Q1 2021 ExOne Co Earnings Call
Greetings and welcome to the excellent company first quarter 2021 earnings call. At this time all participants are in a listen only mode of 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 of this conference is being recorded.
I'd now like to turn the conference over to your host MS. Monica Gould Investor Relations for the X. One company. Thank you you may begin.
Thank you operator, and good morning, everyone ex one we released results for the first quarter ended March 31, 2021 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 Day X one dot com.
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 X one of the 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 are made on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
In addition to U S GAAP reporting X 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 the press release.
And with that I'd like to turn the call over to John.
Thank you Monica good morning, everybody and welcome to our first quarter 2021 earnings call.
We're pleased to report record levels of both recurring revenue and machine order backlog in the first quarter, which shows the strength of our product offerings, our adoption model and our forward momentum.
As forecast of last quarter, we expected a soft start to the year.
Our first quarter results reflected difficult operating environments. The continued to persist as a result of COVID-19.
However, we are seeing signs of an economic rebound, particularly in the U S market, where we saw higher concentration of sales and backlog growth growth during the first quarter.
We recorded first quarter revenues of $13 million, reflecting a slight decrease from a record first quarter performance and 2020.
The decline was driven by COVID-19 related installation disruptions, especially in Asia.
Our first quarter revenue was helped by strong growth in recurring revenue led.
Led by an increase in revenue from funded research and development services.
These services were largely in support of future production metal of equipment sales opportunities.
Also aftermarket revenue associated with our global installed base of printers grew.
From a geographical perspective.
Q1 was driven by a 40% year over year and 12% sequential increase in the Americas region.
Reflecting the secular trend towards re shoring manufacturing and.
And of more distributed supply chain.
This is a trend we expect to continue and the spread to other regions as they emerge from the pandemic pandemic.
Yeah.
Recurring revenue rose, 7% sequentially, and 15% year over year to $8 $1 million in Q1.
Demonstrating success from our strategic initiatives in this area <unk>.
Particularly the strength of the X one production of adoption model.
Yeah.
We achieved a record backlog of $47.8 million, representing 41% year over year of growth.
During Q1, we.
We further expanded our liquidity to a total of $137 million as of March 31st.
Through an underwritten public offering.
The strength and balance sheet will enable us to prudently invest to drive growth.
The <unk> expanding our highly differentiated production of adoption model.
Enhancing capabilities across geographies.
And qualifying additional materials to further expand our leadership position in binder jetting.
Also we will continue to invest in the external strategic opportunities such as our partnership with rapidity of which resulted in our new metal design lab for the office.
Additionally, our organic investment will primarily support increased demand for our production ready metal three D printers.
To that end, we are increasing our investment in the X one team.
In all we plan to increase our global workforce by approximately 15% during 2021.
With several goals in mind.
The support of shift in manufacturing mix to a higher percentage of metal units.
To accelerate production of metal printers, helping to more quickly convert backlog to revenue.
And to meet the growing customer demands.
Through the end of April we added 30 people, bringing us two thirds of the way to our goal.
These hires are targeted towards bringing new talent into our technology development manufacturing and customer facing teams.
Now I would like to turn to some recent highlights.
During the quarter, we launched the X one metal design lap through an exclusive partnership with rapidity of.
This is diversified and strengthened our metal portfolio be on binder jetting to include our first office friendly bound metal offering.
We remain on track to begin shipping the metal design lab in Q2.
This new printer has received an outstanding reception.
Including at the recent aim of 2021.
The first in person trade event, our company has attended and about a year there.
There is little doubt that our printer was the star of this respected three D printing event.
And this new product is so differentiated and its capabilities. It helped attract a raft of new sales channel channel partners to the X one family of North America, you've already received.
Received our first order commitments and expect sales of this print today parts tomorrow system to ramp nicely.
Meanwhile, <unk> leadership in Binder jetting materials only continues to strengthen.
Manufacturers are truly excited about our recent announcement that reactive materials, such as aluminum and titanium will be printable on of controlled atmosphere of model of our X. One 160 pro the market's largest metal binder jetting platform.
To be shipped in 2022.
We have major brands lined up for these products and are excited to get them to the market quickly.
Subsequent to quarter end, we also announced that we acquired the assets of fresh made three D N.
Ohio based startup with a patented method of creating durable am clad tooling out of sand forms three D printed on X one sand printers.
This transaction strengthens our position as a provider of large format three D printed tooling for industrial applications.
We plan to scale up this process for a global aerospace customer who intends to use this tooling for composite lay ups of their parts.
This is an ideal solution for companies looking to shorten the supply chains and produce tooling and final products locally.
Fresh made <unk> patented method, often eliminates weeks or months of time spending weighted waiting for conventional tooling and typically offers of 30% to 50% cost savings for our customers.
A M clad which is also being used for art design and other architectural applications reveals the great diversity of binder jetting for many innovative manufacturing approaches.
Through our production of adoption model, we have so many innovative new binder jetting applications on the horizon I.
I encourage you to look at our case studies in our Investor presentation, which includes our work with cell wise.
So wise is the Swedish startup that has developed the method to transform wood pulp into water resistant plastic like products that are expected to disrupt the plastics industry by replacing single use plastics.
Manufacturing these renewable and biodegradable products are enabled by X ones metal printing technology.
To print a series of porous metal tools that help form the end products.
As I mentioned, we also continue to expand our sales and distribution capability.
In North America, we added four new partners with 60 offices across the U S and Canada the.
These partners will sell the metal design lab as well as the inadvertent plus which remains the world's most installed of metal binder jetting system.
As well as ancillary equipment, such as the X one of F advanced furnace and consumables.
Last week, we also announced continued sales network expansion in Asia.
General integration technologies G I T.
I won an Aurora three D. In China are now authorized channel partners to sell X one industrial solutions.
With these additions ex one has doubled its representation in greater China over the past year and brings the total number of sales partners in the APAC region to 12.
In conclusion, we remain extremely optimistic about the increased traction we are seeing in our business and the long term fundamentals and global growth of additive manufacturing.
We continue to believe that our strong backlog and pipeline visibility supports our anticipated 15% to 25 per cent year over year revenue growth.
We look forward to entering the post pandemic period with new tail wins as manufacturers look to derisk supply chains and improve the sustainability of their products with new designs that require our industrial three D printing solutions to execute.
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.
For the first quarter. We are pleased to have achieved record quarterly recurring revenue of $8 1 million up 15% year over year and record contractual backlog of $47 8 million, an increase of 41% year on year.
These first quarter highlights were offset by the challenges we faced in execution given the influence of COVID-19 on the global operating environment, what's delayed revenue recognition on systems transactions until the installation and customer acceptance protocols of 100% complete to future periods.
As John stated, we are affirming our 2021 full year revenue growth expectations of 15% to 25% driven by our record backlog of market response to our new product launches and improving macroeconomic conditions, particularly in the U S market, which generated a higher concentration of <unk>.
Sales and contract activity in the first quarter.
First quarter revenue totaled $13 million, which represented a modest decline on a year on year basis from a record first quarter in 2020 largely due to installation disruptions related to COVID-19.
Despite these challenges we continue to be encouraged by the growth of our recurring revenue, which rose 7% sequentially and as I mentioned, 15% year over year to $8 1 million.
The growth of our recurring revenue was driven by an increase in revenue from funded research and development contracts and higher aftermarket service revenues associated with the growth in our global installed base of three D printing machines.
The increase of our funded research and development efforts was largely driven by a new statement of work that commenced in the fourth quarter of 2024 of new health care application.
As we have mentioned previously these types of arrangements are critical to our production of adoption model strategy and serve as the launching pad for future acquisitions of systems by customers.
As it relates to recurring revenue as a group, which includes our global service Bureau of operations consumable material in the aftermarket products and funded research and development contracts growing this pool of revenue that's been an area of strategic focus for us as it provides stability to the business during periods of economic.
Volatility as we saw on our first quarter.
Moving over to systems due to a decrease in volumes, which while I will comment on in a moment three D printing machine revenue declined to $4 9 million in the first quarter of 2021 compared to $6 3 million in the first quarter of 2020.
This was offset by a favorable mix of systems sold particularly in metal systems, which included a greater concentration of our 25 pro printer.
Revenue for both of our product groups continues to be impacted by COVID-19, including disruptions the domestic and international shipping and travel in addition to lingering negative negative eat 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 innovative M Flex and <unk> 25 pro platforms.
Soon we will add to this group our X 160 pro platform, the industry's largest metal <unk> printer.
As well as our recently announced an event pro and our office friendly metal design lab printer.
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 machine sales have historically leaned heavily to our internet platform, which is a lower priced entry level of binder jet metal system.
However, a higher concentration of our twenty-five pulp pro platform has increase the average sales value of our direct units and we expect this trend to continue in 2021, following our $1 60 pro system introduction.
We recognize revenue from seven machines in the first quarter compared to 14 in Q1 of 2020.
Those seven machines consisted of three indirect and for direct printing machines.
Persistent COVID-19 disruptions that we have faced for four rolling quarters. At this point were the primary driver for our lower system units recognized and system revenue dollars for our first quarter of 2021 compared to 2020.
Asia Pacific and European Lockdown conditions in the most recent three month period provided significant barriers to completion of system installations of customer sites.
In particular, beginning of 2020 and continuing through Q1 2021 executing on systems installations in China has been a challenge.
However, we are starting to see recent improvements within this region and expect the turned the corner and finalized certain delayed executions. During our next two quarters as conditions continue to lift the globally.
Despite the operational challenges we face in this area of our first quarter product demand for systems, which I will touch on at the moment has never been stronger.
Shifting to margins for the first quarter 2021, we recorded gross margin of 15, 4% compared to 27, 1% in the first quarter of 2020.
The decrease was primarily due to the continued impact of operating inefficiencies and challenges driven by the COVID-19, operating environment, including unfavorable product warranty experience and.
In addition, as we have spoken to previously we continue to experience the below standard contribution margin on X 125 Pro system sales, which we expect to see improvement on during our second half.
These factors plus poor leverage of our fixed cost base on the lower systems revenue figure contributed to the low margin result, which we ultimately expect to stabilize throughout the year, particularly on our second half and meeting our growth forecast for full year 2021.
Long term, we continue to have a high degree of confidence that with operational improvements and scale. We are capable of generating consistent gross profit margins at the 40% level.
For the first quarter, our total operating expenses decreased slightly to $8 5 million compared to the prior year period, excluding the Q1 2020 gain related to the sale leaseback of our European headquarters and operating facility.
Research and development expenses were $2 6 million compared to $2 5 million in the first quarter of 2020 the.
This increase was due to slightly higher material costs associated with systems and materials development of Binder Jetting technology.
As John mentioned, we continue to focus our attention of materials development on high value metal and ceramic applications, including aluminum titanium and silicon carbide among others hi.
High value applications are a key driver for our future success. As these solutions are highly sought out by customers and the total cost of ownership associated with emerging technology is less sensitive in these areas.
We believe we have a significant first mover advantage for binder jetting technology in this area based on our industry leading portfolio of material capabilities.
Selling general and administrative expenses were $5 9 million compared to $6 2 million for the first quarter of 2020.
The decrease was primarily due to lower employee and travel related expenses as a result of COVID-19, and the net recovery for bad debts for Q1, 2021, offset by slightly higher consulting and professional fees between the periods.
As we indicated on our fourth quarter call, we expect to increase our opex spending this year by approximately 20% to 25%.
This increase is targeted in two primary areas.
First an acceleration in research and development spending targeted principally at material printing developments.
And second further investment in our commercial operations, primarily focused on expanding our global reach in specific geographies and managing customer application development through our production of adoption model.
Given the significant rise on 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 plants, but the set us up for a high degree of success for 2022 and beyond.
Given our recent capital transactions, which while it will address shortly.
We believe that we are well positioned to make these investments in 2021 to accelerate our growth rate on a multiyear basis.
Turning to 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 first quarter with a record backlog of $47 8 million, an increase of 41% as compared to $33 8 million at the end of the first quarter of last year.
Our first quarter backlog includes machine orders totaling $30 5 million, representing 45 total units nearly all of which we expect of recognized during 2021.
Moving to the balance sheet cash.
Cash cash equivalents and restricted cash as of March 31, 2021 increased to $138 3 million from $50 2 million at December 31, 2020.
The sequential increase was driven by cash inflows from financing activities of $95 3 million, mostly as a result of an underwritten public offering of common stock completed in February 2021.
Offsetting this were cash outflows from operations of $5 9 million, mostly due to the widening net loss net of noncash items for the period.
And net cash outflows from working capital changes driven by an increase in inventories to support expanded contractual backlog offset by cash inflows from customers based on timing of payments.
Our cash capital expenditures for the first quarter were limited to approximately $1 million, which we're focused on our existing operations and strategic asset acquisition and deployment.
Looking ahead, we expect our remaining 2021 capital expenditures to be in the range of two and a half to three and a half million dollars.
In summary, despite the challenging operating environment, we faced throughout 2020 and during our 2021 first quarter. We are excited at the prospects for our growth given rapidly improving market conditions, particularly in the U S market.
Our expanded an industry, leading product portfolio and the clear progress we are seeing in executing on our key strategies all with the backdrop of record customer demand for our technology.
That concludes our prepared remarks, and we would now be happy to take your questions.
Thank you at this time, we'll be conducting a question answer session.
You'd like to ask a question. Please press star one on your telephone keypad of confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the Kim from participants using speaker equipment. It may be no, but I'm sorry to pick up your handset before pressing the star.
The first question comes from the line of Brian Canceling or with Alliance Global Partners. Please proceed with your question.
Great. Thanks, so much.
Great backlog and so let's start with that.
You mentioned that you have $35 million in.
On systems backlog could you break that down in direct versus indirect and then you called out Asia in terms of installation disrupt disruption. So can you also maybe highlight how many systems are.
Our E R from.
Asia based customers that youre, having trouble recognizing.
Yeah.
Sure, Brian Hey, it's Doug.
Good morning.
In terms of the breakup between metal on sand, it's it's a pretty even split as of the end of the quarter. We've obviously seen a pretty big uptick on our business on a percentage basis for metal demand versus sand the.
The growth rate in metal is obviously something that we're keeping a close eye on it has been improving.
Improving ever since last year's product introductions and some of the improvements that we've made relative to the single alloy printing process specific to the Asia question, We had at the end of March.
Specifically eight units in China representative of around $6 million of revenue that we were still working on so these are examples of systems that are physically sitting in China. We're working through the process nearly all cash collected in advance of shipping those units and again we.
To recognize over the next couple of quarters.
Great that's helpful.
And then maybe if you can talk about the warranty expenses.
I believe if I understand of the accurately you can't get the proper people there to fix and the issues with parts. So it's causing a lot of waste.
Are these restrictions I think you've talked about easing.
When when do you think.
Seeing where COVID-19 related restrictions are being lifted right now you know at least in the U S and other places as well when when do you see this easing as at the third quarter of you're starting to see it in the second quarter already I'm just trying to.
I understand that and then I have one last question.
Good morning, Brian John here, the as far as global.
Kind of impressions of what's happening from of COVID-19 standpoint, certainly the U S is far ahead and not not just from our ability to travel, but also customers mindset as far as the rest of the world. It is fairly limited and I mean, even in North America of getting the Canada has some restrictions right now.
We're hoping and seeing that the changes are happening in the U S. It will be followed fairly quickly.
Through the next few quarters in Europe and in most of Asia. So.
That really will help us from the standpoint of getting these highly complicated systems.
Accepted and having folks that are able to travel into we just talked about China, which is which is one of our major places to get travel into on the warranty Duncan do you want on yeah, I mean, I think for the third consecutive quarter now we've sort of pointed this out as of the as a disruption to our you know our mark.
<unk> performance, we've actually seen improvement over the last three quarters to the point, where in Q1 of 'twenty 'twenty. One this was less of an impact than the last two sequential quarters and again really the impacts that you're seeing here. It's a few things number one we had physical delivery on the early part of 2020.
Of some new products, the 25 pro and our you know our new entry.
Machine for say on the S. Max Pro.
When we go into Lockdown phase sort of globally in that March April time frame in 2020 of lot of customers out in the field sort of shut down their machines of shutdown their facilities for a period of time in the second half of 2020 and even through today, we're still seeing inconsistency in how customers are operating their equipment in the sort of the slow re.
Start that took place in the second half of 2020, our machines run best when they're running consistently and in a precise way and so our ability to sort of manage those situations has been a bit constrained.
And getting customers back up and running to the point that they want that they want to perform at so we are seeing signs that as the economy has started to come back up as customers are running their machines more consistently and more fluidly and add some of the travel restrictions are lifted in some geographies. The things are getting better I would expect Q2.
To still have some challenges on it as we continue to emerge I don't know that we've gotten substantially better as we sit here today than where we were at March but certainly in the second half of the year as you continue to see the trends move.
Move forward in terms of you know of locked down lift and other restrictions come lifted with the sort of vaccine proliferation of we expect the things are going to get better and that will be able to support customers a more hands on and certainly get out and see more machines that we've been missing for quite some time.
Lastly, and then I'll get back in the queue on the global supply and global supply chain issues are there any issues with shortages of any of the components of any of the materials you need to source.
Brian This is John the.
Certainly, we're keeping a close eye on that Luckily in some ways. We've we've got relatively long lead times on our systems and so we're able to satisfy demand in our systems business through this year.
We are keeping a very close on particularly on the electronic side of this the only other thing I'd mention is we have seen some disruptions on some of the consumable side relevant too.
Having the source in different places and some inflation that we had not seen before we've been able to manage it we expect to continue to manage it but thats probably the one that is obviously that inventory turns much faster, but it's critical we stay in front of that and keep keep our customers running and so that that's been.
We've managed I think well we will continue to stay vigilant on this end of.
Our our team talks about it on a weekly basis right now.
Great. Thanks, guys.
Thank you. Our next question comes from the line of Mr. Benjamin with B Riley Securities. Please proceed with your question.
Hey, good morning, and thank you for taking my question here.
John and Doug I, just wanted to kind of touch a little bit more on on the sales outlook Youre reaffirming here of the 15 to 25 per cent and year on year growth.
Wanted to see if you can maybe address the expected cadence of deliveries and also kind of the recurring revenue flow through.
Obviously, you have pretty easy comps here in Q O Q and I would argue for the fourth quarter. So just wanted to see if this is more of a back half weighted growth scenario or any kind of color you can provide there. Thank you.
Sure.
This is John I'll, just get started the Doug can talk about the quarter and flow.
From my standpoint, we're just seeing the U S open and the optimism that customers are talking to us about relevant to their capital purchases throughout this year. So not just the backlog we have not just the refreshed product line, but really looking forward in the pipeline and the confidence we are seeing from customers.
And attraction to this point of the supply chain has been disrupted let's let's make it more regionally more locally and leverage the capability of additives. So.
For all of those reasons, where were we feel confident in that 15% to 25% growth irrelevant the quarters, Doug do you want to comment on yes sure.
So we're certainly not in any respect chasing demand demand is pent up and of.
Our incredibly strong way as we continue to see a lot of interest in the metal product.
And certainly as things start to open up particularly in the U S market, we're seeing excess demand for emerging technologies, particularly the binder jetting printers that that we manufacture and sell.
Under normal conditions. If you went back in our history you'd see that we've generally been a stronger second half company than the first half company in fact, our percentages of range somewhere between let's say, 30%, 40% first half.
And then the remainder of the second half unusually we've struck.
Bold in our fourth quarters, mostly based on that we were following the capex cycle of our customers in terms of you know somebody plans in the fall of the law of borders and in the spring and then you deliver and install sort of in the success of fall or success of winter.
Now I would say, we're we're pretty much off of that schedule and it's going to take a little while the sort of unwind the backlog that we've built up relative to the average age of the backlog is getting the gotten a bit older. As we've just been stuck getting the certain systems that are either out on the field are certainly have been delivered and are under order.
So I would expect we've got we're going to see some volatility in terms of how we recognize over the remainder of the year I think you could see a bit more balance in Q2, three and four based on how all of our operating plans play out for the remainder of the year, just given the upsize backlog and sort of where we know that the machines are sort of both G.
Graphically and what what the scheduling is for the rest of the year may of.
2022, and beyond I think we perhaps could see a reversion back to that Capex cycle, albeit as you can see we are starting to grow the recurring revenue pool, and it's becoming a more and more of a higher percentage of the total revenues of the company that is much more stable when you see.
The that that has now grown for three consecutive quarters excuse me four consecutive quarters over time.
And it's starting to exceed $8 million per cube.
Great. Thanks for that color and just kind of touching on the recurring revenue pool.
Do you think of this kind of level is something that's sustainable and would keep of growing from this point forward. As you mentioned the increased interest and obviously its a precursor to some of these potential customers buying system sales. So any comments you can give on your expected.
Growth in that pool of business.
Yes, so recurring has been a part of the strategy for the last few years and it's really gratifying.
Refining to see of grow.
Consistently grow.
Thank the levels. We're at now will will remain and it's not going to be one of these things like capital equipment that goes up and down its going to consistently grow.
And we anticipate that we can continue to add resources.
The resources that will fund will allow that growth I think one of the really exciting parts of the recurring.
<unk> is the funded R&D and this is where.
We're asking customers to go on the journey of the production of adoption model with them.
And Oh.
You do a lot of materials and process development to ensure success. Once these high production machines are delivered to their facilities. Those those revenues and there's a shared R&D contracts basically help us move our technology forward add new materials and new processes.
Tackled new geometries that we may not have been able to do before so it really is a it's something that helps not just the recurring which is going to stay consistent.
And grow slowly, but actually helps our machine business in the long run.
Thanks for that one final one from me related really to the gross margin profile.
Just wanted to kind of get a sense for when margins start to kind of trough out and recover it sounded like you think the second quarter is going to look more or less of the same as the first quarter.
Just wanted to see if there's some additional color on what the evolution looks like is 21 progresses.
It sounds like as you sell more units of deliver more units we may see the.
The incrementals as your fixed cost gets absorbed so I just wanted to get the sense for what.
<unk> was the first quarter of trough for should we expect.
A different kind of evolution. Thank you.
Yes, I certainly this is Doug I certainly expect the Q1 for US was the trough I think that the second quarter. The two factors I would look at or better leverage I think we are of much better opportunity to post a higher revenue number of certainly than than what we posted in Q1, driven by the systems opportunities, which is totally contingent on.
On the backlog and being able to go out on execute that leverage alone will drive op margin for the company as a whole and then the second piece is is that we still see the influence of.
Some of lower returns on the 25 pros that we've talked about the last couple of quarters as we get out from underneath sort of the first block order that we manufactured and built.
We should be able to deliver the remainder of those systems predominantly in Q2, maybe a few the trickle into the second half of the year, but for the most part that impact we should start to see of turnaround beginning in the second half of the year I would say that the second half of the year, certainly looks favorable as compared to the first but as we head into 2022 is when I think.
You'll start to see a more normalized return.
Thank you I'll hop back into queue.
Thank you. Our next question comes from the line of Jed <unk> with Canaccord Genuity. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
I guess first just wanted to jump into the.
<unk> added headcount in the Opex.
Wondering it sounds like the vast majority is split between R&D and SG&A.
Is there any of that's going to be attached to Cogs in terms of operationally.
Yes, so Jed I'll skip the started.
Yes.
With this increased demand, which we see continuing for our metal systems and really positive acceptance of what our new products are on the broad range of materials.
A lot of that is you're right I would say about half of it comes into the technology development and then the the other half is really split between some elements of SG&A and Cogs, because we are expanding capacity.
Within our R. R U S side to build additional systems.
For our of metal metal products.
So I would say half of his technology R&D and then the other the other half is split between SG&A, and Ed where SNA and Cogs.
That's really helpful. So if I kind of look at.
And I'm, assuming obviously you've done this analysis in terms of how to break the log jam on the conversion from backlog into.
Revenues in some of these new hires to do that.
Have you come up with.
How sub optimal the the <unk>.
Business is operating.
As a function of the things that are out of your control in terms of COVID-19 and.
I'm just wondering do you see the business operating at sort of 50% of.
As you think through these ads is is that the unlocking feature that the.
Ah that.
And that you see and then I guess just cadence would be of second component to that question, assuming that new hires are going to have.
You know I'm not sure what the expectation is of three months or a six month kind of ramp before they get into stride.
It would seem that did this year is the full year of an investment.
Right.
So.
Yeah, I would basically say that right now is the a part of this is the age of our backlog and the inability to travel is one of our key issues from an efficiency standpoint and.
Again, the ramp we're seeing on metal systems is what we're investing in the the new talent.
<unk> some time to move up the chain as far as our experience level on ability to contribute.
Yeah. It isn't the we've talked before about this investment it is a year of investment however.
We see a significant portion of this backlog converting this year that we've already put on the books.
There is there is great optimism for the future years. So in some ways I've talked about the investment as you said for a multi year sort of opportunity. That's in front of US 22 through 25, we're gonna be fantastic growth opportunities for us and what we're doing is putting in the right people to ensure we capture.
More than our fair share of that opportunity, yeah, and I'll, just add to that Jed that.
When I look across some of the strategic resources that we're bringing into the company geographically have been positioned in tech because of emerging trends that we're seeing in terms of where demand is ultimately going to float for the company for both metal and sand products, but certainly for metal products.
That said an offshoot of that has been that we've brought in resources. So that we could physically attain access to some of the equipment. That's been lingering in terms of getting backlog the turnover of bit quicker. We've also instituted other tools and had to change our approach in terms of having more remote.
<unk> and partnering with others to make this process work smoothed, they're going into the future not saying that we're going to go down and into another lockdown period like this but we've certainly gotten smarter throughout this process the.
The Asia question has been the most difficult one for us to answer, particularly in China, where again, we had this hang up and we believe that our results would have looked much differently over the second half of 2020 as well as the first half of 'twenty. One had we been able to execute on those transactions would have resulted in higher revenue figures and certainly a better leverage in.
Terms of margin.
That's helpful. One last question for me, just 30000 or maybe 40000 foot.
Perspective, John.
John and so if I look at the.
If we look at the manufacturing.
Base.
Moving to additive.
Has a clear value proposition in terms of waste throughput et cetera.
But some of that value with the larger manufacturers.
The parade of law holds true that 80% of the manufactured products are done by 20% of the companies.
A lot of that.
Processes now are going to be on fully depreciated equipment. So the challenge is bringing in a new process.
You have to be even more efficient because it's not equal playing in terms of capex.
How is that changing so that your share.
You see moving from a missionary sort of pilot or single to May.
Maybe multiple single digit unit sales to getting that leverage point.
Where were you get real commitment and adoption.
Jed that's a great question.
It's a bit of a challenge the industry has been going through for a while.
What are the things that are really changed.
Since since let's say the last few years, obviously, the attention and the ability for companies like us to deliver at volume.
Highly complex additive manufacturing metal parts.
So we're kind of opening an opportunity that maybe wasn't there a few years ago.
I think the same at the same time the customers the decision makers and the customers are saying we have.
Other reasons to consider additive whether that is because of supply chain disruptions and if you can't get the part you better find another way and that's that's one thing that's opening up opportunities.
As well as the customers requirements, let's say for mileage standards or frankly, even for them to compete with some of their new competitors. They need to do things that are lightweight new designs that are frankly impossible and traditional maybe fully depreciated equipment. So.
That's where we come in.
We take part of the part of the challenge to continue to drive down cost of ownership and we do that in conjunction with our customers. In these production of adoption models. We're looking for every way to continue to drive down the cost of ownership, while still delivering a huge value when it comes to innovative designs and productivity.
<unk> of their product.
The last thing I'd say on that is we are also stepping back and we had a slide in the deck related to sustainability and beyond the pure dollars and cents the price per pound for stainless steel powder. We're looking at what is the impact on sustainability of the carbon impact.
And we've joined the additive manufacturing Green Trade Association, where funding right now projects that allow us to truly understand the difference between conventional and additive from a carbon footprint as well as.
Distributed manufacturing and optimize designs of those additive parts. So it's it's all part of the overall cost of ownership and I think there is window opened right now where customers are thinking more broadly and willing to take the risk to move to additive. So it's a pretty exciting time in the.
That's going on that's going to continue for the next few years I think for sure.
That's helpful. Thanks, guys.
Thank you. Our next question comes from the line of Martin Yang with Oppenheimer and company. Please proceed with your question.
Hi, Thank you for taking my question one of the asking again about the execution challenge in China.
It seems a little.
Counterintuitive given the country's fully opened up can you maybe talk about what's the hang up there is it more customer specific as opposed to macro related and a follow up on that was that was more local hiring part of the solution to solve the challenge.
Yeah.
So from our perspective, one thing to keep in mind is that we don't have of physical business in China.
Do have individuals on the ground, who are capable of maintaining and supporting customers in that country, but we don't have of physical operation, which does present a bit of a challenge or our Asia hub is based out of Japan, and given travel restrictions, it's been quite difficult to get.
The foreigners into China to work on on systems for those that are based out of that region.
There are significant quarantining and other disruptions to when you go and try and do work not just external into China, but moving from province to Province is also a challenge. So these are not all centrally located in one particular spot theyre spread out in different areas and just maneuvering around.
And working with the customers who have had their own situations in terms of restrictions and lockdown has been a significant challenge. So we're not looking at that is substantially open again, if we had our preference we would've had excellent engineers, who are predominantly based either on the United States of Germany physically traveling and work.
On systems alongside customers to ensure a smooth transition to operation and Unfortunately, we've had to manage that almost exclusively remotely with the limited head count that we actually do have within the region.
Thank you.
One more question from me.
And so so given.
Those challenges do you and you maintained the full year guidance do you have a different view on what's driving the full year guidance geographically maybe.
The mix.
Has the mixed.
Changed in your mind.
I would say geographically no we think that the our ability we expect the ability to open up in regions like China, like Asia, and Europe to happen in the second half so.
We do expect our ability to execute customer acceptances in the second half will be much better.
Frankly, starting in the in the second quarter EBITDA.
As far as opportunities as far as new bookings certainly the U S is really strong right now and we are seeing that lead the way.
But likewise, the we expect Europe and Asia will continue to follow followed that trend and from a booking standpoint open up more even this morning, I had some conversations with Asia and Theres Theres, new optimism across some of the regions of new orders coming in which is a really positive thing.
I think that that that would say geographically certainly this year will be more use of our Americas focused.
But it will move back to the same.
I don't know, whether our opportunities or more probably in the long run more of a 40 40 20.
Around the world are in that kind of range you are general splits throughout history of been fairly balanced between the different regions Americas, EMEA and Asia Pac I mean, we've we've trended because of the volatility of the results from one periods of the next <unk> seen disparity on how that splits worked out but in general over.
The longer periods of time, you've seen it fairly balanced between those regions.
When I look at what we expect for 2021, certainly Americas is bringing up a larger percentage given the recent contract wins given the recent per.
Performance certainly in the first quarter on what we anticipate for the remainder of this year. When you look at it from a product perspective, we had anticipated the 'twenty one was going to be a bit of a we were going to continue to see the trend that started to develop in 'twenty, where metal starts to make up of greater percentage of our revenues as the portfolio historically.
We had been maybe an 80% the 20% sand of metal company last year, we saw that trend shift more towards 70, 30 sand of metal and now we're starting to see.
It go even beyond that and so the the metal demand is quite strong that started in the Americas, but it's starting to spread a bit globally. So that that gives you a little bit of a perspective as to what the splits look like.
As we as we look for the full year 'twenty one performance.
Thank you. Our next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.
Hi, guys. Thanks.
A lot of good questions. So far so just one from me.
Was hoping you could just speak to what youre seeing and how you're thinking about M&A and partnerships at this time on may.
If you could kind of speak to your pipeline and.
Potential, but the potential for additional partnerships or M&A this year. Thanks.
Good morning, Noelle Thanks for the question.
Yeah, I would say, we obviously have some small examples here in the first quarter second quarter, which has started and with our strong business base.
Growing business base.
Our global infrastructure and the strong balance sheet, we now have I feel like.
It's a perfect time for us to look at.
For opportunities that might fit our strategy.
What does that mean it means it's got to be metal oriented it's got to be industrial.
As opposed to being all things to all people.
We've seen some opportunities come up already the the metal design lab with <unk> has been really positive and it really will be of great product for us over time.
Fresh made this is leveraging our sand printing business.
And tooling opportunities around the world and getting us into some new markets there.
<unk>.
So we're going to use those guideposts and we're open to and frankly in some ways because of our momentum in the marketplace I think we're becoming a little bit of.
Having an opportunity where companies are coming to us and wanting to be part of the the training that we're on.
Most of these will be small to medium size opportunities.
And that's where we think we can be most effective in executing our strategy and again.
The examples you have so far are good examples, but we have some other ones that could be part of the opportunity set in the future, but we're going to be prudent about it.
It definitely is a way for us to grow are.
We have a great base, we have a strong balance sheet and we're going to approach it in a prudent fashion, but in an opportunistic fashion.
Great. Thanks, John.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Hartner for any final comments.
Okay. Thank you all for your time today and for your interest in our vision towards sustainable manufacturing without limitations. Thanks to our global team our partners and our customers and we look forward to updating you on our progress after our next quarter so long.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.