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XONE ExOne

Participants
Karen Howard Investor Relations
Jim McCarley Chief Executive Officer
Brian Smith Chief Financial Officer and Treasurer
Chris Van Horn B. Riley FBR
Bobby Burleson Canaccord Genuity
Greetings and welcome to the ExOne Company Third Quarter 2017 Earnings Conference Call. At this time - all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder - this conference is being recorded.
I would now like to turn the conference over to your host Ms. Karen Howard - Investor Relations for The ExOne Company. Thank you. You may begin.
Call transcript
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Karen Howard

Thank you, Melisa, and good morning everyone. We appreciate your time today for our third quarter and year-to-date 2017 financial results conference call. Referring to our slide deck, as noted on slide two, on the line with me today are Jim McCarley, our Chief Executive Officer and Brian Smith, our Chief Financial Officer and Treasurer. Jim and Brian will be reviewing the results that were published in the press release distributed after yesterday's market close.

If you don't have that release, it's available on our Web site at www.ExOne.com. accompany site. today will on also that Web the slides our are discussion posted The three our slide On is Safe Harbor statement.

the uncertainties be These as presentation, non-GAAP could during results where www.sec.gov. during uncertainties, as in at As provided the statements in cause that documents are call, today's apply measures, filed actual on may These earnings aware, financial Exchange documents as found risks are risks discuss believe we which that make or and events are and will site I we you in with and to some to during we may Company other also are other our release, as future this from Web Q&A. other useful be and can want well to by the also well and to differ evaluating performance. subject may factors today. some Securities These Commission. statements we out forward-looking factors the our that point

You presentation additional or isolation in with for of in a should substitute the information as results GAAP. this prepared consider not accordance

to perspective the it's you and over on results. review Jim And line outlook offer reconciliations the that, a of accompanying to turn the GAAP And of today's for then, open we'll of questions-and-answers. provided XXXX. started expectations with brief Jim. our through get non-GAAP to in begin, my detailed earnings financial go measures have the our to We back turn operational roadmap Jim the comparable update reaffirmation release. will for with before it to tables development pleasure to and call we will up Brian

Jim McCarley

by I want and Karen, reaffirming good today you, Thank guidance. XXXX our begin to morning.

expect to XXXX. XXXX As team you XX% we sales XX% in this our achieve versus to growth continue to on slide, see

cash our finally, to in positive expect balance We QX see And expect result EBITDA. should million. $XX also we to adjusted year-end in leverage exceed operating that

Let’s for to we’re six. to fine our on development internal goals our turn improving technology, spread page particularly track now to Operationally, machine powder. meet our ability

on customers using our direct most repeat Shifting multiple for We and that machine continue cultivate importantly, offerings about indirect equipment And purchase now, continue we for to industrial our platforms to expand QX machines. talk this let’s actual applications. results. both material

are Here accomplishments. the some of

momentum First, have in that note for S-Max positive our systems. and ExOne systems. to we come printing to continue A the M-Flex see repeat number of back is particular customers

QX to saw also exterior We in a lease the of conversion machine sale. machine an

platform a we upgraded Innovent successfully system now that was so can dispensing offer and our equipment. Second, fine standard powder

We will of January begin accepting unit. for XXXX that in orders

expand material to to additional expect such centers our to will as available continue rollout offering. for Stainless in XX-X product that’s We powder our and continue materials, fine production Steel sale that

S-Max the Innovent as M-Flex continue continue we shipments and quarter. see both support third As to and good machines orders in with the to market grow platforms, for our new

printing. teams how on on virtues focus of advancements strategic to of have our our Jet understanding expanded accelerate. capitalize Month-by-month, Third, Binder to continues the their technology

success and how depends usable on our into we products experience and leverage technology long-term Our quickly knowhow customers. for our

Finally, for support revenue year-end good QX orders plan with QX strong our backlog. and that has started both machine our provide

Brian our to turn who Now, results. financial about I’ll it over of talk some QX will

Brian Smith

everyone. morning good Jim, Thanks,

XX% product year. exited, that line we a machining last compared with to our XX% compared revenue. $XXX,XXX million that to line could Revenue we in last about had of our revenue year’s please that products ’XX revenue, ’XX. was point slide $XX.X specialty Absent QX increased sold in had up eight, turn out I quarter to want from QX. you If revenue to start we’ll with

the in the half $XX.X revenue than revenue, adjusted strong period up over With for of in revenue Again, ago quarter. product million. was up Year-to-date, was our or to our machine revenue more growth contributed exited about lines, when machine the revenue the XX% XX% year XX%.

Now, nine. could if turn we to slide

see machine machine year-to-date XX recorded machines three of of purchases. to nine ’XX. quarters machines. for XX first three by quarter, in type Here this first XX prior were machine without were ’XX. the you’ll and Of XX year-to-date and units the machine to recorded were the machines nine months sales in customers sold shipments the indirect quarter, any the in revenue and repeat We customers revenue during

machines We have last discussed Exerial in quarter recognized the revenue we four as QX.

revenue and ours. For units an recognized customer and one. S-Print the to multiple plus on we S-Print and recognized We indirect units, of operates S-Max a leased who two two S-Max other machines one already shift machines, we

yet associated being in by These we machines, enabling that management, expanded direct changes have customer the in lags be the is recognition. commercial there shipment for by particularly contract told a units. our recorded good sales shipments. units revenue. to therefore, industry with two customers that We our or all we believe transaction. of and These customers. use to and to said be the Innovent reduce happen convert processes, in XXth, instances transit in force. accepted are oversea or investments terms recognize indirect team area, our that around we went made to and are number machines two and certain targeted in to our are which obligations M-Flex chain PO performance terms, continues can progress September shift in are in shipped of installed of and to before revenue recorded that, and machines On process result have research review, have healthcare of this and Having of supply you four contract the were efforts by we time revenue variability and overall and properties the between There reasons, will in including we a driven At making facilitated

of across and and reduce as machines, orders the as up remainder well quarter services, in of earlier; or a as the the for These recorded non-cancellable. expected will in machine service recognize that of an end Along of firm as are as leases previous down calls in recognized for sequentially. was goods million To the in few Backlog from million, include contractual our ’XX. compared includes new the recognized currently in some be QX. sales million arterial we units subsequent up with or of Xth, We contract other mentioned XX lease be orders slide want operating expect machine just our On point the that agency in or of received four with and in missile mentioned XX% machine you been to quarter quarter impacted with XX. machines in in for in our the These our transit I’ve quarter orders finished quarter shipped current XX% third I to backlog backlog mentioned through in ’XX contractual timing been Jim third machine customer ’XX including slide services third this approximately you could orders received orders or some with our the $XX.X the which customers PO contracts, I $X.X timeframe, well sales, sold one if backlog customers these machine of another that as XX, negotiations purchase remind for our in also form have acceptance; to and Now, backlog. in machine machines year-end from well approved a ’XX platforms. off in to from includes are September turn our the final commission to to were well purchase as installation November of can you, quarter-end repeat there transit, $X.X like as out, are machine quarter. XX exterior that to have non-machine was spread funding orders, our see four our efforts that we future machine with our September. years. that past machines backlog -- to and and not revenue some the machines, new year that revenue more X% defense

chart two XX% in year-to-date more favorable versus Referring the the a side mix printers period. year resulting product the you revenue slide, to can $XX.X to as see on up generally the a price printers. indirect right quarter over there was this direct of machine revenue in prior In bear million were ’XX, sold addition, that machines indirect than higher more average selling

of PSC, product principally lines driven the basis, up other in revenue we for base Now, and part revenue $XX.X component growth XXXX over reached after and XX% Non-machine industrial double to percentage third as comparable let’s service our was in parts, third by a machines. year-to-date for as year-to-date. of the install the revenue was revenue the eliminating over increases slide turn The in quarter On it period digits, period. the $X.X metal growing XXXX up exited, and XX. XXXX direct XX% sales our the third million million well have for that quarter

was XX, million, gross gross quarter. resulting slide margin. the we’ll Gross XX.X% profit in to profit profit $X.X talk for Turning about third

to Absent the $X.X will breakeven by which quarter we margin associated that we and this would talked on closer sales of margin, be revenue a four the the which impacted what cost, million at volume. machines, quarter. yielded last This Exerial much was recorded about expect revenue

we’re we’ll about year. As and out our margin $X.X was to commercial profit patent drive a for organization the support impacted Las technology the net our to year-to-date actions Vegas adoption our driven third million. of on by realign our turn our to were quarters, SG&A net we individual and of team in facility. slide $X.X and of Comparing gain asset In ’XX in ’XX, were of amounts by write-downs expenses to quarters, called and significant making we Please legal sale and prior totaling up particular, cost. for in discussed prior our XX, SG&A. about investments particular, in external took million gross the businesses we the The organization, globally, discuss quarter increase

$X.X of Additionally, expected million one-time that during we we incurred quarter are not separation employee costs the recur. about to

current think expenses, As our leverage sales. we remain of we run rate grow at in future we as cash we likely the those better costs terms about but periods, will will

are sales as increase quarterly and typically higher movement some we expected and materials has On were commissions will talent, in as R&D as engaged be that on costs higher slide impacted mentioned. will internal by Additionally, million with QX can the over this QX both by year year our see and that resources Jim quarter, reflecting well see developments prior about $X increased in this our external quarter. investments sales Investments machine QX you volumes. impacted we the XX, year-end higher

this reinvest As expect the to into continue for our machines. printing improvements SG&A Binder with as costs, and we we run cash technology rate Jetting

However, to we to going expect revenue, leverage costs drive these forward.

to review slide let’s CapEx. XX turn Now, and

transfers leases. from to third for the If machines quarter is our use to pertains non-cash resulting remind very we less turn of portion cash months about of our in a of nine to continues customer PP&E into for Our already. be just inventory $X.X than spending modest, nine cash XXXX. of CapEx, mentioned cash The cash, months first this or flows. $X million own for slightly I you, CapEx waterfall XX, XXXX million of slide to

as expected cash. we QX by The sales second transactions and were inventory of machines of about driven year-to-date, timing sales, around equipment of capital quarter outflows working from $X.X us well the to $X.X needed Additionally, build provided of that as receipts million in completed customers. property million meet the had

about in the in net $X.X Our million non-cash ended ‘XX. of period quarter total net items, cash. We nine cash loss, $XX.X million the used and of with month other

in We cash adjusted million by at than expect driven positive continue expected greater QX. the $XX to year-end, of EBITDA

Jim. prepared If to debt virtually it you’ll we that XX, you’ll and back see sheet. slide on That turn concludes our to balance no comments, have my turn I’ll

Jim McCarley

Thanks, Brian.

technology. our XXXX, on are we has nine good of reflect we that to work the advance done adoption months been confident of As past

We -- product rapid on and site that product of set new move and confident technology over the past our past XXXX that as are equally ExOne offerings. can development we beyond, consistent and capabilities a and XXXX achieve acceleration

let’s page with that Now XX. said, turn to

Let’s XXXX. about is where now switch ExOne and between gears and headed talk

up coarse marketplace, end billion We industrial Binder $XX our market very printers At we the material At break have than in printing logical the in sets the a access overall our XXXX. by marketplaces us continue huge our this microns molten focus is ExOne, metal print. and see size believe of sand we largest to filter material. XD on size XD we excess to space applications Presently, greater with well are to coarse to let has particle be a our component The we into our ExOne’s please view to In in this notably, you the is market. how question powder. how of used best XX can on exploit market. of slide This answer this order provide that, me XX. particle turn market. the application; based consider infiltrated to are day, core powder matrix and Jet in businesses, And tooling

As today, coarse jetting is powder ExOne binder that with market is in it of technology. our belief printing leader the

the it metallurgical fine fine of the that We I they Now, this and XX some metal let’s recent are the the focusing new than materials powder constitutes for moulding, that also and of traditional with note about casting on. place powder consider based should and microns. many of this have injection entrants particle is here large very data market, see investment XD their as talk XD efforts a less on marketplaces equipment. market printing they the shared sizes products. powder this And other

and the level not of jet to binder powder in maintain few fine in that leader ExOne is fine has powders is position. of the certainly highest to leadership one both coarse and the machines is the Innovent jet printing our that we as goal important base available does machine. have powder the our printing machine and Although, it's market markets of note ExOne products, powder same install in commercially any coarse market, binder in a penetration printing do fine

in Now, team let’s our potential together discuss gets reoccurring reflects data turn they what and let’s machine of The sees to output page XX and meeting a XXXX. our market the team look as data marketplace. future ExOne’s develop number look through This team machine into market from the roadmaps relies and a commercial customer harvest things. on They of and our future the pipeline. input, technology a intelligence where

and As see, million you of today, coarse is $XXX printing in market we machines fine that believe approximately as can for this XXXX. potential

The left of broken first on market the down the page graph segment. by side is

our charts. are for automotive, growth segments the breakdowns used the are shows in injection Xone. the both using same primary potential past the direct have as adoption fine moulding powders and indirect general breakdown industry, aerospace segment we We market coarse in that This and highest metal gas, for market have oil printing and and that

the fine an at the split right, graph can you Looking there see that on powders. is even nearly between and coarse

a powder ability market position uniquely leading coarse in coarse expected our of out the believe capture area powder opportunity this believe are capture to market the positioned with high to our we we Given and market potential Correspondingly, exclusive and very equipment, a high. our printing such roll to improvements in fine we in is are planning significant we opportunity. amount this almost future printing, powder

during accelerate efforts direct to need ExOne platform are the this a powder equipment, others price each to or of process. the for help slide and printing Please from to powder indirect summary XX. development the production the print we these officially can are this threats market more utilize we this actually materials see bridge today the are technology. fine their the can important this potential and platform. believe or the our expand XXXX. of powder other investment range applications relationship machine in in ExOne of types produce Innovent That printing future, existence market print and powder our between we for designating ExOne’s to first table, reviewing note this market, as market our will and associated leaves Although, In products today relative is make But development the can finally, slide that will next machines that that me in using the machines the targeting you fine expects this the plans fine powder entrants than fine into and to basic

designed powder machine modest the offered configurable we a as materials print the success are ability default enable microns M-Flex offering our system printing seem and Innovent fine than this as coarse with an and XX us now a have configuration the Although, machines, on powder may less in to This a to as we developing change, capabilities made extend rapidly that will fine option. like printing it printing we’ve is powder fine but M-Print machines. to powder specially

powder customers costs plans, binder in machine system in to the but productivity, we a invest to our out will that shift for more our Finally, the operating their systems as of creating round range focus advancements applications. and a material as well XXXX wider machine coarse development can from industrialized improve order technology printing to increase continue and

our on we development strong with wrap-up slide I our and let’s customer M-Print primary outlook XXXX development the generation system. announce launched systems, printer other XX. of have am our program. of pleased Based interest to on the printing metal Now, next received feedback performance

this fine machine. format company a ability applications our functionality underlying and are we new to deployed M-Flex engineering from engineering producing meet capable XXXX. open metal technologies M-Print we And demanding trust diverse segments. Specifically, the will with the ExOne components large jet that lines that printing binder have project for questions. into let’s across it, and ExOne industry platform machine This We leverage specifications that commercialize end and our technically will confident and used to that, successfully technology can the deliver allow machine up stringent of in a powder

Operator

[Operator be time, conducting question-and-answer session Instructions]. a you. Thank this At I’ll

of your Our B. with question proceed Van comes with the from FBR. Riley Chris Horn first question. line Please

Chris Van Horn

heading you pipeline the out just detail of to on you there? you give the gave XQ. us And us some just curious, XXXX, what and But into could looks set pipeline you look like lot I’m XXXX. opportunity the when hoping, have I was a on perspective

Jim McCarley

Are Well, Chris, a markets clarity what what it? that kind me see our make you sure answer. little to want give you I more good asking a we when of the pipeline. platforms you leading me give are bit I into, machine say going products

So give kind me a looking more what for. little clarity you’re color of

Chris Van Horn

mix And you going Yes, the your and even mix that, follow-on or sure. maybe was your for question regional where forward. quarter what see my actually end-market was

I’m that Is So when market that into excited look about? you end there you’re seeing future, speaking, region out you’re I is guess, really really generally a excited the there an about you’re like certain sales again success you’ve machines some end want good pipeline sure certain that to address or you lot got in? seeing of in? of traction markets that And a you’re

Jim McCarley

going we’re printing some I that. in But opportunity for I in a we’ve an work sand So in XXXX. I in molten markets, And see our pretty workhorse and can some China additional printing. workhorse that China the that America start-off some that we’ve if know lot the is by as sand the molten some a good relative about in particular got core North our would see to what also a example. will -- America past. move core of robust in into opportunities stuff we see side. docket XXXX. be business growth say good saying, traction a That’s around talked still -- India, to We’ve expanding we on on some there to seen expect that start expect business in that we break see We into North to element, in as

lot to industrial out feed side. the interest. call got broadly interested opportunities automotive printing of side, on look a But like North that in opportunities things some diverse to that in that We’ve some it, metal small would else, really anything there. people across industrial. here include batch into continue I’m more going And automotive particular, a focused American the -- On number

growth So in that success the And we part that, rolled like and us. area, a the we know I’ll machines feel university had we for research the say underpins last Innovent is really good long-term getting out.

out we machines, see these good And So wouldn’t some market a see there. didn’t expect of some that And some then on that North other there. or in be work opportunities is some fine side for growth near-term. we we lab continue to the powder of based some America rolling see results there the platforms if expect getting in some clearly printing to we machine those

Chris Van Horn

to Is seem lot to looking? there And how got we of of the from there ask then have are entrants I competitive a marketplace pricing lot standpoint. is be a new competitive -- -- a getting material or

out Just some you’re on commentary there what seeing competitively?

Jim McCarley

in that powders talked So around for isn’t metal two The pricing infiltrated I coarse pressure -- the about competition, coarse customer. a on I’m going the metrics return to talk around that’s products. investment good If sand our and molten getting about again it's halfs.

set price -- isn’t So racing with That and our bottom going we’re get we we’re head-to-head somebody it on there the it. not and price. to said, isn’t

have really a up that match and return fact. really of with You appreciate we to rate good it

there right effective the put over That more at molten and consumable know won’t if approach we’re But And sand at so so return recognize not equipment. necessary. some that that investment a the we on same price that most on of core the were three of on the market the there that -- We carries we that ago it's cost years because to don’t market. is level today be the the place. we into

maybe there’s change consumable And on pricing some we material go the in pressures ’XX, I so think price into serious market that’s we’ve piece. And on seen the ’XX. as where

on So powder coarse printing side. that’s the

process, in of is that want that and I’m really that’s to make On equipment. the those, that team be in anything space what printing of powder of machines going today delivering machine. and sell both focusing that is the on aware product comes to just space out to we’re are make fine fine space. really not sure powder -- to is let’s But in there process very any take a a and printing it a out the technology machine machine And because people some these the takes only really doing there side, we new and the of entrants. And we’re front with of

Chris Van Horn

obviously investments that Do final me, you’re growth was we see CapEx you of platforms? you when making just expand to side. R&D forward, And going then think going these CapEx need curious. the And on I about lot forward from a

Jim McCarley

No, some growth EACs. only We now. into put additional some of see we level But see of don’t new really don’t. year significant in facilities or machines right any we anything We’ll our maintenance next CapEx else.

will that been the at that likely here So stay for year last level half so. the low and or it’s

Operator

Instructions]. [Operator you Thank

Our next proceed question Bobby Burleson line with comes the question. Genuity. from your Please with Canaccord of

Bobby Burleson

So feeling to like into on curious I’m just for the back? that your whether you XX%. you that rates that’s to under accelerate as growth look handicap momentum similar would rate or guys this or sounds XX% wondering things how -- year. growth It you hitting or XXXX, about are good out you expect not

Jim McCarley

Yes.

of the process XXXX plan. out we’re right think in building our middle of I our

have market we’re XXXX, that to changing growth to for if pretty powder. presented our considerable in And some the long-term think you got I that be not solid we’ve at penetrate to growth able that look we machine a out to opportunity amount.

So in diminution this to and plan our before. I what see from call. next time said But more come we’ve in that ‘XX at point we’ll our wouldn’t rollout in any

Bobby Burleson

large just this of development And powder. format fine terms in program then

And You here? developing are application. with you with customers product working Could specific applications targeting And currently? mentioned this developing demanding are really work customers you you what this?

Jim McCarley

Yes.

non-disclosures we’ve any with place got across in we around So anything matter. do customers

-- who most end to doesn’t use their no -- talk end matter about who always. part. talk want doesn’t Everybody disclosed know to want able use be for that’s won’t he the I to, So

of absolutely the and feedback. I it. we’re to specifications about marketplace range I one. There that customer what customers. specific to what step know working this. based in a side no and this be is we be is works is across It’s So of with also have on But needs definitely very make multiple would that mistake some But broad feedback aware customer we’ll that say it’s

not this built-in comp. is So a enabled

Bobby Burleson

that or thinking? launches, you’d want first or And XXXX its half second it rapid, half you’re around is to something or formnext be

Jim McCarley

That’s feel XXXX -- can happen going as to a and at that point. I’m as the actually be going we process into to get we those it’s and about of it’s really soon try where in I It’s is. rapidly should it as that’s as work-in this happen market events. sure these make confident can good around going some the happen of to product other things to

the so we get demand a going be are media for valuable. to this deliver could to more tell truth, match-up It’s we that to we that. the really what and But is splash. application with the important So needs you think

So quarter. I least can fast relative happen out. it’s it's not going It first year of to can end the to you mid-year it the as be probably we marketplace. into get tell the will in at it that a what to rolls as

Bobby Burleson

which of now need segments this, that I chart? of mix I in if missed market these but all then market you And your came this in to going you’re at like you do to know and don’t XXXX if are order mix to you -- guys up accelerate terms pie Where look with.

Jim McCarley

in pie coarse both and that our chart pegs So powder. fine

out just growth that because will ceramics, I $XXX see fine we for you If we’ve for machine really mill feeding only to it as there a our op. $XXX big went ops op to the can injection their a pretty growth that machine extent growth certainly and have market. our Innovent technology that’s us tell the and fine automotive or underpinning of our not on we what little the type gas million be major tooling, of and got into of if machine that ‘XX. And up and is so position and there different our size. And we’re coarse that opportunities. in confident the as powder printing are powder Opening million piece. a good going powder you tell I growth But a but And is we automotive to a that oil the powder I a on improving moulding that’s going today aerospace an and our approximately printing realize is that to detail fine look

reasons technology So focus of clear is. that’s the making one machine our what we’re

Bobby Burleson

couple asked lastly comments from know They just shipping wondering it I competitor? partner nevertheless, just from that’s but at the the industrial then have don’t some see actual of in and your up if you as And like with a competitive private technology, as see coming some to companies? roll companies that helping in machine sounds where potential just Are one a or companies, front, GE out And And terms whether making wondering customers it noise. supplier your some not earlier any me competition. supplier thing dynamics materials. there’s big really of seeing they I’m there there or the current are you you. don’t not really agnostic machine of that’s you better

Jim McCarley

have go us -- of market. level gives to back guess, what not a team they’re to I been not I’d the is the that a because the conversation definite sales answer. with where you has about in doing somebody That’s to been that’s risen GE concerned

good commitment caused take doing a it look this. and say to to people think I why at has we GE’s really aren’t XD

a somebody been opposed as it's coming actually sort So as generator them to of threat. in competitive the seeing lead

are, seeing stand, it happy thing. there So Bobby, not that that’s to the from angle. really I’m I’m is from spaces good think where GE I XD just committed that I a

Bobby Burleson

with that GE. be clarify, to they’ve GE companies them that GE, happy is up might meant of supplying Actually what rolled compete they customers was I not given

or am that just in essential does not if any someone earnings industry wondering you’re generate as that’s supplier, I So competitor, a that’s way. benefitting

Jim McCarley

At I that. this think to I that don’t correlates that. we’re seen something point, don’t see

Operator

final our come to Thank for management questions. I’ll to you. remarks. of the floor any have and Ladies gentlemen, we the turn end back

Jim McCarley

today. We time back has everyone with forward to holiday everybody’s the certainly beginning in New appreciate we a again look being you XXXX. look Hope of I at and Year. to season, the Well, you. great forward seeing Thank Okay.

Operator

Thank you. teleconference. This today’s concludes

disconnect at for you your time. lines participation. may Thank You this your