Karen L. Howard - Executive Vice President, Kei Advisors LLC S. Kent Rockwell - Chairman & Chief Executive Officer Brian W. Smith - Chief Financial Officer & Treasurer.

Ananda P. Baruah - Brean Capital LLC Sherri A. Scribner - Deutsche Bank Securities, Inc. Daniel J. Baksht - Pacific Crest Securities LLC Prabhakar Gowrisankaran - Canaccord Genuity, Inc. Jason North - Jefferies LLC Ajay Kejriwal - FBR Capital Markets & Co. Brandon S. Wright - Stephens, Inc. Holden Lewis - Oppenheimer & Co., Inc. (Broker).

Greetings, and welcome to The ExOne Company's Fourth Quarter and Full Year 2014 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Karen Howard, Investor Relations for The ExOne Company. Thank you. Ms. Howard, you may begin..

Thank you, Kevin. And good morning, everyone. We certainly appreciate your time today for our fourth quarter and full year 2014 financial results conference call. On the call with me this morning are Kent Rockwell, our Chairman and Chief Executive Officer; and Brian Smith, Chief Financial Officer and Treasurer of The ExOne Company.

We will be reviewing the results for the year and fourth quarter that were published in the press release distributed after yesterday's market close. If you don't have that release, it is available on our website at www.exone.com. The slides that will accompany our discussion today are posted there as well.

Referring to the slide deck, on slide 2 is the Safe Harbor statement. As you may be aware, we may make some forward-looking statements during this discussion as well as during the Q&A.

These statements apply to future events and are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what was stated here today.

These risks and uncertainties and other factors are provided in the earnings release as well as those documents filed by the company with the Securities and Exchange Commission. These documents can be found at the company's website or at www.sec.gov.

Kent will review the highlights of the year and fourth quarter and Brian will provide a detailed review of the financial results. Then we'll turn it back to Kent to discuss our outlook and guidance for 2015 before we open up the line for Q&A. And with that, I turn it over to you, Kent.

Kent?.

Okay. Thank you, Karen. And good morning, everybody. Thank you for joining us on this beautiful morning in Pittsburgh where it's starting to finally warm up. With us today, we have our new President, Hans Sack; and also Rainer Hoechsmann, who heads up our European Operations. Both fine chairman individuals.

So if you want to ask any questions in German, we can give you excellent answers at the end of this presentation. Do I know what slide we are looking at? Okay. In the IPO, we characterized ExOne as a Category of One, sort of an unusual name, came from someplace else, but what's it really mean and is it really applicable to or relevant to ExOne today.

And to me, I just want to touch on that for a minute, because a Category of One means to me that we have a dominating technology in what appears to be multibillion dollar market opportunity.

And second to having that dominating technology, we have a very unique competitive position within that technology, inasmuch as right now, we are the leader in the binder jetting development, and I believe we have a very, very strong leadership position.

And finally, we have a well-defined strategy for seizing the opportunities in this marketplace, and for moving on into the marketplace and succeeding to become a dominant player in that market. So ExOne is distinctly positioned in the industrial provider of 3D printing.

As we've said previously, we still have a focus on industrial manufacturing of a variety of metal components. Our binder jetting technology has a globally installed base now of more than 200 units running around the globe and we're feeling that most of them are running in pretty good shape.

We haven't had very many units that are actually retired even over the eight years, nine years, 10 years that some of them have been in place.

Finally, our machine productivity is increasing and so our obligation to the customer base to drive cost down and productivity up and cost per unit of output for these machines for our customers to lower cost effectiveness.

And we're doing that as we're moving from prototyping to the series-type production that we will now be demonstrating in one of our new machines, the Exerial machine. So, all three of these characteristics I think is every bit as valid today as the day that we organized ourselves for this underwriting more than 25 months ago.

And I think that we're actually strengthening our position in each regard.

So, as we move on and consider that we're in a transformational period, and transformational from the sense that when we undertook the underwriting, we said to the marketplace that our opportunity was to build a very large enterprise, a company that was capable of doing $300 million, $400 million, or $500 million over the next five years to seven years were the words that we used in the underwriting documents – the original underwriting.

And so, to do that, from the small company that we were, doing $12 million, $15 million of revenue, we had to make a major commitment in a variety of resources, such as the resources you see listed on this chart, and I'll discuss each of those in a minute, but it's not something that just happens in an instant. It's a tremendous effort.

Takes a lot of time. We're in our 25th month since we got started. And I have tremendous confidence that what we've done is absolutely going to take this company in the direction that we originally indicated to our IPO shareholders.

Fundamental to that is that we have a growing customer validation and the acceptance of our technology and that that is coming from a variety of different places globally. Real quickly on the next chart, just touching on each of the bullet points from before, we've had 70% growth in employees in this period since we started in 2013.

Managing that kind of growth on a global basis takes an awful lot of effort to make sure you get the right people, doing the right things, and teaching them the right processes. I believe that we've increased our sales force probably 50% to 60% in just the last year.

And in our kind of technology, it probably takes a year for a salesman to become learned enough to be truly a productive salesperson. And so this gives you a little bit of the indication of why we have been transformational in this time period and why it's starting to mature.

Going to the next slide, capacity expansion is every bit as dramatic as the increase in employees. Our capacity expansion in Germany, we repeated over and over again, the fine facility that we've built in Gersthofen. We've put in a very large capacity expansion in North Huntingdon for the direct metal printing.

We have the same facility in Japan where we're making improvements. We've added recently a leased facility in Italy. The square footage that we operate is up 70% in a 24-month period. And that's a fairly large amount of square footage getting up to approximately 340,000 square feet.

So I think that we've certainly made the proof that we are going to take this to the larger base to be able to be the larger revenue capability for our customer demand. On the next slide, machine development. We have expanded our direct printing capability.

Direct printing is really in its infancy, but it's something that we've introduced three machines in 24 months, the most recent being the Innovent, which is a small educational research tool that's much better than the original R2s that we had out in the marketplace. We've introduced the M-Flex and we continue to improve the M-Flex.

Only a little bit more than a year ago, I believe we sold 15 or more of those so far and we anticipate selling a lot more in the 2015 period. So we also have an M-Print. This is actually a second generation M-Print. We have one in the office as we went back last night and saw it printing approximately 150 pound, new design in an Inconel material.

And it is moving us into dramatic new opportunities for larger parts in direct metal printing and we're very pleased with the development that's coming in that regard.

In the indirect printing, we have a new machine, Rainer who is with us today is the father, mother and everything else that comes with – in this machine and he conceived of it, helped the direction of it and has got it up and running for us in very fine fashion.

This as you can see is an extremely large machine, it's almost four times more output than the S-Max series machines that we have. And we believe that this machine is the first true series production machine. We sold four of them on a pre-emptive order to a customer at a lower price to give us some funding to facilitate the development of the machine.

This machine you see does not have a lot of the automation features that we believe will ultimately be necessary for high series production, but we're in the process of working on that.

Additionally, our S-Max, the traditional large machine that we have has been expanded into an S-Max phenolic, an S-Max silicate machines that are being used for a variety of different applications, mostly for foreign customers at this time.

And so, we continue to expand and improve our S-Max efficiencies for the world of customers and we've sold well over 40 of those in the last 18 to 24 months. Moving to materials development, we have gone to a strong variety as we've stated we would of new materials.

We have qualified materials which are materials that are qualified to be printed on our machines and the list is – I'm not going to go through them individually – but the – also, we've now listed printable materials which are materials that our customers have come to us and said give us a machine that can print this and we will work through the post-printing processing ourselves and we've justified to the customers that we can print in these various materials but they do the post printing processing.

We're in the midst of many other materials than just the ones that you see here, as we continue to expand our material qualifications to allow us to sell more machines into a variety of different markets in the 3D printing sector.

The next slide is the ExCast supporting Sikorsky, a project that we reported on during the past year, where actually we lost just about $1 million getting this program up and running. We were the only bidder out of eight potential bidders for the casting housings that we made for Sikorsky.

Sikorsky has endorsed ExOne and our ExCast program as being absolutely essential to the future of this program, and to others. They are very, very pleased with the parts and the new level of complexity that we can deliver that has not been available to this market before this point.

The Sikorsky effort has now – we're into a second effort of program that is involved with the army. Similar to that, we're not experiencing the negative variances that we experienced with Sikorsky as we had to get over the learning curve ourselves. And so, these are starting to present very sizable defense and aerospace opportunities.

And we expect these to grow very dramatically as we get through the course of this year. We know of several programs that have been identified. All government programs require a series of evaluations before they really get in place.

And we're going through those evaluations now, and these programs will come online as we move in to the third and fourth quarters. So, we've made great progress in qualifying and demonstrating to the customers our technology and the ability of this technology to cost-effectively apply to the uses of the customer base on a global basis.

It's been expensive. We've made some mistakes, cost some money. You'll obviously see that when you go through the statements. In all honesty, while I'm not pleased that these statements are as bad as they are. I frankly think we are in very, very good shape for being able to develop these markets and to mature successful long-term investments.

And to have done this in 25 months, I think is a remarkable statement. Brian is going to talk about numbers and I'm going to come back to them. The last slide that I'll address right here is that, as we stated in our release, we are seeing growth. We saw the kind of growth that stated here 51% in non-machine and 46% in machines.

In Q4, there is always a tendency for these machine programs to move to Q3 and Q4 on a global basis because of the way planning is done by a lot of our customers for the installation of their new facilities to bring these things online. So with that, I'm going to turn it over to Brian to address the financials of the quarter..

Thanks, Kent. I appreciate that. I'd first like to make sure I bring your attention to the filing that we've made relative to extending the time period to file our 10-K. As you know, we became an accelerated filer. We shortened the time period that we have to produce our 10-K.

We are obviously done with our numbers and wanted to move forward with the release, but we did avail ourselves of additional time to complete the 10-K and to reviews and to filing. If I could speak on page, on slide 14, Q4 revenues, as Kent said, we had stronger record machine revenues.

That brought our revenues per product line up to 65% machines in the quarter. For the year – or for the regions in the quarter very strong in the U.S. We continue to experience softness in our other regions. Obviously, the quarter was led by a strong U.S. performance.

Turning to slide 15, if you compare 2014 revenue, lower sales of machines brought us to a close to 50/50 split between machine and non-machine. Obviously, that was coupled with the strong non-machine growth for the year. Again, the revenue by region was led by the Americas.

Japan, as we said earlier was impacted by some government subsidies that gave us some headwind there. Turning to slide 16. For the quarter, our quarter revenue, non-machine revenue, 51% growth, Q3 (sic) [Q4] (19:03) 2013 to Q4 2014. Again, a very strong year for non-machine as we had said each quarter.

We felt good about the recurring non-machine revenue stream and again in the fourth quarter, we experienced again that strong growth. And we're growing quarter-to-quarter. Trailing quarter, we are about $5.4 million in Q3 2014 and so we experienced continued growth on a trailing quarter also.

As Kent said, record – on page – on slide 17, as Kent said, record machine sales for our quarter of $10.2 million and to show the lumpiness of our machine revenue of $4.2 million in Q3. It does, machine revenue because their large machines do provide some lumpiness quarter-to-quarter.

For the year, due to lower revenues on machine revenues in earlier quarters, we were down about $2 million 2013 to 2014 for our full year machine sales. Slide 18, gross profit and our margins. Our margins were – threw off gross profit of $3.9 million in Q4 2014, slightly higher than Q4 2013 on higher volumes. Our margin percentages were 24.5% in Q4.

We had said we're going to be impacted by a number of things in Q4, moving both the German facilities into one facility as well as the expansion here in our North Huntingdon facilities.

While we can point to certain costs relative to moving costs, which we're about neighborhood of $0.2 million and the elimination of our Orion Laser machine line product line that we felt was really non-core for our printing business going forward of about $0.4 million, it's very difficult to put your finger on the inefficiencies caused by the moves, the duplicate facility costs and those types of things.

So we did not specifically outline, but we did tell you earlier in the year that we would have significant costs in the fourth quarter and we think we – obviously, we think we have those and they impacted our margins both in the quarter and then our year-to-date results, which showed roughly a 24% margin.

Kent had mentioned we were impacted by ExCast startup costs also for the year of roughly $1 million. The inefficiencies as well as Sikorsky's and a number of other items have contributed to that. Page 19. We had higher-than-expected SG&A costs. We pointed to a number of items in the bottom of the page. Our ERP system was approximately $0.5 million.

That did include rationalizing some of the direction we were taking and some final decisions we made in the fourth quarter where we accelerated some amortization on some items. Our bad debt charges were approximately $2.2 million.

There were a number of factors, both customer-specific factors as well as i.e., micro factors as well as macroeconomic factors that impacted the credit quality of some of our customers. And so, we felt it's appropriate and prudent to take those reserves. We do anticipate to vigorously pursue collection on those items.

And in addition, in the fourth quarter, we had approximately $400,000 of severance costs running through G&A. Page 20, our R&D expenses.

We talked in prior quarters that we were accelerating our machine technology efforts and we've recently announced our Exerial and Innovent machines, so that accelerated effort did culminate in the issuance of our releases and releasing those machines. We're happy about that. Page 21, CapEx.

We've had lengthy discussions around CapEx throughout the year, particularly as it relates to our facility expansions that Kent showed you on an earlier screen. We also said that we would have a very significant reduction in our spend rate on CapEx on a go-forward basis because we have substantially build out our facilities.

The 2015 estimates are finishing up some of our build out here in North Huntingdon and some of our R&D facility build out, as well as a couple of machines for our own use and continuing with the next phases of our ERP system.

Again, I think the reduction shows that we're substantially done with our investment in our facilities and have the capacity to absorb our future growth. Page 22, our balance sheet. Well, we started the year with $98 million in cash.

We fell within what we had projected in the third quarter as far as our cash balance at the end of the year, virtually no debt. And you'll see in our guidance that we'll give you here shortly, we do expect $25 million to $30 million of cash at the end of 2015. If you go through our guidance, you can follow how we would get there.

Page 23, we thought it would be good to give you a pictorial on how we've gotten to our current cash balance, the $28.6 million that I just talked about relative to our CapEx.

Our two acquisitions in Q1, about $9 million, and the remaining portion, if you look on our balance sheet relative to our working capital growth as well as to fund operations as well as the net loss for the year, gets you to $36 million at the end of the year. With that, I will hand it over to Kent to talk about the outlook for 2015..

Are we on slide 25?.

Yeah, Kent. Slide 25..

Okay. Thank you. Okay. The point I've tried to make in my initial summary and somewhat furthered by what Brian has presented and the way that moneys have moved over the course of the last year says that we are maturing our 2014 investments as we move into a more of a minimis year in 2015.

That is to say that you can see that R&DE is starting to level off, maybe even dip a little, that SG&A is leveling off, that we had a big one-time slug in SG&A in Q4 associated with the cleaning up of some credit issues with the customers.

But I'd like to point out, there was a very good McKinsey survey that was just done when we talk about our – what's going on in the world of 3D printing. And in that survey, it highlighted that 33% of global manufacturing executives expect that 3D printing is going to gain substantial relevance in the next three years.

And I think that that really tells our story about where we are because in the bottom of it, it says that 40% are still unfamiliar with it now that – some of those may never choose to adopt the technology. But I think a great many will as they see the cost efficiencies starting to really coming along.

But you can see now that the world has about 50% that says, we get it, and we're really starting to move in that direction, and about 50% that's still trying to figure it out.

And I think that that sort of highlights our position when it comes to the issue of the adoption rate of our technology because what we have right now is strictly how rapidly can we get this technology adopted.

And we see it coming very, very effectively with customers on a variety of new bases, a lot of the customers that we didn't have 12 months ago and some opportunities now that are multimillion dollar opportunities.

We have people that are now making commitments that have bought a machine to buy another machine and buy a machine each year for the next three or four years and four or five instances. So the competitiveness of their commitment to the technology is evident.

We brought some very major customers that have said that they will within this year, give us large orders in the production service centers to start to use our technology and that they intend to ultimately acquire it but they want to buy it first, which is one of the reasons that we created the production center strategy and these are not small companies and these are very, very major type order opportunities.

Whether they start in 60 days or in 120 days is the issue and that really is an issue that's not built around our technology as much it is just getting them to implement the process change in their organization. And we'd like to be able to say we can measure that.

Quite often the prominent thing I've heard is that we end up with customers that order a machine and then all of a sudden, the building they're going to put it in doesn't get built on time. And so the machine slips from Q1 to Q3 because it takes some a long time to get the building up and running. And we have to tolerate that with the customers.

Not only that, we have to embrace it to help them through it. So it's a – there's a variety of different things about how adoption gets started. But when you do have customer that's brought two machines. The closing process on that third machine is 30% of the time of the first machine.

And so, we see that as part of the acceleration of our adoption process as we move along. With that, I'm going to move to guidance, something that's always fun to discuss. I'm sure we'll get a lot of questions on it. Our guidance is to grow somewhere between 32% and 50% in organic growth this year.

And if we take the $44 million of the 2014 year, that obviously translates into $58 million to $66 million. Gross margins will run from $36 million to $40 million, depending on whether we get the absorption of the overheads. If we get the $66 million, we'll probably get to the $40 million.

And if we get the $58 million, we'll probably get to the $36 million. We demonstrated that again this year fairly well if you take out all of the anomalies that passed through cost of sales and things like the Sikorsky event and some of the other indirect expenses.

Our SG&A, we showed that it was $24 million at the end of 2014, but a big chunk of that was non-recurrent. We are forecasting $21 million to $23 million, which is allowing about a 10% increase.

It's still a very high percentage of sales, but when you're running a global company with offices all over the world and you are running a public company that has to meet all of the standards that we have to meet, the expense of SG&A is inordinately high and we accept that. It's part of our responsibility to manage it.

And so, that as a percentage, if we were mature, this number should be in the 20% to 22% range. R&D, 6.5% to 7.5%. We were at 8% last year. There was an awful lot of Exerial expense in the R&D accounts that will not be quite so recurrent this year. We believe that we can taper that number down a little bit.

We still intend to spend a good bit in R&D at 10% to 13% of sales. I think I wouldn't even want to go lower than that. And so, we were sort of holding the number from last year at the high end. We expect sales to be weighted. We have said this every year, so I don't think it should really come as a huge surprise. But we've always said 35%/65%.

That was the comment we used in both 2012 and 2013. It has to do with the cycle of purchasing in machine sales more on a global basis, even though in the U.S. it seems that there's – it seems to be everybody does their planning and how they're going to put machines into place in Q1. They start with it in Q2 and then Q3 and Q4. We've experienced it.

If you go back and look at our history, we've experienced 35%/65%. Because we have a higher weight of machine sales in our growth due to some of the Exerial sales starting up, we've changed it to 30%/70%. It could just as easily be 35%/65%.

But the important thing here is that you grasp the significance of that because it just seems to be the cycle that is in this industry when you're buying the kind of machines that we're selling. Sales always escalate after Q1. Our Q1 seems to be pretty much what we had thought. We do not provide quarterly guidance.

So, it's all about the purchasing cycle of the machines.

I could just take the time and say, okay, since this is such an important factor here, if we looked at the low end and said, okay, where does the low end take us? If we really hit 32% and 36% and crank those numbers through against $21 million and $6.5 million, you obviously come to a negative PAT and a modest loss of EBITDA.

If you go to the midpoint of these numbers and take the midpoint of margin and the midpoint of SG&A and R&D, we get to a positive EBITDA. And if we get to the high end, we get even more positive EBITDA. If we were – so, the emphasis I would like to put on here, it's our responsibility to manage these costs against the adoption rate.

We believe that we have a perception that this adoption rate will fall at the high end. We have not been correct about the adoption rate in the past, and so everybody is very skeptical that we don't know what we're talking about numbers because we sort of in the past haven't done very well with that.

But the issue I think that's profound here is you got to understand, our costs are now very, very solid and fairly easy to stabilize. It's all about getting the customers to sign the checks and adopt the technology and the evidence of that is – continues to grow.

So our absolute minimum goal as a company is that if the revenues starts to taper and we don't see the ability to get to this level of forecast at the midpoint, then we're going to start to trim costs to make sure that we hit at least a positive EBITDA. I think we owe that to ourselves.

We have the cash to be able to do that and still be able to run well into 2016 and we know that we have some run rates of some big programs that really start in the third and fourth quarter relative to some government-developed programs that will positively impact the 2016 growth rate as well. So we think that we're – we have a confident plan.

It's been well thought out. We've got an energized management team to make that happen.

In terms of – I wanted to hit opportunities – risks and opportunities for just a minute, and the biggest opportunity is we see a positive adoption rate of our technology particularly as we start to move from prototyping to production because we're starting to drive costs down to where we are now competitive with traditional processes such as blow-mold lines and other shop processes on a cost basis to be able to get our customers to move to this new technology and the benefits that it brings.

We've got the new Exerial machine, as I have said, and the four beta machines going off. We expect that we're going to be able to sell a good bit more of those machines and that we're going to see multiple installations of these machines by OEMs around the world. Hopefully – we got hit very hard last year by currency.

Again, 30% of our business is in the U.S. I know we have 40% by region in Q4 but over the course of the year, I think we were probably closer to 35%. And so two-thirds of our business is still coming from outside the U.S. That leads to why machine demand was down a little bit.

The European economy was very, very soft in capital spending last year and it's starting to pick up again now.

Similarly, we had the experience in Japan where the Japanese government sort of imposed a sanction against buying ExOne machines while they tried to develop a government program for these machines, which has now been abandoned, and they're back buying our machines again. But for three quarters, we didn't have any activity in Japan.

So the opportunities I think are positive. U.S. economic conditions are still positive for us. Currency is going to hit us positively in terms of the U.S in margin, but negatively in terms of the Rest of the World and two-thirds of is in the Rest of the World. So being global, it gives us a risk and an opportunity in that regard.

If we look at the risks, we have sold a lot of machines in Russia.

We continue to have Russian companies visiting us in our German facilities that are approved from sanctions to be able to acquire equipment but the Russian market, with the hit in the ruble, it was 50% of what it was, has impacted their ability to say, geez, I want to jump in there right now and pay twice as much as I was going to pay.

So we're hoping to get past that. And we have had recent visits from Russian customers that seem to say, we still want to continue with the implementation of your technology in our country.

Another risk, energy cap expense expectations are – obviously, a lot of our businesses is in pumps and in powers and the pump business is highly driven by CapEx in the energy markets. And so, that may slow down some of our expectations by some of our buyers. But I would say, right now, we're still seeing strong demand from most of the pump guys.

And so it hasn't hit them yet, but it could. The foreign government subsidy issue, I just mentioned, in Japan was a problem for us which we think has gone away. One that's come up recently is that the Chinese CapEx is exposed to be very, very tightened. That's going to be a lot harder to sell machines into China.

This is a general statement, not one that we've experienced, but one that may obviously impact our ability to penetrate the Chinese market. And so, we're a global company and we are exposed to some of these fragile conditions as they hit us in the macroeconomic environment.

Finally, before we move to questions, I just make one final statement that we IPO'ed 25 months ago in 2013, and we said that we're going to make investments to develop market demand for our technologies and our product. We've done that.

We've made all the investments, we've got the capacity, you saw it in people, you saw it in square footage, you've seen it in new patents that we filed, you've seen it in new processes, all of our facilities in the U.S. were ISO 9000 during the course of the year.

We're beating ourselves to death with the ERP implementations around all new offices, and so we still have challenges in front of us, but we've essentially done what we need to do to be the $100-plus million company that we can be within a very short period of time.

Our primary focus now is to get to revenues, to maximize that global adoption of the technology. We see it every day coming from the customers.

We're under NDAs to not discuss most of their names, but they're all highly qualified Fortune 100, Fortune 500 type customers that are actually coming to us now and saying we've got to go in this direction outcome (44:56). So the rate of adoption is evident and it's growing.

We've got a good team here that's very confident in our ability to mature this opportunity. All we need to do is execute on the sales aspects of this plan and keep the rest of our facilities running effectively. So thank you for your time today and feel free to call in with some questions..

We're ready for Q&A, Kevin..

Thank you. Our first question today is coming from Ananda Baruah from Brean Capital. Please proceed with your question..

Hi, guys. Good morning. And thanks for taking the questions. I just have a few, if I could. I guess, the first is, Kent, you mentioned the second program sort of with the Army that should begin the revenue this year. I was wondering if that was in your original 2015 guidance that you provided last quarter.

And then, to that same extent, these programs that you also alluded to, you expect the revenue in the second half of the year or maybe towards the end of the year that could impact 2016. Are those new to the 2015 guidance as well? And then I have a couple of follow-ups. Thanks..

Okay. Very quickly, we have a forge (46:40) program, which has been in our guidance from the beginning. It's about $1.5 million worth of work that we have to do. It's being executed as we speak and it's moving along just fine. We have other larger contract opportunities that are coming out of Navy and Army type activities and some of them are new.

And we expect them to start probably late third quarter, early fourth quarter..

Got it. That's helpful. And then just with regards to the cash balance guidance that you gave for exiting 2015, if we sort of take the financial guidance and the CapEx guidance you provided, I think there's still a few million dollars between that year-end cash balance guidance and the pieces.

I guess, what is the plug there? How should we think about this?.

This is Brian..

Hey, Brian..

You've got $5 million-ish of depreciation and amortization and the rest are expected changes in working capital. We're running at a fairly high rate of working capital if you look at our balance sheet. And so I think it pretty easily fall within that $25 million to $30 million range..

Okay, great. And then just last one for me. You guys have touched on sort of the selling dynamics in your prepared remarks.

Was wondering if you could just provide a little more detail around what you view sort of the selling process to look like today, the engagement process when you're sort of telling the customers and where are the tension points today? You spoke to sort of some of the educational – sort of the educating coaching that needs to still take place in McKinsey survey.

But how much of a tension point still lie with just sort of getting both educated up on the plant for those purchasing managers? How much of a tension point still lie? And they having to go and get approval from C-level type guys. Just would love to get a little bit more detail around that mosaic. That would be useful. Thanks..

I think that we've gone from trying to just demonstrate the technology to the world and show them how the technology works. And they've come back and they said, this is interesting, we like it.

Now if you're doing a further cost analysis of it and really trying to say, okay, how can I rationalize this economically in my own environment and we've run some IRR scenarios for them to show that the cost effectiveness that we can get them in driving down their per unit output.

And I think that the providing of that information to the customer is helping them make the decision because they see that it's working and we've got multiple places where they can walk in and they're very pleased with the output. So it's all about just driving down cost to get a wider acceptance.

And in the industrial customers, they're tough to move up or down. They really want to see that it works. And so they've gone from being suspicious to now being pleased enough that they're ready to look at program installations..

Got it. Thanks a lot. Appreciate it..

Thank you. Our next question today is coming from Sherri Scribner from Deutsche Bank. Please proceed with your question..

Hi. Thanks. I wanted to get a little detail on the guidance for 30% of revenue in the first half and 70% of revenue in the second half. I mean just looking at the numbers, it seems like there is no growth in the first half on a year-over-year basis and then we see some accelerated growth in the second half of the year.

I just want to make sure that's the right way to think about it?.

Yeah. Again, Sherri, I try to highlight that – no, again, I think 30%, 70% is pretty extreme, but we were trying to not get anybody's expectations too far ahead of themselves because we've been accused of over guiding. And so, I think we've been a little conservative here.

But the fact of the matter is the majority – while we have a good base growth rate in non-machines that sits around the 25% to 35% level, it's the machine level that will drive us to the higher levels of performance this year. And machines, it's very, very heavily weighted to being third and fourth quarter installations.

And I mean, it's – we have – we've seen it again today here where in Q1 we have orders that originally were anticipated for being installed in Q1 and then all of a sudden, we've got two buildings that aren't completed. And so they said, well, we're just going to move this into Q2. And so that's – it's just what we have to live with.

But we haven't lost this sale, that's the most important thing I can say. We do not lose the sale. The sale has become prolonged because of a customer implementation issue..

Okay. That's helpful. And I guess....

Kevin, I think we may have lost Sherri.

We could take the next question?.

Sure. Our next question today is coming from Weston Twigg from Pacific Crest Securities. Please proceed with your question..

Yeah. Hi. Thanks very much. This is Daniel calling in for Wes. I had a couple of questions. First, on your revenue guidance for the year.

What are your revenue expectations for the four beta Exerial machines in 2015? And if there are any other Exerial machines assumed in your 2015 revenue guidance?.

We sold – we do not provide price information for a couple of reasons, but the four Exerials will all be delivered in the second and potentially, the third quarters, but most of them in the second quarter from all those.

And we sold them at a discount because the customer was binding them without any of the accessories, and he was helping fund the technology development for us. They're the operator of other machines that we have with them, and they're a very pleased user of our technology.

The sales price that we'll experience on those machines is probably at least half – particularly because they were sold as euros and the euro got slammed from the time that we started off..

And then just a quick follow-up.

Long term, do you think those sales cannibalize your S-Max printers?.

Good question. Everybody wondering that, including ourselves. But in my own opinion, there are two different markets and there's two different opportunities.

The output of the Exerial is so much larger than what some individuals would require an output, and also the applications for them are particular to some high-volume interests, such as in automotive production that wouldn't be applicable where you're doing 400, 500 of pump impellers and then some casings and everything (55:00).

So I think it's different – we're different customers. There's going to be a price point differential on them that we're just concluding.

But we're well aware that maybe the crisis of opportunity, if more of them shift from the S-Max to the Exerial because we believe that that will really help drive the overall concept of why binder jetting is so cost effective, and the cost effectiveness of the Exerial is very, very much in line with what mass production users are going to be looking for..

Okay. That's helpful. And then finally, just another question on cash. You guided end-of-year cash.

I was wondering what you think cash looks like at the end of this quarter or Q2?.

Yeah. We don't really give any quarterly guidance. Our CapEx, some of our facility CapEx is pointed more toward the first quarter or two. The remainder of our CapEx will be spread throughout the year. So, I would expect a decline in cash in Q1, and that's the way we're trending and then recovery in Q3 and Q4..

Yeah. We we're building inventories right now for the Q3, Q4 efforts..

Yeah. We have four....

That does stock up some cash..

We have the four Exerials out there, so we are building..

All right. Got it. All right. Thanks a lot..

Thank you. Our next question today is coming from Patrick Newton from Stifel. Please proceed with your question..

Great. Thank you for taking my question. This is Rob (56:57) on for Patrick this morning. Just kind of thoughts, I guess, kind of sticking around guidance of – I mean, we know the revenue kind of mix is kind of extremely back-half loaded.

Just wanted your thoughts on how that would impact gross margin throughout the year? Should we see kind of similar weightings or kind of more of a level load?.

Yeah. I think our margins are volume-dependent and they're also machine-dependent, so they'll be a little lower in the first quarter, recovering some in the second quarter and then growing pretty strong in third and fourth quarter..

Got you. And thank you for that. And then, if – I guess just looking into this quarter from a revenue standpoint, I believe kind of the implied guidance from the initial or full year guidance of $45 million to $50 million for this year, revenue came in a little lower than that for the full year.

I just want to get your thoughts on, in the quarter, kind of what impacted that, if there's any specific events you could point to that kind of brought that revenue for the fourth quarter a little lower than expected based on full year expectations?.

You want to take it?.

Yeah. I think we were a little lower. We got a little bit of FX headwind and that impacted us in our Japanese operations, as well as in our German operations that we didn't really expect. And again, with the lumpiness, it's a machine or two that could make a significant difference, so....

Well, I can say specifically, the collapse of the ruble shut down a couple of Russian orders because they keep thinking that the ruble will establish itself if the Ukraine corrects itself. And actually, it has come back a little bit but not enough to cover what their hit was. And so there's – that's still a remaining issue.

The demand for our machines in Russia is quite high because some of the sanctions have put a lot of pressure on the need to be able to make certain things with our equipment that are basic to their economy, truck parts and things..

Sure. Great. Thanks for that.

I'm wondering actually, can you quantify what the FX impact was in the quarter?.

I can't quantify it exactly right here. It's just a few percentage points, but it certainly is there.

I think the FX impact is probably, the headwind that we'll have is a little more here in the first quarter with the continued decline down though wherever it is today, 1.05 in the euros and continued decline in yen and it looks like monetary policy would tell you that we're going to continue to move that direction since there are differing views between our country and Japan and Germany.

So we'll get a little more headwind in the – that's why Kent had the risks and opportunities relative to stabilization of currencies in our forecast..

Got you. Great. Thanks for taking my questions..

Thank you. Our next question today is coming from Prab Gowrisankaran from Canaccord. Please proceed with your question..

Hi, this is Prab calling in for Bobby. I had a quick question. One on your PSC strategy, going forward. I know you switched it from expanding PSCs, retrofitting existing PSCs.

Is the plan to add Exerials or S-Max pluses on to the existing ones? Maybe if you can add some color?.

We will not, at this time plan on putting Exerials in any of our PSCs, even though that may make sense over, let's say, in 2016. We've got enough capacity with our current machines there that I think that's sufficient....

Okay. And the second question I had was on the ExCast strategy. You talked about Sikorsky liking the parts.

And so, is the plan to collaborate with other guys in a similar fashion or would it change or would it be a standard product or how do you think about ExCast?.

We have two other similar providers that are in our offices on a fairly regular basis now, discussing how we can help them with utilizing this technology in their marketplace. And all of those represent multi-million dollar opportunities to Sikorsky when – it's still a very large opportunity once this aircraft is actually in production.

And it's not yet a production machine..

Okay. Great. Thanks for taking the question..

Thank you. Our next question today is coming from Jason North from Jefferies. Please proceed with your question..

Hello.

I was wondering if you'd give any sense in terms of the revenue split 2015 between machines and surfaces?.

We have a more, probably more traditional alignment. We don't give specific guidance but it's more probably more traditional alignment than what you've seen in the past. We don't expect a 50/50 split, that's for sure..

I mean, as I mentioned earlier, in the PSC, the non-machine side of the business, we're running in the 25%, 35% growth rates. And the machines, this year, that growth rate for us to get where we need to be obviously has to be much higher. So you have that disparateness although that disparateness does help improve margins..

So by traditional, you mean along the lines of 2013 when it was about a 65%/35% split?.

Yeah. I think that that's....

That's probably closer to – you could use that maybe as a spot number..

And then also, do you have any expectation of revenues from Russia here in 2015 or have you taken those out at this point in the guidance?.

No. We've had Russian customers that have been in within the last two weeks that are approved customers that are not on a restricted list that have given us indications that they're going to continue to buy.

And one of them even said that they're talking about a four machine purchase with one of them being an Exerial because demand for output of these machines is going so high. Now, I will say that we hear that a lot from the Russians and they end up more likely, buying one at a time.

But it's – there are real buyers in that market and they – we have a lot of our machines have gone into Russia..

Okay. And then, last question for me here, in terms of looking at SG&As, you have a full year number here. I was wondering what the linearity of that works because there's a bunch of one-time items here in Q4.

I was wondering how quickly that comes down in the beginning part of the year or is it more evenly spread throughout 2015?.

Yeah. Traditionally, our Q1 is a higher quarter, and Q4 is a higher quarter. There will be some higher numbers relative to commissions coming through with our higher sales in machines in Q3 and Q4, with Q2 and Q3 generally a bit lower. So, that gives you a sense.

I mean, there is some trickle relative to our moves that were made in both Germany and here that will trickle into the first quarter. You can see some of those parenthetically down in the bottom of 26 and in our press release. So....

All right. Great. Thanks very much..

Thank you..

Thank you. Our next question today is coming from Ajay Kejriwal from FBR Capital Markets. Please proceed with your question..

Thank you. Good morning. So, just to follow up on that SG&A question, so you're guiding to lower expenses this year. Obviously, you had some one-timers, but then, your head count is up 30% year-on-year.

So, maybe just a little bit more color on what gets the SG&A down outside of those one-timers?.

I think, Ajay, you're hitting it. It's one-timers. It's running a little more efficiently. It's the lack of having duplicate facilities and locations. It's improvements in our processes. It's all of those, Ajay..

Okay. And then, Kent, you mentioned I think in prepared remarks you said positive adoption in the technology. From the outside as we look at it, you're selling fewer machines this year. Machine revenue is lower.

So maybe some color on what are the metrics that you might be looking at, we should be looking at that suggest there is better adoption of the technology. Is that related to inquiries from customers? Are you seeing better backlog? Maybe there's some other metrics. Any color that would be helpful..

Yeah. A very relevant question, Ajay, because we have to ask then ourselves when we try and put together what's a realistic forecast.

But some of the things that we ran into in last year led to the lower sales was the fact that we were sort of withheld from sales activities in Japan while the Japanese government determined whether or not they were going to try and develop a competing product.

And our customers there stated that they were told pretty much not to buy any ExOne equipment until they saw what happened. Now, it appears that that opportunity has gone by and if they're not going to be developing that particular application.

They are developing some other applications for 3D technology that are not relevant to our binder jetting activity and they're leaving the binder jetting alone. So that helped. Secondly, again, the collapse of the ruble hit us and the softness in Europe hit us. So, I mean, it just was a slowdown and the pickup is coming in the U.S.

We do see some other U.S. activities. For us, across the U.S., the main attraction sector appears to be getting a little stronger and they're getting a little more conscious about suspending capital for these kinds of activities. So, it's a – we have it by name. This isn't like we're putting in placeholders.

We can identify every single customer by name as to a sale that gets us to the high point of our performance. The issue we have is will they all execute? And I can't say, maybe there's one or two of them, there's the speculators, but we haven't had people who turned around and walked away from the technology and said, ah, this isn't for me.

It's really not working. So, we're still comfortable that, hey, we've got the right technology. We just made some tremendous improvements in it. We've made the improvements to the silicate and the phenolic machines which will make them much more adaptable, which opens up new market opportunities.

And we're also doing some printing on the large machines in some other materials, such as carbon materials, which is going to, I believe, generate additional sales as well..

Thanks for that. And then one quick one for Brian, I'll pass it on. So, Brian, you've mentioned something – collections becoming more aggressive with maybe some accounts.

Could you maybe clarify on that and quantify how much of those receivables might be either at risk or which may be looking to be more aggressive and where are those? Are they in international customers or U.S.? Any color there?.

Yeah. I'll tell you it's principally international customers, although we have specific customers in the U.S. that have their own specific situations – micro situations. We can point to the events in Eastern Europe as part of that, albeit that that I'd be misleading you if I said that's the whole amount.

We felt that the decline in their credit worthiness that it was appropriate to take reserves for those receivables. And also, as I said, we will vigorously move to collect them. We haven't written them off, but we thought it was the right thing under the standards and under the guidance to reserve for them at this time..

All right. Thank you..

Okay..

Thank you. Our next question today is coming from Brandon Wright from Stephens. Please proceed with your question..

Hey. Thanks, guys. This is Brandon in for Ben. I appreciate you taking my question. The first one is just in reference to the $0.5 million to $1 million in facility integration costs that you're predicting are going to hit gross margins.

Kind of what quarters do you expect that to fall in and when do you expect it to taper off?.

Yeah. Thanks. It's a good question. Again, these are tied to finishing the moves in Germany. We have one more facility that will be completed this month in Gersthofen. And then, some of the final build-out here in North Huntington. That's really what that will be tied to. So, mainly first quarter could be trickled to second quarter..

Great. Thanks. And then, just a follow-up. As for your expectations for ExCast going forward, do you think your opportunities will be focused in aerospace and defense here? And then what kind of contribution do you see the program bring to the company this year? Thanks..

Right now, we have the forge (1:13:05) program, which I just said is $1.5 million of volume. And we may see some more activity come in late Q3 or early Q4. We still have a little bit to finish up I think with Sikorsky..

Yeah, yeah..

But I don't think it's more than $200,000..

Yeah, a small amount..

We are running those programs in a cost-effective manner now. Sikorsky may still have just a little bit of hair on it, but it's just all cleanup stuff. It's nothing that we're worried about. And forge (1:13:40) appears to be running right on schedule.

Margins in that kind of a business are lower because it leads to production volumes where you get very, very high volume. And I'm going to guess that we're going to be holding margins in the 25% range..

Sounds good. Thanks for the color there..

I mean, one good order in ExCast right now from one major customer can be a $5 million to $10 million order..

Great. Thanks..

Thank you. Our next question today is coming from Holden Lewis from Oppenheimer. Please proceed with your question..

Great. Thank you. Good morning..

Hey, Holden..

Just a couple of walks. I don't think they've been covered. I apologize if they have. But back in November, you obviously talked about 25% to 35% growth. Since then, currency issues certainly haven't gotten better, energy issues, Russian issues.

I mean, none of those things seem to have gotten better, but you have ramped your expected growth now to the 32% to 50% range.

What exactly has changed over the last five months or so that has allowed you to add that incremental revenue on top of the original the peak that you gave?.

All right. A valid question. First of all, the Exerial machine and the opportunities for sales of that machine, the Innovent is obviously going to help, and it's a very small per unit numbers. So that's not going to change. The M-Flexes, we expect to see a slight improvement there.

While we've seen an awful lot in the S-Maxes as we moved into the S-Max silica and the S-Max phenolic applications where we have machines that the customers are waiting for them. We have one very large silica machine that we have scheduled for Q3 with a major global customer.

And if that proves out successfully, and we've been running it successfully, we believe we're going to see several more of those within the next several quarters..

Okay.

But you kind of knew that all of those machines were coming that that's not due over the next five months, and then any changes into what you're seeing in the PSCs versus five months ago with all machine?.

I mean, first and foremost, we're talking to a whole variety of additional customers that weren't there a year ago. We've got a bunch of customers who sat up there and bought a couple of things out of our PSCs and evaluated it.

And they now are saying, okay, give me a machine and let's get a machine in place and start to see how it works and we've got other machine. People now have said your machine in place for a year, has worked well. And so we've got five customers that have said they want their second or third machine..

Okay. And then, I guess, related question. The walk on the gross margin, are you able to give us a sense of what gets you there? Obviously, volume is a part of it, but I guess I'm also curious what's the total recovery in gross margin just from the absence of identified costs and maybe some sense of what the inefficiencies might have been.

Just trying to get a sense of maybe what your baseline margin is absent all of these unusual items and then how much improvement is from there and from what sources?.

Yeah. Holden, this is Brian. That's the one number that we didn't give out relative to inefficiencies and we projected that out to be $1.5 million to $2.5 million earlier in the year. It's hard to come to that exact number. We think there is substantial headwind there.

The higher volumes will drive better absorption of costs both in the PSCs as well as in our new facilities. And let me just add that we haven't talked a lot about FX and FX – I'd probably failed to mention, that will help us in SG&A a little bit in some of our foreign locations.

If we sell machines that are produced in Germany to other areas of the world, and we're able to hold our sales prices in those currencies, we would have lower costs, yet hold U.S. dollars at a higher amount, so we would improve margins. So there's a combination of factors. We are very focused on the FX impacts and we do model that out going forward.

So there's pluses and minuses. And again, volume has a lot to do with it, as we've talked in prior quarters..

Do you know what the number was in terms of total – you obviously identified $0.6 million in costs in Q4.

Do you recall what the total identified non-recurring expenses should be?.

Well, we've said something in the range of $1 million for ExCast startup. And again, we had projected out $1.5 million to $2.5 million relative to inefficiencies. But we have not put that – we can't really put that number out there, Holden, as a firm number..

Got it. All right. And then lastly, tax rate or what should we do with taxes next year? And I'll jump back in the queue..

Taxes, we continue to be generally in an NOL position in our jurisdictions. So, as we make money, we will use those benefits. So tax rates will continue to be nominal next year..

Okay.

So, at a loss position in 2015, you would expect that basically the tax number would be minimal like this year?.

Yeah. We would absorb fully reserved NOLs, we would absorb in our tax provisions for next year..

Yeah..

So it'll be a nominal number like it is now..

All right. Thank you..

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments..

This is Kent Rockwell again. I just want to close by thanking everybody for joining us. I think we're, as a company, proud of the progress we've made this year and we're thankful to all our global employees for all that that they've added in advancing our strategy this year. We're excited about 2015.

We think that we've really got some customer activity that's going to change the way people see us as we go through the year. These unique capabilities in binder jetting are still setting us apart and we're in a different world than the people that we consider to be our peers in the 3D marketplace.

So, with that, thank you and we look forward to speaking with you as we move along with all these progress in 2015. So, thank you..

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..