Greetings, and welcome to The ExOne Company's Fourth Quarter and Year-End 2020 Earnings 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 Monica Gould, Investor Relations for The ExOne Company. Thank you. You may begin..

Thank you, operator, and good morning, everyone. ExOne released results for the fourth quarter and full year 2020 ended December 31, 2020 yesterday after market close. If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at investor.exone.com.

With me on today's call are, John Hartner, Chief Executive Officer and Doug Zambia, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of ExOne's website.

Before I turn the call over to John, I would like to note that today's discussion will contain forward-looking statements and as such is subject to risks and uncertainties.

These risks and uncertainties include those risk factors discussed in the most recent reports on Form 10-Q and 10-K filed by the company, as well as those discussed in the press release.

Any forward-looking statements that are made on this call are based on assumptions as of today and we undertake no obligations to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, ExOne reports certain financial measures that do not conform to Generally Accepted Accounting Principles.

We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the table found in today's press release. And with that, I would like to turn the call over to John..

Thank you, Monica. Good morning, everyone, and welcome to our fourth quarter and full-year 2020 earnings call. I am pleased to report a solid fourth quarter and full-year performance.

We delivered total revenue of $17.4 million in the fourth quarter of 2020 and $59.3 million for the full-year, reflecting year-over-year growth of 11%, double-digit growth in a tough environment, while almost all of our industry peers recorded revenue declines. I really want to thank our team for their efforts towards this achievement.

This is so important because based on my many years of experience in industrial technology markets, those that win in a downturn win bigger in a recovery. Winning in the recovery is our road ahead.

This year, our revenue performance was driven by strong growth in industrial, government and defense end markets, as well as increased sales of our new metal printing systems.

From a geographic perspective, revenue for the full-year was led by a 30% increase in the Americas region, reflecting the secular trend towards reshoring manufacturing and more distributed supply chains. This is a trend that should amplify in the future.

Recurring revenue rose 10% sequentially and 11% year-over-year to $7.6 million in Q4, demonstrating success from our strategic initiatives in this area, particularly in new government research contract wins. For the full-year, recurring revenue rose 7% with nice increases in service contracts and consumable capture rates.

We achieved a record year-end backlog of $39.4 million, representing a 27% year-over-year growth. During Q4, we further expanded our liquidity which totaled nearly $60 million on December 31, 2020. And last month, we executed an underwritten public offering, which resulted in gross proceeds of approximately $100 million.

Our strengthened balance sheet will enable us to prudently invest to drive growth, including expanding our highly differentiated production adoption model, enhancing capability across our geographies and qualifying additional materials to further expand our leadership position in binder jetting materials.

Also, we will expand with new strategic investments, such as our recent partnership with Rapidia, which I will cover shortly. Overall, our 2020 performance highlights the resiliency of our business model, the strength of our global team and our ability to continue executing on our strategy in the phase of challenging conditions.

Now, I would like to turn to some recent highlights. We continue to ship the X1 25Pro production metal printers around the world, and this system has now been in successful operation since we shipped our first systems in 2019.

Importantly, we have customers who have purchased multiple units, including one customer who now has six of these units in operation purchased over two years for producing industrial products in multiple sites.

It's also important to note that some of our core technology that is helping deliver success for our customers, namely our patented advanced compaction technology or ACT, is a key driver of our material diversity and is a key feature on all of our new metal production systems.

That includes the X1 60Pro, which is in active production now and the InnoventPro that comes to market later this year. Such engineering modularity and process consistency across our broad systems portfolio is a huge advantage, especially when combined with our broad material offerings.

We now offer more than 20 metal, ceramic and sand materials with a dozen of those being single alloy metals. Today, we furthered our leadership by revealing our long collaboration with Ford Motor Company to launch 6061 high-strength aluminum.

Our new patent pending process is a rapid and repeatable method of making aluminum parts much faster than other 3D printing methods and is also capable of scaling to the volumes needed for automotive use. Together, we’re printing parts that show density and material properties never thought possible, the same as die-casted parts.

Ford is also calling this "a breakthrough in making 3D printed and sintering parts for the automotive industry." This is a big win for ExOne and it validates all the works that our teams have invested over the last few years. Also, it shows the importance of this new market opportunity for high volume 3D printed 6061 aluminum parts.

I’d now like to share with you some recent case studies we published that demonstrate the key strengths of our solutions, namely the ability of localized and decentralized manufacturing by enabling fast and durable parts with unique end use designs that are substantially less expensive and lighter in weight than other technologies.

We continue to grow our recurring revenue with R&D contract business. And one example of our traction is a recent award from the U.S. Department of Defense to develop essentially a 3D printing factory in a shipping container.

As part of that project, we are ruggedizing one of our metal 3D printers, which is also capable of printing ceramics and other materials to enable decentralized printing in a self-contained unit.

This solution will enable quick and localized on-site production of needed parts during a crisis, significantly reducing the downtime for missing or broken parts while decreasing the need for backup parts storage. Instead, inventory will be stored digitally in the cloud for 3D printing as needed.

Replacement parts printed in a day compared to the weeks it takes now to resupply frontlines or disaster zones. This project demonstrates one of our core benefits of our technology, its ability to localize and decentralize manufacturing, which is a topic of increasing importance to manufacturers.

Many companies are looking to de-risk their supply chains and make more parts locally for sustainability reasons and ExOne technology is a key enabler there. Another recent example depicts our success in enabling the automotive industry to meet their light weighting and cost objectives.

In this case, a manufacturer was challenged to develop a strong, lightweight end-of-arm tooling attachment for high volume precision inspection application, with varying weight requirements. A robot needed to pick up and place six different parts of varying weights up to 2.5 pounds for inspection running nonstop across three shifts.

This innovative tooling produced in 17-4PH stainless steel on our Innovent+ platform was one-fourth the price of laser-based 3D printing, more durable than carbon fiber reinforced plastic printing and lighter in weight than traditionally manufactured parts out of aluminum.

The company also found that this application reduced the payload of the robot, extending the life of the robot and using much less energy to operate. This application showed exactly why we are true believers in binder jetting technology.

We can deliver fast, affordable, durable parts with unique end use designs that are up to 50% lighter for more efficient cars, planes, military equipment and other applications.. Moving our attention to the first quarter of 2021.

We further expanded our product portfolio and total available market with the launch of a new bound metal 3D printing system, the ExOne Metal Designlab. Through our exclusive partnership with Rapidia, a technology company founded by serial inventor and entrepreneur Dan Gelbart.

This marks ExOne's first ever 3D printing technology outside of binder jetting and leverages our extensive experience in sintering bound metal and ceramics.

The ExOne Metal Designlab is an office-safe, extrusion-based system that prints HydroFuse, an advanced water-based paste containing metal or ceramic powders that delivers true print today, parts tomorrow technology.

Rapidia's groundbreaking two-step technology for 3D printing waterbound metal parts allows users to skip the long chemical or thermal debinding cycles that often take three to five days to deliver a final part on competing systems. Some other key strategic points to note about this partnership.

In addition to the expansion of our printing product line, we also gain an affordable and advanced sintering furnace that meets our customers' needs across our metal binder jet lineup. This adds a new available market, where in the past we traditionally referred customers to third-party suppliers.

Also, the integration between the binder jet printer and sintering furnace can be optimized with software that we are developing with our collaboration partners. Next, the Metal Designlab product will position ExOne in a new part of the 3D printing market we see taking shape, the bound metal market.

This space includes binder jetting as well as bound metal deposition and is expected to grow to over $3 billion market by 2029, according to smart tech consultants. We expect to be the top player in this fast-growing space moving forward.

So while our traditional high-speed industrial sand and metal binder jet printers will remain our primary focus and are the largest part of our business, the Metal Designlab offers an on-ramp for our customers who are exploring metal 3D technology for the first time and printing lower volume prototypes and lower volume applications.

Customer reaction and channel partnership feedback on our announcement has been very positive and we expect to begin shipping the Metal Designlab in Q2.

To leverage our improving and broader product line, we are expanding our sales and distribution capabilities, particularly in Asia and we are seeing opportunities from countries that we have never served before. And with the addition of the Metal Designlab, we have a range of new partners interested in working with ExOne.

From an operation standpoint, the COVID environment has been and continues to be challenging and negatively impacts our market. Even with that, we must invest now to ensure customer success with our new platforms as they begin adopting binder jetting technology.

Customers are looking forward and making decisions on how they will reconfigure their supply chain and we must ensure that ExOne will be their go-to-solution. We are starting to see some reduced COVID restrictions that should provide moderate operational improvements later this year.

While that is encouraging, we are not yet satisfied and believe that our multiyear strategic efforts on product modularity, the maturation of new products and operational lean will improve margins in the years ahead and this improvement will be amplified by increasing operational scale.

In conclusion, we remain extremely optimistic about the increased traction we are seeing in our business and the long term fundamentals in the global growth of additive manufacturing. We believe that our strong backlog and visibility supports our anticipated 15% to 25% year-over-year revenue growth this year.

We continue to believe that our printer solutions will play a critical role in the transformation of traditional manufacturing to a more sustainable and decentralized model and we are confident that we will remain the market leader in the binder jetting segment by continuing to innovate, advancing machine and material technologies and by partnering with our customers and other technology companies who bring value to this overall process.

With that, I will now the turn the call over to Doug who will provide details about our financial results and outlook..

Thanks John. Good morning everyone. We are pleased to have achieved double digit revenue growth in 2020, including topline growth of more than 20% in the second half of the year.

Our execution is particularly impressive, given the disruptions caused by COVID-19 and as John mentioned considering the challenges that other additive manufacturing peers reported over the last year. This performance reflects the strength of our binder jetting solutions and the execution of our entire global team.

We ended our fourth quarter with total revenue of $17.4 million which was at the high end of our pre-announced range of $17 million to $17.5 million in early February and compared to $17.5 million in the fourth quarter of 2019. For the full-year 2020, revenue increased 11% to $59.3 million from $53.3 million in 2019.

While our total fourth quarter revenue was essentially flat on both a sequential quarter and year-over-year basis, we continue to be encouraged by the growth in our recurring revenue which grew 10% sequentially and 11% year-over-year to $7.6 million.

The growth in our recurring revenue year-over-year was led by an increase in revenue from funded research and development contracts, largely in support of future production metal equipment sale opportunities, as well as consumable material and aftermarket revenues associated with our global installed base of printers.

For the full-year, recurring revenue rose 7% to $27.8 million.

Growing this pool of revenue has been an area of strategic focus for us over the past two years as it provides stability to the business during periods of economic volatility which can put significant pressure on customer CapEx decision-making, the existing COVID-19 environment serving as a clear example.

Despite an increase in unit volume sales, which I will comment on in a moment, sales of 3D printing machines declined to $9.8 million in the fourth quarter of 2020 compared to $10.7 million in the fourth quarter of 2019 due to the mix of machines sold. For the full-year, machine sales rose 16% to $31.5 million from $27.2 million in 2019.

Revenue for both of our product groups continued to be impacted by COVID-19, including disruptions to domestic and international shipping and travel in addition to negative macroeconomic effects. Now let's move to machine unit sales for the period.

As a reminder, our direct machines print components such as metal and ceramic parts for industrial and other applications and include our Innovent, M-Flex and X1 25Pro platforms.

Soon we will add to this group, our X1 160Pro platform, the industry's largest metal 3D printer, our recently announced InnoventPro and our Metal Designlab which we announced in February via our strategic partnership with Rapidia that John discussed.

Our indirect machines print tools such as sand cores and molds and include our S-Print, S-Max and S-Max Pro platforms. Our indirect machines are our larger footprint systems and typically generate a higher average sales value.

As we have mentioned, our direct machines have historically leaned heavily to our Innovent platform which is a lower priced entry-level metal system. However the recent introduction of our 25Pro platform has increased the average sales value of our direct units and we expect this trend to continue into 2021 following our 160Pro system introduction.

We recognized 18 machines in the fourth quarter, compared to 14 in Q4 of 2019. Those 18 machines consisted of five indirect and 13 direct printing machines.

Sales of higher ASP sand systems decreased from 11 units in Q4 2019 to five units in Q4 2020 and continue to be impacted by negative trends in end markets where this equipment is used, primarily in the automotive sector.

Sales of lower ASP metal systems increased from three units in Q4 2019 to 13 units in Q4 2020 boosted by sales of our 25Pro platform, which was only introduced to market in Q4 2019 and increases in sales of our entry-level Innovent platform as a result of growing market awareness for metal binder jetting technology.

For the quarter, we are reporting gross margin of 22.2%, compared to 38.6% in the fourth quarter of 2019.

The decrease was primarily due to low contribution margin on various system sales including the X1 25Pro following its initial market introduction as well as unfavorable product warranty experience and other operating inefficiencies and challenges driven by the COVID-19 operating environment.

For the full-year, gross margin of 24.4% compared to 32.7% in 2019.

The decrease in gross profit during 2020 was primarily due to lower realized pricing on products, including sales of our X1 25Pro platform that I just mentioned, the sale of a discontinued sand system during the third quarter of 2020 and unfavorable warranty experience, partially offset by higher revenue volume and lower fixed overhead costs.

As John mentioned we continue to battle the difficult operating conditions brought about by COVID-19, which have resulted in an uptick in certain of our manufacturing costs and notable inefficiencies in our operating model during 2020.

We expect to see continued margin pressure in the first half of 2021, likely at similar levels to what we saw in the second half of 2020. We anticipate a normalization of our margin profile in the second half of 2021, contingent on continued progress and global distribution of COVID-19 vaccines and a broader reopening of international commerce.

Long term, we continue to have a high degrees of confidence that with operational improvements, enhanced product modularity and an appropriate scale, we are capable of generating consistent gross profit margin of the 40% level which we have demonstrated periodically throughout our history.

As I mentioned on our second quarter call, in response to COVID-19, we took various cost saving actions including a mix of employee terminations, furloughs, pay rate reductions and decreases in consulting and other spending, all in an effort to conserve cash and maintain adequate liquidity.

As we expected, as a result of these actions and other reduced costs such as global travel, we realized approximately $1 million in cost savings in the fourth quarter for a total $5 million in 2020. For the fourth quarter, our total operating expenses decreased 9% to $7.5 million.

For the full-year, our total operating expenses decreased 8% to $29.8 million from $32.5 million. Research and development expenses decreased by 20% in the fourth quarter to $2 million from $2.5 million in the fourth quarter of 2019.

The decrease was primarily due to cost savings measures and other cost reductions associated with COVID-19 and lower machine development spending. For 2020, research and development expenses declined by 11% to $8.8 million.

Our investments in research and development continue to remain focused on the further development of binder jetting technology, including the X1 160Pro and InnoventPro platforms and further expansion of our material printing capabilities where we are already the market leader.

Selling, general and administrative expenses declined 4% to $5.5 million from $5.7 million for the fourth quarter of 2019. This decrease was driven by a combination of factors including lower travel, trade show, consulting and employee-related expenses, offset by higher external commissions expense.

For the full-year 2020, SG&A declined by 7% to $21 million. For 2021, we expect to increase our OpEx spending by approximately 20% to 25% over our 2020 spend. This increase is targeted in two primary areas. First, an acceleration in research and development spending targeted principally at material printing development.

And second, further investment in our commercial operations primarily focused on expanding our global reach in specific geographies and managing customer applications development through our production adoption model.

Given the significant rise and awareness and interest in binder jetting technology, evidenced over the past year, we believe the near term investments are prudent to support not just our 2021 plans but set us up for 2022 and beyond.

Given our recent capital transaction, which I will address shortly, we believe that we are well positioned to make these investments in 2021 to accelerate our growth rate on multiyear basis. Turning to our backlog. As a reminder, our backlog includes firmly committed orders received from our machine and recurring revenue customers.

It also includes our machine maintenance contracts as well as the non-cancelable portion of our operating lease agreements. Additionally, backlog includes orders for our global metal and sand service bureaus and other contractual services including funded research and development.

We ended the fourth quarter with a backlog balance of $39.4 million, an increase of 27% as compared to $31.1 million at the end of the fourth quarter of last year. Our fourth quarter backlog includes machine orders totaling $24 million, representing 36 total units.

Our record year-end backlog position sets us up well in pursuit of the 15% to 25% revenue growth rate we project for full-year 2021. However, we do expect a relatively weak first quarter as the operating environment continues to present challenges, particularly in Europe and Asia-Pacific where lockdown conditions persist in certain jurisdictions.

Moving to the balance sheet. Cash, cash equivalents and restricted cash as of December 31, 2020 increased to $50.2 million from $39.9 million at September 30, 2020.

The sequential increase was driven by cash inflows from financing activity of $11.7 million, including $11.6 million in net proceeds from the sale of common stock in at-the-market offerings.

Offsetting this were cash outflows from operations of $1.2 million, mostly due to the widening of our net loss, net of non-cash items for the period, offset by an increase in cash inflows from customers based on timing of payments.

As expected, our cash capital expenditures for the fourth quarter were limited to approximately $500,000 which are focused on our existing operations and strategic asset acquisition and deployment. For the full-year, capital expenditures were $1.2 million.

Looking ahead, we expect our capital expenditures to be approximately $3 million to $4 million in 2021, including certain investments targeted at expanding our captive printing capabilities with a focus on material and customer applications development activities as I mentioned earlier.

Our total liquidity, which includes unrestricted cash and cash equivalents and availability under our related party revolving credit facility, increased to $59.7 million at the end of the fourth quarter from $49.4 million at the end of the third quarter.

The increase was driven by changes in cash that I just discussed as there were no borrowings outstanding under the company's $10 million related party revolving credit facility during the period.

Subsequent to our fourth quarter end, we further strengthened our balance sheet with the completion of a follow-on offering of our common stock on February 12, resulting in net proceeds to the company of approximately $95 million.

Prior to the completion of this offering, on February 9, we came to an agreement for the termination of our equity distribution agreement associated with at-the-market offerings of our common stock. Following completion of our follow-on offering on March 5, we elected to terminate our $10 million related party revolving credit facility.

In summary, we are pleased with our financial performance in 2020, particularly in our successful navigation of the uncertain market conditions caused by COVID-19.

Looking ahead, there a lot of exciting things going on in the additive space that are driving our confidence in the outlook for the business and we like the strength of our position in the industry.

While operational headwinds continue to exist as a result of COVID-19, our strong balance sheet, coupled with our solid contractual backlog provides support for what we want to accomplish in 2021. That concludes our prepared remarks, and we would now be happy to take your questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Noelle Dilts with Stifel. Please proceed with your questions..

Hi, guys, thank you for taking my question and congrats on a solid year in a tough environment. So for my first question, I was just hoping that you could give us a little bit more detail and some thoughts around how we should be thinking about the Rapidia partnership and how the revenue opportunity sort of ramps over the next five years? Thanks..

Sure. Well, thanks, Noelle. We have a really exciting partnership with Rapidia, where we get into a new market segment, the bound metal segment. It's a fantastic on-ramp for customers who are interested in metal printing, but are not yet ready for high-volume production.

This office-safe two-step process is one that is differentiated from our competitors and provides faster turnaround time, print today, parts tomorrow. So we see that starting this year. We expect shipments to start in Q2 and then ramp up from there.

The market is a good-sized market and we anticipate it being a key part of our direct metal product portfolio..

Okay. And then second, I think you’ve also had some announcements about partnerships in terms of penetrating Asia a bit more. Could you speak to your thoughts around potential for geographic expansion and how that sort of influences how you are thinking about the multi-year growth opportunity? Thanks..

Sure. Yes. As Doug said, we’ve been starting to invest more in our customer-facing resources recently over the last year and continue to do that in 2021 and beyond. So we’ve actually placed resources in geographies where we’ve not had coverage in the past. That's opened up a lot of new opportunities, which are just starting.

And again, our sales cycle, these do take time. We expect to have more business in Asia-Pacific from this as well as expanded – more balanced business across all regions. I think it also includes showing the direct metal product line. We had certainly have a great market share in the sand indirect product line globally.

But on the direct metal product line, this is something that is very widespread as far as the opportunity and needs better geographic coverage.

So as we see our direct product line growing, we think that that is important to have the global footprint to be able to promote it and service those new customers who are looking for it, just like customers across the world, to localize supply chain, bring innovative new designs to parts that they’ve never been able to do before.

So we are really excited about the geographic partners we have in these different regions and how we are seeing new opportunities that we never would have seen in the past..

Okay. Thanks. And then just my last question is a little bit more housekeeping related.

But just given the gross margin pressures that are kind of here is about in the short-term, is there any way that you could kind of maybe break out some of the elements that are impacting the gross margins sort of parsing our how much of it is COVID-related, how much is related to the launch of the new machines and then I think there were some other kind of one-time sorts of factors? Is there a way to break that down in any more granularity? Thanks..

Sure. This is Doug. Good morning. So on the 25Pro, from our perspective, you are looking at probably about three margin points related to lower returns in the near-term versus what you would see generally speaking on other systems related sales.

Again, in the prepared remarks, we expect that likely to continue for the first-half and then dissipate in the second-half as we made a few changes internally and think that the next set of production models that we are going to make should bear better returns overall.

On the warranty side, you are looking likely at about five points of margin that influence the fourth quarter relative to what we would normally expect sort of in a balanced equation where you are still supporting customers under those existing commitments. Now that warranty expense and experience is a little bit tilted toward the COVID environment.

Obviously, the inefficiencies that exist have sort of permeated our business across our manufacturing operations as well as how we had to serve customers in the sort of second-half or last nine months of 2020. And the remainder relates to that broader pool of inefficiencies that's been created.

A lot of excess work associated with getting machines prepared for the field, how you manage logistics surrounding that and sort of just other overhead and related charges and expenses that come through from time to time in managing through a difficult environment that we would sort of view as not necessarily a normalized feature of our business..

All right. Thank you. That's very helpful. I appreciate that..

Thank you. Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your question..

Great. Thanks so much for taking my questions.

In terms of the Ford and ExOne joint announcement, is Ford buying printers to prove out this new aluminum printing? Or are you printing parts for them? And then to be sure, you plan to both sell printers and print parts for customers based on this new patent?.

Hi, Brian. So yes, it's a great announcement and really our entry into 6061 aluminum parts. We’ve been working with Ford and Ford has had our machines for a number of years and we expect to continue to grow.

And just like our business model shows, our production adoption model, we work with customers on adopting the binder jetting technology with engineering R&D contracts then we work to sell parts and then we move into selling machines. So it's a full approach and we continue to use that approach with this material, as well as other materials.

So the automotive opportunities and many other lightweighting opportunities are there for us, both in parts and in machines..

And then you mentioned the challenges of the automotive industry as one of the factors of keeping system sales down.

With that said, are you seeing inbound calls based on this announcement from prospective customers? Or is it too early for that? And if it is too early, take us through the process of time you expect it's going to take before you see the impact of this announcement on several industries?.

Great question. Yes. So I would say, overnight, we’ve seen a number of our boards light up and relevant to new leads, key customers talking to us. But as you said, the production adoption model and adopting binder jetting in volume type applications does take time. Those - that timeframe can be from six months to two years.

And so we intend to work with a number of customers to continue to move 6061 into production applications for them over the course of the next two years..

Great. And then you talked about the increased investments you are going to make with the capital you have taken on.

Can you just kind of prioritize in terms of new machines versus investments in furnaces or sintering? Where are your top priorities versus may be secondary?.

Yes. So I will get it started and maybe Doug can add some more. But I think we have a fantastic opportunity in front of us with binder jetting in production applications, particularly with new materials. So we are investing to make sure that we can expand the production adoption model. So that means engineering people.

We have a number of new material science Ph.D.'s we are hiring.

We have parts production with furnaces and being able to work with customers across multiple regions to produce their parts initially and then working with them to deploy and invest in our product beyond the modularity within the printer and the industrialization of a system, including the automation and post-processing.

And as Doug mentioned, materials. These material announcements take research and time and then scaling them to large applications takes investment. And so we are investing across all those vectors to see great growth in the future..

Great. Thanks so much..

Thank you. Our next question comes from the line of Jed Dorsheimer with Canaccord Genuity. Please proceed with your question..

Hi. Thanks. I guess I would like to just jump into the Ford and the qualification of the 621, if you will. Congratulations, by the way. And so I think the previous question, maybe just rephrase or dig in a bit deeper. You mentioned that Ford has your machine and now they are qualified on 621 aluminum. So with this announcement, I didn't catch it.

Is there a specific order? Or will they be retrofitting the machines that they have? If you could just help me better understand that, it would be useful..

Yes. Thanks Jed. I mean it's a great breakthrough. Just to be clear, we are working with Ford in our production adoption model which includes R&D, parts and then machines. Ford has a number of our machines across other applications. And we are not going to go into other specifics on a customer individual application.

We see continuing to grow within Ford, as well as with other automotive companies and other customers that really value light-weighting. And as you know, from a sustainability standpoint, the production aluminum being able to use 3D printing is a massive breakthrough.

Ford mentioned it in the press release that it is a major breakthrough for automotive parts and we think it's going to be a major breakthrough across a range of industrial applications..

Yes. I mean I would agree. It definitely is a major breakthrough.

And so I guess, what I and I am guessing other investors are trying to better understand is, if we look at the S-curve of adoption and we look at sort your guide, so far it's been largely linear in terms of sort of that I guess the early phases, you know, Geoffrey Moore would talk about Crossing the Chasm, we are in that qualification period.

I am trying to better understand the timing of that need.

So why wouldn't -- if this is the primary material that's being manufactured in the EV market, is it sort of just going through that two-year qualification period in terms of the material? Or is there something else that would prompt the sort of logarithmic activity in terms of buying? I am just wondering how that plays into a guide that seems relatively conservative here?.

Yes. I would just say that, again we can't talk about specific customers, but what I would say is, again, production adoption model can take up to two years. And then you lay on top of that what the automotive programs of the industry usually are multiyear programs. So I would expect to see accelerated growth in the years ahead.

Again, as I have said, binder jetting has a very bright future. But don't count on it next quarter. It continues to grow over the years. And as customers move from single machine to multiple machines, those are the opportunities where you will see that accelerated growth.

That, as I have talked about in the past, rends to be in the future years of 2022, 2023, 2024..

Got it.

And then on the sand side for the casting, is there any deceleration of that business is a function of the direct additive side? Or are you seeing a steady state which the numbers would seem to suggest? I am just curious what the thoughts are around the casting side of the business?.

Yes. Jed, this is Doug. On the sand side, that was really the piece and Brian was asking that same question related to the sand systems being down as a factor associated with some of the end markets that that product tends to serve. In a lot of instances, the sand product is being utilized in a rapid prototyping environment.

And we have certainly seen a drop-off in that level of activity over the last 12 to 18 months, particularly in the post-COVID environment which has put a little bit of pressure on sand as a percentage component of our total output. But the reality is that the metal products really doesn't compete with the sand product.

The sand product is geared towards much larger parts and being able to and it serves different applications, whereas the metal product in its current state fills for sort of a smaller part, but certainly more intricate part in the materials that we provide.

So we are not seeing, at least in the near term, that you are seeing any level of competition between the two offerings. They really play in different spaces..

Got it. One last question and I will jump back in the queue.

The turnkey, I don't know what you call it, but you showed in your presentation of basically the printer in a box or container for sort of a FEMA type application or military, will you be providing -- are you just providing the printer or are you providing the other services? Is that turnkey? Or if you could just, it might be obvious, but if you could you talk about what you are providing in that deal? Thanks..

Sure. In that DoD contract, which was $1.6 million, we are the turnkey, we are the leader of the project. We have some other collaborators that are listed in there that are providing some of the other process parts. And the opportunity is to develop this first unit is just a first step.

I mean since that press releases gone out, there has been a number of other interested parties and us really productizing this. And as you say, there seems to be needs not just from a standpoint of the frontlines and getting parts closer to the customer changing the supply chain, but the disaster relief is really an interesting one as well..

Thank you..

Thank you. Our next question comes from the line of Sarkis Sherbetchyan with B. Riley Securities. Please proceed with your question..

Good morning and thanks for taking my question here..

Good morning..

I just want to touch on the fiscal 2021 sales outlook. I think you reiterated 15% to 25% growth for 2021. Maybe if you can break out your growth expectations between direct and indirect? And then I have a few follow-ons..

So we certainly expect that our metal products, given some of the product launches that we have announced and some of the maturity of the recent product launches are going to make metal a larger component of the business going forward. We started to see that a lot in 2020, including in the fourth quarter. And sort of we expect that to continue.

We don't really break out in a lot of our public disclosures specifics related to the split, but certainly that is a leading area for us relative to growth, both on the system side as well as the recurring side, including that funded research and development piece that we have spoken to frequently..

Yes.

And in that light, regarding kind of the recurring revenue growth, do you expect that bucket to grow at a similar pace to what you have outlined for the annual total growth? Or do you think that grows more in line with what we saw in fiscal 2020?.

It's going to grow slower than the systems line, mostly because when you look at the different components that are part of that, the service bureau model, the aftermarket services and the material components represent, let's say, 90% of that basket and they are sort of equally split.

The materials and aftermarket groups grow more on an annuity stream that's based on the global installed base of printers which is going to be a little bit slower pace than some of the other lines that have better opportunities.

We think that the metal printing services that we offer, particularly in single alloy and some of these emerging materials, represent a high growth area for us where you could see some signs of a break out. And then again in the funded research and development, we saw pretty big gains in 2020 versus 2019.

And as we have highlighted in a number of our comments and certainly in a number of representations recently, we have had some strong wins both on the commercial side and on the government side that are sort of loading up the revenues that we would expect to recognize hereof in 2021 and beyond..

Yes. Thanks for that. That's great color there. And I think you mentioned OpEx growth of 20% to 25% this year. It seems like you are investing in the business to accelerate that growth rate.

So I guess, to that point when would you expect the business to be able to generate leverage on operating leverage, just kind of given 15% to 25% topline growth?.

Yes. So a couple things that are playing a role there. First off, that certainly the company's capital position has changed dramatically over the last year, including with the success of the offering that we completed earlier here this quarter in February.

That gives us the opportunity to sort of look at the operating model longer term and make some strategic decisions as to how we want to dedicate capital. One of those areas that we highlighted in the call is putting more money near term into OpEx.

You are not necessarily going to see that splash in terms of a breakeven result for us on an EBITDA basis in 2021. But what you are going to see is that that's going to benefit the growth rate that we anticipate for 2022, 2023, 2024 and beyond.

By making those investments today, they really start to bear fruit in those future years and pull forward some opportunities that we would have had a difficult time grabbing and reaching at here in the near term. So that's sort of the thought process.

I think we have made comments in the past and we been pretty consistent to say that the mid-70s range or so is EBITDA breakeven on normalized conditions for a company based on our historic operating model.

That said, when you go out and attempt to make strategic investments and there is a lag on when the revenues are going to follow, even with the 15% to 25% growth rate that we are pitching, we think it makes a lot of sense to go and spend a little bit of money in 2021 to really jump the growth rates going forward..

Great. Thanks for that. And if I did the math right, it seems like for the OpEx perspective, OpEx would increase about $6 million or so year-over-year. I suppose what portion of that would be allocated towards R&D, sales and marketing? And I think you did give CapEx guidance.

So I am assuming that OpEx increases has nothing to do with the CapEx one?.

Yes. I think that there are still some decision-making and sort of, interestingly enough, I think that it's a fine line when you bridge between, is it going to go into development or is it really fall into a commercial category, you have got a couple different things going on there.

Number one, if we invest captively in research and development based on work that we are already seeing in particular materials, that's a conscious decision that we are to make and it could be triggered by some customer experience that we are working on or some other project that we see an opportunity to go after. On the flip side.

When you look at the commercial investment, while some of that is clearly going to be selling expense, the S in the traditional SG&A, certain other parts of that I think relate to what we would classify as applications experts that are really bridging from a technical perspective but also have commercial background that can really guide customers through the production adoption model and land them at the right spot relative to the family of products that we sell, whether they ultimately become long term parts customers or whether they become system owners and bring the resources in-house.

So it's going to be a combination of the two rather than give a specific on those line items. That's kind of why we targeted to give guidance on the total OpEx because it could be a quick shift either way, depending on what opportunity is the nearest term for us to put the money into..

Great. That's all for me. Thank you..

[Operator Instructions]. Our next question comes from the line of Martin Yang with Oppenheimer. Please proceed with your question..

Good morning. Thank you for taking my question. Most of my product questions have been asked, so just one more maybe.

Can you maybe talk about other segments that you think makes sense for you to be expanding to other than bound metals? And if could maybe address the move to your customers as their current offerings are not sufficiently addressing? Thanks..

Sorry. Just, you were a little bit choppy there. I think what you are asking was other investments outside of bound metal.

Is that correct that?.

That's right..

Okay. So I would say, again, primarily we are a binder jetting company, but we have plenty of investments to do in that space and complementary spaces to that. We saw the bound metal being absolutely complementary and again on-ramp for our business in binder jetting.

It links up relevant to the sintering of the bound metal product which we do also with binder jetting. So that's the primary place we are investing right now. We are looking at other complementary industrial metal opportunities.

But right now, we have a good amount on our plate and we are going to prudently invest in what we have and only look opportunistically outside of that.

Martin, did you have any other questions or are you on mute?.

No. That's my only question. Thank you..

All right. Thanks Martin..

Thank you. There are no further questions at this time. I would like to hand the call back over to management for any closing comments..

Well, everyone, thank you very much for your time this morning and interest in ExOne. We look forward to talking to you next quarter. Take care..

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day..