to see give some clarity to the progress that we're making on this front.

The second point of comment with regards the funding from Mr. Li. We have been in close contact with him and the team at Eontec. We understand from public filings that he has sold approximately $150 million of Eontec securities. Based on our excellent working relationship and substantial customer interest in the cross-licensing arrangement, we believe that he is making every effort to get us the funds within the time allotted. We will do everything possible to get this funding closed, but are keenly aware of some of the challenges of getting funds transferred between China and the U.S.

As mentioned previously, we will provide updates at every appropriate point in this process.

With that, I just want to remind everyone that Tony and I will be at the Liolios Investor Conference in San Francisco on September 8m and the Rodman & Renshaw Conference in New York City on September 13.

With that, Robbie, I'll turn it back to you for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We’ll pause a few moments to allow questions to enter the queue. And we'll take our first question from John Barris [ph], a private investor. Please go ahead sir.

Unidentified Analyst

Hello. How is it going? So I just had two questions. The first one is, is there a way that Mr. Li can get out of not investing the rest of that $55 million? And the other question is regarding the Apple agreement. Was that extended?

Tom Steipp

I’ll answer them in reverse order. The Apple Capture Period has not been extended to this point, and if it does, we will certainly announce that.

And contractually there is an agreement in place between Mr. Li and Liquidmetal that provides for additional funding of the $55 million and it is our belief based on the opportunities for both companies that he will make that investment and we are excited about the prospect of it.

Unidentified Analyst

Okay. Thanks.

Operator

[Operator Instructions]. And it appears we have no further questions at this time.

Tom Steipp

Okay. Just want to remind everybody about the upcoming investor conferences that Tony and I will be available. Thank you.

Operator

This concludes today's program. Thank you for your participation. You may now disconnect.

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