Q4 2020 ExOne Co Earnings Call
[music].
Greetings and welcome to the ex one company 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure to introduce Monica Gould Investor Relations for the ex one company.
You may begin thank you.
The operator and good morning, everyone ex one released results for the fourth quarter and full year 'twenty 'twenty ended December 31, 'twenty 'twenty yesterday after market close.
If you did not receive a copy of earnings press release, you may obtain it from the Investor Relations section of our website at Investor that ex one dotcom.
With me on today's call of John Hartner, Our Chief Executive Officer, and Doug Zemba, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of ex one website.
Before I turn the call over to John I'd 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 obligation to update these statements as the result of new information or future events.
In addition to U S. GAAP reporting ex one 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 tables found in today's press release.
And with that I'd 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'm 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 of growth of 11%.
Double digit growth in a tough environment, while almost all of our industry peers recorded revenue declines.
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 weren't in the downturn.
Win bigger and a recovery.
Winning in the recovery as 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 re shoring manufacturing and more distributed supply change. This is the trend that should amplify in the future.
Recurring revenue rose, 10% sequentially in the 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 of growth.
During Q4, we further expanded our liquidity, which total 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.
Yeah.
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.
On 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 the rapidity of which I'll 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 face of challenging conditions.
Now I'd like to turn to some recent highlights.
We continue to ship the ex 125 pro production metal printers around the world.
And this system has now been in successful operations since we shipped our first systems in 2019.
Importantly, we have customers, who purchase 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 a C T.
He is a key driver of our material diversity as a key feature on all of our new metal production systems.
That includes the ex 160 pro which is an active production now and the innovative pro 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 60, 61 high strength aluminum.
Our new patent pending process is the rapid and repeatable method of making aluminum parts much faster than other three D printing methods and it's also capable of scaling to the volumes needed for automotive use.
Together, we're printing parts of that show density and material properties never thought possible the.
The same is die casted parts.
Board is also calling this quote of breakthrough and making three D printed and centering parts for the automotive industry.
This is a big win for ex one and it validates all the work that our teams have invested over the last few years.
Also it shows the importance of this new market opportunity for high volume three D printed 60 61 aluminum parts.
I'd now like the share with you. Some recent case studies, we published the demonstrate the key strengths of our solutions.
Namely the ability of localized and decentralize manufacturing by enabling fast and durable parts with unique and 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 the recent award from the U S Department of defense to develop essentially of three D printing factory and of shipping container.
As part of that project, we are Ruggedized, one of our metal three D printers, which is also capable of printing ceramics and other materials to enable decentralized printing and of self contained unit.
This solution will enable quick and localized onsite production of needed parts during the crisis significantly reducing the downtime from missing or broken parts, while discrete decreasing the need for backup part storage.
Instead of inventory will be stored digitally in the cloud for three D printing as needed.
Replacement parts printed on a day compared to the weeks. It takes now to resupply of front lines or disaster zones.
This project demonstrates one of our core benefits of our technology its ability to localize and decentralize manufacturing, which is the topic of increasing importance to manufacturers.
Many companies are looking to derisk their supply chains and make more parts locally for sustainability reasons and ex one technology is a key enabler of there.
Another recent example depicts our success and enabling the automotive industry to meet their light weighting and cost objectives.
In this case of manufacturer was challenged to develop a strong lightweight end of arm tooling attachment for high volume precision inspection application with varying weight requirements.
Robot needed to pick up and play six different parts of varying weights up to two and a half pounds.
For inspection running nonstop across three shifts.
That's the innovative tooling produced in 17 point Dash four P. H stainless steel on or an event plus platform was one fourth the price of laser based three D 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 reduce the payload of the robot extending the life of the robot and using much less of 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 and use designs that are up to 50% lighter.
For more efficient cars planes military equipment and other applications.
Moving on our attention to the first quarter of 2021.
We further expanded our product portfolio and total available market with the launch of a new bond metal three D printing system. The ex one metal design lab.
Through our exclusive partnership with rapidity of a technology company founded by serial inventor and entrepreneur Dan Gilbert.
This marks ex won its first ever three D printing technology outside of bond your binder jetting.
And leverages, our extensive experience in centering bound metal and ceramics.
The ex one metal design lab is an office safe extrusion based system, the Prince Hydro fuse and advanced water based paced containing metal or ceramic powders.
The delivers true print today parts of Tomorrow technology.
Rapidity of his groundbreaking two step technology for three D printing water bond metal parts allows users to skip the long chemical or thermal the binding cycles that often take three to five days to deliver of final part on competing systems.
Some other key strategic points to note about this partnership.
In addition to the expansion 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're developing with our collaboration partners.
Next the metal design lab product will position ex one in of new part of the three D 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 consulting.
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 design lab offers an on ramp for our customers who are exploring metal <unk> technology for the first time.
<unk> printing lower volume prototypes and lower volume of applications.
Customer reaction and channel partnership feedback on our announcement has been very positive and we expect to begin shipping the metal design lab in Q2.
To leverage our improving and broader product line, we are expanding our sales and distribution capabilities, particularly in Asia and.
And we are seeing opportunities from countries that we have never served before.
And with the the addition of the metal design lab, we have a range of new partners interested in working with ex one.
From an operations standpoint, the Covid environment has been and continues to be challenging and negatively impacts our margins.
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.
We must ensure that ex one will be their go to solution.
We're starting to see some reduced COVID-19 restrictions that should provide moderate operational improvements later this year.
While that is encouraging.
We are not yet satisfied and believe that our multi year strategic efforts on product modularity, the maturation of new products and the 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 and 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 remain the market leader in the Binder jetting segment by continuing to innovate and.
Advancing machine in materials technologies, and by partnering with our customers and other technology company Hubei bring value to this overall process.
With that I'll now turn the call over to Doug who will provide details about our financial results and outlook.
Thanks, John Good morning, everyone.
We're pleased to have achieved double digit revenue growth in 2020, including top line 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% the $59 3 million from $53 3 million in 2019.
While our total fourth quarter revenue was essentially flat on both the sequential quarter and year over year basis, we continue to be encouraged by the growth of our recurring revenue, which grew 10% sequentially and 11% year over year to $7 6 million.
The growth of 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 of 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 the ability to the business during periods of economic volatility, which could 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 at the moment.
Sales of three D 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 on a half million from $27 2 million in 2019.
Revenue for both of our product groups continue to be impacted by COVID-19, including disruptions to domestic and international shipping of travel in addition to negative macroeconomic effects.
Now, let's move the 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 inadvertent M Flex and ex one twenty-five pro platforms.
Soon we will add to this group of our ex one 160 pro platform the industry's largest metal <unk> printer.
Recently announced an event pro and our metal design lab, which we announced in February via our strategic partnership with rapidity of the 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 innovative platform, which is a lower priced entry level of metal system.
However, the recent introduction of our 25 pro platform has increased the average sales value of our direct units and we expect this trend to continue into 2021, following our $1 60 pro 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 Asps 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. The 13 units in Q4 2020 boosted by sales of our twenty-five pro platform, which was only introduced the market in Q4 2019 and increases in sales of our entry level and event platform as a result of.
Growing market awareness for metal Binder Jetting technology.
For the quarter were 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 ex one twenty-five pro 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 ex 125 pro platform that I just mentioned.
The sale of of discontinued sand system during the third quarter of 2020, and unfavorable warranty experience, partially offset by higher revenue volumes 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 in global distribution of COVID-19, vaccines and a broader reopening of international Commerce.
Long term, we continue to have a high degree of confidence that with operational improvements enhanced product modularity and then an appropriate scale. We are capable of generating consistent gross profit margin at 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 of in an effort to conserve cash and maintain adequate liquidity.
As we expected as the 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 of $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, and a half million dollars.
Research and development expenses decreased by 20% in the fourth quarter to $2 million from two and a half million dollars 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 ex 160 pro and event pro 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% the $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 developments.
And second <unk>.
Other investment in our commercial operations, primarily focused on expanding our global reach and specific geographies and managing customer application development through our production adoption model.
Given the significant rise in awareness and interest in binder jetting technologies evidenced over the past year. We believe these near term investments are prudent to support not just our 2021 plans, but the set us up for 2022 and beyond.
Given our recent capital transactions, which I will address shortly we believe that we are well positioned to make these investments in 2021 to accelerate our growth rate on a multi year 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 noncancelable 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 the 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 32020.
The sequential increase was driven by cash inflows from financing activities of $11 7 million, including $11 6 million in net proceeds from the sale of common stock and at the market offerings.
Offsetting this were or cash outflows from operations of $1 2 million, mostly due to the widening of our net loss net of noncash 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 $500000, which we're 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 application 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 dollar related party revolving credit facility during the period.
Subsequent to our fourth quarter and we further strengthened our balance sheet with the completion of our follow on offering of our common stock on February 12th resulting in net proceeds to the company of approximately $95 million.
Prior to the completion of this offering on February nine we came to an agreement for the termination of our equity distribution agreement associated with that the market offerings of our common stock.
Following completion of our follow on offering on March 5th 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 are 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.
Would like to ask the question. Please press star one on your telephone keypad.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Yeah.
Our first question is coming from the line of Noelle Dilts with Stifel. Please proceed with your question.
Yeah.
Hi, guys. Thanks for taking my question and congrats on the solid year in a tough environment.
So from my first question I was just hoping that you could give us a little bit of a little bit more detail or some thoughts around how we should be thinking about on the repeat of partnership and how the revenue opportunity sort of ramps over the next five years.
Sure.
Thanks, Noelle I, we have a really exciting partnership with the rapidity of where we get into a new market segment. The <unk> metals segment, it's a fantastic on ramp for customers, who are interested in metal printing, but are not yet ready for high volume production of this office day at the opposite.
The safe two step process is one that is differentiated from our competitors and provides.
Provides faster turnaround time print today parts of tomorrow.
So we see that starting this year, we expect shipments to start in Q2, and then ramp up from there.
Yes, the market is a good size market and we anticipate it being a key part of our direct metal product portfolio.
Okay.
And then second line.
Thank you.
You've also had some announcements about you know partnerships in terms of on penetrating Asia a bit more can you speak to your thoughts on the potential for geographic expansion and how that on.
Sort of influences, how youre thinking about the multiyear growth opportunity.
Sure.
Yes.
Doug said, we've been started starting to invest more in our customer facing resources recently over the last year and continue to do that in 'twenty, one 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.
We're just starting.
Again, our sales cycle of these do take time.
We expect to have more business in Asia Pacific from this as well as ex.
Expanded more balanced business across all regions.
It also includes showing the direct metal product line, we 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 well.
Widespread as far as the opportunity of 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 in service of those new customers, who were looking for just like customers across the world to two local.
<unk> supply chain, bringing innovative new designs to parch that they've never been able to do before so we're really excited about the the geographic partners. We have in these different regions and how we're seeing new opportunities that we never would've seen in the past.
Okay. Thanks, and then just my last question, it's a little bit more housekeeping related but.
Just given the gross margin pressures that are kind of hear from them in the short term is there any way that you could kind of maybe break out some of the elements that are impacting on that are impacting the gross margins sort of.
First thing out how much of it it's COVID-19 related how much is related to the launch of of the new machines and then I think there were some other kind of one timey sorts of of factors is there a way to break that down on any more granularity.
Granularity.
Sure. This is Doug good morning.
So on the 25 pro you know from from our perspective Youre 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've we've made a few changes internally and think that the next set of production models that we're going to make sure they're better returns overall on.
On the warranty side Youre looking likely at about five points of margin that influenced the fourth quarter relative to what we would normally expect sort of a balanced equation, where you're still supporting customers under those existing commitments.
Now that warranty expense and experience is a little bit tilted towards the COVID-19 environment, obviously, the inefficiencies that exist.
Sort of permeated our business across our manufacturing operations as well as how we've had to serve customers sort of in the second half of the last nine months of 2020, and the remainder of relates to that broader pool of inefficiency. That's been created a lot of excess work associated with getting the machines prepared for the feed.
How you manage logistics surrounding that and sort of just other overhead and related charges and expenses that come through from time to time and managing through a difficult environment that we would sort of view is not necessarily of normalized feature of our business.
Alright. Thank you that's very helpful. I appreciate that.
Thank you on our next question is coming from the line of Ryan <unk> with Alliance Global Partners. Please proceed with your questions.
Great. Thanks, so much for taking my questions in terms of the board and ex one joined the announcement is we're buying printers to prove out this new aluminum printing where are your printing parts for them and then to be sure you plan to both sell printers and print parts of customers based on this new band.
Hey, Brian.
So yes, that's of great. It's a great announcement and it really our entry into the 60 61 aluminum parts, we've been working with forward in ports on our machines for 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.
On adopting the binder jetting technology with engineering R&D contracts, then we work to 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 in many other light weighting opportunities are there for us both in parts and in machines.
And then you mentioned the challenges of the automotive industry is one of the factors of keeping system sales down but 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 to take us through the process and time you expense can you expect it's going to take.
Before you see the impact of this announcement on several industries.
Great question so.
So I would say overnight, we've seen a number of our board's light up and relevant to new leads key customers are talking to us.
But as you said the production of adoption model and adopting binder jetting and volume type applications does take time.
Those that timeframe can be from six months to two years and so we intend to work with the number of customers to continue to do.
To move $60 61 into production applications for them over the course of the next two years.
Great and then you talked about the increased investments you're going to make with the capital you've taken on.
Is it can you just kind of prioritize in terms of new machines vs and investments in furnaces are sintering.
Sure.
Where are your top priorities versus maybe secondary.
Yes, so I'll kind of started maybe Doug can add some more but.
I think we have a fantastic opportunity in front of us to get with Binder jetting in production applications, particularly with new materials. So we're investing to make sure that we can expand the production of adoption model. So that means engineering people, we have a number of new.
The material science Phds, we're 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.
On the modularity within the printer in the industrialization of it of of system, including the automation and post processing and as Doug mentioned materials the.
These material announcements take research in time, and then scaling them to large applications takes it takes investment and so we're investing across all of those all of those.
Vectors to see great growth in the future.
Yeah.
Great. Thanks, so much.
Okay.
Sure.
Our next questions come from the line of Chad door Shimer with Canaccord Genuity. Please proceed with your questions.
Hi, Thanks, I guess thought I'd like to just jump into the.
Ford and the qualification of the fixed.
<unk> 21 of if you will.
Gratulation by the way and.
And so I think the previous Ah.
Question maybe.
Maybe just rephrase or digging a bit deeper you mentioned that Ford has your machine and now they're qualified on six of 21 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 help me better understand that it would be useful.
Thanks, Jed and I mean, it's of great breakthrough.
Just to be clear, we're working with Ford and our production of adoption model, which includes R&D parts and then machines for it has the number of on machines across other applications. So.
And we're not going to go into other specifics on a customer of individual application.
We see continuing to grow within Ford as well as with other automotive companies and other other customers that really value light weighting and as you know from a sustainability standpoint.
On the production of aluminum being able to use three D printing is a massive breakthrough.
The Ford mentioned it in the 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.
Yeah, I mean, I would agree it's it definitely is a major breakthrough.
And so I guess, what I and other and I'm guessing other investors are trying to be.
Or understand is if we look at the S curve of adoption.
And we look at sort of your guide so far it's been largely linear in terms of the.
The sort of that I guess the early phases.
Geoffrey Moore would talk about crossing the chasm where in that.
That qualification period, and trying to better understand the timing of that knee. So.
Why wouldn't you.
This is the primary material that's being manufactured in the EV market.
Is it 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.
The.
You know sort of logarithmic got activity in terms of buying I'm, just wondering how of that weighs into.
You know of.
Guide that seems relatively conservative here.
Yeah, I would just say that again, we can't talk about specific customers, but what I. What I would say is again production of adoption model is it can take up the two years and then you lay on top of that what are the automotive programs that of.
The industry usually of multi year programs. So I would I would expect the dis.
See accelerated growth in the years ahead again as I've 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 machines, the multi machines those of the opportunities where youll see that.
That accelerated growth.
Of that as I've talked about in the past tends to be in the future years of 'twenty two 'twenty three 'twenty four.
Got it and then on the sand side for the casting is there any D cell.
Eight deceleration of that business is a function of the.
Additives, the direct additive side.
Or are you seeing a it's kind of.
Steady state, which the numbers would seem to suggest I am just curious what the the thoughts are around the the casting side of the business.
John This is Doug.
On the sand side and that was really the the piece I know Brian was asking that same question related to the sand systems being down as a as a.
The factor associated with some of the end markets that that product tends to serve and a lot of instances the sand product is being utilized in a rapid prototyping environment and we've certainly seen a drop off in that level of activity over the last 12 months 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 is that the metal product really doesn't compete with the sand product the sand product is geared toward 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 a more intricate part and the materials that we provide so we're not seeing at least in the near term that youre seeing any level of competition between the two offerings they really play in different spaces.
Got it one last question I'll jump back in the queue, the sort of a turn key I don't know what you call. It but you showed in the in your presentation of basically the printer in the box or a container for you know sort of of FEMA type application or military.
Will you be providing or are you are.
Are you just providing the printer are you providing that the.
The the other services is that turnkey or.
If you could just.
Might be obvious, but if you could.
Just talk about what you are providing and that it would be helpful. Thanks sure in that in that Dod contract for which was $1 6 million, we were able to.
Where the turnkey.
We're the leader of the project we have some other collaborators that are listed in there that are providing some of the other price us parts.
And the the opportunity to develop this first unit is just the first step I mean since that press release has gone out theres been a number of other interested parties in us really product ties of this and.
As you say there is there seems to be needs not just from a standpoint of the front lines and getting parts closer to the customer.
You're changing the supply chain, but the the disaster relief is really an interesting one as well.
Thank you.
Thank you our next questions come from the line of Sarkis <unk> with B Riley Securities. Please proceed with your question.
Good morning, and thanks for taking my question here.
Wanted to touch on the <unk>.
Wanted to touch on the fiscal 'twenty, one sales outlook I think you reiterated the 15% to 25% growth for 2021, maybe if you can break out your growth expectation between direct and indirect and I have a few follow on.
So we certainly expect that our metal products given some of the product launches that we've announced and some of the maturity of the recent product launches are going to make metal of 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 splits, but certainly that is a leading area for us relative to growth both on the systems side as well as the recurring side, including that funded research and development piece that we've 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've outlined for the annual total growth or do you think that grows the more in line with what we saw on fiscal 2020.
It's going to grow slower than the systems line, mostly because.
When you look at the different components that are that are part of that.
The service Bureau model, the aftermarket services and the materials components represent let's say, 90% of that basket in the 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.
And then 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 breakout and then again in the funded research and development, we saw a pretty big gains in 2020 versus 2019.
<unk> and as we've highlighted in a number in our comments and certainly in a number of our presentations recently, we've 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 here off into the 'twenty one and beyond.
Yeah, no. Thanks for that that's great color, there and I think you mentioned opex growth of 20% to 25% of this year. It seems like youre 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 you know 15% to 25% top line growth.
Yeah. So.
A couple of things that are playing a role there first off that certainly the companys capital position has changed dramatically over the last year.
<unk> with the success of the offering that we completed.
Earlier here this quarter in February.
That gives us the opportunity of sort of look at the operating model longer term and make some strategic decisions as to how we want to dedicate.
One of those areas that we highlighted in the call is putting more money near term into opex youre not necessarily going to see that splash in terms of of.
The breakeven result for us on an EBITDA basis in 'twenty, one, but what youre going to see is that that is going to benefit the growth rate that we anticipate for 'twenty two 'twenty three 'twenty four and beyond by making those investments today, they really start to bear fruit in the future years and pull forward some opportunities that we would've had a difficult time.
Grabbing and reaching at here in the near term. So that's that's sort of the thought process I.
I think we've made comments in the past and we've been pretty consistent to say that the mid seventy's two range or so was it the EBITDA breakeven under normalized conditions for our company based on our historic operating model that said when you go out in an attempt to make strategic investments and Theres a lag on.
When the the revenues are going to follow even with the 15% to 25% growth rate that we're pitching we think it makes a lot of sense to grow and spend a little bit of money in 2021 to really jumped the growth rates going forward.
Great. Thanks for that and if I did the math right. It seems like for the Opex perspective, the 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'm, assuming the opex increases has nothing to do with the Capex line.
Yes, I think that Theres still some decision, making and sort of interestingly enough I think its a fine line. When you bridge between is it going to go into development or is it really going to fall into a commercial category you've got a couple of different things going on there number one if we invest captive Lee in research and development based on work that.
We're already seeing in particular materials, that's a conscious decision that we're going to make and it could be triggered by some customer experience that we're working on or some other projects 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 and 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 backgrounds that can really guide customers through the production of 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 the resources in house, so it's going to be a.
<unk> of the two rather than give a specific on those line items that the kind of why we've targeted to.
Give us guidance on the total opex because it could be.
It could shift either way depending on what opportunity is the nearest term for us to put the money into.
Great. That's all from me thank you.
Thank you as a reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next questions come from the line of Barton Yang with Oppenheimer. Please proceed with your questions.
All right. Good morning. Thank you for taking my question most of my part of the questions have been asked so just one more maybe.
Can you maybe talk about other silicon.
The do you think of it makes sense for you to expanding to other than by the metal anything that could.
The address the.
Needs your customers the recover and I hope, we're in sort of not sufficiently addressed.
Thanks.
Sorry, just you were a little bit choppy there I think what you were asking was other investments outside of bound metal is that correct that's right.
Okay.
I'd say again, primarily were of Binder Jetting company, but we have we have plenty of investments to do in that space in complementary spaces to that we saw the bound metal being absolutely.
Complementary and again on on ramp for our business in Binder jetting it links.
The links up relevant to the centering on the bond metal product, which we do also with binder jetting.
So that's the primary place we're investing right now we are looking at other complementary industrial metal opportunities, but right now we have we have a good amount on our plate and we're going to prudently invest in what we have.
The only look opportunistically outside of that.
Martin did you have any other questions or where are you on mute.
That's my only question. Thank you alright, thanks Martin Thanks.
Okay.
Thank you there are no further questions at this time I'd 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 ex one look forward to talking to you the next quarter take care.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time average.
Great to have a great day.