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“Frustrating” Sigma Labs delays cause its revenue to decline 14%

Quality assurance software developer Sigma Labs (NASDAQ: SGLB) has revealed that its revenue fell 14% in Q2 2021 due to an unforeseen series of contract delays. 

Over the second quarter of 2021, the company generated an income of just $144,000, $24,000 less than the $168,000 reported in Q2 2020. This decline was primarily caused by setbacks encountered within the firm’s Rapid Test and Evaluation (RTE) program, in which part shortages and delivery hold ups led to a delay in related payments. 

Sigma Labs’ sub-par financials follow what had been a promising start to 2021, which saw it double its revenue during the first quarter of the year, but following the publication of its most recent results its shares have fallen slightly from $3.54 to $3.43, potentially reflecting the disappointment of investors that it’s been unable to continue on a growth trajectory. 

“It would be an understatement to say that I am disappointed by the lack of revenue in the second quarter,” said Mark Ruport, President and CEO of Sigma Labs. “However, it’s also an understatement to say that I’m as excited about Sigma’s future as I have ever been. One quarter doesn’t change our strategy. We fully intend to run the race, not get distracted, and stay focused on our long-term opportunity.”

“These kinds of unforeseen circumstances can happen and the individual reasons may be interesting, and in some cases, informative. In the aggravate, they are disappointing and frustrating to say the least.”

A part being printed while also being monitored by Sigma Labs' PrintRite3D software.
Sigma Labs’ revenue fell by 14% during Q2 2021 owing to delays related to its Rapid Test and Evaluation program. Photo via Sigma Labs.

Sigma Labs’ Q2 2021 financials 

Sigma Labs doesn’t provide a full breakdown of its revenue streams, but it’s understood to derive most of its income from its PrintRite3D in-process quality assurance (IPQA) platform. In essence, the firm’s flagship product is composed of both hardware and software modules, which provide users with advanced 3D printing real-time monitoring capabilities.

PrintRite3D is central to the company’s RTE initiative, yet these projects generated $30,000 less in Q2 2021 than they had done in Q2 2020, making them the primary cause of its overall fall in revenue. ‘RTE’ refers to the firm’s rapid-fire demonstrator-based business model, in which clients can send a CAD file to its Santa Fe HQ, before remotely tracking its production via PrintRite3D. 

In the past, Sigma Labs’ program has been used by the likes of Airbus and led to substantial contracts, but within one of its customer projects during Q2 2021, the 3D printer’s laser failed as it started the build. As a result, the company was forced to order a replacement, and due to shortages and delivery delays, it took almost a month to install and calibrate. 

Sigma Labs’ Financials ($) Q2 2020Q2 2021 Variance (%) 
Revenue 168k144k-14
Cost of Revenue58k116k+100
Gross Profit 110k28k-75
Net Loss 900k1.8m+100

Likewise, in another contract, one of the company’s clients paid via an Asian trading firm that required full cash payment before it would issue a purchase order, causing the deal to be pushed back into August instead. From both customers, Sigma Labs says that it “expects purchase orders soon,” but these delays have ultimately caused its revenue growth to falter. 

RTE-related disruption aside, Sigma Labs still turned over a gross profit of $28,000 during Q2 2021, albeit a slightly smaller one than the $110,000 reported in Q2 2020. The firm’s operating costs also increased from $1.5 million to $2.2 million over the same period, but according to Ruport, the funding raised via its $4.5 million stock offering, have positioned it well to absorb this expenditure and return to growth. 

“With our recently strengthened balance sheet, we now have over $14.7 million in cash to support growth, direct sales and marketing,” added Ruport. “For the second half of the year, we are focusing on seeking to expand sales through our partnerships with DMG MORI and Additive Industries, and increased direct sales to global end-user manufacturers, universities and R&D organizations.” 

Lockheed Martin commercial satellites in space. Image via Lockheed Martin.
Sigma Labs gained a Lockheed Martin contract earlier this year. Image via Lockheed Martin.

PrintRite3D’s ongoing potential  

Despite its sub-par revenue performance and the continued disruption caused by COVID-19, Ruport maintains that Sigma Labs saw “strong interest” from aerospace and defense clients in Q2 2021. Just before the quarter began, the firm was awarded a contract by Lockheed Martin, which is set to see PrintRite3D used within various defense-related and civil space programs.

In June 2021, the company was also added to the Russell Microcap Index as part of its annual reconstitution, in a move that should provide it with greater visibility to investors and investment managers, and launched PrintRite3D 7.0, an upgraded version of its flagship software, which could drive further customer interest over the remaining financial year. 

“During the quarter we released PrintRite3D version 7.0, with key features such as temperature monitoring and calibration, that allow users to automatically spot recoater interaction detection with higher diagnostic accuracy,” explained Ruport. “We believe the unique benefits of the update provide a competitive advantage for our customers and help accelerate the growth of the AM industry.”

“Our solutions remain a crucial ingredient to help accelerate the adoption of additive manufacturing and increase the success of the metal 3D printing industry.”

Within its "Factories of the Future," IN4.OS will use DMG LASERTEC systems as well as Sigma's quality assurance software. Image via DMG MORI.
During H2 2021, Sigma Labs aims to drive sales through its partnerships with DMG MORI and Additive Industries. Image via DMG MORI.

A “dog ate my homework” Q2?

Given the excuses presented by Sigma Labs for its recent revenue performance, Ruport agreed on a recent earnings call that Q2 represented the ultimate “dog ate my homework” quarter, but he added that many of the delays encountered were “one-time issues,” while the firm’s sales team are now “more proficient at moving things out of the pipeline.”

On the call, Ruport also said that the exposure gained from the firm’s Department of Defense-related projects has presented it with “more opportunities than it has ever seen,” and this demand has actually made it difficult for its engineers to keep up. 

Citing a growing number of quotes from “multisystem installations” and the success of the COVID-19 vaccine roll-out in Europe, Ruport therefore wrapped up by saying that he’s “cautiously optimistic” that the company’s pipeline will come to fruition by the end of 2021, and the second half of the year will “set a pace for a great 2022,” albeit with the proviso that the pandemic could change course at any time. 

“Looking ahead, our team remains confident in our technology and strategy, industry growth and our ability to capture market share with our first mover advantage,” concluded Ruport. “The industry outlook is positive, however, given the stage of the industry, the timing of our contracts can have an impact on any particular quarter, especially with the delays resulting from COVID-19.”

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Featured image shows a part being 3D printed while monitored using Sigma’s PrintRite3D software. Photo via Sigma Labs.

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