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Edited Transcript of XONE earnings conference call or presentation 7-Nov-19 9:45pm GMT

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Q3 2019 ExOne Co wage Call

North Huntingdon Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of ExOne Co wage parliament cry or presentation Thursday, November 7, 2019 at 9:45:00pm GMT

TEXT translation of Transcript

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Corporate Participants

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* Douglas D. Zemba

The ExOne corporation - CFO, CAO & Treasurer

* John F. Hartner

The ExOne corporation - CEO

* Karen L. Howard

Kei Advisors LLC - EVP

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Conference cry Participants

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* Brian David Kinstlinger

Alliance Global Partners, inquiry section - head of TMT Research, MD & Senior technique Analyst

* Christopher Ralph Van Horn

B. Riley FBR, Inc., inquiry section - Analyst

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Presentation

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Operator [1]

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Greetings, and greet to the ExOne corporation Third zone 2019 economical Results. (Operator Instructions) because a reminder, this parliament is being recorded.

It is now my rapture to introduce your host, Karen Howard, Investor Relations because the ExOne Company. Thank you, Ms. Howard. You can begin.

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Karen L. Howard, Kei Advisors LLC - EVP [2]

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Thank you, Devin, and good afternoon, everyone. We understand your time today because the ExOne Third zone 2019 economical Results parliament Call. Referring to our slip deck, at slip 2, at the queue with me today are our presenters, John Hartner, our head Executive Officer; and Doug Zemba, our head economical officer and Treasurer. John and Doug will be reviewing the results that were published at the publication liberate distributed this afternoon. if you don't consume that release, it's available at our website at www.exone.com. The slides that accompany our discussion today are too posted at our website.

On slip 3 is our safe harbor statement. because you can be aware, we will figure some forward-looking statements during this presentation and can too during the Q&A. These statements use to future events that are question to risks and uncertainties too because other factors that could meditate real results to differ from where we are today. These risks and uncertainties and other factors are provided at the wage liberate too because other documents filed by the corporation with the Securities and Exchange Commission. These documents can be found at our website or at www.sec.gov.

I too expectation to point out that during today's call, we will argument some non-GAAP economical measures, which we trust are useful at evaluating our performance. You to no count the presentation of this extra data at isolation or because a deputy because results prepared at accordance with GAAP. We consume provided reconciliations of although GAAP to non-GAAP measures at the tables accompanying today's release. John will acquire us started providing a high-level overview of our third zone results too because the affair update. Doug will progress across a detailed publication of the economical results, and then John will supply perspective at our expectation because the crush of the year too because a tactic update ago we hole up the queue because questions and answers.

And with that, it's my rapture to grow the cry at to John to begin. John?

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John F. Hartner, The ExOne corporation - CEO [3]

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Thank you, Karen. Good afternoon, everybody. Thanks because joining us because ExOne's third zone report. The ExOne team has never been more excited or confident at our produce lineup and technological advancements, despite the more challenging just conditions.

I'll commence at slip 5 with a outline of our economical results, and then I'll update you at the advance with our technological developments. We reported $10.9 million of revenue because the third quarter, following a record second zone and compared with a record third zone persist year. I'm pleased with the full use earned at that lower even of revenue. Our revenue structure is at a firm level, noise suited to motivate operating leverage at the growth we hope from our pipeline and long-term outlook.

Our operating expenses meditate the advantage of our revenue adjustments, besides our mild revenue levels resulted at an adjusted EBITDA loss. The comparison with persist year's zone demonstrates the sensitivity of the peak line. We finished the third zone with $25.8 million of backlog. That, across with our pipeline, supports our expectations because the crush of the year. I'll impress at that farther towards the goal of this presentation.

Now I'll update you at our technological progress. amuse grow to slip 6. We consume stepped up the rate at the development front, still managing our costs at an effective and prudent manner. Never ago at ExOne's history that we had hence many significant new machines within such a time frame. complete 3 of these platforms were announced at the past 12 months.

On the upper left is our new sand printer, the S-MAX Pro, which extends our leadership place at sand 3D printing. This copy is an advancement of our workhorse S-Max printer, noise suited because produce manufacturing of molds and cores because metalcasting, tooling and other applications. We are currently shipping this new model.

On the upper precise is our new produce metal 3D printer, our X1 25PRO. This new platform features our recently patented Triple Advanced Compaction Technology, ACT, that delivers industry-leading quality. We will go shipping this copy during this quarter, Q4.

The photo at the bottom depicts our newest platform impartial announced this week, our X1 160PRO. This metal printer has been designed because the use at production, and we will go shipping it next year. I will impress at it farther at the next slide.

Please grow to slip 7. because I impartial mentioned, I'm excited to introduce you to our newest appendix to our metal 3D printing family, the X1 160PRO, designed because produce with considerable input from customers at the automotive, aerospace and defense industries. This is our 10th and largest metal system yet, offering 160 liters of establish volume, it's more than 2.5x larger than what's available at the just today. The 160PRO prints with 6 different qualified materials, plus ceramics, which is unparalleled at the industry.

Like the midsized X1 25PRO, it's designed with our new and patented peculiarity feature, the Triple ACT, that dispenses, spreads and compacts ultrafine powders to deliver industry-leading density and repeatability. We're too very excited that this copy was designed to outline state-of-the-art Industry 4.0 technology. The 160PRO leverages our partnership with Siemens, because the control system and MindSphere cloud connectivity. hence you can cry on why our customers are hence excited about this cutting-edge metal binder aircraft printer.

Please grow to slip 8. I expectation to fragment with you a perspective at the expectation because the metal binder aircraft technology, resulting from a learn undertaken by an independent third party, a German 3D printing industry consultant called Ampower. This will help you better learn why we are continuing to progress our metal printing technology. Ampower interviewed at 150 people, consisting of those at the metal additive manufacturing supply safe too because users. They covered system suppliers, representing about 80% of the installed basis of metal additive manufacturing and too about 10% of modern users. They captured up to 15 different metal additive manufacturing technologies.

We extracted some of the results from the clarify they are publishing, with a key finding being the expected significant just expansion of binder aircraft technology, which, because many of you know, is the technique that ExOne pioneered.

Am energy calculated that binder jetting technique was about 10% of the metal 3D just at 2018, estimated that will amplify to 31% at the next 5 years. And of course, the [turbo] just is too expected to grow during that too time period. They compared the expected expansion to the growth aspect that selected laser melting undergo 10 years ago. hence naturally, we're too excited about this occur and ExOne's place to capture our beautiful fragment of it.

I'm now going to permit Doug walk across the details of our economical results. Doug?

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Douglas D. Zemba, The ExOne corporation - CFO, CAO & Treasurer [4]

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Thanks, John. Good afternoon, everyone. if you could amuse grow to slip 10, we'll commence with revenue. revenue was down to $10.9 million at Q3 2019 compared with our Q3 2018 record quarter. The shock of global manufacturing conditions and in-process mechanism installations, which deferred our revenue recognition resulted at lower revenue than we initially expected because this quarter. each of those in-process mechanism installations are at explore because completion during the fourth quarter, where we wish revenues to excel $20 million. because shown at the charts at the right, at a trailing 12-month basis, revenue was up 2% to $61 million.

Now let's progress to slip 11. Here, you can clearly cry on the driver of the revenue shortfall at the quarter. Our mechanism sales were $4 million this year, down from $9.7 million at length year's third quarter. because I mentioned a moment ago, the diminish was mainly due to the timing of finalizing appliance of 5 mechanism projects located at passenger appliance too because the shock of a broader manufacturing slowdown, which has resulted at delays at passenger purchasing decisions because headmaster equipment.

On a trailing 12-month basis, our mechanism revenue was up 17% to $35.5 million, which continues to emerge force at the long-term adoption of binder jetting.

Now if we can grow to slip 12, we'll publication mechanism unit sales. because a reminder, our carry out machines direct print components such because metal parts because industrial and other applications and contain our Innovent, M-Flex and X1 25PRO platforms too because our newly introduced X1 160PRO platform, which is expected to grow online at late 2020.

Our indirect machines print tools such because sand cores and molds and contain our S-MAX Pro, S-Max and S-Print platforms. Our indirect machines are our larger footprint systems with such systems greatly achieving a higher median sales value. We sold 9 machines at the 2019 third zone compared with 15 persist year. Our 2019 third zone mechanism sales included fewer and a lower proportion of our indirect machines at the third zone of 2018.

As you can cry on at the map at the left, we sold 4 fewer indirect machines and 2 fewer carry out machines at the 2019 third zone because compared with the previous year quarter. The amount of machines at the mingle changed unfavorably impacted the mechanism revenue dollar decrease, we saw at the persist slide. despite a lower volume of units sold, our mechanism sales during the third zone continued to indicate a different lay of global geographies and passenger applications and included a mingle of industrial and inquiry and development users.

Related to our 2019 mechanism platform launches, the X1 25PRO carry out printer introduced at fast this can and the S-MAX Pro indirect printer introduced at GIFA this June. We wish our first delivery and appliance of these units to venture because divide of our 2019 fourth quarter.

During the trailing 12 months, we sold 58 machines, a 32% enlarge at the previous 12-month period. You can cry on the enlarge at both carry out and indirect unit sales, which grew 39% and 24% to 32 carry out and 26 indirect machines at the 2019 trailing 12-month period, respectively. This enlarge was led by our Innovent+, our entry-level carry out printing platform, which we introduced to just at April 2018 too because our market-leading S-Max because indirect applications.

Now let's grow to slip 13. Recurring revenue, which includes our 3D printed and other products, materials and services, was $6.9 million at the third apartment of both 2019 and 2018. because the trailing 12-month period, recurring revenue was $25.5 million, down from $29.2 million at the previous year TTM period.

For the quarter, this reflects a sequential improvement at the past 3 quarters, driven by an enlarge at aftermarket sales, resulting from our increased global installed basis of machines and a raise at our indirect exercise services operations based at higher passenger demand.

For the trailing 12-month period, the reject is mainly attributed to a lower volume of both carry out and indirect printing projects and the shock of the exit from our Houston and Italy facilities, which contributed $1.6 million at the 2018 TTM period. Again, these decreases were offset by an enlarge at our aftermarket sales based at our growing global installed basis of machines.

Turning to slip 14, we'll address about full use and margin. full use was $2.9 million, resulting at a 26.4% full border because the third zone of 2019, down from a 39.6% border because the third zone of 2018. The reject was mainly driven by lower revenue volume at the zone because our fixed overhead revenue and produce pricing remained stable.

For the trailing 12 months, we realized full use of $20.8 million and a full border of 34.1%, up from $17.4 million and 29.3% at the previous year period. The 2019 TTM enlarge was driven by a reduction at fixed cost, resulting from our 2018 global revenue realignment program initiated at the goal of June 2018. The improvement too benefited from lower net inventory impairment charges and facility exit costs.

Please grow to slip 15, and we'll argument SG&A. Comparing the third zone of 2019 to 2018, our SG&A expenses were slightly up about $100,000 to $5.3 million. We bear to cry on stability at our operating expenses at general, following our 2018 global revenue realignment program. at a sequential basis, our reject at SG&A was driven by the incremental revenue of the GIFA trade beautiful at our second zone and sure executive compensation costs we discussed during our persist teleconference.

For the TTM period, our SG&A decreased by $1.2 million to $22.4 million. The improvement was mainly driven by employee and consulting revenue reductions associated with our 2018 global revenue realignment program.

Please grow to slip 16, and we'll argument our investment spending at R&D. Third zone R&D price remained unchanged at $2.4 million. The 2019 TTM mature reflects the benefits of our 2018 global revenue realignment program, resulting at lower employee-related and consulting costs. With our trend introduction of the X1 25PRO carry out printing platform and the S-MAX Pro indirect printing platform too because our announcement of the X1 160PRO carry out printing platform earlier this week, we bear to emerge both the effectiveness of our investments at R&D spending too because the efficiency acquire from the changes at our operating model.

Now if you grow to slip 17, I'll publication backlog. to recall you, our backlog includes corporation orders received from our mechanism and recurring revenue customers. It includes our firmly committed mechanism maintenance contracts too because the noncancelable section of our operating rent agreements. Backlog too includes orders from our global carry out and indirect printing operations and other contractual services.

The $25.8 million we cry on at September 30, across with other opportunities at our global pipeline, backward our Q4 2019 goal of $20 million-plus at revenues. That said, there are usually many variables that shock the realization of our revenue goals, including the strain mounting at headmaster equipment purchasing decisions from the manufacturing climate and our talent to execute, specially across the goal of December.

Nonetheless, we remain confident at our business, given our expanding produce portfolio and our major place within the additive manufacturing space because binder jetting.

Turning to slip 18, this map represents a waterfall of our first half and Q3 2019 money flows. although I reviewed Q1 and Q2 previously, I won't quote that here, instead, I'll address you across the Q3 area at the right. We had about $100,000 at money headmaster expenditures because the third quarter. We hope about $500,000 of money CapEx spending at Q4.

Working headmaster changes resulted at a source of money of about $500,000 during the third quarter, benefiting from net money inflows from customers, partially offset by an enlarge at net money outflows because payments to suppliers because our inventory produce and operating expenses to backward our operating plan because the remainder of 2019. We too borrowed $2 million against our confidence facility to fund our operations.

Our net loss, net of noncash items and other used $3.6 million of cash, and we ended the third zone with $6.1 million at full cash. Our overall net money outflow of about $5 million because the 9 months ended September 30, 2019, excluding our $2 million borrowing compares favorably with our net money outflow of $10.2 million because the too mature at 2018.

If you grow to slip 19, you'll cry on our full liquidity at the goal of the third zone of 2019 and year-end 2018. at the goal of the third quarter, we had $17.8 million of liquidity compared with $22.6 million at the goal of 2018. because mentioned at the previous slide, we borrowed $2 million against our related dinner revolving confidence facility to fund working headmaster usage, leaving $13 million of remaining availability.

As I referenced at the persist slide, we significantly chop our money burn worthy because compared to 2018, and our concentrate surplus centered at beneficial growth and operating money jog generation because the business. because discussed, we've shown the talent to change our operating copy when necessary, our 2018 global revenue realignment program because an example. We remain focused at effective and effective revenue management within our business. We've too shown the talent to identify and kill at low-cost sources of liquidity to backward our growth initiatives. Most notably, our related dinner revolving confidence facility executed at March 2018. We bear to trust that we consume sufficient liquidity to backward our near-term growth plans.

That concludes my prepared comments. And now I'll grow it uphold to John.

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John F. Hartner, The ExOne corporation - CEO [5]

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Thanks, Doug. amuse grow to slip 21, and I'll argument our expectation because the remainder of 2019. because indicated at our third zone preannouncement, macroeconomic concerns consume heightened customers' uncertainty. However, because is ordinary because us, we cry on the fourth zone because our strongest zone of the year, expecting revenue at excess of $20 million and certain adjusted EBITDA. We remained focused at effectively managing revenue and cash, and we bear to prudently figure strategic investments inherent to progress our major place at binder jetting technology. We allege our anxious concentrate at beneficial growth.

Please grow to slip 22. I'll briefly recall you of the pillars of our strategy. First, we've been expanding our passenger and application focus, identifying new just opportunities, which will motivate revenue growth and profits. A good sample of that is the collaboration arrangement we announced a link of weeks ago with Global Tungsten & Powders, a global manufacturing of tungsten metal powders.

Together, we are focused at 3D printing application using tungsten-based materials, commonly used because cutting tools, wear-resistant parts and high-voltage electrical applications.

Second, we are continuously expanding our technique core. because I mentioned a little moments ago, we are extremely excited about the 3 new mechanism platforms recently announced, which will fuel our future growth.

Finally, we initiated a renewed concentrate at recurring revenue, and I'm pleased to cry on a sequential enlarge at that recurring category, benefiting from our growing global installed base. Such an aftermarket revenue basis will serve to minimize volatility and to motivate bottom line. This tactic is embedded at our operating plans about which complete of our global ExOne team members are aligned.

Please grow to slip 23. at the years, I learn ExOne and others consume talked about the 3D adoption journey. This data at the slip was too extracted from the AM energy learn and the steps are compatible with what we had experienced at sand printing and now are seeing at metal printing. The voyage starts with awareness, which includes the decision of what is feasible and where worthy can be added. We trust that at many marketplaces are now conscious of the many capabilities of binder aircraft technology.

Next is the identification of a relevant application, which too considers optimal redesign to maximize the benefits of 3D printing and the assessment of costs. Next is a testing process, which evaluates the resulting material properties and assesses the revenue advantages. Potentially, the most time-consuming step is next, and that is qualification. This includes peculiarity factors to insure consistency, measurement of feasible defects and the creations of the specifications because design, materials and processes.

At the goal of the voyage is the consideration of the supply chain, this includes a figure by resolution at qualifying suppliers and the confront to scale production, which incorporates multiple 3D printing mechanism installations. We consume many customers at different stages of their voyage because metal 3D printing. because with any emerging technology, the rate of adoption will change by passenger and application. It is interesting to cry on Am Power's assessment of the carry out time because being 1 to 4 years, which is fairly a broad range. because more companies adopt metal 3D printing at their produce floor, we are conscious of the disciplined processes needed to ultimately effect the revolutionary benefits of 3D printing.

Accordingly, we absence to carry out our near-term expectations of the worthy of growth of our industry because metal 3D printing, still retaining our faith at the long-term just potential.

Please grow to slip 24, still I will end with a trend sample of a metal 3D printing project. We worked closely with Altair, a global engineering software provider to ripen a lightweight structural divide because a global automotive manufacturer. The existing divide was redesigned at conjunction with Altair and 3D printed at one of our metal produce machines using 316L stainless steel. The results ideally establish the talent of our binder jetting technology.

3D printed divide is more than 45% lighter than the creative divide and weight is too significant at today's automotive industry. The process to have the divide has been simplified with fewer produce operations required. at the 3D printing divide requires less welding to mend it to other structural parts at the vehicle, adding to the force of the overall structure. This is one of little projects currently at process, hence you can cry on why we are hence excited about our outlook.

That concludes my prepared comments, and now let's hole up the lines because questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the queue of Chris Van Horn with FBR.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., inquiry section - Analyst [2]

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Obviously, you've got some good visibility because the fourth quarter, besides I was wondering if you could grant us any arrange of sensation at what your visibility is because 2020 with your new revenue structure and some of the new printers that consume grow online? And is there anything directionally that you could perhaps carry out us to?

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Douglas D. Zemba, The ExOne corporation - CFO, CAO & Treasurer [3]

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Chris, this is Doug. We're certainly anticipating that we're going to acquire a bounce and acquire some growth with the produce launches impartial hitting at the fourth quarter. Really, that sets the tone because 2020 with certainly tempered expectations, given the manufacturing climate that's out there. besides at a minimum, we used to wish to grow off of the 2019 goal result.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., inquiry section - Analyst [4]

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