Karen Howard – IR, Kei Advisors LLC Kent Rockwell - Chairman & Chief Executive Officer Hans Sack - President Brian Smith - Chief Financial Officer & Treasurer.

Jason North - Jefferies Bobby Burleson - Canaccord Genuity Brandon Wright - Stephens.

Greetings and welcome to The ExOne Company First Quarter 2015 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms.

Karen Howard, Investor Relations. Thank you. You may begin..

Thank you, Jesse and good morning, everyone. We certainly appreciate your time today for our first quarter 2015 financial results conference call. On the call with me this morning are Kent Rockwell, Chairman and Chief Executive Officer; Hans Sack, President; and Brian Smith, Chief Financial Officer and Treasurer of The ExOne Company.

We will be reviewing the results for the first 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 Web site at www.exone.com. The slides that 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 is stated here today.

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

Kent will review the highlights of the quarter, Hans will address the 2015 plans and first quarter progress and Brian will provide a detailed review of the financial results. Then we'll turn it back to Kent to close before we open up the line for Q&A. And with that, I turn it over to you, Kent..

Thank you and good morning, everybody. I apologize that we have a delayed call for reasons which Brian will later discuss. We are having to remedy some issues in Germany which is occurring and we are fixing the problems that we ran into there. I am going to skip straight through two issues that I wanted to address just before we get started.

First is the Q1 performance. Then I want to talk about the full year performance expectations a little bit and then we will go on with the presentation from Hans and Brian.

Q1, normally I would not address the consensus in the marketplace because we do not provide quarterly guidance per se but all of the analysts do and we have an obligation to try and give good visibility to that.

Consensus revenues were $8.2 million, if we read our documents correctly here, and we reported $6.7 million, so we are $1.5 million short on revenue. However, we shipped six machines in Q1.

As noticed on the slide that you are looking at, two of the machines that we shipped, an S-Max that went into a foreign company, was shipped on time, delivered on time but the customer who is operating one of our machines presently, we are actually taking it on trade, decided to put it into warehouse because they didn’t want to shut down to make the installation as timely as they had thought they would.

So that machine was in their warehouse and our conditions for revenue recognition say installation acceptance. So this customer was also in our office yesterday and unofficially said that they now want to buy an Exerial.

When you have a customer like that that's buying multiple machines, has had more than one of our machines, you do what the customer wants. So when they decide they want to put it in a warehouse instead of install in the timeframe that they had said they were going to install, you meet their needs. They are the customer.

And so we did what we were supposed to do. We expected it to be revenue in that quarter. It doesn't matter to me whether it's revenue in that quarter. We sold a machine to a satisfied customer. It's being installed now and we will get the full revenue and the customer is sufficiently happy that they are out visiting and looking for further machines.

We also sold, shipped and delivered and were paid for an M-Print. But the M-Print was delivered late in the quarter. The customer did not install the machine.

Again, this new consideration for certain of these new machines that we have to have installation acceptance for revenue recognition put us in a position that while it was delivered and paid for, we had to wait for that customer to be able to get it up and running.

Those two machines were over $2.1 million or more in revenue and so if we added that to our revenue base, as we will when the revenue recognition rules finally kick in, we would have exceeded revenue expectations. To go on, we also had an operating lease on an S-Max. It's a short-term lease. But we are doing more and more leasing right now.

Frankly, we see it as a much more important part of our business strategy and that happens to be short-term lease for a European customer, probably one to two years. But we also delivered on an operating lease another machine that is a sale and the customer was buying it.

They made a substantial down payment on it but they were expecting to have money from their government to pay for the lease and the government money was not forthcoming in the timely manner that governments generally demonstrate. And as a result we sold it to them on an operating lease with a purchase option whenever the government money shows up.

The customer is a longtime customer who is very happy with our products and services. He insisted on getting it and not waiting for the government money. And so we have another satisfied customer. We have another sale and that was over $1.1 million. So we had met our obligations from a technical point of view.

The actual issues are revenue recognition and meeting the customer's final test in these cases has left us showing that we didn't perform. And yet from an internal perspective, we believe that we performed fairly well.

Had the margins on these machines occurred, we would have been probably a little bit less than the consensus margin and Brian will address those issues.

But I have to say that I am perfectly satisfied with what we accomplished and we are hung up with some technical issues with regards to what is revenue recognition for a small startup company selling very large machines and some of the issues that we have to satisfy for our auditing and SEC requirements. To me these are non-events.

We simply march our way through them and do our business. So we would have exceeded revenue expectations if we were just recording delivered machines. And all of these machines will end up in sales in the course of the year with the exception of a short-term operating lease.

So I want to move then from Q1 to the full-year because obviously the performance that we have demonstrated in the first quarter will impact our full-year performance to the extent that we have fixed expenses that we have to overcome to be able to maintain the full-year guidance that we have provided to you.

Currently, we have a book of about $57 million of prospects for 2015 delivery. These are each customers with a name. Some of them are customers who are buying their second or third machine. The book is continuing to grow at a very very stable rate. I am very pleased with that.

And so if we look at that book and say, okay, how much do we have to capture to get to the midpoint in guidance about $7 million of that $50 million is probably leases. Now companies that are going to turn around and say well, we would rather lease. I am thrilled to make leases.

Our leases are very very productive and very very positive for us because our residual value on our leases, for us we can go back and make a good profit selling them.

You cannot go into the market today and get standard financial leasing terms from the likes of a GE Capital or so on because ExOne is such a young company they look at our balance sheet and no one wants to apply any of the residual value that we are realizing to their formulations in a leasing company. And I understand why that is.

So we are doing more and more leasing and you will see that hit our CapEx line in the short run but it's not going to impact our cash for a variety of reasons.

So if we hit a 60% capture rate on just the business that we have as we enter the first six months of this year, it will put us in the range of our midpoint and we would be very comfortable about the opportunities to do that. The sales prospects are much stronger than they were a year ago.

We have the Exerial where we have just recently shipped our first four Exerials. And they are on the water now to the customers and we will be collecting cash on that here shortly. Our non-machine sales growth is very stable as we have demonstrated in the announcement we have.

And when you realize that when we sell a machine such as the one that went on the operating lease, we lose their income in our PSC and we are still holding a 25%-30% growth rate. It shows that we are getting more and more business and that the PSC sales center strategy is an effective strategy.

So I'm going to let the rest of this conversation go ahead with Hans and then Brian will give you the details of our financials and then I will make a few closing comments afterwards. Thank you..

Thanks, Kent. Good morning everyone. I am excited to be part of this dynamic and talented organization. I would like to share with you when we are dedicating our attention and resources in 2015. Kent describe 2014 as a transition year before. 2015 is about focus and execution.

We have invested in people, facilities, machine and materials development and quality processes. With all that in place, we are very well positioned to accelerate the adoption rate of our printer jetting technology and growth rates. Slide six gives the summary of our priorities. We are limiting hiring to strategically important skill addition.

We are shifting from a technology-centric to a customer-centric character and investments in machines and materials development will be made accordingly. Our PSCs survey twofold purpose. First, to print products for customers regionally. Through these PSCs we also provide materials and machine service in the respective region.

The second purpose is as a sales tool to demonstrate the benefits of the technology. We have recently installed metal printers in our facility in Gersthofen near Augsburg to print for European customers. This will shorten the supply chain and promote sales of direct printers in Europe.

Future expansion of our PSC network will be customer focused and include collaborative efforts. Our primary targets for revenue growth are the powder injection molding and the foundry industries. In direct printing our technology is complementary with the powder injection molding process that has metal and ceramic injection molding, MIM and CIM.

The green parts produced by our binder jetting process require the same or similar post processing as those produced by the MIM and CIM process, thus avoiding the learning curve for those customers. MIM producers make complex small parts in large lots due to the high tooling cost associated with that process.

Our direct printers give these companies the opportunity to serve their customers cost-effectively and in smaller lot sizes all the way down to lot size one. We have received our first orders from that industry recently.

On the indirect printing side we are conducting an in-depth study of the foundry industry in order to identify the most likely adopters. We will engage a more proactive marketing than ever before. Moving to Slide seven. As you can see here, our workforce growth is leveling off compared to 2013 and '14.

We have a lot of very talented and hard working people getting up the learning curve. Examples for strategic hiring are John Baliotti, who joined our team in April in a newly established role, Director of Marketing and Business Development.

On June 1, Eric Bader joined us as our European CFO to advance financial controls and reporting and to support our global compliance requirements. Moving to Slide eight. Our recently established design center in North Huntingdon facility, customer training and design support.

CAD modeling and associated optimization software are the lynchpin of 3D printing. Redesigning parts for additive manufacturing brings on the full benefits of 3D printing and helps customers to maximize their return. Please turn to the Slide nine. The Innovent machine is ideally suited for development activities in universities and industry.

Users can cost effectively research and qualify materials that suit their needs. The small dropbox size minimized material waste, yet is productive enough to allow small production volumes of small parts typically in the MIM and CIM industry.

We are seeing significant demand of customers interested in pairing an Innovent with an M-Flex machine for combining research with production. Slide 10 shows the new Exerial machine. In March we announced the availability of this largest machine to date.

The approximate price point for the Exerial is $1.8 million for the base printer and $2.7 million for the system subject to model options and exchange rates. With this machine, we are expanding into true series production in high volume environment like the automotive industry. We see a strong interest in this new machine.

Four beta machines have been shipped, as Kent said already, in the second quarter. The revenue will be recognized once these machines are accepted by the customers later in 2015. We are ready to accept orders for additional Exerials for delivery later this year or early next year.

We will have one on display at the GIFA International Foundry Trade Fair in Dusseldorf next week. Slide 11 updates you on our materials development activities. We continue to develop qualified materials in which case we also certify our post-printing processes.

Recently we have also announced materials as printable on our machines to support customers intending to develop their own post-print process. The binder in our process is a key element crucial to customer acceptance lending itself to proprietary development. Therefore, new binder development is an increasing focus of our efforts.

The development direction can be summarized as follows. Green, strong, no need for further process steps and accommodating customer's prior practices. Slide 12. You can click at the link at the bottom of this slide to learn more about this very large and intricate architectural installation.

This so called Arabesque Wall measures about 3 meters tall and weighs 800 kilos, that’s because it's in Toronto, Canada, and was printed in 12 separate pieces. Although art and architecture are not the core purpose of our business, such projects showcase the large scale 3D printing capabilities of our printer jetting technology.

Slide 13 gives an update of our ExCast strategy. We are excited to see the first successful test flight of the S-97 RAIDER, which you can view if you click on the link on that slide. As Sikorsky reports, the project would not have been possible without the castings that could only be made using our printed molds and cores.

Our second ExCast project is for the FARDS program of the U.S. Army. Our risk exposure in this case is contractually limited as contrasted with the pilot project. We expect to start realizing revenue in the third and fourth quarters of this year.

As we look to the future of ExCast, our focus will continue to be on military and government applications since they are very specialized and segregated from industrial avoiding potential channel conflict. With that I would turn the call over to Brian to review our financial results for the quarter. Thank you..

Thanks, Hans and good morning everyone. Before I get into the numbers I would like to just take a minute and talk about the cause of the delay in filling the first quarter. As we have talked about in the past, we began implementation of phase 1 of our ERP system at our largest operating facility in Gersthofen, Germany.

System implementations are always a challenge and despite upfront planning, we were no different. We were probably hit harder than some of the larger companies who have broader resources from which to drop on.

Our new ERP system touches every person and every process and every department at our German operations as it obviously represents a significant change for everyone at that location. The team is also getting acclimated to the physical changes associated with our new facility and the move.

In response, we diverted significant resources including the hard efforts in dedication of our corporate personal to supplement the people there that were already working hard to adapt to these changes. We wanted to ensure that we got the numbers right and provided sufficient time for our auditors to sign off.

So we thank you for your patience and understanding with this delay. I want to also thank our team for their hard work and efforts on this projects and for getting us to this point.

Good news, on the plus side, we are already experiencing improvements in our processes and controls and getting better visibility into our numbers which will improve our reporting going forward as well as providing greater insight into the depths of our operations. So with that if we could move to Slide 15.

As Kent mentioned earlier, revenue for the quarter was $6.8 million. As you can see, our non-machine revenue continues to be strong and makes up a larger portion of our total revenue, 84% in total as machine sales continue to be lumpy. We delivered six machines in the quarter as Kent had mentioned. Recognized revenue on two of them.

Two machines were delivered to repeat customers and the two leased machines were delivered to PSC customers. Geographically we were heavier in the U.S. and Europe this quarter with no machine sales recognized in Asia. Both machine sales were in Europe.

Both were new customers representing growth in the sales of direct printing machines in that marketplace. The translation impact of changes in foreign currency rates compared with the prior year was really quite substantial, unfavorably impacting our revenue by approximately $600,000 or 8%. If we could turn to Slide 16.

We show revenue there for the trailing 12 through March 31. For the most recent period our total revenues grew 12% compared to the 12-month period ended a year ago. Excluding the effect of changes in foreign currency, our sales grew approximately 14%.

Our current period slip us 50:50 machine versus non-machine where it's closer to 60:40 in the prior periods. On the geographic basis, revenue of the Americas led our efforts with Europe and Asia trailing behind. Our reported sales have been, as I said before, unfavorably impacted by the strength in U.S. dollar. Turning to Slide 17.

At $5.7 million, we have strong non-machine revenue growth as shown here. Up approximately 18%. That equates to a 26% year-over-year growth excluding the changes in foreign currency. The acceptance of our binder jetting technology is evident with this solid growth.

I want to remind everybody that even in the non-machine area, we do have some fluctuations with some of our larger customer projects although lumpiness is not as significant as in our machine revenue. The trailing 12-month revenue growth is especially strong, up 39% as you can see on the slide. If we could turn to Slide 18.

As Kent said and I reiterated a few moments ago, we delivered six machines in the quarter but only two met the criteria for revenue recognition. Machine shipments are always lumpy at our current size having significant impact in any quarter. For the trailing 12-month, we were fairly flat given the headwinds experienced in the current quarter.

On Slide 19 you will see gross profit in our margins. Gross profit was a breakeven level in Q1 '15 due to the mix of revenue in the quarter compounded by higher fixed cost and inefficiencies associated with our newly expanded facilities. These costs included the ERP implementation, the move into our Gersthofen new facility and our new PSC in Italy.

We have identified those costs. We have identified costs of approximately $600,000 albeit there could be more given the difficulty of segregating some of those costs and inefficiencies. In addition our current cost structure supports a much higher revenue volume than we realized this quarter.

But we need those costs to be able to support revenue at higher volumes in future periods. The move of our MWT operations into our Gersthofen facility started in the first quarter and was completed in April. So some of these costs as well as some of our European efficiencies will continue into the second quarter. Please turn to page 20.

On a normalized basis, our SG&A was [$5 million] [ph] in the quarter, in line with our expectations. We incurred consulting costs in the first quarter both related to our ERP system as well as consulting costs to assist us in our day to day business while our people worked on the implementation. These costs weighed on our SG&A for the quarter.

Some of these costs will continue into the second quarter. We also incurred approximately $300,000 of SG&A employee termination costs this quarter which we have isolated for convenience as we don’t anticipate those costs will recur. Let's turn to page 21. We summarize our R&D expenses.

For the quarter we reported $1.7 million in line with our expectation. That level is down somewhat from 2014 quarterly averages due to the cost incurred to accelerate our machine technology efforts, especially the development of our Exerial machine which was announced in March. We summarize our CapEx on page 22.

As we have said before, we will significantly reduce our CapEx spend in 2015 compared to 2014 when significant investments were made to build and expand our facilities. We are expecting approximately $5 million to $7 million of CapEx in 2015. We will probably be at the higher end of that compared to $28 million plus in 2014.

In the 2015 quarter we incurred $4.3 million of CapEx. Some of that was not a cash outlay in '15. We placed machines from our inventory that were built in 2014 into our PSCs in Italy, Germany and Japan as well as the two machines that went out on lease. So the cash outlay for CapEx was approximately $1.8 million in Q1. Please turn to page 23.

So we will summarize -- where we summarize our cash flows in the quarter. We started the year with just over $36 million of cash and used $1.8 million, as I mentioned, for CapEx. We generated $2.2 million of cash and working capital principally collections on accounts receivable and we used about $6.5 million to fund our net loss for the quarter.

If you go to page 24. We have a solid balance sheet to support our growth. $30 million of cash at March 31. Our cash projections continue to show that we will be in the $25 million to $30 million range at the end of 2015, given our revenue projections and we virtually have no debt.

On page 25 we are reiterating our 2015 guidance that Kent discussed on our last call and a little bit earlier here in this call. When we introduced our guidance in March, we stated our expectations that we would be 30% first half, 70% second half. We believe that’s still an accurate estimate.

Commenting on our margin guidance that Kent talked about earlier, we were off to a slow start. However, with the volumes that we expect, particularly in the second half, we believe we can get into the range of our guidance. On Slide 26, you will see the same opportunities relative to our 2015 guidance that we talked about in our last call.

They continue to be relevant. Customer acceptance is the key point here and projection and anticipation of adoption of our technology is always difficult to estimate. Similarly on page 27 we identify these risks relative to our guidance.

These items represent real-world macroeconomic factors and impact our ability to achieve our guidance but as a global company we continue to navigate our way through them.

With that, I will turn it over to Kent?.

Thank you, Brian. And we have a couple of points on this slide I don't need to read out. I want to make a couple of other losing points. First you talk about the Exerial, which is our new machine and we are extremely excited about it.

We presently have three customers that have come in and asked for Exerial machines and we are believing that the GIFA show will give orders for more of them. I, right now I am not likely to put a single Exerial into 2015 because the machines are running wonderfully.

There is some automation equipment that has to go along with them and trying to get each customer to identify what kind of automation they need is going to take some time. And while two of our customers said they would take them in '15, I am not going to press it into our sales at this point.

But it's a good indicator that we are moving in the right direction with the customers that see the Exerial will be very pleased with the move in that direction for series production. Particularly in the automotive sector and some of the large foundry operators. Our game is really simple. It's all about machine sales.

We are fairly stable in the non-machine department and have some good opportunities in non-machine. We just signed a good new lease opportunity that will start July 1 and generate some very good profitability for us. I mentioned earlier leasing as an alternative for us. The good point about leasing is it's very profitable for us and we like it.

The bad point is, it consumes cash and hits CapEx. And we are evaluating opportunities if I thought that we were going to impair our functionality for cash availability by doing too much leasing, we would go to some alternative sourcing for cash which we have been discussing with other parties.

But right now there is no need for us to do that because we are not that concerned that we are going to have a cash issue. So we are just keeping our heads down. We are moving forward. I think that everything is so good.

I am not worried about revenues at this point, knock on wood, but to hit the full year guidance and maintain the gross margin when you have had a zero margin quarter because we didn’t get the machine sales, we may be tested to hold to the norm of guidance and maybe be able to the lower them.

But right now we see, in our forecasting model, no reason to change that. So we are highly enthusiastic. The management team of this company believes that we are absolutely on it. Everybody has two or three roles they are playing.

The customer, the NDAs that we are signing have probably tripled in the last year and each customer requires an NDA as each customer has an individual requirement. So I think that we are understanding how to manage these customers better. We are getting a lot more credibility in the marketplace in the customers that are operating our equipment.

And I am pleased with the progress we are making with the accounting issues that we are enduring as a startup company. The fact that it doesn’t fall into any given 90-day period, it is very hard talk about our business in 90-day increments and get a lot of logic in it. But over the course of the year I think you will see it start to mature.

We are moving in the right direction. We have a team that’s very focused and happy and thrilled to be part of what we are doing. So we will move on to questions and thanks for your time. I do want to close by thanking everybody for joining us this morning..

Okay, Jesse, we are ready to open the line for questions..

[Operator Instructions] Our first question is coming from the line of Jason North with Jefferies. Please proceed with your question..

First question here is, looking at keeping your full year gross margin guidance, to me it looks like it implies that second half gross margins will be greater than 40%.

Is that true? And if so, what do you see driving that increase?.

Yes, Jason, hi, it's Brian. How are you? Yes. We expect margins at the volumes of machine sales that Kent talked about in the second half, we expect margins would be in excess of 40%. That’s correct..

And can you talk about the relative drivers there or even looking specifically here for Q1.

Usually you don't disclose it, but any kind of color on the gross margins between systems versus service bureau and how you see each of those trending?.

Yes. We don’t break those out, Jason. You know our PSC has really served kind of two purposes, as Hans said. They serve as drivers of sales and they serve as machine part production. And we get good direct margins on those facilities.

But when you build out the facilities that we had and to build out in Italy and North Huntingdon and Gersthofen, it weighs on your margin. It's a volume sensitive business. And so we need to hire volumes in the PSCs to support that and the higher volumes in machine sales also will get us to the higher margin.

So as I said earlier, the non-machine business is a little bit lumpy too, not as lumpy as the machine sales. So we do anticipate some pretty good growth in that in the second half once the larger customer projects that we are know are kicking off now..

Any color you can provide for the service bureau growth for the full year, because it did decelerate rather sharply here in Q1. I know you cited lumpiness and a couple of your PSC customers bought machines.

But do you see it around this 18% level continuing or is it going to be closer to where the average of the full year is for the company?.

I think we were looking in the 20% to 25% type of range which is where we were. I mean, again, if lumpy, we have projects out there that we hope to fully deliver this year. And we have the FARDS program that Hans talked about, is all second half weighted. So, yes, we are thinking in the 20% to 25% range..

Okay. And last question here.

For the M-Print that was delivered late in Q1, has that been up and running and recognized as revenues yet?.

We don’t -- Jason, we can't comment on individual machine sales. We are working through the revenue recognition and getting those machines up to speed as they occur. And I don’t want to start talking about individual machines separately and apart from other items.

We did talk about delivering the four Exerial machines and those are going to be second half also in the revenue recognition..

Thank you. Our next question is coming from the line of Bobby Burleson with Canaccord. Please proceed with your question..

Probably first off, I'm just wondering, we've got 70% of your revenue required in the second half of the year to meet guidance, and I'm wondering how much you'll know about your ability to hit guidance post the GIFA show next week.

Coming out of that, will you at that point have an idea whether or not you can meet those numbers?.

We don’t need to go to GIFA to get a single order to hit the numbers that I have described earlier. On the backlog customers that support the 2015 forecast is a much more diverse group of customers. And it's not even a question about are they buyers, it's a question about when will they buy.

There is a lot of them that are second and third machine buyers, they are saying, well, do I need it in the fourth quarter of '15 or do I want it in '16. And those are the ones that come in and out of it. We are not losing sales to anybody and it's just a question of the customers sometimes defer it for their own purposes.

It's been incredible to me, how many of these customers end up saying, okay, we are -- and these are Fortune 50 companies that say, oh geez, our building isn't ready. And so we are going to postpone it for a quarter. We have been through that with so many people that it's becoming almost standard comment..

Okay. And just wondering the risks that you guys outline on Slide 27. Of the four risks is there one that stands out? I know China CapEx seemed to be something that you're evaluating more in real time, there might be some changes there.

Just out of those four risks, is there any that stand out in terms of hitting those numbers?.

Right. I will just say that, we have a few Russian orders in that $57 million that I had mentioned. And we believe that these are repeat buys from people that we have already gotten clearances on. And one of them is talking about wanting to lease it through a bank in Europe. So they have to go -- we would sell it to the bank.

That wouldn’t be a lease that we would do. We would not lease ourselves into Russia. But there are a lot of Deutschland marketing and leasing who would probably do it. So it's just a question of, do they get the documentation done.

Both Russian customers that we are talking about right now that we have in 15 prospects, have bought machines and were pretty comfortable that they are in there. And there is Russian opportunities as well. Russia is actually, they would like to have it.

And the thing that killed them was the devaluation of the ruble and that relative to the euro has now stabilized a lot better so that the market seems to be more stable to us. In China we have one or two customers that we believe will be buyers. We have a list -- I mean, they are marching in and out of here on a regular basis.

And they are real buyers, they don’t come all the way to North Huntingdon and sit and talk and look at the equipment just to pass time. But we do not have as many there.

Foreign government subsidy programs, I mean the one machine that we would have sold, the customer happens to be a wealthy customer and he put the machine into a subsidiary that was very very highly leveraged just so that he could get the government money.

So we know we are going to get the money, it's just a question of when do they get around to it and when does that government finally get around to getting through all their bureaucratic efforts. [Energy] [ph] cap is probably the -- there has been some slowdown, we have heard that in a couple of places.

But I don’t think that any of these risks are unique and present a real overall, wants much higher priority than the other..

Great. And then just one last quick one.

You've mentioned in the past M-Flex targeting MIM customers and I'm wondering, over time how do you see the mix of customers there? Is it going to be MIM operations that are internal to a large manufacturer or do you see contract manufacturers or outsourced service bureau type MIM customers there?.

Hans, you want to touch it?.

Yes. I think it's going to be a mixed bag and we are working with smaller entrepreneurial part suppliers. I don’t think that I would call them service bureaus because they are fully engineering their own parts and representing the complete supply chain from raw material to the finished parts.

But many of the people that we are talking to are indeed divisions of very large multinational project suppliers to the automotive industry and other industries. So it's going to be a mixed bag and a balanced portfolio of customers there..

Thank you. [Operator Instructions] Our next question is coming from the line of Ben Hearnsberger with Stephens. Please proceed with your question..

Yes, this is Brandon in for Ben. Thanks for taking my question.

Just real quick on FX, what steps can you guys take to help mitigate the impact here throughout the year and how much ends up flowing through to the bottom line?.

I am sorry, what steps, with regard to what?.

Foreign exchange..

Foreign exchange. We obviously have to manage our cash so it's in the right denomination, right. And keep as much in U.S. dollars as possible. But beyond that we have costs in Europe for our machines, our indirect printing machines that we manufacture.

And so to the extent we sell those outside of Europe, we gain in the exchange rate changes that have just happened. We have machines we manufacture in the U.S. To the extent we sell those outside of the U.S., we lose a little bit, the strength of the U.S. dollar.

So we have to balance our machine pricing to the extent that we have PSC operations in Europe, we are generally in euros in Europe. So we are in the same dollar. To the extent we are in PSC operations in the U.S. the same way and in Japan the same way. So it's really just managing our pricing.

What we wanted to do was compare that our volumes, particularly in euros, had increased considerably but the price declines makes it look like it didn't, they didn’t increase as much. And that level is really why we were showing what the FX impact was.

Did that help you out Brandon?.

It does, yes. Thanks for the color there. That's great. And then just real quick on the leased machines.

I know you guys won't give out a number, but in terms of the margins on them compared to selling machines in the PSC, where does it fit in there? And then is the eventual idea, is it to just continue leasing these machines out or will you eventually sell them at a discount as used machine or what's the strategy going forward there? Thanks..

Leasing is an evolving strategy, of course we have been doing it for a number of years. We have always had machines that are out -- somewhat have been more on short-term operating leases.

But I am very very much in favor of the leasing option because to me, we can actually make more money in the leasing than we can in just a straight financial setup over time, particularly if it's just an operating lease where we get the machine back, because traditional leasing companies would not give you a residual value that we see in our machines.

I mean we have S-Maxs that we are now overhauling that are ten years old and we are leasing them for $500,000-$600,000 and they are out of production. But we still have probably 20 more of those in service. Same thing with the -- I meant S-15s.

The S-Maxs, I mean right now if we lease on four-year full payoffs, we are going to end up with a 30%-40% residual value as a minimum. And some of these people want to just be able to transition to the new machines. So there is a very active secondary market for the S-Maxs and we get good leases.

But for a company that’s growing at a high rate, to consume our cash, that’s a question. And so we have an alternative to it. We are not going to let our cash go at risk because we are leasing them but I expect to start to lease maybe two machines a quarter. So that could be, that’s $8 million right there.

But I would like to build a good portfolio of leased machines and I am happy to have. And so that’s, for me, it's going to help our business. And it's not because they are substandard quality lessees..

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any additional concluding comments..

Okay. Again, we are excited about the targets we have set for ourselves in the course of this year. Our employees around the globe are working hard and we are enthusiastic about where we are headed.

Our unique binder jetting capabilities are still setting us apart and we are getting more and more consideration for the value of this technology in multiple markets. So thank you again for your time today. We look forward to updating you on our progress as we move into August. Have a good day..

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time..