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XONE ExOne

Filed: 5 Nov 20, 4:32pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File No. 001-35806

 

The ExOne Company

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-1684608

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(Address of principal executive offices) (Zip Code)

(724) 863-9663

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of class

Trading symbol

Name of exchange on which registered

Common stock

XONE

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 5, 2020, 19,187,490 shares of common stock, par value $0.01, were outstanding.

 

 

 

 


PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Operations and Comprehensive Loss (Unaudited)

(in thousands, except per-share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

17,399

 

 

$

10,884

 

 

$

41,881

 

 

$

35,742

 

Cost of sales

 

 

13,500

 

 

 

8,006

 

 

 

31,263

 

 

 

25,080

 

Gross profit

 

 

3,899

 

 

 

2,878

 

 

 

10,618

 

 

 

10,662

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,013

 

 

 

2,430

 

 

 

6,858

 

 

 

7,399

 

Selling, general and administrative

 

 

4,825

 

 

 

5,326

 

 

 

15,476

 

 

 

16,916

 

Gain from sale-leaseback of property and equipment

 

 

 

 

 

 

 

 

(1,462

)

 

 

 

 

 

 

6,838

 

 

 

7,756

 

 

 

20,872

 

 

 

24,315

 

Loss from operations

 

 

(2,939

)

 

 

(4,878

)

 

 

(10,254

)

 

 

(13,653

)

Other expense (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

54

 

 

 

85

 

 

 

171

 

 

 

227

 

Other expense (income)   ̶  net

 

 

314

 

 

 

(134

)

 

 

319

 

 

 

(65

)

 

 

 

368

 

 

 

(49

)

 

 

490

 

 

 

162

 

Loss before income taxes

 

 

(3,307

)

 

 

(4,829

)

 

 

(10,744

)

 

 

(13,815

)

(Benefit) provision for income taxes

 

 

(34

)

 

 

15

 

 

 

200

 

 

 

(686

)

Net loss

 

$

(3,273

)

 

$

(4,844

)

 

$

(10,944

)

 

$

(13,129

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.19

)

 

$

(0.30

)

 

$

(0.65

)

 

$

(0.81

)

Diluted

 

$

(0.19

)

 

$

(0.30

)

 

$

(0.65

)

 

$

(0.81

)

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,273

)

 

$

(4,844

)

 

$

(10,944

)

 

$

(13,129

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

856

 

 

 

(1,387

)

 

 

388

 

 

 

(1,580

)

Comprehensive loss

 

$

(2,417

)

 

$

(6,231

)

 

$

(10,556

)

 

$

(14,709

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


The ExOne Company and Subsidiaries

Condensed Consolidated Balance Sheet (Unaudited)

(in thousands, except per-share and share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,428

 

 

$

5,265

 

Restricted cash

 

 

508

 

 

 

978

 

Accounts receivable  ̶  net

 

 

5,540

 

 

 

6,522

 

Current portion of net investment in sales-type leases

 

 

225

 

 

 

213

 

Inventories  ̶  net

 

 

22,187

 

 

 

19,770

 

Prepaid expenses and other current assets

 

 

3,848

 

 

 

2,182

 

Total current assets

 

 

71,736

 

 

 

34,930

 

Property and equipment  ̶  net

 

 

20,924

 

 

 

38,895

 

Operating lease right-of-use assets

 

 

4,278

 

 

 

432

 

Net investment in sales-type leases  ̶  net of current portion

 

 

568

 

 

 

738

 

Other noncurrent assets

 

 

260

 

 

 

371

 

Total assets

 

$

97,766

 

 

$

75,366

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

1,496

 

 

$

153

 

Current portion of operating lease liabilities

 

 

1,843

 

 

 

158

 

Accounts payable

 

 

4,445

 

 

 

5,818

 

Accrued expenses and other current liabilities

 

 

5,163

 

 

 

6,942

 

Current portion of contract liabilities

 

 

12,732

 

 

 

11,846

 

Total current liabilities

 

 

25,679

 

 

 

24,917

 

Long-term debt  ̶  net of current portion

 

 

1,948

 

 

 

1,211

 

Operating lease liabilities  ̶  net of current portion

 

 

2,435

 

 

 

274

 

Contract liabilities  ̶  net of current portion

 

 

156

 

 

 

286

 

Other noncurrent liabilities

 

 

365

 

 

 

96

 

Total liabilities

 

 

30,583

 

 

 

26,784

 

Contingencies and commitments

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized,

   18,988,099 (2020) and 16,346,960 (2019) shares issued and outstanding

 

 

190

 

 

 

163

 

Additional paid-in capital

 

 

205,980

 

 

 

176,850

 

Accumulated deficit

 

 

(127,892

)

 

 

(116,948

)

Accumulated other comprehensive loss

 

 

(11,095

)

 

 

(11,483

)

Total stockholders' equity

 

 

67,183

 

 

 

48,582

 

Total liabilities and stockholders' equity

 

$

97,766

 

 

$

75,366

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Cash Flows (Unaudited)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,944

)

 

$

(13,129

)

Adjustments to reconcile net loss to net cash used for operations:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,925

 

 

 

3,491

 

Equity-based compensation

 

 

828

 

 

 

1,076

 

Amortization of debt issuance costs

 

 

39

 

 

 

70

 

(Recoveries) provision for bad debts  ̶  net

 

 

(4

)

 

 

264

 

Provision for slow-moving, obsolete and lower of cost or

   net realizable value inventories  ̶  net

 

 

335

 

 

 

37

 

Foreign exchange losses (gains) on intercompany transactions  ̶  net

 

 

250

 

 

 

(127

)

Gain from sale-leaseback of property and equipment

 

 

(1,462

)

 

 

 

Gain from disposal of property and equipment  ̶  net

 

 

(1

)

 

 

(2

)

Deferred income taxes

 

 

195

 

 

 

 

Changes in assets and liabilities, excluding effects of foreign currency

   translation adjustments:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

1,092

 

 

 

2,790

 

Decrease in net investment in sales-type leases

 

 

158

 

 

 

218

 

Increase in inventories

 

 

(3,310

)

 

 

(4,373

)

Increase in prepaid expenses and other assets

 

 

(1,681

)

 

 

(827

)

(Decrease) increase in accounts payable

 

 

(1,679

)

 

 

1,822

 

Increase (decrease) in accrued expenses and other liabilities

 

 

396

 

 

 

(1,934

)

Increase in contract liabilities

 

 

248

 

 

 

6,301

 

Net cash used for operating activities

 

 

(12,615

)

 

 

(4,323

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(772

)

 

 

(613

)

Proceeds from sale of property and equipment

 

 

16,229

 

 

 

3

 

Net cash provided by (used for) investing activities

 

 

15,457

 

 

 

(610

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings on long-term debt

 

 

2,194

 

 

 

 

Proceeds from related party revolving credit facility

 

 

 

 

 

2,000

 

Payments on long-term debt

 

 

(117

)

 

 

(111

)

Proceeds from at-the-market offerings of common stock, net of issuance costs

 

 

27,699

 

 

 

 

Taxes related to the net share settlement of equity-based awards

 

 

(15

)

 

 

(68

)

Proceeds from exercise of employee stock options

 

 

858

 

 

 

289

 

Other

 

 

(63

)

 

 

(10

)

Net cash provided by financing activities

 

 

30,556

 

 

 

2,100

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

295

 

 

 

(187

)

Net change in cash, cash equivalents, and restricted cash

 

 

33,693

 

 

 

(3,020

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

6,243

 

 

 

9,140

 

Cash, cash equivalents, and restricted cash at end of period

 

$

39,936

 

 

$

6,120

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Transfer of internally developed 3D printing machines from inventories to

   property and equipment for internal use or leasing activities

 

$

1,434

 

 

$

1,635

 

Transfer of internally developed 3D printing machines from property

   and equipment to inventories for sale

 

$

2,771

 

 

$

485

 

Property and equipment included in accounts payable

 

$

113

 

 

$

48

 

At-the-market offering issuance costs included in accounts payable

 

$

147

 

 

$

 

At-the-market offering issuance costs included in accrued expenses

   and other current liabilities

 

$

66

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


The ExOne Company and Subsidiaries

Condensed Statement of Changes in Consolidated Stockholders’ Equity (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

Total

 

 

 

Common stock

 

 

Additional

 

 

Accumulated

 

 

comprehensive

 

 

stockholders'

 

 

 

Shares

 

 

$

 

 

paid-in capital

 

 

deficit

 

 

loss

 

 

equity

 

Balance at December 31, 2018

 

 

16,234

 

 

$

162

 

 

$

175,214

 

 

$

(101,853

)

 

$

(10,748

)

 

$

62,775

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,496

)

 

 

 

 

 

(4,496

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(776

)

 

 

(776

)

Equity-based compensation

 

 

 

 

 

 

 

 

439

 

 

 

 

 

 

 

 

 

439

 

Exercise of employee stock options

 

 

23

 

 

 

1

 

 

 

164

 

 

 

 

 

 

 

 

 

165

 

Tax withholding related to the net share settlement

   of equity-based awards

 

 

 

 

 

 

 

 

(68

)

 

 

 

 

 

 

 

 

(68

)

Common stock issued from equity incentive plan

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

16,295

 

 

$

163

 

 

$

175,749

 

 

$

(106,349

)

 

$

(11,524

)

 

$

58,039

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,789

)

 

 

 

 

 

(3,789

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

583

 

 

 

583

 

Equity-based compensation

 

 

 

 

 

 

 

 

642

 

 

 

 

 

 

 

 

 

642

 

Exercise of employee stock options

 

 

13

 

 

 

 

 

 

97

 

 

 

 

 

 

 

 

 

97

 

Common stock issued from equity incentive plan

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

16,318

 

 

$

163

 

 

$

176,488

 

 

$

(110,138

)

 

$

(10,941

)

 

$

55,572

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,844

)

 

 

 

 

 

(4,844

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,387

)

 

 

(1,387

)

Equity-based compensation

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

(5

)

Exercise of employee stock options

 

 

4

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Common stock issued from equity incentive plan

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Balance at September 30, 2019

 

 

16,347

 

 

$

163

 

 

$

176,510

 

 

$

(114,982

)

 

$

(12,328

)

 

$

49,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

16,347

 

 

$

163

 

 

$

176,850

 

 

$

(116,948

)

 

$

(11,483

)

 

$

48,582

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,648

)

 

 

 

 

 

(3,648

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(838

)

 

 

(838

)

Equity-based compensation

 

 

 

 

 

1

 

 

 

291

 

 

 

 

 

 

 

 

 

292

 

Common stock issued from equity incentive plan

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

16,386

 

 

$

164

 

 

$

177,141

 

 

$

(120,596

)

 

$

(12,321

)

 

$

44,388

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,023

)

 

 

 

 

 

(4,023

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

370

 

 

 

370

 

Equity-based compensation

 

 

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

157

 

Exercise of employee stock options

 

 

73

 

 

 

1

 

 

 

540

 

 

 

 

 

 

 

 

 

541

 

Common stock issued from equity incentive plan

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At-the-market offerings of common stock,

   net of issuance costs

 

 

383

 

 

 

4

 

 

 

3,094

 

 

 

 

 

 

 

 

 

3,098

 

Balance at June 30, 2020

 

 

16,864

 

 

$

169

 

 

$

180,932

 

 

$

(124,619

)

 

$

(11,951

)

 

$

44,531

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,273

)

 

 

 

 

 

(3,273

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

856

 

 

 

856

 

Equity-based compensation

 

 

 

 

 

 

 

 

379

 

 

 

 

 

 

 

 

 

379

 

Exercise of employee stock options

 

 

44

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

317

 

Common stock issued from equity incentive plan

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to the net share settlement

   of equity-based awards

 

 

(1

)

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

(15

)

At-the-market offerings of common stock,

   net of issuance costs

 

 

2,061

 

 

 

21

 

 

 

24,367

 

 

 

 

 

 

 

 

 

24,388

 

Balance at September 30, 2020

 

 

18,988

 

 

$

190

 

 

$

205,980

 

 

$

(127,892

)

 

$

(11,095

)

 

$

67,183

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


The ExOne Company and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per-share and share amounts)

Note 1. Basis of Presentation

Organization

The ExOne Company (“ExOne”) is a corporation organized under the laws of the state of Delaware. ExOne was formed on January 1, 2013, when The Ex One Company, LLC, a Delaware limited liability company, merged with and into a Delaware corporation, which survived and changed its name to The ExOne Company (the “Reorganization”). As a result of the Reorganization, The Ex One Company, LLC became ExOne, the common and preferred interest holders of The Ex One Company, LLC became holders of common stock and preferred stock, respectively, of ExOne, and the subsidiaries of The Ex One Company, LLC became the subsidiaries of ExOne. The condensed consolidated financial statements include the accounts of ExOne, its wholly-owned subsidiaries, ExOne Americas LLC (United States); ExOne GmbH (Germany); ExOne Property GmbH (Germany); and ExOne KK (Japan). Collectively, the consolidated group is referred to as the “Company”.

The Company filed a shelf registration statement on Form S-3 (No. 333-223690) with the Securities and Exchange Commission on March 15, 2018. The purpose of the Form S-3 was to register various equity and debt securities. Subsidiaries of the Company are co-registrants with the Company (“Subsidiary Guarantors”), and the registration statement registered guarantees of debt securities by one or more of the Subsidiary Guarantors. The Subsidiary Guarantors are 100% owned by the Company and any guarantees by the Subsidiary Guarantors will be full and unconditional.

Basis of Presentation

The condensed consolidated financial statements of the Company are unaudited. The condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the results of operations, financial position and cash flows of the Company. All material intercompany transactions and balances have been eliminated in consolidation. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2019 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Quarterly Report on Form 10-Q should be read in connection with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which includes all disclosures required by GAAP.

The preparation of these condensed consolidated financial statements requires the Company to make certain judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Areas that require significant judgments, estimates and assumptions include accounting for accounts receivable (including the allowance for doubtful accounts); inventories (including the allowance for slow-moving and obsolete inventories); product warranty reserves; contingencies; income taxes (including the valuation allowance on certain deferred tax assets and liabilities for uncertain tax positions); equity-based compensation (including the valuation of certain equity-based compensation awards issued by the Company); and testing for impairment of long-lived assets (including the identification of asset groups by management, estimates of future cash flows of identified asset groups and fair value estimates used in connection with assessing the valuation of identified asset groups). The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Certain amounts relating to operating lease right-of-use assets ($432), current portion of operating lease liabilities ($158) and operating lease liabilities – net of current portion ($274) in the accompanying condensed consolidated balance sheet at December 31, 2019, have been reclassified from other noncurrent assets, accrued expenses and other current liabilities and other noncurrent liabilities, respectively, to conform to current period presentation.

Certain amounts in the accompanying condensed statement of consolidated cash flows have been reclassified to conform to current period presentation.

COVID-19

In March 2020, the World Health Organization declared the novel strain of coronavirus a global pandemic (“COVID-19”) and recommended containment and mitigation measures worldwide. The impact of COVID-19 and the related economic, business and market disruptions are evolving rapidly, and their effects are uncertain. As a result of COVID-19, the Company was required to temporarily close its operations at its North Huntingdon, Pennsylvania facility for the period from March 23 through March 30, 2020. In response to COVID-19, the Company has incurred incremental costs associated with protecting the health and safety of the Company’s global workforce, enhanced sanitization of the Company’s global operating facilities, and information technology capabilities for employees operating remotely. Beginning in March 2020, restrictions imposed by various governmental authorities on both domestic and international shipping and travel have caused a disruption to the timing of delivery and installation of the Company’s 3D printing machines, resulting in negative impacts to the Company’s financial position, results of operations and cash flows. The duration and severity of the outbreak and its long-term impact on the Company’s business are uncertain at this time. The Company is unable to predict the impact that COVID-19 will have on its future financial position, results of operations and cash flows.

6


Recently Issued Accounting Guidance

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). Recently issued ASUs not listed below either were assessed and determined to be not applicable or are currently expected to have no impact on the consolidated financial statements of the Company.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the consolidated financial statements of the Company.

Note 2. Liquidity

The Company has incurred a net loss in each of its annual periods since its inception. As shown in the accompanying condensed statement of consolidated operations and comprehensive loss, the Company incurred a net loss of $3,273 and $10,944 for the three months and nine months ended September 30, 2020, respectively. At September 30, 2020, the Company had $39,428 in unrestricted cash and cash equivalents. In addition to its unrestricted cash and cash equivalents, the Company also has access to additional capital through its $10,000 related party revolving credit facility (Note 12).

Since its inception, the Company has received cumulative unrestricted net proceeds from the sale of its common stock (through its initial public offering and subsequent public offerings, including at-the-market offerings) of $195,847 to fund its operations. The Company maintains additional access to capital through its active shelf registration statement (Note 1) which allows for the sale of various equity or debt instruments up to an aggregate amount of $125,000 (including the at-the-market offerings further described below).

In June 2020, the Company entered into an equity distribution agreement (the “Oppenheimer Equity Distribution Agreement”) with Oppenheimer & Company, Inc. (“Oppenheimer”) pursuant to which Oppenheimer agreed to act as sales agent in the sale of up to $25,000 in the aggregate of ExOne common stock in “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Sales of common stock under the Oppenheimer Equity Distribution Agreement ended in September 2020 when the offering limit ($25,000) was reached. Following completion of this offering, in September 2020, the Company entered into a separate equity distribution agreement (the “Canaccord Equity Distribution Agreement”) with Canaccord Genuity LLC (“Canaccord”), pursuant to which Canaccord agreed to act as sales agent in the sale of up to $25,000 in the aggregate of ExOne common stock in “at-the-market offerings” as defined in Rule 415 under the Securities Act. The terms of both the Oppenheimer Equity Distribution Agreement and the Canaccord Equity Distribution Agreement require a 3.0% commission on the sale of ExOne common stock as well as reimbursement of certain expenses incurred by the sales agent.

During the three months ended September 30, 2020, the Company sold 2,060,878 shares of common stock in the above-described at-the market offerings (1,822,274 shares under the Oppenheimer Equity Distribution Agreement and 238,604 shares under the Canaccord Equity Distribution Agreement) at an average selling price of $12.26 per share, resulting in net proceeds to the Company (after deducting commissions) of $24,512. During the nine months ended September 30, 2020, the Company sold 2,443,479 shares of common stock in the above-described at-the-market offerings (2,204,875 shares under the Oppenheimer Equity Distribution Agreement and 238,604 shares under the Canaccord Equity Distribution Agreement) at an average selling price of $11.73 per share, resulting in net proceeds to the Company (after deducting commissions) of $27,800.  During the three months and nine months ended September 30, 2020, the Company incurred expenses (other than commissions) associated with at-the-market offerings of $124 and $314, respectively.  At September 30, 2020, $213 of the expenses (other than commissions) associated with at-the-market offerings remained unpaid, of which $147 was included in accounts payable and $66 was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

There have been no sales of shares of common stock in at-the-market offerings subsequent to September 30, 2020. Future sales of securities in at-the-market offerings under the Company’s active shelf registration statement, if any, are dependent on market conditions, which may restrict the timing and extent of any future offering of securities by the Company.

In addition to net proceeds from the sale of its common stock, on April 18, 2020, the Company received additional unrestricted cash proceeds of $2,194 in connection with a Paycheck Protection Program loan (Note 13).

The Company has previously exhibited its ability to modify its operating structure and support its liquidity position through various restructuring and other actions, including its 2018 global cost realignment program. In response to adverse market conditions associated with COVID-19, beginning in March 2020 and through April 2020, the Company initiated various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity.  

7


Management believes that the Company’s existing capital resources will be sufficient to support the Company’s operating plan. If management anticipates that the Company’s actual results will differ from its operating plan, management believes it has sufficient capabilities to enact cost savings measures to preserve capital (in addition to those further discussed above). The Company may also seek to raise additional capital to support its growth through the incurrence of additional debt, the sale of equity or other alternatives (including asset sales) or a combination thereof.

Note 3. Accumulated Other Comprehensive Loss

The following table summarizes changes in the components of accumulated other comprehensive loss for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(11,951

)

 

$

(10,941

)

 

$

(11,483

)

 

$

(10,748

)

Other comprehensive income (loss)

 

 

856

 

 

 

(1,387

)

 

 

388

 

 

 

(1,580

)

Balance at end of period

 

$

(11,095

)

 

$

(12,328

)

 

$

(11,095

)

 

$

(12,328

)

 

Foreign currency translation adjustments consist of the effect of translation of functional currency financial statements (denominated in the euro and Japanese yen) to the reporting currency of the Company (United States dollar) and certain long-term intercompany transactions between subsidiaries for which settlement is not planned or anticipated in the foreseeable future.

There were 0 tax impacts related to income tax rate changes and 0 amounts were reclassified to earnings for either of the periods presented.

Note 4. Loss Per Share

The Company presents basic and diluted loss per common share amounts. Basic loss per common share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted loss per common share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares and common equivalent shares outstanding during the applicable period.

As the Company incurred a net loss during each of the three months and nine months ended September 30, 2020 and 2019, basic average common shares outstanding and diluted average common shares outstanding were the same because the effect of potential shares of common stock, including stock options (654,617 – 2020 and 828,059 – 2019) and unvested restricted stock issued (199,391 – 2020 and 66,513 – 2019), was anti-dilutive.

The information used to compute basic and diluted net loss per common share was as follows for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(3,273

)

 

$

(4,844

)

 

$

(10,944

)

 

$

(13,129

)

Weighted average shares outstanding (basic and diluted)

 

 

17,596,076

 

 

 

16,332,974

 

 

 

16,812,806

 

 

 

16,296,554

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.19

)

 

$

(0.30

)

 

$

(0.65

)

 

$

(0.81

)

Diluted

 

$

(0.19

)

 

$

(0.30

)

 

$

(0.65

)

 

$

(0.81

)

 

Note 5. Revenue

The Company derives revenue from the sale of 3D printing machines and 3D printed and other products, materials and services. Revenue is recognized when the Company satisfies its performance obligation(s) under a contract (either implicit or explicit) by transferring the promised product or service to a customer either when (or as) the customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis. Shipping and handling costs are included in cost of sales.

8


Certain of the Company’s contracts with customers provide for multiple performance obligations. Sales of 3D printing machines may also include optional equipment, materials, replacement components and services (installation, training and other services, including maintenance services and/or an extended warranty). Certain other contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of stand-alone selling price for each distinct product or service in the contract, which is generally based on an observable price.

The Company’s revenue from products is transferred to customers at a point in time. The Company’s contracts for 3D printing machines generally include substantive customer acceptance provisions. Revenue under these contracts is recognized when customer acceptance provisions have been satisfied. For all other product sales, the Company recognizes revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes to the customer upon delivery. In certain cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location.

The Company’s revenue from service arrangements includes deferred maintenance contracts and extended warranties that can be purchased at the customer’s option. The Company generally provides a standard one-year warranty on the Company’s 3D printing machines, which is considered an assurance type warranty, and not considered a separate performance obligation (Note 9). Revenue associated with deferred maintenance contracts is generally recognized at a point in time when the related services are performed where sufficient historical evidence indicates that the costs of performing the related services under the contract are not incurred on a straight-line basis, with such revenue recognized in proportion to the costs expected to be incurred. Revenue associated with extended warranties is generally recognized over time on a straight-line basis over the related contract period.

The Company’s revenue from service arrangements includes contracts with the federal government under fixed-fee, cost reimbursable and time and materials arrangements (certain of which may have periods of performance greater than one year). Revenue under these contracts is generally recognized over time using an input measure based upon direct costs incurred and provisional rates provided under the contracts. As such, the nature of these contracts may give rise to variable consideration, primarily based upon completion of the Company’s annual incurred cost submission filing as required by the federal government. Historically, amounts associated with variable consideration have not been significant.

The Company’s revenue from service arrangements includes certain research and development services. Revenue under research and development service contracts is generally recognized over time where progress is measured in a manner that reflects the transfer of control of the promised goods or services to the customer. Depending on the facts and circumstances surrounding each research and development service contract, revenue is recognized over time using either an input measure (based on the entity’s direct costs incurred in an effort to satisfy the performance obligations) or an output measure (specifically units or parts delivered, based upon certain customer acceptance and delivery requirements).  

The following table summarizes the Company’s revenue by product group for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

3D printing machines

 

$

10,488

 

 

$

3,972

 

 

$

21,703

 

 

$

16,532

 

3D printed and other products, materials and services

 

 

6,911

 

 

 

6,912

 

 

 

20,178

 

 

 

19,210

 

 

 

$

17,399

 

 

$

10,884

 

 

$

41,881

 

 

$

35,742

 

 

Revenue from 3D printing machines includes leasing revenue whereby the Company is the lessor of 3D printing machines to its customers. Leasing revenue is accounted for under ASU 2016-02, “Leases” (Note 10).

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets) and deferred revenue and customer prepayments (contract liabilities) in the accompanying condensed consolidated balance sheet. The Company considers a number of factors in its evaluation of the creditworthiness of its customers, including past due amounts, past payment history, and current economic conditions. For 3D printing machines, the Company’s terms of sale vary by transaction. To reduce credit risk in connection with 3D printing machine sales, the Company may, depending upon the circumstances, require customers to furnish letters of credit or bank guarantees or to provide advanced payment (either partial or in full). For 3D printed and other products and materials, the Company’s terms of sale generally require payment within 30 to 60 days after delivery, although the Company also recognizes that longer payment periods are customary in certain countries where it transacts business. Service arrangements are generally billed in accordance with specific contract terms and are typically billed in advance or in proportion to performance of the related services.

For the nine months ended September 30, 2020, the Company recognized revenue of $7,233 related to contract liabilities at January 1, 2020. There were no other significant changes in contract liabilities during the nine months ended September 30, 2020. Contract assets were not significant during the nine months ended September 30, 2020.

9


As of September 30, 2020, the Company had approximately $42,600 of remaining performance obligations (including contract liabilities), which is also referred to as backlog, of which approximately $35,500 is expected to be fulfilled during the next twelve months notwithstanding uncertainty related to the impact of COVID-19 (Note 1) including, but not limited to, international shipping and travel restrictions brought about by COVID-19 which could have an adverse effect on the timing of delivery and installation of products and/or services to customers.

The Company has elected to apply the practical expedient associated with incremental costs of obtaining a contract, and as such, sales commission expense is generally expensed when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.

Accounts receivable and net investment in sales-type leases (Note 10) are reported at their net realizable value. The Company carries its investment in sales-type leases based on discounting the minimum lease payments by the interest rate implicit in the lease, less an allowance for doubtful accounts. The Company’s estimate of the allowance for doubtful accounts related to accounts receivable and net investment in sales-type leases is based on the Company’s evaluation of customer accounts with past-due outstanding balances or specific accounts for which it has information that the customer may be unable to meet its financial obligations. Based upon review of these accounts, and management’s analysis and judgment, the Company records a specific allowance for that customer’s accounts receivable or net investment in sales-type lease balance to reduce the outstanding balance to the amount expected to be collected. The allowance is re-evaluated and adjusted periodically as additional information is received that impacts the allowance amount reserved. At September 30, 2020 and December 31, 2019, the allowance for doubtful accounts was $524 and $508, respectively. During the three months ended September 30, 2020 and 2019, the Company recorded net provision for bad debts of $15 and $414, respectively. During the nine months ended September 30, 2020 and 2019, the Company recorded net (recoveries) provision for bad debts of ($4) and $264, respectively.

Note 6. Cash, Cash Equivalents, and Restricted Cash

The following provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the accompanying condensed consolidated balance sheet to the same such amounts shown in the accompanying condensed statement of consolidated cash flows as of the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

39,428

 

 

$

5,265

 

Restricted cash

 

 

508

 

 

 

978

 

Cash, cash equivalents, and restricted cash

 

$

39,936

 

 

$

6,243

 

 

Restricted cash at both September 30, 2020 and December 31, 2019 included $508 associated with cash collateral required by a United States bank to offset certain short-term, unsecured lending commitments associated with the Company’s corporate credit card program. 

Restricted cash at December 31, 2019 included $470 associated with cash collateral required by a German bank for short-term financial guarantees issued by ExOne GmbH in connection with certain commercial transactions requiring security. Refer to Note 11 for further discussion related to an amendment to this cash collateral requirement effective in February 2020.

Each of the balances discussed above are considered legally restricted by the Company.

Note 7. Inventories

Inventories consisted of the following as of the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials and components

 

$

10,811

 

 

$

8,841

 

Work in process

 

 

3,698

 

 

 

4,922

 

Finished goods

 

 

7,678

 

 

 

6,007

 

 

 

$

22,187

 

 

$

19,770

 

 

Raw materials and components consist of consumable materials and component parts and subassemblies associated with 3D printing machine manufacturing and support activities. Work in process consists of 3D printing machines and other products in varying stages of completion. Finished goods consist of 3D printing machines and other products prepared for sale in accordance with customer specifications.

10


At September 30, 2020 and December 31, 2019, the allowance for slow-moving and obsolete inventories was $2,562 and $3,443, respectively, and has been reflected as a reduction to inventories (principally raw materials and components). The following table summarizes changes in the allowance for slow-moving and obsolete inventories for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

2,493

 

 

$

4,149

 

 

$

3,443

 

 

$

4,143

 

Provision for slow-moving and obsolete inventories  ̶  net

 

 

30

 

 

 

63

 

 

 

130

 

 

 

194

 

Reductions for sale, consumption or scrap of previously

   reserved amounts

 

 

(55

)

 

 

(376

)

 

 

(1,110

)

 

 

(482

)

Foreign currency translation adjustments

 

 

94

 

 

 

(152

)

 

 

99

 

 

 

(171

)

Balance at end of period

 

$

2,562

 

 

$

3,684

 

 

$

2,562

 

 

$

3,684

 

 

Reductions for sale, consumption or scrap of previously reserved amounts for the nine months ended September 30, 2020 consist principally of certain raw material and component inventories associated with the Company’s former Exerial 3D printing platform, which were disposed of during the period. There was no significant benefit or charge recorded during the period in connection with the related disposals.

During the nine months ended September 30, 2020, the Company recorded a charge of $205 to cost of sales in the accompanying condensed statement of consolidated operations and comprehensive loss associated with certain inventories for which cost was determined to exceed net realizable value.

Note 8. Property and Equipment

Property and equipment consisted of the following as of the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

Economic Life

 

 

2020

 

 

2019

 

 

(in years)

Land

 

$

3,436

 

 

$

6,980

 

 

N/A

Buildings and related improvements

 

 

10,141

 

 

 

25,675

 

 

5 - 40

Machinery and equipment

 

 

20,658

 

 

 

19,531

 

 

3 - 20

Other

 

 

6,193

 

 

 

7,086

 

 

3 - 20

 

 

 

40,428

 

 

 

59,272

 

 

 

Less: Accumulated depreciation

 

 

(20,092

)

 

 

(21,478

)

 

 

 

 

 

20,336

 

 

 

37,794

 

 

 

Construction-in-progress

 

 

588

 

 

 

1,101

 

 

 

Property and equipment  ̶  net

 

$

20,924

 

 

$

38,895

 

 

 

 

For the three months ended September 30, 2020 and 2019, depreciation expense was $817 and $1,142, respectively.  For the nine months ended September 30, 2020 and 2019, depreciation expense was $2,925 and $3,491, respectively.

On February 18, 2020, the Company completed a sale-leaseback transaction associated with its European headquarters and operating facility in Gersthofen, Germany (Note 10). As a result of the completion of this transaction, the Company derecognized $17,282 in net property and equipment during the three months ended March 31, 2020. Sale of the facility resulted in a gain of $1,462 during the three months ended March 31, 2020.

During the three months ended September 30, 2020, as a result of continued operating losses and cash flow deficiencies, the Company identified a triggering event requiring a test for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management.

For purposes of testing long-lived assets for recoverability, the Company operates as 3 separate asset groups: United States, Europe and Japan. In assessing the recoverability of long-lived assets held and used, the Company determined the carrying amount of long-lived assets held and used to be in excess of the estimated future undiscounted net cash flows of the related assets. The Company proceeded to determine the fair value of its long-lived assets held and used, principally through use of the market approach. The Company’s use of the market approach included consideration of market transactions for comparable assets. Management concluded that the fair value of long-lived assets held and used exceeded their carrying value, and as such, 0 impairment loss was recorded.   

A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used, which could result in a material adverse effect on the financial position and results of operations of the Company.

11


Note 9. Product Warranty Reserves

Substantially all of the Company’s 3D printing machines are covered by a standard one-year warranty. Generally, at the time of sale, a liability is recorded (with an offset to cost of sales) based upon the expected cost of replacement parts and labor to be incurred over the life of the standard warranty. Expected cost is estimated using historical experience for similar products. The Company periodically assesses the adequacy of the product warranty reserves based on changes in these factors and records any necessary adjustments if actual experience indicates that adjustments are necessary. Future claims experience could be materially different from prior results because of the introduction of new, more complex products, a change in the Company’s warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event that the Company determines that its current or future product repair and replacement costs exceed estimates, an adjustment to these reserves would be charged to cost of sales in the period such a determination is made.

The following table summarizes changes in product warranty reserves, which amounts were reflected in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

603

 

 

$

1,223

 

 

$

866

 

 

$

1,670

 

Provisions for new issuances

 

 

391

 

 

 

182

 

 

 

854

 

 

 

711

 

Payments

 

 

(561

)

 

 

(409

)

 

 

(1,406

)

 

 

(1,257

)

Reserve adjustments

 

 

607

 

 

 

(65

)

 

 

728

 

 

 

(188

)

Foreign currency translation adjustments

 

 

25

 

 

 

(20

)

 

 

23

 

 

 

(25

)

Balance at end of period

 

$

1,065

 

 

$

911

 

 

$

1,065

 

 

$

911

 

 

Note 10. Leases

Lessee

The Company leases facilities, machinery and other equipment and vehicles under operating lease arrangements (with initial terms greater than twelve months), expiring in various years through 2026. In addition, the Company leases certain equipment and vehicles under finance lease arrangements, which are not significant.

For all operating lease arrangements (with the exception of short-term lease arrangements), the Company presents at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. 

The Company has elected, as a practical expedient, not to separate non-lease components from lease components, and instead accounts for each separate component as a single lease component for all lease arrangements, as lessee. In addition, the Company has elected, as a practical expedient, not to apply lease recognition requirements to short-term lease arrangements, generally those with a lease term of less than twelve months, for all classes of underlying assets. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions. As a result, lease payments under these short-term lease arrangements are recognized in the accompanying condensed statement of consolidated operations and comprehensive loss on a straight-line basis over the lease term.  

The Company uses its incremental borrowing rate in determining the present value of lease payments, as the implicit rate of the lease arrangements is generally not readily determinable.

Through July 2019, certain of the Company’s operating lease arrangements were with related parties under common control (Note 18). Lease cost under operating lease agreements with related parties, included within short-term lease cost below, was $4 and $28 for the three and nine months ended September 30, 2019, respectively.

Future minimum lease payments of operating lease arrangements (with initial terms greater than twelve months) at September 30, 2020, were as follows:

 

2020

 

$

510

 

2021

 

 

2,009

 

2022

 

 

1,973

 

2023

 

 

33

 

2024

 

 

12

 

Thereafter

 

 

2

 

Total minimum lease payments

 

 

4,539

 

Less: Present value discount

 

 

(261

)

Total operating lease liabilities

 

$

4,278

 

12


 

For the three months and nine months ended September 30, 2020, lease cost under operating lease arrangements was $527 and $1,560, including $24 and $96 relating to short-term lease arrangements, respectively. For the three months and nine months ended September 30, 2019, lease cost under operating lease arrangements was $94 and $305, including $44 and $156 relating to short-term lease arrangements, respectively.

Supplemental information related to operating lease arrangements was as follows as of and for the nine months ended September 30, 2020:

 

Operating lease right-of-use assets

 

$

4,278

 

Current portion of operating lease liabilities

 

$

1,843

 

Operating lease liabilities  ̶  net of current portion

 

$

2,435

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

4,876

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

1,472

 

Weighted average remaining lease term (in years)

 

 

2.3

 

Weighted average discount rate

 

 

5.1

%

On December 10, 2019, ExOne Property GmbH and ExOne GmbH, the German subsidiaries of the Company (the “German Subsidiaries”), entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of the Company’s European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a purchase price of approximately $18,500 (€17,000), of which approximately $2,200 (€2,000) was received prior to December 31, 2019. Concurrent with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling approximately $1,700 (€1,500), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the 2 five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020. In connection with the completion of the sale-leaseback transaction, the Company recorded an operating lease right-of-use asset and corresponding operating lease liability of $4,605, which was representative of the present value of future minimum lease payments over the initial three-year term, as there were no penalties or other factors associated with the lease that resulted in reasonable assurance of its extension at inception.

Lessor

The Company leases machinery and equipment to customers (principally 3D printing machines and related equipment) under lease arrangements classified as either operating leases or sales-type leases. The Company’s operating lease arrangements have initial terms generally ranging from one to five years, certain of which may contain extension or termination clauses, or both. Such operating lease arrangements also generally include a purchase option to acquire the related machinery and equipment at the end of the lease term for either a fixed amount as determined at inception, or a subsequently negotiated fair market value. At September 30, 2020, the Company estimated that the total fair market value significantly exceeded the related net book value of the machinery and equipment held under the Company’s operating lease arrangements. The Company’s sales-type lease arrangements generally include transfer of ownership at the end of the lease term, and as such, the Company’s net investment in sale-type lease arrangements presented in the Company’s accompanying condensed consolidated balance sheet generally does not include an amount of unguaranteed residual value.

For certain of its arrangements, the Company separates and allocates (Note 5) certain non-lease components (principally maintenance services) from lease components. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from lease income) basis. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions. Additionally, certain of the Company’s lease arrangements do not qualify as sale-type leases, as collectability is not reasonably assured.

The Company recognized the following components under operating and sales-type lease arrangements in the accompanying condensed statement of consolidated operations and comprehensive loss for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

Operating

 

 

Sales- type

 

 

Operating

 

 

Sales- type

 

 

Operating

 

 

Sales- type

 

 

Operating

 

 

Sales- type

 

Revenue

 

$

227

 

 

$

 

 

$

261

 

 

$

 

 

$

589

 

 

$

 

 

$

1,287

 

 

$

 

Interest income(a)

 

$

 

 

$

12

 

 

$

 

 

$

21

 

 

$

 

 

$

47

 

 

$

 

 

$

76

 

 

(a)

Interest income relating to sales-type leases is recorded as a component of revenue in the accompanying condensed statement of consolidated operations and comprehensive loss for each of the periods presented.

13


The Company’s net investment in sales-type leases consisted of the following as of the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Future minimum lease payments receivable

 

$

1,413

 

 

$

1,595

 

Less: Allowance for doubtful accounts

 

 

(443

)

 

 

(424

)

Net future minimum lease payments receivable

 

 

970

 

 

 

1,171

 

Less: Unearned interest income

 

 

(177

)

 

 

(220

)

Net investment in sales-type leases

 

$

793

 

 

$

951

 

 

Future minimum lease payments of non-cancellable operating and sales-type lease arrangements as of September 30, 2020 were as follows:

 

 

 

Operating

 

 

Sales-type

 

2020

 

$

216

 

 

$

226

 

2021

 

 

273

 

 

 

385

 

2022

 

 

 

 

 

385

 

2023

 

 

 

 

 

417

 

2024

 

 

 

 

 

 

Thereafter

 

 

 

 

 

 

Total minimum lease payments

 

$

489

 

 

$

1,413

 

Less: Allowance for doubtful accounts

 

 

 

 

 

 

(443

)

Less: Present value discount

 

 

 

 

 

 

(177

)

Future minimum lease payments receivable

 

 

 

 

 

$

793

 

 

Note 11. Contingencies and Commitments

Contingencies

On March 1, 2018, the Company’s ExOne GmbH subsidiary notified Voxeljet AG that it had materially breached a 2003 Patent and Know-How Transfer Agreement and asserted its rights to set-off damages as a result of the breaches against the annual license fee due from the Company under the agreement. At this time, the Company cannot reasonably estimate a contingency, if any, related to this matter.

The Company is subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on the financial position, results of operations or cash flows of the Company.

Commitments

In the normal course of its operations, ExOne GmbH issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank.

On February 24, 2020, ExOne GmbH entered into an amendment and replacement of its credit facility with the German bank. The credit facility amendments included the elimination of the overdraft credit and short-term loan features of the prior agreement and replaced them with an increased capacity amount of approximately $4,100 (€3,500) for the issuance of financial guarantees and letters of credit for commercial transactions requiring security. The cash collateral requirement for the issuance of financial guarantees and letters of credit for commercial transactions requiring security was eliminated for amounts up to approximately $1,200 (€1,000) as the amendment provided the German bank with a collateral interest in the accounts receivable of ExOne GmbH. Amounts in excess of approximately $1,200 (€1,000) continue to require cash collateral under the amended credit facility.

At September 30, 2020, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the amended credit facility were $583 (€497), with expiration dates ranging from October 2020 through February 2023. At December 31, 2019, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the former credit facility were $560 (€499).

 

14


Note 12. Related Party Revolving Credit Facility

On March 12, 2018, the Company and its ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was the Executive Chairman of the Company (a related party) at such date and is currently Chairman of the Company, relating to a $15,000 revolving credit facility (the “Credit Agreement”) to provide additional funding to the Company for working capital and general corporate purposes. The Credit Agreement provided a credit facility for a term of three years (through March 12, 2021), bearing interest at a rate of one-month LIBOR plus an applicable margin of 500 basis points (6.8% at December 31, 2019 and 5.1% at September 30, 2020). The Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties.

On February 18, 2020, the Loan Parties and LBM entered into a First Amendment to the Credit Agreement (the “Amendment”) which (i) reduced the available capacity under the revolving credit facility to $10,000, (ii) extended the term of the credit facility until March 31, 2024, (iii) increased the commitment fee to 100 basis points, or 1.00%, on the unused portion of the revolving credit facility, and (iv) provided a process for the replacement of the LIBOR index after 2021. In addition, the accounts receivable of ExOne GmbH no longer serve as collateral for borrowings under the amended revolving credit facility.

Borrowings under the credit facility are required to be made in minimum increments of $1,000. The Company may terminate or reduce the credit commitment at any time during the term of the amended Credit Agreement without penalty. The Company may also make prepayments against outstanding borrowings under the amended Credit Agreement at any time without penalty. At December 31, 2019 and September 30, 2020, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the credit facility.

The amended Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance of insurance, properties, and licenses; and compliance with laws. The amended Credit Agreement also contains several negative covenants including restricting the incurrence of certain additional debt; prohibiting future liens (other than permitted liens); prohibiting investment in third parties; limiting the ability to pay dividends; limiting mergers, acquisitions, and dispositions; and limiting the sale of certain property and equipment of the Loan Parties. The amended Credit Agreement does not contain any financial covenants. The amended Credit Agreement also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants. The Company has obtained waivers related to its event of default on its building note payable (Note 13) and for the incurrence of additional debt associated with its PPP Loan (Note 13).

The Company does not consider the Credit Agreement, as amended, indicative of a fair market value lending, as LBM was determined to be a related party based on common control by S. Kent Rockwell. S. Kent Rockwell is the indirect sole owner of LBM. Prior to execution, each of the Credit Agreement and the Amendment was reviewed and approved by the Audit Committee of the Company’s Board of Directors (the “Board”), in accordance with The ExOne Company Policy and Procedures with Respect to Related Person Transactions, and subsequently by a sub-committee of independent members of the Board. At the time of execution of the Credit Agreement, the available loan proceeds were deposited into an escrow account with an unrelated, third party financial institution acting as escrow agent pursuant to a separate escrow agreement by and among the parties. Loan proceeds held in escrow are available to the Company upon its submission to the escrow agent of a loan request. Such proceeds will not be available to LBM until payment in-full of the obligations under the amended Credit Agreement and termination of the amended Credit Agreement. Payments of principal and other obligations will be made to the escrow agent, while interest payments will be made directly to LBM. Provided there exists no potential default or event of default, the amended Credit Agreement and the escrow agreement prohibit any acceleration of repayment of any amount outstanding under the amended Credit Agreement and prohibit termination of the amended Credit Agreement or withdrawal from escrow of any unused portion of the available loan proceeds.

There were 0 borrowings under the credit facility during the three or nine months ended September 30, 2020 or 2019. There were 0 borrowings outstanding under the credit facility at either September 30, 2020 or December 31, 2019.

The Company incurred $265 in debt issuance costs associated with the inception of the credit facility (including the aforementioned up-front commitment fee paid at closing to LBM) and $49 in debt issuance costs associated with the Amendment.

During the three months and nine months ended September 30, 2020, the Company recorded interest expense relating to the credit facility of $34 and $113, respectively. Included in interest expense for the three months and nine months ended September 30, 2020 was $8 and $35, respectively, associated with amortization of debt issuance costs (resulting in $120 in remaining debt issuance costs at September 30, 2020, of which $35 was included in prepaid expenses and other current assets and $85 was included in other noncurrent assets in the accompanying condensed consolidated balance sheet). Included in interest expense for the three months and nine months ended September 30, 2020 was $26 and $78, respectively, associated with the commitment fee on the unused portion of the revolving credit facility. At September 30, 2020 and December 31, 2019, $8 and $28, respectively, associated with the commitment fee on the unused portion of the revolving credit facility were included in accounts payable on the accompanying condensed consolidated balance sheet.  Amounts payable to LBM at September 30, 2020 and December 31, 2019 were settled by the Company in October 2020 and January 2020, respectively.

15


During the three and nine months ended September 30, 2019, the Company recorded interest expense related to the credit facility of $65 and $165, respectively.

Note 13. Long-Term Debt

Long-term debt consisted of the following as of the dates indicated:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Principal

 

 

Unamortized

Debt Issuance

Costs

 

 

Net

 

 

Principal

 

 

Unamortized

Debt Issuance

Costs

 

 

Net

 

Paycheck Protection Program loan

 

$

2,194

 

 

$

 

 

$

2,194

 

 

$

 

 

$

 

 

$

 

Building note payable

 

 

1,266

 

 

 

(16

)

 

 

1,250

 

 

 

1,384

 

 

 

(20

)

 

 

1,364

 

Less: Amount due within one year

 

 

(1,500

)

 

 

4

 

 

 

(1,496

)

 

 

(157

)

 

 

4

 

 

 

(153

)

 

 

$

1,960

 

 

$

(12

)

 

$

1,948

 

 

$

1,227

 

 

$

(16

)

 

$

1,211

 

 

On April 18, 2020, the Company entered into an unsecured promissory note (the “Note”) with an unrelated United States bank (the “Lender”) reflecting a loan in the principal amount of $2,194 (the “Loan”). The Loan was granted pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Pursuant to the terms of the Note, the Loan bears interest at a rate of 1.00% per annum and matures on April 18, 2022 (the “Maturity Date”). Principal and interest payments on the Loan are deferred until November 18, 2020, at which time equal installments of principal and interest will be due and payable monthly through the Maturity Date. The Note may be prepaid by the Company at any time prior to maturity without penalty. If the Company defaults on the Note, the Lender may, at its option, accelerate the maturity of the Company’s obligations under the Note.

Pursuant to the terms of the PPP, the Loan, or a portion thereof, may be forgiven if Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. The Company intends to use all or a significant majority of the Loan proceeds for qualifying expenses. The terms of the Loan, including eligibility and forgiveness, may be subject to further requirements in regulations and guidance adopted by the SBA, including the Paycheck Protection Flexibility Act enacted in June 2020. The Company has elected to account for the Loan in accordance with the terms of the Note while its forgiveness eligibility remains subject to review.

On May 21, 2012, the Company entered into a building note payable with an unrelated United States bank. Terms of the building note payable include monthly payments of $18, including interest at 4.00% through May 2017, and subsequently, monthly payments of $19 including interest at the monthly average yield on United States Treasury Securities plus 3.25% for the remainder of the term through May 2027. The building note payable is collateralized by the Company’s facility located in North Huntingdon, Pennsylvania which had a carrying value of $4,838 at September 30, 2020.

At December 31, 2019, the Company identified that it was not in compliance with the annual cash flow-to-debt service ratio covenant associated with the building note payable. The Company requested and was granted a waiver related to compliance with this annual covenant at December 31, 2019 and through December 31, 2020. Related to the 2019 non-compliance, there were no cross-default provisions or related impacts on other lending or financing agreements (Note 12).

Future maturities of long-term debt at September 30, 2020, were as follows:

 

2020

 

$

282

 

2021

 

 

1,627

 

2022

 

 

668

 

2023

 

 

188

 

2024

 

 

195

 

Thereafter

 

 

500

 

 

 

$

3,460

 

 

 

Note 14. Income Taxes

The (benefit) provision for income taxes for the three months ended September 30, 2020 and 2019 was ($34) and $15, respectively. The provision (benefit) for income taxes for the nine months ended September 30, 2020 and 2019 was $200 and ($686), respectively. The Company has completed a discrete period computation of its (benefit) provision for income taxes for each of the periods presented. The discrete period computation was required as a result of jurisdictions with losses before income taxes for which no tax benefit can be recognized and an inability to generate reliable estimates for results in certain jurisdictions as a result of inconsistencies in generating net operating profits (losses) in those jurisdictions.

16


The effective tax rate for the three months ended September 30, 2020 and 2019 was 1.0% (benefit on a loss) and 0.3% (provision on a loss), respectively. The effective tax rate for the nine months ended September 30, 2020 and 2019 was 1.9% (provision on a loss) and 5.0% (benefit on a loss), respectively.

For the three and nine months ended September 30, 2020 and the three months ended September 30, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to net changes in valuation allowances for the period. For the nine months ended September 30, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to the reversal of previously recorded liabilities for uncertain tax positions (further discussed below) and net changes in valuation allowances for the period.

The Company has provided a valuation allowance for certain of its net deferred tax assets as a result of the Company not generating consistent net operating profits in certain jurisdictions in which it operates. As such, certain benefits from deferred taxes in the periods presented have been fully offset by changes in the valuation allowance for the related net deferred tax assets. The Company continues to assess its future taxable income by jurisdiction based on recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that the Company may be able to enact in future periods, the impact of potential operating changes on the business and forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that the Company is able to reach the conclusion that net deferred tax assets are realizable based on any combination of the above factors in a single, or in multiple, taxing jurisdictions, a reversal of the related portion of the Company’s existing valuation allowances may occur.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including accrued interest and penalties) was as follows for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

 

 

$

105

 

 

$

 

 

$

1,186

 

Additions based on tax positions related to the current

   year

 

 

 

 

 

 

 

 

 

 

 

 

Additions for tax positions of prior years

 

 

 

 

 

2

 

 

 

 

 

 

4

 

Reductions for tax positions of prior years

 

 

 

 

 

 

 

 

 

 

 

(1,075

)

Settlements

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

(5

)

 

 

 

 

 

(13

)

Balance at end of period

 

$

 

 

$

102

 

 

$

 

 

$

102

 

 

 

The Company includes interest and penalties related to income taxes as a component of the (benefit) provision for income taxes in the accompanying condensed statement of consolidated operations and comprehensive loss. There were 0 such interest or penalties included in the (benefit) provision for income taxes for any of the periods presented.

At December 31, 2018, the Company’s ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities in Germany. In January 2019, this examination was concluded without significant adjustment to previously established tax positions. As a result, during the three months ended March 31, 2019, the Company recorded a reversal of certain of its previously recorded liabilities for uncertain tax positions of $1,075, of which $257 was offset against net operating loss carryforwards.

Note 15. Equity-Based Compensation

On January 24, 2013, the Board adopted the 2013 Equity Incentive Plan (the “Plan”). In connection with the adoption of the Plan, 500,000 shares of common stock were reserved for issuance pursuant to the Plan, with automatic increases in such reserve available each year annually on January 1 from 2014 through 2023 equal to the lesser of 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year, or a number of shares of common stock determined by the Board, provided that the maximum number of shares authorized under the Plan could not exceed 1,992,241 shares, subject to certain adjustments. The maximum number of shares authorized under the Plan was reached on January 1, 2017. At September 30, 2020, 495,804 shares remained available for future issuance under the Plan.

Stock options and restricted stock issued by the Company under the Plan are generally subject to service conditions resulting in annual vesting on the anniversary of the date of grant over a period typically ranging between one and three years. Certain stock options and restricted stock issued by the Company under the Plan vest immediately upon issuance. Stock options issued by the Company under the Plan have contractual lives which expire over a period typically ranging between five and ten years from the date of grant, subject to continued service to the Company by the participant.

On February 6, 2019, the Compensation Committee of the Board adopted the 2019 Annual Incentive Program (the “2019 Program”) as a subplan under the Plan. The 2019 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others. The target annual incentive for each 2019 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial goals (as approved by the Compensation Committee of the Board). The Compensation Committee of the Board retained negative discretion over amounts payable under the 2019 Program. During the three months ended September 30, 2019, the Company recorded a net reversal of $376 to equity-based compensation expense based on a change in the estimated outcome of the defined financial goals for 2019 under the 2019 program.

17


On February 5, 2020, the Compensation Committee of the Board adopted the 2020 Annual Incentive Program (the “2020 Program”) as a subplan under the Plan. The 2020 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others. The target annual incentive for each 2020 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial goals (as approved by the Compensation Committee of the Board). The Compensation Committee of the Board retained negative discretion over amounts payable under the 2020 Program. During the three and nine months ended September 30, 2020, the Company recorded 0equity-based compensation expense based on the estimated outcome of the defined financial goals for 2020 under the 2020 Program.

The following table summarizes the total equity-based compensation expense recognized by the Company for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Equity-based compensation expense recognized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

$

127

 

 

$

195

 

 

$

316

 

 

$

511

 

Restricted stock

 

 

244

 

 

 

171

 

 

 

490

 

 

 

545

 

Other(a)

 

 

8

 

 

 

(371

)

 

 

22

 

 

 

20

 

Total equity-based compensation expense before income taxes

 

 

379

 

 

 

(5

)

 

 

828

 

 

 

1,076

 

Benefit for income taxes(b)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total equity-based compensation expense net of income taxes

 

$

379

 

 

$

(5

)

 

$

828

 

 

$

1,076

 

 

(a)

For each of the 2020 periods, Other represents expense associated with certain employee contractual amounts to be settled in equity. For each of the 2019 periods, Other represents activity associated with the 2019 Program and certain employee contractual amounts to be settled in equity.

(b)

The Benefit for income taxes from equity-based compensation for each of the periods presented has been determined to be $0 based on recorded valuation allowances against net deferred tax assets.

At September 30, 2020, total future compensation expense related to unvested awards yet to be recognized by the Company was $387 for stock options and $1,664 for restricted stock. Total future compensation expense related to unvested awards yet to be recognized by the Company is expected to be recognized over a weighted-average remaining vesting period of 2.3 years.

The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for the periods indicated:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Weighted average fair value per stock option

 

$5.11 - $6.20

 

 

$2.77 - $3.68

 

Volatility

 

58.0% - 58.6%

 

 

54.0% - 60.1%

 

Average risk-free interest rate

 

0.2%

 

 

1.5% - 2.5%

 

Dividend yield

 

0.0%

 

 

0.0%

 

Expected term (years)

 

3.5

 

 

2.5 - 3.5

 

 

For certain stock option awards, volatility is estimated based on the historical volatility of the Company when the expected term of the award is less than the period for which the Company has been publicly traded. For certain stock option awards, volatility is estimated based on the historical volatilities of certain peer group companies when the expected term of the award exceeds the period for which the Company has been publicly traded. The average risk-free rate is based on a weighted average yield curve of risk-free interest rates consistent with the expected term of the awards. Expected dividend yield is based on historical dividend data as well as future expectations. Expected term is calculated using the simplified method as the Company does not have sufficient historical exercise experience upon which to base an estimate.

18


The activity for stock options was as follows for the periods indicated:

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Number of

Options

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Grant Date Fair

Value

 

 

Number of

Options

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Grant Date Fair

Value

 

Outstanding at beginning of period

 

 

854,259

 

 

$

9.34

 

 

$

4.49

 

 

 

621,986

 

 

$

10.66

 

 

$

5.52

 

Stock options granted

 

 

25,022

 

 

$

14.40

 

 

$

5.99

 

 

 

290,610

 

 

$

7.35

 

 

$

2.95

 

Stock options exercised

 

 

(117,854

)

 

$

7.28

 

 

$

3.12

 

 

 

(40,432

)

 

$

7.17

 

 

$

3.03

 

Stock options forfeited

 

 

(79,936

)

 

$

7.85

 

 

$

3.41

 

 

 

(9,773

)

 

$

7.67

 

 

$

3.70

 

Stock options expired

 

 

(26,874

)

 

$

12.02

 

 

$

6.78

 

 

 

(34,332

)

 

$

16.87

 

 

$

10.30

 

Outstanding at end of period

 

 

654,617

 

 

$

9.81

 

 

$

4.75

 

 

 

828,059

 

 

$

9.44

 

 

$

4.56

 

Exercisable at end of period

 

 

506,295

 

 

$

10.46

 

 

$

5.27

 

 

 

403,479

 

 

$

11.30

 

 

$

6.02

 

Expected to vest at end of period

 

 

148,322

 

 

$

7.62

 

 

$

3.01

 

 

 

424,580

 

 

$

7.68

 

 

$

3.18

 

 

At September 30, 2020, intrinsic value associated with stock options exercisable and expected to vest was $1,479 and $705, respectively. The weighted average remaining contractual term of stock options exercisable and expected to vest at September 30, 2020, was 3.3 years and 4.0 years, respectively. Stock options with an aggregate intrinsic value of $1,096 were exercised by employees during the nine months ended September 30, 2020, resulting in proceeds to the Company from the exercise of stock options of $858. Stock options with an aggregate intrinsic value of $358 were exercised by employees during the nine months ended September 30, 2019, resulting in proceeds to the Company from the exercise of stock options of $289. The Company recorded 0 income tax benefit related to these exercises.

The activity for restricted stock was as follows for the periods indicated:

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Shares of

Restricted

Stock

 

 

Weighted Average

Grant Date Fair

Value

 

 

Shares of

Restricted

Stock

 

 

Weighted Average

Grant Date Fair

Value

 

Outstanding at beginning of period

 

 

66,513

 

 

$

8.76

 

 

 

67,001

 

 

$

8.30

 

Restricted stock granted

 

 

209,891

 

 

$

9.58

 

 

 

66,763

 

 

$

8.98

 

Restricted stock vested

 

 

(77,013

)

 

$

8.94

 

 

 

(62,251

)

 

$

8.65

 

Restricted stock forfeited

 

 

0

 

 

$

0

 

 

 

(5,000

)

 

$

6.75

 

Outstanding at end of period

 

 

199,391

 

 

$

9.55

 

 

 

66,513

 

 

$

8.76

 

Restricted stock expected to vest at end of period

 

 

199,391

 

 

$

9.55

 

 

 

66,513

 

 

$

8.76

 

 

Restricted stock that vested during the nine months ended September 30, 2020 and 2019, had a fair value of $635 and $535, respectively.  

 

Participants have the option to elect net settlement for restricted stock awards.  Under net settlement, the Company withholds shares of stock that would otherwise be delivered to the employee and remits cash equal to the fair value of shares withheld to the taxing authority to satisfy tax withholding obligations.  During the nine months ended September 30, 2020 and 2019, the Company withheld shares with a fair value of $15 and $68, respectively, related to the net settlement of restricted stock awards.  

 

Note 16. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

19


The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

Level 1

 

Observable inputs such as quoted prices in active markets for identical investments that the Company has the ability to access.

 

 

 

Level 2

 

Inputs include:

 

Quoted prices for similar assets or liabilities in active markets;

 

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

 

Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

 

 

 

Level 3

 

Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

 

The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its consolidated financial statements, in accordance with GAAP. At September 30, 2020 and December 31, 2019, the Company had 0 financial instruments (assets or liabilities) measured at fair value on a recurring basis.

The carrying values and fair values of other financial instruments (assets and liabilities) not required to be recorded at fair value were as follows as of the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

Carrying

Value

 

 

Fair

Value

 

 

Carrying

Value

 

 

Fair

Value

 

Cash and cash equivalents

 

$

39,428

 

 

$

39,428

 

 

$

5,265

 

 

$

5,265

 

Restricted cash

 

$

508

 

 

$

508

 

 

$

978

 

 

$

978

 

Debt issuance costs(a)

 

$

120

 

 

$

 

 

$

107

 

 

$

 

Current portion of long-term debt(b)

 

$

1,496

 

 

$

1,365

 

 

$

153

 

 

$

157

 

Long-term debt  ̶  net of current portion(b)

 

$

1,948

 

 

$

1,954

 

 

$

1,211

 

 

$

1,227

 

 

(a)

Represents debt issuance costs associated with the Company’s related party revolving credit facility (Note 12) of which $35 and $88 was included in prepaid expenses and other current assets and $85 and $19 was included in other noncurrent assets in the accompanying condensed consolidated balance sheet at September 30, 2020 and December 31, 2019, respectively.

(b)

Carrying values at September 30, 2020 and December 31, 2019 are net of unamortized debt issuance costs of $16 and $20, respectively.

 

The carrying amounts of cash and cash equivalents and restricted cash approximate fair value due to their short-term maturities. The fair value of current portion of long term debt and long-term debt – net of current portion has been estimated by management based on the consideration of applicable interest rates, including certain instruments at variable or floating rates and the nominal fixed interest rate (1.0%) associated with the Company’s PPP Loan (Note 13) and other available information (including quoted prices of similar instruments available to the Company). Cash and cash equivalents and restricted cash were classified as Level 1; Current portion of long-term debt and long-term debt – net of current portion were classified as Level 2.

Note 17. Concentration of Credit Risk

During the three months and nine months ended September 30, 2020 and 2019, the Company conducted a significant portion of its business with a limited number of customers, though not necessarily the same customers for each respective period. For the three months ended September 30, 2020 and 2019, the Company’s five most significant customers represented 39.5% and 30.2% of total revenue, respectively. For the nine months ended September 30, 2020 and 2019, the Company’s five most significant customers represented 20.0% and 23.8% of total revenue, respectively. At September 30, 2020 and December 31, 2019, accounts receivable from the Company’s five most significant customers were $1,291 and $3,230, respectively.

20


Note 18. Related Party Transactions

Purchases of products and/or services from related parties during the three months and nine months ended September 30, 2019 were $5 and $63, respectively.  Purchases of products and/or services by the Company during the three and nine months ended September 30, 2019 primarily included website design services and leased office space (through July 2019) from related parties under common control by S. Kent Rockwell, (currently Chairman of the Board of the Company and previously the Executive Chairman and Chief Executive Officer of the Company) and the purchase of a 3D printing machine and certain ancillary equipment for $30 from an educational institution determined to be a related party on the basis that S. Kent Rockwell serves as a trustee of the educational institution. None of the transactions met a threshold requiring review and approval by the Audit Committee of the Board. There were 0 purchases of products and/or services from related parties during the three or nine months ended September 30, 2020. There were 0 amounts due to related parties associated with the purchase of products and/or services at either September 30, 2020 or December 31, 2019.  

The Company also receives the benefit of the corporate use of an airplane from a related party under common control by S. Kent Rockwell for no consideration. There were no such benefits received during the three months ended September 30, 2019.  The Company estimates the fair market value of the benefits received during the nine months ended September 30, 2019 was $3. There were no such benefits received during the three months and nine months ended September 30, 2020.

Refer to Note 12 for further discussion relating to the Company’s revolving credit facility with a related party.

 

Note 19. Other Expense (Income) – Net

 

Other expense (income) – net consisted of the following for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest income

 

$

(4

)

 

$

(2

)

 

$

(19

)

 

$

(10

)

Foreign currency losses (gains) - net

 

 

299

 

 

 

(136

)

 

 

262

 

 

 

(85

)

Other – net

 

 

19

 

 

 

4

 

 

 

76

 

 

 

30

 

 

 

$

314

 

 

$

(134

)

 

$

319

 

 

$

(65

)

 

Note 20. Subsequent Events

The Company has evaluated all of its activities and concluded that no other subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements.

 

21


Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in thousands, except per-share amounts)

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2019.

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to our future financial or business performance, strategies, or expectations. Forward-looking statements typically are identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” as well as similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could” and “may.”

We caution that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty, and do not undertake, to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to items described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and as modified and supplemented by “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, the following factors, among others, could cause results to differ materially from forward-looking statements or historical performance: the severity and duration of world health events, including the outbreak of the novel strain of coronavirus COVID-19 and the related economic repercussions and operational challenges; our ability to consistently generate operating profits; fluctuations in our revenues and operating results; our competitive environment and our competitive position; our ability to enhance our current three-dimensional (“3D”) printing machines and technology and develop and introduce new 3D printing machines; our ability to qualify more industrial materials in which we can print; demand for our products; the availability of skilled personnel; the impact of loss of key management; the impact of market conditions and other factors on the carrying value of long-lived assets; our ability to continue as a going concern; the impact of customer specific terms in machine sale agreements in determining the period in which we recognize revenue; risks related to global operations including effects of COVID-19; foreign currency; the adequacy of sources of liquidity; the amount and sufficiency of funds for required capital expenditures, working capital, and debt service; dependency on certain critical suppliers; nature or impact of alliances and strategic investments; reliance on critical information technology systems; the effect of litigation, contingencies and warranty claims; liabilities under laws and regulations protecting the environment; the impact of governmental laws and regulations; operating hazards, war, terrorism and cancellation or unavailability of insurance coverage; the impact of disruption of our manufacturing facilities or ExOne Adoption Centers (“EACs”); the adequacy of our protection of our intellectual property; expectations regarding demand for our industrial products, operating revenues, operating and maintenance expenses, insurance expenses and deductibles, interest expenses, debt levels, and other matters with regard to outlook; and other factors beyond our control, including the impact of COVID-19.

Overview

Our Business

We are a global provider of 3D printing machines and 3D printed and other products, materials and services to industrial customers. Our business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for our customers using our installed base of 3D printing machines. Our machines serve direct (metal) and indirect (sand) applications.  Direct printing produces a component; indirect printing makes a tool to produce a component. We offer pre-production collaboration and print products for customers through our network of EACs. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, that are necessary for purchasers of our 3D printing machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading volumetric output (as measured by build box size and printing speed), uniquely position us to serve the needs of industrial customers.

Outlook

The impact of COVID-19 and the related economic, business and market disruptions are evolving rapidly, and their effects are uncertain. As a result of COVID-19, we were required to temporarily close our operations at our North Huntingdon, Pennsylvania facility for the period from March 23 through March 30, 2020. In response to COVID-19, we have incurred incremental costs associated with protecting the health and safety of our global workforce, enhanced sanitization of our global operating facilities, and information technology capabilities for employees operating remotely. Beginning in March 2020, restrictions imposed by various governmental authorities on both domestic and international shipping and travel have caused a disruption to the timing of delivery and installation of our 3D printing machines, resulting in negative impacts to our financial position, results of operations and cash flows. The duration and severity of the outbreak and its long-term impact on our business are uncertain at this time. We are unable to predict the impact that COVID-19 will have on our future financial position, results of operations and cash flows.

22


In response to adverse market conditions associated with COVID-19, beginning in March 2020 and through April 2020, we initiated various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity. As a result of these actions, and other reduced costs such as global travel, we realized approximately $4,000 in cash cost savings through September 30, 2020. We estimate additional cash cost savings in the range of approximately $1,000 to $2,000 for the remainder of 2020, with approximately $2,000 to $3,000 of the total 2020 cash cost savings sustained into 2021. Given the high level of uncertainty associated with the duration and severity of COVID-19, we expect to continue to assess whether additional cost actions are necessary to further adjust our operating model.

We are the global leader in industrial 3D printers utilizing binder jetting technology for non-polymer-based materials. Our continued focus is to achieve profitable growth via three strategic initiatives:

 

-

Expand Both Our Customer and Application Focus. We intend to leverage our substantial experience in binder jetting technology to focus on the highest value industries and applications. We have made a significant investment in our global commercial operations to drive our growth in this area.

 

-

Extend the Capabilities of Our Core Technology. We intend to expand our core binder jetting technology through our machine platforms while at the same time lowering the total cost of ownership of our systems for our customers. We are also focused on driving modularity among our various machine platforms for both direct (metal) and indirect (sand) applications.

 

-

Execute on Recurring Revenue Growth. We intend to execute on our plan to expand our offerings for 3D printed and other products, materials and services while better leveraging our growing global installed base of 3D printers.

Our operating results continue to be impacted by a prolonged downturn in global manufacturing trends as a result of COVID-19 which has influenced the capital expenditure investments of our customers. Despite these headwinds, we ended the third quarter with a record backlog balance of approximately $42,600. We expect the combination of our backlog at September 30, 2020 and an acceleration in market adoption of our binder jetting technology, including our newly introduced printer platforms (our X1 25Pro® , X1 160ProTM and InnoventPro® for metal applications and S-Max ProTM for sand applications), to provide the basis for our operating stability for the remainder of 2020 and into 2021 despite continuing negative macroeconomic trends for global manufacturing, including the impact of COVID-19.

Sale-Leaseback of European Headquarters and Operating Facility in Gersthofen, Germany

On December 10, 2019, ExOne Property GmbH and ExOne GmbH (our “German Subsidiaries”) entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of our European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a cash price of approximately $18,500 (€17,000), of which approximately $2,200 was received prior to December 31, 2019. Concurrently with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling approximately $1,700 (€1,500), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the two five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020.

As a result of the completion of the sale-leaseback transaction further discussed above, we recorded or expect to record the following effects on our results of operations, financial condition and cash flows:

 

-

As indicated, we expect to incur annual rent expense (which commenced during the three months ending March 31, 2020) of approximately $1,700 (with an expected allocation of approximately $1,300, $200 and $200 to cost of sales, research and development and selling, general and administrative expenses, respectively, based on the relative utilization of the Facility). This is in place of depreciation recorded in prior annual periods associated with the Facility of approximately $600 (allocated approximately $400, $100 and $100 to cost of sales, research and development and selling, general and administrative expenses, respectively, based on the relative utilization of the Facility).

 

-

During the three months ended March 31, 2020, we recorded a gain from sale-leaseback of property and equipment of $1,462.

 

-

During the three months ended March 31, 2020, we recorded an operating right-of-use asset and corresponding operating lease liability of $4,605, which was representative of the present value of future minimum lease payments over the initial three-year term as there were no penalties or other factors associated with the lease that resulted in reasonable assurance of its extension at inception.

Backlog

At September 30, 2020, our backlog was approximately $42,600 of which approximately $35,500 is expected to be fulfilled during the next twelve months notwithstanding uncertainty related to the impact of COVID-19 (further discussed above) including, but not limited to, domestic and international shipping and travel restrictions brought about by COVID-19 which could have an adverse effect on the timing of delivery and installation of products and/or services to customers. At December 31, 2019, our backlog was approximately $31,100 and at September 30, 2019 our backlog was approximately $25,800.

23


Seasonality

Purchases of our 3D printing machines are often subject to the capital expenditure cycles of our customers. Generally, 3D printing machine sales are higher in our third and fourth quarters than in our first and second quarters; however, as acceptance of our 3D printing machines as a credible alternative to traditional methods of production grows, we expect to limit the seasonality we experience.

We believe that COVID-19 may have an adverse effect on the future capital expenditure decisions of our customers outside of their normal spending cycles, which may impact the timing and extent of such decisions.

Results of Operations

Net Loss

Net loss for the three months ended September 30, 2020 was $3,273, or $0.19 per basic and diluted share, compared with a net loss of $4,844, or $0.30 per basic and diluted share, for the three months ended September 30, 2019. The decrease in our net loss was principally due to an increase in revenue and gross profit, primarily due to a higher volume of sales of 3D printing machines combined with a decrease in operating expenses (research and development and selling, general and administrative expenses) primarily as a result of certain cost savings actions taken, and other cost reductions realized, as a result of COVID-19.

Net loss for the nine months ended September 30, 2020 was $10,944, or $0.65 per basic and diluted share, compared with a net loss of $13,129, or $0.81 per basic and diluted share, for the nine months ended September 30, 2019. The decrease in our net loss was principally due to lower operating expenses primarily as a result of certain cost savings actions taken, and other cost reductions realized, as a result of COVID-19 and the absence of costs associated with the GIFA international foundry show in Dusseldorf, Germany (a once every four-year event), which we attended in June 2019. We also recognized a gain of $1,462 during the three months ended March 31, 2020 associated with the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany. Partially offsetting the decrease in net loss, during the three months ended March 31, 2019, we recorded an income tax benefit of $818 associated with the reversal of previously recorded liabilities for uncertain tax positions following the completion of a tax examination of our German operations.

Revenue

The following table summarizes revenue by product group for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

3D printing machines

 

$

10,488

 

 

 

60.3

%

 

$

3,972

 

 

 

36.5

%

 

$

21,703

 

 

 

51.8

%

 

$

16,532

 

 

 

46.3

%

3D printed and other products,

   materials and services

 

 

6,911

 

 

 

39.7

%

 

 

6,912

 

 

 

63.5

%

 

 

20,178

 

 

 

48.2

%

 

 

19,210

 

 

 

53.7

%

 

 

$

17,399

 

 

 

100.0

%

 

$

10,884

 

 

 

100.0

%

 

$

41,881

 

 

 

100.0

%

 

$

35,742

 

 

 

100.0

%

Revenue for the three months ended September 30, 2020 was $17,399, compared with revenue of $10,884 for the three months ended September 30, 2019, an increase of $6,515, or 59.9%. The increase in revenue resulted from an increase in revenue attributable to our 3D printing machines product group, primarily due to a higher volume of sales of 3D printing machines.

The increase in revenues from 3D printing machines of $6,516 for the three months ended September 30, 2020, or 164.0%, as compared to the same period in the prior year, resulted from higher volumes (13 units sold during the three months ended September 30, 2020 versus nine units sold during the three months ended September 30, 2019) including contributions from our fourth quarter 2019 product introductions, the S-Max ProTM (sand) and X1 25ProTM (metal) platforms and a favorable mix of machine sold.

Revenue from 3D printed and other products, materials and services for the three months ended September 30, 2020 was generally consistent with the three months ended September 30, 2019. Comparably, increases in our aftermarket revenues of $572, driven by increases in our global installed base of 3D printing machines, and funded research and development arrangements of $283, driven by an automotive project which commenced during the three months ended December 31, 2019, were offset by decreases in revenues associated with our global sand EAC network of $918 based on lower end market demand as a result of the impact of COVID-19 on the macroeconomic environment.

Revenue for both product groups were impacted by COVID-19, including disruptions to domestic and international shipping and travel in addition to the negative macroeconomic effects.

Revenue for the nine months ended September 30, 2020 was $41,881, compared with revenue of $35,742 for the nine months ended September 30, 2019, an increase of $6,139, or 17.2%. The increase in revenue resulted from an increase in revenue attributable to both our product groups.  

24


The increase in revenues from 3D printing machines of $5,171 for the nine months ended September 30, 2020, or 31.3%, as compared to the same period in the prior year, resulted from higher volumes (35 units sold during the nine months ended September 30, 2020 versus 30 units sold during the nine months ended September 30, 2019) and a favorable mix of machines sold.

The increase in revenues from 3D printed and other products, materials and services of $968 for the nine months ended September 30, 2020, or 5.0%, as compared to the same period in the prior year, resulted from an increase of $1,177 in consumable materials and aftermarket revenues based on growth in our global installed base of 3D printing machines and an increase of $897 associated with research and development arrangements primarily due to an automotive project which commenced during the three months ended December 31, 2019. Offsetting these increases were reductions in revenues of $1,098 from our global EACs (metal and sand) based on lower end market demand as a result of the impact of COVID-19 on the macroeconomic environment.

Revenue for both product groups were impacted by COVID-19, including disruptions to domestic and international shipping and travel in addition to the negative macroeconomic effects.

Cost of Sales and Gross Profit

Cost of sales for the three months ended September 30, 2020 was $13,500, compared with cost of sales of $8,006 for the three months ended September 30, 2019, an increase of $5,494, or 68.6%. Gross profit for the three months ended September 30, 2020 was $3,899, compared with gross profit of $2,878 for the three months ended September 30, 2019, an increase of $1,021. Gross profit percentage was 22.4% for the three months ended September 30, 2020, compared with 26.4% for the three months ended September 30, 2019.

The increase in gross profit during the three months ended September 30, 2020 was primarily due to higher revenue volumes and lower fixed overhead costs, partially offset by lower realized pricing on products sold (including sales of our X1 25Pro platform following its initial market introduction in the fourth quarter of 2019 and the sale of a discontinued sand system during the three months ended September 30, 2020) and unfavorable warranty experience.  Lower fixed overhead costs during the three months ended September 30, 2020 were driven by a reduction in labor, travel, and other discretionary manufacturing expense based on actions taken and other realized reductions as a result of COVID-19.  These decreases were offset by an increase in facility rent expense (versus depreciation) following completion of the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany during the three months ended March 31, 2020.

Cost of sales for the nine months ended September 30, 2020 was $31,263, compared with cost of sales for the nine months ended September 30, 2019 of $25,080, an increase of $6,183, or 24.7%. Gross profit for the nine months ended September 30, 2020 was $10,618, compared with gross profit of $10,662 for the nine months ended September 30, 2019, a decrease of $44. Gross profit percentage was 25.4% for the nine months ended September 30, 2020, compared with 29.8% for the nine months ended September 30, 2019.

The decrease in gross profit during the nine months ended September 30, 2020 was primarily due to lower realized pricing on products (including sales of our X1 25Pro platform following its initial market introduction in the fourth quarter of 2019 and the sale of a discontinued sand system during the three months ended September 30, 2020) and unfavorable warranty experience, partially offset by higher revenue volumes and lower fixed overhead costs.  Lower fixed overhead costs during the nine months ended September 30, 2020 were driven by a reduction in labor, travel, and other discretionary manufacturing expense based on actions taken and other realized reductions as a result of COVID-19.  These decreases were offset by an increase in facility rent expense (versus depreciation) following completion of the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany during the three months ended March 31, 2020.

Research and Development

Research and development expenses for the three months ended September 30, 2020 were $2,013, compared with research and development expenses of $2,430 for the three months ended September 30, 2019, a decrease of $417, or 17.2%. The decrease in research and development expenses was primarily due to decreases associated with COVID-19, including reductions of employee-related costs of $84 and travel-related expenses of $53. In addition, material-related costs decreased by $159 and consulting and professional fees decreased by $72 based on reductions in machine and material development spending between the periods.

Research and development expenses for the nine months ended September 30, 2020, were $6,858 compared with research and development expenses of $7,399 for the nine months ended September 30, 2019, a decrease of $541, or 7.3%. The decrease in research and development expenses is primarily due to decreases associated with COVID-19, including reductions of employee-related costs of $17 and travel-related expenses of $62. In addition, material-related costs decreased by $389 and consulting and professional fees decreased by $198 based on reductions in machine and material development spending between the periods.

25


Selling, General and Administrative

Selling, general and administrative expenses for the three months ended September 30, 2020 were $4,825, compared with selling, general and administrative expenses of $5,326 for the three months ended September 30, 2019, a decrease of $501, or 9.4%. The decrease in selling, general and administrative expenses was principally due to decreases associated with COVID-19, including employee-related costs of $252, travel-related expenses of $154 and trade show expenses of $86. In addition, consulting and professional fees decreased $198 and net provisions for bad debts decreased $400 due to the absence of a specific customer provision recorded in the 2019 period. Offsetting these decreases was an increase in sales commissions of $218 consistent with our increase in revenues for the comparable period and the absence of a net reversal of $310 to equity-based compensation expenses related to the 2019 Program based on changes in the estimated outcome of the defined financial goals for 2019 under the 2019 Program.

Selling, general and administrative expenses for the nine months ended September 30, 2020 were $15,476, compared with selling, general and administrative expenses of $16,916 for the nine months ended September 30, 2019, a decrease of $1,440, or 8.5%. The decrease in selling, general and administrative expenses was principally due to reductions in trade show expenses of $766 due to COVID-19 and the absence of costs associated with the GIFA international foundry show in Dusseldorf, Germany (a once every four-year event), lower travel expenses of $418 as a result of COVID-19 global travel restrictions, lower consulting and professional fees of $580, lower equity-based and other incentive compensation of $295 and a reduction in provision for bad debts of $268 (further described above). Offsetting these decreases were increases in employee costs of $603 primarily due to investments made to our commercial operations, offset by actions taken (terminations and furloughs) in response to COVID-19 and an increase in sales commissions of $322 consistent with our increase in revenues for the comparable period.

Interest Expense

Interest expense for the three months ended September 30, 2020 was $54, compared with interest expense of $85 for the three months ended September 30, 2019, a decrease of $31, or 36.5%. Interest expense for the nine months ended September 30, 2020 was $171, compared with interest expense of $227 for the nine months ended September 30, 2019, a decrease of $56, or 24.7%. The decrease in interest expense for both periods was principally due to lower interest associated with our related party revolving credit facility (including lower debt issuance cost amortization) following amendment of the Credit Agreement (which reduced the borrowing capacity of the facility) and the extension of the term of the credit facility in February 2020.

Other Expense (Income) – Net

Other expense (income) – net for the three months ended September 30, 2020 was $314, compared with other expense (income) – net of ($134) for the three months ended September 30, 2019. The change of $448 was principally due to unfavorable foreign exchange rate changes and the related impact on certain intercompany transactions between subsidiaries for which settlement has occurred or is planned.

Other expense (income) – net for the nine months ended September 30, 2020 was $319 compared with other expense (income) – net of ($65) for the nine months ended September 30, 2019. The change of $384 was principally due to unfavorable foreign exchange rate changes and the related impact on certain intercompany transactions between subsidiaries for which settlement has occurred or is planned.

(Benefit) Provision for Income Taxes

The (benefit) provision for income taxes for the three months ended September 30, 2020 and 2019 was ($34) and $15, respectively. The provision (benefit) for income taxes for the nine months ended September 30, 2020 and 2019  was $200 and ($686), respectively. We have completed a discrete period computation of our (benefit) provision for income taxes for each of the periods presented. The discrete period computation was required as a result of jurisdictions with losses before income taxes for which no tax benefit can be recognized and an inability to generate reliable estimates for results in certain jurisdictions as a result of inconsistencies in generating net operating profits (losses) in those jurisdictions.  

The effective tax rate for the three months ended September 30, 2020 and 2019 was 1.0% (benefit on a loss) and 0.3% (provision on a loss), respectively. The effective tax rate for the nine months ended September 30, 2020 and 2019 was 1.9% (provision on a loss) and 5.0% (benefit on a loss), respectively.

For the three and nine months ended September 30, 2020 and the three months ended September 30, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to net changes in valuation allowances for the period. For the nine months ended September 30, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to the reversal of previously recorded liabilities for uncertain tax positions (further discussed below) and net changes in valuation allowances for the period.

We have provided a valuation allowance for certain of our net deferred tax assets as a result of our inability to generate consistent net operating profits in certain jurisdictions in which we operate. As such, certain benefits from deferred taxes in the periods presented have been fully offset by changes in the valuation allowance for the related net deferred tax assets. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that net deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.

26


At December 31, 2018, our ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities in Germany. In January 2019, this examination was concluded without significant adjustment to previously established tax positions. As a result, during the three months ended March 31, 2019, we recorded a reversal of certain of our previously recorded liabilities for uncertain tax positions of $1,075, of which $257 was offset against net operating loss carryforwards.

Impairment

During the three months ended September 30, 2020, as a result of continued operating losses and cash flow deficiencies, we identified a triggering event requiring a test for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management.

For purposes of testing long-lived assets for recoverability, we operate as three separate asset groups: United States, Europe and Japan. In assessing the recoverability of long-lived assets held and used, we determined the carrying amount of long-lived assets held and used to be in excess of the estimated future undiscounted net cash flows of the related assets. We proceeded to determine the fair value of our long-lived assets held and used, principally through use of the market approach. Our use of the market approach included consideration of market transactions for comparable assets. Management concluded that the fair value of long-lived assets held and used exceeded their carrying value, and as such, no impairment loss was recorded.   

A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used, which could result in a material adverse effect on our financial position and results of operations.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition are not significant.

Liquidity and Capital Resources

Liquidity

We have incurred a net loss in each of our annual periods since our inception. We incurred a net loss of $3,273 and $10,944 for the three months and nine months ended September 30, 2020, respectively. At September 30, 2020, we had $39,428 in unrestricted cash and cash equivalents. In addition to our unrestricted cash and cash equivalents, we also have access to additional capital through our $10,000 related party revolving credit facility (further discussed below).

Since our inception we have received cumulative unrestricted net proceeds from the sale of our common stock (through our initial public offering and subsequent public offerings, including at-the-market offerings) of $195,847 to fund our operations. We maintain additional access to capital through our active shelf registration statement which allows for the sale of various equity or debt instruments up to an aggregate amount of $125,000 (including the at-the-market offerings further described below).

In June 2020, we entered into an equity distribution agreement (the “Oppenheimer Equity Distribution Agreement”) with Oppenheimer & Company, Inc. (“Oppenheimer”) pursuant to which Oppenheimer agreed to act as sales agent in the sale of up to $25,000 in the aggregate of our common stock in “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Sales of common stock under the Oppenheimer Equity Distribution Agreement ended in September 2020 when the offering limit ($25,000) was reached. Following completion of this offering, in September 2020, we entered into a separate equity distribution agreement (the “Canaccord Equity Distribution Agreement”) with Canaccord Genuity LLC (“Canaccord”), pursuant to which Canaccord agreed to act as sales agent in the sale of up to $25,000 in the aggregate of our common stock in “at-the-market offerings” as defined in Rule 415 under the Securities Act. The terms of both the Oppenheimer Equity Distribution Agreement and the Canaccord Equity Distribution Agreement require a 3.0% commission on the sale of our common stock as well as reimbursement of certain expenses incurred by the sales agent.

During the three months ended September 30, 2020, we sold 2,060,878 shares of common stock in the above-described at-the market offerings (1,822,274 shares under the Oppenheimer Equity Distribution Agreement and 238,604 shares under the Canaccord Equity Distribution Agreement) at an average selling price of $12.26 per share, resulting in net proceeds to us (after deducting commissions) of $24,512. During the nine months ended September 30, 2020, we sold 2,443,479 shares of common stock in the above-described at-the-market offerings (2,204,875 shares under the Oppenheimer Equity Distribution Agreement and 238,604 shares under the Canaccord Equity Distribution Agreement) at an average selling price of $11.73 per share, resulting in net proceeds to us (after deducting commissions) of $27,800.  During the three months and nine months ended September 30, 2020, we incurred expenses (other than commissions) associated with at-the-market offerings of $124 and $314, respectively. At September 30, 2020, $213 of the expenses (other than commissions) associated with at-the-market offerings remained unpaid, of which $147 was included in accounts payable and $66 was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

27


There have been no sales of shares of common stock in at-the-market offerings subsequent to September 30, 2020. Future sales of securities in at-the-market offerings and under our active shelf registration statement, if any, are dependent on market conditions, which may restrict the timing and extent of any future offering of securities by us.

In addition to net proceeds from the sale of our common stock, on April 18, 2020, we received additional unrestricted cash proceeds of $2,194 in connection with a Paycheck Protection Program loan (further discussed below).

We have previously exhibited our ability to modify our operating structure and support our liquidity position through various restructuring and other actions, including our 2018 global cost realignment program. As further discussed above, in response to adverse market conditions associated with COVID-19, beginning in March 2020 and through April 2020, we commenced various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity.  

We believe that our existing capital resources will be sufficient to support our operating plan. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital (in addition to those further discussed above). We may also seek to raise additional capital to support our growth through the incurrence of additional debt, the sale of equity or other alternatives (including asset sales) or a combination thereof.

Related Party Revolving Credit Facility

On March 12, 2018, we and our ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was the Executive Chairman of the Company (a related party) at such date and is currently Chairman of the Company, relating to a $15,000 revolving credit facility (the “Credit Agreement”) to provide additional funding to us for working capital and general corporate purposes. The Credit Agreement provided a credit facility for a term of three years (through March 12, 2021), bearing interest at a rate of one-month LIBOR plus an applicable margin of 500 basis points (6.8% at December 31, 2019 and 5.1% at September 30, 2020). The Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties.

On February 18, 2020, the Loan Parties and LBM entered into a First Amendment to the Credit Agreement (the “Amendment”) which (i) reduced the available capacity under the revolving credit facility to $10,000, (ii) extended the term of the credit facility until March 31, 2024, (iii) increased the commitment fee to 100 basis points, or 1.00%, on the unused portion of the revolving credit facility, and (iv) provided a process for the replacement of the LIBOR index after 2021. In addition, the accounts receivable of ExOne GmbH no longer serve as collateral for borrowings under the amended revolving credit facility.

Borrowings under the credit facility are required to be made in minimum increments of $1,000. We may terminate or reduce the credit commitment at any time during the term of the amended Credit Agreement without penalty. We may also make prepayments against outstanding borrowings under the amended Credit Agreement at any time without penalty. At December 31, 2019 and September 30, 2020, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the credit facility.

The amended Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance of insurance, properties, and licenses; and compliance with laws. The amended Credit Agreement also contains several negative covenants including restricting the incurrence of certain additional debt; prohibiting future liens (other than permitted liens); prohibiting investment in third parties; limiting the ability to pay dividends; limiting mergers, acquisitions, and dispositions; and limiting the sale of certain property and equipment of the Loan Parties. The amended Credit Agreement does not contain any financial covenants. The amended Credit Agreement also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.

We do not consider the Credit Agreement, as amended, indicative of a fair market value lending, as LBM was determined to be a related party based on common control by S. Kent Rockwell. S. Kent Rockwell is the indirect sole owner of LBM. Prior to execution, each of the Credit Agreement and the Amendment was reviewed and approved by the Audit Committee of the Company’s Board of Directors (the “Board”), in accordance with The ExOne Company Policy and Procedures with Respect to Related Person Transactions, and subsequently by a sub-committee of independent members of the Board. At the time of execution of the Credit Agreement, the available loan proceeds were deposited into an escrow account with an unrelated, third party financial institution acting as escrow agent pursuant to a separate escrow agreement by and among the parties. Loan proceeds held in escrow are available to us upon our submission to the escrow agent of a loan request. Such proceeds will not be available to LBM until payment in-full of the obligations under the amended Credit Agreement and termination of the amended Credit Agreement. Payments of principal and other obligations will be made to the escrow agent, while interest payments will be made directly to LBM. Provided there exists no potential default or event of default, the amended Credit Agreement and the escrow agreement prohibit any acceleration of repayment of any amount outstanding under the amended Credit Agreement and prohibit termination of the amended Credit Agreement or withdrawal from escrow of any unused portion of the available loan proceeds.

28


There were no borrowings under the credit facility during the three or nine months ended September 30, 2020 or 2019. There were no borrowings outstanding under the credit facility at either September 30, 2020 or December 31, 2019. At September 30, 2020 and December 31, 2019, $8 and $28, respectively, associated with the commitment fee on the unused portion of the revolving credit facility were included in accounts payable on the accompanying condensed consolidated balance sheet. Amounts payable to LBM at September 30, 2020 and December 31, 2019 were settled by us in October 2020 and January 2020, respectively.

Paycheck Protection Program

On April 18, 2020, we entered into an unsecured promissory note (the “Note”) with an unrelated United States bank (the “Lender”) reflecting a loan in the principal amount of $2,194 (the “Loan”). The Loan was granted pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Pursuant to the terms of the Note, the Loan bears interest at a rate of 1.00% per annum and matures on April 18, 2022 (the “Maturity Date”). Principal and interest payments on the Loan are deferred until November 18, 2020, at which time equal installments of principal and interest will be due and payable monthly through the Maturity Date. The Note may be prepaid by us at any time prior to maturity without penalty. If we default on the Note, the Lender may, at its option, accelerate the maturity of our obligations under the Note.

Pursuant to the terms of the PPP, the Loan, or a portion thereof, may be forgiven if Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. We intend to use all or a significant majority of the Loan proceeds for qualifying expenses. The terms of the Loan, including eligibility and forgiveness, may be subject to further requirements in regulations and guidance adopted by the SBA, including the Paycheck Protection Flexibility Act enacted in June 2020. We have elected to account for the Loan in accordance with the terms of the Note while its forgiveness eligibility remains subject to review.

Cash Flows

The following table summarizes the significant components of cash flows for the periods indicated, and our cash, cash equivalents, and restricted cash balances as of the periods indicated:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Net cash used for operating activities

 

$

(12,615

)

 

$

(4,323

)

Net cash provided by (used for) investing activities

 

 

15,457

 

 

 

(610

)

Net cash provided by financing activities

 

 

30,556

 

 

 

2,100

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

295

 

 

 

(187

)

Net change in cash, cash equivalents, and restricted cash

 

$

33,693

 

 

$

(3,020

)

 

 

 

 

 

 

 

 

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Cash and cash equivalents

 

$

39,428

 

 

$

5,265

 

Restricted cash

 

 

508

 

 

 

978

 

Cash, cash equivalents, and restricted cash

 

$

39,936

 

 

$

6,243

 

 

Operating Activities

Net cash used for operating activities for the nine months ended September 30, 2020 was $12,615, compared with net cash used for operating activities of $4,323 for the nine months ended September 30, 2019. The increase in net cash outflows of $8,292 was due principally to an unfavorable change in our net working capital attributable to a decrease in net cash inflows from customers (principally due to the timing of cash collections on 3D printing machine sales) and an increase in net cash outflows related to the timing of payments to our suppliers and vendors for our production and operating expenses.  The unfavorable change in net working capital was partially offset by a decrease in net loss (net of noncash items).

We expect to maintain a balanced net working capital position for the remainder of 2020, with a targeted reduction in inventories consistent with our revised production plans which are expected to offset lower commercial activity (customer prepayments) stemming from the impact of COVID-19.

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2020 was $15,457, compared with net cash used for investing activities of $610 for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, net cash provided by investing activities included $16,229 in proceeds from the sale of property and equipment, including the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany.

29


Activity for both periods included cash outflows for capital expenditures (consistent with our operating plans).

We expect our remaining 2020 capital expenditures to be limited to spending associated with sustaining our existing operations and strategic asset acquisition and deployment (additional estimated spending of approximately less than $1,000, which reflects a reduced spending target as part of our capital conservation plans in response to COVID-19 and its effect on our operations).

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 was $30,556, compared with net cash provided by financing activities of $2,100 for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, net cash provided by financing activities included cash inflows of $27,699 in proceeds from at-the-market offerings of common stock, net of issuance costs (further discussed above) and $2,194 in proceeds from borrowings on long-term debt associated with our PPP Loan (further discussed above).

For the nine months ended September 30, 2019, net cash provided by financing activities included cash inflows of $2,000 associated with borrowings under our related party revolving credit facility.

Activity for both periods included cash inflows associated with proceeds from the exercise of stock options by employees and cash outflows associated with principal payments on outstanding debt.

Financial Condition

The following summarizes the material changes in our financial condition from December 31, 2019 to September 30, 2020:

Restricted cash decreased by $470 following an amendment to our credit facility agreement with a German bank completed in February 2020 which relieved us of a cash collateral requirement for financial guarantees and letters of credit issued by us for commercial transactions requiring security for amounts up to approximately $1,200.

Accounts receivable decreased by $982 based on the timing of cash payments by customers (principally the timing of cash collections on 3D printing machine sales).

Inventories increased by $2,417 consistent with our growth in backlog. Inventories have also been impacted (primarily the increase in finished goods inventories) as a result of disruptions in delivery and installation of our 3D printing machines as a result of COVID-19.

Prepaid expenses and other current assets increased by $1,666, mostly due to increases in prepayments to suppliers for 3D printing machine components and subassemblies, and prepaid insurance (based on the timing of payments to providers as compared to the period of coverage).

Property and equipment – net decreased by $17,971, mostly due to the impact of the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany (which resulted in a derecognition of $17,282 of related property and equipment) and depreciation expense of $2,925 incurred during the period. These decreases were offset by increases associated with capital expenditure additions of $885 and net transfers from inventory to property and equipment of 3D printing machines of $1,337.

Operating lease right-of-use assets increased by $3,846, principally as a result of the sale-leaseback transaction further discussed above.

Accounts payable decreased by $1,373 due to the timing of payments to our suppliers and vendors for our production and operating expenses.

Accrued expenses and other current liabilities decreased by $1,779, mostly due to the sale-leaseback transaction further discussed above based on the release of $2,243 of a deposit liability received from the buyer in December 2019.

Operating lease liabilities increased $3,846, principally as a result of the sale-leaseback transaction further discussed above.

Contract liabilities increased $756 based on the timing of cash payments by customers (principally the timing of cash collections on 3D printing machine sales consistent with growth in our backlog). Contract liabilities have also been impacted as a result of disruptions in delivery and installation of our 3D printing machines as a result of COVID-19.    

Off Balance Sheet Arrangements

In the normal course of our operations, our ExOne GmbH subsidiary issues financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security. At September 30, 2020, total outstanding financial guarantees and letters of credit issued by ExOne GmbH were $583 (€497) with expiration dates ranging from October 2020 through February 2023. At December 31, 2019, total outstanding financial guarantees and letters of credit issued by ExOne GmbH were $560 (€499). For further discussion related to financial guarantees and letters of credit issued by ExOne GmbH, refer to Note 11 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recently Issued and Adopted Accounting Guidance

Refer to Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

30


Critical Accounting Policies and Estimates

Refer to Note 1 to the consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

31


Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

Item 4.     Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, as a result of certain material weaknesses in our internal control over financial reporting (further discussed below), our disclosure controls and procedures were ineffective. 

In connection with the preparation of our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that there are material weaknesses in the design and operating effectiveness of our internal control over financial reporting as defined in Securities and Exchange Commission Regulation S-X. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

A description of the identified material weaknesses in internal control over financial reporting is as follows:

 

-

We did not maintain adequate control over user access rights for a significant information technology system.

 

-

We did not maintain adequate control over application changes for a significant information technology system.

 

-

We did not maintain adequate control over pricing and discounts associated with sales of certain of our products.

Notwithstanding the identified material weaknesses described above, management believes that the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2020, as a result of the identification in earlier periods of the material weaknesses described above, management continued the execution of its remediation plans in an effort to ensure that our disclosure controls and procedures are effective. Our remediation plans include a comprehensive evaluation of the people, processes and systems responsible for each of the underlying control activities. We expect to complete this evaluation in 2020 and put measures in place in an effort to remediate the identified material weaknesses. Additionally, during the three months ended September 30, 2020, we increased the size and capabilities of our finance and accounting functions by establishing a new Corporate Controller role with responsibility for financial reporting, corporate accounting and oversight of our consolidated financial close process. In September 2020, we hired a financial professional with significant public accounting and financial reporting experience to fill this newly established Corporate Controller role. We expect that the hiring of this Corporate Controller will facilitate the effective execution of our remediation plans and improve our internal controls over financial reporting. However, we cannot be certain that the measures we may take will ensure that we establish and maintain adequate controls over our financial processes and reporting in the future or that material weaknesses identified will be remediated.

Other than the items described above, there were no changes in our internal control over financial reporting during the three months ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32


PART II – OTHER INFORMATION

Item 1.     Legal Proceedings.

We are subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

Item 1A.     Risk Factors.

We face risks related to the COVID-19 global pandemic which could significantly disrupt our commercial activities and operations.

The outbreak of a novel strain of coronavirus and subsequent global pandemic (“COVID-19”) has resulted in global government-enforced travel and business closures throughout the world. Our sales, installation and service of 3D printing machines have been disrupted, and the future spread of the disease may cause our commercial efforts to be disrupted again. We may incur expenses or delays resulting from such events outside of our control, which could have a material adverse effect on our financial position, results of operations or cash flows.

We manufacture our 3D printing machines at our facilities in Gersthofen, Germany and North Huntingdon, Pennsylvania. In addition, we have a network of EACs in the United States, Germany and Japan. If the operations of one or more of these facilities are materially disrupted (including as a result of COVID-19), we may be unable to fulfill certain customer orders for the period of the disruption, we may not be able to recognize revenue on certain orders and we might need to modify our standard sales terms to secure commitments of customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption. Such a disruption could have an adverse effect on our financial position, results of operations or cash flows.

In addition to the commercial risks, the long-term effects of COVID-19 may also include risks associated with employee health and safety and supply chain disruption, each of which may have a material adverse effect on our financial position, results of operations or cash flows.

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, except as described above.

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

Under the 2013 Equity Incentive Plan (the “Plan”), the Compensation Committee of the Board may require or permit participants under the Plan to elect net settlement upon the vesting of restricted stock awards under the Plan in order to satisfy the related tax withholding obligations.  Under net settlement, we withhold from the shares that would otherwise be delivered to the participant such number of shares of our common stock having an aggregate fair market value equal to the tax withholding obligation. When we withhold these shares, we are required to remit to the appropriate taxing authorities the aggregate fair market value of the shares withheld, which could be deemed a purchase of the common shares by us on the date of withholding.

A summary of our deemed repurchases of shares of our common stock to satisfy tax withholding obligations related to the vesting of restricted stock, as described above, during the three months ended September 30, 2020 is as follows:

 

Period

 

Total number of

shares purchased (a)

 

 

Average price paid

per share

 

 

Total number of

shares purchased

as part of publicly

announced plans

or programs (a)

 

 

Maximum number

(or approximate

dollar value) of

shares that

may be purchased

under the plans or

programs (a)

 

July 1, 2020 - July 31, 2020

 

 

 

 

$

 

 

 

 

 

$

 

August 1, 2020 - August 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

September 1, 2020 - September 30, 2020

 

 

1,234

 

 

 

12.22

 

 

 

 

 

 

 

 

 

 

1,234

 

 

$

12.22

 

 

 

 

 

$

 

 

(a)

All of our repurchases of shares of our common stock during the three months ended September 30, 2020 were in connection with the net settlement of vested restricted stock awards.  The Company did not have any publicly announced plans or programs to purchase our common stock during the three months ended September 30, 2020.

 

 

Item 6.     Exhibits.

(a)(3) Exhibits

The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q.

33


EXHIBIT INDEX

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 

Exhibit

Number

 

Description

 

Method of Filing

 

 

 

 

 

  10.1

 

Equity Distribution Agreement dated September 11, 2020, between the Company and Canaccord Genuity LLC.

 

Incorporated by reference to Exhibit 10.1 on Form 8-K (#001-35806) filed on September 11, 2020.

 

 

 

 

 

  31.1

 

Rule 13(a)-14(a) Certification of Principal Executive Officer.

 

Filed herewith.

 

 

 

 

 

  31.2

 

Rule 13(a)-14(a) Certification of Principal Financial Officer.

 

Filed herewith.

 

 

 

 

 

  32

 

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.

 

Filed herewith.

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

Filed herewith.

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

Filed herewith.

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

Filed herewith.

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

Filed herewith.

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

Filed herewith.

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

Filed herewith.

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

Filed herewith.

 

 

 

 

 

 

34


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

The ExOne Company

 

 

 

 

By:

 

/s/ John F. Hartner

 

 

 

John F. Hartner

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Date:

 

November 5, 2020

 

 

 

 

 

By:

 

/s/ Douglas D. Zemba

 

 

 

Douglas D. Zemba

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

Date:

 

November 5, 2020

 

35