Liquidmetal Technologies, Inc. (OTCQB:LQMT) Q1 2013 Earnings Call May 14, 2013 4:30 PM ET
Tom Steipp – President and Chief Executive Officer
Tony Chung – Chief Financial Officer
Bruce Bromage – EVP of Business Development and Operation
Good afternoon. Welcome to the Liquidmetal Technologies’ First Quarter 2013 Conference Call. My name is Michaela and I will be your conference operator this afternoon. Joining us today on today’s call are Liquidmetal’s President and CEO, Tom Steipp; CFO, Tony Chung; and Bruce Bromage, the company’s EVP of Business Development and Operation. Following their 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 cautions regarding forward-looking statements made during this call as follows. All statements made by management during this call that are not based on historical facts 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 21E 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. Bromage 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 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, 2012.
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 these various disclosures in the company’s annual report on Form 10-K for the year ended December 31, 2011, as well as other public filings with the SEC since such date. I’d 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. Please go ahead.
Thank you, Michaela. Welcome everyone and thank you for joining us on today’s call. Revenue for the first quarter 2013 remained at nominal level, reflecting our continuing focus on manufacturing prototype parts as precursors for long-term supply agreements with customers for production parts. As we have stated on prior calls, the most significant measure of our progress at this stage of the company’s evolution is new prototype parts, shipped to customers, as well as new application.
In the first quarter, we shipped five prototype parts to five different companies. Of these, four prototype parts were shipped to companies in the oil and gas base for evaluations as shape charges in exploration and development activities. In fact these shipments were to four of what we believe to be the top six oil and gas equipment suppliers. The application for shape charges is just one example of a company discovering the value proposition that Liquidmetal can deliver. In a moment, Bruce Bromage, our EVP of Business Development and Operations, who’s leading our initiative in the oil and gas industry, will talk more about our progress in this area.
To date we shipped 21 total prototype parts to customers, 19 of those are Liquidmetal, one was machine, one was 3D printing. It’s important to note that during our discussion with potential customers who are looking for ways to push their product design envelopes, we often encountered design needs that can’t be met by Liquidmetal parts. Since our goal is to be a trusted advisor to these potential partners, we actively seek to solve their problems in the best possible way, even if that means using slightly different technology.
Recapping our progress to date, we’ve shipped one prototype part in 2010, 3 in 2011, 10 in 2012 and now 5 in the first quarter of 2013. One prototype has transitioned to full production. We have one part that was disqualified and two that are re-enactive; the remainder are in active evaluation.
I will talk more about our operational highlights and business outlook in a few minutes, but first I would like Bruce to talk about the opportunities in the oil and gas industry. Bruce?
Thanks, Tom, and good afternoon everyone. In the oil and gas exploration industry, we see millions of perforators for each year to increase the flow of new or existing oil wells. Liquidmetal liners combine the best properties of glass, which provides more focused energy, and metal which provides the high-density needed for deep penetration. Currently, high-performance penetrators are made from powdered metals which are relatively fragile and difficult to consistently produce with highly-precise tolerances required by this application. We’re working closely with Lawrence Livermore National Laboratory to develop the fundamental technology, which is being refined and tested by oil equipment suppliers.
These projects leverage previous work to develop kinetic energy penetrators with the Department of Defense, including the development of high-density hafnium-based alloy. The project has significant commercial potential, but we are in the early development of process. We will learn a great deal over the next few months. Oil and gas perforators illustrates the broad potential of amorphous alloys as a fundamentally new-class material.
Now, I’d like to turn the call over to Tony to take us through the financial details for the quarter.
Thanks Bruce and good afternoon everyone. Our financial results for the first quarter of 2013 reflect our Company’s continued advancements through a development stage for both prototype parts production and intellectual property. In this context, let’s turn to our financial results.
Revenue for the first quarter of 2013 was $122,000 compared to $196,000 in Q1 of 2012. Gross margin was $40,000 or 33% of total revenue, compared to $115,000 or 59% of total revenue in Q1 2012. As much of our current product mix consists of prototype parts and other revenue which have variable cost percentages relative to revenue, our gross margin percentages may not be representative of our future business. When and if we begin increasing our revenue with shipments of routine commercial parts to our third-party contract manufacturer, we expect our gross margin percentages to stabilize and be more predictable.
Selling, marketing, general and administrative expense was $1.3 million, compared to $1 million in Q1 of 2012. The increase was mainly due to additional payroll expenses for new hires including an Executive Vice President of Business Development and Operation, and Field Sales Engineer to facilitate the adoption of our technology. R&D expense increased to $236,000 from $188,000 in Q1 of 2012.
Our expenses increased as a result of our continued investment into R&D, including our recent hiring of our Vice President of Engineering as well as development of new Liquidmetal alloys, and related processing capability. As a result of the increases our operating expenses in Q1 2013, our operating loss totaled $1.5 million versus an operating loss of $1 million for Q1 of 2012.
Now, I would like to go over to some of our significant non-cash and non-operational expenses during the first quarter of 2013. The change in the value of our warrant resulted in a non-cash gain of $510,000. Additionally, the change in our value of the embedded conversion feature liability resulted in a non-cash gain of $1.7 million, and our debt discount amortization was $4 million. For a more thorough discussion of these non-cash fluctuations, please refer to the MD&A section of our quarterly report.
Now, turning to our balance sheet, we ended the quarter with $5.5 million of cash. We anticipate that our current capital resources together with income from operations will be sufficient to fund our operations through the end of 2013. Such factors will likely require that we raise additional funds and/or generate significant license revenue to support our operations beyond 2013.
With regard to our senior convertible notes, our balance as of March 31, 2013 was $4 million. Today, we have issued approximately 97 million shares of common stock to amortize our senior convertible notes. We anticipate that we will reserve our cash to support our current operations and that we will issue additional common stock to amortize our debt through the term of our senior convertible notes.
This completes my financial summary. For a more detailed and complete analysis of our results, please refer to our quarterly report. Now, I would like to turn the call back over to Tom, who will provide further overview of our operational activity and outlook.
Thanks, Tony. Last year, we laid the foundation for our next phase of technology and business development. In the first quarter, we continue to build on these three key areas; prototype part production, advancing our technology and expanding our licensing. In terms of prototypes, we steadily increased the production of our prototype parts each quarter with the objective to build on this momentum throughout the year.
Further, the increasing number of active prototypes undergoing extensive evaluation by our customers shows a growing interest in Liquidmetal alloys distinctive performance characteristics. We expect to see these prototypes entering into commercial production over the course of 2013 and into 2014.
Regarding advancing our technology, during the last 24 months, 12 of our 56 patent applications relate to inventions incorporated into our injection molding solution. We expect that the number of our patent and patterned applications that apply to the injection molding technology will continue to increase as our manufacturing technology capabilities expand. Our ecosystem of intellectual property, alloy, injection molding technology and manufacturing clearly represents the world’s leading commercial solution today. Our partnerships with Materion, ENGEL, and Visser Precision Cast are strong with continued investments by all parties.
In terms of licensing, we are actively seeking to extend the footprint and penetration of our technology via licensing. We believe that the experience in creditability gained through licensing as the technology historically, coupled with continued progress of our technical team puts us in a position to carefully and selectively grow the market for Liquidmetal through the use of license agreement. Not only will this expand our market penetration, but it has the potential to be a source of non-dilutive cash for financing continuing operations.
Overall, we are encouraged by the progress we’ve made as a time in conjunction with our world class partners. We’re optimistic about the relationships that have been forged with some of the world’s most innovative companies. These companies appreciate the unique characteristic of Liquidmetal like high strength-to-weight partners and corrosions resistance. There are harbingers for the advancement of material science and a catalyst for design and manufacturing transformation.
Now with that we’re ready to open the call for your questions. Operator, please provide the appropriate instruction.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)
Go ahead, Michaela.
Our first question comes from the line of Charles Wagner from (inaudible). Please go ahead.
Yes, good afternoon, just had a question about your partnership with Visser. I was wondering if they already have machines in Denver in that warehouse that are making in the other parts that are maybe not related to Liquidmetal.
They do have – is Charles, is that the name?
Hi, Charles. They do have a full-service machine shop. So they have quite a number of CNC machines as well as a 3D additive printing capability and multiple Liquidmetal machines.
Okay, yeah. We had tried to see the website and it’s just never ever come up with any pictures. So I was a little concerned whether they were waiting to start promoting, what they were doing?
Yes, their website is in the process of being expanded. For the most part, their machining and printing capabilities are focused on our customers, but they certainly have the potential to expand beyond what we’re doing with Liquidmetal. But to be clear, the relationship we have is that any parts we sell are produced by Visser Precision Cast and we’re the only one selling parts for them.
Do you know if you all will be doing some automotive parts since you’re into NASCAR and stuff?
That’s a market that certainly has our interest. We have not announced any shipments in that area. But it’s certainly one that we think there is a fit for and we’ll be continuing to work on over the course of the next quarter or two.
Okay. That sounds great.
(Operator Instructions) And our next question comes from the line of Vince (inaudible) from Aston. Please go ahead.
Yeah, I was just wondering, you guys have one part in full production and revenue of $122,000. How much of that revenue comes from that one part?
I’m sorry, I didn’t catch the name.
Vince (inaudible) from Aston.
Okay, Vince. A very modest amount of that comes from the parts is in full production. As we’ve announced on earlier calls, we have a licensing arrangement with Swatch, whereby the parts are made. We get a very modest royalty from those. So what we would expect is on customers that are not licensees, you’d see a more normal revenue stream, but with Swatch, we got some of that as an upfront, so there is not that much that comes in on a quarterly basis.
Okay, thank you.
Thank you. (Operator Instructions) At this time, this concludes our question-and-answer session. Thank you for joining us today for our presentation. This concludes your call. You may now disconnect.
I want to thank everyone for joining us on the call and we’ll be back to you in the quarter.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!