S-1 1 d578697ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on August 21, 2013

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

The ExOne Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3599   46-1684608

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(724) 863-9663

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

S. Kent Rockwell

Chairman & CEO

The ExOne Company

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(724) 863-9663

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Hannah T. Frank

Lewis U. Davis

Buchanan Ingersoll & Rooney PC

One Oxford Centre

301 Grant Street, 20th Floor

Pittsburgh, Pennsylvania 15219-1410

(412) 562-8800

 

JoEllen Lyons Dillon

Chief Legal Officer and Corporate Secretary

The ExOne Company

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(724) 863-9663

 

Jonathan H. Talcott

Nelson Mullins Riley & Scarborough LLP

101 Constitution Avenue, NW, Suite 900

Washington, DC 20001

(202) 712-2806

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

The Registrant is an “emerging growth company,” as defined in Section 2(a) of the Securities Act. This registration statement complies with the requirements that apply to an issuer that is an emerging growth company.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed Number of

Shares to be

Registered(1)

 

Proposed

Maximum

Offering

Price Per Share(2)

 

Proposed

Maximum

Aggregate

Offering Price(2)

 

Amount of

Registration Fee

Common Stock, par value $0.01 per share

  3,054,400   $65.03   $198,627,632   $27,092.81

 

 

(1) Includes shares of common stock subject to an over-allotment option granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, as amended (the “Securities Act”), on the basis of the average of the high and low selling prices of the Registrant’s Common Stock reported on The NASDAQ Global Market as of a date (August 15, 2013) within five business days prior to filing this registration statement.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS    SUBJECT TO COMPLETION    DATED August 21, 2013

2,656,000 Shares

 

LOGO

The ExOne Company

Common Stock

 

 

We are offering 1,106,000 shares of our common stock, and the selling stockholders are offering 1,550,000 shares of our common stock. We will not receive any proceeds from the sale of shares by our selling stockholders.

Our common stock is listed on The NASDAQ Global Market under the symbol “XONE.” As of August 20, 2013, the last reported sale price of our common stock on The NASDAQ Global Market was $69.29 per share.

Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 14 of this prospectus to read about the risks you should consider before investing.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

 

     Per Share      Total  

Public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $         $     

Proceeds, before expenses, to us(2)

   $         $     

Proceeds, before expenses, to selling stockholders(2)

   $         $     

 

(1) Please see “Underwriting” beginning on page 112 of this prospectus for additional information regarding the underwriting arrangement.
(2) We estimate that we will incur offering expenses of approximately $         million in connection with the offering. The selling stockholders will each pay us their pro rata portion of the estimated expenses for the offering.

Some of the selling stockholders have granted the underwriters an option, exercisable within 30 days of the date of this prospectus, to purchase a maximum of 398,400 additional shares of our common stock, at the public offering price, less the underwriting discount, to cover over-allotments of shares, if any. If the underwriters exercise their over-allotment option in full, then the proceeds before expenses will be $             to the selling stockholders.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of our common stock to purchasers against payment on or about                     , 2013.

FBR

 

 

The date of this prospectus is                     , 2013.


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     14   

CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

     28   

MARKET AND INDUSTRY DATA

     29   

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

     29   

USE OF PROCEEDS

     30   

PRICE RANGE OF OUR COMMON STOCK

     30   

DIVIDEND POLICY

     30   

CAPITALIZATION

     31   

DILUTION

     32   

SELECTED CONSOLIDATED FINANCIAL DATA

     34   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     37   

BUSINESS

     63   

MANAGEMENT

     85   

PRINCIPAL STOCKHOLDERS

     97   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     99   

SELLING STOCKHOLDERS

     102   

DESCRIPTION OF CAPITAL STOCK

     104   

CERTIFICATE OF INCORPORATION AND BYLAWS

     106   

SHARES ELIGIBLE FOR FUTURE SALE

     110   

UNDERWRITING

     112   

U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     117   

LEGAL MATTERS

     120   

EXPERTS

     120   

WHERE YOU CAN FIND MORE INFORMATION

     120   

INDEX TO FINANCIAL INFORMATION

     F-1   

We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information in this prospectus may be accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We will update this prospectus as required by law. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part or to any document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.


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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that is important to you or that you should consider before investing in our common stock. You should carefully read the entire prospectus, including the risk factors, financial data, and financial statements included herein, before making a decision about whether to invest in our common stock.

All financial information includes The ExOne Company and its wholly-owned subsidiaries, ExOne Americas LLC (United States), ExOne GmbH (Germany) and Ex One KK (Japan). All financial information for periods prior to January 1, 2013 is of The Ex One Company, LLC, our predecessor company, and its subsidiaries, and all financial information for periods prior to March 27, 2013 include variable interest entities, Troy Metal Fabricating, LLC (“TMF”) and Lone Star Metal Fabrication, LLC (“Lone Star”). Unless the context requires otherwise or we specifically indicate otherwise, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option. As used in this prospectus, unless the context otherwise requires or indicates, the terms “ExOne,” “our Company,” “the Company,” “we,” “our,” “ours,” and “us” refer to The ExOne Company and its wholly-owned subsidiaries.

Overview

The Company

We are a global provider of three dimensional (“3D”) printing machines and printed products, materials and other services to industrial customers. Our business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for our customers using our in-house 3D printing machines. We offer pre-production collaboration and print products for customers through our six production service centers (“PSCs”), which are located in the United States, Germany and Japan. We build 3D printing machines at our facilities in the United States and Germany. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, necessary for purchasers of our machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading printing capacity (as measured by build box size and printhead speed), uniquely position us to serve the needs of industrial customers.

Our 3D printing machines use our binder jetting technology, powdered materials, chemical binding agents and integrated software to print 3D products directly from computer models by repeatedly depositing very thin layers of powdered materials and selectively placing chemical binding agents to form the printed product. One of our key industry advantages is that our machines are able to print products in materials which are desired by industrial customers. Currently, our 3D printing machines are able to manufacture casting molds and cores from specialty silica sand and ceramics, which are the traditional materials for these casting products. Of equal importance, our 3D printing machines are capable of direct product materialization by printing in industrial metals, including stainless steel, bronze, iron, and bonded tungsten. We are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium, and our current material development plan calls for an additional industrial material to be qualified every six months.

We believe that we are a leader in providing 3D printing machines, 3D printed products, materials and other services to industrial customers in the aerospace, automotive, heavy equipment, energy/oil/gas and other industries. In an effort to further solidify this position, the net proceeds from our initial public offering have been earmarked or spent in order to (1) expand our PSC network to fifteen global locations by the end of 2015, (2) increase capacity and upgrade technology in our production facilities in Germany, including consolidating our operations from five buildings located throughout the district of Augsburg to one purpose-built facility, (3) expand our materials development initiatives and achieve our plan of one new industrial material

 

 

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qualified every six months, (4) select and deploy an Enterprise Resource Planning (“ERP”) system to promote operational efficiency and financial controls globally, (5) payoff existing debt, and (6) deploy working capital to support growth. These uses of proceeds and priorities are consistent with the plan outlined by us during our initial public offering and communicated to our stockholders thereafter. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments.”

Our revenue growth is driven by increasing customer acceptance of our 3D printing technology. We believe that we can accelerate customer adoption of our technology by delivering turnkey 3D printing services and products, from design through part completion. In developing our next generation 3D printing machine platforms, we successfully focused on achieving the volumetric output rate demanded by our industrial customers. Our refined strategic focus emphasizes all phases of the production cycle, notably enhancements to pre-print, such as Computer Aided Design (“CAD”), simulation, and design optimization, as well as post-print processing, including metal finishing technologies and precision casting capabilities. We are exploring a combination of acquisitions, strategic investments, and/or alliances, some of which we believe will promote advances in pre-print and post-print processing. We intend to use part or all of the proceeds from this offering in order to achieve these and other objectives and for working capital and general corporate purposes to maximize and attain our growth potential. See “Use of Proceeds.”

Our revenues for the six months ended June 30, 2013 were $17.2 million compared to $7.4 million for the six months ended June 30, 2012, and our revenues for the year ended December 31, 2012 were $28.7 million, as compared to $15.3 million for 2011 and $13.4 million for 2010. Our Adjusted EBITDA for the six months ended June 30, 2013 was ($1.2) million as compared to ($3.6) million for the six months ended June 30, 2012, and our Adjusted EBITDA for the year ended December 31, 2012 was ($6.4) million, as compared to ($4.0) million for 2011 and ($3.0) million for 2010. See notes to the table set forth in “Summary Consolidated Financial Data” for a reconciliation of Adjusted EBITDA to net loss attributable to ExOne.

In the six months ended June 30, 2013, we sold nine machines (six S-Max, one S-Print, one M-Lab and one Orion) compared to one machine (S-Max) in the six months ended June 30, 2012. In 2012 we sold thirteen machines (nine S-Max, three S-Print and one S-15) compared to five machines (two S-15, one S-Max, one S-Print and one Other) in 2011 and five machines (two S-15, two S-Max and one Other) in 2010.

We conduct a significant portion of our business with a limited number of customers. During the six months ended June 30, 2013 and 2012, we had two customers and one customer, respectively, that each individually represented 10.0% or greater of total revenue. There were no customers for the year ended December 31, 2012 which individually represented 10.0% or greater of total revenue. During the years ended December 31, 2011 and 2010 we had one customer and three customers, respectively, which individually represented 10.0% or greater of total revenue. Our top five customers represented approximately 45.7% and 37.6% of total revenue for the six months ended June 30, 2013 and 2012, respectively, and approximately 31.7%, 40.9%, and 48.7% of total revenue for the years ended December 31, 2012, 2011, and 2010, respectively. For each of the respective periods, these customers primarily purchased 3D printing machines. Sales of 3D printed products, materials and other services tend to be from repeat customers that may utilize the capability of our PSCs for three months or longer. Sales of 3D printing machines are low volume and generate significant revenue but the same customers do not necessarily buy machines in each period. Timing of customer purchases is dependent on the customer’s capital budgeting cycle, which may vary from period to period. The nature of the revenue from 3D printing machines, as described above, does not leave us dependent upon a single or a limited number of customers. Rather, the timing of the sales can have a material effect on period to period financial results.

 

 

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Our History

Our business began as the advanced manufacturing business of Extrude Hone Corp., which manufactured its first 3D printing machine in 2003 using licensed technology developed by researchers at the Massachusetts Institute of Technology (“MIT”). In 2005, our business assets were transferred to The Ex One Company, LLC, a Delaware limited liability company, when Extrude Hone Corp. was purchased by another company. In 2007, we were acquired by S. Kent Rockwell through his wholly-owned company Rockwell Forest Products, Inc. (“RFP”). On January 1, 2013, The Ex One Company, LLC was merged with and into a newly created Delaware corporation, which changed its name to The ExOne Company (the “Reorganization”). On February 12, 2013, we completed our initial public offering of our common stock, raising approximately $90.4 million in net proceeds after expenses to us.

Recent Developments

On July 23, 2013, we announced that we have added iron infiltrated with bronze as a new 3D printing material. We believe that the addition of iron to our metal portfolio will be well received by customers in the traditional market for iron. We prioritized our development of iron infiltrated with bronze as a result of general customer interest and the breadth of the manufacturing market. Iron is widely used in the manufacturing of machine tools, automotive parts and general support structures. Manufacturing iron-based products using our 3D printing technology allows for the direct creation of more intricate products than traditional manufacturing processes, and creates a more cost effective alternative to current 3D printing materials such as stainless steel. Additionally, we announced that we have added phenolic and sodium silicate to our suite of binders for use in our 3D printing process. Phenolic binder, used with ceramic sand in the 3D printing of molds and cores, offers customers three benefits: (i) casting higher heat alloys; (ii) creating a higher strength mold or core; and (iii) improving the quality of the casting due to reduced expansion of the mold or core. These capabilities address challenges faced by the automotive, aviation, hydraulic/heavy equipment and pump industries. We believe that the use of sodium silicate will reduce or eliminate the release of fumes and gas in the casting process, helping to reduce costs associated with air ventilation, and electrical and maintenance equipment, which we believe will appeal to casting houses that are in search of cleaner environmental processes.

We also announced on July 31, 2013 that we opened a new PSC in Auburn, Washington to be cost competitive and meet customer demand in the Puget Sound region. The new PSC is an 11,600 square foot leased facility in which we will print molds and cores for foundries in the northwestern U.S. corridor. Full operations are expected to commence in September 2013. This is our sixth PSC worldwide. We also announced that we opened new sales centers in Sao Paulo, Brazil and Shanghai, China using the resources of the Association for Manufacturing Technology, which provides global support to U.S. manufacturers through its technical centers and representative offices in numerous global locations. We expect our sales representatives in each office to focus on targeting customers well suited for our 3D printing technology and to focus on furthering the reach of our expanding sales network in South America and China. Our sales centers are intended to serve as a preliminary step in establishing increased PSC activity in 2014.

On August 1, 2013, we entered into an agreement for the purchase of land in Gersthofen, Germany, in the district of Augsburg to build a new facility. The facility will comprise production, warehouse, service, office and research and development space. On August 14, 2013, we engaged a turnkey provider of construction services for the design and construction of the facility. We intend to consolidate our five existing leased facilities in Augsburg into the new facility, providing expansion capacity to support our global growth strategy.

On August 8, 2013, we announced that we have added bonded tungsten as a new 3D printing material to be used in the design of products to be used in protecting people and their environments from the harmful effects of ionizing radiation.

 

 

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The Additive Manufacturing Industry and 3D Printing

3D printing is the most common type of an emerging manufacturing technology broadly referred to as additive manufacturing (“AM”). In general, AM is a term used to describe a manufacturing process that produces 3D objects directly from digital or computer models through the repeated deposit of very thin layers of material. 3D printing is the process of joining materials from a digital 3D model, usually layer by layer, to make objects using a printhead, nozzle or other printing technology. The terms “AM” and “3D printing” are increasingly being used interchangeably as the media and marketplace have popularized the term 3D printing rather than AM, the industry term.

AM represents a transformational shift from traditional forms of manufacturing (e.g., machining or tooling), sometimes referred to as subtractive manufacturing. We believe that AM and 3D printing are poised to displace traditional manufacturing methodologies in a growing range of industrial applications. Our 3D printing process differs from other forms of 3D printing processes in that we use a chemical binding agent and focus on industrial products and materials.

ExOne and 3D Printing

We provide 3D printed products, materials and other services primarily to industrial customers and end-market users. We believe that we are an early entrant into the AM industrial products market and are one of the few providers of 3D printing solutions to industrial customers in the aerospace, automotive, heavy equipment and energy/oil/gas industries.

Our binder jetting 3D printing technology was developed over 15 years ago by researchers at MIT. Our machines build or print products from CAD by depositing successive thin layers of particles of materials such as silica sand or metal powder in a “build box.” A moveable printhead passes over each layer and deposits a chemical binding agent in the selected areas where the finished product will be materialized. Each layer can be unique.

Depending on the industrial material used in printing, printed products may need post-production processing. We generally use silica sand or foundry sand for casting, which requires no additional processing. Products printed in other materials, such as glass or metals, need varying amounts of heat treating or other post-processing.

Our Competitive Strengths

We believe that our competitive strengths include:

 

   

Volumetric Output Rate. We believe that our 3D printing machines provide us the highest rate of volume output per unit of time among competing AM technologies. Because of our early entrance into the industrial market for AM and our investment in our core 3D printing technology, we have been able to improve the printhead speed and build box size of our machines. As a result, we have made strides in improving the output efficiency of our machines, as measured by volume output per unit of time. For example, the machine cost per cubic inch for our mid-size Flex machine is approximately 5% of the comparable machine cost of its predecessor, the R 2, assuming a constant 80% utilization rate over a five-year period. With continued advances in our core 3D printing technologies, we believe that our cost of production will continue to decline, increasing our ability to compete with subtractive manufacturing processes, particularly for complex products, effectively expanding our addressable market.

 

   

Printing Platform Size. The size of the build box area and the platform upon which we construct a product is important to industrial customers, who may want to either make a high number of products

 

 

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per job run or make an industrial product that has large dimensions and is heavy in final form. The 1,260-liter platform for our S-Max machine is one of the largest commercially available 3D printing build platforms. We believe that our technology and experience give us the potential to develop even larger build platforms to meet the production demands of current and potential industrial customers. In addition, we have created machine platforms in four size ranges in order to cater to the varying demands of our customers. Our two largest platforms, the Max and Print machines, are differentiated from the machines of our competitors in their ability to print in an industrial size and scale. Our M-Lab size platform provides a small build box for lab work and experimentation.

 

   

Industrial Material. Currently, our 3D printing machines are able to manufacture casting molds and cores from specialty silica sand and ceramics, which are the traditional materials for these casting products. Of equal importance, our 3D printing machines are also capable of direct product materialization by printing in industrial metals, including stainless steel, bronze, iron, and bonded tungsten. We are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium. There is significant demand for products made of these materials. Many AM companies, however, cannot print industrial products in these materials and focus instead on polymer applications.

 

   

Chemical Binding. We use liquid chemical binding agents during the printing process. We believe that our unique chemical binding agent technology can more readily achieve efficiency gains over time than other AM technologies, such as laser-fusing technologies. For instance, in order to increase the print speed of laser-based technologies, another expensive industrial laser must be added to the manufacturing process, raising the unit cost of production.

 

   

International Presence. Since our inception, we have structured our business to cater to major international markets. We have established one or more PSCs in each of North America, Europe, and Asia. Because many of our current or potential customers are global industrial companies, it is important that we have a presence in or near the areas where these companies have manufacturing facilities.

 

   

Co-location of High Value Production. Over the last few years, many U.S. industrial manufacturers have outsourced product supply or otherwise created long, relatively inflexible supply chains for their high-complexity, high-value products. We believe that over the next few years, many of these companies will need to build these products in the United States, near their main manufacturing facilities, in order to be competitive nationally and internationally. We believe we are well positioned to help these manufacturers co-locate the production of products so as to optimize our customers’ supply chains.

Our Business Strategy

The principal elements of our growth strategy include:

 

   

Expand the Network of Production Service Centers. Our PSCs provide a central location for customer collaboration and provide customers with a direct contact point to learn about our 3D printing technology, buy products printed by us, and purchase our machines. By the end of 2015, we plan to expand our PSC network from the current six locations to fifteen locations. Like our current PSCs, we plan to locate the additional PSCs in major industrial centers near existing and potential customers. While we may adjust the final locations based upon market considerations, our 2013 plan includes announcing the opening of an additional location in the United States in addition to the recent Auburn, Washington announcement. Our current plan also includes opening two or more additional locations in the first half of 2014.

 

 

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Qualify New Industrial Materials Printable In Our Systems. Currently, our 3D printing machines are capable of printing in silica sand, ceramics, stainless steel, bronze, iron, bonded tungsten, and glass, and we are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium. By expanding into these other materials, we believe we can expand our market share and better serve our industrial customer base. We established ExOne Materials Application Laboratory (“ExMAL”), which focuses on materials testing. We believe ExMAL will assist us in increasing the rate at which we are able to qualify new materials. ExMAL is led by our Chief Technology Officer, Rick Lucas, whose background includes experience in materials testing and certification. See “Management — Executive Officers and Directors.”

 

   

Increase the Efficiency of Our Machines to Expand the Addressable Market. We intend to invest in further developing our machine technology so as to increase the volume output per unit time that our machines can produce. In 2011, we began selling a new second generation mid-sized platform, the S-Print machine. In addition, we are marketing our new M-Flex machine, and we have a signed purchase order to deliver our first unit in the third quarter of 2013. See “Business Our Machines and Machine Platforms.” In both cases, the new machines are designed to increase the volume output per unit of time through advances in printhead speed and build box size. Achieving improved production speed and efficiency will expand our potential market for our machines and for products made in our PSCs.

 

   

Focus Upon Customer Training and Education to Promote Awareness. We use our regional PSCs to educate our potential customers. In addition, we have supplied 3D printing equipment to more than 20 universities and research institutions, in hopes of expanding the base of future adopters of our technology. We established the ExOne Training and Education Center (“ExTEC”) in our North Huntingdon, Pennsylvania headquarters. At ExTEC, technicians guide our current and prospective customers in the optimal use of 3D printing and customers gain digital access to our 3D printing knowledge database as it continues to evolve. We make ExTEC accessible to universities, individual customers, employees/trainees, designers, engineers, and others interested in 3D printing. We will continue to educate the marketplace about the advantages of 3D printing.

 

   

Achieve Revenue Balance and Geographic Diversification. Over the long-term, our goal is to balance revenue between machine sales and PSC production, service contracts, and consumables. Machine sales tend to be seasonal, less predictable, and generally more heavily impacted by the macroeconomic cycle, as compared to PSC production, service contracts, and consumables. As we sell more machines, the machine sales portion of our business will be supplemented by related sales of service, replacement parts, and consumables. To avoid being overly dependent on economic conditions in one part of the world, we intend to develop our customer base so that our revenues are balanced across the Americas, Europe, and Asia. As overall revenues increase, maintaining this balance will largely be achieved by targeting specific customers and industries for machine sales and by establishing PSCs in each of our key regions.

 

   

Advance Pre-Print Design and Post-Print Processing Capabilities to Accelerate the Growth of Our 3D Printing Technology. Our next generation 3D printing machine platforms have achieved the volumetric output rate and quality necessary to serve industrial markets on a production scale. We believe that there is an opportunity to similarly advance the pre-print and post-print processing phases of product materialization to more fully exploit the transformative power of our 3D printing machines and drive growth. These opportunities relate to both direct and indirect part materialization. For direct metal production, we believe that enhancing pre-print processes, notably design optimization tools and suitable print material availability, can greatly accelerate our capture of market share in the near-term. Additionally, enhancements to post-print processing will increase the applications for printed products. Through ExMAL, we are developing post-print processing technologies to achieve fully dense metal product materialization without the need for infiltration, and we are exploring technology sharing partnerships to further this initiative. In indirect production utilizing 3D printed molds and cores, advanced performance casting technologies can be leveraged to increase yields and reduce weight of casted products. To address the market opportunity and fill

 

 

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the execution gap, we have developed a suite of processes, many of which are proprietary, for producing high-quality castings through a process that we call ExCAST. ExCAST provides industry guidance and support through all stages of production, from CAD at the design stage, through the 3D materialization of molds and cores, metal casting of the end product and rapid delivery to the end-user.

 

   

Pursue Growth Opportunities Through Acquisitions, Alliances, and/or Strategic Investments. We intend to opportunistically identify and, through acquisitions, alliances and/or strategic investment, integrate and advance complementary businesses, technologies and capabilities. Our goal is to expand the functionality of our products, provide access to new customers and markets, and increase our production capacity. We are in active discussions with parties that we believe can contribute to a superior end-to-end manufacturing process.

Selling Stockholders

As of June 30, 2013, S. Kent Rockwell, our Chairman and Chief Executive Officer, beneficially owned 37.1% of our common stock through his indirect, sole ownership of two entities: RFP and Rockwell Holdings, Inc. (“RHI”). On August 20, 2013, RHI gifted 450,000 shares of our common stock that it owned to the Rockwell Holdings, Inc. Charitable Remainder Unitrust (the “Lafayette Trust”). The Lafayette Trust is an irrevocable trust, of which Lafayette College is the sole trustee. See “Certain Relationships and Related Party Transactions.”

Following the closing of this offering, Mr. Rockwell is expected to beneficially own 23.50% of our common stock (22.02% if the underwriters exercise the over-allotment option in full).

The underwriters have also agreed to include a limited number of shares to be sold by certain members of our management team in the over-allotment option as described in “Selling Stockholders.” The selling stockholders will pay their pro rata portion of the estimated expenses for the offering. To the extent the actual expenses of the offering exceed estimated expenses, we will bear the additional expense.

Risks Affecting Us

We are subject to numerous risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. Please read the section entitled “Risk Factors” beginning on page 14 of this prospectus for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock.

Corporate Information

Our principal executive offices are located at 127 Industry Boulevard, North Huntingdon, Pennsylvania 15642, and our telephone number is (724) 863-9663. Our corporate website address is www.exone.com. The information contained on, or accessible from, our corporate website is not part of this prospectus and you should not consider information contained on our website to be a part of this prospectus or in deciding whether to purchase our common stock.

 

 

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Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

   

we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

 

   

we are permitted to provide less extensive disclosure about our executive compensation arrangements;

 

   

we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

   

we have elected to use an extended transition period for complying with new or revised accounting standards.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, qualify as a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (which requires us to have more than $700 million in market value of our common stock held by non-affiliates), or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens.

 

 

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The Offering

 

Common stock offered by us in primary offering    1,106,000 shares.

Common stock offered by the selling stockholders in

the primary offering

   1,550,000 shares in the aggregate offered by RFP, RHI and the Lafayette Trust. See “Selling Stockholders.”
Additional shares of common stock offered by selling stockholders if over-allotment option exercised in full    213,400 shares offered by RFP and 185,000 shares in the aggregate offered by the management selling stockholders. See “Selling Stockholders.”
Common stock to be outstanding after the offering    14,387,608 shares.
Common stock beneficially owned by S. Kent Rockwell after the offering    3,381,027 shares (3,167,627 shares if the underwriters exercise the over-allotment option in full).
Use of proceeds    We estimate that the net proceeds to us from this offering, after deducting underwriters’ discounts and commissions and our estimated offering expenses, will be approximately $         million. We will not receive any proceeds from the sale of common stock by the selling stockholders. We intend to use the net proceeds from this offering to finance future acquisitions or partnerships and alliances consistent with our business strategy and for working capital and general corporate purposes.
Over-allotment option    RFP, and Messrs. Burns, Hoechsmann, Irvin and Lucas have granted the underwriters a 30-day option to purchase a maximum of 398,400 additional shares of our common stock at the public offering price to cover over-allotments.
Risk factors    You should consider carefully all of the information set forth in this prospectus and, in particular, the specific factors set forth under “Risk Factors” on page 14 of this prospectus, before deciding whether to invest in our common stock.
Dividend policy    We have not historically paid dividends and we do not intend to declare or pay regular dividends on our common stock in the foreseeable future.
NASDAQ Global Market symbol    XONE

 

 

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Unless otherwise indicated, all information in this prospectus excludes:

(i) 500,000 shares of common stock reserved for issuance under our 2013 Equity Incentive Plan (the “Plan”). The Plan provides for automatic increases in the reserve available annually on January 1 from 2014 through 2023 equal to the lesser of (i) 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year or (ii) a number of shares of common stock determined by our Board of Directors, provided that the maximum number of shares authorized under the Plan will not exceed 1,992,242 shares, subject to certain adjustments.

(ii) Options to certain employees to purchase 175,000 shares of common stock issuable upon exercise of such options as of June 30, 2013, at an exercise price of $18.00 per share, which vest in equal annual installments over three years from the date of grant.

(iii) 20,000 shares of restricted stock that were unvested as of June 30, 2013.

 

 

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Summary Consolidated Financial Data

(dollars in thousands, except per-share amounts)

The following tables set forth certain of our summary consolidated financial data for the periods represented. The financial data as of June 30, 2013, and for the quarter and six months ended June 30, 2013 and 2012 have been derived from our unaudited condensed consolidated financial statements and notes thereto. The financial data as of and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements and notes thereto. We have prepared the unaudited consolidated financial information set forth below on the same basis as our audited consolidated financial statements and have included all adjustments, consisting of only normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations for such periods. The interim results set forth below are not necessarily indicative of expected results for the year ending December 31, 2013 or for any other future period.

The data presented below should be read in conjunction with, and are qualified in their entirety by reference to “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Quarter Ended
June 30,
        Six Months Ended
June 30,
        Year Ended
December 31,
 
    2013     2012         2013     2012         2012     2011     2010  
   

(unaudited)

        (unaudited)                        

Statement of consolidated operations and comprehensive loss data:

                 

Revenue

  $ 9,230      $ 4,676        $ 17,164      $ 7,398        $ 28,657      $ 15,290      $ 13,440   

Gross profit

  $ 4,181      $ 1,523        $ 7,019      $ 2,339        $ 12,143      $ 3,643      $ 3,066   

Research and development

  $ 1,276      $ 348        $ 2,132      $ 832        $ 1,930      $ 1,531      $ 1,153   

Selling, general and administrative*

  $ 3,908      $ 4,262        $ 7,476      $ 5,948        $ 18,285      $ 7,286      $ 5,978   

Interest expense

  $ 50      $ 110        $ 280      $ 308        $ 842      $ 1,570      $ 1,114   

Net loss attributable to ExOne*

  $ (1,120   $ (3,609     $ (3,034   $ (5,138     $ (10,168   $ (8,037   $ (5,508

Net loss attributable to ExOne per common share:

                 

Basic

  $ (0.08     N/A **      $ (0.27     N/A **        N/A **      N/A **      N/A ** 

Diluted

  $ (0.08     N/A **      $ (0.27     N/A **        N/A **      N/A **      N/A ** 

 

* Selling, general and administrative expense and net loss attributable to ExOne include $200 and $1,785 in equity-based compensation expense for the quarters ended June 30, 2013 and 2012, respectively. Selling, general and administrative expense and net loss attributable to ExOne include $311 and $1,785 in equity-based compensation expense for the six months ended June 30, 2013 and 2012, respectively. Selling, general and administrative expense and net loss attributable to ExOne includes $7,735 in equity-based compensation expense for the year ended December 31, 2012. There was no equity-based compensation expense recorded during 2011 or 2010.
** Amounts are not comparable as a result of our Reorganization as a corporation on January 1, 2013.

 

 

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     June 30,
2013
     December 31,  
     
        2012      2011      2010  
     (unaudited)                       

Consolidated balance sheets data:

           

Working capital (deficit)

   $ 72,675       $ (4,682    $ (979    $ (13,253

Cash and cash equivalents

   $ 64,550       $ 2,802       $ 3,496       $ 1,021   

Property and equipment — net

   $ 14,309       $ 12,467       $ 7,919       $ 7,990   

Total assets

   $ 96,118       $ 33,075       $ 18,615       $ 15,233   

Line of credit

   $ —         $ 528       $ —         $ —     

Demand note payable to member

   $ —         $ 8,666       $ —         $ 15,045   

Long-term debt and lease obligations

   $ 3,499       $ 10,566       $ 5,429       $ 3,839   

Redeemable preferred units

   $ —         $ —         $ 18,984       $ —     

Preferred units

   $ —         $ 18,984       $ —         $ —     

Common units

   $ —         $ 10,000       $ 10,000       $ 10,000   

Common stock

   $ 133       $ —         $ —         $ —     

Additional paid-in capital

   $ 88,026       $ —         $ —         $ —     

Total stockholders’ / members’ equity (deficit)

   $ 84,194       $ 41       $ (15,599    $ (8,277

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2013     2012     2012     2011     2010  
     (unaudited)                    

Statement of consolidated cash flows data:

          

Cash used for operating activities

   $ (7,133   $ (7,498   $ (9,803   $ (2,436   $ (5,912

Cash used for investing activities

   $ (3,875   $ (1,518   $ (1,724   $ (1,080   $ (1,795

Cash provided by financing activities

   $ 72,882      $ 6,142      $ 11,003      $ 5,931      $ 7,811   

 

Other data:

              
     Quarter Ended
June 30,
    Six Months Ended
June 30,
    Year Ended
December 31,
 
     2013     2012     2013     2012     2012     2011     2010  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Machine units sold:

              

S-15

     —          —          —          —          1        2        2   

S-Max

     4        1        6        1        9        1        2   

S-Print

     —          —          1        —          3        1        —     

M-Lab

     —          —          1        —          —          —          —     

Orion

     —          —          1        —          —          —          —     

Other

     —          —          —          —          —          1        1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4        1        9        1        13        5        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA*

   $ (279   $ (2,666   $ (1,182   $ (3,636   $ (6,389   $ (4,004   $ (2,993

 

*

We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as net income (loss) attributable to ExOne (as calculated under accounting principles generally accepted in the United States of America (“GAAP”)) plus net income (loss) of noncontrolling interests, provision (benefit) for income taxes, interest expense, depreciation, equity-based compensation associated with our 2013 Equity Incentive Plan and

 

 

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  other (income) expense — net. Disclosure in this prospectus of Adjusted EBITDA, which is a non-GAAP financial measure, as defined under the rules of the U.S. Securities and Exchange Commission (“SEC”), is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to ExOne or any other performance measure derived in accordance with GAAP. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

We believe Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs, we understand that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Reconciliation of Adjusted EBITDA to Net loss attributable to ExOne:

 

    Quarter Ended
June 30,
    Six Months Ended
June 30,
    Year Ended
December 31,
 
    2013     2012     2013     2012     2012     2011     2010  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net loss attributable to ExOne

  $ (1,120   $ (3,609   $ (3,034   $ (5,138   $ (10,168   $ (8,037   $ (5,508

Net income attributable to noncontrolling interests

    —          148        138        182        480        420        328   

Interest expense

    50        110        280        308        842        1,570        1,114   

Provision for income taxes

    72        246        91        234        995        1,031        198   

Depreciation

    524        421        1,096        805        1,683        1,170        1,072   

Equity-based compensation*

    200        —          311        —          —          —          —     

Other (income) expense — net

    (5     18        (64     (27     (221     (158     (197
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ (279   $ (2,666   $ (1,182   $ (3,636   $ (6,389   $ (4,004   $ (2,993
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* As noted above, amounts reflected for equity-based compensation relate solely to expense incurred in connection with equity-based awards granted under our 2013 Equity Incentive Plan. During both the quarter and six months ended June 30, 2012, we incurred $1,785 of equity-based compensation expense related to the sale of common units by the majority member of the former limited liability company to another existing member of the former limited liability company. During the year ended December 31, 2012, we incurred $7,735 of equity-based compensation expense related to the sale of common units by the majority member of the former limited liability company to other existing members of the former limited liability company. As these transactions are not a part of our 2013 Equity Incentive Plan, we have elected not to consider the related equity-based compensation in measuring Adjusted EBITDA for the respective 2012 periods. There was no equity-based compensation expense recorded by ExOne during 2011 or 2010.

 

 

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RISK FACTORS

An investment in our common stock involves risks. You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks and uncertainties develops into actual events, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that case, the price of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We may not be able to significantly increase the number of materials in which we can print products fast enough to meet our business plan.

Our business plan is heavily dependent upon our ability to steadily increase the number of qualified materials in which our machines can print products, because this will increase our addressable market, both as to customers and products for customers. However, qualifying new materials is a complicated engineering task, and there is no way to predict whether, or when, any given material will be qualified. If we cannot hire people with sufficient technical skills to work on qualifying new materials for printing, or if we lack the resources necessary to create a steady flow of new materials, we will not be able to meet our business plan goals and a competitor may emerge that is better at qualifying new materials, either of which would have an adverse effect on our business results.

Our future success in qualifying new materials for printing may attract more competitors into our markets, some which may be much larger than we are.

If we succeed in qualifying a growing number of materials for use in our 3D printing machines, that will increase our addressable market. However, as we create a larger addressable market, our market may become more attractive to other 3D printing companies or large companies that are not 3D printing companies, but which may see an economic opportunity in the markets we have created. Because we are a supplier of 3D printed products to industrial companies, an increase in the number of competitors for our addressable market is likely to adversely affect our business and financial results.

We may not be able to adequately increase demand for our products.

Our business plan is built around a steady increase in the demand for our products. However, only a relatively small number of our potential customers know of the existence of AM and are familiar with its capabilities, and even fewer understand the potential benefits of using AM to manufacture products. If we do not develop effective strategies to raise awareness among potential customers of the benefits of AM and 3D printing, we may be unable to achieve our planned rate of growth, which could adversely affect our results of operations.

We may not be able to hire the number of skilled employees that we need to achieve our business plan.

For our business to grow in accordance with our business plan, we will need to hire and retain additional employees with the technical competence and engineering skills to operate our machines, improve our technology and processes and expand our technological capability to print using an increasing variety of materials. People with these skills are in short supply and may not be available in sufficient numbers to allow us to meet the goals of our business plan. If we cannot obtain the services of a sufficient number of technically skilled employees, we may not be able to achieve our planned rate of growth, which could adversely affect our results of operations.

Our revenues and operating results may fluctuate.

Our revenues and operating results may fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which are not within our control. A significant portion of

 

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our machine orders are typically received during the third or fourth quarter of the fiscal year as a result of the timing of capital expenditures of our customers. Our machines typically are shipped within the quarter or the next quarter after orders are received. Thus, revenues and operating results for any future period are not predictable with any significant degree of certainty. We also typically experience weaker demand for our machines in the first and second quarters. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.

Fluctuations in our operating results and financial condition may occur due to a number of factors, including, but not limited to, those listed below and those identified throughout this “Risk Factors” section:

 

   

the degree of market acceptance of our products;

 

   

the mix of products that we sell during any period;

 

   

our long sales cycle;

 

   

generally weaker demand for machines in the first and second quarters;

 

   

development of competitive systems by others;

 

   

our response to price competition;

 

   

delays between our expenditures to develop and market new or enhanced machines and products and the generation of sales from those products;

 

   

changes in the amount we spend to promote our products and services;

 

   

the geographic distribution of our sales;

 

   

changes in the cost of satisfying our warranty obligations and servicing our installed base of products;

 

   

our level of research and development activities and their associated costs and rates of success;

 

   

general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing, including the adverse effects of the current economic crisis affecting Europe;

 

   

changes in accounting rules and tax laws; and

 

   

changes in interest rates that affect returns on our cash balances and short-term investments.

Due to the foregoing factors, you should not rely on quarter-to-quarter or year-to-year comparisons of our operating results as an indicator of future performance.

We may not be able to generate operating profits.

Since our inception, we have not generated operating profits. In the event that we are unable to execute on our business plan, we may be unable to generate profits in the future.

Our operating expenses (which include research and development and selling, general and administrative expenses) for the six months ended June 30, 2013, were approximately $9.6 million compared with operating expenses of approximately $6.8 million for the six months ended June 30, 2012. We expect our operating expenses for the year ending December 31, 2013 to be between approximately $18.0 million and $21.0 million. The increases in our research and development expenses are due primarily to continued investment in our 3D printing machine and micromachinery technology and increased costs associated with our materials qualification activities, including additional research and development headcount. The increases in our selling, general and administrative expenses are due primarily to increased expenses in professional service fees (including legal, audit and other consulting expenses) and increased personnel costs associated with an increased headcount (including salaries and related benefits) in making the transition from a private company to a publicly traded company.

 

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We expect that our operating expenses will continue to increase in future periods as we pursue our growth strategies. Based on our current plans, we further expect our operating expenses for the year ending December 31, 2014 to exceed our 2013 operating expenses by 20% to 25%. Any future increases in our research and development expenses and selling, general and administrative expenses will directly affect our future results of operations and may have an effect on our financial condition.

We may not be able to introduce new machines and related industrial materials acceptable to the market or to improve the technology and industrial materials used in our current machines.

Our revenues are derived from the sale of machines for, and products manufactured using, AM. Our market is subject to innovation and technological change. A variety of technologies have the capacity to compete against one another in our market, which is, in part, driven by technological advances and end-user requirements and preferences, as well as the emergence of new standards and practices. Our ability to compete in the industrial AM market depends, in large part, on our success in enhancing and developing new machines, in enhancing our current machines, in enhancing and adding to our technology, and in developing and qualifying new industrial materials in which we can print. We believe that to remain competitive we must continuously enhance and expand the functionality and features of our products and technologies. However, we may not be able to:

 

   

Enhance our existing products and technologies;

 

   

Continue to leverage advances in industrial printhead technology;

 

   

Develop new products and technologies that address the increasingly sophisticated and varied needs of prospective end-users, particularly with respect to the physical properties of industrial materials and other consumables;

 

   

Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis;

 

   

Develop products that are cost-effective or that otherwise gain market acceptance; and

 

   

Adequately protect our intellectual property as we develop new products and technologies.

If the market does not develop as we expect, our revenues may stagnate or decline.

The marketplace for industrial manufacturing is dominated by conventional manufacturing methods that do not involve AM technology. If AM technology does not gain market acceptance as an alternative for industrial manufacturing, or if the marketplace adopts AM based on a technology other than our technology, we may not be able to increase or sustain the level of sales of our products and machines and our results of operations would be adversely affected as a result.

Loss of key management or sales or customer service personnel could adversely affect our results of operations.

Our future success depends to a significant extent on the skills, experience and efforts of our management and other key personnel. We must continue to develop and retain a core group of management individuals if we are to realize our goal of continued expansion and growth. While we have not previously experienced significant problems attracting and retaining members of our management team and other key personnel, there can be no assurance that we will be able to continue to retain these individuals, and the loss of any or all of these individuals could materially and adversely affect our business. We do not carry key-man insurance on any member of management.

Our international operations pose currency risks, which may adversely affect our operating results.

Our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction and translation risks. In general, we conduct our business, earn revenue and

 

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incur costs in the local currency of the countries in which we operate. As a result, our international operations present risks from currency exchange rate fluctuations. The financial condition and results of operations of each of our foreign operating subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Therefore, changes in exchange rates between these foreign currencies and the U.S. dollar will affect the recorded levels of our foreign assets and liabilities, as well as our revenues, cost of goods sold, and operating margins, and could result in exchange losses in any given reporting period.

In the future, we may not benefit from favorable exchange rate translation effects, and unfavorable exchange rate translation effects may harm our operating results. In addition to currency translation risks, we incur currency transaction risks whenever we enter into either a purchase or a sale transaction using a different currency from the currency in which we receive revenues. In such cases we may suffer an exchange loss because we do not currently engage in currency swaps or other currency hedging strategies to address this risk.

Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction and/or translation risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.

One of our principal stockholders will be able to exert substantial influence.

Following the completion of this offering, S. Kent Rockwell, our Chairman and Chief Executive Officer, will beneficially own approximately 23.50% of our common stock (22.02% if the underwriters exercise the over-allotment option in full) and may have effective control over the election of our Board of Directors and the direction of our affairs. As a result, he could exert considerable influence over the outcome of any corporate matter submitted to our stockholders for approval, including the election of directors and any transaction that might cause a change in control, such as a merger or acquisition. Any stockholders who are in favor of a matter that is opposed by Mr. Rockwell would have to obtain a significant number of votes to overrule the votes of Mr. Rockwell.

We may need to raise additional capital from time to time if we are going to meet our growth strategy and may be unable to do so on attractive terms.

Expanding our business to meet our growth strategy may require additional investments of capital from time to time, and our existing sources of cash and any funds generated from operations may not provide us with sufficient capital. For various reasons, including any current noncompliance with existing or future lending arrangements, additional financing may not be available when needed, or may not be available on terms favorable to us. If we fail to obtain adequate capital on a timely basis or if capital cannot be obtained at reasonable costs, we will not be able to achieve our planned rate of growth, which will adversely affect our results of operations.

We are highly dependent upon sales to certain industries.

For our most recent fiscal year ended (December 31, 2012), revenues of machines and products were concentrated to companies in the aerospace (20%), automotive (24%), heavy equipment (26%), and energy/oil/gas (13%) industries and those industries’ respective suppliers. To the extent any of these industries experience a downturn, our results of operations may be adversely affected. Additionally, if any of these industries or their respective suppliers or other providers of manufacturing services develop new technologies or alternatives to manufacture the products that are currently manufactured using our machines, it may adversely affect our results of operations.

We are dependent on a single supplier of printheads.

We currently rely on a single source to supply the printheads used by our machines. While we believe that there are other suppliers of printheads upon which we could rely, we could experience delays and interruptions if our supply is interrupted that might temporarily impact the financial performance of our business.

 

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We may not be able to manage the expansion of our operations effectively in order to achieve our projected levels of growth.

We have expanded our operations significantly in recent periods, and our business plan calls for further expansion over the next several years. We anticipate that further development of our infrastructure and an increase in the number of our employees will be required to achieve our planned broadening of our product offerings and client base, improvements in our machines and materials used in our machines, and our planned international growth. In particular, we must increase our marketing and services staff to support new marketing and service activities and to meet the needs of both new and existing customers. Our future success will depend in part upon the ability of our management to manage our growth effectively. If our management is unsuccessful in meeting these challenges, we may not be able to achieve our anticipated level of growth which would adversely affect our results of operations.

We may not be able to consummate and effectively integrate future acquisitions, if any.

We may from time to time engage in strategic acquisitions and partnerships with third parties if we determine that they will provide future financial and operational benefits. Successful completion of any strategic transaction depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. In addition, our ability to effectively integrate any potential acquisition into our existing business and culture may not be successful, which could jeopardize future operational performance for the combined businesses. Although we are currently exploring a combination of acquisitions, strategic investments, and/or alliances, some of which we believe will promote advances in pre-print and post-print process, there is no guarantee that we will complete such transactions on favorable terms or at all. The exploration, negotiation, and consummation of acquisitions, strategic investments and/or alliances may involve significant expenditures by us, which may adversely affect our results of operations at the time such expenses are incurred. We may not be able to successfully negotiate and complete a specific acquisition, investment, or alliance. In addition, any acquisition, investment or alliance may not be accretive to ExOne for a period of time which may be significant following the completion of such acquisition, investment or alliance.

Our planned expansion of our international sales is subject to various risks, and failure to manage these risks could adversely affect our results of operations.

Our business is subject to certain risks associated with doing business globally. For our three most recent fiscal years ended (December 31, 2012, 2011 and 2010), our sales outside of the United States were 72.8%, 70.0% and 70.7%, respectively. One of our growth strategies is to pursue opportunities for our business in several areas of the world outside of the United States, any or all of which could be adversely affected by the risks set forth below. Our operations outside of the United States are subject to risks associated with the political, regulatory and economic conditions of the countries in which we operate, such as:

 

   

fluctuations in foreign currency exchange rates;

 

   

potentially longer sales and payment cycles;

 

   

potentially greater difficulties in collecting accounts receivable;

 

   

potentially adverse tax consequences;

 

   

reduced protection of intellectual property rights in certain countries;

 

   

difficulties in staffing and managing foreign operations;

 

   

laws and business practices favoring local competition;

 

   

costs and difficulties of customizing products for foreign countries;

 

   

compliance with a wide variety of complex foreign laws, treaties and regulations;

 

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tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; and

 

   

becoming subject to the laws, regulations and court systems of many jurisdictions.

Any of these factors could materially adversely affect sales of our products to global customers or harm our reputation, which could adversely affect our results of operations.

Global economic, political and social conditions have adversely impacted our sales and may continue to do so.

The uncertain direction and relative strength of the global economy, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors all affect spending behavior of potential end-users of our products. The prospects for economic growth in the United States and other countries remain uncertain and may cause end-users to further delay or reduce technology purchases. In particular, a substantial portion of our sales are made to customers in countries in Europe, which is experiencing a significant economic crisis. If global economic conditions remain volatile for a prolonged period or if European economies experience further disruptions, our results of operations could be adversely affected. The global financial crisis affecting the banking system and financial markets has resulted in a tightening of credit markets, lower levels of liquidity in many financial markets and extreme volatility in fixed income, credit, currency and equity markets. These conditions may make it more difficult for our end-users to obtain financing.

Due to our plan to increase our global business activities, we may be adversely affected by violations of the FCPA, similar anti-bribery laws in other jurisdictions in which we currently or may in the future operate, or various international trade and export laws.

Our business plan envisions that we will conduct increasing amounts of business outside of the United States, which will create various domestic and foreign regulatory challenges. The Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), and similar anti-bribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We have policies and controls in place designed to ensure internal and external compliance with these and other anti-bribery laws. To ensure compliance, our anti-bribery policy and training on a global basis provides our employees with procedures, guidelines and information about anti-bribery obligations and compliance. Further, we require our partners, subcontractors, agents and others who work for us or on our behalf to comply with anti-bribery laws. We also have procedures and controls in place designed to ensure internal and external compliance. However, such anti-bribery policy, training, internal controls, and procedures will not always protect us from reckless, criminal or unintentional acts committed by our employees, agents or other persons associated with us. If we are found to be in violation of the FCPA or other anti-bribery laws (either due to the intentional or inadvertent acts of our employees, or due to the intentional or inadvertent acts of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business. In addition, actual or alleged violations could damage our reputation and adversely affect our results of operations.

We rely on our information technology systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption of these systems could adversely affect our results of operations.

We depend on our information technology, or “IT,” systems to manage numerous aspects of our business and provide analytical information to management. Our IT systems allow us to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our customers on a timely basis, maintain cost-effective operations and provide superior service to our customers. Our IT systems are an essential component of our business and growth strategies, and a disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss, including as a result of natural disasters, computer system and network failures, loss of telecommunication services, operator negligence, loss of data, security breaches and computer viruses. Any such disruption could adversely affect our results of operations.

 

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We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.

The products we supply are sometimes used in potentially hazardous applications, such as the assembled parts of an aircraft or automobile, that could result in death, personal injury, property damage, loss of production, punitive damages, and consequential damages. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in our being named as a defendant in lawsuits asserting potentially large claims. Any such lawsuit, regardless of merit, could result in material expense, diversion of management time and efforts, and damage to our reputation, and could cause us to fail to retain or attract customers, which could adversely affect our results of operations.

We may not have adequate insurance for potential liabilities.

In the ordinary course of business, we may be subject to various product and non-product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of our commercial operations. We maintain insurance to cover our potential exposure for most claims and losses. However, our insurance coverage is subject to various exclusions, self-retentions and deductibles, may be inadequate or unavailable to protect us fully, and may be cancelled or otherwise terminated by the insurer. Furthermore, we face the following additional risks under our insurance coverage:

 

   

we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all;

 

   

we may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination or terrorist attacks, and that exceed any amounts what we may have reserved for such liabilities;

 

   

the amount of any liabilities that we may face may exceed our policy limits and any amounts we may have reserved for such liabilities; and

 

   

we may incur losses resulting from interruption of our business that may not be fully covered under our insurance policies.

Even a partially uninsured claim of significant size, if successful, could materially adversely affect our business, financial condition, results of operations and liquidity. However, even if we successfully defend ourselves against any such claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could adversely affect our results of operations.

If any of our manufacturing facilities or PSCs are disrupted, sales of our products may be disrupted, which could result in loss of revenues and an increase in unforeseen costs.

We manufacture our machines at our facilities in Augsburg, Germany and North Huntingdon, Pennsylvania. Our PSCs are located in North Huntingdon, Pennsylvania; Houston, Texas; Troy, Michigan; Auburn, Washington; Augsburg, Germany; and Kanagawa, Japan.

On August 1, 2013, we purchased land in Gersthofen, Germany, in the district of Augsburg to build a new facility. The facility will comprise approximately 150,700 square feet of production, warehouse, service and research and development space as well as approximately 27,600 square feet for offices. We intend to consolidate our five existing leased facilities in Augsburg, which currently occupy an aggregate of approximately 77,500 square feet, into the new facility, providing expansion capacity to support our global growth strategy. We have selected a turnkey provider of construction services that focuses on Central Europe, Great Britain, Austria and Switzerland, to design and construct the new facility. We estimate that we will complete construction of the new facility in the second half of 2014. We estimate that the acquisition and construction of the new facility will cost approximately $20.0 million, which includes approximately $3.9 million to purchase the land.

 

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If the operations of these facilities are materially disrupted, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognize revenue on orders, and we might need to modify our standard sales terms to secure the commitment of new customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption and resume product shipments. Such a disruption could have an adverse effect on our results of operations.

Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work, including Germany and Japan, and it may be difficult for us to restrict our competitors from benefitting from the expertise of our former employees or consultants developed while working for us. If we cannot demonstrate that our legally protectable interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.

Risks Related to Our Intellectual Property

We may not be able to protect our trade secrets and intellectual property.

While some of our technology is licensed under patents belonging to others or is covered by process patents which are owned or applied for by us, much of our key technology is not protected by patents. Since we cannot legally prevent one or more other companies from developing similar or identical technology to our unpatented technology, it is likely that, over time, one or more other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do not protect our technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased competition from other companies, which may adversely affect our results of operations.

We enjoy license rights and exclusivity of certain patents and intellectual property and cannot adequately estimate the effects of their expiration upon the entrance or advancement of competitors into the AM industrial market.

We have exclusive license and non-exclusive license rights to certain patents that we utilize in the industrial market. Some of these patents expired in November 2012 and others are scheduled to expire over the next two years. We cannot adequately estimate the effect that the expiration of these patents will have upon the entrance or advancement of other AM manufacturers into the industrial market. See “Business Intellectual Property.”

We may not be able to obtain patent protection or otherwise adequately protect or enforce our intellectual property rights, which could impair our competitive position.

Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely primarily on patents, trademarks, and trade secrets, as well as non-disclosure agreements and other methods, to protect our proprietary technologies and processes globally. Despite our efforts to protect our proprietary technologies and processes, it is possible that competitors or other unauthorized third parties may obtain, copy, use, or disclose our technologies and processes. We cannot assure you that any of our existing or future patents or other intellectual property rights will not be challenged, invalidated, or circumvented or will otherwise provide us with meaningful protection. We may not be able to obtain foreign patents corresponding to our U.S. or foreign patent applications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents and other intellectual property protections do not adequately protect our technology, our competitors may be able to offer products similar to ours. We may not be able to detect the

 

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unauthorized use of our proprietary technology and processes or take appropriate steps to prevent such use. Our competitors may also be able to develop similar technology independently or design around our patents. Any of the foregoing events would lead to increased competition and lower revenue or gross profits, which would adversely affect our results of operations.

We may be subject to alleged infringement claims.

We may be subject to intellectual property infringement claims from individuals, vendors, and other companies who have acquired or developed patents in the field of AM for purposes of developing competing products or for the sole purpose of asserting claims against us. Any claims that our products or processes infringe the intellectual property rights of others, regardless of the merit or resolution of such claims, could cause us to incur significant costs in responding to, defending, and resolving such claims, and may prohibit or otherwise impair our ability to commercialize new or existing products. If we are unable to effectively defend our technologies and processes, our market share, sales and profitability could suffer, which could adversely affect our results of operations.

Certain of our employees and patents are subject to German law.

Many of our employees work in Germany and are subject to German employment law. Ideas, developments, discoveries and inventions made by such employees and consultants are subject to the provisions of the German Act on Employees’ Inventions (Gesetz über Arbeitnehmererfindungen), which regulates the ownership of, and compensation for, inventions made by employees. We face the risk that disputes can occur between us and our employees or ex-employees pertaining to alleged non-adherence to the provisions of this act that may be costly to defend and take up our management’s time and efforts whether we prevail or fail in such dispute. In addition, under the German Act on Employees’ Inventions, certain employees retained rights to patents they invented or co-invented prior to 2009. Although most of these employees have subsequently assigned their interest in these patents to us, there is a risk that the compensation we provided to them may be deemed to be insufficient in the future and we may be required under German law to increase the compensation due to such employee for the use of their patent. In those cases where employees have not assigned their interests to us, we may need to pay compensation for the use of those patents. If we are required to pay additional compensation or face other disputes under the German Act on Employees’ Inventions, our results of operations could be adversely affected.

Risks Related to the Securities Markets, Ownership of Our Common Stock and the Offering

We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively.

We cannot specify with certainty how we will use the net proceeds that we receive from this offering. Our management has broad discretion in the application of the net proceeds, and we may use these proceeds in ways with which you may disagree or for purposes other than those contemplated at the time of the offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for shares of our common stock may fluctuate and may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

 

   

significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily related to the operating performance of these companies;

 

   

the mix of products that we sell, and related services that we provide, during any period;

 

   

delays between our expenditures to develop and market new products and the generation of sales from those products;

 

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changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;

 

   

changes in our expenditures to promote our products and services;

 

   

changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;

 

   

success or failure of research and development projects of us or our competitors;

 

   

announcements of acquisitions by us or one of our competitors;

 

   

the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation;

 

   

changes in regulatory policies or tax guidelines;

 

   

changes or perceived changes in earnings or variations in operating results;

 

   

any shortfall in revenue or earnings from levels expected by investors or securities analysts; and

 

   

general economic trends and other external factors.

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our shares, the price of our shares could decline.

The trading market for our shares relies in part on the research and reports that equity research analysts publish about us and our business. We do not have control over these analysts, and we do not have commitments from them to write research reports about us. The price of our shares could decline if one or more equity research analysts downgrades our shares, issues other unfavorable commentary, or ceases publishing reports about us or our business.

Future sales of our shares could reduce the market price of our shares.

The price of our shares could decline if there are substantial sales of our common stock, particularly by our directors, their affiliates or our executive officers, or when there is a large number of shares of our common stock available for sale. The perception in the public market that our stockholders might sell our shares could also depress the market price of our shares. Our executive officers, directors and selling stockholders are subject to lock-up agreements with the underwriters that restrict their ability to transfer their shares for 90 days after the date of this offering. Consequently, upon expiration of the lock-up agreements, approximately 4,347,327 shares held by our existing officers or directors after accounting for shares sold in this offering (3,948,927 if the over-allotment option is exercised in full) will be eligible for sale in the public market. The market price of our shares may drop significantly when the restrictions on resale by our existing stockholders lapse and these stockholders are able to sell their shares into the market. If this occurs or continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

We are incurring increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.

As a public company whose shares are listed on the NASDAQ Global Market, we incur significant accounting, legal and other expenses that we did not incur as a private company, and these expenses will increase even more after we are no longer an “emerging growth company” (as described below). We incur significant costs associated with our compliance with the public company reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), requirements imposed by the Sarbanes-Oxley Act (most notably Section 404), Dodd Frank Wall Street Reform and Protection Act, and other rules adopted, and to be adopted, by the SEC and the NASDAQ Global Market. Compliance with these rules and regulations have increased our legal and financial compliance costs, introduced new costs (including stock exchange listing fees and costs related to investor relations and stockholder reporting), and made certain activities more time-consuming and costly. These increased costs of doing business have increased our consolidated net loss. They also make it more difficult for us to obtain director and officer liability insurance, and we may incur substantial costs to maintain sufficient coverage.

 

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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies generally, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. We cannot predict or estimate the amount or timing of additional costs we may incur in the future to respond to these constantly evolving requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers.

However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and an extended transition period for complying with new or revised accounting standards. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, qualify as a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (which requires us to have more than $700 million in market value of our common stock held by non-affiliates), or issue more than $1.0 billion of non-convertible debt over a three-year period. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Therefore, if our share price does not appreciate, our investors may not gain and could potentially lose on their investment in our shares.

We have never declared or paid cash dividends on our common stock, nor do we anticipate paying any cash dividends on our share capital, after this offering and in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our shares will be investors’ sole source of gain for the foreseeable future.

As an emerging growth company, we intend to follow certain permitted corporate governance practices instead of the otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors in a non-emerging growth company.

As an emerging growth company, we will be permitted, and intend to follow, certain corporate governance practices instead of those otherwise required by the SEC and under the listing requirements of the NASDAQ Global Market. Following our emerging growth company governance practices as opposed to the requirements that would otherwise apply to a company listed on the NASDAQ Global Market may provide less protection to you than what is accorded to investors under the Listing Rules of the NASDAQ Stock Market applicable to non-emerging growth company issuers.

 

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As an emerging growth company, we will delay adoption of new or revised accounting standards, which may make our stock less attractive and our trading price more volatile.

Pursuant to the JOBS Act, as an emerging growth company, we have elected to take advantage of an extended transition period for any new or revised accounting standards that may be issued by the Financial Accounting Standards Board (FASB) or the SEC, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will delay adoption of the standard until it applies to private companies. This may make a comparison of our financial statements with any other public company that is either not an emerging growth company or is an emerging growth company that has opted out of using the extended transition period difficult, as different or revised standards may be used. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could decline.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, commencing with our annual report on Form 10-K for the year ending December 31, 2013, we will be required, under Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2012, we concluded that there are material weaknesses in the design and operating effectiveness of our internal control over financial reporting as defined in SEC Regulation S-X. A description of the identified material weaknesses in internal control over financial reporting are as follows:

The design and operating effectiveness of internal controls related to our financial reporting process were not sufficient to allow for accurate and timely reporting of our consolidated financial results. We did not maintain adequate control with respect to the application of GAAP. This was principally due to a lack of personnel with adequate knowledge and experience in GAAP. As a result, we recorded certain manual, post-close adjustments in order to prepare the consolidated financial statements included in this prospectus.

The design and operating effectiveness of internal controls related to our information technology systems was not sufficient to allow for accurate and timely reporting of our consolidated financial results. Each of our primary locations (United States, Germany and Japan) utilizes separate and distinct information technology platforms to record, process and summarize transactions. As a result, our process to consolidate and report financial information is substantially a manual process and inherently subject to error.

 

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The design and operating effectiveness of internal controls related to our consolidation process and management’s review of our consolidated financial results did not operate at a level of precision sufficient to allow for accurate and timely reporting of our consolidated financial results. Our consolidation process is substantially a manual process and inherently subject to error. Further, because of internal control weaknesses identified with respect to our financial reporting process and information technology systems, management was unable to complete an adequate review of either subsidiary or consolidated financial results at a sufficient level of precision to prevent or detect misstatements. As a result, we recorded certain manual, post-close adjustments in order to prepare the consolidated financial statements included in this prospectus.

With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the identified material weaknesses. Our plan includes (i) enhancing our global accounting and reporting process by designing and strengthening the operating effectiveness of internal controls over financial reporting, (ii) evaluating our information technology systems to further integrate existing systems or invest in improvements to our technology sufficient to generate accurate and timely financial information, and (iii) adding financial personnel with adequate knowledge and experience in GAAP.

In addition to these efforts, we are in the process of documenting and testing our internal control over financial reporting in order to report on the effectiveness of our internal controls as of December 31, 2013. We can provide no assurance at this time that management will be able to report that our internal control over financial reporting is effective as of December 31, 2013. Furthermore, as our business continues to grow internationally, our internal controls will become more complex and will require significantly more resources and attention to ensure that our internal controls remain effective overall. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, investor confidence in our financial results may weaken, and our share price may suffer.

Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this prospectus fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with GAAP.

Additionally, Section 404(b) of the Sarbanes-Oxley Act requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. As an emerging growth company, we will not be required to comply with Section 404(b), until we file our annual report for 2018 with the SEC, provided we maintain our status as an emerging growth company for the full five-year period.

Our compliance with Section 404(b) will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404(b). We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404(b) attestations, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in

 

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our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Provisions in our charter documents or Delaware law may inhibit a takeover, which could adversely affect the value of our common stock.

Our certificate of incorporation and bylaws contain, and Delaware corporate law contains, provisions that could delay or prevent a change of control or changes in our management. These provisions will apply even if some of our stockholders consider the offer to be beneficial or favorable. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

Investors in this offering will experience immediate dilution upon the closing of the offering.

If you purchase shares of our common stock in this offering, you will experience immediate dilution of $             per share because the price that you pay will be greater than the pro forma net asset value per share of the common stock you acquire. This dilution is also due to the expenses incurred by us in connection with the consummation of this offering. You will experience additional dilution upon the exercise of options to purchase our common stock or the vesting of other grants of equity awards made by us under the Plan, or any other equity incentive plan that we may adopt in the future, or if we otherwise issue additional shares of our common stock at a price below the offering price. See “Dilution.”

Raising additional capital by issuing securities may cause dilution to our stockholders.

We may need or desire to raise substantial additional capital in the future. Our future capital requirements will depend on many factors, including, among others:

 

   

Our degree of success in capturing a larger portion of the industrial products production market;

 

   

The costs of establishing or acquiring sales, marketing, and distribution capabilities for our products;

 

   

The costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our issued patents, and defending intellectual property-related claims;

 

   

The extent to which we acquire or invest in businesses, products, or technologies and other strategic relationships; and

 

   

The costs of financing unanticipated working capital requirements and responding to competitive pressures.

If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or privileges senior to those possessed by our then-existing stockholders. Additionally, future sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

This prospectus contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and, Section 21E of the Exchange Act, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, that are forward looking statements. The forward looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenue, income and capital spending. Our forward looking statements are generally accompanied by words such as “may,” “will,” “expect,” “intend,” “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward looking statements in this prospectus speak only as of the date of this prospectus; we disclaim any obligation to update these statements (unless required by securities laws), and we caution you not to unduly rely on them. We have based these forward looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:

 

   

our ability to qualify more materials in which we can print;

 

   

the availability of skilled personnel;

 

   

the impact of increased operating expenses and expenses relating to proposed acquisitions, investments and alliances;

 

   

our strategy, including the expansion and growth of our operations;

 

   

the impact of loss of key management;

 

   

our plans regarding increased international operations in additional international locations;

 

   

sufficiency of funds for required capital expenditures, working capital, and debt service;

 

   

the adequacy of sources of liquidity;

 

   

expectations regarding demand for our industrial products, operating revenues, operating and maintenance expenses, insurance expenses and deductibles, interest expenses, debt levels, and other matters with regard to outlook;

 

   

demand for aerospace, automotive, heavy equipment, energy/oil/gas and other industrial products;

 

   

the scope, nature or impact of acquisitions, alliances and strategic investments and our ability to integrate acquisitions and strategic investments;

 

   

liabilities under laws and regulations protecting the environment;

 

   

the impact of governmental laws and regulations;

 

   

operating hazards, war, terrorism and cancellation or unavailability of insurance coverage;

 

   

the effect of litigation and contingencies;

 

   

the impact of disruption of our manufacturing facilities or PSCs;

 

   

the adequacy of our protection of our intellectual property; and

 

   

material weaknesses in our internal control over financing reporting.

These and other important factors, including those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, may cause our actual results of operations to differ materially from any future results of operations

 

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expressed or implied by the forward looking statements contained in this prospectus. Before making a decision to purchase our common stock, you should carefully consider all of the factors identified in this prospectus that could cause actual results to differ from these forward looking statements.

You should rely only on the information contained or incorporated by reference in this prospectus and in any free writing prospectus that we have authorized for use in connection with this offering. Neither we nor the underwriters nor the selling stockholders have authorized any other person to provide you with additional or different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters nor the selling stockholders are making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. However, we will update this prospectus to reflect any material changes to the information contained herein during the period of this offering.

MARKET AND INDUSTRY DATA

This prospectus contains industry, market and competitive position data that are based on industry publications and studies conducted by third parties, including, but not limited to, the 2013 report of Wohlers Associates, Inc., “Additive Manufacturing and 3D Printing State of the Industry” (the “2013 Wohlers Report”), in which we were an industry participant in 2013. The industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications and third-party studies is reliable, we have not independently verified the market and industry data obtained from these third-party sources.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We have registrations in the United States for X1. We have filed for trademark registrations in the United States and in Canada, Europe, Japan, China, Korea, and Brazil for ExOne and for a stylized form of “X1 ExOne DIGITAL PART MATERIALIZATION.” We have also filed for trademark registrations in Canada and Japan for DIGITAL PART MATERIALIZATION. We have also filed for trademark registrations in the United States for ExCAST, ExMAL, ExTEC, and M-Flex. This prospectus also contains trademarks, service marks and trade names of other companies, which are the property of their respective owners. Solely for convenience, marks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these marks and trade names. Third-party marks and trade names used herein are for informational purposes only and in no way constitute or are intended to be a commercial use of such names and marks. The use of such third-party names and marks in no way constitutes or should be construed to be an approval, endorsement or sponsorship of us, or our products or services, by the owners of such third-party names and marks.

 

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of 1,106,000 shares of common stock in this offering will be approximately $         million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.

We intend to use the net proceeds from this offering to finance future acquisitions or partnerships and alliances consistent with our business strategy and for working capital and general corporate purposes.

We continually evaluate potential acquisitions of products, technologies or businesses; however, we have no current understandings, agreements or commitments for any material acquisitions, strategic investments and/or alliances. We have not determined the specific amounts we plan to spend on any of the items listed above or the timing of these expenditures. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including our identification of specific acquisitions, strategic investments and/or alliances, and our ability to negotiate on terms and conditions that are satisfactory to all parties involved. As a result, our management will have broad discretion in the application of the net proceeds.

In the event that any net proceeds are not immediately applied, we may temporarily hold them as cash, deposit them in banks or invest them in cash equivalents or securities.

PRICE RANGE OF OUR COMMON STOCK

Our common stock has been listed on the NASDAQ Global Market since February 7, 2013 under the symbol “XONE.” Prior to that date, there was no public market for our common stock. Shares sold in our initial public offering were priced at $18.00 per share.

On August 20, 2013, the closing price for our common stock as reported on the NASDAQ Global Market was $69.29 per share. The following table sets forth the ranges of high and low sales prices per share of our common stock as reported on the NASDAQ Global Market for the period indicated. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.

 

Year Ended December 31, 2013

   High      Low  

First quarter

   $ 34.28       $ 23.50   

Second quarter

   $ 64.50       $ 29.41   

Stockholders

As of August 20, 2013, there were 12 stockholders of record, which excludes stockholders whose shares were held in nominee or street name by brokers. The actual number of common stockholders is greater than the number of record holders, and includes stockholders who are beneficial owners and whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

DIVIDEND POLICY

We do not anticipate that we will declare or pay regular dividends on our common stock in the foreseeable future, as we generally intend to invest any future earnings in the development and growth of our business. Future dividends, if any, will be at the discretion of our Board of Directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and conditions, legal requirements, any contractual obligations or limitations, and other factors that our Board of Directors deems relevant.

 

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CAPITALIZATION

The following table presents our capitalization as of June 30, 2013:

 

   

on an actual basis; and

 

   

on a pro forma basis after giving effect to our sale of 1,106,000 shares of common stock in this offering at the assumed offering price of $         per share, which was the last reported sale price of our common stock on the NASDAQ Global Market on                    , 2013, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with “Selected Consolidated Financial Data,” and our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     June 30, 2013  
     Actual     Pro  Forma(1)  
     (unaudited)  
     (dollars in thousands)  

Long-term debt, capital and financing lease obligations (excluding current portion):

   $ 2,868     $                
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, $0.01 par value, 200,000,000 shares authorized, actual; 13,281,608 shares issued and outstanding, actual; 14,387,608 shares issued and outstanding, pro forma

     133     

Additional paid-in capital

     88,026     

Accumulated other comprehensive loss

     (931  

Accumulated deficit

     (3,034  
  

 

 

   

 

 

 

Total stockholders’ equity

     84,194     
  

 

 

   

 

 

 

Total capitalization

   $ 87,062      $                
  

 

 

   

 

 

 

 

(1) Adjusts the pro forma information to give effect to this offering (assuming no exercise of the underwriters’ over-allotment option). Unless otherwise indicated, all information in this prospectus excludes:

 

  (i) 500,000 shares of common stock reserved for issuance under the Plan. The Plan provides for automatic increases in the reserve available annually on January 1 from 2014 through 2023 equal to the lesser of (i) 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year or (ii) a number of shares of common stock determined by our Board of Directors, provided that the maximum number of shares authorized under the Plan will not exceed 1,992,242 shares, subject to certain adjustments.
  (ii) Options to certain employees to purchase 175,000 shares of common stock issuable upon exercise of such options as of June 30, 2013, at an exercise price of $18.00 per share, which options vest in equal annual installments over three years from the date of grant.
  (iii) 20,000 shares of restricted stock that were unvested as of June 30, 2013.

 

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DILUTION

Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering will exceed the net tangible book value per share of common stock after this offering. If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

Our pro forma net tangible book value as of June 30, 2013 was $             million, or $             per share of our common stock. We calculate net tangible book value per share by calculating our total tangible assets less liabilities, and dividing it by the number of outstanding shares of our common stock.

After giving effect to the sale of 1,106,000 shares of our common stock in this offering at a public offering price of $         per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value, which we refer to as our pro forma net tangible book value, as of June 30, 2013 would have been approximately $             million, or $             per share of our common stock.

This amount represents an immediate dilution in our pro forma net tangible book value of $             per share to new investors purchasing shares of our common stock at the public offering price. We calculate dilution per share to new investors by subtracting the pro forma net tangible book value per share from the public offering price paid by the new investor. The following table illustrates the dilution to new investors on a per share basis:

 

Public offering price

      $                

Net tangible book value per share as of June 30, 2013

   $                   

Increase per share attributable to new investors

   $        
  

 

 

    

Pro forma net tangible book value per share as of June 30, 2013 after this offering

      $     
     

 

 

 

Dilution per share to new investors

      $     
     

 

 

 

The table below sets forth, as of                     , 2013, the number of shares of our common stock issued, the total consideration paid and the average price per share paid by our existing stockholders and our new investors in this offering and the issuance of             shares of common stock in this offering at the public offering price of $         per share, before deducting underwriting discounts and commissions and our estimated offering expenses.

 

     Shares Purchased     Total Consideration     Average
Price
Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     13,281,608         92.3   $                           $                

New investors

     1,106,000         7.7             $     
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     14,387,608         100.0   $           100.0   $     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

If the underwriters’ over-allotment option to purchase additional shares from the selling stockholders is exercised in full, the net tangible book value as of June 30, 2013 would have been $             million, or $             per share of our common stock, representing dilution of $             per share to new investors. Assuming such exercise, the number of shares held and the percentage of total consideration paid by the existing stockholders after this offering would be reduced to             % and             %, respectively, and the number of shares held and the percentage of total consideration paid by new investors would increase to             % or             %, respectively.

 

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Unless otherwise indicated, all information in this prospectus excludes:

(i) 500,000 shares of common stock reserved for issuance under the Plan. The Plan provides for automatic increases in the reserve available annually on January 1 from 2014 through 2023 equal to the lesser of (i) 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year or (ii) a number of shares of common stock determined by our Board of Directors, provided that the maximum number of shares authorized under the Plan will not exceed 1,992,242 shares, subject to certain adjustments.

(ii) Options to certain employees to purchase 175,000 shares of common stock issuable upon exercise of outstanding options as of June 30, 2013, at an exercise price of $18.00 per share, which options vest in equal annual installments over three years from the date of grant.

(iii) 20,000 shares of restricted stock that were unvested as of June 30, 2013.

Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase additional shares of our common stock.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

(dollars in thousands, except per-share amounts)

The following tables set forth certain of our selected consolidated financial data for the periods represented. The financial data as of June 30, 2013, and for the quarter and six months ended June 30, 2013 and 2012 have been derived from our unaudited condensed consolidated financial statements and notes thereto. The financial data as of and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements and notes thereto. We have prepared the unaudited consolidated financial information set forth below on the same basis as our audited consolidated financial statements and have included all adjustments, consisting of only normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations for such periods. The interim results set forth below are not necessarily indicative of expected results for the year ending December 31, 2013 or for any other future period.

The data presented below should be read in conjunction with, and are qualified in their entirety by reference to “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Quarter Ended
June 30,
    Six Months Ended
June 30,
    Year Ended
December 31,
 
    2013     2012     2013     2012     2012     2011     2010  
   

(unaudited)

    (unaudited)                    

Statement of consolidated operations and comprehensive loss data:

             

Revenue

  $ 9,230      $ 4,676      $ 17,164      $ 7,398      $ 28,657      $ 15,290      $ 13,440   

Gross profit

  $ 4,181      $ 1,523      $ 7,019      $ 2,339      $ 12,143      $ 3,643      $ 3,066   

Research and development

  $ 1,276      $ 348      $ 2,132      $ 832      $ 1,930      $ 1,531      $ 1,153   

Selling, general and administrative*

  $ 3,908      $ 4,262      $ 7,476      $ 5,948      $ 18,285      $ 7,286      $ 5,978   

Interest expense

  $ 50      $ 110      $ 280      $ 308      $ 842      $ 1,570      $ 1,114   

Net loss attributable to ExOne*

  $ (1,120   $ (3,609   $ (3,034   $ (5,138   $ (10,168   $ (8,037   $ (5,508

Net loss attributable to ExOne per common share:

             

Basic

  $ (0.08     N/A **    $ (0.27     N/A **      N/A **      N/A **      N/A ** 

Diluted

  $ (0.08     N/A **    $ (0.27     N/A **      N/A **      N/A **      N/A ** 

 

* Selling, general and administrative expense and net loss attributable to ExOne include $200 and $1,785 in equity-based compensation expense for the quarters ended June 30, 2013 and 2012, respectively. Selling, general and administrative expense and net loss attributable to ExOne include $311 and $1,785 in equity-based compensation expense for the six months ended June 30, 2013 and 2012, respectively. Selling, general and administrative expense and net loss attributable to ExOne includes $7,735 in equity-based compensation expense for the year ended December 31, 2012. There was no equity-based compensation expense recorded during 2011 or 2010.
** Amounts are not comparable as a result of our Reorganization as a corporation on January 1, 2013.

 

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     June 30,
2013
     December 31,  
     
        2012      2011      2010  
     (unaudited)                       

Consolidated balance sheets data:

           

Working capital (deficit)

   $ 72,675       $ (4,682    $ (979    $ (13,253

Cash and cash equivalents

   $ 64,550       $ 2,802       $ 3,496       $ 1,021   

Property and equipment — net

   $ 14,309       $ 12,467       $ 7,919       $ 7,990   

Total assets

   $ 96,118       $ 33,075       $ 18,615       $ 15,233   

Line of credit

   $ —         $ 528       $ —         $ —     

Demand note payable to member

   $ —         $ 8,666       $ —         $ 15,045   

Long-term debt and lease obligations

   $ 3,499       $ 10,566       $ 5,429       $ 3,839   

Redeemable preferred units

   $ —         $ —         $ 18,984       $ —     

Preferred units

   $ —         $ 18,984       $ —         $ —     

Common units

   $ —         $ 10,000       $ 10,000       $ 10,000   

Common stock

   $ 133       $ —         $ —         $ —     

Additional paid-in capital

   $ 88,026       $ —         $ —         $ —     

Total stockholders’ / members’ equity (deficit)

   $ 84,194       $ 41       $ (15,599    $ (8,277

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2013     2012     2012     2011     2010  
     (unaudited)                    

Statement of consolidated cash flows data:

          

Cash used for operating activities

   $ (7,133   $ (7,498   $ (9,803   $ (2,436   $ (5,912

Cash used for investing activities

   $ (3,875   $ (1,518   $ (1,724   $ (1,080   $ (1,795

Cash provided by financing activities

   $ 72,882      $ 6,142      $ 11,003      $ 5,931      $ 7,811   

 

Other data:

              
     Quarter Ended
June 30,
    Six Months Ended
June 30,
    Year Ended
December 31,
 
     2013     2012     2013     2012     2012     2011     2010  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Machine units sold:

              

S-15

     —          —          —          —          1        2        2   

S-Max

     4        1        6        1        9        1        2   

S-Print

     —          —          1        —          3        1        —     

M-Lab

     —          —          1        —          —          —          —     

Orion

     —          —          1        —          —          —          —     

Other

     —          —          —          —          —          1        1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4        1        9        1        13        5        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA*

   $ (279   $ (2,666   $ (1,182   $ (3,636   $ (6,389   $ (4,004   $ (2,993

 

*

We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as net income (loss) attributable to ExOne (as calculated under accounting principles generally accepted in the United States of America (“GAAP”)) plus net income (loss) of noncontrolling interests, provision (benefit) for income taxes, interest expense, depreciation, equity-based compensation associated with our 2013 Equity

 

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  Incentive Plan and other (income) expense — net. Disclosure in this prospectus of Adjusted EBITDA, which is a non-GAAP financial measure, as defined under the rules of the U.S. Securities and Exchange Commission (“SEC”), is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to ExOne or any other performance measure derived in accordance with GAAP. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

We believe Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs, we understand that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Reconciliation of Adjusted EBITDA to Net loss attributable to ExOne:

 

    Quarter Ended
June 30,
    Six Months Ended
June 30,
    Year Ended
December 31,
 
    2013     2012     2013     2012     2012     2011     2010  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net loss attributable to ExOne

  $ (1,120   $ (3,609   $ (3,034   $ (5,138   $ (10,168   $ (8,037   $ (5,508

Net income attributable to noncontrolling interests

    —          148        138        182        480        420        328   

Interest expense

    50        110        280        308        842        1,570        1,114   

Provision for income taxes

    72        246        91        234        995        1,031        198   

Depreciation

    524        421        1,096        805        1,683        1,170        1,072   

Equity-based compensation*

    200        —          311        —          —          —          —     

Other (income) expense — net

    (5     18        (64     (27     (221     (158     (197
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ (279   $ (2,666   $ (1,182   $ (3,636   $ (6,389   $ (4,004   $ (2,993
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* As noted above, amounts reflected for equity-based compensation relate solely to expense incurred in connection with equity-based awards granted under our 2013 Equity Incentive Plan. During both the quarter and six months ended June 30, 2012, we incurred $1,785 of equity-based compensation expense related to the sale of common units by the majority member of the former limited liability company to another existing member of the former limited liability company. During the year ended December 31, 2012, we incurred $7,735 of equity-based compensation expense related to the sale of common units by the majority member of the former limited liability company to other existing members of the former limited liability company. As these transactions are not a part of our 2013 Equity Incentive Plan, we have elected not to consider the related equity-based compensation in measuring Adjusted EBITDA for the respective 2012 periods. There was no equity-based compensation expense recorded by ExOne during 2011 or 2010.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

(dollars in thousands, except per-share data)

The following discussion and analysis should be read together with the “Selected Consolidated Financial Data” and our consolidated financial statements and related notes thereto included in this prospectus. Certain statements contained in this discussion may constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and, Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward looking statements, as a result of a variety of risks and uncertainties, including those described under “Cautionary Statements Concerning Forward Looking Statements” and “Risk Factors.”

Overview

Business and Strategy

We are a global provider of three dimensional (“3D”) printing machines and printed products, materials and other services to industrial customers. Our business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for our customers using our in-house 3D printing machines. We offer pre-production collaboration and print products for customers through our six production service centers (“PSCs”), which are located in the United States, Germany and Japan. We build 3D printing machines at our facilities in the United States and Germany. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, necessary for purchasers of our machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading printing capacity (as measured by build box size and printhead speed), uniquely position us to serve the needs of industrial customers.

As an additive manufacturer, we are an early entrant into an evolving manufacturing technology and marketplace. Our strategy has been to position our manufacturing assets, both in terms of our ability and capacity, to prepare for an anticipated increase of customer acceptance of this form of manufacturing. We have made financial support of this growth strategy a priority. We have invested in both our research and development and infrastructure, including capital investment in 3D printing machines, and hiring key personnel.

As our infrastructure grows, we intend to shift our strategic focus to opening additional PSCs in order to broaden our potential global customer base and to expand our 3D printing capability in an increasing variety of industrial materials. Our growth strategy focuses on growing our PSCs in order to print more products for our existing customers and gain new customers. By the end of 2015, we plan to expand our PSC network from the current six locations to fifteen locations. Like our current PSCs, we plan to locate the additional PSCs in major industrial centers near existing and potential customers. While we may adjust the final locations based upon market considerations, our 2013 plan includes announcing the opening of an additional location in the United States, in addition to the recent Auburn, Washington PSC announcement. Our current plan also includes opening two or more additional PSC locations in the first half of 2014.

Our growth strategy includes using our printed products as an introduction of our technology to facilitate 3D printing machine sales. An important part of reaching these goals is to increase our capability to print in a growing number of industrial materials and increase the job box sizes and production speeds (volumetric output) available to our potential customers, which will increase the efficiency and usefulness of our technology. In addition, we use our regional PSCs to educate our potential customers and the marketplace about the advantages of 3D printing.

We also believe expanding the location of our PSCs to high-growth economies and geographic regions that are readily accessible by a significant number of potential customers will help us to increase sales. To better

 

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balance our business, we intend to develop our customer base so that revenue is not dependent on any one region (North America, South America and Latin America (collectively the Americas), Europe and Asia). Likewise we intend to balance revenue between our 3D printing machines and 3D printed products, materials and other services.

Our next generation 3D printing machine platforms have achieved the volumetric output rate and quality necessary to serve industrial markets on a production scale. We believe that there is an opportunity to similarly advance the pre-print and post-print processing phases of product materialization to more fully exploit the transformative power of our 3D printing machines and drive growth. These opportunities relate to both direct and indirect part materialization. For direct metal production, we believe that enhancing pre-print processes, notably design optimization tools and suitable print material availability, can greatly accelerate our capture of market share in the near-term. Additionally, enhancements to post-print processing will increase the applications for printed parts. Through ExMAL, we are developing post-print processing technologies to achieve fully dense metal product materialization without the need for infiltration, and we are exploring technology-sharing partnerships to further this initiative. In indirect production utilizing 3D printed molds and cores, advanced performance casting technologies can be leveraged to increase yields and reduce weight of casted products. To address the market opportunity and fill the execution gap, we have developed a suite of processes, many of which are proprietary, for producing high-quality castings through a process that we call ExCAST. ExCAST provides industry guidance and support through all stages of production, from CAD at the design stage, through the 3D materialization of molds and cores, metal casting of the end product and rapid delivery to the end-user.

Finally, we intend to opportunistically identify and, through acquisitions, alliances and/or strategic investment, integrate and advance complementary businesses, technologies and capabilities. Our goal is to expand the functionality of our products, provide access to new customers and markets, and increase our production capacity. We are in active discussions with parties that we believe can contribute to a superior end-to-end manufacturing process.

Operational Performance and Outlook

We believe that interest in 3D printing is increasing by virtue of the general commercialization of 3D printers and recent media attention. We occupy a defined space in the 3D printing market because of the size of our 3D printing machines and their application for industrial products and qualified industrial materials. There are 3D printing companies in various sectors of the market, including art, home-printing, dental, biotech and other areas. While our 3D printing machines may differ from those of many other 3D printing companies in that our machines are designed to print industrial products from qualified industrial materials, we expect a general increase in 3D printing to have a positive effect on the public’s awareness of our industry. We have made investments in technology, material sciences, engineering resources, production capacity, marketing and sales force training and developing a global organization, as discussed above, in an attempt to improve our financial performance.

Our growth prospects for 2013 are dependent upon a number of external and internal factors, which are described in greater detail in “Business — Our Business Strategy.”

Recent Developments

Several important corporate developments have occurred in the six months ended June 30, 2013 that have had a significant effect on the presentation of our consolidated financial results.

ExOne was formed on January 1, 2013, when The Ex One Company, LLC, a Delaware limited liability company, merged with and into a Delaware corporation, which survived and changed its name to The ExOne Company. As a result of our reorganization on January 1, 2013 (the “Reorganization”), The Ex One Company, LLC became ExOne, the common and preferred interest holders of The Ex One Company, LLC became holders of common stock and preferred stock, respectively, of ExOne, and the subsidiaries of The Ex One Company, LLC became the subsidiaries of ExOne.

 

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We have considered the proforma effects of our Reorganization on the provision for income taxes for the periods prior to our Reorganization in our condensed statement of consolidated operations and comprehensive loss and concluded that there would be no difference as compared to the amount reported, principally due to valuation allowances established against net deferred tax assets. In addition, we have omitted basic and diluted earnings per share for periods prior to January 1, 2013, as a result of our Reorganization, as the basis for such calculation is no longer comparable to presentation of information on or after January 1, 2013.

The condensed consolidated financial statements include the accounts of ExOne, our wholly-owned subsidiaries, ExOne Americas LLC (United States), ExOne GmbH (Germany) and Ex One KK (Japan), and through March 27, 2013, two variable interest entities in which we were identified as the primary beneficiary, Lone Star Metal Fabrication, LLC (“Lone Star”) and Troy Metal Fabricating, LLC (“TMF”).

At December 31, 2012 and through March 27, 2013, we leased property and equipment from Lone Star and TMF. We did not have an ownership interest in Lone Star or TMF. We were identified as the primary beneficiary of Lone Star and TMF in accordance with the guidance issued by the FASB on the consolidation of variable interest entities, as we guaranteed certain long-term debt of both Lone Star and TMF and governed these entities through common ownership. This guidance requires certain variable interest entities to be consolidated when an enterprise has the power to direct the activities of the variable interest entity that most significantly impact the variable interest entity’s economic performance and has the obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity. Our condensed consolidated financial statements therefore include the accounts of Lone Star and TMF through March 27, 2013. The assets of Lone Star and TMF could only be used to settle obligations of Lone Star and TMF, and the creditors of Lone Star and TMF did not have recourse to our general credit.

On March 27, 2013, ExOne Americas LLC acquired certain assets, including property and equipment (principally land, buildings and machinery and equipment) held by the two variable interest entities, and assumed all outstanding debt of such variable interest entities. See the note to the consolidated financial statements included in this prospectus for more information. Following this transaction, neither of the entities continued to meet the definition of a variable interest entity with respect to the Company, and as a result, the remaining assets and liabilities of both entities were deconsolidated following the transaction.

On February 6, 2013, we commenced an initial public offering of 6,095,000 shares of our common stock at a price to the public of $18.00 per share, of which 5,483,333 shares were sold by us and 611,667 were sold by a selling stockholder (including consideration of the exercise of the underwriters’ over-allotment option). Following completion of the offering on February 12, 2013, we received net proceeds after expenses of approximately $90,371 (net of underwriting commissions and associated offering costs, including approximately $712 in offering costs deferred by us at December 31, 2012). The proceeds from our initial public offering have been earmarked or spent in order to (1) expand our PSC network to fifteen global locations by the end of 2015 (total amount is estimated to be approximately $20,000 to $25,000), (2) increase capacity and upgrade technology in our production facilities in Germany, including consolidating our operations from five buildings located throughout the district of Augsburg to one purpose-built facility (total amount is estimated to be approximately $20,000), (3) expand our materials development initiatives and achieve our plan of one new industrial material qualified every six months (total amount is estimated to be approximately $2,000 to $3,000), (4) select and deploy an ERP system to promote operational efficiency and financial controls globally, (total amount is estimated to be approximately $3,000) and (5) deploy working capital to support growth (total amount is estimated to be approximately $21,000 to 27,000, with approximately $7,400 deployed through June 30, 2013). We have also used approximately $18,400 of the net proceeds from the initial public offering to repay our indebtedness existing prior to the initial public offering and to acquire certain assets (and assume and repay indebtedness) held by Lone Star and TMF.

References to the majority member in the “Management Discussion and Analysis of Financial Condition and Results of Operations” refer to affiliates of S. Kent Rockwell, our Chairman and Chief Executive Officer, who is the indirect, sole stockholder of RHI and RFP. Each of RHI and RFP provided funding to us prior to 2013.

 

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How We Measure Our Business

We use several financial and operating metrics to measure our business. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess longer-term performance within our marketplace. The key metrics are as follows:

Revenue. Our revenue consists primarily of sales of our 3D printing machines and micromachinery and 3D printed products, materials and other services.

3D printing machines and micromachinery. 3D printing machine and micromachinery sales are influenced by a number of factors including, among other things, (i) the adoption rate of our 3D printing technology, (ii) end-user product design and manufacturing activity, (iii) the capital expenditure budgets of end-users and potential end-users and (iv) the mix of products sold, all of which may be significantly influenced by macroeconomic factors. Purchases of our 3D printing machines and micromachinery, especially our higher-end, higher-priced systems, typically involve long sales cycles. Our 3D printing machine and micromachinery prices generally include machine installation, training, maintenance and the value of a warranty. Several factors can significantly affect revenue reported for our 3D printing machines and micromachinery for a given period including, among others, (i) the overall low unit volume of 3D printing machine and micromachinery sales, (ii) the long lead times of our customers’ purchasing decisions and (iii) the acceleration or delay of orders and shipments of a small number of machines.

3D printed products, materials and other services. 3D printed products revenue is derived from our network of PSCs located in the United States (4), Germany (1) and Japan (1). The PSCs utilize our 3D printing machine technology to print products. In addition, our PSCs are also full-service operations that provide support and services such as pre-production collaboration prior to printing products for a customer. Revenue of materials depends upon the volume of consumables that we sell. Sales of our consumables are linked to the number of our 3D printing machines that are installed and active worldwide. Sales of consumables are also driven by our customers’ machine usage, which is generally a function of the size of the particular machine and the habits and budget of the particular end-user. Larger machines generally use larger amounts of consumables due to their greater capacity and the higher levels of design and manufacturing activity that are typical of an end-user who utilizes a larger machine.

Cost of Sales and Gross Profit. Our cost of sales consists primarily of labor (including service labor), parts (including consumables and spare parts) and overhead to produce 3D printing machines and 3D printed products, materials and other services. Also included in cost of sales are license fees (based upon a percentage of revenue of qualifying products and processes) for the use of intellectual properties, warranty costs and other overhead associated with our production processes. The production capacity at our PSCs (as well as our 3D printing machine and micromachinery manufacturing facilities) presently exceeds the current customer demand and as such a portion of our fixed overhead associated with these facilities is being recognized as a period expense rather than being capitalized as a product cost. We expect our excess capacity to decrease as sales of 3D printing machines and micromachinery and 3D printed products, materials and other services increase. Our 3D printing machines and micromachinery are manufactured at our facilities in Germany and the United States. The cost to manufacture machines consists of component parts, labor and production overhead. The cost of 3D printed products, materials and other services consist primarily of the material cost of our printed products, labor and overhead (including facilities expense and other conversion costs).

Our gross profit is influenced by a number of factors, the most important of which is the volume and mix of our 3D printing machines and micromachinery, products, materials and other services sold.

As 3D printing machine and micromachinery sales are cyclical, we will seek to achieve an equal balance in revenue from 3D printing machines and micromachinery and 3D printed products, materials and other services in order to maximize gross profit while managing business risk. In addition, we expect to reduce our cost of sales over time by continued research and development activities directed towards achieving increased efficiencies in the production of 3D printing machines and micromachinery. Our PSCs will also seek to achieve lower material cost and improve throughput.

 

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We are continuously analyzing our supply chain to identify opportunities for better management, in partnership with our customers, in order to reduce the overall cost as a percentage of revenue in this area.

Operating Expenses. Our operating expenses consist of research and development expenses and selling, general and administrative expenses.

Research and development expenses. Our research and development expenses consist primarily of salaries and related personnel expenses aimed at developing new machinery and materials. Additional costs include the related software and materials, laboratory supplies, and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred, with the exception of expenses for specific equipment that we capitalize.

Selling, general and administrative expenses. Our selling, general and administrative expenses consist primarily of employee-related costs (salaries, benefits, equity-based compensation, education and training and travel) of our executive officers, sales and marketing, finance, accounting, information technology and human resources personnel. Other significant general and administrative costs include the facility costs related to our headquarters in North Huntingdon, Pennsylvania (and the other four facilities where administrative personnel are located) and external costs for legal, accounting, consulting and other professional services.

We expect our operating expenses to continue to increase in future periods as we pursue our growth strategies. We expect our operating expenses for the year ending December 31, 2013 to be between approximately $18,000 and $21,000. Based on our current plans, we further expect our operating expenses for the year ending December 31, 2014 to exceed our 2013 operating expenses by 20% to 25%.

Interest Expense. Interest expense consists of the interest cost associated with outstanding long-term debt and financing lease arrangements.

We expect our interest expense to continue to decrease as our outstanding debt is lowered over time. Included in our business strategy is the consideration of early retirement of debt (where practicable).

Provision for Income Taxes. Prior to our Reorganization, we operated as a limited liability company whereby our members were taxed on a proportionate share of our taxable income. As such, no provision has been recorded for U.S. federal or state income taxes. For the quarter and six months ended June 30, 2013 and 2012, and the years ended December 31, 2012, 2011 and 2010 our entire provision for income taxes was attributed to our German operations.

Following our Reorganization, we are taxed as a corporation for U.S. federal, state, local and foreign income tax purposes. Current statutory tax rates in the jurisdictions in which we operate, the United States, Germany and Japan, are approximately 40.0% (including state taxes), 29.5% and 38.0%, respectively.

Results of Operations — Quarter and Six Months Ended June 30, 2013 Compared to Quarter and Six Months Ended June 30, 2012

Net Loss Attributable to ExOne

Net loss attributable to ExOne for the quarter ended June 30, 2013, was $1,120, or $0.08 per basic and diluted share, compared with a net loss attributable to ExOne of $3,609 for the quarter ended June 30, 2012. The decrease in our net loss was principally due to increases in our revenue and gross profit as a result of a significant increase in 3D printing and machine and micromachinery sales for 2013 compared to 2012. Offsetting the impact of the increases in revenue and gross profit was a net increase in our operating expenses from 2013 compared to 2012 attributed to increased research and development spending, mostly associated with (i) our continued efforts in qualifying materials for our 3D printing operations and (ii) investments in enhancing our 3D printing machine and micromachinery technology. Selling, general and administrative expenses were down slightly based on a net decrease in equity-based compensation offset by (i) higher professional service fees and personnel costs in making the transition from a private company to a publicly traded company and (ii) increased selling costs (principally selling commissions for machine sale transactions). Refer to the sections below for further description of these changes.

 

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Net loss attributable to ExOne for the six months ended June 30, 2013, was $3,034, or $0.27 per basic and diluted share, compared with a net loss attributable to ExOne of $5,138 for the six months ended June 30, 2012. The decrease in our net loss was principally due to increases in our revenue and gross profit as a result of a significant increase in 3D printing machine and micromachinery sales for 2013 compared to 2012. Offsetting the impact of the increases in revenue and gross profit was an increase in our operating expenses from 2013 compared to 2012 attributed to increased research and development spending, mostly associated with (i) our continued efforts in qualifying materials for our 3D printing operations and (ii) investments in enhancing our 3D printing machine and micromachinery technology. In addition, we incurred selling, general and administrative expenses which include (i) higher professional service fees and personnel costs in making the transition from a private company to a publicly traded company and (ii) increased selling costs (principally selling commissions for machine sale transactions), both offset by a net decrease in equity-based compensation. Refer to the sections below for further description of these changes.

Revenue

The following table summarizes revenue by product line for each of the quarter and six month periods ended June 30:

 

     Quarter Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

3D printing machines and micromachinery

   $ 5,798         62.8   $ 1,527         32.7   $ 10,053         58.6   $ 1,527         20.6

3D printed products, materials and other services

     3,432         37.2     3,149         67.3     7,111         41.4     5,871         79.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 9,230         100.0   $ 4,676         100.0   $ 17,164         100.0   $ 7,398         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenue for the quarter ended June 30, 2013, was $9,230 compared with revenue of $4,676 for the quarter ended June 30, 2012, an increase of $4,554, or 97.4%. This increase was principally due to a higher volume of sales of 3D printing machines and micromachinery (four for the quarter ended June 30, 2013 as compared to one for the quarter ended June 30, 2012) as well as 3D printed products, materials and other services based on a continued increase in customer acceptance of our additive manufacturing technologies.

The following table summarizes the significant components of the change in revenue by product line for the quarter ended June 30, 2012 compared to the quarter ended June 30, 2013:

 

     3D printing
machines and
micromachinery
    3D printed
products,
materials and
other services
    Total  

Quarter Ended June 30, 2012

   $ 1,527      $ 3,149      $ 4,676   

Change in revenue attributed to:

      

Volume

     4,581        345        4,926   

Pricing and sales mix

     (310     —          (310

Foreign currency

     —          (62     (62
  

 

 

   

 

 

   

 

 

 
     4,271        283        4,554   
  

 

 

   

 

 

   

 

 

 

Quarter Ended June 30, 2013

   $ 5,798      $ 3,432      $ 9,230   
  

 

 

   

 

 

   

 

 

 

Revenue for the six months ended June 30, 2013, was $17,164 compared with revenue of $7,398 for the six months ended June 30, 2012, an increase of $9,766, or 132.0%. This increase was principally due to a higher volume of sales of 3D printing machines and micromachinery (nine for the six months ended June 30, 2013 as compared to one for the six months ended June 30, 2012) as well as 3D printed products, materials and other services based on a continued increase in customer acceptance of our additive manufacturing technologies.

 

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The following table summarizes the significant components of the change in revenue by product line for the six months ended June 30, 2012 compared to the six months ended June 30, 2013:

 

     3D printing
machines and
micromachinery
    3D printed
products,
materials and
other services
    Total  

Six Months Ended June 30, 2012

   $ 1,527      $ 5,871      $ 7,398   

Change in revenue attributed to:

      

Volume

     12,216        1,448        13,664   

Pricing and sales mix

     (3,690     —          (3,690

Foreign currency

     —          (208     (208
  

 

 

   

 

 

   

 

 

 
     8,526        1,240        9,766   
  

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2013

   $ 10,053      $ 7,111      $ 17,164   
  

 

 

   

 

 

   

 

 

 

The following table summarizes 3D printing machines and micromachinery sold by type for each of the quarter and six month periods ended June 30 (refer to the “Our Machines and Machine Platforms” section of “Business” for a description of 3D printing machines and micromachinery by type):

 

     Quarter Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Machine units sold:

           

S-Max

     4         1         6         1   

S-Print

     —           —           1         —     

M-Lab

     —           —           1         —     

Orion

     —           —           1         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     4         1         9         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of Sales and Gross Profit

Cost of sales for the quarter ended June 30, 2013 was $5,049 compared with cost of sales of $3,153 for the quarter ended June 30, 2012, an increase of $1,896, or 60.1%. Cost of sales as a percentage of revenue was 54.7% for the quarter ended June 30, 2013 compared with 67.4% for the quarter ended June 30, 2012, a decrease of 12.7%.

Gross profit for the quarter ended June 30, 2013 was $4,181 compared with gross profit of $1,523 for the quarter ended June 30, 2012, an increase of $2,658, or 174.5%. Gross profit percentage was 45.3% for the quarter ended June 30, 2013, compared with 32.6% for the quarter ended June 30, 2012, an increase of 12.7%. This increase was principally due to volume increases in sales of 3D printing machines and an increase in productivity for the quarter ended June 30, 2013, compared with June 30, 2012 (see table above).

Cost of sales for the six months ended June 30, 2013 was $10,145 compared with cost of sales of $5,059 for the six months ended June 30, 2012, an increase of $5,086, or 100.5%. Cost of sales as a percentage of revenue was 59.1% for the six months ended June 30, 2013 compared with 68.4% for the six months ended June 30, 2012, a decrease of 9.3%.

Gross profit for the six months ended June 30, 2013 was $7,019 compared with gross profit of $2,339 for the six months ended June 30, 2012, an increase of $4,680, or 200.1%. Gross profit percentage was 40.9% for the six months ended June 30, 2013, compared with 31.6% for the six months ended June 30, 2012, an increase of 9.3%. This increase was principally due to volume increases in sales of 3D printing machines and an increase in productivity for the six months ended June 30, 2013, compared with June 30, 2012 (see table above).

 

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Operating Expenses

The following table summarizes the significant components of operating expenses for each of the quarter and six month periods ended June 30:

 

     Quarter Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Research and development

   $ 1,276       $ 348       $ 2,132       $ 832   

Selling, general and administrative

     3,908         4,262         7,476         5,948   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 5,184       $ 4,610       $ 9,608       $ 6,780   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses for the quarter ended June 30, 2013, were $5,184 compared with operating expenses of $4,610 for the quarter ended June 30, 2012, an increase of $574, or 12.5%. Operating expenses as a percentage of revenue were 56.2% for the quarter ended June 30, 2013, compared with 98.6% for the quarter ended June 30, 2012, a decrease of 42.4%.

Research and development expenses for the quarter ended June 30, 2013, were $1,276 compared with research and development expenses of $348 for the quarter ended June 30, 2012, an increase of $928, or 266.7%. This increase was primarily due to (i) increased costs associated with our materials qualification activities, including additional research and development headcount and facilities costs associated with our new materials development laboratory in the United States and (ii) continued investment in enhancing our 3D printing machine and micromachinery technology.

Selling, general and administrative expenses for the quarter ended June 30, 2013, were $3,908 compared with selling, general and administrative expenses of $4,262 for the quarter ended June 30, 2012, a decrease of $354, or 8.3%. This decrease was principally due to the absence of an equity-based compensation expense of $1,785 during the quarter ended June 30, 2012 associated with the sale of common units by the majority member of the former limited liability company to another existing member of the former limited liability company. Offsetting this amount were increases in (i) professional service fees (including legal, audit and other consulting expenses), (ii) personnel costs associated with an increased headcount (including salaries and related benefits) in making the transition from a private company to a publicly traded company and (iii) selling costs (principally selling commissions for machine sale transactions).

Operating expenses for the six months ended June 30, 2013, were $9,608 compared with operating expenses of $6,780 for the six months ended June 30, 2012, an increase of $2,828, or 41.7%. Operating expenses as a percentage of revenue were 56.0% for the six months ended June 30, 2013, compared with 91.6% for the six months ended June 30, 2012, a decrease of 35.6%.

Research and development expenses for the six months ended June 30, 2013, were $2,132 compared with research and development expenses of $832 for the six months ended June 30, 2012, an increase of $1,300 or 156.3%. This increase was primarily due to (i) increased costs associated with our materials qualification activities, including additional research and development headcount and facilities costs associated with our new materials development laboratory in the United States and (ii) continued investment in enhancing our 3D printing machine and micromachinery technology.

Selling, general and administrative expenses for the six months ended June 30, 2013, were $7,476 compared with selling, general and administrative expenses of $5,948 for the six months ended June 30, 2012, an increase of $1,528, or 25.7%. This increase was principally due to (i) higher professional service fees (including legal, audit and other consulting expenses), (ii) increased personnel costs associated with an increased headcount (including salaries and related benefits) in making the transition from a private company to a publicly traded company and (iii) increased selling costs (principally selling commissions for machine sale transactions).

 

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Offsetting these increases were the absence of an equity-based compensation expense of $1,785 during the six months ended June 30, 2012 associated with the sale of common units by the majority member of the former limited liability company to another existing member of the former limited liability company.

Interest Expense

Interest expense for the quarter ended June 30, 2013, was $50 compared with interest expense of $110 for the quarter ended June 30, 2012, a decrease of $60, or 54.5%. This decrease was principally due to a lower average outstanding debt balance for the quarter ended June 30, 2013, as compared to the quarter ended June 30, 2012, mostly due to the absence of advances on the demand note payable to member during the quarter ended June 30, 2013.

Interest expense for the six months ended June 30, 2013, was $280 compared with interest expense of $308 for the six months ended June 30, 2012, a decrease of $28, or 9.1%. This decrease was principally due to a lower average outstanding debt balance for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012, mostly due to decreased average amounts outstanding on the demand note payable to member.

Other (Income) Expense — Net

Other (income) expense — net for the quarter ended June 30, 2013 was ($5) compared with other (income) expense — net of $18 for the quarter ended June 30, 2012. The change of $23 was mostly due to an increase in interest income during the quarter ended June 30, 2013 based on a higher average depository balance of cash on-hand following completion of our initial public offering in February 2013.

Other (income) expense — net for the six months ended June 30, 2013 was ($64) compared with other (income) expense — net of ($27) for the six months ended June 30, 2012. The increase of ($37) was mostly due to an increase in interest income during the first half of 2013 based on a higher average depository balance of cash on-hand following completion of our initial public offering in February 2013.

Provision for Income Taxes

The provision for income taxes for the quarters ended June 30, 2013 and 2012 was $72 and $246, respectively, and related entirely to the taxable income of ExOne GmbH. The effective tax rate for the quarters ended June 30, 2013 and 2012 was 106.9% and107.7%, respectively. For the quarter ended June 30, 2013, the effective tax rate differs from the U.S. federal statutory rate of 34.0% primarily due to net changes in valuation allowances for the period. For the quarter ended June 30, 2012, the effective tax rate differs from the U.S. federal statutory rate of 34.0% primarily due to the effects of (i) limited liability company losses not subject to tax and (ii) net changes in valuation allowances for the period.

The provision for income taxes for the six months ended June 30, 2013 and 2012 was $91 and $234, respectively, and related entirely to the taxable income of ExOne GmbH. The effective tax rate for the six months ended June 30, 2013 and 2012 was 103.2% and 105.0%, respectively. For the six months ended June 30, 2013, the effective tax rate differs from the U.S. federal statutory rate of 34.0% primarily due to net changes in valuation allowances for the period. For the six months ended June 30, 2012, the effective tax rate differs from the U.S. federal statutory rate of 34.0% primarily due to the effects of (i) limited liability company losses not subject to tax and (ii) net changes in valuation allowances for the period.

We have provided a valuation allowance for our net deferred tax assets as a result of our inability to generate consistent net operating profits in jurisdictions in which we operate. As such, any benefit from deferred taxes in either quarterly period has been fully offset by changes in the valuation allowance for net deferred tax assets. We continue to assess our future taxable income by jurisdiction based on (i) our recent historical operating results (ii) the expected timing of reversal of temporary differences (iii) various tax planning strategies that we

 

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may be able to enact in future periods (iv) the impact of potential operating changes on our business and (v) our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors, a reversal of existing valuation allowances may occur.

Noncontrolling Interests

There was no net income attributable to noncontrolling interests for the quarter ended June 30, 2013 following the acquisition of net assets in the related variable interest entities, completed during the quarter ended March 31, 2013. Net income attributable to noncontrolling interests was $148 for the quarter ended June 30, 2012.

Net income attributable to noncontrolling interests for the six months ended June 30, 2013, was $138 compared with net income attributable to noncontrolling interests of $182 for the six months ended June 30, 2012, a decrease of $44, or 24.2%. This decrease was principally the result of the acquisition of net assets of the variable interest entities referenced above.

Other Financial Information

We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as net income (loss) attributable to ExOne (as calculated under accounting principles generally accepted in the United States of America (“GAAP”)) plus net income (loss) of noncontrolling interests, provision (benefit) for income taxes, interest expense, depreciation, equity-based compensation associated with our 2013 Equity Incentive Plan and other (income) expense — net. Disclosure in this prospectus of Adjusted EBITDA, which is a non-GAAP financial measure, as defined under the rules of the U.S. Securities and Exchange Commission (“SEC”), is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to ExOne or any other performance measure derived in accordance with GAAP. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

We believe Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs, we understand that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Reconciliation of Adjusted EBITDA to Net Loss Attributable to ExOne

 

     Quarter Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Net loss attributable to ExOne

   $ (1,120   $ (3,609   $ (3,034   $ (5,138

Net income attributable to noncontrolling interests

     —          148        138        182   

Interest expense

     50        110        280        308   

Provision for income taxes

     72        246        91        234   

Depreciation

     524        421        1,096        805   

Equity-based compensation*

     200        —          311        —     

Other (income) expense — net

     (5     18        (64     (27
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (279   $ (2,666   $ (1,182   $ (3,636
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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* As noted above, amounts reflected for equity-based compensation relate solely to expense incurred in connection with equity-based awards granted under our 2013 Equity Incentive Plan. During both the quarter and six months ended June 30, 2012, we incurred $1,785 of equity-based compensation expense related to the sale of common units by the majority member of the former limited liability company to another existing member of the former limited liability company. We have elected not to consider the related equity-based compensation in measuring Adjusted EBITDA for the respective 2012 periods.

The significant changes in the reconciling items between Adjusted EBITDA and net loss attributable to ExOne for the quarter ended June 30, 2013, compared to the quarter ended June 30, 2012, include (i) a decrease in net income attributable to noncontrolling interests as a result of the acquisition of the related variable interest entities during the quarter ended March 31, 2013, (ii) a decrease in interest expense of $60 associated with a lower average outstanding debt balance for the quarter ended June 30, 2013, (iii) a decrease in the provision for income taxes of $174 associated with changes in the taxable income of ExOne GmbH, (iv) an increase in depreciation expense of $103 attributed to an increase in 3D printing machines in-service in 2013 as compared to 2012 and (v) an increase in equity-based compensation of $200 based on the adoption of the 2013 Equity Incentive Plan and subsequent issuance of incentive stock options and restricted stock during the quarter ended March 31, 2013.

The significant changes in the reconciling items between Adjusted EBITDA and net loss attributable to ExOne for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, include (i) a decrease in the provision for income taxes of $143 associated with changes in the taxable income of ExOne GmbH, (ii) an increase in depreciation expense of $291 attributed to an increase in 3D printing machines in-service in 2013 as compared to 2012 and (iii) an increase in equity-based compensation of $311 based on the adoption of the 2013 Equity Incentive Plan and subsequent issuance of incentive stock options and restricted stock during the quarter ended March 31, 2013.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition are not significant.

Results of Operations — Year Ended December 31, 2012 Compared to Year Ended December 31, 2011 and Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net Loss Attributable to ExOne

Net loss attributable to ExOne for 2012 was $10,168 compared with a net loss attributable to ExOne of $8,037 in 2011. The increase in our net loss was due to an increase in our operating expenses from 2012 compared to 2011 principally due to a non-recurring equity-based compensation charge and professional service fees incurred in preparation for our initial public offering. Offsetting the impact of the increase in operating expenses, were (i) increases in our revenue and gross profit as a result of a significant increase in 3D printing machine sales for 2012 compared to 2011 and a reduction in license fee expense as a result of the amendment to our agreement with MIT and (ii) a decrease in interest expense as a result of a lower average outstanding debt balance. Refer to the sections below for further description of these changes.

Net loss attributable to ExOne for 2011 was $8,037 compared with a net loss attributable to ExOne of $5,508 in 2010. The increase in our net loss was principally due to increases in operating expenses (mostly personnel costs associated with a higher headcount), an increase in interest expense as a result of a higher average outstanding debt balance and an increase in the provision for income taxes due to higher taxable income for our German operations. These increases were offset by improvements in our gross profit as a result of an increase in the volume of sales of 3D printed products, materials and other services. Refer to the sections below for further description of these changes.

 

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Revenue

The following table summarizes revenue by product line for each of the years ending December 31:

 

     2012     2011     2010  

3D printing machines and micromachinery

   $ 15,668         54.7   $ 5,406         35.4   $ 5,622         41.8

3D printed products, materials and other services

     12,989         45.3     9,884         64.6     7,818         58.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 28,657         100.0   $ 15,290         100.0   $ 13,440         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenue for 2012 was $28,657 compared with revenue of $15,290 in 2011, an increase of $13,367, or 87.4%. This increase was principally due to a higher volume of sales of 3D printing machines (13 in 2012 as compared to 5 in 2011) as well as 3D printed products, materials and other services.

The following table summarizes the significant components of the change in revenue by product line for 2012 compared to 2011:

 

     3D printing
machines and
micromachinery
    3D printed
products,
materials and
other services
    Total  

2011

   $ 5,406      $ 9,884      $ 15,290   

Change in revenue attributed to:

      

Volume

     10,360        3,388        13,748   

Pricing and sales mix

     95        —          95   

Foreign currency

     (193     (283     (476
  

 

 

   

 

 

   

 

 

 
     10,262        3,105        13,367   
  

 

 

   

 

 

   

 

 

 

2012

   $ 15,668      $ 12,989      $ 28,657   
  

 

 

   

 

 

   

 

 

 

Revenue for 2011 was $15,290 compared with revenue of $13,440 in 2010, an increase of $1,850, or 13.8%. This increase was principally due to a higher volume of sales of 3D printed products, materials and other services.

The following table summarizes the significant components of the change in revenue by product line for 2011 compared to 2010:

 

     3D printing
machines and
micromachinery
    3D printed
products,
materials and
other services
     Total  

2010

   $ 5,622      $ 7,818       $ 13,440   

Change in revenue attributed to:

       

Volume

     —          1,962         1,962   

Pricing and sales mix

     (487     —           (487

Foreign currency

     271        104         375   
  

 

 

   

 

 

    

 

 

 
     (216     2,066         1,850   
  

 

 

   

 

 

    

 

 

 

2011

   $ 5,406      $ 9,884       $ 15,290   
  

 

 

   

 

 

    

 

 

 

 

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The following table summarizes 3D printing machines sold by type for each of the years ending December 31 (see “Business — Our Machines and Machine Platforms” for a description of 3D printing machines by type):

 

      2012      2011      2010  

Machine units sold:

        

S-15

     1         2         2   

S-Max

     9         1         2   

S-Print

     3         1         —     

Other

     —           1         1   
  

 

 

    

 

 

    

 

 

 
     13         5         5   
  

 

 

    

 

 

    

 

 

 

Cost of Sales and Gross Profit

Cost of sales for 2012 was $16,514 compared with cost of sales of $11,647 in 2011, an increase of $4,867, or 41.8%. Cost of sales as a percentage of revenue was 57.6% for 2012 compared with 76.2% in 2011, a decrease of 18.6%.

Cost of sales for 2011 was $11,647 compared with cost of sales of $10,374 in 2010, an increase of $1,273, or 12.3%. Cost of sales as a percentage of revenue was 76.2% for 2011 compared with 77.2% in 2010, a decrease of 1.0%.

Gross profit for 2012 was $12,143 compared with gross profit of $3,643 in 2011, an increase of $8,500, or 233.4%. Gross profit percentage was 42.4% for 2012 compared with 23.8% in 2011, an increase of 18.6%. This increase was principally due to the increase in 3D printing machine volume for 2012 compared with 2011 (see table above) and a reduction in our license fees of $625 mostly due to the amendment to our agreement with MIT. See “Business — Intellectual Property — Patents and MIT Licenses.”

Gross profit for 2011 was $3,643 compared with gross profit of $3,066 in 2010, an increase of $577, or 18.8%. Gross profit percentage was 23.8% for 2011 compared with 22.8% in 2010, an increase of 1.0%. This increase was principally due to (i) a favorable mix of sales in our PSCs (lower cost) as well as (ii) increased volume of activity in our PSCs resulting in more efficient use of our fixed overhead.

Operating Expenses

The following table summarizes the significant components of operating expenses for each of the years ending December 31:

 

     2012      2011      2010  

Research and development

   $ 1,930       $ 1,531       $ 1,153   

Selling, general and administrative

     18,285         7,286         5,978   
  

 

 

    

 

 

    

 

 

 
   $ 20,215       $ 8,817       $ 7,131   
  

 

 

    

 

 

    

 

 

 

Operating expenses for 2012 were $20,215 compared with operating expenses of $8,817 in 2011, an increase of $11,398, or 129.3%. Operating expenses as a percentage of revenue were 70.5% for 2012 compared with 57.7% in 2011, an increase of 12.8%.

Research and development expenses for 2012 were $1,930 compared with research and development expenses of $1,531 in 2011, an increase of $399, or 26.1%. This increase was mostly due to (i) continued investment in our 3D printing machine technology and (ii) increased costs associated with our materials qualification activities.

 

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Selling, general and administrative expenses for 2012 were $18,285 compared with selling, general and administrative expenses of $7,286 in 2011, an increase of $10,999, or 150.1%. This increase was principally due to an equity-based compensation charge of $7,735 associated with the sale of common units of the former limited liability company to certain members of executive management. In addition, we incurred professional service fees (including legal, audit and other consulting expenses) of $2,328 in 2012 as compared to $469 in 2011. This increase is mostly attributable to costs incurred in preparation for our initial public offering, finalized in February 2013.

Operating expenses for 2011 were $8,817 compared with operating expenses of $7,131 in 2010, an increase of $1,686, or 23.6%. Operating expenses as a percentage of revenue were 57.7% for 2011 compared with 53.1% in 2010, an increase of 4.6%.

Research and development expenses for 2011 were $1,531 compared with research and development expenses of $1,153 in 2010, an increase of $378, or 32.8%. This increase was mostly due to continued investment in our 3D printing machine technology.

Selling, general and administrative expenses for 2011 were $7,286 compared with selling, general and administrative expenses of $5,978 in 2010, an increase of $1,308, or 21.9%. This increase was principally due to employee-related costs (salaries, benefits and travel) as a result of an increase in headcount.

Interest Expense

Interest expense for 2012 was $842 compared with interest expense of $1,570 in 2011, a decrease of $728, or 46.4%. This decrease was principally due to a lower average outstanding debt balance in 2012 as compared to 2011, mostly due to the conversion of amounts payable on our demand note payable to member to redeemable preferred units.

Interest expense for 2011 was $1,570 compared with interest expense of $1,114 in 2010, an increase of $456, or 40.9%. This increase was principally due to a higher average outstanding debt balance in 2011 as compared to 2010, mostly due to (i) additional equipment loans added in 2011 and (ii) increased borrowings from our majority member of approximately $3,939. The demand note payable to member accrued interest at 8.0% during both 2011 and 2010.

Other (Income) Expense — Net

Other (income) expense — net for 2012 was ($221) compared with other (income) expense — net of ($158) in 2011, an increase of $63, or 39.9%. Other (income) expense — net for 2011 was ($158) compared with other (income) expense — net of ($197) in 2010, a decrease of $39, or 19.8%. Changes in other (income) expense — net were mostly due to net changes in foreign currency exchange impacts.

Provision for Income Taxes

The provision for income taxes for 2012 was $995 compared with a provision for income taxes of $1,031 in 2011, a decrease of $36, or 3.5%. This decrease was due to a reduction in expense associated with uncertain tax positions in 2012 compared to 2011 for our German operations.

The provision for income taxes for 2011 was $1,031 compared with a provision for income taxes of $198 in 2010, an increase of $833, or 420.7%. This increase was due to an increase in taxable income in 2011 compared to 2010 for our German operations.

 

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Noncontrolling Interests

Net income attributable to noncontrolling interests for 2012 was $480 compared with net income attributable to noncontrolling interests of $420 in 2011, an increase of $60, or 14.3%. This increase was principally due to additional rental income (rental expense for us) associated with 3D printing machines purchased by our variable interest entities, Lone Star and TMF.

Net income attributable to noncontrolling interests for 2011 was $420 compared with net income attributable to noncontrolling interests of $328 in 2010, an increase of $92, or 28.0%. This increase was principally due to an increase in rental income by the noncontrolling interests (rental expense for us) associated with 3D printing machines purchased by our variable interest entities, Lone Star and TMF.

Other Financial Information

We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) as net income (loss) attributable to ExOne (as calculated under GAAP) plus net income (loss) of noncontrolling interests, provision (benefit) for income taxes, interest expense, depreciation, and other (income) expense — net. Disclosure in this prospectus of Adjusted EBITDA, which is a non-GAAP financial measure, as defined under the rules of the SEC, is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to ExOne or any other performance measure derived in accordance with GAAP. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

We believe Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs, we understand that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Reconciliation of Adjusted EBITDA to Net Loss Attributable to ExOne

 

     2012     2011     2010  

Net loss attributable to ExOne*

   $ (10,168   $ (8,037   $ (5,508

Net income attributable to noncontrolling interests

     480        420        328   

Interest expense

     842        1,570        1,114   

Provision for income taxes

     995        1,031        198   

Depreciation

     1,683        1,170        1,072   

Other (income) expense — net

     (221     (158     (197
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (6,389   $ (4,004   $ (2,993
  

 

 

   

 

 

   

 

 

 

 

* For 2012, net loss attributable to ExOne includes approximately $7,735 in equity-based compensation expense. There was no equity-based compensation expense recorded by ExOne during 2011 or 2010.

The significant changes in the reconciling items between Adjusted EBITDA and net loss attributable to ExOne for 2012 compared to 2011 include (i) a decrease in interest expense of $728 due to a lower average outstanding debt balance in 2012 as compared to 2011, including the conversion of demand note payable to member borrowings at the end of 2011 to redeemable preferred units and (ii) an increase in depreciation expense of $513 attributed to an increase in 3D printing machines in-service in 2012 as compared to 2011.

 

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The significant changes in the reconciling items between Adjusted EBITDA and net loss attributable to ExOne for 2011 compared to 2010 include (i) an increase in interest expense of $456 due to a higher average outstanding debt balance in 2011 as compared to 2010, mostly due to additional equipment loans added in 2011 and increased borrowings from our majority member of approximately $3,939 and (ii) an increase in the provision for income taxes of $833 due to increased taxable income for our German operations.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition are not significant.

Liquidity and Capital Resources

We have incurred net losses of $1,120 and $2,896 for the quarter and six months ended June 30, 2013 and $9,688, $7,617 and $5,180 for the years ended December 31, 2012, 2011 and 2010, respectively. Prior to our Reorganization as a corporation on January 1, 2013, we operated as a limited liability company and were substantially supported by the continued financial support provided by our majority member. These conditions raised substantial doubt as to our ability to continue as a going concern. In connection with the completion of our initial public offering in February 2013, we received unrestricted net proceeds after expenses from the sale of our common stock of approximately $90,371. We believe that the unrestricted net proceeds obtained through this transaction have alleviated the substantial doubt and will be sufficient to support our operations through July 1, 2014.

The following table summarizes the significant components of cash flows for the six month periods ended June 30, 2013 and 2012, and years ended December 31, 2012, 2011 and 2010, and our cash and cash equivalents balance at June 30, 2013, and December 31, 2012, 2011, and 2010:

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2013     2012     2012     2011     2010  

Cash used for operating activities

   $ (7,133   $ (7,498   $ (9,803   $ (2,436   $ (5,912

Cash used for investing activities

     (3,875     (1,518     (1,724     (1,080     (1,795

Cash provided by financing activities

     72,882        6,142        11,003        5,931        7,811   

Effect of exchange rate changes on cash and cash equivalents

     (126     (28     (170     60        273   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

   $ 61,748      $ (2,902   $ (694   $ 2,475      $ 377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     June 30,
2013
          December 31,  
             2012     2011     2010  

Cash and cash equivalents

   $ 64,550        $ 2,802      $ 3,496      $ 1,021   
  

 

 

     

 

 

   

 

 

   

 

 

 

Operating Activities

Cash used for operating activities for the six months ended June 30, 2013, was $7,133 compared with $7,498 for the six months ended June 30, 2012. The decrease of $365, or 4.9%, was mostly attributed to decreases in net changes in assets and liabilities as a result of (i) increased collections activity on accounts receivable (mostly due to fourth quarter 2012 machine unit sales) and (ii) a reduction in net outflows associated with inventories (as the increase in machine production activity has leveled off from the six months ended June 30, 2012) offset by (i) an increase in outflows associated with prepaid expenses and other current assets (attributed mostly to vendor prepayment activity), (ii) an increase in outflows associated with accounts payable (based on increased purchasing activity and the timing of payment) and (iii) a decrease in deferred revenue and customer prepayments as a result of an increase in product delivery to customers.

 

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Cash used for operating activities for the year ended December 31, 2012 was $9,803 compared with $2,436 for the year ended December 31, 2011. The increase of $7,367, or 302.4%, was attributed to increases in net working capital of $13,544 (mostly increases in accounts receivable and inventories as a result of increased selling and production activity) slightly offset by increases to accounts payable and accrued expenses, also linked to selling and production activity. The increase in net working capital was offset by an increase of cash earnings in 2012 of $6,177 (net loss less non-cash items).

Cash used for operating activities for the year ended December 31, 2011 was $2,436 compared with $5,912 for the year ended December 31, 2010. The decrease of $3,476, or 58.8%, was attributed to sources of cash of (i) an increase in deferred revenue and customer prepayments of $4,377 mostly due to increased prepayments from customers on 3D printing machine sales, (ii) an increase in cash from accounts receivable of $2,902 as a result of collections of outstanding amounts due and (iii) an increase in amounts attributable to accrued expenses and other liabilities of $1,076 mostly due to an increase in accrued income taxes. Offsetting these sources were uses of cash of (i) $2,437 attributed to an increase in the net loss from 2011 compared to 2010, (ii) $1,982 in increases attributable to inventory (mostly due to additional raw material purchases and one 3D printing machine included in finished goods compared to zero in 2010).

Investing Activities

Cash used for investing activities for the six months ended June 30, 2013, was $3,875 compared with $1,518 for the six months ended June 30, 2012. The increase of $2,357, or 155.3%, was primarily attributed to the cash flow effect of deconsolidating certain variable interest entities previously under our control. Remaining cash outflows for both periods related to capital expenditures, principally costs incurred to support the construction of 3D printing machines and micromachinery at our facilities in the United States and Germany.

Beginning in the second half of 2013, we intend to commence an expansion of our facilities in Germany to increase our 3D printing machine manufacturing, PSCs and other administrative facilities located there. Included in our expansion plans are the purchase of land and construction of a new facility comprising approximately 175,000 square feet. Estimated costs of the acquisition of land and construction of the new facility are approximately $20,000 and are expected to be incurred through 2014.

Separately, we also plan to establish two new PSCs in the second half of 2013 (one in Auburn, Washington and a second in a yet to be determined location). We estimate the cost associated with opening such PSCs to range from $2,000 to $4,000 for each location.

Cash used for investing activities for the year ended December 31, 2012 was $1,724 compared with $1,080 for the year ended December 31, 2011 and $1,795 for the year ended December 31, 2010. The use of cash for each of the three years was attributed to capital expenditures, principally to support the construction of 3D printing machines at our facilities in the United States and Germany.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2013, was $72,882 compared with $6,142 for the six months ended June 30, 2012.

The principal source of cash for the six months ended June 30, 2013, was net proceeds from our initial public offering of $91,083. Offsetting this source of cash were outflows of (i) $528 associated with the repayment of amounts outstanding on a line of credit facility held by our German subsidiary, (ii) $9,885 associated with the repayment of amounts outstanding on the demand note payable to member (which was subsequently retired by us), (iii) $7,332 associated with the repayment of other outstanding debt and principal payments on financing leases, including repayment of all of the debt assumed from our VIEs in connection with the acquisition of net assets on March 27, 2013 and settlement of our financing lease obligation with a related

 

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party for a cash payment of approximately $1,372 during the quarter ended June 30, 2013, and (iv) $456 in preferred stock dividends paid prior to conversion of preferred stock to common stock upon closing of our initial public offering.

The principal sources of cash for the six months ended June 30, 2012, were (i) net borrowings on the demand note payable to member of approximately $5,479 to support operations, (ii) net borrowings on a line of credit facility held by our German subsidiary of approximately $913 to support operations, and (iii) proceeds from financing leases of $985 used to finance 3D printing machine production. Offsetting these sources of cash were long-term debt and financing lease repayments of approximately $1,235.

Cash provided by financing activities for the year ended December 31, 2012 was $11,003 compared with $5,931 for the year ended December 31, 2011 and $7,811 for the year ended December 31, 2010.

The principal sources of cash in 2012 were (i) net borrowings on our line of credit of $528 to support operations, (ii) net borrowings on the demand note payable to member of $8,629 to support operations, and (iii) proceeds from long-term debt and financing leases of $4,707 used to finance 3D printing machine production. Offsetting these sources of cash were long-term debt and financing lease repayments of $2,063.

At December 31, 2012, we identified that we were not in compliance with the annual cash flow-to-debt service ratio covenant associated with our ExOne building note payable to a bank. We requested and were granted a waiver related to compliance with this covenant through December 31, 2013. Related to our 2012 noncompliance, there were no cross default provisions or related impacts on other lending agreements.

The principal sources of cash in 2011 were (i) net borrowings on the demand note payable to member of $3,939 to support operations, (ii) proceeds from long-term debt of $2,398 used to finance 3D printing machine production and (iii) contributions from noncontrolling interests of $402. Offsetting these sources of cash were long-term debt repayments of $808.

The principal source of cash in 2010 was the net borrowings on the demand note payable to member of $12,290 to support operations. Offsetting this source of cash were long-term debt repayments of $4,479.

At December 31, 2011, we identified that we were not in compliance with the annual minimum equity-to-asset ratio covenant associated with our line of credit. The bank did not take action related to this noncompliance. At December 31, 2012, we were in compliance with this covenant. Related to our 2011 noncompliance, there were no cross default provisions or related impacts on other lending agreements.

Contractual Obligations

We are required to make future payments under various contracts, including debt agreements, financing lease agreements and operating lease agreements. At June 30, 2013, a summary of our outstanding contractual obligations is as follows:

 

                                                                                                             
     Total      1 Year      1-3 Years      3-5 Years      Thereafter  

Operating activities:

              

Operating leases

   $ 558       $ 395       $ 141       $ 22       $ —     

License fee obligations

     731         531         200         —           —     

Deferred revenue and customer prepayments

     2,170         1,980         190         —           —     

Financing activities:

              

Long-term debt

     2,270         124         264         282         1,600   

Capital and financing leases

     1,229         507         636         86         —     

Interest

     850         145         194         155         356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,809       $ 3,682       $ 1,626       $    545       $ 1,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Operating Leases

Operating leases consist of various lease agreements of manufacturing facilities, office and warehouse spaces, equipment and vehicles, expiring in various years through 2017.

License Fee Obligations

License fee obligations include amounts contractually due to third parties for use of patented technology, expiring in various years through 2016.

Deferred Revenue and Customer Prepayments

Deferred revenue and customer prepayments require us to deliver 3D printing machines or other products or services to customers over a specified contract period. While these obligations are not expected to result in cash payments, they represent contractual obligations for which we would be obligated if the specified deliveries could not be made. Excluded from these amounts are approximately $4,800 in firm orders received from customers which we expect to deliver in the next twelve months.

Long-Term Debt

As of June 30, 2013, long-term debt consists of the following instruments (i) a line of credit held by our German subsidiary; and (ii) the current and noncurrent portion of notes payable used to finance the acquisition of a building. Maturity of our long-term debt extends to 2027.

Capital and Financing Leases

Capital and financing leases consist of obligations associated with (i) leased assets or (ii) sale-leaseback transactions required to be accounted for as financings. Maturity of our capital and financing leases extends to 2017.

Interest

Interest related to long-term debt and capital and financing leases is based on interest rates in effect at June 30, 2013, and is calculated on instruments with maturities that extend to 2027.

Other

Excluded from contractual obligations are the estimated costs associated with (i) our planned PSC expansion (approximately $20,000 to $25,000), (ii) our planned facility expansion in Gersthofen, Germany (approximately $20,000), (iii) expansion of our material development activities (approximately $2,000 to $3,000) and (iv) our planned selection and deployment of an ERP system (approximately $3,000), as amounts currently estimated do not represent firm purchase commitments.

Off Balance Sheet Arrangements

We are not a party to any off balance sheet arrangements.

Recently Issued and Adopted Accounting Guidance

In February 2013, the FASB issued guidance changing the requirements of companies’ reporting of amounts reclassified out of accumulated other comprehensive income (loss). These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income (loss) on the respective line items in net income (loss) if the amount being reclassified is required to be reclassified in its entirety to net income (loss). For other amounts that are not required to be reclassified in their entirety to net income (loss) in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other

 

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comprehensive income (loss). This change becomes effective for the Company on January 1, 2014. Other than the additional disclosure requirements, management has determined that the adoption of these changes will not have an impact on our consolidated financial statements.

In July 2013, the FASB issued guidance clarifying the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The amendment requires that unrecognized tax benefits be presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless certain exceptions exist. This change becomes effective for the Company on January 1, 2015. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

On January 1, 2012, we adopted changes issued by the FASB to conform existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. These changes both clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s equity, and disclosure of quantitative information about unobservable inputs used for Level 3 fair value measurements. The amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. Other than the additional disclosure requirements, the adoption of these changes had no impact on our consolidated financial statements.

On January 1, 2012, we adopted changes issued by the FASB to the presentation of comprehensive income (loss). These changes give an entity the option to present the total of comprehensive income (loss), the components of net income (loss), and the components of other comprehensive income (loss) either in a single continuous statement or in two separate but consecutive statements. The option to present components of other comprehensive income (loss) as part of the statement of changes in members’ equity was eliminated. The items that must be reported in other comprehensive income (loss) or when an item of other comprehensive income (loss) must be reclassified to net income (loss) were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share (unit). We elected to present the single continuous statement option. Other than the change in presentation, the adoption of these changes had no impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in foreign currency exchange rates which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.

The local currency is the functional currency for significant operations outside of the United States. The determination of the functional currency of an operation is made based on the appropriate economic and management indicators.

Foreign currency assets and liabilities are translated into their U.S. dollar equivalents based on year end exchange rates, and are included in stockholders’ equity (deficit) as a component of comprehensive income (loss). Revenues and expenses are translated at average exchange rates. Transaction gains and losses that arise

 

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from exchange rate fluctuations are charged to operations as incurred, except for gains and losses associated with intercompany receivables and payables for which settlement is not planned or anticipated in the foreseeable future, which are included in accumulated other comprehensive loss in the consolidated balance sheets.

We transact business globally and are subject to risks associated with fluctuating foreign exchange rates. The geographic areas outside the United States in which we operate are generally not considered to be highly inflationary. Approximately 63.8% and 34.0% of our consolidated revenue was derived from transactions outside the United States for the quarters ended June 30, 2013 and 2012, respectively. Approximately 65.0% and 44.1% of our consolidated revenue was derived from transactions outside the United States for the six months ended June 30, 2013 and 2012, respectively. Approximately 72.8%, 70.0% and 70.7% of our consolidated revenue was derived from transactions outside the United States for the years ended December 31, 2012, 2011 and 2010, respectively.

This revenue is generated primarily from wholly-owned subsidiaries operating in their respective countries and surrounding geographic areas. This revenue is primarily denominated in each subsidiary’s local functional currency, including the Euro and Japanese Yen. A hypothetical change in foreign exchange rates of +/- 10.0% for the quarter and six months ended June 30, 2013, would result in an increase (decrease) in revenue of approximately $600 and $1,100, respectively. A hypothetical change in foreign exchange rates of +/- 10.0% for the year ended December 31, 2012, would result in an increase (decrease) in revenue of approximately $2,100. These subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currencies.

Critical Accounting Policies and Estimates

The consolidated financial statements of the Company are prepared in conformity with GAAP. The preparation of these consolidated financial statements requires management to make certain judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Areas that require significant judgments, estimates and assumptions include accounting for inventories (including the allowance for slow moving and obsolete inventory); product warranty reserves; equity-based compensation (including the fair value of common units used to measure equity-based compensation); income taxes (including the valuation allowance on certain deferred tax assets) and future cash flow estimates associated with long-lived assets for purposes of impairment testing. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Revenue Recognition

Revenue from the sale of 3D printing machines and related 3D printed products and materials is recognized upon transfer of title, generally upon shipment. Revenue from the performance of contract services or production services is generally recognized when either the services are performed or the finished product is shipped. Revenue for all deliverables in a sales arrangement is recognized provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer and collection is reasonably assured. Persuasive evidence of a sales arrangement exists upon execution of a written sales agreement or signed purchase order that constitutes a fixed and legally binding commitment between us and our customer. In instances where revenue recognition criteria are not met, amounts are recorded as deferred revenue and customer prepayments in the consolidated balance sheets.

We enter into sales arrangements that may provide for multiple deliverables to a customer. Sales of machines may include consumables, maintenance services, and training and installation. We identify all goods and services that are to be delivered separately under a sales arrangement and allocate revenue to each deliverable based on relative fair values. Fair values are generally established based on the prices charged when

 

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sold separately. In general, revenues are separated between machines, consumables, maintenance services and installation and training services. The allocated revenue for each deliverable is then recognized ratably based on relative fair values of the components of the sale. We also evaluate the impact of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defer revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process. Revenue from maintenance services as well as installation is recognized at the time of performance.

We provide customers with a standard warranty on all machines generally over a period of twelve months from the date of installation at the customer’s site. The warranty is not treated as a separate service because the warranty is an integral part of the sale of the machine. After the initial one year warranty period, we offer our customers optional maintenance contracts. Deferred maintenance service revenue is recognized when the maintenance services are performed since we have historical evidence that indicates that the costs of performing the services under the contract are not incurred on a straight-line basis.

We sell equipment with embedded software to our customers. The embedded software is not sold separately and it is not a significant focus of our marketing effort. We do not provide post-contract customer support specific to the software or incur significant costs that are within the scope of FASB guidance on accounting for software to be leased or sold. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole such that the FASB guidance referenced above is not applicable. Sales of these products are recognized in accordance with FASB guidance on accounting for multiple-element arrangements.

Shipping and handling costs billed to customers for machine sales and sales of consumables are included in revenue in the consolidated statement of operations and other comprehensive loss. Costs incurred by us associated with shipping and handling is included in cost of sales in the consolidated statement of operations and comprehensive loss.

Our terms of sale generally require payment within 30 to 60 days after shipment of a product, although we also recognize that longer payment periods are customary in some countries where we transact business. To reduce credit risk in connection with machine sales, we may, depending upon the circumstances, require certain amounts be prepaid prior to shipment. In some circumstances, we may require payment in full for our products prior to shipment and may require international customers to furnish letters of credit. These prepayments are reported as deferred revenue and customer prepayments in the consolidated balance sheets. Production and contract services are billed on a time-and-materials basis. Services under maintenance contracts are billed to customers upon performance of services in accordance with the contract.

Cash and Cash Equivalents

We consider all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. Our policy is to invest cash in excess of short-term operating and debt-service requirements in such cash equivalents. These instruments are stated at cost, which approximates fair value because of the short maturity of the instruments. We maintain cash balances with financial institutions located in the United States, Germany, and Japan. We place our cash with high quality financial institutions and believe our risk of loss is limited; however, at times, account balances may exceed international and federally insured limits. We have not experienced any losses associated with these cash balances.

Accounts Receivable

Accounts receivable are reported at their net realizable value. Our estimate of the allowance for doubtful accounts related to trade receivables is based on our evaluation of customer accounts with past-due outstanding balances or specific accounts for which we have information that the customer may be unable to meet its

 

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financial obligations. Based upon review of these accounts, and management’s analysis and judgment, we record a specific allowance for that customer’s accounts receivable balance to reduce the outstanding receivable balance to the amount expected to be collected. The allowance is re-evaluated and adjusted periodically as additional information is received that impacts the allowance amount reserved. At June 30, 2013, December 31, 2012 and December 31, 2011, the allowance for doubtful accounts was approximately $75, $83 and $43, respectively.

Inventories

We value all of our inventories at the lower of cost, as determined on the first-in, first-out (FIFO) method or market value. Overhead is allocated to work in progress and finished goods based on normal capacity of our production facilities. Fixed overhead associated with production facilities that are being operated below normal capacity are recognized as a period expense rather than being capitalized as a product cost. An allowance for slow-moving and obsolete inventories is provided based on historical experience and current product demand. These provisions reduce the cost basis of the respective inventory and are recorded as a charge to cost of sales. At June 30, 2013, December 31, 2012 and December 31, 2011, the allowance for slow-moving and obsolete inventories was approximately $859, $891 and $1,401, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to twenty-five years. Leasehold improvements are amortized on a straight-line basis over the shorter of (i) their estimated useful lives or (ii) the estimated or contractual lives of the related leases. Gains or losses from the sale of assets are recognized upon disposal or retirement of the related assets and are generally recorded in other (income) expense — net on the statement of consolidated operations and comprehensive loss. Repairs and maintenance are charged to expense as incurred.

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group) exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the excess of carrying value of assets (asset group) over their fair value, with fair value determined using the best information available, which generally is a discounted cash flow model. The determination of what constitutes an asset group, the associated undiscounted net cash flows, and the estimated useful lives of assets require significant judgments and estimates by management. We recorded no impairment losses during the six months ended June 30, 2013 or years ended December 31, 2012, 2011 or 2010.

Product Warranty Reserves

Substantially all of our 3D printing machines are covered by a warranty, generally over a period of twelve months from the date of installation at the customer’s site. A liability is recorded for future warranty costs in the same period in which the related revenue is recognized. The liability is based on anticipated parts and labor costs using historical experience. We periodically assess the adequacy of the product warranty reserves based on changes in these factors and record any necessary adjustments if actual experience indicates that adjustments are necessary. Future claims experience could be materially different from prior results because of the introduction of new, more complex products, a change in our warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event that we determine that our current or future product repair and replacement costs exceed estimates, an adjustment to these reserves would be charged to cost of sales in the statement of consolidated operations and comprehensive loss in the period such a determination is made. At June 30, 2013, December 31, 2012 and December 31, 2011, product warranty reserves were approximately $616, $554 and $117, respectively, and were included in accrued expenses and other current liabilities in the consolidated balance sheets.

 

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Income Taxes

Prior to our Reorganization as a corporation on January 1, 2013, we were organized as a limited liability company. Under the provisions of the Internal Revenue Code and similar state provisions, we were taxed as a partnership and were not liable for income taxes. Instead, earnings and losses were included in the tax returns of our members. Therefore, the consolidated financial statements do not reflect a provision for U.S. federal or state income taxes.

Our subsidiaries in Germany and Japan are taxed as corporations under the taxing regulations of Germany and Japan, respectively. As a result, the consolidated statement of operations and comprehensive loss includes tax expense related to these foreign jurisdictions.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest amount that has a greater than 50% likelihood of being realized upon settlement. Tax benefits that do not meet the more likely than not criteria are recognized when effectively settled, which generally means that the statute of limitations has expired or that appropriate taxing authority has completed its examination even through the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

We recognize deferred tax assets and liabilities for the differences between the financial statement carrying amounts and the tax basis of assets and liabilities of our wholly-owned subsidiaries in Germany and Japan using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce foreign deferred tax assets to the amount expected to be realized.

Derivative Financial Instruments

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments.

Prior to March 27, 2013, we held interest rate swaps for the purpose of managing risks related to the variability of future earnings and cash flows caused by changes in interest rates. We had elected not to prepare and maintain the documentation required to qualify for hedge accounting treatment and therefore, all gains and losses (realized or unrealized) related to derivative instruments were recognized as interest expense in the statement of consolidated operations and comprehensive loss. Fair value of the interest rate swaps were reported as accrued expenses and other current liabilities in the consolidated balance sheets. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes. At June 30, 2013, we held no interest rate swaps.

We held no foreign currency contracts during the six months ended June 30, 2013 or years ended December 31, 2012 or 2011. During 2010, we entered into a foreign currency contract to hedge our exposure arising from the sale of inventory. We recognized a loss of approximately $76 during 2010 in connection with this transaction and the termination of this contract.

 

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Taxes on Revenue Producing Transactions

Taxes assessed by governmental authorities on revenue producing transactions, including sales, excise, value added and use taxes, are recorded on a net basis (excluded from revenue) in the consolidated statement of operations and comprehensive loss.

Research and Development

We are continuously involved in research and development of new methods and technologies relating to our products. All research and development costs are charged to expense as incurred.

Advertising

Advertising costs are charged to expense as incurred and were not significant for the six months ended June 30, 2013 or the years ended December 31, 2012, 2011 or 2010.

Defined Contribution Plan

We sponsor a defined contribution savings plan under section 401(k) of the Internal Revenue Code. Under the plan, participating employees in the United States may elect to defer a portion of their pre-tax earnings, up to the Internal Revenue Service annual contribution limit. We make matching contributions of 50% of the first 8% of employee contributions, subject to certain Internal Revenue Service limitations. Our matching contributions to the plan were not significant for the six months ended June 30, 2013 or the years ended December 31, 2012, 2011 or 2010.

 

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Equity-Based Compensation

We recognize compensation expense for equity-based grants using the straight-line attribution method, in which the expense (net of estimated forfeitures) is recognized ratably over the requisite service period based on the grant date fair value. Fair value of equity-based awards is estimated on the date of grant using the Black-Scholes pricing model. We recognized approximately $311 in equity-based compensation expense for the six months ended June 30, 2013. We recognized approximately $7,735 in equity-based compensation expense for the year ended December 31, 2012. There was no equity-based compensation expense recognized during the years ended December 31, 2011 or 2010.

Supplemental Quarterly Financial Information (Unaudited)

(dollars in thousands, except per-share amounts)

 

     Quarter Ended  
     June 30,
2013
    March 31,
2013
 

Revenue

   $ 9,230      $ 7,934   

Gross profit

   $ 4,181      $ 2,838   

Net loss attributable to ExOne*

   $ (1,120   $ (1,914

Net loss attributable to ExOne per common share**:

    

Basic

   $ (0.08   $ (0.20

Diluted

   $ (0.08   $ (0.20

 

     Quarter Ended  
     December 31,
2012
    September 30,
2012
    June 30,
2012
    March 31,
2012
 

Revenue

   $ 12,744      $ 8,515      $ 4,676      $ 2,722   

Gross profit

   $ 6,248      $ 3,556      $ 1,523      $ 816   

Net income (loss) attributable to ExOne*

   $ 902      $ (5,932   $ (3,609   $ (1,529
     Quarter Ended  
     December 31,
2011
    September 30,
2011
    June 30,
2011
    March 31,
2011
 

Revenue

   $ 2,718      $ 6,021      $ 2,303      $ 4,248   

Gross profit

   $ 398      $ 2,219      $ 18      $ 1,008   

Net loss attributable to ExOne*

   $ (2,766   $ (839   $ (2,988   $ (1,444

 

* Net loss attributable to ExOne includes $200 and $111 in equity-based compensation expense for the quarters ended June 30, 2013 and March 31, 2013, respectively. Net loss attributable to ExOne includes $5,950 and $1,785 in equity-based compensation expense for the quarters ended September 30, 2012 and June 30, 2012, respectively. There was no equity-based compensation expense recorded by ExOne during any other quarter in 2012 or 2011.
** Per-share amounts are calculated independently for each quarter presented; therefore the sum of the quarterly per-share amounts may not equal the per-share amounts for the year. Per-share or per-unit amounts for 2012 and 2011 are not comparable as a result of our Reorganization as a corporation on January 1, 2013.

 

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BUSINESS

The Company

We are a global provider of 3D printing machines and printed products, materials and other services to industrial customers. Our business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for our customers using our in-house 3D printing machines. We offer pre-production collaboration and print products for customers through our six PSCs, which are located in the United States, Germany and Japan. We build 3D printing machines at our facilities in the United States and Germany. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, necessary for purchasers of our machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading printing capacity (as measured by build box size and printhead speed), uniquely position us to serve the needs of industrial customers.

Our 3D printing machines use our binder jetting technology, powdered materials, chemical binding agents and integrated software to print 3D products directly from computer models by repeatedly depositing very thin layers of powdered materials and selectively placing chemical binding agents to form the printed product. One of our key industry advantages is that our machines are able to print products in materials which are desired by industrial customers. Currently, our 3D printing machines are able to manufacture casting molds and cores from specialty silica sand and ceramics, which are the traditional materials for these casting products. Of equal importance, our 3D printing machines are capable of direct product materialization by printing in industrial metals, including stainless steel, bronze, iron, and bonded tungsten. We are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium, and our current material development plan calls for an additional industrial material to be qualified every six months.

We believe that we are a leader in providing 3D printing machines, 3D printed products and related services to industrial customers in the aerospace, automotive, heavy equipment, energy/oil/gas and other industries. In an effort to further solidify this position, the net proceeds from our initial public offering have been earmarked or spent in order to (1) expand our PSC network to fifteen global locations by the end of 2015, (2) increase capacity and upgrade technology in our production facilities in Germany, including consolidating our operations from five buildings located throughout the district of Augsburg to one purpose-built facility, (3) expand our materials development initiatives and achieve our plan of one new industrial material qualified every six months, (4) select and deploy an Enterprise Resource Planning (“ERP”) system to promote operational efficiency and financial controls globally, (5) payoff existing debt, and (6) deploy working capital to support growth. These uses of proceeds and priorities are consistent with the plan outlined by us during our initial public offering and communicated to our stockholders thereafter.

We believe that we can accelerate our growth through the integration of related technologies and services that expand or complement our current 3D printing capabilities. We are continually evaluating potential acquisitions, alliances, and strategic investments that would enhance our growth profile. These integration opportunities include, but are not limited to, driving customer demand for our technology by improving all phases of the production cycle, including enhancements to pre-print, such as CAD, simulation, and design optimization, as well as post-print processing, including metal finishing technologies and precision casting capabilities.

The Additive Manufacturing Industry and 3D Printing

3D printing is the most common type of an emerging manufacturing technology broadly referred to as additive manufacturing (“AM”). In general, AM is a term used to describe a manufacturing process that produces 3D objects directly from digital or computer models through the repeated deposit of very thin layers of material. 3D printing is the process of joining materials from a digital 3D model, usually layer by layer, to make objects using a printhead, nozzle or other printing technology. The terms “AM” and “3D printing” are increasingly being used interchangeably as the media and marketplace have popularized the term 3D printing rather than AM, the industry term.

 

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AM represents a transformational shift from traditional forms of manufacturing (e.g., machining or tooling) sometimes referred to as subtractive manufacturing. We believe that AM and 3D printing are poised to displace traditional manufacturing methodologies in a growing range of industrial applications. Our 3D printing process differs from other forms of 3D printing processes in that we use a chemical binding agent and focus on industrial products and materials.

The following uses of AM are described by IDA Science and Technology Policy Institute, Additive Manufacturing: Status and Opportunities, March 2012:

 

   

Casting Patterns and Tooling. A broad application of AM is creating patterns for casting molds and for tooling. Casting molds are used to make metal parts by pouring molten metal into the casting mold. We print molds directly from CAD data. In contrast, the traditional process requires a wooden pattern to be built to create the mold.

 

   

Direct Part Manufacturing. Direct part manufacturing is the creation of products for an end user. We expect direct part production to be the fastest growing application for AM industrial applications. Direct part manufacturing grew to more than 28% of total AM product and service revenues in 2012, up from approximately 4% in 2003, according to the 2013 Wohlers Report.

 

   

Prototyping. AM is used for the creation of prototypes, 3D models and functional models as part of a product design process whereby a product is printed, evaluated, redesigned and printed again. Many of our competitors print prototypes in resin polymers or other plastics. Our advantage in prototyping over our competitors who use resin polymers is that we are able to make a prototype for our industrial customers in industrial materials so that their function may be more accurately tested.

Our 3D printing process provides several benefits over traditional design methods and manufacturing processes, the most critical of which are:

 

   

Design Freedom. 3D printing allows designers and engineers the freedom to manufacturing a part that very closely matches their optimal design and expands design possibilities. Traditionally, designers of products have had to make design compromises based on the limitations of how products are created through subtractive manufacturing (i.e., the removal of material from a solid object). 3D printing, on the other hand, permits the manufacture of intricate and complex products which would not be possible or economically feasible to design and produce using subtractive manufacturing.

 

   

Reduced Cost of Complexity. 3D printing technology makes complex products in the same way, and at essentially the same cost, as simple ones. The 3D printing process of building parts by layering very small amounts of material can just as easily make a simple solid product as a highly complex and intricate product. Because a complex product can require less material than a simple solid product, the complex product may be even less expensive to make using 3D printing technology than a simple product. In contrast, in subtractive manufacturing, the cost of production generally increases with the complexity of the manufactured product.

 

   

Mass Customization. 3D printing allows products to be customized with little or no incremental cost because their manufacture is directed by CAD designs without the need for substantial retooling between prints. Each product printed using 3D printing can be identical to, or radically different from, other products that are printed concurrently. Subtractive manufacturing, by contrast, does not provide this flexibility. For example, 3D printing permits us to manufacture products that are identical except each part can have a unique quick response code inscribed on the part to support product tracking.

 

   

Co-Located/Just-in-Time Manufacturing. 3D printing facilities are able to be located in close geographic proximity to customers because, unlike traditional manufacturing methods, 3D printing is not labor intensive and has low tooling and set-up costs. When establishing a manufacturing facility for subtractive manufacturing, labor is often the most important cost variable. As a result, manufacturing operations are often located offshore or in geographically remote locations where labor is cheaper. The

 

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proximity of 3D printing operations to customers’ facilitates improves integration and collaboration with product engineers and designers and reduces shipping costs. This proximity also provides customers with an important supply chain management tool by supporting just-in-time availability of products without large inventory buildup.

 

   

Reduced Time Between Design and Production. 3D printing reduces the time required between product conception and production. 3D printing designs can be altered quickly, remotely and inexpensively without costly extensive retooling as the design is refined. We believe that increasing the speed at which products can be designed, prototyped and integrated into full-scale production is a priority for our industrial customers.

ExOne and 3D Printing

We provide 3D printing primarily to industrial customers and end-market users. We believe that we are an early entrant into the AM industrial products market and are one of the few providers of 3D printing solutions to industrial customers, including in the aerospace, automotive, heavy equipment and energy/oil/gas industries.

Our binder jetting 3D printing technology was developed over 15 years ago by researchers at MIT. Our machines build or print products from CAD by depositing successive very thin layers of particles of materials such as silica sand or metal powder in a “build box.” A moveable printhead passes over each layer and deposits a chemical binding agent in the selected areas where the finished product will be materialized. Each layer can be unique.

 

LOGO

Depending on the industrial material used in printing, printed products may need post-production processing. We generally use silica sand or foundry sand for casting, which requires no additional processing. Products printed in other materials, such as glass or metals, need varying amounts of heat treating or other post-processing.

Pre-Print. We believe that our customers have the opportunity to take greater advantage of the design freedom that our 3D printing technology provides. While we collaborate with our customers to develop and refine CAD designs that meet our customers’ specifications and can be read and processed by our 3D printing machines, we believe that additional pre-print capabilities would empower our customers to fully exploit the design freedom of 3D printing. As a result, we are exploring ways to develop, through a combination of acquisitions, strategic investments, and/or alliances, advanced CAD, simulation, and design optimization tools. With these enhanced pre-print capabilities, our customers will be able to imagine, design, optimize and produce their ideal products, unconstrained by the limitations imposed by traditional manufacturing technologies.

 

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LOGO

Industrial Materials. As we experience increased demand for our products globally, it is essential that the material supply chain and distribution channels match and be in close proximity to our current and prospective customers. To ensure that such a supply chain exists or quickly develops, we may vertically integrate the supply of our print media. In addition, for the highest quality printed products, the sand grains and metal particles used in the 3D printing process must be uniform in size and meet very specific tolerances. Vertically integrating would have the additional advantage of ensuring that our PSCs and machine customers have certainty of access to the highest quality print media, meeting the exact specifications of our 3D printing machines.

Our Machines. Our 3D printing machines consist of a build box that includes a machine platform and a computer processor controlling the printheads for applying layers of industrial materials and binding agents. We currently build our machines in both Germany and the United States. See “— Our Machines and Machine Platforms.” Our machines are used to produce molds for castings, products for end users and prototypes. In some situations, we can make prototypes in metal rather than resin polymer, or make a part from a mold for the casting of a newly designed part which we then cast at a qualified foundry. As a result, the prototype can be made from the same material as the final production part, which allows more accurate testing of the prototype. We provide a broad spectrum of qualified materials for direct part production and are continuing to qualify additional materials for use in our printing process. See “— Competitive Strengths — Industrial Materials.”

Our machines are primarily used to manufacture industrial products which are ordered in relatively low volumes, are highly complex, and have a high value to the customer. For example, the manufacture of an aircraft requires several complex parts, such as transmission housings (also known as gear-casings), which are needed in relatively low volume and which have a high performance value in the aircraft. There are also a variety of machine parts made in traditional machining processes that can be made more cheaply using those processes. Over time, we may be able to manufacture some of those parts more cost effectively. Our technology is not appropriate for the mass production of simple parts, such as injection molded parts or parts made in metal stamping machines. Traditional manufacturing technology is more economical in making those parts. While we expect over time to be able to increase the kinds of parts that we can make more economically than using subtractive manufacturing, we do not ever expect to use our technology to make simple, low-cost mass produced parts.

The bulk of our machines are used to make complex sand molds, which are used to cast these kinds of parts for several industries, although in some cases we make the end part directly. We intend to expand the direct part production segment of our business as we grow. In addition, as our technologies advance, and our unit cost of production decreases, we believe we can increase the type and number of products that our 3D printing machines can manufacture in a cost-effective manner, expanding our addressable market.

Post-Print Processing. After a part is printed, the bound and unbound powder in the build box requires curing of the chemical binding agent. In the case of molds and cores, curing occurs at room temperature and the printed product is complete after the binder is cured. The mold or core is then poured at a foundry, yielding the finished metal product. We have identified and work with high quality foundries, and we are exploring ways to enhance the quality of precision castings in order to drive additional demand for our molds and cores and the

 

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machine platforms that print them. In conjunction with precision foundry capabilities, we believe that our casting technology offers a number of advantages over traditional casting methods, including increased yield, weight reduction, and improved thermal range.

For other materials, such as stainless steel, bronze, iron, and bonded tungsten, the part needs to be sintered, or sintered and infiltrated. With sintering, the part is placed into a vacuum furnace in an inert atmosphere to sinter the bonded particles and form a strong bonded porous structure. The porous structure can be further infiltrated with another material to fill the voids. After the sintering and infiltration, the part can be polished and finished with a variety of standard industrial methods and coatings. We believe that our direct materialization capabilities enable customers to develop the ideal design for products, free of the design constraints inherent in traditional manufacturing, in the industrial metal of choice and in a more efficient manner than traditional manufacturing methods.

Example of Product Enhancement through Pre-Print Design Optimization

A control arm is typically used in the automotive industry to connect wheels to the structural frame of a vehicle. In traditional manufacturing, control arms are cast with a solid internal structure in aluminum. Weight reduction is generally a design goal to improve a vehicle’s operating performance. We undertook a project to produce a control arm traditionally weighing 5.78 lbs. and then produced the same-sized control arm using both indirect part and direct part materialization using 3D printing. As part of its materialization process, we utilized Finite Element Analysis (“FEA”) Simulation to assess the optimal structures and analyze the achievable benefits using 3D printing.

First, using indirect part materialization and FEA Simulation, we determined that a 3D printed sand core and mold with a cellular structure would improve performance by reducing weight while maintaining the structural support and strength. The 3D printed sand core and mold was cast in aluminum at a foundry utilizing a low-pressure pour as opposed to traditional gravity pour to implement the cellular design. This indirect part materialization design resulted in a weight reduction in the control arm of 0.74 lbs. (5.04 lbs.) over the traditional structure.

Second, by using 3D direct part materialization, we determined that an even more advanced cellular structure, one that is pervaded throughout extended areas of the control arm, could create additional improvements beyond even those obtained in the indirect process. The control arm was 3D printed in stainless steel to evidence the more advanced cellular structure pervaded into additional areas of the control arm. The FEA Simulation evidenced an additional 10% decrease in the control arm weight if the part were printed in aluminum (4.57 lbs.), as compared to the indirect 3D printed process and 26% as compared to traditional manufacturing. We also believe that in applying these optimization techniques, cellular and other advanced structures can be used to enhance strength in design areas of 3D printed products. Our control arm project demonstrates the benefits of pre-print collaboration to determine optimal designs for traditional structures.

 

LOGO   LOGO   LOGO

Traditional control arm cast in
aluminum—solid internal structure

 

Indirect Part Materialization—
3D printed core and mold permits
addition of cellular structure

 

Direct Part Materialization—3D
printed part permits advanced
cellular structure pervaded into
additional areas of the control arm

 

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ExOne Case Studies

The following case studies provide real world illustrations of how our products and services have provided valuable solutions to our customers at significant benefits over traditional subtractive manufacturing.

 

   

Printing Sand Molds Employing Patternless 3D Printing Process: We were able to produce lighter and more accurate magnesium castings for Sikorsky utilizing an “as-designed” CAD model in conjunction with digital modeling to assure a sound casting would be produced on the first attempt. Utilizing our pre-print services and 3D printing after the CAD design was completed, we were able to produce a finished casting within two to three weeks. Based on information provided by the customer, we estimate that producing the part would have taken six to eight months using traditional tooling methods.

 

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Metal Printing for Significant Reduction in Unit Cost and Lead Time: A pump manufacturer needed to manufacture a new impeller design for performance testing, a process whereby a design is created, parts are then made with different configurations of the same part to determine which configuration performs best. We were able to utilize our in-house 3D printing machines at our PSC to produce the impellers in 420 stainless steel from digital renderings provided by our customer. We shipped the impellers within 15 days of our receipt of the purchase order at a cost to the customer of $1,200. Based upon information provided by customers, we estimate that using traditional pattern-based methods of manufacturing to produce the impellers would have cost $5,000 to $15,000 and taken six to twelve weeks.

Digital Renderings:

 

LOGO    LOGO

 

Final Product:

 

LOGO    LOGO

 

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Metal Printing at Lower Cost and Greater Wear Resistance: A manufacturer of down hole drilling equipment desired to extend the life of a down-hole application part that is subjected to pressurized abrasive slurry. At a unit-cost of between $75 and $150 (depending upon size), we were able to produce and ship the part in S4 stainless steel/bronze matrix in only 15 to 20 work days. Based on information provided by the customers, we estimate that conventional manufacturing methods would have cost between $400 and $500. In addition, because of our ability to print in stainless steel and bronze, our parts showed greater wear-resistance than parts made with traditional manufacturing methods.

Final Product:

 

LOGO

Greater Wear-Resistance:

 

LOGO    LOGO

Traditionally manufactured part showed

wear after 200-300 hours of use.

  

Part created through our metal printing technology showed no measurable wear after 600 hours of use.

 

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Metal Printing to Reduce Cost and Provide Consistent Delivery Schedules for Complex Designs: A prosthetic device maker uses our 3D printing to produce intricate terminal ends, a component in prosthetic hands, in a cost-effective manner and on a consistent production schedule. Using additive manufacturing, we are able to produce intricate parts, like the terminal end shown below with stainless steel/bronze matrix parts, in batches of eight to 40 units, at a cost-per-unit of between $25 and $150 (depending upon size) in two to three weeks. Based on information provided by the customer, we estimate that traditional manufacturing methods, such as investment casting or conventional machining, would cost between $250 and $1,500 per unit and require between two and eight weeks for production.

3D Printed Prosthetic Hand Component

 

LOGO   

LOGO

 

CAD Rendering of component

 

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Printing Sand Molds to Achieve Faster Castings at Lower Costs and with Increased Flexibility for Design Changes: We were able to provide a German automaker with a method to quickly and economically produce complex aluminum alloy prototypes utilizing 3D printing of sand molds and cores. Our digital printing process offered significant time and cost advantages over conventional manufacturing methods, and accommodated changes in design rapidly, enabling product design improvements at a reduced cost. We were able to provide sand molds and cores in four hours at a cost per part of approximately $2,000. Based on information provided by the customer, we estimate that traditional methods of sand core forming would be approximately $20,000 to $25,000 per lot.

CAD Renderings

 

LOGO

3D Printed Sand Mold

LOGO

 

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Customers and Sales

Educating Our Customers.

Educating our customers and raising awareness in our target markets about the many uses and benefits of our 3D printing technology is an important part of our sales process. We believe that customers who experience the efficiency gains, decreased lead-time, increased design flexibility, and decreased cost potential of 3D printing, as compared to subtractive manufacturing, are more likely to purchase our machines and be repeat customers of our products. We educate our customers on the design freedom, speed, and other benefits of 3D printing by providing printing and design services and support through our growing number of PSCs. We also seek to expose key potential users to our products through our PSCs, installed machines at customers’ locations, university programs, and sales and marketing efforts. See “— Our Business Strategy.”

Production Service Centers.

We have established a network of six PSCs in North Huntingdon, Pennsylvania; Troy, Michigan; Houston, Texas; Auburn, Washington; Augsburg, Germany; and Kanagawa, Japan. Through our PSCs we provide sales and marketing and delivery of support and printing services to our customers. At our PSCs, our customers see our printing machines in operation and can evaluate their production capabilities before ordering a machine or a printed product. The PSCs are scalable and have a well-defined footprint that can be easily replicated to serve additional regional markets. As described below, placing our PSCs in strategic locations around the world is an important part of our business strategy. See “— Our Business Strategy.”

For all customers, we offer the following support and services through our PSCs:

 

   

Pre-production Collaboration. Our pre-print services include data capture using software that enables customers to translate their product vision into a digital design format that can be used as an input to our 3D printing equipment. We help our customers successfully move from the design stage to the production stage, and help customers evaluate the optimal design and industrial materials for their production needs. For example, we worked with a customer to design and manufacture parts that eliminated significant weight from a helicopter, which was possible because of the precision of our AM process. Our machines are also able to deliver a replacement for a product broken by the customer rapidly or often immediately because we will already have the production computer file. Using subtractive manufacturing would take much longer.

 

   

Consumables. We provide customers with the inputs used in our 3D printing machines, including tools, printing media/industrial materials, and bonding agents.

 

   

Training and Technical Support. Our technicians train customers to use our machines through hands-on experience at our PSCs and provide field support to our customers, including design assistance, education on industrial materials, operations and printing training, instruction on cleaning, and maintenance and troubleshooting.

 

   

Replacement Parts and Service. For the first year after purchase of one of our machines, we provide complimentary service and support. Thereafter, we offer a variety of service and support plans.

Our Competitive Strengths

We believe that our competitive strengths include:

 

   

Volumetric Output Rate. We believe that our 3D printing machines provide us the highest rate of volume output per unit of time among competing AM technologies. Because of our early entrance into the industrial market for AM and our investment in our core 3D printing technology, we have been able to improve the printhead speed and build box size of our machines. As a result, we have made strides in improving the output efficiency of our machines, as measured by volume output per unit of time. For

 

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example, the machine cost per cubic inch for our mid-size Flex machine is approximately 5% of the comparable machine cost of its predecessor, the R 2, assuming a constant 80% utilization rate over a five-year period. With continued advances in our core 3D printing technologies, we believe that our cost of production will continue to decline, increasing our ability to compete with subtractive manufacturing processes, particularly for complex products, effectively expanding our addressable market.

 

   

Printing Platform Size. The size of the build box area and the platform upon which we construct a product is important to industrial customers, who may want to either make a high number of products per job run or make an industrial product that has large dimensions and is heavy in final form. Our 1,260-liter platform for our S-Max machine is one of the largest commercially available 3D printing build platforms. We believe that our technology and experience give us the potential to develop even larger build platforms to meet the production demands of current and potential industrial customers. In addition, we have created machine platforms in four size ranges in order to cater to the varying demands of our customers. Our two largest platforms, the Max and Print machines, are differentiated from the machines of our competitors in their ability to print in an industrial size and scale. Our M-Lab size platform provides a small build box for lab work and experimentation.

 

   

Industrial Material. Currently, our 3D printing machines are able to manufacture casting molds and cores from specialty silica sand and ceramics, which are the traditional materials for these casting products. Of equal importance, our 3D printing machines are also capable of direct product materialization by printing in industrial metals, including stainless steel, bronze, iron, and bonded tungsten. We are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium. There is significant demand for products made of these materials. Many AM companies, however, cannot print industrial products in these materials and focus instead on polymer applications.

 

   

Chemical Binding. We use liquid chemical binding agents during the printing process. We believe that our unique chemical binding agent technology can more readily achieve efficiency gains over time than other AM technologies, such as laser-fusing technologies. For instance, in order to increase the print speed of laser-based technologies, another expensive industrial laser must be added to the manufacturing process, raising the unit cost of production.

 

   

International Presence. Since our inception, we have structured our business to cater to major international markets. We have established one or more PSCs in each of North America, Europe, and Asia. Because many of our current or potential customers are global industrial companies, it is important that we have a presence in or near the areas where these companies have manufacturing facilities.

 

   

Co-location of High Value Production. Over the last few years, many U.S. industrial manufacturers have outsourced products supply or otherwise created long, relatively inflexible supply chains for their high-complexity, high-value products. We believe that over the next few years, many of these companies will need to build these products in the United States, near their main manufacturing facilities, in order to be competitive nationally and internationally. We believe we are well positioned to help these manufacturers co-locate the production of products so as to optimize our customers’ supply chains.

Our Business Strategy

The principal elements of our growth strategy include:

 

   

Expand the Network of Production Service Centers. Our PSCs provide a central location for customer collaboration and provide customers with a direct contact point to learn about our 3D printing technology, buy products printed by us, and purchase our machines. By the end of 2015, we plan to expand our PSC network from the current six locations to fifteen locations. Like our current PSCs, we

 

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plan to locate the additional PSCs in major industrial centers near existing and potential customers. While we may adjust the final locations based upon market considerations, our 2013 plan includes announcing the opening of an additional location in the United States in addition to the recent Auburn, Washington announcement. Our current plan also includes opening two or more additional locations in the first half of 2014.

 

   

Qualify New Industrial Materials Printable In Our Systems. Currently, our 3D printing machines are capable of printing in silica sand, ceramics, stainless steel, bronze, iron, bonded tungsten, and glass, and we are in varying stages of qualifying additional industrial materials for printing, such as titanium, tungsten carbide, aluminum, and magnesium. By expanding into these other materials, we believe we can expand our market share and better serve our industrial customer base. We established ExMAL, which focuses on materials testing. We believe ExMAL will assist us in increasing the rate at which we are able to qualify new materials. ExMAL is led by our Chief Technology Officer, Rick Lucas, whose background includes experience in materials testing and certification. See “Management — Executive Officers and Directors.”

 

   

Increase the Efficiency of Our Machines to Expand the Addressable Market. We intend to invest in further developing our machine technology so as to increase the volume output per unit of time that our machines can produce. In 2011, we began selling a new second generation mid-sized platform, the S-Print machine. In addition, we are marketing our new M-Flex machine, and we have a signed purchase order to deliver our first unit in the third quarter of 2013. See “ Our Machines and Machine Platforms.” In both cases, the new machines are designed to increase the volume output per unit of time through advances in printhead speed and build box size. Achieving improved production speed and efficiency will expand our potential market for our machines and for products made in our PSCs.

 

   

Focus Upon Customer Training and Education to Promote Awareness. We use our regional PSCs to educate our potential customers. In addition, we have supplied 3D printing equipment to more than 20 universities and research institutions, in hopes of expanding the base of future adopters of our technology. We established ExTEC in our North Huntingdon, Pennsylvania headquarters. At ExTEC, technicians guide our current and prospective customers in the optimal use of 3D printing and customers gain digital access to our 3D printing knowledge database as it continues to evolve. We make ExTEC accessible to universities, individual customers, employees/trainees, designers, engineers, and others interested in 3D printing. We will continue to educate the marketplace about the advantages of 3D printing.

 

   

Achieve Revenue Balance and Geographic Diversification. Over the long-term, our goal is to balance revenue between machine sales and PSC production, service contracts, and consumables. Machine sales tend to be seasonal, less predictable, and generally more heavily impacted by the macroeconomic cycle, as compared to PSC production, service contracts, and consumables. As we sell more machines, the machine sales portion of our business will be supplemented by related sales of service, replacement parts, and consumables. To avoid being overly dependent on economic conditions in one part of the world, we intend to develop our customer base so that our revenues are balanced across the Americas, Europe, and Asia. As overall revenues increase, maintaining this balance will largely be achieved by targeting specific customers and industries for machine sales and by establishing PSCs in each of our key regions.

 

   

Advance Pre-Print Design and Post-Print Processing Capabilities to Accelerate the Growth of Our 3D Printing Technology. Our next generation 3D printing machine platforms have achieved the volumetric output rate and quality necessary to serve industrial markets on a production scale. We believe that there is an opportunity to similarly advance the pre-print and post-print processing phases of product materialization to more fully exploit the transformative power of our 3D printing machines and drive growth. These opportunities relate to both direct and indirect part materialization. For direct metal production, we believe that enhancing pre-print processes, notably design optimization tools and suitable print material availability, can greatly accelerate our capture of market share in the near-term.

 

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Additionally, enhancements to post-print processing will increase the applications for printed products. Through ExMAL, we are developing post-print processing technologies to achieve fully dense metal product materialization without the need for infiltration, and we are exploring technology sharing partnerships to further this initiative. In indirect production utilizing 3D printed molds and cores, advanced performance casting technologies can be leveraged to increase yields and reduce weight of casted products. To address the market opportunity and fill the execution gap, we have developed a suite of processes, many of which are proprietary, for producing high-quality castings through a process that we call ExCAST. ExCAST provides industry guidance and support through all stages of production, from CAD at the design stage, through the 3D materialization of molds and cores, metal casting of the end product and rapid delivery to the end-user.

 

   

Pursue Growth Opportunities Through Acquisitions, Alliances, and/or Strategic Investments. We intend to opportunistically identify and, through acquisitions, alliances and/or strategic investment, integrate and advance complementary businesses, technologies and capabilities. Our goal is to expand the functionality of our products, provide access to new customers and markets, and increase our production capacity. We are in active discussions with parties that we believe can contribute to a superior end-to-end manufacturing process.

Our Machines and Machine Platforms

We produce a variety of machines in order to enable designers and engineers to rapidly, efficiently, and cost-effectively design and produce industrial prototypes and production parts. The models of our machines differ based on the materials in which they print, build box size, and production speeds, but all utilize our advanced technology and designs. The variation in the models of machines that we produce allows for flexibility of use based on the needs of our customers.

We have created machine platforms in four size ranges in order to cater to the job sizes at the machine prices that the market demands. Our two largest platforms, the “Max” size platform and the “Print” size platform, are differentiated from those of our competitors in their ability to print on an industrial size and scale.

We further differentiate our model name by a prefix of either “M” or “S” before the platform name. The S prefix indicates that the machine is largely used for printing molds and cores for castings. The M prefix indicates that the machine is largely used for the direct printing of objects. The largest platform, the Max size, is generally used for castings, and therefore the current model in this platform is the S-Max. The Print size platform is broadly applicable in a variety of industrial uses, and therefore, we have introduced the platform with both M-Print and S-Print machines. We are currently offering the new Flex platform in an M-Flex machine. The Lab size platform is primarily sold and used as the M-Lab machine.

 

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Our machines come in a variety of sizes and are named for the size of print job they are able to produce. In descending order by capacity are our Max, Print, Flex, and Lab machines.

 

  LOGO   LOGO   LOGO   LOGO
   

Max Platform

 

Print Platform

 

Flex Platform

 

Lab Platform

External Dimensions WxDxH (mm)

  7000 x 3586 x 2860   2252 x 2584 x 2114   1674 x 1278 x 1552   965 x 711 x 1066

*Hours Per Job Box

 

24 hr print time

(.28mm layers)

  14.5 hrs   14 - 21 hrs   12 hrs
 

13 hr print time

(0.5mm layer)

     
       

Print Box Dimensions WxDxH (mm)

  1800 x 1000 x 700   780 x 400 x 400   400 x 250 x 250   40 x 60 x 35
       

Print Box Size (L)

  1260   125   25   0.084
       

Z Axis Resolution (mm)

  0.07 mm / 0.09 mm   .15mm   0.10 mm   0.10 mm
       

Materials

  Silica Sand   Silica Sand   420 Stainless Steel   420 Stainless Steel
       
  Cerabeads   Cerabeads   316 Stainless Steel   316 Stainless Steel
       
  Ceramics   Ceramics   Bronze   Bronze
       
    420 Stainless Steel   Glass   Glass
       
    316 Stainless Steel   Ceramics   Ceramics
   

Bronze

  Iron   Iron
   

Iron

 

Bonded Tungsten

 

Glass

  Bonded Tungsten  

Bonded Tungsten

       

 

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Max Platform

 

Print Platform

 

Flex Platform

 

Lab Platform

Select Machine or Printed Products Customers

 

 

Caterpillar

 

 

Peerless Pump/Grundfos

 

 

L’Université

du Québec

  Rochester Institute of Technology
       
  Ford Motor Company   Ecothermics   rp+m   Lafayette University
       
 

Boeing

 

 

Ulterra

 

 

University of Pittsburgh

 

University of Pittsburgh

       
 

Bosch Rexroth

 

HansGrohe

   

Piedmont University

       
  Magellan Aerospace Corporation   Industrial Machine and Manufacturing    
       
  Mitchell Aerospace Inc.  

LUK USA

   
       
  Bavarian Motor Works (BMW)  

Daihatsu

   
       
  Tesla Motors, Inc.      
 

Deere & Company

     
 

ITT Corp.

     
 

KSB Group

     
 

Best Pumpworks

     
 

Ryoyu Systems

     
 

Sikorsky

     
 

UMPO

     
 

MINOU

     

 

* 

Hours Per Job Box and Resolution both vary based upon the application.

S-Max. The S-Max machine, the largest of our machines, has a build box size of 1.8 meters x 1 meter x .7 meters and sells for approximately $1.4 million (based upon average model options and exchange rates). The total time to produce an entire build box on the S-Max is approximately 24 hours. We introduced the S-Max machine in 2010 to provide improved size and speed over the predecessor model, the S-15. Our PSCs each generally have at least one S-Max or S-15 machine installed on-site, which provides our customers with the ability to print casting molds and cores on an industrial scale.

S-Print/M-Print. Our Print machine platform has been completely redesigned and is our current mid-sized machine platform. The S-Print machine provides the same cutting edge technology available in the S-Max platform, with an average price point of approximately $0.8 million (based upon average model options and exchange rates). The S-Print machine is used by customers interested in printing objects made from silica sand and ceramics, with a particular focus on industrial applications for smaller casting cores that are often required for the aerospace industry, especially in hydraulic applications. The build box size permits the use of exotic and expensive print materials, such as ceramics, that are required for high heat/high strength applications. The S-Print machine build box is approximately 125 liters. This same basic platform is used in the M-Print, which is used by customers interested in direct printing of objects made

 

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from metals and glass. The average price point of the M-Print is approximately $0.9 million (based upon average model options and exchange rates). We have begun installing S-Print machines in our PSCs to complement the S-Max machines currently in use.

M-Flex. We are actively marketing our M-Flex machine platform and have a signed purchase order for our first sale, to be delivered to our customer in the third quarter of 2013. We expect the M-Flex to satisfy the demand for a large range of industrial customers that are interested in directly printing metals, ceramic and glass products. The average price point of approximately $0.4 million (based upon average model options and exchange rates) is designed to satisfy demand from industrial production houses. We have developed a collaborative process for assisting the users in production implementation through the ExTEC and ExMAL organizational efforts.

M-Lab. The M-Lab is the smallest of our build platforms. At an average price point of approximately $0.1 million (based upon average model options and exchange rates), it is primarily used as a development platform, as well as a teaching tool in an engineering environment. There are over 20 M-Lab machines installed at universities and research institutions in the United States and Europe.

Binding

We use liquid chemical binding agents during the printing process. We believe that our unique chemical binding agent technology can more readily achieve efficiency gains over time than other AM technologies such as laser-fusing technologies. For instance, in order to increase the print speed of laser-based technologies, another expensive industrial laser must be added to the manufacturing process, raising the unit cost of production.

We also recently announced that we have added phenolic and sodium silicate to our suite of binders for use in our 3D printing process. Phenolic binder, used with ceramic sand in the 3D printing of molds and cores, offers customers three benefits: (i) casting higher heat alloys; (ii) creating a higher strength mold or core; and (iii) improving the quality of the casting due to reduced expansion of the mold or core. These capabilities address challenges faced by the automotive, aviation, hydraulic/heavy equipment and pump industries. We believe that the use of sodium silicate will reduce or eliminate the release of fumes and gas in the casting process, helping to reduce costs associated with air ventilation, and electrical and maintenance equipment, which we believe will appeal to casting houses that are in search of cleaner environmental processes.

Laser Micromachining

In addition to manufacturing our 3D printing machines, we also manufacture the ExMicro Orion (“Orion”) machine, which is used for both conventional and exotic materials. Micromachining is an integrated process that combines the use of a short pulse laser with a patented trepanning (which is a type of laser drilling) head to capture and manipulate a laser beam. By controlling and manipulating the beam, the Orion machine, which we build in the United States, can remove microns of material from precise locations with thousands of pulses per second.

The beam manipulation capability allows us to shape design features like tapers, making the Orion machine an effective tool for production of automotive and aerospace components. The Orion machine sells for approximately $1.0 million, the first of which was sold to a production customer in 2013.

Marketing and Sales

We market our products under the ExOne brand name in our three major geographic regions — the Americas, Europe and Asia. Our sales are made primarily by ten full-time equivalent, in-house sales people. Our sales force is augmented, in certain territories, by representatives with specific industry or territorial expertise.

 

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Even where we are supported by a representative, all of our product and service offerings provided by our PSCs are sold directly to customers by us.

We believe that our direct selling relationship helps to create one of the building blocks for our business — the creation of true collaboration between us and industrial customers who are interested in 3D printing. Increasingly, industrial producers are considering shifting from subtractive manufacturing techniques to 3D printing. Our marketing efforts include educating potential customers about 3D printing technology through collaboration starting with pre-production services and continuing with production and technical support at our PSCs. Currently, our sales people are based in North Huntingdon, Pennsylvania; Troy, Michigan; Houston, Texas; Auburn, Washington; Augsburg, Germany; and Kanagawa, Japan (near Tokyo). In addition, we have recently opened international sales offices in China and Brazil, expanding our machines sales efforts and laying the groundwork for future PSCs in these markets in the process.

Our Customers

Our customers are located primarily in the Americas, Europe, and Asia. We are a party to non-disclosure agreements with many of our customers, and therefore, are often prohibited from disclosing many of our customers’ identities. Our customers include several Fortune 500 companies that are leaders in their respective markets. The primary markets that we currently serve are:

 

   

aerospace;

 

   

automotive;

 

   

heavy equipment; and

 

   

energy/oil/gas.

Sales of 3D printing machines are low volume and generate significant revenue but the same customers do not necessarily buy machines in each period. Timing of customer purchases is dependent upon the customer’s capital budgeting cycle, which may vary from period to period. Sales of 3D printed products, materials and other services tend to be from repeat customers that may utilize the capability of our PSCs for three months or longer. The nature of revenue from 3D printing machines, as described above, does not leave us dependent upon a single or a limited number of customers. Rather, the timing of the sales can have a material effect on period to period financial results. For the six months ended June 30, 2013, we had two customers (UMPO and MINOU) that represented ten percent or more of our revenue. For the years ended December 31, 2012, 2011 and 2010, respectively, we had zero, one (Ryoyu Systems) and three (Intek, I Metal and BMW) customers that represented ten percent or more of our revenue.

Services and Warranty

We have fully trained service technicians to perform machine installations in the Americas, Europe, and Asia. We provide an industry standard one-year warranty on installed machines. Customers can purchase additional service contracts for maintenance and service. Finally, we sell spare parts which we maintain in stock worldwide, to assist in providing service expeditiously to our customers.

Our terms of sale generally require payment within 30 to 60 days after shipment of a product, although we also recognize longer payment periods are customary in some countries where we transact business.

Suppliers

Our largest suppliers, based upon dollar volume of purchases, are Bauer GmbH & Co KG, Bosch Rexroth AG and Batz, Burgel GmbH & Co KG, Fuji Film Dimatix, T&S Materials, RPMC Lasers and Intek Systems.

We buy our industrial materials from several suppliers and, except as set forth below, the loss of any one of which would not materially adversely affect our business. We currently have a single supplier of printheads for

 

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our 3D printing machines. While we believe that our printheads supplier is replaceable, in the event of the loss of that supplier, we could experience delays and interruptions that might adversely affect the financial performance of our business. Additionally, we obtain certain preproduction services through design and data capture providers, and certain post-production services though vendors with whom we have existing and good relationships. The loss of any one of these providers or vendors would not materially adversely affect our business.

Research and Development

We spent approximately $2.1 million and $0.8 million on research and development during the six months ended June 30, 2013 and 2012, respectively. We spent approximately $1.9 million, $1.5 million and $1.2 million on research and development during the years ended December 31, 2012, 2011 and 2010, respectively. We expect to continue to invest significantly in research and development in the future.

A significant portion of our research and development expenditures have been focused upon the:

 

   

chemistry of binder formulation;

 

   

mechanics of droplet flight into beds of powder;

 

   

metallurgy of thermally processing metals that are printed through AM;

 

   

mechanics of spreading powders in a job box;

 

   

transfer of digital data through a series of software links, to drive a printhead; and

 

   

synchronization of all of the above to print ever-increasing volumes of material per unit time.

Intellectual Property

Patents and MIT Licenses. Our technology is covered by a variety of patents or licenses for use of patents. We are the worldwide licensee of certain patents of MIT for certain AM printing processes (the “MIT Patents”), with exclusive rights to practice the patents in certain fields including the application of the printing processes to metals (with sublicensing rights), and non-exclusive rights to practice the patents in certain fields including the application of the printing processes to certain non-metals (without sublicensing rights). Additionally, we hold patents solely or as majority owner as a result of our own technological developments and from the acquisition of Prometal RCT GmbH (subsequently renamed ExOne GmbH). Our patents are issued in the United States and in various foreign jurisdictions, including Japan and Germany. As a result of our commitment to research and development, we also hold process patents and have applied for other patents for equipment, processes, materials and 3D printing applications. The expiration dates of our patents range from 2013 to 2029. We believe that the expiration of patents in the near term will not impact our business.

The MIT Patents under which we are licensed have expiration dates ranging from 2013 to 2021. We believe that the expiration of these licenses will not impact our business, however the expiration may allow our competitors that were previously prevented from doing so to utilize binder jetting 3D printing. However, we have developed know-how and trade secrets relative to our 3D printing technology and believe that our early entrance into the industrial market provides us with a timing and experience advantage. Through our investment in our technology, we have been able to qualify industrial materials for use in our 3D printing machines, and we intend to continue such efforts. In addition, we have taken steps to protect much of our technology as a trade secret. Given the significant steps that we have taken to establish our experience in AM for industrial applications, as well as our ongoing commitment to research and development, we intend to maintain our preeminent position in the AM industry market.

We entered into an Amended and Restated Exclusive Patent License Agreement with MIT in June 2011. The terms of the agreement require that we remit both license fees and royalties to MIT based upon worldwide

 

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revenue of licensed products, processes and consumables. The term of the agreement commenced on January 1, 2011, and remains in force until the expiration or abandonment of all issued patent rights.

On January 22, 2013, we agreed with MIT to an amendment of its exclusive patent license agreement (the Amended MIT Agreement). The Amended MIT Agreement provides for, among other things, (1) a reduction in the term of the agreement between us and MIT from the date of expiration or abandonment of all issued patent rights to December 31, 2016, (2) an increase in the annual license maintenance fees due for the years ended December 31, 2013 through December 31, 2016 from $50,000 annually to $100,000 annually, with amounts related to 2013 through 2016 guaranteed by us, (3) a settlement of all past and future royalties on net sales of licensed products, processes and consumables for a one-time payment of $200,000 (paid in March 2013), and (4) a provision for extension of the term of the arrangement between the parties for an annual license maintenance fee of $100,000 for each subsequent year beyond 2016.

Trademarks. We have registrations in the United States for X1. We have filed for trademark registrations in the United States and in Canada, Europe, Japan, China, Korea, and Brazil for ExOne and for a stylized form of “X1 ExOne DIGITAL PART MATERIALIZATION.” We have also filed for trademark registrations in Canada and Japan for DIGITAL PART MATERIALIZATION. We have also filed for trademark registrations in the United States for ExCAST, ExMAL, ExTEC, and M-Flex.

Trade Secrets. The development of our products, processes and materials has involved a considerable amount of experience, manufacturing and processing know-how and research and development techniques that are not easily duplicated. We protect this knowledge as a trade secret through the confidentiality and nondisclosure agreements which all employees, customers and consultants are required to sign at the time they are employed or engaged by us. Additional information related to the risks associated with our intellectual property rights are described in “Risk Factors.”

Competition

Other companies are active in the market for 3D printed products, materials and other services. These companies use a variety of AM technologies, including:

 

   

direct metal deposition;

 

   

direct metal laser sintering;

 

   

electron beam melting;

 

   

fused deposition modeling;

 

   

laser consolidation;

 

   

laser sintering;

 

   

multi-jet modeling;

 

   

polyjet;

 

   

selective laser melting;

 

   

selective laser sintering; and

 

   

stereolithography.

Some of the companies that have developed and employ one or more AM technologies include: 3D Systems Corporation, Stratasys Inc., EOS Optronics GmbH, EnvisionTEC GmbH, and Solid Model Ltd.

Some of these processes and companies compete with some of the products and services that we provide. Despite the challenging competitive landscape, we believe that we are the only AM printing solutions provider

 

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that focuses primarily on industrial applications on a production scale. Our competitive advantages, including the size of our build platforms, the speed of our printing heads, the variety of materials used by industrial manufacturers in which we can print, the industry qualification of many of the materials we print in, our robust market capabilities, and our suite of machine system families offering scale and flexibility, also serve to differentiate us from the other competitors in the AM market.

We also compete with established subtractive manufacturers in the industrial products market. These companies often provide large-scale, highly capitalized facilities that are designed or built to fill specific production purposes, usually mass production. However, we believe that we are well positioned to expand our share of the industrial products market from these manufacturers as AM gains recognition. As our technologies improve and our unit cost of production decreases, we expect to be able to compete with subtractive manufacturing on a wide range of products, thereby expanding our addressable market.

Seasonality

Purchases of our 3D printing machines often follow a seasonal pattern owing to the capital budgeting cycles of our customers. Generally, machine sales are higher in our third and fourth quarters than in our first and second quarters.

Backlog

At June 30, 2013, our backlog (including confirmed purchase orders, deferred revenue and customer prepayments) was approximately $6.9 million. We expect to fulfill our June 30, 2013 backlog for machines and PSCs during the next twelve months. This is compared to a backlog of $5.1 million at December 31, 2012.

Environmental Matters

Compliance with federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material impact on capital expenditures, earnings or the competitive position of us and our subsidiaries. We are not the subject of any legal or administrative proceeding relating to the environmental laws of the United States or any country in which we have an office. We have not received any notices of any violations of any such environmental laws.

Employees

As of August 1, 2013, we employed a total of 202 (169 full time) employees. None of these employees is a party to a collective bargaining agreement, and we believe our relations with them are good.

Geographic Information

Our revenues by geographic region (based upon the country where the sale originated) for the six months ended June 30, 2013 were Americas 35.0%, Europe 37.0% and Asia 28.0% as compared to Americas 55.9%, Europe 25.5% and Asia 18.6% for the six months ended June 30, 2012. Our revenues by geographic region for the year ended December 31, 2012 were Americas 27.2%, Europe 48.7% and Asia 24.1%, as compared to Americas 30.0%, Europe 37.1% and Asia 32.9% for the year ended December 31, 2011 and Americas 29.3%, Europe 51.4% and Asia 19.3% for the year ended December 31, 2010.

 

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Properties

We have six locations. Our corporate headquarters are located in North Huntingdon, Pennsylvania. The size of the facilities at these locations is as follows:

 

Location

   Owned or Leased      Approximate Square Footage  

North Huntingdon, Pennsylvania

     Owned         42,525 sq. ft.   

Troy, Michigan*

     Owned         19,646 sq. ft.   

Houston, Texas*

     Owned         12,000 sq. ft.   

Augsburg, Germany

     Leased         77,500 sq. ft.   

Kanagawa, Japan

     Leased         11,293 sq. ft.   

Auburn, Washington

     Leased         11,600 sq. ft.   

 

* As further described in “Certain Relationships and Related Party Transactions,” prior to March 27, 2013, we leased these properties from our variable interest entities. On March 27, 2013, we purchased the Troy, Michigan and Houston, Texas facilities.

In addition to office space, we maintain manufacturing facilities, primarily for producing our machines, in the above referenced space in Augsburg, Germany and North Huntingdon, Pennsylvania. We maintain PSCs in North Huntingdon, Pennsylvania; Troy, Michigan; Houston, Texas; Auburn, Washington; Augsburg, Germany; and Kanagawa, Japan (near Tokyo).

On August 1, 2013, we entered into an agreement for purchase of land in Gersthofen, Germany, in the district of Augsburg to build a new facility. The facility will comprise approximately 150,700 square feet of production, warehouse, service and research and development space as well as approximately 27,600 square feet for offices. We intend to consolidate our five existing leased facilities in Augsburg, which currently occupy an aggregate of approximately 77,500 square feet, into the new facility, providing expansion capacity to support its global growth strategy. We have selected a turnkey provider of construction services that focuses on Central Europe, Great Britain, Austria and Switzerland, to design and construct the new facility. We estimate that we will complete construction of the new facility in the second half of 2014. We estimate that the acquisition and construction of the new facility will cost approximately $20.0 million, which includes approximately $3.9 million to purchase the land.

Legal Proceedings

ExOne and our subsidiaries are involved in litigation from time to time in the ordinary course of business. We do not believe that the outcome of any pending or threatened litigation involving ExOne or our subsidiaries will have a material adverse effect on our financial position, results of operations or cash flows.

 

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MANAGEMENT

Executive Officers and Directors

The following table and the discussion below provide information about our directors (each of whom were reelected at our Annual Meeting of stockholders held on August 19, 2013) and executive officers as of June 30, 2013:

 

Name

   Age     

Positions and Offices Held with the Company

S. Kent Rockwell

     68       Chairman of the Board and Chief Executive Officer

David Burns

     58       President, Chief Operating Officer and Director

JoEllen Lyons Dillon

     49       Chief Legal Officer and Corporate Secretary

Rainer Hoechsmann

     47       General Manager of ExOne GmbH

John Irvin

     58       Chief Financial Officer, Treasurer and Director

Rick Lucas

     47       Chief Technology Officer

Ken Yokoyama

     36       General Manager of Ex One KK

Raymond J. Kilmer

     48       Director

Victor Sellier

     64       Director

Lloyd A. Semple

     74       Director*

Bonnie K. Wachtel

     57       Director

 

* Lead director.

S. Kent Rockwell — Mr. Rockwell has served as our Chairman and Chief Executive Officer since January 1, 2013, when we were formed as a Delaware corporation. Prior to that date, Mr. Rockwell served as the Managing Member of Ex One Company, LLC, our predecessor, since 2008. Mr. Rockwell has been the Chairman and Chief Executive Officer of Rockwell Venture Capital, Inc., a private venture capital company, since 1983 and of Appalachian Timber Services, a supplier of timber products for railroads, since 1986. Mr. Rockwell served as Vice Chairman of Argon ST, a public company engaged primarily in defense contracting, from 2004 to 2010. Mr. Rockwell served as the Chairman and Chief Executive Officer of Sensytech Inc., which was engaged in the design, development, and manufacture of electronics and technology products for the defense and intelligence markets in the United States, from 1998 to 2004. He was Chairman and Chief Executive Officer of Astrotech International Corp., a public company in the oilfield supply business, from 1989 to 1997. From 1987 to 1989, he was Chairman and Chief Executive Officer of Special Metals Corp., a producer of super alloy and special alloy products. From 1978 to 1982, he was Chairman and Chief Executive Officer of McEvoy Oilfield Equipment, a producer of oilfield equipment. Mr. Rockwell served on the Board of Directors of Rockwell International from 1973 until 1982 and served as President of the Energy Products Group of Rockwell International from 1977 to 1982. Mr. Rockwell brings to our Board of Directors an intimate knowledge of the Company, our business and operations, and the risks, challenges and opportunities we face. In addition, Mr. Rockwell also brings to our Board of Directors nearly forty years of experience with strategic planning, acquisitions and integration, marketing, finance and accounting, operations and risk management, having served in numerous executive and director positions at other public and private companies before joining the Company.

David J. Burns — Mr. Burns has served as our President and Chief Operating Officer since 2005, and began serving as a member of our Board of Directors effective January 1, 2013. He has been a trustee for the Rochester Institute of Technology since 2003 and a board member of The Association for Manufacturing Technology since 2001, serving as its chairman from 2004 to 2005. From 1978 to 2005, he was employed by Gleason Corp., a global manufacturer of products related to gear manufacturing, where he was Chief Executive Officer from 2001 to 2005. Mr. Burns has served on the Executive Advisory Council of The Simon School at the University of Rochester since 2002. Mr. Burns brings to our Board of Directors an in-depth knowledge of the business and operations of the Company, particularly our worldwide operations, for which he has been responsible since 2005, and significant operating and senior management experience in our industry.

 

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JoEllen Lyons Dillon — Ms. Dillon has served as our Chief Legal Officer and Corporate Secretary since March 11, 2013. From May 2012 through February 2013, she was a legal consultant on our initial public offering. She was previously a partner at two national law firms, Reed Smith LLP from 2002 until 2011 and Buchanan Ingersoll & Rooney PC from 1988 until 2002, where she became a partner after starting as an associate with the firm. Ms. Dillon was the former Chair, and currently serves as the Audit Committee Chair of the Allegheny District chapter of the National Multiple Sclerosis Society. She is also a Vice President of the Wine & Spirits Advisory Council to the Pennsylvania Liquor Control Board.

Rainer Hoechsmann — Mr. Hoechsmann has served as General Manager of ExOne GmbH, a subsidiary of ExOne, since 2003 and is responsible for operations in Europe. Mr. Hoechsmann is the inventor and co-inventor of certain AM technology covered by a number of our patents. In 2003 he co-founded Prometal RCT GmbH in Augsburg, which is the predecessor to ExOne GmbH. In 1999, he co-founded Generis GmbH, one of the first companies implementing 3D printing applications, in Augsburg, Germany. Mr. Hoechsmann has received a number of industry awards, including the OCE Printing Award from OCE Printers AG, the Technical University of Munich Award for 3D Printing and McKinsey & Company Start-Up Award. He is a member of the Association of German Engineers.

John Irvin — Mr. Irvin has served as our Chief Financial Officer since October 1, 2012, and began serving as a member of our Board of Directors effective January 1, 2013. From 2008 to 2012, Mr. Irvin served as President of PartnersFinancial, a national insurance bro