Karen Howard - IR James McCarley - CEO Brian Smith - CFO and Treasurer.

Daniel Drawbaugh - FBR Capital Markets & Co. Robert Burleson - Canaccord Genuity Limited Jeff Kone - Wall Street Capital Partners Kevin Dede - H.C. Wainwright & Co..

Greetings, and welcome to The ExOne Company's Fourth Quarter and Full Year 2017 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Karen Howard, Investor Relations for ExOne. Thank you. You may begin..

Thank you, Sherry, and good afternoon, everyone. We appreciate your time today for our Fourth Quarter and Full Year 2017 Financial Results Conference Call. Referring to our slide deck on Slide 2, on the line with me today are Jim McCarley, our Chief Executive Officer; and Brian Smith, our Chief Financial Officer and Treasurer.

Jim and Brian will be reviewing the results that were published in the press release distributed this afternoon, just a short time ago. If you don't have that release, it's available on our website. The slides that will accompany our discussion today are also posted on our website. On Slide 3 is our safe harbor statement.

As you may be aware, we will may make some forward-looking statements during this presentation and may also during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today.

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

I also want to point out that during today's call, we may discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

We have provided reconciliations of comparable GAAP to non-GAAP measure in the tables accompanying today's earnings release. Jim will get started with a summary of our 2017 results and accomplishments. Brian will go through the detailed review of the financial results.

And then we'll turn it back to Jim to offer perspective on our outlook before we open up the line for questions and answers. And with that, it's my pleasure to turn the call over to you to begin, Jim..

Thank you, Karen, and good afternoon, everyone. I want to start by recapping our 2017 performance. Please turn to Slide 5. The 2017 year has ended well and our team is moving in the right direction. Here are some of the 2017 key accomplishment. ExOne achieved double-digit revenue growth.

Total revenues grew by 21% to nearly $58 million, including a record-setting 41 machines sold. If adjusted for exited product lines, revenues grew by 25% year-over-year, and the 3-year revenue CAGR is 13%. Our growth occurred across our various product lines as follows.

Machine sales grew versus last year by 43% to $30 million, with direct printer machine sales up over 60%. Non-machine revenues were up 4% to nearly $28 million, principally due to over a 50% increase in metal printed product sale. Adjusted for exited product lines non-machine grew by 10% compared 2016. Moving to Slide 6.

Adoption of ExOne binder jetting technology advanced. Exerial machines are now operating in serial production environment. We have received positive feedbacks from these customers on how our equipment is enabling their products and technologies. This type of serial production is expected to expand in 2019 and 2020, based on recent customer feedback.

Cold hardening phenolic installations have expanded, and they are now operating in the U.S., Mexico, Europe and India. We expect to see continued growth and expansion of this product in 2018.

ExOne Company and the SGL Group announced the availability of CARBOPRINT, a family of components made from carbon and graphite, demonstrating the diversity of materials that can be printed with binder jetting technology. We are confident that this product will see market growth over the next 18 to 24 months.

Significant improvements in fine powder recoating technology are now in place on our Innovent platform, which is enabling work on what will be the largest commercially available fine powder printing platform at just over -- or approximately six cubic feet.

We have several major opportunities and have added talent to our team to our extend ExOne's penetration in the tooling, filtration and energy market. Moving now to key financial results, please turn to Slide 7. Gross profit improved in the fourth quarter from prior period in 2017 to 33% and the full 2017 year was just at 25%.

Although both were below our internal expectations of mid-30, respectively, the headwinds experienced were attributable to low profitability related to new products and technology releases. Here are some examples.

Introduction to efforts around the phenolic material supply chain and equipment and our efforts to design, build and commission an integrated desanding system for a serial production machine that a customer -- we expect to ship to a customer in 2018. Adjusted EBITDA for Q4 also ended lower than expected with a loss of $126,000.

This resulted from the lower gross profit mentioned previously as well as acceleration of research and development expenses into the fourth quarter.

Although the headwinds in gross profit and R&D that impacted adjusted EBITDA in the fourth quarter '17 could have been delayed or spread over a longer period to improve short-term profitability, we elected not to do that.

We remain convinced that our strategy to aggressively advance our technology will result in better profitability and generate long-term value for all our stakeholders.

Our strategy to actively seek to acquire technology to challenging and groundbreaking customer project, along with our commitment to expand our industry-leading working knowledge of binder jet printing equipment, materials and processes, is key to our continued market growth.

Rounding out 2017, we are pleased to report that we ended the year with total cash greater than $22 million, despite the previously mentioned headwinds in profitability. Meeting this target was a result of our focus on repurposing, where ExOne used cash and how we managed all sources of cash from fixed assets, capital spending and working capital.

I also want to mention that, just this week, we added an additional source of liquidity with the establishment of a $15 million line of credit. We view this as a low-cost source of flexibility over the three-year term of the agreement.

Finally, while having record-setting fourth quarter with revenues up 27% over the third quarter, our backlog grew to $21.3 million, demonstrating the expanding level of adoption we are seeing for our product.

All in all, 2017 was a solid year for ExOne, and we are confident that our team is focusing on the right fundamentals and on the right track to move the business forward. With that, I'll turn it over to Brian..

Thanks, Jim. Good morning, everybody. If you could please turn to Slide 9, we'll start with revenue. Let me say it was a very busy quarter for our team. Revenue was up 38% to $20.2 million in Q4 '17 compared to '16.

Recall, that we had exited our specialty machining product line in Q2 of this year, so comparable basis revenue increased 41% in the quarter. Our machine revenue contributed nearly 2/3 or about 64% of total revenue in the quarter. For the full year '17, our revenue was up 21% over '16, as Jim said, to $57.7 million.

Again, when adjusted for exited product lines, revenue grew up over 25%. Recall, we had guided to revenue growth in excess of 20%. Now we'll go to Slide 10. Here, you can see that our fourth quarter machine sales were up 72% to $12.9 million.

Compared with the fourth quarter, there were four more machines sold in '17 fourth quarter, included in our Q4 sales, are eight of our workhorse S-Max machines, including our second and third S-Max using our cold hardening phenolic, or CHP, binder combination with sand.

We mentioned on our November earnings call that one of our leased customers in the European auto -- excuse me, European automotive market converted their lease for an Exerial machine, which shipped to them in Q1 of this year, into a cash purchase of the machine in the fourth quarter.

We also had an S-Max customer that principally serves the European auto market convert a lease for a machine that we shipped them back in 2015 into a cash purchase in this fourth quarter. These activities demonstrate our customers' long-term commitment to our technology.

I also want to note that we had a more favorable product mix in terms of average selling price in this year's fourth quarter. Our sales increase in the quarter include two more than last year of our indirect printers and a coarse powder imprint machine. And these printers bear a higher average selling price than our other direct printers.

To remind you, the M-Print is our largest direct printing machine. There's a table in the back of the release that shows sales by machine type. Insofar as the industries we sold our machines into the quarter, it included automotive, tooling, pump and valve, heavy machinery, aviation and the university research market.

Referring to the year-to-date revenue chart on the right side of the slide, you can see that 2017 machine revenue was up 43% to $30 million over 2016. We sold a record-setting 41 machines in 2017. This included 23 indirect machines and 18 direct printing machines.

We recognized in revenue our first five Exerial machines this year as well as an S-Max+, 15 S-Max's and two S-Prints. This sales included our first three S-Max CHP machines. The direct machine sold included the imprint I mentioned earlier, seven M-Flexes and 10 Innovents.

You can see the mix reflects the diversity -- the diversed variety of our machine platforms, driven by the customer-specific application need. Also, worth noting is the 20 of the 41 machines sold in 2017, or just under half, were sold to repeat machine customers.

We are pleased with this mix of customers who have already validated our technology and our expanding their applications along with customers who are investing in our technology for the first time. Now if we could turn to Slide 11. Here, you'll see shipments and revenue recorded in units by machine type for each quarter and for the full year '17.

As I noted previously, we recorded 18 machines' revenue in the fourth quarter and 41 for the year. At year end, there were six of our indirect machines that were shipped and are in transit or in the process of being installed and accepted by our customers. And therefore, yet to be recorded in revenue.

That includes one Exerial, four S-Max machines and one S-Print. There continues to be variability in certain instances that will result in lags between shipment and revenue recognition. These can happen for a number of reasons, including contract terms, performance obligations or overseas shipments.

Having said that, we have told you that we have targeted efforts to reduce the overall time to record a PO to a recorded -- to convert a PO to recorded revenue transaction.

We believe we are making good progress in this area, driven by the investments we have made in our commercial team and changes in processes, particularly around management supply -- excuse me, around customer management, supply chain and contract terms review.

All of these are facilitated by the enabling properties associated with our expanded use of our sales force software. Now let's turn to Slide 12. Non-machine revenue was $7.3 million in the fourth quarter of '17 and $27.7 million for the year. This reflects actual growth rates of 2% and 4%, respectively.

As Jim mentioned earlier, the growth was driven by significant increases in demand in our direct metal PSC. Also included in this category are our sales of consumables, service and other component parts, which grew at more moderate rates.

As you know, we have been working hard with our supply chain to lower the cost of our customers -- of our customers for our consumables, which we think helps drive rates -- adoption rates of our binder jetting technology in the future.

On a comparable basis, after eliminating revenue for product lines that we exited, our non-machine revenue was up 7% in the fourth quarter and 10% for the full year. Now if you'll turn to Slide 13. We finished the year with backlog of $21.3 million, while also achieving 21% revenue growth during '17.

To remind you, backlog includes firm orders received from our customers and non-machine customers. This includes six units in transit or in some form of installation that I mentioned earlier, as well as orders taken on machines that have later delivery dates. It included our machine service contracts as well as operating leases that are noncancelable.

Backlog also includes orders for production of metal and sand parts from service centers and other contractual services such as our Missile Defense Agency contract, where we are in the second year of our initial three-year contract period.

The machine portion of our backlog includes customers in the automotive, aviation, pump and valve, power tooling, energy and general manufacturing industries.

This level of backlog, our pipeline of opportunities, the continued progress in our machine development and the progress we have made with our investments in our team and their tools gives us confidence in our expected revenue growth in 2018. Turning to Slide 14. We'll talk about gross profit and margin.

Gross profit was $6.7 million, resulting in a 33% gross margin for the fourth quarter of '17. While we benefited from the higher revenue and favorable mix, we had some drag on our margins for cost incurred with customers in support of getting new products up and running, including our Exerial sale.

With the Exerial machine, we found that those machines require significant customization to match our customers' distinct serial production processes, to the point that each machine and some of their componentry is fairly unique. And therefore, a one-size-fits-all strategy will not work effectively.

These learnings and adjustments are part of our emerging technology adoption process. We also experienced lower margin on our machines sold using our CHP technology in the quarter. We expect that after the first few machines with new technology, we will see improvements in margins that match our more mature technology-related machine sales.

In addition to these activities, as we discussed in prior quarters, the full year gross profit and margin were impacted by significant actions we took to realign our organization and businesses earlier in the year.

In prior quarters, we called out individual net amounts totaling about $1.9 million for asset write-down, net of a gain on the sale of our Las Vegas facility. Additionally, gross margins in the third quarter were impacted by $2.8 million of revenue recorded on four Exerial machines, which yielded breakeven margin.

The 2016 year benefited by $0.3 million from the net impact of a sale associated with an exited product line, offset by losses on disposals of property equipment, which also impacted comparability. Please turn to Slide 15, and we'll discuss SG&A. Comparing the fourth quarter of '17 to '16, our SG&A expenses were up about $300,000.

The increase included higher commissions on the higher revenue as well as investments in internal talent and external resources to advance adoption of our binder jetting technology. For the year, our SG&A was up about $3.5 million.

In addition to the factors I just mentioned, we incurred some costs in 2017 that we had mentioned to you in prior quarters. This included about $500,000 of unusual employee cost and $300,000 from impairment of intangible assets associated with an exited product line.

We also had higher bad debt recoveries in 2016 than 2017, impacting the comparison by about $300,000. In addition, increases on our patent activity as well as higher selling and commission expenses for our increased sales volumes impacted the year.

As we think about future periods, I want to remind you that we frequently see some quarterly variation, with Q1 typically being the highest quarter. Please turn to Slide 16, and we'll discuss our investment in R&D.

The 2017 fourth quarter reflects about a $600,000 increase over the 2016 fourth quarter as we accelerated development activities to meet the demand for some of our technology advancement Jim mentioned earlier. We recognized we accelerated some of that spend into late 2017, and that impacted our previously expected results for Q4.

Specifically, investment for the quarter and for the year were in our internal talent as well as external resources to advance our technology and IP development, particularly fine power development, to continue to maintain our leading position in binder jetting technology. Now let's please turn to Slide 17 and review some CapEx.

As you may know, our cash CapEx needs -- remains very modest. Our fourth quarter cash spending was about $100,000, resulting in slightly less than $1 million for 2017. We expect this modest cash CapEx level to continue in 2018, and we estimate spending will be approximately $1 million to $1.5 million.

The noncash portion of our CapEx shown here, pertains to transfers of machinery from inventory into PP&E for our own use in our EACs or for R&D development or for customer leases, as well as transfers from PP&E to inventory, principally, from the times that we sell machines that were previously leased to customers under operating lease arrangement.

The net impact in the current year of these noncash transactions is less than $200,000. If we turn to Slide 18, this is a waterfall of our 2017 cash flows. I mentioned cash CapEx already. During the year, we had some specific initiatives to improve our working capital management.

They resulted in a usage of only about $100,000 in working capital when our revenue grew by about $10 million. We're happy with these efforts we have made to date on working capital management.

The property and equipment sales transactions that we completed in the second quarter provided us around $3.7 million of cash, as we had previously reported to you. I also want to add that if you look at the fourth quarter of 2017 discreetly, you will see that our net cash provided by operating activities in that quarter generated $3.2 million.

Our net loss, net of noncash and other items used about $8.6 million of cash in 2017 and we ended the year at $22.2 million of cash, as we expected we'd be above $20 million. If you'll turn to Slide 19, you'll see we have virtually no debt on our balance sheet.

I want to mention, just this week, we did make some -- we did take some actions to further enhance our capital structure. Please turn to Slide 20. We put in place a three-year $15 million revolving credit facility provided by an affiliate of our Executive Chairman Kent Rockwell.

This is a flexible source of capital, and that flexibility makes it very cost-effective. I would refer you to Footnote 22 to our Form 10-K for more information. Additionally, our current shelf registration was due to expire in early May.

So today, we filed a new S-3 with similar terms, with plans that will be effective before the expiration of the current shelf. We believe filing it moments after the 10-K was the most appropriate and cost-effective approach. These actions create flexibility in our capital structure.

And along with our cash and existing working capital, are expected to assure our customers, vendors and investors that we have adequate capital for us to execute on our growth strategy. That concludes my prepared comments, and I'll turn it back to Jim..

Thanks, Brian. Let's talk now about the competitive landscape. As many of you may know, there had been several promotional articles, public statements and news releases over the last 4 to 5 months, describing work being done with binder jet printing.

These reports are validating our technology and its ability to solve many problems that other well-known 3D printers, like powder bed fusion processes, such as laser centering and electron beam technologies, otherwise known as e-beam, are either not capable of doing or not cost-effective when used. I bring this up today to make two points.

First, when it comes to printing products from metal materials, using technologies like laser centering and electron beam technologies, owners of this technology are finding these high-energy methods to be limited -- more limited than they expected in their applications, speed, and ultimately, cost effectiveness.

To make this point, please see Slide 22. This slide is an excerpt from an automotive manufacturer's presentation made in Berlin, just a few weeks ago. It does a nice job of showing many, but not all of the problems powder bed fusion technology face. ExOne has spoken many times on how our technology favorably compares to these technologies.

And although binder jetting does not completely solve all of the problems encountered when creating product additively, we believe it solves all but the low automation items shown on this slide [Technical Difficulty]. Highly engaged in both seeking and using additive technology both before and after their purchase of Arcam and Concept Laser.

On the left side of the page, are a couple of quotes and links to articles when they announced this acquisitions. On the right side of the page, they have more recently been outspoken, and we viewed a recent decision to embrace binder jetting as a core modality is very positive.

But even more significant than recognizing binder jetting as a modality was their decision to disclose their belief that 3D printing could replace investment casting technology.

It is our opinion that GE making this disclosure after printing with binder jetting technology is a significant statement regarding the market potential of binder jetting in the 3D printing market. The second point builds off the first.

ExOne clearly recognizes that there are potentially three major players that are moving into the binder jetting space, Desktop Metal, GE, and potentially, a third coming in 2018.

We take their presence as competitors seriously but also remain resolved that ExOne is the best positioned to capitalize on the market and the additional exposure these competition -- these competitors will create. We remain convinced that this will result in high levels of adoption and grow demand and available market considerably, not consume it.

To round out the discussion on competition, please turn to Slide 24. ExOne has been creating and using binder jet printing to make printers and actual printed parts for metal components far longer than anyone else. ExOne has been developing a solid portfolio of know-how in IP for the last 10 years.

But even more significantly, over the last 12 months, we have developed and greatly accelerated our efforts and are making credible advances. We are improving the reliability of our existing technology as well as driving new innovation and capability into our future equipment platforms.

To date, ExOne has 70 published and pending distinct invention disclosures, many of which we believe are fundamental to binder jet printing.

As we move forward into 2018, and new competitive players move into binder jet printing, ExOne will continue to aggressively pursue to add to our know-how and IP assets as well as protecting their value in the marketplace. Finally, please turn to Slide 25, and let's discuss our outlook for 2018. Our outlook remains positive.

Based on our product pipeline, we believe the level of growth achieved in 2017 can be repeated in 2018 at a minimum level of 20%. Although quarterly growth will vary greatly, and we expect first quarter to be less and second quarter to be greater, we anticipate the combined quarters to meet or exceed the 20% growth rate.

However, to realize this growth in 2019 and beyond, we need to continue to accelerate our improvements in technology development. The marketplace for our products and services is very dynamic, and this demands that we continue to invest in our people and our technology.

In recognition of these expectations from the marketplace and to continue to maintain our leadership position in binder jetting, we expect to increase our annual R&D expense in the range of $6 million to $8 million in 2018. The investments will be focused on key technology advancements that would be delivered throughout 2018.

These are accelerated development of fine powder printing capabilities, including the commissioning of a beta, large-format fine powder printing machine and continued enhancements in our Innovent and M-Flex platforms. We will make improvements in the precision and productivity of our coarse powder printers and processes.

This will include improvements that can be leveraged across all of our equipment platforms as well as expanding our offerings of printer -- of binders and powder materials and processes.

We'll accelerate the development of new materials such as tungsten carbide and tool steels while expanding the application of our existing material offering, specifically in the areas of wear resistant tooling, and finally, to improve and optimize consumables by increasing our qualified material and developing deeper supply chain collaboration.

On the financial performance side, excluding the $6 million to $8 million of accelerated R&D investment we plan to make this year, we expect improvements in our gross profit over 2017, with SG&A and base R&D cost growing at low single-digit levels.

Finally, although full year 2018 profitability will be impacted by both accelerated R&D, continued product development costs and variations in revenue, we expect to see breakeven adjusted EBITDA when sales are in the low to mid-20 range in a given quarter. Now with that, let's open up the phone for questions..

[Operator Instructions]. Our first question is from Christopher Van Horn with B. Riley FBR..

This is Dan Drawbaugh on the line for Chris. Just wanted to start on the Exerial machines. It sounds like you're making pretty significant process there. And I think you mentioned that you might see some expansion in that portfolio in the 2019 to 2020 time frame based on recent customer feedback.

Could you flesh that out a little bit more? What are you hearing that gives you that confidence? And how should we be thinking about the financial impact of that?.

Well, I'm going to start with the second part first. We expect favorable impact from a sale of that equipment going forward. A lot of the base R&D is behind us, we believe. And so from that standpoint, we're not planning that the next round of Exerial would not have a favorable profitability impact.

To give you -- we operate under nondisclosure, so I can't be too specific. But what I will say is these are the customers of the Exerial. They're doing things with that machine that are differentiating themselves in the market.

They're finding it to be a useful and effective technology, and they're feeling favorable about its potential in the future, and we see that as a really good sign..

Okay. Great. And then looking more broadly at the revenue guidance, in excess of 20% revenue growth, that's seems pretty strong. Can you talk a little bit about how we should be thinking about the non-machine revenue growth this year? I'm kind of wondering you've had some pretty significant growth in machine sales here.

How do we think about material sales growth pulling forward from that?.

Yes. This is Brian. I'll take that. Non-machine is going to grow more like single-digit type percentages, and machine will be the lion's share of that 20% growth. That's just how it plays out. The direct printing portion will grow very rapidly. We expect it to continue to grow very well, but it's a smaller piece.

And as we sell machines to particularly our indirect machine customers, we've got to replenish those customers and those PSCs. That and the idea of driving those -- cost of those consumables down to our customers will put some pressure on the overall growth rate.

So we're thinking single digits on non-machine but continued robust growth rates in our machine..

Okay. And that brings me to my final question. I was just following up on that, that cost initiatives in the consumables.

Can you talk about the time frame of that? What inning we might be in with some of those initiatives and whether we can sort of expect some of that to anniversary and provide a better base for growth?.

Well, listen, this is Jim. I'll take that one. We're going to see some cost reductions on that stuff in the second half of the year. We're going to see that type of impact there. And it's going to continue going forward, just because it's the right thing to do to really move the adoption of the equipment in the marketplace.

And we believe, our management believes it's been -- it could be a barrier going forward, so we think it's something that we need to address..

And our next question is from Bobby Burleson with Canaccord..

Just curious, you touched on the competitive situation. I'm curious whether or not you see yourselves positioned differently in different markets versus the competition.

Are there areas where you think you have particular leaderships in verticals or maybe geographically that you can talk about?.

Well, I'll say I don't think we perceive any kind of geographic advantages. And so I would sort of set that one to the side. In terms of inside the market, I don't know that -- I think we've actually -- with the large-format machine, we're going to be basically capable in all of them.

And from where I stand, I think that some of the others are going to be a lot more limited in their initial sizes. So I think -- I really don't know of an application where binder jetting is a good solution, that we're not, by the end of '18, going to be in a position to capture and to move in.

So what we see coming from increased participant is that we're going to get some adoption started in other parts of the industry, and I think that's going to ultimately create more leads for us. So nobody coming in is, in our opinion, going to be able to sort of consume what's out there. There's going to be room for everybody..

Okay, great.

And then in terms of machine sales this year, what kind of mix are you thinking there? Is there a particular area where you're expecting stronger growth, and any implications for ASPs and/or margins?.

Yes, I think the -- we continue to believe that the direct printing machines are going to grow faster than the indirect as we introduced the fine powder printing capabilities. So we've got the balance. So -- but both sides are going to grow. I don't think I could sit here and say we've got a specific industry.

We're serving -- you can see the list of industries that I've listed out there, that's -- it's a pretty healthy list, and we don't really see weakness in any of them. We see strength in any of them. We see all of them growing. So I couldn't pick one out in particular that's going to be less. Automotive is pretty heavy for us right now, that's for sure..

Okay, great.

And then is there any ASP pressure out there from competitors or people kind of playing nice at this point? Any applications for ASPs from the emerging competition?.

Well, I think I would approach that this way. On the direct printer side, there's really nobody else that we're seeing in the market of any real consequence. Our equipment is out there, and we're doing -- we're working hard to kind of keep our ASP in line with the value the machine is bringing. So we're trying to be good stewards on that front.

In terms of our indirect printers, we can see spots of pressure, so it's not as if it doesn't exist at all. And I'd say, in general, we've got a key path on our eye towards sort of making sure that we stay competitive on that front.

But in our view, whenever we can see multi-machine opportunities, which we have been getting lately, we sort of use that as an opportunity to create a win-win for our customer. That's kind of, I think, helped both parties..

Great.

And that incremental $4 million to $6 million R&D spend this year, is that specific to a specific customer that you're tweaking your portfolio for or particular machine for? Or is it much broader than a specific customer?.

Yes, so let me come at this first, it's $6 million to $8 million, not $4 million to $6 million. So just calibrating the number..

That's right, $6 million to $8 million..

Yes, that's okay. I just didn't want that to go on unresponded to. It is not to a specific customer, but it is to some real clear understanding of what the market wants, and it really hits several customer requirements.

We probably have more visibility to one specific customer in terms of what that needs to look like, so that's sort of first in line for some of it. And -- but I would say, we are not -- for the most part, that R&D is going to benefit across our entire equipment platform.

Even if we're doing work specific right now to our direct printing apparatus, we believe we can roll that into our indirect printing apparatus and vice versa.

We're really pushing the team to work on that thought process of leveraging across the entire portfolio, not to -- and being a little bit more common design approaches than we have had in the past..

Our next question is from Jeff Kone with Wall Street Capital Partners..

Can you tighten up the time frame for the new fine powder printer, what quarter should we expect it? And also metals is clearly a desirable area of 3D, and companies have either gotten involved or said they want to be. And I'm sure they're looking at a make or buy decision.

Not that you guys want to necessarily go to the dance, but has anybody expressed interest in the company?.

So let me start this way. You are -- your first question was about refining the timing of the machines. Frankly, Jeff, I really don't want to do that today. I think it's part of our competitive advantage to sort of bring that machine forward.

I have told everybody that -- or I've said on prior calls, we want to pull that in as fast as possible, but -- so as early as possible. But at this point, there's a lot of moving parts that need to get sorted out, and I'm not ready to make a definitive commitment on that front..

Okay.

And the other part of the question, has anybody expressed interest in the company?.

Yes. We don't comment on that kind of question, Jeff, we can't do that..

Our next question is from Kevin Dede with HCW..

Yes, I'm kind of curious if you could talk to maybe the change in your customer mix? I know you talked about how many different industries you served. And I think last time we talked, you spoke to how that mix looked at that time.

I'm just curious, now that you've got the full year behind you, how that mix might look and maybe additional color on just how you see those customers looking to your solutions as their own business changes..

Yes. Okay, I'll try to help on that. But I'm not really going to be very effective at talking about a specific customer mix because it's really industry that we're seeing. Our most mature product is our S-Max, that's serving the casting business. We're continuing to see broad, across all regions, adoption of that technology.

We're seeing repetitive machines of that technology coming back for another one after they've had one and seen it. And it's because of the design flexibility they're getting from that equipment is really what's driving it. And we don't see that fading.

As we're into '18, we do see some -- reality is that there are some new capabilities in terms of what the product, how the product performs when you're casting with it that we're going to need to add to our portfolio.

But as long as we stay on top of the capabilities with the equipment, we think that market's -- that, that generalized market, and so that -- really, casting kind of cuts across just a ton of industry, so speaking of that one.

The other side of it is on the metal printing or the direct printing side, these are people that are right now still sort of primarily driven by industries that can handle lower levels of fully -- they don't require fully dense materials.

But a lot of what we're doing with this large-format machine and all this fine powder effort is to really be able to get into the high level of material density. And that's going to open up just a real broad, broad market..

Okay. So my next question is probably even more higher level.

I'm wondering if you could just sort of take a stab at how you see your customers using you to create a little disintermediation in the businesses that they serve, just maybe some insight on how the overall manufacturing industry is changing as a direct effect of the opportunities and flexibilities that you give them and how that might tie to the optimistic view that you're sharing with us for this year..

Yes, let me take a stab at that, two things, speed to market, quicker turns. I think that's one thing that is definitely changing our -- if you look at our customers -- just take our customers in the back of the building room here, our direct material customers.

We're reducing things from seven-day turnarounds to five-day turnarounds, and we just quoted someone with a two-day turnaround. So speed is definitely a big part of it.

The second piece is once they design something and they start printing with it, they quickly learn that they can't really produce that part effectively with some of the other manufacturing methods. And that kind of gets us that hook and kind of get them hooked on that design or that part.

And so I think that -- those are the two things that are changing the floor. And I think that we said that early on in our evolution. But I think it's definitely getting clearer and clearer to us, those two continue to be the large two drivers. And when you get speed, you get cost, that comes hand-in-hand many times.

Anyway, I think those are the big ones..

Can you maybe peel the onion back a little bit on the R&D spend? I know we talked -- and given the general nascent environment, I'm just wondering how much of that R&D goes to machine design or how much you're partnering with customers to develop consumables? Can you give us some insight on that?.

Well, I can give you some insight about half of it's going to go to machine design and about half of it's going to go to process development. But I don't really want to peel the onion any more than that.

And when I say process development, that's everything from better precision of the machine, better repeatability of the machine, broader material sets for the machine, sort of -- and those -- I don't know that I'd want to list out any preference there, but every one of the projects that we're building our R&D around have a customer requirement that we're working to.

So we're not doing anything to sort of build and enable common philosophy but really listening to the customer and focusing on that area of improvement. So I think that's the best I can give you..

Yes, fair enough.

Could you maybe take it just one step further in terms of your discussion with your customer relationship? Given how much trust they have to have in you in helping them solve a particular problem, I'm wondering is some of that development cost shared? And how do you typically construct those agreements?.

Well, what I'll tell you is we always try to be fair. And there are times, it really depends on the applicability of the technology. If it's very limited and it's long-term reach, we're going to expect a high burden on the part of the person we're working with.

If it's something that really does benefit across all the product line, we'll do a lot of just do it because that's going to have to show up in the machine revenues that it's going to generate normally. And we do have scenarios where we develop joint development agreements with customers.

I would say that as we're looking at things right now, that's still inside of our base R&D number, and we've kind of called that out a little separately. We've got sort of what we consider accelerating R&D expense and then a base number. Those types of things would really fit inside the base R&D number..

Okay. Really, really interesting to see the great progress you're making and the potential that you have in front of you..

Yes, we appreciate it..

Glad to do it, thank you..

We appreciate your comment. Thanks..

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to management for closing remarks..

All right. Well, thank you, everyone. We really appreciate your time today, and we look forward to updating you once again in May. Have a great evening..

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation..