Karen Howard - IR, Kei Advisors LLC Hans Sack - President Brian Smith - Chief Financial Officer & Treasurer.

Brandon Wright - Stephens Patrick Newton - Stifel Sherri Scribner - Deutsche Bank Ananda Baruah - Brean Capital Saliq Khan - Imperial Capital Prabhakar Gowrisankaran - Canaccord Jason North - Jefferies.

Greetings, and welcome to The ExOne Company’s Second 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, Karen Howard, Investor Relations for The ExOne Company. Please go ahead..

Thank you, Kevin, and good morning, everyone. We certainly appreciate your time today for our second quarter and first-half year 2015 financial results conference call. On the call with me this morning are Hans Sack, President; and Brian Smith, Chief Financial Officer and Treasurer of the company.

I do want to mention that Kent Rockwell, our Chairman and Chief Executive Officer, who is typically on these calls with us, is traveling in a remote area without clear phone and data access, and therefore is unavailable this morning.

Kent will be with us in November and has requested that we extend his regrets as not being able to participate this morning. Hans and Brian will be reviewing the results for the second quarter that were published in the press release distributed after yesterday's market close.

If you don't have that release, it’s available on our 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 will make some forward-looking statements during this discussion and may also 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 website or at www.sec.gov.

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

Thank you, and good morning, everyone. As our management team reflects on the first half of 2015, we generally pleased with our progress in advancing our technology, creating better systems and processes. We’re especially excited about our expectations of the second half of 2015, as delayed customer implementations will occur.

Please turn to Slide 4, which summarizes our priorities for this year. As I reported on our last call, 2015 is about focus and execution. We are very well positioned to accelerate the adoption rate of our binder jetting technology and grow sales. This is based on the significant investments we've made in our people's abilities, machines and processes.

We are prioritizing ongoing investments in machines and material development according to a more customer-centric emphasis, as we are changing away from a more internally-driven culture. We look at expanding our PSC footprint more opportunistically with a clear focus on specific customer interest.

Future investments will be smaller and in a cooperative fashion. The foundry industry and the powder metal industry are the areas of greater short-term promise to us. That is where we are focused.

We are pushing for much broader penetration of the global metal casting industry, with more comprehensive and robust solutions in sand printing, we are proactively marketing beyond the early adopters. Our technology, as it applies to direct metal printing, is complementary to powder metal processes.

The green parts produced by our binder jetting process, requires similar post-processing as those produced by pressing or injection molding. The barriers to adoption for these customers are therefore much lower. Our direct printers, give these companies the opportunity to serve their customers cost effectively when smaller lot sizes are desired.

We are pleased with the process we are making with customers in this industry. We have reorganized our sales and service organization into global unit to increase their coordination and communication. This will benefit our customers.

Slide 5 shows our new Exerial machine, the largest indirect printing machine to-date designed specifically for series production. We displayed one at the GIFA Fair in Dusseldorf in June, where it was received with significant interest.

This machine clearly transcends the prototype and low-volume application, and will be suitable for any but the highest volume application. Note that the slide links you to a YouTube video which would be informative about the operation of the Exerial. Four units were shipped in the second quarter. Please turn to Slide 6.

Our new Innovent machine is gaining traction in the marketplace. Introduced earlier this year, we sold our first five units during the second quarter. This machine is ideally suited for development activities and universities and industry. Our customers for this unit include several win on Fortune 500 industrial manufacturers.

The Innovent is particularly attractive due to its small job box size which maximizes materials used. At the same time, it’s productive enough to generate small production volumes and sizes typically in the powder injection molding industry.

There is demand from customers to pair an Innovent machine with an M-Flex for combining research with production, as we have already experienced. A good way to look at our business is to differentiate between sales and shipments, which we have not shown before.

Slide 7 gives the chart of our machine shipment, sales and lease activities for the first two quarters of 2015. It's important to understand that we shipped 12 machines in our second quarter following the six we shipped in the first quarter. The chart distinguishes in color between sand and metal machine.

With respect to the 12 shipped in the second quarter, four were the Exerials I mentioned a few moments ago, and five were the initial Innovent shipments I also described. Those units are at opposite ends of the spectrum with respect to our machine offerings, the largest at this moment.

As you can see here, we recognized revenue on seven machines in the second quarter, the five Innovent that shipped as well less and an M-Flex shipped this quarter and an M-Print was shipped in the first quarter.

On Slide 8, I want to highlight that we recently announced the opening of our DREAM Center or Design and Reengineering for Additive Manufacturing Center in our North Huntingdon facility. We told you a little about it when we reported our first quarter results. The Center is intended to stimulate customer creativity and collaboration.

We've invested in state-of-the-art technology to facilitate customer training and design support, with the capability to easily and efficiently draw from our global resources.

Redesigning parts for additive manufacturing using computer-aided design modeling and optimization software, brings out the full benefit of 3D printing and helps customers maximize their return on investment.

Slide 9 shows an example of investment we have been making a tooling and related products, as we develop solutions to specific application problems for our customers. We developed a printer tool that is washed out of the composite part after it is made, allowing the creation of even more technically complex parts than was previously possible.

The composite part is typically created by laying up composite fiber tape over the tool. Proprietary coatings complete this process. Slide10. ExCast remains an important part of our strategy.

We continue to believe that military and government application present an opportunity since they are very specialized and segregated from industrial customers avoiding potential channel conflict. Our second ExCast project is for the FARDS program of the U.S. Army.

This contract is valued at approximately $1.4 million with cast parts deliveries expected to commence in the second half of 2015. With that, I’ll turn the call over to Brian to review our financial results for the quarter. Thank you..

Thanks Hans, and good morning, everybody. If you’ll please turn to Slide 12, we'll start with our revenue, for the quarter was $8.5 million. As you can see, our non-machine revenue continues to be strong, and make up a larger portion of our total revenue, about 70% or so, as our machine sales continue to be lumpy.

Geographically, we are heavier in the U.S. due in large part to a concentration of machine sales in the U.S. during the quarter. Translation impact of changes in foreign currency principally the euro to the U.S. dollar and the yen to the U.S. dollar compared with prior year was unfavorable by approximately $600,000 or 5%.

If we could now turn to Slide 13, we show revenue there for the trailing 12-months ended June 30 for the most recent period, as well as the prior two TTMs. For the most recent period, our total revenue was flat compared with the 12-month period ended a year ago. Excluding the effect of foreign currency, our sales grew approximately 4%.

Our current period split is 44/56 machine/non-machine, and it's closer to 60/40 in the prior two periods as shown. On a geographic basis, again the America’s later efforts with Europe and then Asia. Turning to Slide 14. At $6.1 million, we had record non-machine revenue growth. Our growth here as shown, was up approximately 16%.

That equates to about 26% year-over-year growth, excluding the impact of changes in foreign currency. We believe acceptance of our binder jetting technology is evident with this stellar growth.

I want to remind you that even in the non-machine area, we do have some quarterly fluctuations due to some of our larger customer projects, although lumpiness is not anywhere near significant as it is with our machine revenue.

Trailing 12 months revenue growth is especially stronger because of our consistent growth, up 30%, as you can see on the slide. If we could turn to Slide 15. Hans indicated earlier, we shipped 12 machines in the quarter; seven were recorded as revenue in the current quarter.

We’re reporting machine shipments now in addition to machines sales to help you understand the progress we're making in getting our technology into our customers hands. Our deferred revenue, which represents customer prepayments, is nearly $5 million at June 30. These amounts we recognized as revenue in future periods.

Keep in mind that machine shipments and revenue are always lumpy in our current size, giving the significant impact of any of our machines in any quarter. As for our leases that we’ve shipped in the current quarter and in the prior quarter, they are all operating leases.

So we record monthly amounts as revenue and retain the machines as fixed assets and depreciate it on our books. For the trailing 12 months, our machine revenues were down compared with the prior year, given our experience over the past two quarters.

However, we expect this trend to be turn positive in the second half of this year based on our outlook of machine revenue for the remainder of the year. If you could turn to Slide 16. This table summarizes our revenue for our second quarter and year-to-date.

It includes two machines and related equipments sold to related parties valued at approximately $1.1 million. One of those was sold to a powdered metal company, in which our chairman and CEO has an ownership interest, and another to a multinational diversified Fortune 500 metals company, which employs one of our board members.

Those related-party transactions were viewed and approved by our audit committee in advance and agreed on the price. The pricing was at fair market value. On Slide 17, you will see gross profit and margins.

Gross margin was 13% in Q2 2015, given the mix of revenue in the quarter between machine and non-machine sales compounded by higher fixed cost and inefficiencies.

These inefficiencies included atypical costs in connection with our global facility transition expansion in Germany and here in the U.S., our ERP implementation expense and development of our PSC in Italy.

The move of our MWT operations into our Gersthofen facility, which I mentioned last quarter, was completed in April and was included in those costs for the quarter. We've identified approximately $300,000 this quarter, largely related to the move of our MWT facility, and $900,000 year-to-date in these atypical costs.

If you think about there could be more, but it's hard to identify inefficiencies and specifically target them. In addition, our current cost structure supports a much higher revenue volume than we realized this quarter. However, we believe we need these resources to support revenue at higher volumes in future period. Please turn to Slide 18.

On a normalized basis, our SG&A was $5.7 million in the quarter, in line with our expectations.

Continuing from the first quarter and as I mentioned on our first quarter call, we incurred consulting cost in the second quarter, both directly related to our ERP system implementation, as well as consulting cost to assist us in our day-to-day business with our people - to replace our people working on the implementation.

These costs weighted on our SG&A for both the first and second quarters and amounted to approximately $200,000 in each quarter. In the second quarter, we also incurred approximately $400,000 of bad debt expense associated with some longer paying international customers, which we've isolated here for convenience due to its nature.

We rightly so, take a pretty conservative stance in such instances and we continue to vigorously pursue our collections. Please turn to Slide 19. We summarized there our R&D expenses. For the quarter, we reported $1.7 million, in line with our expectations.

Consistent with the trailing quarter, that level is down somewhat from the 2014 quarterly amounts due to the cost incurred in 2014 to accelerate our machine technology efforts, especially the development of both the Exerial and the Innovent machines, which Hans alluded to earlier. We summarize our - turning to Slide 20, we summarize our CapEx.

As we said before, we will significantly reduce our CapEx spend in 2015 compared to 2014. And in 2014, we made significant investments to build and expand our facilities. Our current expectation is $6 million to $7 million in CapEx in 2015 - in total 2015, compared with almost $30 million that we spent in the year 2014.

Year-to-date in 2015, we've incurred a majority of that CapEx spend of about $5.5 million. The cash outlay for CapEx when we take out our internally constructed machines was approximately $2.8 million in the first half of 2015, about $1 million of that in the second quarter.

The remainder of our CapEx that we spend in 2015 was for inventory that we built largely in 2014 that we moved into our facilities in Italy, Germany and Japan, as well as three machines that we shipped from inventory that went out on lease. Please turn to Slide 21, where we summarize our cash flows today. We started the year with $36 million of cash.

We used $2.8 million, as I mentioned before, for cash CapEx, a $1 million of which was in Q2. We generated $3.2 million of cash from working capital, including collections on accounts receivable and increased deferred revenue from customer deposits. We also used that cash to grow our inventory in the first half.

Most of that inventory will meet the second half sales requirements and also includes machines shipped, but we have not recognized as sales in the first half. We used about $11.8 million to fund our net loss and other net cash outflows for the first half.

If you'll turn to Slide 22, you can see that we have a solid balance sheet to support our organic growth. We had almost $25 million of cash at June 30, and our cash projections continue to show it will be in the $25 million to $35 million at the end of 2015, given our current revenue projections.

We continue to make progress in negotiating payment terms with our customers, including progress payments which improve our inability to manage our working capital and our cash, and we have very low debt. On Slide 23, we are maintaining our 2015 guidance for revenue, SG&A and R&D.

Regarding our revenue guidance, keep in mind that while we have continued confidence and are anticipating our second half shipments, our customer terms impact the period in which we recognize revenue. So that's just the factor that we continue to consider. Also we did revise our gross margin guidance from 30% to 34% based on our first half results.

We believe that the operating leverage anticipated in the second half, driven by machine shipments and volume, is sufficient to drive full-year margin to that revised range. On Slide 24, you'll see the same opportunities relevant to our 2015 guidance that we talked about when we introduced our guidance, and they continue to be relevant.

Similarly on Slide 25, we identified those risks related to our guidance. The first one regarding the impact of customer specific terms on the period in which we recognize revenue was recently added to this list. With that, I will turn it back over to Hans..

Thank you, Brian. Please turn to Slide 27 for closing comments. Due to our significant investments in 2014, our organization is ready to respond to growing demand.

We continue to make significant changes to respond to our customers’ requirements to help them improve their return on investment in our binder jetting technology and increase the adoption of the technology.

The customer-centric focus on the most rapidly convertible opportunities and a number of continuous improvement project and organizational realignment creates operational advances. We believe we have an excellent sales outlook for the second half, which will create corresponding operating leverage and drive profitability.

Our focus on industrial manufacturing of metal components to direct or indirect binder jetting technology sets us apart from other 3D printing company. With that, let's open up the lines for questions..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ben Hearnsberger from Stephens. Please proceed with your question..

Thanks for taking my question. This is Brandon in for Ben. I may have missed this, but just curious on the printer leasing.

What was the revenue contribution from this in the quarter, and is this still expected to be a significant part of strategy going forward?.

Yes. Ben, hi - or Brandon, hi, this is Brian. We don't break that - we don't provide that number and don't break it out, and we’re not going to do that here. It is growing. As it grows, we will begin to break it out, but right now, we're not. We do expect leases to continue and continue to grow.

We thought about throwing out a number per quarter, but we think we're getting ahead of ourselves that way. But you'll see more out in the future because it is a way of getting machines into our customers’ hands. And again, I think as we said before, customers haven't really returned any of those machines. So that’s - we feel good about that..

Understood. Just a follow-up.

What are you seeing right now for the opportunity pipeline, I guess, that’s given you confidence over the back half of the year? What’s that looking like right now?.

Brandon, in terms of machines or in terms of….

Yes, in terms of machine, sorry..

I think the second half is weighted more heavily toward our larger sand machines. We can see a pretty consistent demand for our metal machines. Innovent of five in this quarter is a good number, and we think that demand continues pretty robustly.

But what we see in the second half is a growing demand for delivery and recognition in revenue of our larger sand machine..

Understood. Thanks for the color..

I think you can see that from our shipments in the first half that relate back to those sales to be recognized in the second half..

Okay. Thanks guys. I'll jump back in the queue..

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

Yes. Good morning, Hans and Brian. Thank you very much for taking my question. I guess, the first, given the details around Slide 7, I'm hoping you could walk us through your Exerial beta shipments and leases.

And the reason I'm digging here is, if we look at Slide 15, ExOne has had three consecutive years of year-over-year declines in trailing 12-month machine sales, yet some of the prior question, you're guiding material revenue growth and year-over-year in the second half of the year.

So my question is, when should the Exerial beta revenues be recognized? I think you talked in your prepared remarks about $5 million in prepayments being recognized in future periods, but will that be recognized in 2015? Number one.

Then number two is, looking at the leases that you’ve entered into over the last three quarters, you did talk about monthly payments in response to the prior question.

You said you're not going to break them out, but at a minimum, could you at least help us understand the duration of these leases, so we have an idea of the contribution that they are providing to any given quarter?.

Okay. Let me attack - this is Brian, let me attack the second one first. As far as the leases, our leases have been one to three-year leases generally. Many of the - well, all of the one-year leases have renewal terms - annual renewal terms.

Most of them have buyout option, and in fact, we mentioned the one of the two we eased in the first quarter that we anticipate that to turn into a sale once that customer gets the financing in place behind them, which was a government related piece of financing. So again it was more of a transition lease, if you will, that was the expectation.

Your first question again related to the machines that we’ve shipped in the first half, and we'll specifically rule the Exerial be recognized in the second half. Let me talk to the Exerials. We had - I think our first plan was to have those recognized in Q1 or Q2.

We had delays in shipments - or customer delays in shipments that got us to shipping them in Q2. That's an international shipment. It takes a number of weeks to get those machines into the customer’s hand. So we are still thinking second half. That's our plan.

And we’re going through installation of those machines during this quarter, and so we'll continue to keep you updated..

Okay. So maybe ask it in a different way.

Is the midpoint of the back half of your revenue points to year-over-year growth of 84%, if I assume all of the Exerial get recognized in the revenue, so I'm trying to figure out your organic growth in the back half of the year, then the organic growth rate would decline more to, I guess, it would appear more reasonable like 30% if we just think about the number of printers that will be booked and shipped in the back half of the year.

Is that a more reasonable way to think about it?.

You could. I don't think of it that way. I’d sit here and say, we have got $5 million sitting in deferred revenue and customer prepayments that we expect to be recognized. So what’s the delta from that? And we have our expected growth to continue in non-machine. So that's how I look at it. Not all customers will prepay an order at PO date.

Some do, some don't. They are different terms, but certainly that $5 million we expect to be second half revenue..

Okay. And then just shifting to the Innovent. Very good quarter for that product, especially given that it’s just released earlier this year.

Can you talk a little bit about how Innovent impacts your business? I guess, there is some concerns on one side that it could shift you mix downward and that it could actually pull customers that would have bought a larger machine to buy an Innovent and that's good enough for them and could pressure your revenue growth long-term, and then on the flip side there is some that see the Innovent as the intro level machine that should help enable customers to move upstream or perhaps pull customers into the frame [ph] that would not have putting up for a metal printer previously.

So would love your thoughts on that.

And could you help us understand the margin improvement of the Innovent relative to the rest of your printer product family?.

Let me take the margin question and I'll let, Hans, take the other part of your question as far as the impact of the M-Flex. Our margin on that Innovent machine is similar to our other machine, so we believe that our margins are in excess of 50% on our machine. And we think that is a similar margin on that machine..

Yes, the Innovent machine. I think one important aspect of it is that the design of the Innovent is identical to the larger machine, so you have a seamless technological transition when you're moving from the Innovent to the next machine up.

That's an important change to prior time, and what we are experiencing, actually as I said in the presentation, is that customers are pairing the Innovent with the larger machine, the M-Print or the M-Flex machine.

And so what we are experiencing is that a customer that buys an Innovent will not be satisfied with that machine for production and then will be intended [ph] to move up to the next machine. So we are confident that, that is going to be the pattern.

The machine - the Innovent is ideal for the development of processes material and the research department, but for moving onto production, you need to move up to the next machine..

Great. And then just last one, if I may, is looking at the mid-point of your $22 million in SG&A guidance. I think year-to-date you spend $12.5 million, so that gives you about $9.5 million in the second half.

So I guess, how are you cutting expenses at such an aggressive pace in a period where you're guiding to such aggressive revenue growth? Are there just some expenses pertaining to some of these Exerial machines, or if you could help us understand that anyway?.

Yes. I think we've had - this is Brian again. We've had a history of slightly higher G&A in Q1, Q2. We've had decreases in G&A in Q3. And so I think those couple of things.

I also think that if you look at our normalized G&A pattern, that if you do the math there, it gets you within the range, albeit they were probably trending toward the higher end of that range, but I think if you look at the normalized numbers, it gets you there.

We did call out that we are excluding $0.5 million to $1 million related to our ERP expenses in our guide, so you’ve got to take that and carve that out..

Great. Thank you for taking my questions. Good luck..

Thank you..

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

Hi thanks. I just wanted to again refer to Slide 7. And thanks for providing the detail. I guess, I'm a little confused and maybe you could help me understand when you recognize revenue for a machine.

I guess I would have thought in the first quarter, you recorded revenue for two machines, but you shipped six, and I would have thought that you would have recognized revenues for those four additional machines in the second quarter. Clearly you didn’t, because they didn't follow through into the second quarter.

So how long does it take to recognize revenue? And then related to that, where is the leasing revenue reflected? Is it in the machine revenue or the parts and materials revenue?.

Okay. Hi Sherri, it’s Brian. A couple of things. One, the lease revenue comes through machine revenue, and so two of the eight machines in Q1 were leased machines. So while we're recognizing revenue on them, on those machines, we didn’t put them in the revenue recorded because we were viewing that as the sold machine..

Got it..

So we are recognizing revenue on those two leased machines, and it is in our machine revenue. And the terms vary.

We could ship a machine and if you take a large machine and ship it from, let's say, Gersthofen, Germany to China or to Japan, you can be eight weeks - six, eight, 10 weeks getting it there, and then installation and then training and acceptance.

It all depends on the terms of our contract, and I’ll look it into all the revenue recognition matters that you’ve got to consider, but there are a number of them that you have to consider, and our revenue recognition timing changes based on each one of those consideration..

Is there an average that usually a couple of quarters before you recognize the revenue for those machines? I understand that's different for each one, but….

Yes. I don’t know if I can give you an average, because - well, we've being doing this for a few years, each one is fairly independent. But we did ship one in March that we recognized in the second quarter, and the other shipment, our intention is to get that completed in the current quarter but we're working through that.

I don't want to announce that yet. And we don't tend to announce individual machine orders, but it could be a quarter or two quarters, even three quarters. It just varies. And some of them are recognized at sale date or shipment date, so that really depends here..

Okay..

Okay?.

But generally….

I’m sorry, I can't be more specific, but it’s really depending on the customer..

I understand. I'm just trying to get a sense of the machines that you haven't recognized revenues that have shipped. Should we assume that you will recognize revenue for those machines within this fiscal year? And it seems like most of them maybe and maybe some will flip into fiscal ‘16.

Is that fair?.

Yes. Our plan is to get them recognized in the current period. But is it possible to one to slip or couple slip? Yes, possible..

Okay. And then just looking at the ASP, it’s come down pretty significantly if you just take your machine revenue and your units.

Is that related to the Innovent, or is that related to having more leasing machines in that machine number?.

Yes, that's the Innovent. Our Innovent runs out around 150 grand. So that's just heavy influence in the Innovent, particularly with a lot of these powdered metal companies. They are taking their proprietary powder and they’re printing proprietary powder, and that's exciting for us because we’re not out there proving up those materials.

They are proving their own material. And that’s true acceptance and we’re really excited about that..

Okay. And then, can I just ask a question on gross margins. I think you mentioned in the gross margins on the machines were pretty healthy in the 50%-ish range. But the guidance for gross margins is for 30% to 34%.

Is that related to more services being in the number, and how should we think about your services and materials’ gross margins?.

Yes, that's a mix. That's the impact of mix and that's also the impact of our volume and the growth and our fixed cost and our facilities. We've got additional facilities in Italy, in Gersthofen and here, and expansion in our Japanese facility. And we've got to grow our volumes to be able to get better absorption of all those fixed cost sharing.

That's what you're seeing in the dilution of that margin..

Okay. Thank you..

Okay. Thank you..

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

Hi guys. Good morning. Thanks for taking the question. Just a few from me, if I could. Could you, Hans and Brian, speak to how you're seeing the demand dynamics manifest through the year? It sounds like, just based on your prepared remarks, that it’s fairly in line with what your expectations are, but just wanted to get your context around that.

And along with that, if you could talk about some things - talk about that which may manifesting in any context a little bit different than what you had [indiscernible] and then I have a couple of follow-ups. Thanks..

So I think - Ananda, hi. This is Brian. I think we are getting clearer and clearer vision on our customers, what we are and who they are. That's the plus side. The downside is that we are staying, I guess, at the plus side. We are staying very focused on our customers and we’re not dictating to our customers the terms.

When they want the machine delivered, that's when we are delivering the machine. When they want a specific configuration and application, we're delivering on that.

And instead of trying to do anything, not that we did before, but try to manipulate that to get to a certain answer relative to a revenue recognition in a current period or some other future period.

So I think we are being very customer-focused, and that's why we added that comment around our customer specifications as to the impact of that shipping versus recognizing them - recording them in revenue in the current period. So it’s all customer-focused, but our lift on customers is larger today than it was when we did our original guide.

Our concern is the timing of those customers and finalizing everything we need to get to reporting them in the period..

Is there something - Brian, thanks for that. Is there something - you’re maintaining the rev guidance, and you sound like you have pretty solid confidence in that you can achieve it this year.

So is there something that's been introduced that’s incremental over the last seven months to what closed rates have been or implementation rates have been, that’s tangible that you can point out in that context?.

I don't think I can point out anything else specific, so I think that's why we put all the interest or the additional discussion around Slide 7. And it's hard to predict our customers specifically specific terms to get to the end result. We've also got the introduction of new machines. Our new machine growth has been good.

Again tough to predict, but the interest has certainly been very strong. So I don't know how to explain it any better than that, Anand, from where we are - from what we've already said in the Slide 7..

Got it, okay. That’s really helpful. And then, I guess, just on the gross margins and the revised guidance, how strongly co-related is that gross margin guidance to the revenue guidance? And besides just asking you in the context of your comments on fixed cost absorption.

So is there a high data to the degree that you would not end up - well, let me ask you this way.

To the degree that you would end up above the high-end or towards the higher end of your rev guide, or below the low-end and towards the lower end of your rev guide, is there like a high data relative to the gross margin guidance? So would you guys really - is there strong positive leverage, negative leverage in the gross margin one way or another that we can be aware of?.

Good question, Anand. We get tremendous leverage off of volumes. And the second piece of it is the mix between non-machine and machine. We get even more leverage from our machine. Our fixed costs are largely fixed costs. And so, we get tremendous leverage from volume, and that's why we’re comfortable with that 30% to 34%.

Now given the first half results, we obviously had to dampen our enthusiasm there, but we get tremendous leverage from those volumes. And again, we are mix-oriented, but we are getting a better picture of mix here too in the second half..

Got it. Okay, great. Thanks a lot. Appreciate it..

Okay. Thank you..

Thank you. Our next question today is coming from Saliq Khan from Imperial Capital. Please proceed with your question..

Hi, good morning guys..

Hi Saliq..

Couple of quick questions I have is, first one being is, if you look at the non-machine revenue which is now somewhere around 56% of the overall revenue. That’s up from somewhere around 40%, 42% last year.

What is the optimum number that you guys need to get at that you're focused on internally?.

We like the 60/40. That's our goal. That's what we've stuck with. That's our business model. And we think that's where we're migrating towards..

And for non-machine revenues to continue to grow, do you believe that you need to invest in some sort of facility in either Pennsylvania, or is the cost of going to be the go-to-market strategy is to have smaller facilities around the globe?.

I think for non-machine growth, first of all, we have capacity that enables us to significantly grow that business in the United States.

And as I said in my presentation, the future strategy for implementing additional production service centers will be on a smaller scale, more specific to regional or local customers and frequently in cooperation with such customers..

Got it. And Hans, the one thing that we've spoken about previously, and I think it was Brian and I that spoke about this, which is that the company's big focus is not really in the automotive and aerospace area right now, largely because of the high degree of certification that's involved with it.

Could that possibly change for you guys as you look at the landscape at all with competitive market over the next couple of quarters?.

I don't think so. I would not put it that way. I think that I'm somewhat agnostic as to the end-user industry or market of our technology. We are looking at the foundry industry, which could be any end-user. It could be automotive. It could be aerospace and as frequently as general industrial areas.

So I think that we are just focusing on foundry, and as I said, the power metal-based industries, couple of other application, but which industry it goes into is not that essential to us..

The last question that I have for you as well, which is, I saw the DREAM Center and it's pretty impressive from what you guys have been able to do with technology.

How does this compares to what some of your competitors are doing to be able to bring value-added solutions?.

I think our DREAM Center will be very focused on our customers to support the design of the casting projects that the customers have or other components I'm not exactly certain how that compares to what other people are doing..

Thank you, guys. I appreciate it..

Thanks..

Thank you. [Operator Instructions] Our next question today is coming from Prabhakar Gowrisankaran from Canaccord. Please proceed with your question..

Hi, Hans and Brian. Thanks for taking my question. Lot of the questions have been asked. Couple of questions on, can you provide any more color on the current use cases - intended use cases for machines that you’ve shipped.

Is it replacing S-Maxs, or are these new customers the newer use case?.

The Exerial shipments are for foundry applications at this point in time. We do target other customers and we have great interest from other customers and industry, but they are targeted right now at foundry customers..

And are these four customers right now existing customers, do they use S-Maxs now or….

I'm sorry, say that again?.

Are these four shipments to existing customers that already have used S-Maxs and are really familiar with the technology?.

Yes, existing customer..

Okay. And the other question I had was just on the ExCast. You announced a new program. Do you have any other programs or customers in mind? I know Kent had hinted at more customers for ExCast..

For ExCast or Exerial?.

ExCast..

ExCast..

As I said in my presentation, we see the opportunity in the defense industry and government contracts. So yes, we have additional leads or prospects in that same arena..

Okay, great. Thanks for taking my questions..

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

Hi, just a few clarifications here.

For SG&A, you implied that's going to be down to $5.7 million here in Q3, now that you don't have the one-time items in EFP anymore?.

Jason, hi, it’s Brian. No, we’re not giving a number to that Q3 or even trying to imply it. What we're saying is that what our history has been at the $5.7 million, that includes a number of periods, types of costs in our audit or our annual meeting, all those kinds of things fall within that first half.

And we had an interesting first half with the first quarter. So I wouldn't give you that exact number, but I think right now our projections are all getting us into the range of the $21 million to $23 million. So you can kind of run it out however you’d like..

Okay. And then for the Exerial timing reported [ph], that's primarily in Q2 and some in Q3, obviously didn’t in Q2.

Was this slip between Q3 and Q4 at this point?.

We can't give you any more on that, because we just don't talk about specific machines, but what we've said is we’re going to be in the second half. We expect to be in the second half and our plan is to not have that slip..

Okay. Then in Q4, you had some machines that slipped out.

So are those been recognized for lease at this point or are those still in the backlog?.

I’m trying to think of what we had pushed out, but I think we're all recognized. We have one open right now. We have one open from - I'm just trying to remember back. I think we have one open from year-end..

And that’s not included in the page seven summary?.

Right. That’s right..

Okay. Then on the - what's kind the - you discussed it could be as long as like six to 10 weeks for shipments from shipping [ph] for Asia. What's kind of the typical time for the - like the source of time you’ll get an order and you could fulfill it in the U.S.

or Europe?.

We turned some around in the second quarter in U.S. in weeks. So depending on whether that machine is done, in inventory completed and configured the way the customer is asking us to do it, and then the terms that the customer has given us..

Could you mean like four weeks, two weeks?.

I can't give you an exact, Jason, as I think it can be very short period of time..

Okay. That's it for me. Thanks..

Okay. Thanks..

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

Thank you. I want to thank everybody for joining us this morning. We are excited about the targets we've set for ourselves this year and the progress we are making. Our employees around the globe are working hard and we thank them for their efforts and results. We are very enthusiastic about what the second half of 2015 presents for us.

Our unique binder jetting capabilities are setting us apart and we’re getting more and more consideration for the value of this technology in multiple markets. Thank you again for your time today. Kent, Brian and I, look forward to updating you on our progress in November. Have a good day..

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..