Advancing 3D
Printing Technology
2018 Annual Report
ExOne.com
6483c1.pdf
2018 Annual Report Stockholder Letter
Dear Fellow Stockholders:
I am very pleased to report that 2018 marked some exciting new milestones for The ExOne Company:
• We reached record revenue of nearly $65 million. This represents about 12% growth over 2017
and a three-year compound annual growth rate of 17%.
• Machine revenue was up 21%. That included sales of 56 machine units, a 37% increase over
2017 machine units sold.
• We generated nearly $21 million of gross profit, 32.4% of sales. This represents about 45%
growth over 2017 and a three-year compound annual growth rate of 36%.
•
In the second half of the year, we posted net income of $1.8 million, $0.11 per share, and
Adjusted EBITDA* of $4.7 million.
* See reconciliation of Adjusted EBITDA (non-GAAP) to net income (the most comparable GAAP measure) at the end
of this letter.
Cost Effective Investing for Growth and Profitability
This past June, we initiated a 2018 global cost realignment program, focusing on improving productivity
and establishing a baseline for profitability. We implemented an immediate reduction in consulting
projects and headcount, as well as changes to our working capital and other processes. This extended
across all of our global operations, with emphasis on production overhead, general and administrative
spending and working capital initiatives. All the while, we maintained focus on our research and
development goals as well as our long-term revenue growth goals, which were not impacted by these
changes. As a result of this initiative, we realized approximately $7 million of net annualized run rate
cost reductions. These actions facilitated more efficient spending practices, thereby driving improved
productivity.
We continue to invest in further advancement of our 3D printing technology and to further expand our
machine offerings. In conjunction with the Formnext additive manufacturing trade fair in Germany in
this past November, we announced our newest fine powder direct 3D printer system, the X1 25PRO™.
This new platform combines the fine metal injection molding powder capability of our Innovent+™
machine with a larger production volume capability. We expect this new machine to meet the needs of
industry for high quality, production-volume parts. We believe the X1 25PRO™is the most flexible and
highest performing binder jetting machine in the market today.
While we believe we offer the broadest material sets in the 3D printing industry, we continuously invest
in research to expand them. During 2018, we qualified 304L stainless steel, which is the most
commonly used stainless steel and is suitable to applications in a wide range of industries due to its
high durability, corrosion resistance, and low cost. Some of the common applications include
components for appliances, marine, medical, kitchenware, fasteners, and heat exchangers. The
qualification of this material represents our third high density, single alloy material to be qualified,
joining the ranks of 316L and 17-4PH.
Outlook and Vision
Binder jetting has gained recognition as what may be the most cost effective 3D printing process for
volume production. As the technology expands, more applications are being developed by a diverse
body of global users. We must continue to be innovative leaders, in collaboration with a growing
universe of these innovative adopters. Accordingly, we continue to aggressively develop our machine
technology and additional materials to satisfy the growing demands of the industrial marketplace for our
binder jetting technology applications.
6483c1.pdf
Given the strength of our customer pipeline and their interest in our expanding technology, we are
targeting continued revenue growth in 2019 and at increasing rates over each of the next few years.
We believe that our new cost structure positions us well for operating leverage that will lead to positive
Adjusted EBITDA for the full year of 2019 and beyond.
In closing, I’d like to thank each of our employees for their innovation, hard work, and commitment to
bringing value to our customers, suppliers, and shareholders.
Sincerely,
S. Kent Rockwell
Chairman and Chief Executive Officer
April 4, 2019
For more information regarding certain factors that could cause future results to differ, possibly materially, from historical performance or from those
anticipated in forward-looking statements, see the “Cautionary Statement Concerning Forward-Looking Statements” in our 2018 Annual Report on
Form 10-K which accompanies this letter.
Adjusted EBITDA Reconciliation
(in millions)
(Unaudited)
Six Months Ended
Decem ber 31,
Net income
Interest expense
Provision for income taxes
Depreciation and amortization
Equity-based compensation
Other expense (income) ̶ net
Adjusted EBITDA
2018
$
$
1.8
0.1
0.1
2.7
0.6
(0.6)
4.7
The ExOne Company (the “Company”) defines Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as net
income (loss) (as calculated under accounting principles generally accepted in the United States (“GAAP”)) plus interest expense, provision for
income taxes, depreciation and amortization, equity-based compensation, and other expense (income)-net. Use of Adjusted EBITDA, which is
a non-GAAP financial measure, as defined under SEC rules, is intended as a supplemental measure of the Company’s performance that is
not required by, or presented in accordance with, GAAP. The presentation of Adjusted EBITDA is not intended to be a substitute for, and
should not be considered in isolation from, net income (loss) reported in accordance with GAAP. The Company’s presentation of Adjusted
EBITDA should not be construed to imply that its future results will be unaffected by unusual or non-recurring items.
The Company believes Adjusted EBITDA is meaningful to its investors to enhance their understanding of the Company’s financial results.
Although Adjusted EBITDA is not necessarily a measure of the Company’s ability to fund its cash needs, the Company understands that it is
frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare the
Company’s performance with the performance of other companies that report Adjusted EBITDA. The Company’s calculation of Adjusted
EBITDA may not be comparable to similarly titled measures reported by other companies.
6483c1.pdf
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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 number 001-35806
The ExOne Company
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
46-1684608
(I.R.S. Employer
Identification No.)
127 Industry Boulevard
North Huntingdon, PA 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 Act:
Title of Each Class
Common Stock, par value $0.01 per share
Name of Each Exchange On Which Registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or 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
Non-accelerated filer
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 Act). Yes No
The aggregate market value of common stock held by non-affiliates for the last business day of the registrant’s most recently completed second
fiscal quarter was approximately $79.4 million.
As of March 15, 2019, 16,331,202 shares of common stock, par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the general rules and regulations under the
Securities Exchange Act of 1934, as amended, for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual
Report on Form 10-K.
6483c1.pdf
TABLE OF CONTENTS
1
PART I ...................................................................................................................................................................................................
1
Item 1. Business ...................................................................................................................................................................
Item 1A.Risk Factors ............................................................................................................................................................
8
Item 1B.Unresolved Staff Comments .................................................................................................................................. 18
Item 2. Properties ................................................................................................................................................................ 18
Item 3. Legal Proceedings................................................................................................................................................... 18
Item 4. Mine Safety Disclosures ......................................................................................................................................... 18
PART II.................................................................................................................................................................................................. 19
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities..................................................................................................................................................... 19
Item 6. Selected Financial Data.......................................................................................................................................... 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.......................... 20
Item 7A.Quantitative and Qualitative Disclosures about Market Risk ........................................................................... 27
Item 8. Financial Statements and Supplementary Data .................................................................................................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................... 55
Item 9A.Controls and Procedures ....................................................................................................................................... 55
Item 9B.Other Information.................................................................................................................................................. 55
PART III ............................................................................................................................................................................................... 56
Item 10. Directors, Executive Officers and Corporate Governance................................................................................. 56
Item 11. Executive Compensation........................................................................................................................................ 56
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .................................................................................................................................................................... 56
Item 13. Certain Relationships and Related Transactions, and Director Independence ............................................... 56
Item 14. Principal Accountant Fees and Services .............................................................................................................. 56
PART IV ............................................................................................................................................................................................... 57
Item 15. Exhibits and Financial Statement Schedules ...................................................................................................... 57
i
6483c1.pdf
Item 1. Business.
General
PART I
As used in this Annual Report on Form 10-K, unless the context otherwise requires or indicates, the terms “ExOne,” “Company,”
“we,” “our,” “ours,” and “us” refer to The ExOne Company and its wholly-owned subsidiaries.
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report on Form 10-K 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 to 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 risk factors previously disclosed in our reports and those identified elsewhere in this report, the following factors, among
others, could cause results to differ materially from forward-looking statements or historical performance: 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 3D printing machines and technology and develop 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 on the period in which we recognize
revenue; risks related to global operations including effects of 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, Production Service Centers (“PSCs”) or ExOne Adoption Centers (“EACs”); the adequacy of our
protection of our intellectual property; and 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.
These and other important factors, including those discussed under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, may cause our actual results of
operations to differ materially from any future results of operations expressed or implied by the forward-looking statements contained
in this Annual Report on Form 10-K. Before making a decision to purchase our common stock, you should carefully consider all of
the factors identified in this Annual Report on Form 10-K that could cause actual results to differ from these forward-looking
statements.
This Annual Report on Form 10-K may contain trademarks, service marks and trade names of other companies, which are the property
of their respective owners. Solely for convenience, marks and trade names referred to in this Annual Report on Form 10-K may appear
without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent
under applicable law, our rights or the right of the applicable licensor to these marks and trade names. Third-party marks and trade
names used herein are for nominative informational purposes only and their use herein in no way constitutes or is intended to be
commercial use of such names and marks. The use of such third-party names and marks in no way constitutes or should be construed
to be an approval, endorsement or sponsorship of us, or our products or services, by the owners of such third-party names and marks.
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 and indirect 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 PSCs and 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.
Our History
Our business began as the advanced manufacturing business of the Extrude Hone Corporation, which manufactured its first 3D
printing machine in 2003 using licensed technology developed by researchers at the Massachusetts Institute of Technology (“MIT”).
1
6483c1.pdf
In 2005, our business assets were transferred to The Ex One Company, LLC, a Delaware limited liability company, when Extrude
Hone Corporation was purchased by another company. In 2007, we were acquired by S. Kent Rockwell through his wholly-owned
company, Rockwell Forest Products, Inc. On January 1, 2013, the Company was formed when The Ex One Company, LLC was
merged with and into a newly created Delaware corporation, which changed its name to The ExOne Company. On February 12, 2013,
we completed our initial public offering, raising approximately $90.4 million in unrestricted net proceeds after underwriting
commissions and offering costs. Subsequent secondary offerings of our common stock have resulted in raising approximately $78.0
million in additional unrestricted net proceeds after underwriting commissions and offering costs.
The Additive Manufacturing Industry and 3D Printing
3D printing is the most common type of an emerging manufacturing technology that is broadly referred to as additive manufacturing
(“AM”). In general, AM is a term used to describe a manufacturing process that produces 3D objects directly from digital or computer
models through the repeated deposit of very thin layers of material. 3D printing is the process of joining materials from a digital 3D
model, usually layer by layer, to make objects using a printhead, nozzle, or other printing technology. The terms “AM” and “3D
printing” are increasingly being used interchangeably, as the media and marketplace have popularized the term 3D printing rather than
AM, which is the industry term.
AM represents a transformational shift from traditional forms of manufacturing (e.g., machining or tooling), which are sometimes
referred to as subtractive manufacturing. We believe that AM and 3D printing are increasingly poised to displace traditional
manufacturing methodologies in a growing range of industrial applications. Our 3D printing process differs from other forms of 3D
printing processes, in that we use a chemical binding agent and focus on industrial applications.
AM has focused on prototyping and small, limited production in order to find acceptance of its varying technologies by end users in
order to convince users of traditional methods of the viability of such new applications. As AM has evolved, the focus has evolved
into production readiness and increasing reliability and repeatability standards associated with higher volumetric output and
specifications that industrial applications demand.
ExOne and 3D Printing
We provide 3D printed and other products, materials and services primarily to industrial customers and other end-market users. We
are an early entrant into the AM industrial products market, which we believe provides us with a competitive advantage over future
entrants.
Our binder jetting technology was developed over 20 years ago by researchers at MIT. Our 3D printing machines build or print
products from computer-aided drafting (“CAD”) models by depositing successive thin layers of particles of materials such as silicate
sand or metal powder in a “build box.” A moveable printhead passes over each layer and deposits a chemical binding agent in the
selected areas where the finished product will be materialized. Each layer can be unique.
Depending on the industrial material used in printing, printed products may need post-production processing. We generally use silica
sand or foundry sand for casting, both of which typically require no additional processing. Products printed in other materials, such as
metals, or for use in specific applications, may need varying amounts of heat treating or sintering, drying or curing, or other post-
processing or finishing.
Pre-Print. We believe that our customers have the opportunity to take greater advantage of the design freedom that our 3D printing
technology provides. We collaborate with our customers to develop and refine CAD designs that meet our customers’ specifications
and can be read and processed by our 3D printing machines. We continue to invest in additional pre-print capabilities and resources
that empower our customers to fully exploit the design freedom of 3D printing.
Industrial Materials. We supply printing materials to our customers that have been qualified for use with our machines. As we
experience increased demand for our products globally, it is essential that the material supply chain and distribution channels be in
close proximity to our current and prospective customers. For the highest quality printed products, the sand grains and metal particles
used in the 3D printing process must be uniform in size and meet very specific tolerances. We continue to focus on material
development activities associated with our 3D printing process, including collaborative arrangements with customers targeted at local
supply resources. In addition, we have specifically targeted fine powder printing with respect to our direct printing technologies as one
of our strategic priorities as an organization.
Our Machines. Our 3D printing machines consist of a build box that includes a machine platform and a computer processor
controlling the printheads for applying layers of industrial materials and binding agents. We currently build our 3D printing machines
in both Germany and the United States. Our machines serve direct and indirect applications. Direct printing produces a component;
indirect printing makes a tool to produce a component. Our focus is on enhancing our existing machine technologies and developing
large format printers for both direct and indirect applications, with specific emphasis on fine powder printing for our direct
technologies.
Our 3D printing machines are used primarily to manufacture industrial products that are ordered in relatively low volumes, are highly
complex and have a high value to the customer. Our technology is not appropriate for the mass production of simple parts, such as
certain higher volume injection molded parts or certain higher volume parts made in metal stamping machines. Traditional
manufacturing technology is more economical in making those parts. While we expect over time to be able to increase the kinds of
parts that we can make more economically than using subtractive manufacturing, we do not ever expect to use our technology to make
simple, low-cost, mass-produced parts.
2
6483c1.pdf
Post-Print Processing. After a product is printed, the bound and unbound powder in the build box requires curing of the chemical
binding agent. For indirect printing of sand molds and cores, curing may occur at room temperature and the printed product is
complete after the binder is cured. For certain binder types, a drying process (utilizing an industrial microwave or other means) may
be necessary. The mold or core is then poured at a foundry, yielding the finished metal product. We believe that our casting
technology offers a number of advantages over traditional casting methods, including increased yield, weight reduction and improved
thermal range.
For direct printing, the product needs to be either sintered, or sintered and infiltrated. With sintering, the product is placed into a
furnace in an inert atmosphere to sinter the bonded particles and form a strong bonded porous structure. The porous structure can be
further infiltrated with another material to fill the voids. After the sintering and infiltration, the product can be polished and finished
with a variety of standard industrial methods and coatings. We believe that our 3D printing capabilities enable customers to develop
the ideal design for products, freeing them of some of the design constraints inherent in traditional manufacturing, in the industrial
metal of choice and in a more efficient manner than traditional manufacturing methods.
Customers and Sales
Our Customers
Our customers are located primarily in the Americas, Europe/Middle East/Africa (“EMEA”) and Asia Pacific regions. We are a party
to non-disclosure agreements with many of our customers and, therefore, are often prohibited from disclosing many of our customers’
identities. Our customers include a number of Fortune 500 companies that are leaders in their respective markets, as well as mid-cap
and smaller public and private companies. During 2018 and 2017, we conducted a significant portion of our business with a limited
number of customers, though not necessarily the same customers for each respective period. During 2018 and 2017, our five most
significant customers represented approximately 16.5% and 20.5% of our total revenue, respectively. During 2018 and 2017, there
were no customers that individually represented 10.0% or greater of our total revenue. Sales of 3D printing machines are low volume,
but generate significant revenue based on their per-unit pricing. Generally, sales of 3D printing machines are to different customers in
each respective period. The timing of such sales may be dependent on various factors, including a customer’s capital budgeting cycle,
its facility preparedness and the terms of the underlying arrangement with a customer (including certain substantive acceptance
provisions) which may vary from period to period. The nature of our revenue from 3D printing machines does not leave us dependent
upon a single or a limited number of customers. Sales of 3D printed and other products, materials and services generally result in a
significantly lower aggregate price per order as compared to 3D printing machine sales. The nature of the revenue from 3D printed
and other products, materials and services does not leave us dependent upon a single or a limited number of customers.
Educating Our Customers
Educating our customers and raising awareness in our target markets about the many uses and benefits of our 3D printing technology
is an important part of our sales process. We believe that customers who experience the efficiency gains, decreased lead-time,
increased design flexibility, and decreased cost potential of 3D printing, as compared to subtractive manufacturing, are more likely to
purchase our 3D printing machines and be repeat customers of our products and services. We educate our customers on the design
freedom, speed, and other benefits of 3D printing by providing printing and design services and support through our PSCs and EACs.
We also seek to expose key potential users to our products through our PSCs and EACs, installed machines at customers’ locations,
university programs, and sales and marketing efforts. Additionally, our EACs provide our customers exposure to a greater variety of
our latest machine platforms and material sets.
Production Service Centers and ExOne Adoption Centers
We have established a network of PSCs and EACs in North Huntingdon, Pennsylvania; Troy, Michigan; Gersthofen, Germany; and
Kanagawa, Japan. Each of our PSCs and EACs are certified to ISO 9001:2015 standards with various scopes. Through our PSCs and
EACs, we provide sales and marketing and delivery of support and printing services to our customers. Our customers see our 3D
printing machines in operation and can evaluate their production capabilities before ordering a 3D printing machine or a printed
product or service. While our centers are scalable and have a well-defined footprint that can be easily replicated to serve additional
regional markets, we are focusing on enhancing our existing centers to enable adoption rather than geographic expansion. As
described below, enhancing our positon in strategic locations around the world is an important part of our business strategy.
For all customers, we offer the following support and services through our PSCs and EACs:
•
•
Pre-production Collaboration. Our pre-print services include data capture using software that enables customers to
translate their product vision into a digital design format that can be used as an input to our 3D printing equipment. We
help our customers successfully move from the design stage to the production stage, and help customers evaluate the
optimal design and industrial materials for their production needs. For example, we worked with a customer to design and
manufacture certain critical parts of a helicopter that significantly improved the weight-strength ratio for the related parts,
which was possible because of the flexibility and precision of our AM process. Our 3D printing machines are also able to
deliver a replacement for a product broken by the customer rapidly or often immediately because we will already have the
production computer file. Using subtractive manufacturing would take significantly longer.
Consumable Materials. We provide customers with the inputs used in our 3D printing machines, including tools, printing
materials, and bonding agents. Our EACs provide a greater variety of our latest binder and material sets.
3
6483c1.pdf
•
•
Training and Technical Support. Our technicians train customers to use our 3D printing machines through hands-on
experience at our PSCs and EACs and provide field support to our customers, including design assistance, education on
industrial materials, operations and printing training, instruction on cleaning, and maintenance and troubleshooting.
Aftermarket. We generally offer a standard warranty with the sale of our 3D printing machines. Thereafter, we offer a
variety of service and support plans.
Our Competitive Strengths
We believe that our competitive strengths include:
•
•
•
•
•
Volumetric Output Rate. We believe that our 3D printing machines provide us the highest rate of volume output per unit
of time among competing AM technologies. Because of our early entrance into the industrial market for AM and our
investment in our core 3D printing technology, we have been able to improve the printhead speed and build box size of
our 3D printing machines. As a result, we have made strides in improving the output efficiency of our 3D printing
machines, as measured by volume output per unit of time. With continued advances in our core 3D printing technologies,
we believe that our cost of production will continue to decline, increasing our ability to compete with subtractive
manufacturing processes, particularly for complex products, effectively expanding our addressable market.
Printing Platform Size. The size of the build box area and the platform upon which we construct a product is important to
industrial customers who may want to either make a high number of products per job run or make an industrial product
that has large dimensions and is heavy in final form. We believe that our technology and experience give us the potential
to develop large build platforms to meet the production demands of current and potential industrial customers. In addition,
we have created machine platforms in various size ranges in order to cater to the varying demands of our customers.
Industrial Materials. Our indirect 3D printing machines are able to manufacture sand molds and cores from specialty
sands and ceramics, which are the traditional materials for these casting products. Our direct 3D printing machines are
capable of printing in a variety of industrial metals and other materials. We are in varying stages of qualifying additional
industrial materials for both indirect and direct applications and advancing materials that are printable in our machines,
including fine powder capability development.
Chemical Binding. We use liquid chemical binding agents during the printing process. We believe that our unique
chemical binding agent technology can more readily achieve efficiency gains over time than other AM technologies, such
as laser-fusing technologies.
International Presence. Since our inception, we have structured our business to cater to major international markets. We
have strategically established one or more PSCs or EACs in each of the Americas, EMEA and Asia Pacific regions.
Because many of our current or potential customers are global industrial companies, it is important that we have a
presence in or near the areas where these companies have manufacturing facilities.
Our Business Strategy
The principal elements of our growth strategy include:
•
Increase the Efficiency and Capabilities of Our Machines to Expand the Addressable Market. We intend to invest in
further developing our machine technology so as to increase the volumetric output per unit of time that our machines can
produce for both direct and indirect applications. We also intend to invest in continued advancements to the core
capabilities of our equipment, which include broadening the range of material particle sizes that can be printed in our
equipment (with particular emphasis on fine powder capabilities for direct printing technologies), enhancing real-time
process monitoring, improving material handling, and improving overall machine post-printing productivity.
• Qualify New Industrial Materials Printable In Our Systems. Our 3D printing machines are used for both development
and commercial printing. We believe that the variety of materials printable in our printing systems is more diverse than
competing 3D printing technologies. By expanding both qualified and printable materials (with particular emphasis on
fine powder capabilities for direct printing technologies), we believe we can expand our market share and better serve our
industrial customer base.
•
Reduce Overall Costs of Operating Our Machines. We continue to reduce costs associated with operating our 3D
printing machines. We collaborate with customers and suppliers to qualify locally-based, lower cost printing materials.
We seek to reduce the cost of ownership of our 3D printing machines by targeting reductions in consumable materials cost
and replacement part cost for our 3D printing machines. We use a variety of means, including traditional supply chain and
development projects, to reduce those costs. We believe as we lower the cost of ownership of our 3D printing machines,
we will improve the adoption rate by forming more cost-efficient production processes.
4
6483c1.pdf
•
•
Advance Pre-Print Design and Post-Print Processing Capabilities to Accelerate the Growth of Our 3D Printing
Technology. Our next generation 3D printing machine platforms have achieved the volumetric output rate and quality
necessary to serve industrial markets on a production scale. We believe that there is an opportunity to similarly advance
the pre-print and post-print processing phases of product materialization to more fully exploit the transformative power of
our 3D printing machines and drive growth. These opportunities relate to both direct and indirect printing. For direct
printing, we believe that enhancing pre-print processes, notably design optimization tools and suitable print material
availability, can greatly accelerate our capture of market share. Additionally, enhancements to post-print processing will
increase the applications for printed products. In indirect printing utilizing 3D printed molds and cores, advanced
performance casting technologies can be leveraged to increase yields and reduce weight of casted products. To promote
this advantage to the market, we have developed a suite of processes, many of which are proprietary, for producing high-
quality castings.
Pursue Growth Opportunities Through Alliances and/or Strategic Investments. We may opportunistically identify and,
through alliances and/or strategic investment, integrate and advance complementary businesses, technologies and
capabilities. Our goal is to expand the functionality of our products, provide access to new customers and markets, and
increase our production capacity.
Marketing and Sales
We market our products under the ExOne brand name in three major geographic regions — the Americas, EMEA and Asia Pacific.
Our sales are made primarily by our global sales force. Our sales force is augmented, in certain territories, by representatives with
specific industry or territorial expertise. Even where we are supported by a representative, substantially all of our product and service
offerings provided by our PSCs and EACs are sold directly to customers by us.
We believe that our direct selling relationship helps to create one of the building blocks for our business — the creation of true
collaboration between us and industrial customers who are interested in 3D printing. Increasingly, industrial producers are considering
shifting from subtractive manufacturing techniques to 3D printing. Our marketing efforts include educating potential customers about
3D printing technology through collaboration, starting with pre-production services and continuing with production and technical
support at our PSCs and EACs.
Suppliers
Our largest suppliers in 2018, based upon dollar volume of purchases, were Bauer GmbH & Co KG, Fuji Film Dimatix, ASK
Chemicals, Astro Manufacturing & Design and Erhardt & Leimer GmbH.
We buy our industrial materials from several suppliers and, except as set forth below, the loss of any one would not materially
adversely affect our business. We currently have a single supplier of certain printhead components for our 3D printing machines.
While we believe that this printhead component supplier is replaceable, in the event of the loss of this supplier, we could experience
delays and interruptions that might adversely affect the financial performance of our business. Additionally, we obtain certain pre-
production services through design and data capture providers, and certain post-production services though vendors with whom we
have existing and good relationships. The loss of any one of these providers or vendors would not materially adversely affect our
business.
Research and Development
We spent approximately $10.7 million and $9.9 million on research and development during 2018 and 2017, respectively. We expect
to continue to invest in our research and development activities in the future.
A significant portion of our research and development expenditures have been focused on the following:
•
Chemistry of print materials and binder formulation;
• Mechanics of droplet flight into beds of powder;
• Metallurgy of thermally processing metals that are printed through AM;
• Mechanical design elements of our 3D printing machines;
• Mechanics of spreading powders in a job box;
•
Evaluation of product applications utilizing our 3D printing machines;
•
•
Transfer of digital data through a series of software links to drive a printhead; and
Synchronizing all of the above to print ever-increasing volumes of material per unit time.
Intellectual Property
Patents and Licenses. Significant portions of our technology are covered by a variety of patents. Through December 31, 2016, we
were the worldwide licensee of certain patents held by MIT for certain AM printing processes (the “MIT Patents”), with exclusive
rights to practice the patents in certain fields including the application of the printing processes to metals (with sublicensing rights),
5
6483c1.pdf
and non-exclusive rights to practice the patents in certain fields including the application of the printing processes to certain non-
metals (without sublicensing rights) which gave us a significant head start in the AM industry.
We continue from time to time to evaluate our current licenses and patents. On March 1, 2018, our ExOne GmbH subsidiary notified
Voxeljet AG that it has 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 that we pay to Voxeljet AG under the agreement.
We hold patents as a result of our own technological developments. Our patents were issued in the United States and in various
foreign jurisdictions, including Germany and Japan. As a result of our commitment to research and development, we also have applied
for other patents for equipment, processes, materials and 3D printing applications in the United States and in various foreign countries.
The expiration dates of our patents range from 2023 to 2036. We are also a minority owner of patent rights of several patents in the
United States and in various foreign jurisdictions as a successor interest to a 2003 agreement made between Generis GmbH and
Extrude Hone GmbH.
We have developed know-how and trade secrets relative to our 3D printing technology and believe that our early entrance into the
industrial market provides us with a timing and experience advantage. Through our investment in our technology, we have been able
to qualify industrial materials for use in our 3D printing machines and we intend to continue such efforts. In addition, we have taken
steps to protect much of our technology as a trade secret. Given the significant steps that we have taken to establish our experience in
AM for industrial applications, as well as our ongoing commitment to research and development, we intend to maintain our
preeminent position in the AM industry market.
Trademarks. We have registrations in the United States for the following trademarks: EXONE, X1 ExOne Digital Part Materialization
(plus design), EXCAST, EXMAL, EXTEC, INNOVENT, M-FLEX, M-PRINT, S MAX, S-MAX, S-PRINT, X1, and X1-LAB. We
also have an application in the United States for registration pending for the following trademarks: INNOVENT+ and X1 25PRO. We
also have registrations for EXONE in Canada, China, Europe (Community Trade Mark), Japan, and South Korea. We have
registrations for X1 ExOne Digital Part Materialization (plus design) in Brazil, Canada, China, Europe (Community Trade Mark),
Japan, and South Korea. We have a registration for the mark X1 in Europe (Community Trade Mark). We have registrations for a
stylized form of X1 in Europe (Community Trade Mark). We have registrations for DIGITAL PART MATERIALIZATION in Japan
and South Korea. We have registrations for the trademarks EXERIAL, INNOVENT, M-FLEX, S-MAX, and S-PRINT in Europe
(Community Trade Mark). We also have registration for the trademark S-PRINT in Canada, China, and Japan.
Trade Secrets. The development of our products, processes and materials has involved a considerable amount of experience,
manufacturing and processing know-how and research and development techniques that are not easily duplicated. We protect this
knowledge as a trade secret through the confidentiality and non-disclosure agreements which all employees, customers and
consultants are required to sign at the time they are employed or engaged by us. Additional information related to the risks associated
with our intellectual property rights are described within Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Competition
Other companies are active in the market for 3D printing products and services. These companies use a variety of AM methods,
including:
• Material extrusion;
• Material jetting;
•
Powder bed fusion;
• Directed energy deposition;
• Vat photopolymerization;
•
Sheet lamination; and
•
Binder jetting
Some of the companies that have developed and employ one or more AM technologies include: 3D Systems Corporation, Stratasys
Inc., HP Inc., Desktop Metal, EOS GmbH, EnvisionTEC, Concept Laser, Solid Model Ltd., Viridus3d, Voxeljet AG and General
Electric Co.
Some of these processes and companies compete with some of the products and services that we provide. Despite the challenging
competitive landscape, we believe that we are the only AM printing solutions provider that focuses primarily on metal industrial
applications on a production scale. Our competitive advantages, including the size of our build platforms, the speed of our printheads,
the variety of materials used by industrial manufacturers in which we can print, the industry qualification of many of the materials we
print in, our robust market capabilities, our considerable global installed base of 3D printing machines, and our suite of machine
system families offering scale and flexibility, also serve to differentiate us from the other competitors in the AM market.
6
6483c1.pdf
We also compete with established subtractive manufacturers in the industrial products market. These companies often provide large-
scale, highly capitalized facilities that are designed or built to fill specific production purposes, usually mass production. However, we
believe that we are well positioned to expand our share of the industrial products market from these manufacturers as AM gains
recognition. As our technologies improve and our unit cost of production decreases, we expect to be able to compete with subtractive
manufacturing on a wide range of products, thereby expanding our addressable market.
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.
Backlog
At December 31, 2018, our backlog was approximately $12.3 million, of which approximately $9.6 million is expected to be fulfilled
during the next twelve months. At December 31, 2017, our backlog was approximately $21.3 million.
Environmental Matters
Compliance with federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise
relating to the protection of the environment has not had a material impact on capital expenditures, earnings or the competitive
position of us and our subsidiaries. We are not the subject of any legal or administrative proceeding relating to the environmental laws
of the United States or any country in which we have an office. We have not received any notices of any violations of any such
environmental laws.
Employees
At December 31, 2018, we employed a total of 296 (257 full-time) employees at our five global locations. None of these employees is
a party to a collective bargaining agreement, and we believe our relations with employees are good.
Product, Geographic and Other Information
Refer to Note 22 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K for product
and geographic information related to our revenues (based on the country where the sale originated) and geographic information
related to our long-lived assets (based on the physical location of assets). For information on risks related to our international
operations refer to Item 1A, “Risk Factors”. Other information relating to our revenues, measurement of profit or loss and total assets
is provided in the consolidated financial statements and related notes thereto in Part II Item 8 of this Annual Report on Form 10-K.
Executive Offices
Our principal executive offices are located at 127 Industry Boulevard, North Huntingdon, Pennsylvania 15642 and our telephone
number is (724) 863-9663.
Available Information
Our website address is http://www.exone.com. Information contained on our website is not incorporated by reference into this Annual
Report on Form 10-K unless expressly noted.
We file reports with the Securities and Exchange Commission (“SEC”), which we make available on our website free of charge at
http://www.exone.com/financials.cfm. These reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, each of which is provided on our website as soon as reasonably practicable after we electronically file
such materials with, or furnish them to, the SEC. We also make, or will make, available through our website other reports filed with or
furnished to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including our proxy statements
and reports filed by officers and directors under Section 16(a) of that Act. You can also read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, including us.
You can obtain copies of exhibits to our filings electronically at the SEC’s website at www.sec.gov or by mail from the Public
Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The exhibits are also available as part
of the Annual Report on Form 10-K for the year ended December 31, 2018, which is available on our corporate website at
www.exone.com. Stockholders may also obtain copies of exhibits without charge by contacting our General Counsel and Corporate
Secretary at (724) 863-9663.
7
6483c1.pdf
Item 1A. Risk Factors.
RISK FACTORS
As a smaller reporting company, we are not required to provide a statement of risk factors on our Annual Report on Form 10-K.
However, we believe this information is valuable to our shareholders. We reserve the right to not provide risk factors in future filings.
You should carefully consider the following risks, together with all of the other information in this Annual Report on Form 10-K,
including our consolidated financial statements and related notes, in evaluating our business, future prospects and an investment in
our common stock. If any of the following risks and uncertainties develops into actual events, our business, financial condition, results
of operations and cash flows could be materially adversely affected. In that case, the price of our common stock could decline and you
may lose all or part of your investment.
Risks Related to Our Business and Industry
We may not be able to consistently generate operating profits.
Since our inception, we have not consistently generated operating profits, and we may be unable to consistently generate operating
profits in the future if we are unable to execute on our business plan. Our operating expenses (which include research and
development and selling, general and administrative expenses) were approximately $33.9 million and $34.1 million for 2018 and
2017, respectively. Our research and development expenses are due primarily to continued investment in our binder jetting
technologies, including 3D printing machine development (including our fine powder direct printing capabilities and larger format
direct and indirect 3D printing machines) and materials development (including our proprietary binders). Our selling, general and
administrative expenses are due primarily to employee-related costs and professional service fees, including those associated with
managing a public company. We believe that our operating expenses may increase in future periods as we pursue our growth
strategies. Increases in our research and development expenses and selling, general and administrative expenses will directly affect our
future results of operations and may have an adverse effect on our financial condition.
Our revenues and operating results may fluctuate.
Our revenues and operating results have fluctuated in the past from quarter-to-quarter and year-to-year and are likely to continue to
vary due to a number of factors, many of which are not within our control. Both our business and the AM industry are changing and
evolving rapidly, and our historical operating results may not be useful in predicting our future operating results.
Our machine orders are often subject to the capital expenditure cycles of our customers. Thus, revenues and operating results for any
future period are not predictable with any significant degree of certainty. Comparing our operating results on a period-to-period basis
may not be meaningful. You should not rely on our past results as an indication of our future performance.
Fluctuations in our operating results and financial condition may occur due to a number of factors, including, but not limited to, those
listed below and those identified throughout this “Risk Factors” section:
•
•
•
•
•
•
•
•
•
•
•
•
•
Our ability to compete with competitors (some of which may also serve as current or future customers of our products)
that have significantly more resources than we have, have larger and more experienced sales and service teams and have
more experience bringing new products to the market;
The mix of machines and products that we sell during any period;
Our lengthy sales cycle for 3D printing machines;
Entry of new competitors into our markets;
Changes in our pricing policies or those of our competitors, including our response to price competition;
Delays between our expenditures to develop and market new or enhanced machines and products or to develop, acquire or
license new technologies and processes and the generation of sales related thereto;
Changes in the amount we spend to promote our products and services;
The geographic distribution of our sales;
Changes in the cost of satisfying our warranty obligations and servicing our installed base of products;
Our level of research and development activities and their associated costs and rates of success;
Changes in the size and complexity of our organization;
Interruptions to or other problems with our information technology systems, manufacturing processes or other operations;
Changes in regulatory requirements governing the handling and use of certain chemicals or powders printed or used in our
equipment;
8
6483c1.pdf
•
•
General economic and industry conditions that affect end-user demand and end-user levels of product design and
manufacturing; or
Changes in accounting rules and tax laws.
Due to the foregoing factors, you should not rely on quarter-to-quarter or year-to-year comparisons of our operating results as an
indicator of future performance.
Customer demands for certain qualities and capabilities in our machines is constantly evolving. We may not be able to respond to
customer demand as quickly as a better capitalized competitor may be able to respond.
Generally, our business is focused on the sale of 3D printing machines for, and products manufactured using, AM. Most recently, our
company has focused on developing our fine powder direct printing capabilities and larger format direct and indirect 3D printing
machines.
We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in a market
subject to innovation and rapidly developing and changing technology. A variety of technologies have the capacity to compete against
one another in the AM market, which is, in part, driven by technological advances and end-user requirements and preferences, as well
as the emergence of new standards and practices. Our ability to compete in the industrial AM market depends, in large part, on our
success in enhancing and developing new 3D printing machines, in enhancing our current 3D printing machines, in enhancing and
adding to our technology, and in developing and qualifying materials with which we can print. We believe that to remain competitive
we must continuously enhance and expand the functionality and features of our products and technologies. However, we may not be
able to:
•
•
•
•
•
•
•
•
Develop machines that are capable of directly printing fine powders;
Enhance our existing products and technologies;
Continue to leverage advances in binder printing and other industrial printhead technology;
Develop new products and technologies that address the increasingly sophisticated and varied needs of prospective end-
users, particularly with respect to the physical properties of fine powders, binder jetting and other materials;
Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis;
Develop products that are cost-effective or that otherwise gain market acceptance;
Distinguish ourselves from our competitors in our industry; and
Adequately protect our intellectual property as we develop new products and technologies.
We face significant competition in many aspects of our business, which could cause our revenues and gross profit to decline.
Competition could also cause us to reduce sales prices or to incur additional marketing or production costs, which could result in
decreased revenue, increased costs and reduced margins.
We compete for customers with a wide variety of producers of equipment for models, prototypes, other 3D objects and end-use parts
as well as producers of print materials and services for this equipment. Some of our existing and potential competitors are researching,
designing, developing and marketing other types of competitive equipment, print materials and services. Many of these competitors
have financial, marketing, manufacturing, distribution and other resources that are substantially greater than ours.
We also expect that future competition may arise from the development of allied or related techniques for equipment and print
materials that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to
develop certain products, from our entry into new geographic markets and industries and from improvements to existing print
materials and equipment technologies. In addition, a number of companies that have substantial resources have announced that they
intend to begin producing 3D printing machines, which will further enhance the competition we face.
We intend to continue to follow a strategy of continuing product development to enhance our position to the extent practicable. We
cannot assure you that we will be able to maintain our current position in the field or continue to compete successfully against current
and future sources of competition. If we do not keep pace with technological change and introduce new products, our revenues and
demand for our products may decrease.
We may not be able to retain or hire the number of skilled employees that we need to achieve our business plan.
For our business to grow in accordance with our business plan, we will need to recruit, hire, integrate and retain additional employees
with the technical competence and engineering skills to operate our machines, improve our technology and processes and expand our
technological capability to print using an increasing variety of materials. People with these skills are in short supply and may not be
available in sufficient numbers to allow us to meet the goals of our business plan. In addition, new employees often require significant
training and, in many cases, take significant time before they achieve full productivity. As a result, we may incur significant costs to
attract and retain employees, including significant expenditures related to salaries and benefits, and we may lose new employees to our
competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new
employees may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating
them into our workforce and culture. If we cannot obtain the services of a sufficient number of technically skilled employees, we may
not be able to achieve our planned rate of growth, which could adversely affect our results of operations.
9
6483c1.pdf
Loss of key management or sales or customer service personnel could adversely affect our results of operations.
Our future success depends to a significant extent on the skills, experience and efforts of our management and other key personnel.
We must continue to develop and retain a core group of management individuals if we are to realize our goal of continued expansion
and growth. While we have not previously experienced significant problems attracting and retaining members of our management
team and other key personnel, there can be no assurance that we will be able to continue to retain these individuals and the loss of any
or all of these individuals could materially and adversely affect our business.
We may incur future impairment charges to our long-lived assets held and used.
As a result of continued operating losses and cash flow deficiencies, we have completed certain tests 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. We will be required to conduct additional testing for the recoverability of long-lived assets
held and used to the extent that a triggering event requiring such testing is identified in a future period. 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. The amount of any impairment could be significant and could have a material adverse impact on our
financial condition and results of operations for the period in which the impairment is recorded.
We may conclude that there is substantial doubt regarding our ability to continue as a going concern.
As a result of our continued operating losses, cash flow deficiencies and liquidity, we may conclude that there is substantial doubt
regarding our ability to continue as a going concern. In connection with this conclusion, if our independent registered public
accounting firm issues a “going concern” opinion, it could impair our ability to finance our operations through the sale of equity,
incurring debt, or other financing alternatives. If we fail to raise sufficient additional capital, we will not be able to completely execute
our business plan. As a result our business would be jeopardized and we may not be able to continue.
Some of our arrangements for 3D printing machines contain customer-specific provisions that may impact the period in which we
recognize the related revenues under U.S. GAAP.
Some customers that purchase 3D printing machines from us may require specific, customized factors relating to their intended use of
the machine or the installation of the machine in the customer’s facilities. These specific, customized factors are often required by the
customer to be included in our commercial agreements relating to the purchase. As a result, our responsiveness to our customers’
specific requirements has the potential to impact the period in which we recognize the revenue relating to that 3D printing machine
sale.
Similarly, some customers must build or prepare facilities to install our 3D printing machines, and the completion of such projects can
be unpredictable, which can impact the period in which we recognize the revenue relating to that 3D printing machine sale.
Our business is subject to risks associated with having significant operations in Germany and selling machines and other products
in other non-United States locations.
We have significant manufacturing and development operations in Germany. In addition, a significant portion of our revenue is
derived from transactions outside of the United States (approximately 54.3% and 56.7% for 2018 and 2017, respectively).
Our operations outside of the United States are subject to risks associated with the political, regulatory and economic conditions of
Germany and other countries in which we sell or service machines, such as:
Challenges in providing solutions across a significant distance, in different languages and among different cultures;
Civil unrest, acts of terrorism and similar events;
Fluctuations in foreign currency exchange rates;
Potentially longer sales and payment cycles;
Potentially greater difficulties in collecting accounts receivable;
Potentially adverse tax consequences;
Reduced protection of intellectual property rights in certain countries;
Different, complex and changing laws governing intellectual property rights; sometimes affording reduced protection of
intellectual property rights in certain countries;
Difficulties in staffing and managing foreign operations;
Laws and business practices favoring local competition;
Costs and difficulties of customizing products for foreign countries;
Compliance with a wide variety of complex foreign laws, treaties and regulations;
10
•
•
•
•
•
•
•
•
•
•
•
•
6483c1.pdf
•
•
•
•
•
•
•
•
•
•
•
Restrictions imposed by local labor practices and laws on our business and operations;
Rapid changes in government, economic and political policies and conditions; political or civil unrest or instability,
terrorism or epidemics and other similar outbreaks or events;
Operating in countries with a higher incidence of corruption and fraudulent business practices;
Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe;
Costs and difficulties of customizing products for foreign countries;
Transportation delays;
Tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in
certain foreign markets;
Becoming subject to the laws, regulations and court systems of many jurisdictions;
Specific and significant regulations, including the European Union’s (“EU”) General Data Protection Regulation
(“GDPR”), which as of May 2018, imposes compliance obligations on companies who possess and use data of EU
residents, with resultant fines and penalties for failure to comply;
Uncertainty and resultant political, financial and market instability arising from the United Kingdom’s anticipated exit
from the EU (“Brexit”); and
Risks of violations of Foreign Corrupt Practices Act or similar anti-bribery laws.
In addition, our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our
currency transaction and translation risks because we generally conduct our business, earn revenue and incur costs in the local
currency of the countries in which we operate. For example, the financial condition and results of operations of Germany operations
are reported in euros and then translated to United States dollars at the applicable currency exchange rate for inclusion in our
consolidated financial statements. We do not manage our foreign currency exposure in a manner that would eliminate the effects of
changes in foreign exchange rates, which means that changes in exchange rates between these foreign currencies and the United States
dollar will affect the recorded levels of our foreign assets and liabilities, as well as our revenues, cost of sales, and operating margins,
and could result in exchange losses in any given reporting period. Given the volatility of exchange rates, we can give no assurance that
we will be able to effectively manage our currency transaction and/or translation risks or that any volatility in currency exchange rates
will not have an adverse effect on our results of operations.
One of our principal stockholders is able to exert substantial influence in determining the outcome of matters which require the
approval of our stockholders.
Our Chairman and Chief Executive Officer, S. Kent Rockwell, beneficially owns approximately 28% of our outstanding shares of
common stock. As a holder of 28% of our shares of common stock, Mr. Rockwell may have effective control over the election of our
Board of Directors and the direction of our affairs. As a result, he could exert considerable influence over the outcome of any
corporate matter submitted to our stockholders for approval, including the election of directors and any transaction that might cause a
change in control, such as a merger or acquisition. Any stockholders in favor of a matter that is opposed by Mr. Rockwell would have
to obtain a significant number of votes to overrule the votes of Mr. Rockwell.
We may need to raise additional capital from time to time if we are going to meet our growth strategy and may be unable to do so
on attractive terms.
Expanding our business to meet the growth strategy may require additional investments of capital from time to time, and our existing
sources of cash and any funds generated from operations may not provide us with sufficient capital. For various reasons, including any
current non-compliance with existing or future lending arrangements, additional financing may not be available when needed, or may
not be available on terms favorable to us. If we fail to obtain adequate capital on a timely basis or if capital cannot be obtained at
reasonable costs, we may not be able to achieve our planned rate of growth, which will adversely affect our results of operations.
Additional equity financing may result in ownership and economic dilution to our existing stockholders and/or require us to grant
certain rights and preferences to new investors. Also, although S. Kent Rockwell, our Chairman and Chief Executive Officer and our
controlling stockholder, has previously provided capital to us through related entities (including our current $15.0 million revolving
credit facility), he has no obligation to do so and our stockholders should have no expectation that he will do so in the future.
We are currently dependent on a single supplier of certain printhead components.
We currently rely on a single source to supply certain printhead components used by our 3D printing machines. While we believe that
there are other suppliers of printhead components upon which we could rely, we could experience delays and interruptions if our
supply is interrupted that might temporarily impact the financial performance of our business.
11
6483c1.pdf
We may not be able to consummate and/or effectively integrate strategic transactions.
We may from time to time engage in strategic transactions with third parties if we determine that they will likely provide future
financial and operational benefits. Successful completion of any strategic transaction depends on a number of factors that are not
entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all
necessary regulatory approvals. In addition, our ability to effectively integrate an investment into our existing business and culture
may not be successful, which could jeopardize future operational performance for the combined businesses.
We explore from time to time various strategic investments and/or alliances. With respect to strategic investments and/or alliances that
we may pursue, there is no guarantee that we will complete such transactions on favorable terms or at all. The exploration,
negotiation, and consummation of strategic investments and/or alliances may involve significant expenditures by us, which may
adversely affect our results of operations at the time such expenses are incurred. We may not be able to successfully negotiate and
complete a specific investment or alliance on favorable terms. If we do complete transactions, they may not ultimately strengthen our
competitive position or may not be accretive to us for a period of time which may be significant following the completion of such
transaction.
We may be required to pay cash, incur debt and/or issue equity securities to pay for any such transaction, each of which could
adversely affect our financial condition and the value of our common stock. Our use of cash to pay for transactions would limit other
potential uses of our cash. The issuance or sale of equity or convertible debt securities to finance any such transactions would result in
dilution to our stockholders. If we incur debt, it could result in increased fixed obligations and could also impose covenants or other
restrictions that could impede our ability to manage our operations.
We rely on our information technology (“IT”) systems to manage numerous aspects of our business and customer and supplier
relationships, and a disruption or failure of these systems could adversely affect our results of operations.
We rely on our IT systems to manage numerous aspects of our business and provide analytical information to management. We may
incur significant costs in order to implement the security measures that we feel are necessary to protect our IT systems. However, our
IT systems may remain vulnerable to damage despite our implementation of security measures that we deem to be appropriate. Our IT
systems allow us to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our
customers on a timely basis, maintain cost-effective operations and provide service to our customers. Our IT systems are an essential
component of our business and growth strategies, and a disruption to or failure of our IT systems, including our computer systems,
could significantly limit our ability to manage and operate our business efficiently. Although we take steps to secure our IT systems,
including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security
measures we have implemented may not be effective and our systems may be vulnerable to, among other things, damage and
interruption from power loss, including as a result of natural disasters, computer system and network failures, loss of
telecommunication services, operator negligence, loss of data, security breaches and computer viruses. If our systems for protecting
against cyber security risks prove not to be sufficient, we could be adversely affected by loss or damage of intellectual property,
proprietary information, or client data, interruption of business operations, or additional costs to prevent, respond to, or mitigate cyber
security attacks. Any such disruption or loss of business information could materially and adversely affect our reputation, brand,
results of operations and financial condition.
We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective
products that we supply.
The products we supply are sometimes used in potentially hazardous applications, such as the assembled parts of an aircraft or
automobile, that could result in death, personal injury, property damage, loss of production, punitive damages and consequential
damages. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in
our being named as a defendant in lawsuits asserting potentially large claims.
We attempt to include legal provisions in our agreements with customers that are designed to limit our exposure to potential liability
for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a
result of unfavorable judicial decisions or laws enacted in the future. Any such lawsuit, regardless of merit, could result in material
expense, diversion of management time and efforts and damage to our reputation, and could cause us to fail to retain or attract
customers, which could adversely affect our results of operations.
Defects in new products or in enhancements to our existing products that give rise to product returns or warranty or other claims
could result in material expenses, diversion of management time and attention and damage to our reputation.
Our 3D printing machines may contain undetected defects or errors when first introduced or as enhancements are released that, despite
testing, are not discovered until after a machine has been used. This could result in delayed market acceptance of those machines or
claims from sales agents, end-users or others, which may result in litigation, increased end-user service and support costs and warranty
claims, damage to our reputation and business or significant costs to correct the defect or error. We may from time to time become
subject to warranty or product liability claims related to product quality issues that could lead us to incur significant expenses.
12
6483c1.pdf
We could face liability if our 3D printers are used by our customers to print dangerous objects.
Customers may use our 3D printing machines to print products that could be used in a harmful way or could otherwise be dangerous.
For example, there have been recent news reports that 3D printing machines were used to print guns or other weapons. We have little,
if any, control over what objects our customers print using our 3D printing machines, and it may be difficult, if not impossible, for us
to monitor and prevent customers from printing weapons with our 3D printing machines. While we have never printed firearms in any
of our service centers, there can be no assurance that we will not be held liable if someone were injured or killed by a weapon printed
by a customer using one of our 3D printing machines.
If any of our manufacturing facilities or PSCs or EACs are disrupted, sales of our products may be disrupted, which could result
in loss of revenues and an increase in unforeseen costs.
We manufacture our machines at our facilities in Gersthofen, Germany and North Huntingdon, Pennsylvania. In addition, we have a
network of PSCs and EACs in the United States, Germany and Japan to provide sales and marketing and delivery of support and
printing services to our customers. If the operations of these facilities are materially disrupted, we would be unable to fulfill customer
orders for the period of the disruption, we would not be able to recognize revenue on orders and we might need to modify our standard
sales terms to secure the commitment of new 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 and resume product shipments. Such a disruption
could have an adverse effect on our results of operations.
Our manufacturing facilities, our suppliers’ and our customers’ facilities are vulnerable to disruption due to natural or other
disasters, strikes and other events beyond our control.
A major earthquake, fire, tsunami, hurricane, cyclone or other disaster, such as a major flood, seasonal storms, nuclear event or
terrorist attack affecting our facilities or the areas in which they are located, or affecting those of our customers or third party
manufacturers or suppliers, could significantly disrupt our or their operations, and delay or prevent product shipment or installation
during the time required to repair, rebuild or replace our or their damaged manufacturing facilities. These delays could be lengthy and
costly. If any of our manufacturers’, suppliers’ or customers’ facilities are negatively impacted by such a disaster, production,
shipment and installation of our 3D printing machines could be delayed, which can impact the period in which we recognize the
revenue related to that 3D printing machine sale. Additionally, customers may delay purchases of our products until operations return
to normal. Even if we are able to respond quickly to a disaster, the continued effects of the disaster could create uncertainty in our
business operations. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, labor strikes, war or the
outbreak of epidemic diseases could have a negative effect on our operations and sales.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to
prevent our competitors from benefiting from the expertise of some of our former employees.
We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease
working for us, from competing directly with us or working for our competitors or customers for a limited period. We may be unable
to enforce these agreements under the laws of the jurisdictions in which our employees work, including Germany and Japan, and it
may be difficult for us to restrict our competitors from benefitting from the expertise of our former employees or consultants
developed while working for us. If we cannot demonstrate that our legally protectable interests will be harmed, we may be unable to
prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain
competitive may be diminished.
Risks Related to Our Intellectual Property
We may not be able to protect our trade secrets and intellectual property.
Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We cannot assure you
that any of our existing or future intellectual property rights will be enforceable, will not be challenged, invalidated or circumvented,
or will otherwise provide us with meaningful protection or any competitive advantage.
We rely primarily on a combination of trade secrets, patents, trademarks, confidentiality or non-disclosure agreements and other
contractual arrangements with our employees, end-users and others to maintain our competitive position to protect our proprietary
technologies and processes globally. While some of our technology is licensed under patents belonging to others or is covered by
process patents which are owned or applied for by us, we have devoted substantial resources to the development of our technology,
trade secrets, know-how and other unregistered proprietary rights and much of our key technology is not protected by patents. In
particular, in fast-growing markets such as China and India, our technology is not protected by patents.
Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy,
use or disclose our technologies, inventions, processes or improvements. While we enter into various agreements intended to protect
our proprietary rights, these agreements may be breached and confidential information may be willfully or unintentionally disclosed,
and these agreements can be difficult and costly to enforce or may not provide adequate remedies if violated. In addition, our
competitors or other parties may learn of our proprietary rights in some other way. Because we cannot legally prevent one or more
other companies from developing similar or identical technology to our unpatented technology, it is likely that, over time, one or more
other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do not protect our
technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased
competition from other companies, which may adversely affect our results of operations.
13
6483c1.pdf
We do, from time to time, apply for patent protection for some of our intellectual property. Our pending patent applications may not
be granted. We cannot assure you that any of our existing or future patents will not be challenged, invalidated, or circumvented or will
otherwise provide us with meaningful protection. Furthermore, patents are jurisdictional in nature and therefore only protect us in
certain markets, rather than globally. We may not be able to obtain foreign patents corresponding to our United States or foreign
patent applications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents
do not adequately protect our technology, our competitors may be able to offer additive manufacturing systems or other products
similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents, and we
may not be able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use. Any of the
foregoing events would lead to increased competition and lower revenues or gross margins, which could adversely affect our
operating results.
If our patents and other intellectual property protections do not adequately protect our technology, our competitors may be able to
offer products similar to ours. We may not be able to detect the unauthorized use of our proprietary technology and processes or take
appropriate steps to prevent such use. Our competitors may also be able to develop similar technology independently or design around
our patents. Any of the foregoing events would lead to increased competition and lower revenue or gross profits, which would
adversely affect our results of operations.
We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a
result of litigation or other proceedings.
In connection with the enforcement of our intellectual property rights, opposing third parties from obtaining patent rights or disputes
related to the validity or alleged infringement of our or third-party intellectual property rights, including patent rights, we have been
and may in the future be subject or party to claims, negotiations or complex, protracted litigation. Intellectual property disputes and
litigation, regardless of merit, can be costly and disruptive to our business operations by diverting attention and energies of
management and key technical personnel, and by increasing our costs of doing business. We may not prevail in any such dispute or
litigation, and an adverse decision in any legal action involving intellectual property rights, including any such action commenced by
us, could limit the scope of our intellectual property rights and the value of the related technology. While we strive to avoid infringing
the intellectual property rights of third parties, we cannot provide any assurances that we will be able to avoid any infringement
claims.
We may be subject to alleged infringement claims.
Our products and technology, including the technology that we license from others, may infringe the intellectual property rights of
third parties. Patent applications in the United States and most other countries are confidential for a period of time until they are
published, and the publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or
more. As a result, the nature of claims contained in unpublished patent filings around the world is unknown to us, and we cannot be
certain that we were the first to conceive inventions covered by our patents or patent applications or that we were the first to file patent
applications covering such inventions. Furthermore, it is not possible to know in which countries patent holders may choose to extend
their filings under the Patent Cooperation Treaty or other mechanisms. In addition, we may be subject to intellectual property
infringement claims from individuals, vendors and other companies, including those that are in the business of asserting patents, but
are not commercializing products in the field of 3D printing. Any claims that our products or processes infringe the intellectual
property rights of others, regardless of the merit or resolution of such claims, could cause us to incur significant costs in responding to,
defending and resolving such claims, and may prohibit or otherwise impair our ability to commercialize new or existing products. Any
infringement by us or our licensors of the intellectual property rights of third parties may have a material adverse effect on our
business, financial condition and results of operations.
Third-party claims of intellectual property infringement successfully asserted against us may require us to redesign infringing
technology or enter into costly settlement or license agreements on terms that are unfavorable to us, prevent us from manufacturing or
licensing certain of our products, subject us to injunctions restricting our sale of products and use of infringing technology, cause
severe disruptions to our operations or the markets in which we compete, impose costly damage awards or require indemnification of
our sales agents and end-users. In addition, as a consequence of such claims, we may incur significant costs in acquiring the necessary
third-party intellectual property rights for use in our products or developing non-infringing substitute technology. Any of the foregoing
developments could seriously harm our business.
Certain of our employees and patents are subject to the laws of Germany.
Many of our employees work in Germany and are subject to German employment law. Ideas, developments, discoveries and
inventions made by such employees and consultants are subject to the provisions of the German Act on Employees’ Inventions
(Gesetz über Arbeitnehmererfindungen), which regulates the ownership of, and compensation for, inventions made by employees. We
face the risk that disputes can occur between us and our employees or ex-employees pertaining to alleged non-adherence to the
provisions of this act that may be costly to defend and take up our management’s time and efforts whether we prevail or fail in such
dispute. In addition, under the German Act on Employees’ Inventions, certain employees retained rights to patents they invented or
co-invented prior to 2009. Although most of these employees have subsequently assigned their interest in these patents to us, there is a
risk that the compensation we provided to them may be deemed to be insufficient in the future and we may be required under German
law to increase the compensation due to such employee for the use of their patent. In those cases where employees have not assigned
their interests to us, we may need to pay compensation for the use of those patents. If we are required to pay additional compensation
or face other disputes under the German Act on Employees’ Inventions, our results of operations could be adversely affected.
14
6483c1.pdf
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain of our past and present employees were previously employed at other additive manufacturing companies, including our
competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition
agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or
disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We
are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend
against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel
or intellectual property rights. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management.
Risks Related to the Securities Markets and Ownership of Our Common Stock
We have broad discretion as to the use of the net proceeds from securities offerings and may not use them effectively.
We cannot specify with certainty how we may use the net proceeds from securities offerings. Our management has broad discretion in
the application of the net proceeds, and we may use these proceeds in ways with which you may disagree or for purposes other than
those contemplated at the time of the offering. The failure by our management to apply these funds effectively could have a material
adverse effect on our business, financial condition and results of operations. Pending their use, we may invest the net proceeds from a
securities offering in a manner that does not produce income or that loses value.
Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur,
could depress the market price of our common stock.
Sales of a significant number of shares of our common stock in the public markets or utilization of our universal shelf registration
statement could depress the market price of our common stock and impair our ability to raise capital through the sale of additional
equity securities. We cannot predict the effect that future sales of our common stock or the market perception that we are permitted to
sell a significant number of our securities would have on the market price of our common stock.
The market price of our common stock may fluctuate significantly.
The market price of our common stock has been and is expected to continue to be highly volatile and may be significantly affected by
numerous factors, including the risk factors described in this report and other factors which are beyond our control and may not be
directly related to our operating performance. These factors include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Significant volatility in the market price and trading volume of securities of companies in our sector, which is not
necessarily related to the operating performance of these companies;
The mix of products that we sell, and related services that we provide, during any period;
Delays between our expenditures to develop and market new products and the generation of sales from those products;
Changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;
Changes in our expenditures to promote our products and services;
Changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;
Success or failure of research and development projects of us or our competitors;
Announcements of technological innovations, new solutions or enhancements or strategic partnerships or acquisitions by
us or one of our competitors;
The public’s response to press releases or other public announcements by us or third parties, including our filings with the
SEC;
The general tendency towards volatility in the market prices of shares of companies that rely on technology and
innovation;
Changes in regulatory policies or tax guidelines;
Changes or perceived changes in earnings or variations in operating results;
Any shortfall in revenue or earnings from levels expected by investors or securities analysts;
Threatened or actual litigation;
Changes in our senior management; and
General economic trends and other external factors, including Brexit.
15
6483c1.pdf
If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or
downgrade our shares, the price of our shares could decline.
The trading market for our shares will rely in part on the research and reports that equity research analysts publish about us and our
business. We do not have control over these analysts, and we do not have commitments from them to write research reports about us.
The price of our shares could decline if one or more equity research analysts downgrades our shares, issues other unfavorable or
inaccurate commentary or ceases publishing reports about us or our business.
The price of our shares could decline if there are substantial sales of our common stock, particularly by our directors, their affiliates or
our executive officers or when there is a large number of shares of our common stock available for sale. The perception in the public
market that our stockholders might sell our shares also could depress the market price of our shares. From time to time, we may
conduct offerings of our securities and our executive officers, directors and selling stockholders would be subject to lock-up
agreements that restrict their ability to transfer their shares following the offering. The market price of our shares may drop
significantly when the restrictions on resale by our existing stockholders lapse and these stockholders are able to sell their shares into
the market. If this occurs, it could impair our ability to raise additional capital through the sale of securities, should we desire to do so.
We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time
to compliance initiatives.
As a public company with shares listed on The NASDAQ Stock Market, we incur significant accounting, legal and other expenses that
we would not incur as a private company. Although we now qualify as a “smaller reporting company” pursuant to Rule 12b-2 of the
Exchange Act, we still incur significant costs associated with our compliance with the public company reporting requirements of the
Exchange Act, requirements imposed by the Sarbanes-Oxley Act (most notably Section 404), the Dodd-Frank Wall Street Reform and
Protection Act, and other rules adopted, and to be adopted, by the SEC and the NASDAQ Stock Market. Compliance with these rules
and regulations result in increased legal and financial compliance costs and make certain activities more time-consuming and costly.
They also make it more difficult for us to obtain director and officer liability insurance, and we incur substantial costs to maintain
sufficient coverage.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for
public companies generally, increasing legal and financial compliance costs and making some activities more time consuming. These
laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and
governance practices. We have invested resources to comply with evolving laws, regulations and standards, and this investment may
result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating
activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended
by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal
proceedings against us and our business may be adversely affected. We cannot predict or estimate the amount or timing of additional
costs we may incur in the future to respond to these constantly evolving requirements. The impact of these requirements could also
make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as
executive officers.
We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Therefore, if our share price does not appreciate, our investors may not gain and could potentially
lose on their investment in our shares.
We have never declared or paid cash dividends on our common stock, nor do we anticipate paying any cash dividends on our common
stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and
growth of our business and service and repay indebtedness, if any. As a result, capital appreciation, if any, of our shares will be
investors’ sole source of gain for the foreseeable future.
The right of stockholders to receive liquidation and dividend payments on our common stock is junior to the rights of holders of
indebtedness and to any other senior securities we may issue in the future.
Shares of our common stock are equity interests and do not constitute indebtedness. This means that shares of our common stock will
rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us,
including our liquidation. Additionally, holders of our common stock are subject to the prior dividend and liquidation rights of holders
of our outstanding preferred stock, if any. Our Board of Directors is authorized to issue classes or series of preferred stock in the
future without any action on the part of our common stockholders.
16
6483c1.pdf
If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a
result, the value of our common stock.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and
disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive
and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We are required under Section
404(a) of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control
over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal
control over financial reporting.
Additionally, Section 404(b) of the Sarbanes-Oxley Act requires an attestation from our independent registered public accounting firm
on the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year
ended December 31, 2018.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial
condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is
effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over
financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of
our common stock could decline, investor groups like Institutional Shareholder Services could initiate a withhold vote campaign with
respect to the re-election of the members of our audit committee, and we could be subject to sanctions or investigations by the
NASDAQ Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over
financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our
future access to the capital markets.
Provisions in our charter documents or Delaware law may inhibit a takeover or make it more difficult to effect a change in control,
which could adversely affect the value of our common stock.
Our Certificate of Incorporation and Bylaws contain, and Delaware corporate law contains, provisions that could delay or prevent a
change of control or changes in our management. These provisions will apply even if some of our stockholders consider the offer to be
beneficial or favorable. If a change of control or change in management is delayed or prevented, the market price of our common
stock could decline.
Raising additional capital by issuing securities may cause dilution to our stockholders.
We may need or desire to raise substantial additional capital in the future. Our future capital requirements will depend on many
factors, including, among others:
•
•
•
•
•
•
Research and development investments (including our investment in fine powder capabilities for direct printing and our
development efforts tied to large format direct and indirect 3D printing machines);
Our degree of success in capturing a larger portion of the industrial products production market;
The costs of establishing or acquiring sales, marketing, and distribution capabilities for our products;
The costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our issued patents, and
defending intellectual property-related claims;
The extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and
The costs of financing unanticipated working capital requirements and responding to competitive pressures.
If we raise additional funds by issuing equity or convertible debt securities, we may reduce the percentage ownership of our then-
existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or
privileges senior to those possessed by our then-existing stockholders. Additionally, future sales of a substantial number of shares of
our common stock or other equity-related securities in the public market could depress the market price of our common stock and
impair our ability to raise capital through the sale of additional equity or equity-linked securities. We cannot predict the effect that
future sales of our common stock or other equity-related securities would have on the market price of our common stock.
17
6483c1.pdf
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We have the following locations:
Location
United States
North Huntingdon, Pennsylvania
Troy, Michigan
St. Clairsville, Ohio
Europe
Gersthofen, Germany
Asia
Kanagawa, Japan
Item 3. Legal Proceedings.
Nature of Facility
Owned or Leased Approximate Square Footage
Corporate Headquarters,
Machine Manufacturing, PSC/EAC
and Machine Sales Center
PSC/EAC
Research and Development
European Headquarters,
Machine Manufacturing, PSC/EAC
and Machine Sales Center
Owned
Owned
Owned
67,886
19,646
12,800
Owned
200,585
PSC/EAC and Machine Sales Center
Owned
19,639
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 4. Mine Safety Disclosures.
Not applicable.
18
6483c1.pdf
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been listed on the NASDAQ Stock Market since February 7, 2013, under the symbol “XONE.”
Stockholders
As of March 5, 2019, there were 37 stockholders of record. The actual number of holders of our common stock is greater than the
number of record holders, and includes stockholders who are beneficial owners and whose shares are held in street name by brokers
and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other
entities.
Dividend Policy
We do not anticipate that we will declare or pay regular dividends on our common stock in the foreseeable future, as we generally
intend to invest any future earnings in the development and growth of our business. Future dividends, if any, will be at the discretion
of our Board of Directors and will depend on many factors, including general economic and business conditions, our strategic plans,
our financial results and condition, legal requirements, any contractual obligations or limitations, and other factors that our Board of
Directors deems relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
Our 2013 Equity Incentive Plan (the “Plan”) was adopted on January 24, 2013, and approved by our stockholders on August 19, 2013.
The table below sets forth information with regard to securities authorized for issuance under the Plan as of December 31, 2018:
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans Not Approved by
Security Holders
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
(Excluding Securities
Reflected in the
First Column)*
621,986
$
10.66
1,024,185
N/A
N/A
N/A
*
1,992,241 shares of common stock are currently authorized for issuance under the Plan, which is the maximum amount permitted under the Plan. At January 1,
2018, 1,044,077 shares of common stock remained available for issuance under the Plan. In 2018, awards of stock options and restricted stock were made with a
total of 304,500 shares underlying such awards, and 284,608 shares previously subject to awards under the Plan were forfeited or expired.
Item 6. Selected Financial Data.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information
under this item.
19
6483c1.pdf
Item 7. 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 in conjunction with our consolidated financial statements and related notes
thereto in Part II Item 8 of this Annual Report on Form 10-K. Certain statements contained in this discussion may constitute forward
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and
Section 21E of the Exchange Act. These statements involve a number of risks, uncertainties and other factors that could cause actual
results to differ materially from those reflected in any forward looking statements, as a result of a variety of risks and uncertainties,
including those described under Item 1, “Cautionary Statements Concerning Forward Looking Statements” and Item 1A, “Risk
Factors”.
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 and indirect 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 PSCs and 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.
Recent Developments
In April 2018 we completed the introduction of our newest direct 3D printing machine, the Innovent+. Based on the Innovent
platform, the Innovent+ system comes with our new ultrasonic recoater designed for material flexibility and ease of use. We believe
that the ultrasonic recoater is the most advanced powder dispensing technology in the market. It can be quickly removed for system
cleaning or powder change over. Each recoater comes with four screen configurations which allow for greater material
compatibility. Expanded dust collection options have been localized to pull powder from around the buildbox and utilize a dust
particulate remover with variable control. Expanded dust collection options are compatible with both the Innovent and the Innovent+
3D printing machine platforms.
In August 2018 we announced the release of 304L stainless steel as a printable material through our PSC/EAC in North Huntingdon,
Pennsylvania and as a qualified material on our direct printers. 304L is the most commonly used stainless steel and is suitable to
applications in a wide range of industries due to its high durability, corrosion resistance and low cost. Common applications include
components for appliances, marine, medical, kitchenware, fasteners and heat exchangers. 304L stainless steel joins 316L stainless
steel and 17-4PH stainless steel as high density, single-alloy qualified materials for printing through our PSC/EAC and direct printers,
in addition to our matrix materials, which include 420 stainless steel infiltrated with bronze and 316 stainless steel infiltrated with
bronze.
In November 2018 we announced the introduction of our next direct 3D printing machine, the X1 25PRO. The X1 25PRO combines
the fine metal injection molding powder capability of our Innovent+ with production volume capability. This machine is targeted to
meet the needs of metal injection molding, powder metallurgy and manufacturing customers seeking a larger platform solution for
producing reliable parts in a production environment. We expect to commence sales of our X1 25PRO to customers in the second half
of 2019.
Outlook
We plan to grow our market leading position with respect to 3D printing solutions for customers and continue advancing our
innovations in direct and indirect printing, principally through an expansion of our fine powder (less than 20 micron) direct printing
capabilities and development activities associated with large format direct and indirect 3D printing machines. Our focus continues to
be industrial markets for utilization of binder jetting technologies for non-polymer based materials. Our strength in industrial markets
is rooted in our diverse material capabilities, our lower cost of adoption versus other competing technologies, our faster printing
speeds and our scalability to larger product size.
Backlog
At December 31, 2018, our backlog was approximately $12,300 of which approximately $9,600 is expected to be fulfilled during the
next twelve months. At December 31, 2017, our backlog was approximately $21,300.
Restructuring
In August 2018 we committed to a plan to consolidate certain of our 3D printing operations from our Houston, Texas facility into our
Troy, Michigan facility. These actions were taken as part of our efforts to optimize our business model and maximize our facility
utilization. During 2018, we recorded a charge of approximately $28 split between cost of sales ($15) and selling, general and
administrative expense ($13) associated with involuntary employee terminations related to this plan. During 2018, we recorded an
additional charge of approximately $1 (to cost of sales) associated with asset impairments related to this plan. There are no additional
20
6483c1.pdf
charges expected to be incurred associated with this plan in future periods. We settled all amounts associated with involuntary
employee terminations during 2018.
At December 31, 2018 we reclassified approximately $822 in property and equipment relating to our Houston, Texas facility
(principally land and building) associated with certain assets meeting required criteria as held for sale (included in prepaid expenses
and other current assets in the accompanying consolidated balance sheet).
The consolidation of our 3D printing operations from our Houston, Texas facility into our Troy, Michigan facility is expected to result
in a reduction in our annual revenues of approximately $1,400. Revenues associated with our Houston, Texas facility were
approximately $951 and $1,932 for 2018 and 2017, respectively. We expect annualized cost savings related to this consolidation of
approximately $1,800, with approximately $1,600 in the form of cash cost savings (principally employee-related and other operating
costs) and approximately $200 in the form of reduced depreciation expense. Cost savings associated with the exit of this facility are
expected to benefit cost of sales by approximately $1,600 and selling, general and administrative expenses by approximately $200.
We expect to invest these cost savings into technological or process advancements that support either long-term cost benefits or
revenue growth.
In December 2017 we committed to a plan to consolidate certain of our 3D printing operations from our Desenzano del Garda, Italy
facility into our Gersthofen, Germany facility. These actions were taken as part of our efforts to optimize our business model and
maximize our facility utilization. During 2017, we recorded a charge of approximately $72 split between cost of sales ($19) and
selling, general and administrative expense ($53) associated with involuntary employee terminations related to this plan. During 2018,
we recorded additional charges of approximately $258 associated with other exit costs ($17) and asset impairments ($241) related to
this plan. In addition, during 2018, we recorded a gain from disposal of certain property and equipment of approximately $51
(recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss). Charges associated with
other exit costs recorded during 2018 were recorded to cost of sales in the accompanying statement of consolidated operations and
comprehensive loss. Charges associated with asset impairments recorded during 2018 were recorded to cost of sales as a component of
depreciation expense in the accompanying statement of consolidated operations and comprehensive loss. Other exit costs relate to the
remaining facility rent due under a non-cancellable operating lease following the cessation of operations at the facility in January
2018. Asset impairment charges relate to certain leasehold improvements associated with the exited facility and other equipment
which we abandoned. There are no additional charges expected to be incurred associated with this plan in future periods. We settled
all amounts associated with involuntary employee terminations and facility rentals during 2018.
The consolidation of our 3D printing operations from our Desenzano del Garda, Italy facility into our Gersthofen, Germany facility is
not expected to have a significant impact on our revenues in future periods. We expect annualized cost savings related to this
consolidation of approximately $875, with approximately $600 in the form of cash cost savings (principally employee-related and
other operating costs) and approximately $275 in the form of reduced depreciation expense. Cost savings associated with the exit of
this facility are expected to benefit cost of sales by approximately $625 and selling, general and administrative expenses by
approximately $250. We expect to invest these cost savings into technological or process advancements that support either long-term
cost benefits or revenue growth.
In March 2017, we terminated our Cooperation Agreement with Swerea SWECAST AB (“Swerea”), resulting in an exit of our
PSC/EAC operations in Jönköping, Sweden, effective April 1, 2017. Also in March 2017, we agreed to a leasing agreement with
Beijer Industri AB, effective April 1, 2017, related to our 3D printing machine and related equipment located on the Swerea premises,
previously covered under our Cooperation Agreement with Swerea. Both of these actions were taken in connection with our
continuing evaluation of our business model in an effort to both streamline our existing European operations, and to take strategic
advantage of our existing relationship with Beijer Industri AB in promoting indirect binder jet technologies in Scandinavia. There
were no penalties or other adverse effects associated with our termination of our Cooperation Agreement with Swerea. There were no
significant effects on our results of operations or financial position associated with these actions.
In January 2017, we committed to a plan to consolidate certain of our 3D printing operations from our North Las Vegas, Nevada
facility into our Troy, Michigan and Houston, Texas facilities and exit our non-core specialty machining operations in our
Chesterfield, Michigan facility. These actions were taken as a result of the accelerating adoption rate of our sand printing technology
in North America which has resulted in a refocus of our operational strategy.
As a result of these actions, during 2017, we recorded charges of approximately $1,016, including approximately $142 associated with
involuntary employee terminations, approximately $7 associated with other exit costs and approximately $867 associated with asset
impairments. Charges associated with involuntary employee terminations and other exit costs were recorded to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss. Charges associated with asset impairments were split
between cost of sales ($598), as a component of depreciation expense, and selling, general and administrative expenses ($269), as a
component of amortization expense, in the accompanying statement of consolidated operations and comprehensive loss. There are no
additional charges expected to be incurred associated with this plan in future periods. We have settled all amounts associated with
involuntary employee terminations and other exit costs.
Charges associated with asset impairments relate principally to our plan to exit our non-core specialty machining operations in our
Chesterfield, Michigan facility. On April 21, 2017, we sold to a third party certain assets associated with these operations including
inventories (approximately $79), property and equipment (approximately $2,475) and other contractual rights (approximately $269).
Total gross proceeds from the sale of these assets were approximately $2,050. After deducting costs directly attributable to the sale of
these assets (approximately $128), we recorded an impairment loss during the three months ended March 31, 2017, of approximately
$859 split between property and equipment ($590) and intangible assets ($269) based on the excess of the carrying value over the
estimated fair value of the related assets at March 31, 2017 (recorded to cost of sales in the accompanying statement of consolidated
21
6483c1.pdf
operations and comprehensive loss), and a loss on disposal during the three months ended June 30, 2017, of approximately $42
(recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss).
Separate from the transaction described above, on May 9, 2017, we sold to a third party certain property and equipment (principally
land and building) associated with our North Las Vegas, Nevada facility. Total gross proceeds from the sale of these assets were
approximately $1,950. After deducting costs directly attributable to the sale of these assets (approximately $137), we recorded a gain
on disposal (recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss), of
approximately $347. Additionally, we recorded an impairment loss during 2017 of approximately $8 associated with certain property
and equipment which was abandoned in connection with our exit of our North Las Vegas, Nevada facility.
The consolidation of our 3D printing operations from our North Las Vegas, Nevada facility into our Troy, Michigan and Houston,
Texas facilities is not expected to have a significant impact on our revenues in future periods. We expect annualized cost savings
related to this consolidation of approximately $600, with approximately $570 in the form of cash cost savings (principally employee-
related and other operating costs) and approximately $30 in the form of reduced depreciation expense. All cost savings associated with
this consolidation are expected to benefit cost of sales. We expect to invest these cost savings into technological or process
advancements that support either long-term cost benefits or revenue growth.
We expect annualized reductions in revenue related to our exit of our non-core specialty machining operations in our Chesterfield,
Michigan facility of approximately $1,400. For 2017 revenues associated with our non-core specialty machining operations in our
Chesterfield, Michigan facility were approximately $346. We expect annualized cost savings related to this exit of approximately
$500, with approximately $200 in the form of cash cost savings (principally employee-related and other operating costs),
approximately $200 in the form of reduced depreciation expense and approximately $100 in the form of reduced amortization
expense. Cost savings associated with the exit of this facility are expected to benefit cost of sales by approximately $400 and selling,
general and administrative expenses by approximately $100. We expect to invest these cost savings into technological or process
advancements that support either long-term cost benefits or revenue growth.
Impairment
During the three months ended December 31, 2018, 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, resulting in a material adverse effect on our financial position and results of
operations.
Financial Measures
We use several financial and operating metrics to measure our business. We use these metrics to assess the progress of our business,
make decisions on where to allocate capital, time and technology investments, and assess longer-term performance within our
marketplace. The key metrics are as follows:
Revenue. Our revenue consists of sales of our 3D printing machines and 3D printed and other products, materials and services.
3D printing machines. 3D printing machine revenues consist of 3D printing machine sales and leasing arrangements. 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). 3D printing machine sales and leasing arrangements are
influenced by a number of factors including, among other things, the adoption rate of our 3D printing technology, end-user product
design and manufacturing activity, the capital expenditure budgets of end-users and potential end-users and other macroeconomic
factors. Purchases or leases of our 3D printing machines, particularly our higher-end, higher-priced systems, typically involve long
sales cycles. Several factors can significantly affect revenue reported for our 3D printing machines for a given period including,
including a customer’s capital budgeting cycle, its facility preparedness and the terms of the underlying arrangement with a customer
(including certain substantive acceptance provisions) which may vary from period to period.
22
6483c1.pdf
3D printed and other products, materials and services. 3D printed and other products, materials and services consist of sales of
products printed in our global PSC/EAC network or manufactured through our specialty machining operations (through April 2017) or
castings, consumable materials and replacement parts for the network of 3D printing machines installed by our global customer base
and services for maintenance and certain research and development activities. Our PSCs/EACs utilize our 3D printing machine
technology to print products to the specifications of customers. In addition, our PSCs/EACs also provide support and services such as
pre-production collaboration prior to printing products for a customer. Sales of consumable materials, replacement parts and service
maintenance contracts are linked to the aftermarket opportunities from our growing network of 3D printing machines installed by our
global customer base. Research and development arrangements are a function of customer-specific needs in applying our additive
manufacturing technologies.
Cost of Sales and Gross Profit. Our cost of sales consists primarily of labor (related to our global workforce), materials (for both the
manufacture of 3D printing machines and for our PSC/EAC and other manufacturing operations) and overhead to produce 3D printing
machines and 3D printed and other products, materials and services. Also included in cost of sales are license fees (based upon a
percentage of revenue of qualifying products and processes) for the use of intellectual properties, warranty costs and other overhead
associated with our production processes.
Our gross profit is influenced by a number of factors, the most important of which is the volume and mix of sales of our 3D printing
machines and 3D printed and other products, materials and services.
As 3D printing machine sales are cyclical, we seek to achieve a balance in revenue from 3D printing machines and 3D printed and
other products, materials and services in order to maximize gross profit while managing business risk. In addition, we expect to reduce
our cost of sales over time by continued research and development and supply chain activities directed towards achieving increased
efficiencies in our production processes.
Operating Expenses. Our operating expenses consist of research and development expenses and selling, general and administrative
expenses.
Research and development expenses. Our research and development expenses consist primarily of salaries and related personnel
expenses aimed at 3D printing machine development and materials qualification activities. Additional costs include the related
software and materials, laboratory supplies, and costs for facilities and equipment. Research and development expenses are
charged to operations as they are incurred. We capitalize the cost of materials, equipment and facilities that have future alternative
uses in research and development projects or otherwise.
Selling, general and administrative expenses. Our selling, general and administrative expenses consist primarily of employee-
related costs (salaries and benefits) of our executive officers, and sales and marketing (including sales commissions), finance,
accounting, information technology and human resources personnel. Other significant general and administrative costs include the
facility costs related to our United States and European headquarters and external costs for legal, accounting, consulting and other
professional services.
Interest Expense. Interest expense consists of the interest cost associated with our related party revolving credit facility, outstanding
long-term debt and capital lease arrangements.
Provision for Income Taxes. We are taxed as a corporation for United States federal, state, local and foreign income tax purposes.
Current statutory tax rates in the jurisdictions in which we operate, the United States, Germany, Japan, Italy (through December 2018)
and Sweden (through December 2017), are approximately 21.0%, 30.0%, 30.9%, 24.0% and 22.0%, respectively.
Results of Operations
Net Loss
Net loss for 2018 was $12,667, or $0.78 per basic and diluted share, compared with a net loss of $20,017, or $1.25 per basic and
diluted share, for 2017. The decrease in our net loss was principally due to an increase in our revenues and gross profit, a net decrease
in our operating expenses (an increase in research and development expenses offset by a decrease in selling, general and
administrative expenses) and net nonoperating income (versus net nonoperating expense for the comparable period) primarily due to
an approximate $819 realized gain associated with an insurance recovery for a 3D printing machine damaged by a third party freight
company while in transit (all changes further described below).
Revenue
The following table summarizes revenue by product group for each of the years ended December 31:
3D printing machines
3D printed and other products, materials
and services
2018
36,393
56.3% $
2017
29,980
28,251
64,644
43.7%
100.0% $
27,764
57,744
51.9%
48.1%
100.0%
$
$
23
6483c1.pdf
Revenue for 2018 was $64,644 compared with revenue of $57,744 for 2017, an increase of $6,900, or 11.9%. The increase in revenue
was as a result of increases in revenue attributable to both of our product groups (3D printing machines and 3D printed and other
products, materials and services). The increase in revenues from 3D printing machines resulted primarily from an increase in volume
of 3D printing machines sold (56 3D printing machines sold during 2018, as compared to 41 3D printing machines sold during 2017),
a favorable mix of 3D printing machines sold (as we sold 26 indirect printers during 2018, as compared to 23 indirect printers during
2017, indirect printers generally bearing a higher average selling price than direct printers) and favorable exchange rates (principally
the euro versus the United States dollar). The increase in revenues from 3D printed and other products, materials and services
principally resulted from an increase in revenues from our direct PSC/EAC printing operations as a result of increased customer
acceptance of our binder jet technologies and an increase in consumable material and aftermarket revenues (maintenance services and
replacement components for 3D printing machines) based on an increased global installed base of 3D printing machines along with
favorable exchange rates (principally the euro versus the United States dollar). These increases in revenues from 3D printed and other
products, materials and services were offset by decreases in product sales associated with our former specialty machining operation
located in our Chesterfield, Michigan facility (approximately $346) following the sale of certain assets associated with this operation
in April 2017 and a reduction in revenues associated with our indirect PSC/EAC printing operations based on lower customer demand
and the impact of our exit of our Houston, Texas facility (further discussed above).
Cost of Sales and Gross Profit
Cost of sales for 2018 was $43,703 compared with cost of sales of $43,362 for 2017, an increase of $341, or 0.8%. The increase in
cost of sales was primarily due to an increase in our variable cost of sales associated with our increase in revenues. Offsetting the
increase in variable cost of sales was a net decrease of approximately $999 associated with slow-moving, obsolete and lower of cost or
net realizable value inventories (principally due to the difference between the $1,460 charge associated with our Exerial 3D printing
machine platform inventories recorded during the three months ended June 30, 2017 and the $561 charge associated with our
industrial microwave inventories recorded during the three months ended June 30, 2018) and a net decrease in costs associated with
exit activities (further described above).
Gross profit for 2018 was $20,941 compared with gross profit of $14,382 for 2017. Gross profit percentage was 32.4% for 2018
compared with gross profit percentage of 24.9% for 2017. The increase in gross profit was the result of the increase in revenues net of
the increase in cost of sales as further described above. This includes our recognition of five Exerial 3D printing machines during 2017
(associated revenues of approximately $4,946), which generated lower profitability on a comparable basis to other 3D printing
machine sales, such lower profitability being generally consistent with our experience related to new product or technology releases.
Research and Development
Research and development expenses for 2018 were $10,744 compared with research and development expenses of $9,909 for 2017, an
increase of $835, or 8.4%. The increase in research and development expenses was primarily due to increases in employee-related
costs (salaries, benefits and equity-based compensation) of approximately $537 (including approximately $71 in employee termination
costs associated with our 2018 global cost realignment) and unfavorable exchange rates (principally the euro versus the United States
dollar).
Selling, General and Administrative
Selling, general and administrative expenses for 2018 were $23,194 compared with selling, general and administrative expenses of
$24,155 for 2017, a decrease of $961, or 4.0%. The decrease in selling, general and administrative expenses was principally due to
decreases associated with equity-based compensation of approximately $1,250 (as a result of pre-vesting forfeitures associated with
the change in our Chief Executive Officer in June 2018 and a reduction in awards issued to employees under less favorable vesting
conditions) and reduction in amortization expense associated with intangible assets of approximately $578, including the absence of
an impairment of intangible assets of approximately $269 during the three months ended March 31, 2017, in connection with our plan
to exit our non-core specialty machining operations at our Chesterfield, Michigan facility. These decreases were offset by an increase
in employee-related costs (salaries and benefits) of approximately $733 (including approximately $708 in employee termination costs
associated with the change in our Chief Executive Officer and our 2018 global cost realignment, both enacted in June 2018) and
unfavorable exchange rates (principally the euro versus the United States dollar).
Interest Expense
Interest expense for 2018 was $254 compared with interest expense of $94 for 2017, an increase of $160, or 170.2%. The increase in
interest expense was principally due to approximately $160 in interest incurred in connection with our related party revolving credit
facility (further described below) during 2018.
Other (Income) Expense — Net
Other (income) expense — net for 2018 was ($744) compared with other expense (income) — net of $203 for 2017. Included in other
(income) expense – net for 2018 was approximately $819 of a realized gain associated with an insurance recovery for a 3D printing
machine damaged by a third party freight company while in transit. This amount was offset by a foreign exchange loss of
approximately $245 recognized on the settlement of an intercompany note previously identified as a long-term investment in
connection with the dissolution of our former ExOne Italy S.r.l. subsidiary. Amounts for both periods also included interest income on
24
6483c1.pdf
cash and cash equivalents balances and net foreign exchange (gains) losses on commercial transactions and certain intercompany
transactions between subsidiaries either settled or planned for settlement in the foreseeable future.
Provision for Income Taxes
The provision for income taxes for 2018 and 2017 was $160 and $38, respectively. The effective tax rate for 2018 and 2017 was 1.3%
(provision on a loss) and 0.2% (provision on a loss), respectively. For 2018 and 2017, the effective tax rate differed from the United
States federal statutory rate (21.0% for 2018 and 34.0% for 2017) primarily due to net changes in valuation allowances for the
respective periods.
We have provided a valuation allowance for our net deferred tax assets as a result of our inability to generate consistent net operating
profits in jurisdictions in which we operate. As such, any benefit from deferred taxes in any of the periods presented in our
consolidated financial statements has been fully offset by changes in the valuation allowance for 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 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.
At December 31, 2018, our ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by
local taxing authorities. In January 2019 this examination was concluded by the local taxing authorities without significant adjustment
to previously established tax positions. As a result, during the three months ended March 31, 2019, we expect to record a reversal of
previously recorded liabilities for uncertain tax positions of approximately $1,187, of which approximately $367 is expected to be
offset against net operating loss carryforwards. We expect to record the remainder, approximately $820, as a benefit for income taxes
during the three months ended March 31, 2019.
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 net losses of approximately $12,667 and
$20,017 for 2018 and 2017, respectively. We have received cumulative unrestricted net proceeds from the sale of our common stock
(through our initial public offering and subsequent secondary offerings) of approximately $168,361 to fund our operations. Most
recently, we received approximately $595 in unrestricted net proceeds from the sale of our common stock during the three months
ended March 31, 2016 through an At Market Issuance Sales Agreement (“ATM”) with FBR Capital Markets & Co. (“FBR”) and
MLV & Co. LLC (“MLV”) pursuant to which FBR and MLV agreed to act as distribution agents in the sale of up to $50,000 in the
aggregate of our common stock in “at the market offerings” as defined in Rule 415 under the Securities Act. Subsequent to the filing
of our registration statement on Form S-3 (No. 333-223690) in March 2018, we have not reactivated the ATM and therefore do not
consider the ATM to be an active source of liquidity.
In March 2018 we entered into a three-year, $15,000 revolving credit facility with a related party (further described below).
In June 2018 we initiated our 2018 global cost realignment program focused on a reduction in our production overhead costs and
operating expenses in an effort to drive efficiency in our operations and preserve capital.
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 the cost savings measures associated with our 2018 global cost realignment program further described above). Further, we
may seek to raise additional capital to support our growth through additional debt, equity or other alternatives (including asset sales)
or a combination thereof.
Related Party Revolving Credit Facility
On March 12, 2018, ExOne 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 our Executive Chairman (a related party) at such date and effective June 20, 2018, became our
Chairman and Chief Executive Officer, relating to a $15,000 revolving credit facility (the “LBM Credit Agreement”) to provide
additional funding for working capital and general corporate purposes. The LBM Credit Agreement provides for a term of three years
(through March 12, 2021) and bears interest at a rate of one month LIBOR plus an applicable margin of 500 basis points
(approximately 6.7% and 7.5% at inception and December 31, 2018, respectively). The LBM Credit Agreement requires 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% (approximately $188), was required at closing. Borrowings under the LBM Credit
25
6483c1.pdf
Agreement are required to be in minimum increments of $1,000. ExOne may terminate or reduce the credit commitment at any time
during the term of the LBM Credit Agreement without penalty. ExOne may also make prepayments against outstanding borrowings
under the LBM Credit Agreement at any time without penalty. Borrowings under the LBM Credit Agreement have been collateralized
by the accounts receivable, inventories and machinery and equipment of the Loan Parties. At inception of the credit facility and
December 31, 2018, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the
LBM Credit Agreement.
The LBM Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance
of insurance, properties, and licenses; and compliance with laws. The LBM 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 LBM Credit Agreement does not contain any financial
covenants. The LBM 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.
LBM was determined to be a related party based on common control by S. Kent Rockwell, who was our Executive Chairman at the
time we entered into the LBM Credit Agreement and effective June 20, 2018, became our Chairman and Chief Executive
Officer. Accordingly, we do not consider the LBM Credit Agreement indicative of a fair market value lending. Prior to execution, the
LBM Credit Agreement was subject to review and approval by the Audit Committee of our Board of Directors (our “Board”) and by a
sub-committee of independent members of our Board. At the time of execution of the LBM Credit Agreement, the $15,000 in
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 LBM Credit Agreement and termination of the LBM 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 LBM Credit Agreement and Escrow Agreement prohibit any acceleration of repayment of any amount outstanding under
the LBM Credit Agreement and prohibit termination of the LBM Credit Agreement or withdrawal from escrow of any unused portion
of the LBM Credit Agreement.
There were no borrowings by us under the LBM Credit Agreement from March 12, 2018 through December 31, 2018.
We incurred approximately $265 in debt issuance costs associated with the LBM Credit Agreement (including the aforementioned up
front commitment fee paid at closing to LBM). During 2018, we recorded interest expense relating to the LBM Credit Agreement of
approximately $160. Included in interest expense for 2018 was approximately $70, associated with amortization of debt issuance costs
(resulting in approximately $195 in remaining debt issuance costs at December 31, 2018, of which approximately $88 was included in
prepaid expenses and other current assets and approximately $107 was included in other noncurrent assets in the accompanying
consolidated balance sheet). Included in interest expense for 2018 was approximately $90 associated with the commitment fee on the
unused portion of the revolving credit facility, of which at December 31, 2018 approximately $10 was included in accounts payable in
the accompanying consolidated balance sheet. We settled all amounts payable to LBM at December 31, 2018 in January 2019.
Cash Flows
The following table summarizes the significant components of cash flows for each of the years ended December 31 and our ending
cash, cash equivalents, and restricted cash balances:
Net cash used for operating activities
Net cash (used for) provided by investing activities
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash, cash equivalents,
and restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash
Operating Activities
2018
2017
(11,843) $
(1,229)
105
(71)
(13,038) $
(9,673)
2,719
(68)
1,045
(5,977)
December 31,
December 31,
2018
2017
7,592 $
1,548
9,140 $
21,848
330
22,178
$
$
$
$
Net cash used for operating activities for 2018 was $11,843 compared with net cash used for operating activities of $9,673 for 2017.
The change of $2,170 was due to a net increase in 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
26
6483c1.pdf
inventory production of our 3D printing machines and the timing of payments to our suppliers and vendors for our production and
operating expenses. The net increase in working capital was partially offset by a decrease in our net loss (further described above).
Investing Activities
Net cash used for investing activities for 2018 was $1,229 compared with net cash provided by investing activities of $2,719 for 2017.
For 2018, net cash used for investing activities included approximately $1,327 in cash outflows associated with capital expenditures.
These cash outflows were offset by cash inflows of approximately $98 in proceeds from the sale of property and equipment.
For 2017, net cash provided by investing activities included approximately $3,706 in cash inflows associated with proceeds from the
sale of property and equipment, mostly attributable to our sale of assets associated with our non-core specialty machining operation in
Chesterfield, Michigan and our PSC/EAC in North Las Vegas, Nevada during the three months ended June 30, 2017. These cash
inflows were offset by cash outflows of approximately $987 for capital expenditures.
We expect our 2019 capital expenditures to be limited to spending associated with sustaining our existing operations and strategic
asset acquisition and deployment (estimated spending of approximately $1,000 to $2,000). We also expect to receive net proceeds
from the sale of our former Houston, Texas facility of approximately $1,000 during 2019.
Financing Activities
Net cash provided by financing activities for 2018 was $105 compared with net cash used for financing activities of $68 for 2017.
For 2018, net cash provided by financing activities included approximately $529 in cash inflows associated with proceeds from the
exercise of employee stock options. These cash inflows were offset by cash outflows of approximately $265 in debt issuance costs
associated with our revolving credit facility with a related party (further described above) and approximately $159 in principal
payments on long-term debt and capital lease arrangements.
For 2017, net cash used for financing activities included approximately $215 in cash outflows associated with principal payments on
long-term debt and capital lease arrangements. These cash outflows were offset by cash inflows of approximately $147 associated
with proceeds from the exercise of employee stock options.
At December 31, 2018, we identified that we were not in compliance with the annual cash flow-to-debt service ratio covenant
associated with our building note payable (outstanding indebtedness of approximately $1,533 at December 31, 2018). We requested
and were granted a waiver related to compliance with this annual covenant at December 31, 2018 and through December 31, 2019.
Related to our 2018 non-compliance, there were no cross default provisions or related impacts on other lending or financing
agreements.
Off Balance Sheet Arrangements
In the course of our normal operations, our ExOne GmbH subsidiary issues financial guarantees and letters of credit to third parties in
connection with certain commercial transactions requiring security. At December 31, 2018, total outstanding financial guarantees and
letters of credit issued by us were approximately $1,136 (€992) with expiration dates ranging from March 2019 through February
2023. At December 31, 2017, total outstanding guarantees and letters of credit issued by us were approximately $1,224 (€1,021).
For further discussion related to financial guarantees and letters of credit issued by us, refer to Note 13 to the consolidated financial
statements in Part II Item 8 of this Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Guidance
Refer to Note 1 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Refer to Note 1 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information
under this item.
27
6483c1.pdf
Item 8. Financial Statements and Supplementary Data.
Management’s Report on Internal Control Over Financial Reporting ...............................................................................................
Report of Independent Registered Public Accounting Firm...............................................................................................................
Statement of Consolidated Operations and Comprehensive Loss ......................................................................................................
Consolidated Balance Sheet ...............................................................................................................................................................
Statement of Consolidated Cash Flows ..............................................................................................................................................
Statement of Changes in Consolidated Stockholders’ Equity ............................................................................................................
Notes to the Consolidated Financial Statements ................................................................................................................................
Page
29
30
31
32
33
34
35
28
6483c1.pdf
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-
15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance to
management and the board of directors regarding the preparation and fair presentation of published financial statements. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. We conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the
Treadway Commission (2013 Framework). Based on our assessment, we believe that, as of December 31, 2018, our internal control
over financial reporting is effective.
The effectiveness of internal control over financial reporting as of December 31, 2018 has been audited by Schneider Downs & Co.
Inc., an independent registered public accounting firm which also audited our consolidated financial statements. Schneider Downs’
attestation report on the consolidated financial statements and management’s maintenance of effective internal control over financial
reporting is included under the heading “Report of Independent Registered Public Accounting Firm.”
/s/ S. Kent Rockwell
S. Kent Rockwell
Chief Executive Officer
/s/ Douglas D. Zemba
Douglas D. Zemba
Chief Financial Officer
29
6483c1.pdf
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
of The ExOne Company
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The ExOne Company and Subsidiaries (collectively, the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss,
changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related
notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2018 and 2017, and the results of its consolidated operations and its cash flows for each
of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued
by COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying “Management’s Report on Internal Control Over Financial Reporting” appearing under Item 8. Our responsibility is to
express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have served as the Company’s auditor since 2016.
/s/ Schneider Downs & Co. Inc.
Schneider Downs & Co. Inc.
Pittsburgh, Pennsylvania
March 15, 2019
6483c1.pdf
30
The ExOne Company and Subsidiaries
Statement of Consolidated Operations and Comprehensive Loss
(in thousands, except per-share amounts)
For the years ended December 31,
Revenue
Cost of sales
Gross profit
Operating expenses
Research and development
Selling, general and administrative
Loss from operations
Other (income) expense
Interest expense
Other (income) expense – net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per common share:
Basic
Diluted
Comprehensive loss:
Net loss
Other comprehensive (loss) income:
Foreign currency translation adjustments
Comprehensive loss
$
$
$
$
$
$
2018
2017
$
64,644
43,703
20,941
10,744
23,194
33,938
(12,997)
254
(744)
(490)
(12,507)
160
(12,667) $
57,744
43,362
14,382
9,909
24,155
34,064
(19,682)
94
203
297
(19,979)
38
(20,017)
(0.78) $
(0.78) $
(1.25)
(1.25)
(12,667) $
(20,017)
(1,264)
(13,931) $
5,251
(14,766)
The accompanying notes are an integral part of these consolidated financial statements.
31
6483c1.pdf
The ExOne Company and Subsidiaries
Consolidated Balance Sheet
(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable – net
Inventories – net
Prepaid expenses and other current assets
Total current assets
Property and equipment – net
Intangible assets – net
Other noncurrent assets
Total assets
Liabilities
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue and customer prepayments
Total current liabilities
Long-term debt – net of current portion
Other noncurrent liabilities
Total liabilities
Contingencies and commitments
Stockholders' equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 16,234,201
(2018) and 16,124,617 (2017) shares issued and outstanding
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
2018
2017
$
$
$
7,592
1,548
6,695
15,930
2,438
34,203
41,906
—
1,573
77,682
144
4,376
6,049
2,343
12,912
1,364
631
14,907
21,848
330
8,647
15,430
1,710
47,965
46,797
62
736
95,560
137
4,291
6,096
8,282
18,806
1,508
37
20,351
162
175,214
(101,853)
(10,748)
62,775
77,682
$
161
173,718
(89,186)
(9,484)
75,209
95,560
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
32
6483c1.pdf
The ExOne Company and Subsidiaries
Statement of Consolidated Cash Flows
(in thousands)
For the years ended December 31,
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used for operations:
Depreciation and amortization
Equity-based compensation
Amortization of debt issuance costs
Deferred income taxes
Provision (recoveries) for bad debts – net
Provision for slow-moving, obsolete and lower of cost
or net realizable value inventories – net
Gain from disposal of property and equipment – net
Changes in assets and liabilities, excluding effects of foreign
currency translation adjustments:
Decrease (increase) in accounts receivable
(Increase) decrease in inventories
Increase in prepaid expenses and other assets
Increase in accounts payable
Increase in accrued expenses and other liabilities
Decrease in deferred revenue and customer prepayments
Net cash used for operating activities
Investing activities
Capital expenditures
Proceeds from sale of property and equipment
Net cash (used for) provided by investing activities
Financing activities
Payments on long-term debt
Payments on capital leases
Proceeds from exercise of employee stock options
Debt issuance costs
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Supplemental disclosure of cash flow information
Cash paid for interest
Cash paid for income taxes
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
Transfer of internally developed 3D printing machines from property and equipment
to inventories for sale
Property and equipment included in assets held for sale
Property and equipment included in accounts payable
Property and equipment included in accrued expenses and other current liabilities
Property and equipment acquired through financing arrangements
$
$
$
$
$
$
$
$
$
2018
2017
$
(12,667) $
(20,017)
5,503
968
75
—
58
1,022
(51)
1,637
(3,441)
(335)
195
181
(4,988)
(11,843)
(1,327)
98
(1,229)
(142)
(17)
529
(265)
105
(71)
(13,038)
22,178
9,140
$
169
103
$
$
2,194
$
1,042
822
79
—
14
$
$
$
$
$
6,278
2,456
6
1
(64)
2,056
(325)
(1,733)
357
(856)
2,017
445
(294)
(9,673)
(987)
3,706
2,719
(137)
(78)
147
—
(68)
1,045
(5,977)
28,155
22,178
87
5
2,868
3,042
—
64
108
48
The accompanying notes are an integral part of these consolidated financial statements.
33
6483c1.pdf
The ExOne Company and Subsidiaries
Statement of Changes in Consolidated Stockholders’ Equity
(in thousands)
Common stock
Shares
$
16,017
$
160
Additional
paid-in capital
$
171,116
Accumulated
deficit
(68,761) $
$
Accumulated
other
comprehensive
loss
(14,735) $
Total
stockholders'
equity
Balance at December 31, 2016
Cumulative-effect adjustment due to
the adoption of Financial Accounting
Standards Board Accounting Standards
Update 2016-16
Net loss
Other comprehensive income
Equity-based compensation
Exercise of employee stock options
Common stock issued from equity
incentive plan
Balance at December 31, 2017
Net loss
Other comprehensive loss
Effect of dissolution of ExOne Italy S.r.l.
Equity-based compensation
Exercise of employee stock options
Common stock issued from equity
incentive plan
Balance at December 31, 2018
—
—
—
—
19
89
16,125
—
—
—
—
67
—
—
—
1
—
—
161
—
—
—
—
1
—
—
—
2,455
147
—
173,718
—
—
—
968
528
42
16,234
$
—
162
$
—
175,214
(408)
(20,017)
—
—
—
—
(89,186)
(12,667)
—
—
—
—
—
$ (101,853) $
87,780
(408)
(20,017)
5,251
2,456
147
—
75,209
(12,667)
(1,573)
309
968
529
—
—
5,251
—
—
—
(9,484)
—
(1,573)
309
—
—
—
(10,748) $
—
62,775
The accompanying notes are an integral part of these consolidated financial statements.
34
6483c1.pdf
The ExOne Company and Subsidiaries
Notes to the Consolidated Financial Statements
(dollars in thousands, except per-share, share and unit amounts)
Note 1. Summary of Significant Accounting Policies
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 consolidated financial statements include the accounts of ExOne and its wholly-owned subsidiaries,
ExOne Americas LLC (United States); ExOne GmbH (Germany); ExOne Property GmbH (Germany); ExOne KK (Japan); through
December 2018, ExOne Italy S.r.l. (Italy); and through December 2017, ExOne Sweden AB (Sweden). Collectively, the consolidated
group is referred to as the “Company”.
On December 31, 2017, the Company completed a dissolution of its ExOne Sweden AB (Sweden) subsidiary. The purpose of this
dissolution was to further simplify the Company’s legal structure. There were no significant accounting or tax related impacts
associated with the dissolution of this subsidiary.
On December 28, 2018, the Company completed a dissolution of its ExOne Italy S.r.l. (Italy) subsidiary. The purpose of this
dissolution was to further simplify the Company’s legal structure. In connection with the dissolution, the Company settled an
intercompany note payable with ExOne Italy S.r.l. previously identified as a long-term investment in the subsidiary. This settlement
resulted in the recognition of a $245 foreign exchange loss (recorded as a component of other (income) expense – net in the
accompanying statement of consolidated operations and comprehensive loss). There were no significant tax related impacts associated
with the dissolution of this subsidiary.
The Company filed a registration statement on Form S-3 (No. 333-223690) with the Securities and Exchange Commission (“SEC”) on
March 15, 2018. The purpose of the Form S-3 was to register, among other securities, 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 consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”). All material intercompany transactions and balances have been eliminated in consolidation.
Certain amounts relating to current portion of capital leases ($15) and capital leases – net of current portion ($36) in the accompanying
consolidated balance sheet at December 31, 2017, have been reclassified to accrued expenses and other current liabilities and other
noncurrent liabilities, respectively, to conform to current period presentation.
Use of Estimates
The preparation of these 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.
Foreign Currency
The local currency is the functional currency for significant operations outside of the United States. The determination of the
functional currency of an operation is made based upon the appropriate economic and management indicators.
35
6483c1.pdf
Foreign currency assets and liabilities are translated into their United States dollar equivalents based upon year end exchange rates,
and are included in stockholders’ equity as a component of other comprehensive income (loss). Revenues and expenses are translated
at average exchange rates. Transaction gains and losses that arise from exchange rate fluctuations are charged to operations as
incurred, except for gains and losses associated with certain long-term intercompany transactions between subsidiaries for which
settlement is not planned or anticipated in the foreseeable future, which are included in other comprehensive income (loss) in the
accompanying statement of consolidated operations and comprehensive loss.
The Company transacts business globally and is subject to risks associated with fluctuating foreign exchange rates. Approximately
54.3% and 56.7% of the consolidated revenue of the Company was derived from transactions outside the United States for 2018 and
2017, respectively. This revenue is generated primarily from wholly-owned subsidiaries operating in their respective countries and
surrounding geographic areas. This revenue is primarily denominated in each subsidiary’s local functional currency, including the
euro and Japanese yen.
Revenue Recognition
The Company derives revenue from the sale of 3D printing machines and 3D printed and other products, materials and services.
Revenue is recognized by the Company when persuasive evidence of an arrangement exists, delivery has occurred (generally when
title and risk and rewards of ownership have transferred to the customer) or services have been rendered, selling price is fixed or
determinable and collectability is reasonably assured.
The Company enters into arrangements that may provide for multiple deliverables to a customer. 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). The Company identifies all products and services that are to be delivered
separately under an arrangement and allocates revenue to each based on their relative fair value. Fair values are generally established
based on the prices charged when sold separately by the Company (vendor specific objective evidence). The allocated revenue for
each deliverable is then recognized ratably based on relative fair values of the components of the sale. In the absence of vendor
specific objective evidence or third party evidence in leading to a relative fair value for a sale component, the Company’s best
estimate of selling price is used. The Company also evaluates the impact of undelivered items on the functionality of delivered items
for each sales transaction and, where appropriate, defers revenue on delivered items when that functionality has been affected.
Functionality is determined to be met if the delivered products or services represent a separate earnings process.
The Company’s arrangements for 3D printing machines generally include substantive customer acceptance provisions for which the
Company must determine whether it can objectively demonstrate that either company-specific or customer-specific criteria identified
in such provisions have been met prior to recognizing revenue on the transaction. Revenue is generally deferred on all such
arrangements until formal acceptance is provided from the customer.
The Company generally provides customers with a standard twelve month warranty on its 3D printing machines. The standard
warranty is not treated as a separate service because the standard warranty is an integral part of the sale of the 3D printing machine. 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. Following the standard warranty period, the Company offers its customers optional
maintenance service contracts or extended warranties. Deferred maintenance service revenues are generally recognized when the
maintenance services are performed since the Company has historical evidence that indicates that the costs of performing the services
under the contract are not incurred on a straight-line basis.
The Company sells equipment with embedded software to its customers. The embedded software is not sold separately and it is not a
significant focus of the Company’s marketing effort. The Company does not provide post-contract customer support specific to the
software or incur significant costs that are within the scope of Financial Accounting Standards Board (“FASB”) guidance on
accounting for software to be leased or sold. Additionally, the functionality that the software provides is marketed as part of the
overall product. The software embedded in the equipment is incidental to the equipment as a whole such that the FASB guidance
referenced above is not applicable. Sales of these products are recognized in accordance with FASB guidance on accounting for
multiple-element arrangements.
Shipping and handling costs billed to customers are included in revenue in the accompanying statement of consolidated operations and
comprehensive loss. Costs incurred by the Company associated with shipping and handling are included in cost of sales in the
accompanying statement of consolidated operations and comprehensive loss.
In assessing collectability as part of the revenue recognition process, the Company considers a number of factors in its evaluation of
the creditworthiness of the customer, including past due amounts, past payment history, and current economic conditions. If it is
determined that collectability cannot be reasonably assured, the Company will defer recognition of revenue until collectability is
assured. 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). Prepayments received from customers are reported as deferred
revenue and customer prepayments in the accompanying consolidated balance sheet. 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.
36
6483c1.pdf
The Company has entered into certain contracts for the sale of its products and services with the federal government under fixed-fee,
cost reimbursable and time and materials arrangements. With respect to cost reimbursable arrangements with the federal government,
the Company generally bills for products and services in accordance with provisional rates as determined by the Company. To the
extent that provisional rates billed under these contracts differ from actual experience, a billing adjustment (through revenue) is made
in the period in which the difference is identified (generally upon completion of its annual Incurred Cost Submission filing as required
by the federal government). For 2018 and 2017, revenues and any adjustments related to these contracts were not significant.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.
The Company’s policy is to invest cash in excess of short-term operating and debt-service requirements in such cash equivalents.
These instruments are stated at cost, which approximates fair value because of the short maturity of the instruments. The Company
maintains cash balances with financial institutions located in the United States, Germany and Japan. The Company places its cash with
high quality financial institutions and believes its risk of loss is limited; however, at times, account balances may exceed international
and federally insured limits. The Company has not experienced any losses associated with these cash balances.
Accounts Receivable and Net Investment in Sales-Type Leases
Accounts receivable and net investment in sales-type leases 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 and 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 historical write-off and collections experience, current credit conditions, the age of the
related balances and economic factors that may affect a customer’s ability to pay. Based upon review of these factors, 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 accounts receivable or net investment in sales-type lease 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 December 31, 2018 and 2017, the allowance for doubtful accounts associated with the
Company’s accounts receivable was approximately $225 and $1,193, respectively. At December 31, 2018 and 2017, there was no
allowance for doubtful accounts associated with the Company’s net investment in sales-type leases. During 2018 and 2017, the
Company recorded a net provision (recoveries) for bad debts associated with accounts receivable of approximately $58 and ($64),
respectively (such amounts recorded as a component of selling, general and administrative expense in the accompanying statement of
consolidated operations and comprehensive loss). The remaining change to the allowance for doubtful accounts associated with the
Company’s accounts receivable for 2018 and 2017 primarily relates to the reversal of previously recorded allowances in connection
with the direct write-off of the related accounts receivable balance as future collections were determined to be remote.
Inventories
The Company values all of its inventories at the lower of cost, as determined on the first-in, first-out method or net realizable value.
Overhead is allocated to work in process and finished goods based upon normal capacity of the Company’s production facilities. Fixed
overhead associated with production facilities that are being operated below normal capacity are recognized as a period expense rather
than being capitalized as a product cost. An allowance for slow-moving and obsolete inventories is provided based on historical
consumption experience, anticipated product demand and product design changes. These provisions reduce the cost basis of the
respective inventories and are recorded as a charge to cost of sales.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the related
assets, generally three to forty years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated
useful lives or the estimated or contractual lives of the related leases. Gains or losses from the sale of assets are recognized upon
disposal or retirement of the related assets. Repairs and maintenance are charged to expense as incurred.
The Company evaluates long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by comparing the
estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. An impairment
loss would be recognized when the carrying amount of the assets (asset group) exceeds the estimated undiscounted net cash flows.
The amount of the impairment loss to be recorded is calculated as the excess of carrying value of assets (asset group) over their fair
value. The determination of what constitutes an asset group, the associated undiscounted net cash flows, the fair value of assets (asset
group) and the estimated useful lives of assets require significant judgments and estimates by management. No impairment loss
related to held and used assets was recorded by the Company during 2018 or 2017.
The Company evaluates long-lived assets held for sale for impairment when the associated long-lived asset (asset group) is first
determined to meet the held for sale criteria and in each reporting period thereafter until a disposal is executed or a change in plan
occurs. A long-lived asset (asset group) is first determined to meet the held for sale criteria when: management, having the authority to
approve the action, commits to a plan to sell the long-lived asset (asset group); the long-lived asset (asset group) is available for
immediate sale in its present condition subject only to terms that are usual and customary for sales of such long-lived assets (asset
groups); an active program to locate a buyer and other actions required to complete the plan to sell the long-lived asset (asset group)
37
6483c1.pdf
have been initiated; the sale of the long-lived asset (asset group) is probable, and transfer of the long-lived asset (asset group) is
expected to qualify for recognition as a completed sale, within one year; the long-lived asset (asset group) is being actively marketed
for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
In connection with the Company’s exit of its Houston, Texas facility (Note 5), the Company reclassified approximately $822 in
property and equipment (principally land and building) associated with certain long-lived assets meeting required criteria as held for
sale (included in prepaid expenses and other current assets in the accompanying consolidated balance sheet at December 31, 2018).
Product Warranty Reserves
Substantially all of the Company’s 3D printing machine sales are covered by a standard twelve month 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.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this
approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus
the change in deferred taxes during the year. Deferred taxes represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of assets and
liabilities and are adjusted for changes in tax rates and tax laws when enacted. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The Company’s foreign subsidiaries are taxed as corporations under the taxing regulations of those respective countries. As a result,
the accompanying statement of consolidated operations and comprehensive loss includes a provision for income taxes related to these
foreign jurisdictions. Any undistributed earnings are intended to be permanently reinvested in the respective subsidiaries.
The Company recognizes the income tax benefit from an uncertain tax position only if it is more likely than not that the income tax
position will be sustained on examination by the taxing authorities based upon the technical merits of the position. The income tax
benefits recognized in the consolidated financial statements from such positions are then measured based upon the largest amount that
has a greater than 50% likelihood of being realized upon settlement. Income tax benefits that do not meet the more likely than not
criteria are recognized when effectively settled, which generally means that the statute of limitations has expired or that the
appropriate taxing authority has completed its examination even though the statute of limitations remains open. Interest and penalties
related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that
such interest and penalties would be applicable under relevant tax law until such time that the related income tax benefits are
recognized.
Taxes on Revenue Producing Transactions
Taxes assessed by governmental authorities on revenue producing transactions, including sales, excise, value added and use taxes, are
recorded on a net basis (excluded from revenue) in the accompanying statement of consolidated operations and comprehensive loss.
Research and Development
The Company is involved in research and development of new methods and technologies relating to its products. Research and
development expenses are charged to operations as they are incurred. The Company capitalizes the cost of certain materials,
equipment and facilities that have alternative future uses in research and development projects or otherwise.
Advertising
Advertising costs are charged to expense as incurred, and were not significant for 2018 or 2017.
Defined Contribution Plan
The Company sponsors a defined contribution savings plan under section 401(k) of the Internal Revenue Code. Under the plan,
participating employees in the United States may elect to defer a portion of their pre-tax earnings, up to the Internal Revenue Service’s
annual contribution limit. During 2018 and 2017 the Company made discretionary matching contributions of 50% of the first 8% of
employee contributions, subject to certain Internal Revenue Service limitations. Discretionary matching contributions made by the
Company during 2018 and 2017 were approximately $320 and $303, respectively.
38
6483c1.pdf
Equity-Based Compensation
The Company recognizes compensation expense for equity-based grants using the straight-line attribution method in which the
expense is recognized ratably over the requisite service period based on the grant date fair value of the related award. Forfeitures of
pre-vesting equity-based grants are recognized as they are incurred and result in an offset to equity-based compensation expense in the
period of recognition. Fair value of equity-based awards is estimated on the date of grant using the Black-Scholes option pricing
model.
Recently Adopted Accounting Guidance
On January 1, 2018, the Company adopted FASB Accounting Standards Update (“ASU”) 2017-09, “Compensation – Stock
Compensation: Scope of Modification Accounting.” This ASU requires registrants to apply modification accounting unless three
specific criteria are met. The three criteria are: the fair value of the award is the same before and after the modification, the vesting
conditions are the same before and after the modification and the classification as a debt or equity award is the same before and after
the modification. Management has determined that the adoption of this ASU did not have an impact on the consolidated financial
statements of the Company.
On January 1, 2017, the Company adopted FASB ASU 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than
Inventory.” This ASU modifies existing guidance and is intended to reduce diversity in practice with respect to the accounting for the
income tax consequences of intra-entity transfers of assets. The ASU indicates that the former exception to income tax accounting that
requires companies to defer the income tax effects of certain intercompany transactions would apply only to intercompany inventory
transactions. That is, the exception no longer applies to intercompany sales and transfers of other assets (e.g., property and equipment
or intangible assets). Under the former exception, income tax expense associated with intra-entity profits in an intercompany sale or
transfer of assets was eliminated from earnings. Instead, that cost was deferred and recorded on the balance sheet (e.g., as a prepaid
asset) until the assets left the consolidated group. Similarly, the entity was prohibited from recognizing deferred tax assets for the
increases in tax bases due to the intercompany sale or transfer. A modified retrospective basis of adoption was required for this ASU.
As a result, a cumulative-effect adjustment of approximately $408 has been recorded to accumulated deficit on January 1, 2017, in
connection with this adoption.
Recently Issued Accounting Guidance
The Company considers the applicability and impact of all ASUs issued by 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 August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments.” This ASU is intended to reduce diversity in practice in how certain cash receipts and payments are presented and
classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement
of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of
insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash
receipts and payments that have aspects of more than one class of cash flows. This guidance became effective for the Company on
January 1, 2019. Management has determined that the adoption of this ASU will not have an effect 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. These changes become effective for the Company on January 1, 2020. Management is currently evaluating
the potential impact of these changes on the consolidated financial statements of the Company.
In February 2016, the FASB issued ASU 2016-02, “Leases.” This ASU requires lessees to recognize a right-of-use asset and lease
liability on the consolidated balance sheet for leases classified as operating leases. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize a right-of-use asset and lease liability.
Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is
reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the
lease. A right-of-use asset represents an entity’s right to use the underlying asset for the lease term, and a lease liability represents an
entity’s obligation to make lease payments. Currently, an asset and liability only are recorded for leases classified as capital leases
(financing leases). The measurement, recognition, and presentation of expenses and cash flows arising from leases by a lessee remains
the same. This guidance became effective for the Company on January 1, 2019. In connection with the adoption of this guidance, the
Company has completed an assessment resulting in an accumulation of all of its leasing arrangements and has validated the
information for accuracy and completeness. Upon adoption of the new lease guidance, management expects to record a right-of-use
asset and lease liability, each in the amount of approximately $400, on the Company’s consolidated balance sheet for various types of
operating leases, including certain machinery and other equipment and vehicles. This amount is equivalent to the aggregate future
minimum lease payments on a discounted basis. The Company has also elected to apply the package of transitional practical
expedients of the new lease guidance by allowing the Company to not: (1) reassess if expired or existing contracts are, or contain,
leases; (2) reassess lease classification for any expired or existing leases; and (3) reassess initial direct costs for any existing leases.
Additionally, in July 2018, the FASB issued guidance to provide for an alternative transition method to the new lease guidance,
whereby an entity can choose to not reflect the impact of the new lease guidance in the prior periods included in its consolidated
39
6483c1.pdf
financial statements. The Company plans to utilize this alternative transition method in connection with its adoption on January 1,
2019.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU created a comprehensive
framework for all entities in all industries to apply in the determination of when to recognize revenue and, therefore, supersedes
virtually all existing revenue recognition requirements and guidance. This framework is expected to provide a consistent and
comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: identify the
contract(s) with a customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the
transaction price to the performance obligations in the contract(s), and recognize revenue when, or as, the entity satisfies a
performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the
Effective Date,” which deferred the effective date of this guidance for the Company until January 1, 2019. The Company adopted this
guidance on January 1, 2019, using the modified retrospective approach. Revenue from the Company’s sale of 3D printing machines
and 3D printed and other products, materials and services continues to generally be recognized when the related machines, products or
materials are delivered or accepted by the Company’s customers or as the related services are performed by the Company. As such,
the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations. The
Company expects to include the enhanced disclosures required by this guidance in its consolidated financial statements for the three
months ended March 31, 2019.
Note 2. Liquidity
The Company has incurred a net loss in each of its annual periods since its inception. As shown in the accompanying statement of
consolidated operations and comprehensive loss, the Company incurred a net loss of approximately $12,667 and $20,017 for 2018 and
2017, respectively. At December 31, 2018, the Company had approximately $7,592 in unrestricted cash and cash equivalents.
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 secondary offerings) of approximately $168,361 to fund its operations. Most recently, the
Company received approximately $595 in unrestricted net proceeds from the sale of its common stock during the three months ended
March 31, 2016 through an At Market Issuance Sales Agreement (“ATM”) with FBR Capital Markets & Co. (“FBR”) and MLV &
Co. LLC (“MLV”) pursuant to which FBR and MLV agreed to act as distribution agents in the sale of up to $50,000 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”). Subsequent to the filing of its registration statement on Form S-3 (No. 333-223690) in March 2018, the Company
has not reactivated the ATM and therefore does not consider the ATM to be an active source of liquidity.
In March 2018 the Company entered into a three-year, $15,000 revolving credit facility with a related party (Note 14) to provide
additional funding for working capital and general corporate purposes.
In June 2018 the Company initiated a 2018 global cost realignment program focused on a reduction in the Company’s production
overhead costs and operating expenses in an effort to drive efficiency in its operations and preserve capital.
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 the costs savings measures associated with the
Company’s 2018 global cost realignment program further described above). The Company may also seek to raise additional capital to
support its growth through additional debt, 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 years ended December 31,
Foreign currency translation adjustments
Balance at beginning of period
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumlated other comprehensive loss
Balance at end of period
2018
2017
$
$
(9,484) $
(1,573)
309
(10,748) $
(14,735)
5,251
—
(9,484)
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. For 2018, foreign
currency translation adjustments also included approximately $245 in a foreign exchange loss recognized in connection with the
settlement of an intercompany note payable with ExOne Italy S.r.l. previously identified as a long-term investment in the subsidiary
(Note 1) and approximately $64 associated with the dissolution of the related subsidiary (both amounts recognized in other (income)
expense – net in the accompanying statement of consolidated operations and comprehensive loss). There were no tax impacts
associated with such reclassifications.
40
6483c1.pdf
Other than the amounts identified above, no amounts were reclassified to earnings for any of the periods presented. There were no tax
impacts related to income tax rate changes for any 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 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 2018 and 2017, 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 (621,986 — 2018
and 674,470 — 2017) and unvested restricted stock issued (67,001 — 2018 and 52,502 — 2017), was anti-dilutive.
The information used to compute basic and diluted net loss per common share was as follows:
For the years ended December 31,
Net loss
Weighted average shares outstanding (basic and diluted)
Net loss per common share:
Basic
Diluted
Note 5. Restructuring
Houston, Texas
2018
2017
(12,667) $
16,176,415
(20,017)
16,062,424
(0.78) $
(0.78) $
(1.25)
(1.25)
$
$
$
In August 2018 the Company committed to a plan to consolidate certain of its three-dimensional (“3D”) printing operations from its
Houston, Texas facility into its Troy, Michigan facility. These actions were taken as part of the Company’s efforts to optimize its
business model and maximize its facility utilization. During 2018, the Company recorded a charge of approximately $28 split between
cost of sales ($15) and selling, general and administrative expense ($13) associated with involuntary employee terminations related to
this plan. During 2018, the Company recorded an additional charge of approximately $1 (to cost of sales) associated with asset
impairments related to this plan. There are no additional charges expected to be incurred associated with this plan in future periods.
The Company settled all amounts associated with involuntary employee terminations during 2018.
Desenzano del Garda, Italy
In December 2017 the Company committed to a plan to consolidate certain of its 3D printing operations from its Desenzano del
Garda, Italy facility into its Gersthofen, Germany facility. These actions were taken as part of the Company’s efforts to optimize its
business model and maximize its facility utilization. During 2017, the Company recorded a charge of approximately $72 split between
cost of sales ($19) and selling, general and administrative expense ($53) associated with involuntary employee terminations related to
this plan. During 2018, the Company recorded additional charges of approximately $258 associated with other exit costs ($17) and
asset impairments ($241) related to this plan. In addition, during 2018, the Company recorded a gain from disposal of certain property
and equipment of approximately $51 (recorded to cost of sales in the accompanying statement of consolidated operations and
comprehensive loss). Charges associated with other exit costs recorded during 2018 were recorded to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss. Charges associated with asset impairments recorded
during 2018 were recorded to cost of sales as a component of depreciation expense in the accompanying statement of consolidated
operations and comprehensive loss. Other exit costs relate to the remaining facility rent due under a non-cancellable operating lease
following the cessation of operations at the facility in January 2018. Asset impairment charges relate to certain leasehold
improvements associated with the exited facility and other equipment which was abandoned by the Company. There are no additional
charges expected to be incurred associated with this plan in future periods. The Company settled all amounts associated with
involuntary employee terminations and facility rentals during 2018.
North Las Vegas, Nevada and Chesterfield, Michigan
In January 2017, the Company committed to a plan to consolidate certain of its 3D printing operations from its North Las Vegas,
Nevada facility into its Troy, Michigan and Houston, Texas facilities and exit its non-core specialty machining operations in its
Chesterfield, Michigan facility. These actions were taken as a result of the accelerating adoption rate of the Company’s sand printing
technology in North America which has resulted in a refocus of the Company’s operational strategy.
As a result of these actions, during 2017, the Company recorded charges of approximately $1,016, including approximately $142
associated with involuntary employee terminations, approximately $7 associated with other exit costs and approximately $867
associated with asset impairments. Charges associated with involuntary employee terminations and other exit costs were recorded to
cost of sales in the accompanying statement of consolidated operations and comprehensive loss. Charges associated with asset
impairments were split between cost of sales ($598), as a component of depreciation expense, and selling, general and administrative
expenses ($269), as a component of amortization expense, in the accompanying statement of consolidated operations and
41
6483c1.pdf
comprehensive loss. There are no additional charges expected to be incurred associated with this plan in future periods. The Company
has settled all amounts associated with involuntary employee terminations and other exit costs.
Charges associated with asset impairments relate principally to the Company’s plan to exit its non-core specialty machining operations
in its Chesterfield, Michigan facility. On April 21, 2017, the Company sold to a third party certain assets associated with these
operations including inventories (approximately $79), property and equipment (approximately $2,475) and other contractual rights
(approximately $269). Total gross proceeds from the sale of these assets were approximately $2,050. After deducting costs directly
attributable to the sale of these assets (approximately $128), the Company recorded an impairment loss during the three months ended
March 31, 2017, of approximately $859 split between property and equipment ($590) and intangible assets ($269) based on the excess
of the carrying value over the estimated fair value of the related assets at March 31, 2017 (recorded to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss), and a loss on disposal during the three months ended
June 30, 2017, of approximately $42 (recorded to cost of sales in the accompanying statement of consolidated operations and
comprehensive loss).
Separate from the transaction described above, on May 9, 2017, the Company sold to a third party certain property and equipment
(principally land and building) associated with its North Las Vegas, Nevada facility. Total gross proceeds from the sale of these assets
were approximately $1,950. After deducting costs directly attributable to the sale of these assets (approximately $137), the Company
recorded a gain on disposal (recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive
loss), of approximately $347. Additionally, the Company recorded an impairment loss during 2017 of approximately $8 associated
with certain property and equipment which was abandoned in connection with the Company’s exit of its North Las Vegas, Nevada
facility.
Note 6. Impairment
During the three months ended December 31, 2018, 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 three 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, 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, resulting in a material adverse effect on the financial position and results of
operations of the Company.
Note 7. Cash, Cash Equivalents, and Restricted Cash
The following provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the accompanying consolidated
balance sheet to the same such amounts shown in the accompanying statement of consolidated cash flows at December 31:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash shown in the
statement of consolidated cash flows
$
$
2018
2017
7,592 $
1,548
21,848
330
9,140 $
22,178
42
6483c1.pdf
Restricted cash at December 31, 2018 includes approximately $1,044 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 (Note
13). Restricted cash at December 31, 2018 and 2017 includes approximately $504 and $330, respectively, 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. Each of the balances described are considered legally restricted by the Company.
Note 8. Inventories
Inventories consisted of the following at December 31:
Raw materials and components
Work in process
Finished goods
2018
2017
$
$
7,747
5,147
3,036
15,930
$
$
7,171
4,630
3,629
15,430
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.
At December 31, 2018 and 2017, the allowance for slow-moving and obsolete inventories was approximately $4,143 and $3,437,
respectively, and has been reflected as a reduction to inventories (principally raw materials and components).
During the three months ended June 30, 2018, the Company recorded a charge of approximately $561 to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss attributable to certain industrial microwave inventories
based on a sustained absence of demand for such curing solutions and a decision by the Company to discontinue future manufacturing
of such industrial microwaves.
During the three months ended June 30, 2017, the Company recorded a charge of approximately $1,460 to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss attributable to certain raw material and component
inventories (principally machine frames and other fabricated components) associated with the Company’s Exerial 3D printing
machine platform based on decisions made by the Company during the period related to certain design changes to the underlying
platform (rendering certain elements of the previous design obsolete).
During 2018 and 2017, the Company recorded net charges of approximately $29 and $271, respectively, to cost of sales in the
accompanying statement of consolidated operations and comprehensive loss associated with certain raw materials and components
and work in process inventories for which cost was determined to exceed net realizable value.
Note 9. Long-Lived Assets
Property and Equipment
Property and equipment consisted of the following at December 31:
Land
Buildings and related improvements
Machinery and equipment
Other
Less: Accumulated depreciation
Construction-in-progress
Property and equipment - net
Economic Life
(in years)
N/A
5 - 40
3 - 20
3 - 20
2018
2017
$
$
7,024 $
25,895
20,667
7,121
60,707
(19,306)
41,401
505
41,906 $
7,205
27,785
22,034
6,772
63,796
(17,739)
46,057
740
46,797
Machinery and equipment includes assets leased by the Company of approximately $101 and $85 at December 31, 2018 and 2017,
respectively.
Machinery and equipment includes assets leased to customers (principally 3D printing machines and related equipment) under
operating lease arrangements of approximately $2,345 and $2,254 at December 31, 2018 and 2017, respectively. The carrying value of
these assets was approximately $1,264 and $1,620 at December 31, 2018 and 2017, respectively.
43
6483c1.pdf
Minimum future rentals of machinery and equipment under non-cancellable arrangements at December 31, 2018, were as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
687
148
48
—
—
—
883
Depreciation expense was approximately $5,439 and $5,637 for 2018 and 2017, respectively. Depreciation expense for 2017 includes
approximately $598 in accelerated depreciation (impairment) associated with the Company’s consolidation of its 3D printing
operations from its North Las Vegas, Nevada facility into its Troy, Michigan and Houston, Texas facilities and exit of its specialty
machining operations in Chesterfield, Michigan (Note 5).
Intangible Assets
Intangible assets consisted of the following at December 31:
2018
Unpatented technology
Trade names
2017
Unpatented technology
Trade names
Gross Carrying
Amount
Accumulated
Amortization
Net
$
$
1,388 $
30
1,418 $
(1,388) $
(30)
(1,418) $
Gross Carrying
Amount
Accumulated
Amortization
Net
$
$
1,453 $
31
1,484 $
(1,392) $
(30)
(1,422) $
—
—
—
61
1
62
Amortization expense related to the intangible assets was approximately $64 and $641 for 2018 and 2017, respectively. Amortization
expense related to the intangible assets for 2017 includes approximately $269 in accelerated amortization (impairment) associated
with the Company’s exit of its specialty machining operations in Chesterfield, Michigan (Note 5).
Note 10. Net Investment in Sales-Type Leases
The Company’s net investment in sales-type leases consisted of the following at December 31:
Future minimum lease payments receivable
Less: Unearned interest income
Net investment in sales-type leases
2018
2017
$
$
1,969 $
(316)
1,653 $
1,100
(159)
941
At December 31, 2018, the Company’s net investment in sales-type leases was included in accounts receivable ($302) and other
noncurrent assets ($1,351) in the accompanying consolidated balance sheet. At December 31, 2017, the Company’s net investment in
sales-type leases was included in accounts receivable ($205) and other noncurrent assets ($736) in the accompanying consolidated
balance sheet.
Future minimum lease payments due from customers under sales-type leases as of December 31, 2018 were as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
409
382
382
382
414
—
1,969
During 2018 and 2017, interest income associated with sales-type leases (recorded to revenue in the accompanying statement of
consolidated operations and comprehensive loss) was approximately $48 and $28, respectively.
44
6483c1.pdf
Note 11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following at December 31:
Accrued payroll and related costs
Product warranty reserves
Liability for uncertain tax positions
Accrued license fees
Accrued professional fees
Value-added taxes payable
Accrued sales commissions
Accrued property taxes
Income taxes payable
Other
2018
2017
$
$
$
1,895
1,670
820
721
215
140
123
108
90
267
6,049 $
2,044
1,300
858
397
223
28
307
99
32
808
6,096
Note 12. Product Warranty Reserves
The following table summarizes changes in product warranty reserves (such amounts reflected in accrued expenses and other current
liabilities in the accompanying consolidated balance sheet):
For the years ended December 31,
Balance at beginning of period
Provisions for new issuances
Payments
Reserve adjustments
Foreign currency translation adjustments
Balance at end of period
2018
2017
$
$
1,300 $
1,803
(960)
(434)
(39)
1,670 $
1,115
1,288
(701)
(500)
98
1,300
Note 13. Contingencies and Commitments
Contingencies
On March 1, 2018, the Company’s ExOne GmbH subsidiary notified Voxeljet AG that it has 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
by the Company under the agreement. At this time, the Company cannot reasonably estimate a contingency, if any, related to this
matter.
On July 1, 2017, the Company (through its ExOne GmbH subsidiary) entered into a Settlement Agreement with Kocel Foundry
Limited (also known as Kocel CSR Casting Company, Limited) and Kocel Group (Hong Kong) Limited (collectively, “Kocel”)
relating to settlement of the arbitration case (no. 100019-2017) administered by the Swiss Chambers’ Arbitration Institution Notice of
Arbitration, as filed by the Company on January 25, 2017. Among other things, the Settlement Agreement provided for a cash
payment from ExOne GmbH to Kocel of approximately $811 and a settlement and release of claims related to a sales agreement
between the parties for certain 3D printing machines and related equipment (the “Sales Agreement”). Based on the terms of the
Settlement Agreement, including the final acceptance by Kocel of the 3D printing machines and related equipment, and relief from
further obligation, liability or warranty for both parties (excluding certain intellectual property considerations), the Company recorded
revenue of approximately $2,762 associated with the Sales Agreement (net of the cash payment made by ExOne GmbH to Kocel, such
payment made on July 5, 2017) and the related cost of sales, during the three months ended September 30, 2017.
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.
Financial Guarantees and Letters of Credit
In the normal course of its operations, ExOne GmbH issues financial guarantees and letters of credit to third parties in connection with
certain commercial transactions requiring security. ExOne GmbH maintains a credit facility agreement with a German bank which
provides for various short-term financings in the form of overdraft credit, financial guarantees, letters of credit and collateral security
for commercial transactions for approximately $1,400 (€1,300). In addition, ExOne GmbH may use the credit facility agreement for
short-term, fixed-rate loans in minimum increments of approximately $100 (€100) with minimum terms of at least thirty days. The
overdraft credit interest rate is fixed at 10.2% while the interest rate associated with commercial transactions requiring security
45
6483c1.pdf
(financial guarantees, letters of credit or collateral security) is fixed at 1.75%. The credit facility agreement has an indefinite term and
is subject to cancellation by either party at any time upon repayment of amounts outstanding or expiration of commercial transactions
requiring security. There is no commitment fee associated with the credit facility agreement. There are no negative covenants
associated with the credit facility agreement. The credit facility agreement has been guaranteed by the Company. At December 31,
2018 and 2017, there were no outstanding borrowings in the form of overdraft credit or short-term loans under the credit facility
agreement. At December 31, 2018, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the credit
facility agreement were approximately $1,044 (€912) with expiration dates ranging from March 2019 through November 2019. At
December 31, 2017, total outstanding guarantees and letters of credit issued by ExOne GmbH under the credit facility agreement were
approximately $1,128 (€941).
In addition to amounts issued by ExOne GmbH under the credit facility agreement, during 2017, ExOne GmbH entered into a separate
agreement with the same German bank for additional capacity for a financial guarantee associated with a commercial transaction
requiring security. Terms of the separate agreement were substantially similar to those of the existing credit security agreement except
that the requirement for cash collateral was waived by the German bank as it also represents the counterparty in the related transaction.
At December 31, 2017, the outstanding financial guarantee issued by ExOne GmbH under this separate agreement was approximately
$96 (€80) with an expiration date of June 2022.
Leases
The Company leases machinery and other equipment and vehicles under operating lease arrangements (with initial terms greater than
twelve months), expiring in various years through 2026.
Future minimum lease payments of operating lease arrangements (with initial terms greater than twelve months) at December 31,
2018, were approximately as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
170
111
76
67
12
5
441
Rent expense under operating lease arrangements was approximately $235 and $358 for 2018 and 2017, respectively.
Note 14. Related Party Revolving Credit Facility
On March 12, 2018, ExOne 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 effective June 20, 2018,
became the Chairman and Chief Executive Officer of the Company, relating to a $15,000 revolving credit facility (the “LBM Credit
Agreement”) to provide additional funding for working capital and general corporate purposes. The LBM Credit Agreement provides
for a term of three years (through March 12, 2021) and bears interest at a rate of one month LIBOR plus an applicable margin of 500
basis points (approximately 6.7% and 7.5% at inception and December 31, 2018, respectively). The LBM Credit Agreement requires 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% (approximately $188), was required at closing. Borrowings under the LBM Credit
Agreement are required to be in minimum increments of $1,000. ExOne may terminate or reduce the credit commitment at any time
during the term of the LBM Credit Agreement without penalty. ExOne may also make prepayments against outstanding borrowings
under the LBM Credit Agreement at any time without penalty. Borrowings under the LBM Credit Agreement have been collateralized
by the accounts receivable, inventories and machinery and equipment of the Loan Parties. At inception of the credit facility and
December 31, 2018, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the
LBM Credit Agreement.
The LBM Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance
of insurance, properties, and licenses; and compliance with laws. The LBM 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 LBM Credit Agreement does not contain any financial
covenants. The LBM 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.
LBM was determined to be a related party based on common control by S. Kent Rockwell, who was the Executive Chairman of the
Company at the time the Company entered into the LBM Credit Agreement and effective June 20, 2018, became the Chairman and
46
6483c1.pdf
Chief Executive Officer of the Company. Accordingly, the Company does not consider the LBM Credit Agreement indicative of a fair
market value lending. Prior to execution, the LBM Credit Agreement was subject to review and approval by the Audit Committee of
the Board of Directors (the “Board”) and by a sub-committee of independent members of the ExOne Board. At the time of execution
of the LBM Credit Agreement, the $15,000 in 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 LBM Credit Agreement and termination of the LBM 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 LBM Credit Agreement and Escrow Agreement
prohibit any acceleration of repayment of any amount outstanding under the LBM Credit Agreement and prohibit termination of the
LBM Credit Agreement or withdrawal from escrow of any unused portion of the LBM Credit Agreement.
There were no borrowings by the Company under the LBM Credit Agreement from March 12, 2018 (inception) through December 31,
2018.
The Company incurred approximately $265 in debt issuance costs associated with the LBM Credit Agreement (including the
aforementioned up front commitment fee paid at closing to LBM). During 2018, the Company recorded interest expense relating to
the LBM Credit Agreement of approximately $160. Included in interest expense for 2018 was approximately $70 associated with
amortization of debt issuance costs (resulting in approximately $195 in remaining debt issuance costs at December 31, 2018, of which
$88 was included in prepaid expenses and other current assets and $107 was included in other noncurrent assets in the accompanying
consolidated balance sheet). Included in interest expense for 2018 was approximately $90 associated with the commitment fee on the
unused portion of the revolving credit facility, of which at December 31, 2018 approximately $10 was included in accounts payable in
the accompanying consolidated balance sheet. Amounts payable to LBM at December 31, 2018 were settled by the Company in
January 2019.
Note 15. Long-Term Debt
Long-term debt consisted of the following at December 31:
Building note payable
Less: Amount due within one year
Principal
$
1,533
$
(149)
$
1,384
$
(25) $
5
(20) $
Net
Principal
1,508
$
(144)
$
1,364
1,675
$
(142)
$
1,533
(30) $
5
(25) $
Net
1,645
(137)
1,508
2018
Unamortized
Debt Issuance
Costs
2017
Unamortized
Debt Issuance
Costs
Terms of the building note payable include monthly payments of approximately $18 including interest at 4.00% through May 2017,
and subsequently, monthly payments of approximately $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 approximately $5,128 at December 31, 2018.
At December 31, 2018, 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, 2018 and through December 31, 2019. Related to the 2018 non-compliance, there were no cross default
provisions or related impacts on other lending or financing agreements.
Future maturities of long-term debt at December 31, 2018, were approximately as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
149
157
166
173
182
706
1,533
Note 16. 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
47
6483c1.pdf
the maximum number of shares authorized under the Plan did 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 December 31, 2018, 1,024,185 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 7, 2018, the Compensation Committee of the Board adopted the 2018 Annual Incentive Program (the “Program”) as a
subplan under the Plan. The Program provided an opportunity for performance-based compensation to senior executive officers of the
Company, among others. The target annual incentive for each 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) or a
combination of financial and non-financial goals. The Compensation Committee of the Board retained negative discretion over
amounts payable under the Program. For 2018, the total target amount payable under the Program was approximately $1,423, with
certain amounts to be settled with participants in cash, equity or a combination thereof. During 2018, total compensation expense
associated with the Program was approximately $460, split between cost of sales ($91), research and development ($127) and selling
general and administrative expenses ($242) in the accompanying statement of consolidated operations and comprehensive loss, of
which approximately $167 is expected to be settled in equity by the Company.
The following table summarizes the total equity-based compensation expense recognized by the Company:
Equity-based compensation expense recognized:
Stock options
Restricted stock
Other(a)
Total equity-based compensation expense before income taxes
Benefit for income taxes(b)
Total equity-based compensation expense net of income taxes
2018
2017
$
$
357 $
433
178
968
—
968 $
1,503
953
—
2,456
—
2,456
(a)
(b)
Other represents expense associated with the Program and other employee contractual amounts to be settled in equity.
The benefit for income taxes from equity-based compensation for each of the periods presented has been determined to be $0 based on valuation allowances
against net deferred tax assets.
At December 31, 2018, total future compensation expense related to unvested awards yet to be recognized by the Company was
approximately $682 for stock options and $273 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 approximately 1.2
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:
Weighted average fair value per stock option
Volatility
Average risk-free interest rate
Dividend yield
Expected term (years)
2018
$2.23 - $4.16
2017
$3.28 - $5.75
2.45% - 2.98%
54.05% - 63.67% 61.68% - 67.92%
1.40% - 1.94%
0.00%
2.5 - 5.5
0.00%
2.5 - 3.3
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.
48
6483c1.pdf
The activity for stock options was as follows:
2018
2017
Outstanding at beginning of period
Stock options granted
Stock options exercised
Stock options forfeited
Stock options expired
Outstanding at end of period
Stock options exercisable
at end of period
Stock options expected to vest
at end of period
Number of
Stock
Options
674,470 $
258,100 $
(67,083) $
(135,169) $
(108,332) $
621,986 $
Weighted Average
Exercise Price
Weighted Average
Grant Date Fair
Value
Number of
Stock
Weighted Average
Exercise Price
Weighted Average
Grant Date Fair
Value
11.58 $
8.01 $
7.89 $
9.48 $
13.28 $
10.66 $
Options
6.41 314,303 $
3.43 389,000 $
3.85 (18,500) $
5.18
(1,167) $
(9,166) $
7.58
5.52 674,470 $
15.62 $
8.16 $
7.91 $
15.74 $
17.59 $
11.58 $
409,914 $
11.89 $
6.44 421,960 $
12.95 $
212,072 $
8.27 $
3.76 252,510 $
9.28 $
9.38
3.89
3.40
9.60
10.77
6.41
7.39
4.78
At December 31, 2018, intrinsic value associated with stock options exercisable was approximately $3. At December 31, 2018, there
was no intrinsic value associated with stock options expected to vest. The weighted average remaining contractual term of stock
options exercisable and stock options expected to vest at December 31, 2018, was approximately 4.7 and 4.9 years, respectively. Stock
options with an aggregate intrinsic value of approximately $586 were exercised by employees during 2018, resulting in proceeds to
the Company from the exercise of stock options of approximately $529. Stock options with an aggregate intrinsic value of
approximately $218 were exercised by employees during 2017, resulting in proceeds to the Company from the exercise of stock
options of approximately $147. The Company received no income tax benefit related to stock option exercises in either period.
The activity for restricted stock was as follows:
For the years ended December 31,
Outstanding at beginning of period
Restricted stock granted
Restricted stock vested
Restricted stock forfeited
Outstanding at end of period
Restricted stock expected to vest at end of period
2018
Weighted Average
Grant Date Fair
Value
2017
Weighted Average
Grant Date Fair
Value
Shares of
Restricted
Stock
52,502 $
57,000 $
(42,501) $
— $
67,001 $
67,001 $
Shares of
Restricted
Stock
94,171 $
60,000 $
(89,002) $
(12,667) $
52,502 $
52,502 $
11.07
7.39
10.51
—
8.30
8.30
14.29
9.01
12.67
13.95
11.07
11.07
Restricted stock vesting during 2018 and 2017 had a fair value of approximately $326 and $801, respectively.
Note 17. Income Taxes
The components of loss before taxes were as follows:
United States
Foreign
Loss before income taxes
The provision for income taxes consisted of the following:
2018
2017
$
$
(16,262) $
3,755
(12,507) $
(18,064)
(1,915)
(19,979)
2018
Deferred
Total
Current
2017
Deferred
Total
United States
Foreign
Provision for income taxes
$
Current
$
18 $
142
160 $
— $
—
— $
18 $
142
160 $
— $
37
37 $
— $
1
1 $
—
38
38
49
6483c1.pdf
A reconciliation of the provision for income taxes at the United States statutory rate to the effective rate of the Company for the years
ended December 31 was as follows:
United States statutory rate (21.0% for 2018 and 34.0% for 2017)
Effect of foreign disregarded entity
Taxes on foreign operations
Net change in valuation allowances
Indebtedness income not subject to income tax
Effect of intercompany asset transfers
Permanent differences and other
Provision for income taxes
Effective tax rate
$
$
2018
2017
$
(2,626)
(129)
259
917
—
—
1,739
160
$
(1.3)%
(6,793)
(199)
35
8,017
(1,208)
(182)
368
38
(0.2)%
In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act reduces the corporate income tax
rate from 34.0% to 21.0% and generally modifies certain United States income tax deductions and the United States taxation of certain
foreign earnings, among other changes. The Company is required to recognize the effect of tax law changes in the period of
enactment. As a result of the Tax Act, the Company re-measured its United States deferred tax assets and liabilities as well as its
valuation allowance against its net United States deferred tax assets at December 31, 2017. In December 2017, the SEC staff issued
Staff Accounting Bulletin No. 118: Income Tax Accounting Implications of the 2017 Tax Cuts and Jobs Act, which allows the
Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. No
provisional amounts were recorded by the Company due to the valuation allowance on United States net deferred tax assets, and the
accounting related to the Tax Act is now complete as of December 31, 2018.
The components of deferred income tax assets and liabilities consisted of the following at December 31:
Deferred tax assets
Accounts receivable
Inventories
Accrued expenses and other current liabilities
Net operating loss carryforwards
Tax credit carryforwards
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Property and equipment
Other
Total deferred tax liabilities
Net deferred tax liabilities(a)
2018
2017
$
$
46 $
1,077
489
24,419
676
1,059
(26,563)
1,203
703
501
1,204
1 $
311
1,024
549
22,864
676
1,495
(25,690)
1,229
689
541
1,230
1
(a)
At December 31, 2018 and 2017, net deferred tax liabilities were reflected in other noncurrent liabilities in the consolidated balance sheet.
The Company has provided a valuation allowance for its net deferred tax assets as a result of the Company not generating consistent
net operating profits in jurisdictions in which it operates. As such, any benefit from deferred taxes in any of the periods presented has
been fully offset by changes in the valuation allowance for 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 its 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.
50
6483c1.pdf
The following table summarizes changes to the Company’s valuation allowances for the years ended December 31:
Balance at beginning of period
Net increases in allowances
Tax Act rate change adjustment
Foreign currency translation and other adjustments
Balance at end of period
2018
2017
25,690 $
1,247
—
(374)
26,563 $
25,177
8,017
(7,670)
166
25,690
$
$
At December 31, 2018, the Company had approximately $85,674 in net operating loss carryforwards, subject to certain limitations,
$70,100 of which expire from 2033 to 2037, and $15,574 of which do not expire, and $676 in tax credit carryforwards which expire in
2023, to offset the future taxable income of its United States subsidiary. At December 31, 2018, the Company had approximately
$3,162 in net operating loss carryforwards which expire from 2019 through 2026, to offset the future taxable income of its Japanese
subsidiary. At December 31, 2018, the Company had approximately $18,303 in net operating loss carryforwards, which do not expire,
to offset the future taxable income of its German subsidiary.
The Company has a liability for uncertain tax positions related primarily to certain intercompany transactions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (including accrued interest and penalties) at
December 31 was as follows:
Balance at beginning of period
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Foreign currency translation adjustments
Balance at end of period
2018
2017
$
$
1,775 $
60
—
(606)
—
(43)
1,186 $
1,217
219
5
—
(5)
339
1,775
The Company includes interest and penalties related to income taxes as a component of the provision for income taxes in the
accompanying statement of consolidated operations and comprehensive loss (there were no such interest or penalties included in the
provision for income taxes in 2018 or 2017).
At December 31, 2018 and 2017, there were approximately $820 and $858, respectively, in unrecognized tax benefits (including
accrued interest and penalties) that if recognized would affect the annual effective tax rate (such amounts were included in accrued
expenses and other current liabilities in the accompanying consolidated balance sheet at December 31, 2018 and 2017, respectively).
During 2018, in connection with its periodic re-assessment of its uncertain tax positions, the Company determined that the uncertain
tax positions related to its ExOne KK (Japan) subsidiary no longer met the more likely than not criteria, and as a result, the related
liability was reversed in-full. No amount was recorded as a component of the provision for income taxes due to existing net operating
loss carryforwards.
The Company files income tax returns in the United States, Germany, Japan, Italy (through 2018) and Sweden (through 2017). The
following table summarizes tax years remaining subject to examination for each of the Company’s subsidiaries at December 31, 2018:
Jurisdiction
United States
Germany
Japan
Italy
Sweden
Tax Years
Remaining Subject
to Examination
2015-2018
2010-2018
2017-2018
2014-2018
2015-2017
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 by the local taxing authorities in
Germany without significant adjustment to previously established tax positions. As a result, during the three months ended March 31,
2019, the Company expects to record a reversal of its previously recorded liabilities for uncertain tax positions of approximately
$1,187, of which approximately $367 is expected to be offset against net operating loss carryforwards. The Company expects to
record the remainder, approximately $820, as a benefit for income taxes during the three months ended March 31, 2019.
51
6483c1.pdf
Note 18. 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.
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.
During the three months ended March 31, 2017, the Company entered into two separate foreign exchange forward contracts with a
German bank in an effort to hedge the variability of certain foreign exchange risks between the euro (the functional currency of the
Company’s ExOne GmbH subsidiary) and British pound sterling (the currency basis for cash flows resulting from a commercial sales
arrangement with a customer). The first of the two foreign exchange forward contracts was entered into and settled (in connection
with cash received from the customer) during the three months ended March 31, 2017, resulting in a realized gain on settlement of
approximately $16 (€15). The second of the two foreign exchange forward contracts was settled on August 31, 2017, resulting in a
realized gain on settlement of approximately $14 (€12). Neither of the contracts was designated as a hedging instrument and
accordingly, realized and unrealized gains (losses) for all periods have been recorded to other (income) expense – net in the
accompanying statement of consolidated operations and comprehensive loss. The Company has classified both contracts as Level 2
fair value measurements.
The carrying values and fair values of other financial instruments (assets and liabilities) not required to be recorded at fair value were
as follows:
Cash and cash equivalents
Restricted cash
Debt issuance costs(a)
Current portion of long-term debt(b)
Long-term debt - net of current portion(b)
December 31,
2018
December 31,
2017
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
$
$
$
$
7,592 $
1,548 $
195 $
144 $
1,364 $
7,592 $
1,548 $
— $
149 $
1,384 $
21,848 $
330 $
— $
137 $
1,508 $
21,848
330
—
142
1,533
(a)
Represents debt issuance costs associated with the Company’s related party revolving credit facility (Note 14) of which $88 was included in prepaid expenses
and other current assets and $107 was included in other noncurrent assets in the accompanying consolidated balance sheet at December 31, 2018.
(b)
Carrying values at December 31, 2018 and 2017 are net of unamortized debt issuance costs of approximately $20 and $25, respectively.
The carrying amounts of cash and cash equivalents, restricted cash and current portion of long-term debt approximate fair value due to
their short-term maturities. The fair value of 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). Cash and cash equivalents and
restricted cash are classified in Level 1; current portion of long-term debt and long-term debt – net of current portion are classified in
Level 2.
52
6483c1.pdf
Note 19. Concentration of Credit Risk
During 2018 and 2017, 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. During 2018 and 2017, the Company’s five most significant customers
represented approximately 16.5% and 20.5% of total revenue, respectively. At December 31, 2018 and 2017, accounts receivable from
the Company’s five most significant customers were approximately $2,344 and $4,199, respectively.
Note 20. Related Party Transactions
Revenues
During 2017, sales of products and/or services to related parties were approximately $33. None of the transactions met a threshold
requiring review and approval by the Audit Committee of the Board of Directors in accordance with Company policy. There were no
sales of products and/or services to related parties during 2018.
There were no amounts due from related parties at December 31, 2018 or 2017.
Expenses
During 2018 and 2017, purchases of products and/or services from related parties were approximately $27 and $14, respectively.
Purchases of products and/or services by the Company during 2018 and 2017 included website design services and leased office space
from related parties under common control by S. Kent Rockwell, who is the Chairman and Chief Executive Officer of the Company
and prior to June 20, 2018, was the Executive Chairman of the Company. None of the transactions met a threshold requiring review
and approval by the Audit Committee of the Board in accordance with Company policy.
Amounts due to related parties at both December 31, 2018 and 2017 were approximately $1 and are reflected in accounts payable in
the accompanying consolidated balance sheet.
The Company also receives the benefit of the corporate use of an airplane from a related party under common control by S. Kent
Rockwell, who is the Chairman and Chief Executive Officer of the Company and prior to June 20, 2018, was the Executive Chairman
of the Company, for no consideration. The Company estimates the fair market value of the benefits received during 2018 was
approximately $8. There were no such benefits received during 2017.
Other
Refer to Note 14 for further discussion relating to a revolving credit facility with a related party entered into in March 2018.
Note 21. Other (Income) Expense – Net
Other (income) expense – net consisted of the following:
Gain on settlement of insurance claim
Interest income
Foreign currency losses – net
Bank fees
Other – net
2018
2017
$
$
$
(819)
(39)
93
95
(74)
(744) $
(1)
(56)
199
122
(61)
203
For 2018, gain on settlement of insurance claim represented approximately $819 of a realized gain associated with an insurance
recovery for a 3D printing machine damaged by a third party freight company while in transit. For 2018, foreign currency losses – net
included approximately $245 of a foreign exchange loss associated with settlement of an intercompany note payable with ExOne Italy
S.r.l. previously identified as a long-term investment in the subsidiary (Note 1).
Note 22. Segment, Product and Geographic Information
The Company manages its business globally in a singular operating segment in which it develops, manufactures and markets 3D
printing machines, 3D printed and other products, materials and services. Geographically, the Company conducts its business through
wholly-owned subsidiaries in the United States, Germany, Japan, Italy (through December 2018) and Sweden (through December
2017).
Revenue by product group for the year ended December 31 was as follows:
3D printing machines
3D printed and other products, materials and services
2018
2017
36,393 $
28,251
64,644 $
29,980
27,764
57,744
$
$
53
6483c1.pdf
Geographic information for revenue for the year ended December 31 was as follows (based on the country where the sale originated):
United States
Germany
Japan
Italy(a)
Sweden(b)
2018
2017
29,514 $
27,084
8,027
19
—
64,644 $
25,008
27,497
4,115
917
207
57,744
$
$
(a)
(b)
In December 2017 the Company committed to a plan to consolidate certain of its 3D printing operations from its Desenzano del Garda, Italy facility into its Gersthofen, Germany
facility (Note 5). Operations at the Desenzano del Garda, Italy facility effectively ceased during the three months ended March 31, 2018 and in December 2018, the Company
completed the dissolution of its ExOne Italy S.r.l. subsidiary.
In March 2017 the Company terminated its Cooperation Agreement with Swerea SWECAST AB (“Swerea”), resulting in an exit of its PSC/EAC operations in Jönköping, Sweden,
effective April 1, 2017. Also in March 2017 the Company agreed to an operating lease agreement with Beijer Industri AB, effective April 1, 2017, related to the 3D printing machine
and related equipment located on the Swerea premises, previously covered under the Cooperation Agreement with Swerea. For 2017 revenues considered to be originated from
Sweden are limited to the PSC/EAC operations which ceased on April 1, 2017. Revenues associated the operating lease agreement with Beijer Industri AB subsequent to April 1, 2017,
are considered to be originated from Germany.
Geographic information for long-lived assets at December 31 was as follows (based on the physical location of assets):
United States
Germany
Japan
Italy(a)
Sweden(b)
United Kingdom(c)
2018
2017
13,603 $
23,249
4,650
199
205
—
41,906 $
14,873
25,748
4,996
796
273
111
46,797
$
$
(a)
(b)
(c)
In December 2017 the Company committed to a plan to consolidate certain of its 3D printing operations from its Desenzano del Garda, Italy facility into its Gersthofen, Germany
facility (Note 5). Operations at the Desenzano del Garda, Italy facility effectively ceased during the three months ended March 31, 2018 and in December 2018, the Company
completed the dissolution of its ExOne Italy S.r.l. subsidiary. At December 31, 2018, long-lived assets represent a 3D printing machine and related equipment held by the Company
under an operating lease agreement with a customer. At December 31, 2017, long-lived assets represent certain machinery and other equipment associated with the former Desenzano
del Garda facility.
At December 31, 2018 and 2017, represents a 3D printing machine and related equipment held by the Company under an operating lease agreement with a customer.
At December 31, 2017, represents a 3D printing machine and related equipment held by the Company under an operating lease agreement with a customer. This customer agreement
was terminated during 2018.
Note 23. Subsequent Events
Refer to Note 17 for further discussion relating to the conclusion of a tax examination, which qualifies as a reportable subsequent
event.
The Company has evaluated all of its activities and concluded that no other subsequent events have occurred that would require
recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as
described above.
54
6483c1.pdf
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 fiscal year covered by this Annual Report on Form 10-K, our disclosure controls and procedures
are effective. Management’s Report on our internal control over financial reporting is included in Part II Item 8 of this Annual Report
on Form 10-K under the caption “Management’s Report on Internal Control Over Financial Reporting” and is incorporated herein by
reference. Our independent registered public accounting firm has issued an attestation report on management’s maintenance of
effective internal control over financial reporting, which is set forth in Part II Item 8 of this Annual Report on Form 10-K under the
caption “Report of Independent Registered Public Accounting Firm” and is incorporated herein by reference.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2018, we have added to or modified our internal control over financial reporting related
to certain business performance review controls at both our subsidiary and parent levels. These internal control over financial
reporting additions and modifications have been completed in an effort to strengthen our overall monitoring controls over financial
and operational performance and provide a level of risk mitigation with respect to certain transaction-level control activities
globally.
Other than the items further described above, there were no changes in our internal controls over financial reporting during 2018, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On March 13, 2019, the Company and Mr. Brian Smith, Senior Vice President – Corporate Development, agreed to modify Mr.
Smith’s current role by reducing the scope of his responsibilities by half, to focus on corporate development, including investor
relations, with a commensurate reduction in his work hours and salary effective March 25, 2019.
55
6483c1.pdf
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by Item 10 is incorporated by reference from the information under the captions “Proposal 1 — Election of
Directors,” “Executive Officers of ExOne,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance —
Audit Committee” and “Corporate Governance — Code of Ethics and Business Conduct” in our definitive proxy statement for the
Annual Meeting of Stockholders to be held on May 15, 2019, which will be filed with the SEC within 120 days of the end of the fiscal
year ended December 31, 2018.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference from the information under the captions “Compensation of Named
Executive Officers,” “Director Compensation,” and “Corporate Governance — Compensation Committee Interlocks and Insider
Participation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 15, 2019, which will be
filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 is incorporated by reference from the information under the caption “Securities Authorized for
Issuance Under Equity Compensation Plans” in Part II Item 5 of this Annual Report on Form 10-K and under the caption “Security
Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for the Annual Meeting of Stockholders
to be held on May 15, 2019, which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated by reference from the information under the captions “Independence of the Board
of Directors and Committees” and “Transactions with Related Persons” in our definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 15, 2019, which will be filed with the SEC within 120 days of the end of the fiscal year ended
December 31, 2018.
Item 14. Principal Accountant Fees and Services.
The information required by Item 14 is incorporated by reference from the information under the caption “Audit Fees and Services” in
our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 15, 2019, which will be filed with the SEC
within 120 days of the end of the fiscal year ended December 31, 2018.
56
6483c1.pdf
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements
See Item 8 of Part II of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable, not required, or the required information is included
in the consolidated financial statements or notes thereto.
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report on Form 10-K.
57
6483c1.pdf
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.
Description
Method of Filing
Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to Form S-1
Registration Statement (#333-185933) filed on January 8,
2013.
Amended and Restated Bylaws, as amended through
August 19, 2013.
Incorporated by reference to Exhibit 3.2 to Form 10-K
(#001-35806) filed on March 22, 2016.
Form of Stock Certificate.
10.1
2013 Equity Incentive Plan.*
Form of Restricted Stock Award Agreement under 2013
Equity Incentive Plan.*
Form of Award Agreements under 2013 Equity Incentive
Plan.*
Incorporated by reference to Exhibit 4.1 to Amendment
No. 2 to Form S-1 Registration Statement (#333-185933)
filed on January 28, 2013.
Incorporated by reference to Exhibit 10.07.01 to
Amendment No. 1 to Form S-1 Registration Statement
(#333-185933) filed on January 24, 2013.
Incorporated by reference to Exhibit 99.2 to the
Registration Statement on Form S-8 (No. 333-187053)
filed on March 5, 2013.
Incorporated by reference to Exhibit 10.07.02 to
Amendment No. 1 to Form S-1 Registration Statement
(#333-185933) filed on January 24, 2013.
Form of Stock Bonus Award Agreement under 2013 Equity
Incentive Plan.*
Incorporated by reference to Exhibit 10.26 to Form 10-K
(#001-35806) filed on March 20, 2014.
Overdraft Facility dated September 18, 2015 between
Sparkasse and ExOne GmbH.
Incorporated by reference to Exhibit 10.2 to Form 8-K
(#001-35806) filed on October 27, 2015.
Credit Agreement dated March 12, 2018 among the
Company, ExOne Americas LLC, ExOne GmbH and LBM
Holdings LLC.
Escrow Agreement dated March 12, 2018 among the
Company, LBM Holdings LLC and Huntington National
Bank.
Incorporated by reference to Exhibit 10.9 to Form 10-K
(#001-35806) filed on March 15, 2018.
Incorporated by reference to Exhibit 10.10 to Form 10-K
(#001-35806) filed on March 15, 2018.
Form of Indemnification Agreement for Officers and
Directors.
Incorporated by reference to Exhibit 10.1 to Form 8-K
(#001-35806) filed on March 29, 2013.
Subscription Agreement dated January 10, 2016 among the
Company, Rockwell Forest Products, Inc. and S. Kent
Rockwell (solely for purposes of being bound by Section
4.5 thereof).
Incorporated by reference to Exhibit 10.1 to Form 8-K
(#001-35806) filed on January 11, 2016.
Employment Agreement dated August 19, 2016 between
the Company and James L. McCarley.*
Incorporated by reference to Exhibit 10.1 to Form 8-K
(#001-35806) filed on August 23, 2016.
Form of Notice of Inclusion in the 2018 Annual Incentive
Program.*
Incorporated by reference to Exhibit 10.1 to Form 10-Q
(#001-35806) filed on May 10, 2018.
58
Exhibit
Number
3.1
3.2
4.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
6483c1.pdf
10.12
10.13
21.1
23.1
31.1
31.2
32
101
Change of Control Severance Plan, as amended August 8,
2018.*
Incorporated by reference to Exhibit 10.1 to Form 10-Q
(#001-35806) filed on November 8, 2018.
Letter Agreement dated October 25, 2018 between the
Company and John F. Hartner.*
Filed herewith.
Subsidiaries of the Registrant.
Consent of Schneider Downs & Co., Inc.
Rule 13(a)-14(a) Certification of Principal Executive
Officer.
Rule 13(a)-14(a) Certification of Principal Financial
Officer.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Section 1350 Certification of Principal Executive Officer
and Principal Financial Officer.
Filed herewith.
Interactive Data File.
Filed herewith.
Each management contract and compensatory arrangement in which any director or any named executive officer participates has
been marked with an asterisk (*).
You can obtain copies of exhibits to our filings electronically at the SEC’s website at www.sec.gov or by mail from the Public
Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The exhibits are also available as part
of the Annual Report on Form 10-K for the year ended December 31, 2018, which is available on our corporate website at
www.exone.com. Stockholders may also obtain copies of exhibits without charge by contacting our General Counsel and Corporate
Secretary at (724) 863-9663.
Pursuant to the rules and regulations of the SEC, we have filed certain agreements as exhibits to this Annual Report on Form 10-K.
These agreements may contain representations and warranties by the parties. These representations and warranties have been made
solely for the benefit of the other party or parties to such agreements and may have been qualified by disclosures made to such other
party or parties, were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and
are subject to more recent developments, which may not be fully reflected in our public disclosure, may reflect the allocation of risk
among the parties to such agreements and may apply materiality standards that are different from what may be viewed as material to
investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should
not be relied upon.
59
6483c1.pdf
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Signatures
The ExOne Company
By:
/s/ S. Kent Rockwell
S. Kent Rockwell
Chief Executive Officer
Date:March 15, 2019
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Date
Title
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
/s/ S. Kent Rockwell
S. Kent Rockwell
/s/ Douglas D. Zemba
Douglas D. Zemba
/s/ John Irvin
John Irvin
/s/ Gregory F. Pashke
Gregory F. Pashke
/s/ Lloyd A. Semple
Lloyd A. Semple
/s/ William Strome
William Strome
/s/ Roger Thiltgen
Roger Thiltgen
/s/ Bonnie K. Wachtel
Bonnie K. Wachtel
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
60
6483c1.pdf
STOCKHOLDER AND CORPORATE INFORMATION
Annual Meeting of
Stockholders
May 15, 2019
10:00am EDT
The ExOne Company
127 Industry Boulevard
North Huntingdon, PA 15642 USA
Common Stock
NASDAQ: XONE
Corporate Headquarters
127 Industry Boulevard
North Huntingdon, PA 15642 USA
+1 724 863 9663
Investor Relations
Brian Smith
Senior VP - Corporate Development
+1 724 765 1350
brian.smith@exone.com
Karen Howard
Kei Advisors LLC
+1 716 843 3942
khoward@keiadvisors.com
Independent Registered
Public Accounting Firm
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
Registrar / Transfer Agent
Please direct questions about lost
certificates, change of address and
changes in registered ownership to the Company’s
transfer agent and registrar:
American Stock Transfer &
Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219 USA
+1 800 937 5449
Board of Directors
S. Kent Rockwell 1,2
Chairman & Chief Executive Officer
John Irvin 1,2
Director
Senior Advisor, Rockwell Forest Products, Inc.
Gregory F. Pashke 1,2,3,5
Independent Director
President, Pashke Consulting
(strategic, tactical and valuation consulting company)
Lloyd A. Semple 1,2,4,5
Independent Lead Director
Former Professor of Law
Detroit Mercy School of Law
William Strome 1,2,3,4,5
Independent Director
Adjunct Professor
Duquesne University
Roger W. Thiltgen 1,2
Independent Director
President, Tanglewood Resort Properties, Inc.
Bonnie K. Wachtel 1,2,3,4
Independent Director
Principal, Wachtel & Co., Inc. (investment firm)
1 – Annual term expiring at 2019 Annual Meeting
2 – Nominated for reelection at 2019 Annual Meeting
3 – Audit Committee
4 – Compensation Committee
5 – Nominating and Governance Committee
Executive Officers
S. Kent Rockwell
Chairman & Chief Executive Officer
Loretta L. Benec
General Counsel & Corporate Secretary
John F. Hartner
Chief Operating Officer
Jared A. Helfrich
Chief Commercial Officer
Rick Lucas
Chief Technology Officer
Brian W. Smith
Senior VP - Corporate Development
Douglas D. Zemba
Chief Financial Officer & Treasurer
Investor information is available on the
Company’s website: www.exone.com
6483c1.pdf
6483c1.pdf