ExOne Co - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2020

OR

For the transition period from                      to                     

Commission File No. 001-35806

The ExOne Company

(Exact name of registrant as specified in its charter)

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(Address of principal executive offices) (Zip Code)

(724) 863-9663

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 7, 2020, 16,455,000 shares of common stock, par value $0.01, were outstanding.

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Operations and Comprehensive Loss (Unaudited)

(in thousands, except per-share amounts)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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The ExOne Company and Subsidiaries

Condensed Consolidated Balance Sheet (Unaudited)

(in thousands, except per-share and share amounts)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Cash Flows (Unaudited)

(in thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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The ExOne Company and Subsidiaries

Condensed Statement of Changes in Consolidated Stockholders’ Equity (Unaudited)

(in thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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The ExOne Company and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per-share and share amounts)

Note 1. Basis of Presentation

Organization

The ExOne Company (“ExOne”) is a corporation organized under the laws of the state of Delaware. 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 (the “Reorganization”). As a result of 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. The condensed consolidated financial statements include the accounts of ExOne, its wholly-owned subsidiaries, ExOne Americas LLC (United States); ExOne GmbH (Germany); ExOne Property GmbH (Germany); and ExOne KK (Japan). Collectively, the consolidated group is referred to as the “Company”.

The Company filed a registration statement on Form S-3 (No. 333-223690) with the Securities and Exchange Commission on March 15, 2018. The purpose of the Form S-3 was to register various equity and debt securities. Subsidiaries of the Company are co-registrants with the Company (“Subsidiary Guarantors”), and the registration statement registered guarantees of debt securities by one or more of the Subsidiary Guarantors. The Subsidiary Guarantors are 100% owned by the Company and any guarantees by the Subsidiary Guarantors will be full and unconditional. There have been no transactions undertaken subject to the Form S-3 since its initial filing.

Basis of Presentation

The condensed consolidated financial statements of the Company are unaudited. The condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the results of operations, financial position and cash flows of the Company. All material intercompany transactions and balances have been eliminated in consolidation. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2019 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Quarterly Report on Form 10-Q should be read in connection with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which includes all disclosures required by GAAP.

The preparation of these condensed consolidated financial statements requires the Company 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 accounts receivable (including the allowance for doubtful accounts); inventories (including the allowance for slow-moving and obsolete inventories); product warranty reserves; contingencies; income taxes (including the valuation allowance on certain deferred tax assets and liabilities for uncertain tax positions); equity-based compensation (including the valuation of certain equity-based compensation awards issued by the Company); and testing for impairment of long-lived assets (including the identification of asset groups by management, estimates of future cash flows of identified asset groups and fair value estimates used in connection with assessing the valuation of identified asset groups). The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form 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.

Certain amounts relating to operating lease right-of-use assets ($432), current portion of operating lease liabilities ($158) and operating lease liabilities – net of current portion ($274) in the accompanying condensed consolidated balance sheet at December 31, 2019, have been reclassified from other noncurrent assets, accrued expenses and other current liabilities and other noncurrent liabilities, respectively, to conform to current period presentation.

Certain amounts relating to foreign exchange (gains) losses on intercompany transactions – net, for 2019 ($11) in the accompanying condensed statement of consolidated cash flows have been reclassified from effect of exchange rate changes on cash, cash equivalents, and restricted cash, to conform to current period presentation.

COVID-19

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. The impact of the COVID-19 global pandemic and related economic, business and market disruptions are evolving rapidly, and their effects are uncertain. Other than a temporary closure of the Company’s North Huntingdon, Pennsylvania facility effective for the period from March 23 through March 30, 2020, the Company’s operations were not materially affected by the COVID-19 outbreak as of and for the three months ended March 31, 2020. Beginning in March 2020, restrictions imposed by various governmental authorities on international shipping and travel have caused a disruption to the timing of shipment of the Company’s 3D printing machines and the Company’s ability to complete installations of 3D printing machines. The duration and severity of the outbreak and its long-term impact on the Company’s business are uncertain at this time.

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The Company is unable to predict the impact that COVID-19 will have on its future financial position, results of operations and cash flows.

Recently Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). Recently issued ASUs not listed below either were assessed and determined to be not applicable or are currently expected to have no impact on the consolidated financial statements of the Company.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the consolidated financial statements of the Company.

Note 2. Liquidity

The Company has incurred a net loss in each of its annual periods since its inception. As shown in the accompanying condensed statement of consolidated operations and comprehensive loss, the Company incurred a net loss of $3,648 for the three months ended March 31, 2020. At March 31, 2020, the Company had $16,813 in unrestricted cash and cash equivalents.

In addition to its unrestricted cash and cash equivalents, the Company also has access to additional capital through its $10,000 related party revolving credit facility (Note 12). Also, on April 18, 2020, the Company received additional unrestricted cash proceeds of $2,194 in connection with a Paycheck Protection Program loan (Note 19).

Since its inception, the Company has received cumulative unrestricted net proceeds from the sale of its common stock (through its initial public offering and subsequent secondary offerings) of $168,361 to fund its operations. The Company maintains additional access to capital through its active shelf registration statement (Note 1) which allows for the sale of various equity or debt instruments up to an aggregate amount of $125,000. Future sales of securities through the Company’s active shelf registration are dependent on market conditions which may restrict the timing and extent of any future offering of securities by the Company.

The Company has previously exhibited its ability to modify its operating structure and support its liquidity position through various restructuring and other actions, including its 2018 global cost realignment program. In response to adverse market conditions associated with the COVID-19 global pandemic, beginning in March 2020 and through April 2020, the Company initiated various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity.  

Management believes that the Company’s existing capital resources will be sufficient to support the Company’s operating plan. If management anticipates that the Company’s actual results will differ from its operating plan, management believes it has sufficient capabilities to enact cost savings measures to preserve capital (in addition to those further described above). The Company may also seek to raise additional capital to support its growth through additional debt, equity or other alternatives (including asset sales) or a combination thereof.

Note 3. Accumulated Other Comprehensive Loss

The following table summarizes changes in the components of accumulated other comprehensive loss for the periods indicated:

Foreign currency translation adjustments consist of the effect of translation of functional currency financial statements (denominated in the euro and Japanese yen) to the reporting currency of the Company (United States dollar) and certain long-term intercompany transactions between subsidiaries for which settlement is not planned or anticipated in the foreseeable future.

There were no tax impacts related to income tax rate changes and no amounts were reclassified to earnings for either of the periods presented.

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Note 4. Loss Per Share

The Company presents basic and diluted loss per common share amounts. Basic loss per common share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted loss per common share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares and common equivalent shares outstanding during the applicable period.

As the Company incurred a net loss during each of the three months ended March 31, 2020 and 2019, basic average common shares outstanding and diluted average common shares outstanding were the same because the effect of potential shares of common stock, including stock options (838,383 – 2020 and 594,539 – 2019) and unvested restricted stock issued (66,513 – 2020 and 69,501 – 2019), was anti-dilutive.

The information used to compute basic and diluted net loss per common share was as follows for the periods indicated:

Note 5. Revenue

The Company derives revenue from the sale of 3D printing machines and 3D printed and other products, materials and services. Revenue is recognized when the Company satisfies its performance obligation(s) under a contract (either implicit or explicit) by transferring the promised product or service to a customer either when (or as) the customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis. Shipping and handling costs are included in cost of sales.

Certain of the Company’s contracts with customers provide for multiple performance obligations. Sales of 3D printing machines may also include optional equipment, materials, replacement components and services (installation, training and other services, including maintenance services and/or an extended warranty). Certain other contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of stand-alone selling price for each distinct product or service in the contract, which is generally based on an observable price.

The Company’s revenue from products is transferred to customers at a point in time. The Company’s contracts for 3D printing machines generally include substantive customer acceptance provisions. Revenue under these contracts is recognized when customer acceptance provisions have been satisfied. For all other product sales, the Company recognizes revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes to the customer upon delivery. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location.

The Company’s revenue from service arrangements includes deferred maintenance contracts and extended warranties that can be purchased at the customer’s option. The Company generally provides a standard one-year warranty on the Company’s 3D printing machines, which is considered an assurance type warranty, and not considered a separate performance obligation (Note 9). Revenue associated with deferred maintenance contracts is generally recognized at a point in time when the related services are performed where sufficient historical evidence indicates that the costs of performing the related services under the contract are not incurred on a straight-line basis, with such revenue recognized in proportion to the costs expected to be incurred. Revenue associated with extended warranties is generally recognized over time on a straight-line basis over the related contract period.

The Company’s revenue from service arrangements includes contracts with the Federal government under fixed-fee, cost reimbursable and time and materials arrangements (certain of which may have periods of performance greater than one year). Revenue under these contracts is generally recognized over time using an input measure based upon labor hours incurred and provisional rates provided under the contracts. As such, the nature of these contracts may give rise to variable consideration, primarily based upon completion of the Company’s annual Incurred Cost Submission filing as required by the Federal government. Historically, amounts associated with variable consideration have not been significant.

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The Company’s revenue from service arrangements includes certain research and development services. Revenue under research and development service contracts is generally recognized over time using an output measure, specifically units or parts delivered, based upon certain customer acceptance and delivery requirements. Revenue recognized over time using an output measure is not significant.

The following table summarizes the Company’s revenue by product group for the periods indicated:

Revenue from 3D printing machines includes leasing revenue whereby the Company is the lessor of 3D printing machines to its customers. Leasing revenue is accounted for under ASU 2016-02 (Note 10).

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets) and deferred revenue and customer prepayments (contract liabilities) in the accompanying condensed consolidated balance sheet. The Company considers a number of factors in its evaluation of the creditworthiness of its customers, including past due amounts, past payment history, and current economic conditions. For 3D printing machines, the Company’s terms of sale vary by transaction. To reduce credit risk in connection with 3D printing machine sales, the Company may, depending upon the circumstances, require customers to furnish letters of credit or bank guarantees or to provide advanced payment (either partial or in full). For 3D printed and other products and materials, the Company’s terms of sale generally require payment within 30 to 60 days after delivery, although the Company also recognizes that longer payment periods are customary in certain countries where it transacts business. Service arrangements are generally billed in accordance with specific contract terms and are typically billed in advance or in proportion to performance of the related services.

For the three months ended March 31, 2020, the Company recognized revenue of $3,902 related to contract liabilities at January 1, 2020. There were no other significant changes in contract liabilities during the three months ended March 31, 2020. Contract assets are not significant.

As of March 31, 2020, the Company has approximately $33,800 of remaining performance obligations (including contract liabilities), which is also referred to as backlog, of which approximately $29,800 is expected to be fulfilled during the next twelve months notwithstanding uncertainty related to the impact of the COVID-19 global pandemic (Note 1) including, but not limited to, international shipping and travel restrictions brought about by the global pandemic which could have an adverse effect on the timing of delivery of products and/or services to customers.

The Company has elected to apply the practical expedient associated with incremental costs of obtaining a contract, and as such, sales commission expense is generally expensed when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.

Accounts receivable and net investment in sales-type leases (Note 10) are reported at their net realizable value. The Company carries its investment in sales-type leases based on discounting the minimum lease payments by the interest rate implicit in the lease and less an allowance for doubtful accounts. The Company’s estimate of the allowance for doubtful accounts related to accounts receivable and net investment in sales-type leases is based on the Company’s evaluation of customer accounts with past-due outstanding balances or specific accounts for which it has information that the customer may be unable to meet its financial obligations. Based upon review of these accounts, and management’s analysis and judgment, the Company records a specific allowance for that customer’s accounts receivable or net investment in sales-type lease balance to reduce the outstanding 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 March 31, 2020 and December 31, 2019, the allowance for doubtful accounts was $548 and $508, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded a net provision (recoveries) for bad debts of $51 and ($73), respectively.

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Note 6. Cash, Cash Equivalents, and Restricted Cash

The following provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the accompanying condensed consolidated balance sheet to the same such amounts shown in the accompanying condensed statement of consolidated cash flows as of the dates indicated:

Restricted cash at both March 31, 2020 and December 31, 2019 included $508 associated with cash collateral required by a United States bank to offset certain short-term, unsecured lending commitments associated with the Company’s corporate credit card program. 

Restricted cash at December 31, 2019 included $470 associated with cash collateral required by a German bank for short-term financial guarantees issued by ExOne GmbH in connection with certain commercial transactions requiring security. Refer to Note 11 for further discussion related to an amendment to this cash collateral requirement effective in February 2020.

Each of the balances described above are considered legally restricted by the Company.

Note 7. Inventories

Inventories consisted of the following as of the dates indicated:

Raw materials and components consist of consumable materials and component parts and subassemblies associated with 3D printing machine manufacturing and support activities. Work in process consists of 3D printing machines and other products in varying stages of completion. Finished goods consist of 3D printing machines and other products prepared for sale in accordance with customer specifications.

At March 31, 2020 and December 31, 2019, the allowance for slow-moving and obsolete inventories was $3,370 and $3,443, respectively, and has been reflected as a reduction to inventories (principally raw materials and components). The following table summarizes changes in the allowance for slow-moving and obsolete inventories for the periods indicated:

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Note 8. Property and Equipment

Property and equipment consisted of the following as of the dates indicated:

For the three months ended March 31, 2020 and 2019, depreciation expense was $923 and $1,165, respectively.

On February 18, 2020, the Company completed a sale-leaseback transaction associated with its European headquarters and operating facility in Gersthofen, Germany (Note 10). As a result of the completion of this transaction, the Company derecognized $17,282 in net property and equipment during the three months ended March 31, 2020. Sale of the facility resulted in a gain of $1,462 during the three months ended March 31, 2020.

During the three months ended March 31, 2020, as a result of continued operating losses and cash flow deficiencies, the Company identified a triggering event requiring a test for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management.

For purposes of testing long-lived assets for recoverability, the Company operates as three separate asset groups: United States, Europe and Japan. In assessing the recoverability of long-lived assets held and used, the Company determined the carrying amount of long-lived assets held and used to be in excess of the estimated future undiscounted net cash flows of the related assets. The Company proceeded to determine the fair value of its long-lived assets held and used, principally through use of the market approach. The Company’s use of the market approach included consideration of market transactions for comparable assets. Management concluded that the fair value of long-lived assets held and used exceeded their carrying value, and as such, no impairment loss was recorded.   

A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used, which could result in a material adverse effect on the financial position and results of operations of the Company.

Note 9. Product Warranty Reserves

Substantially all of the Company’s 3D printing machines are covered by a standard one-year warranty. Generally, at the time of sale, a liability is recorded (with an offset to cost of sales) based upon the expected cost of replacement parts and labor to be incurred over the life of the standard warranty. Expected cost is estimated using historical experience for similar products. The Company periodically assesses the adequacy of the product warranty reserves based on changes in these factors and records 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 the Company’s warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event that the Company determines that its current or future product repair and replacement costs exceed estimates, an adjustment to these reserves would be charged to cost of sales in the period such a determination is made.

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The following table summarizes changes in product warranty reserves, which amounts were reflected in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet for the periods indicated:

Note 10. Leases

Lessee

The Company leases facilities, machinery and other equipment and vehicles under operating lease arrangements (with initial terms greater than twelve months), expiring in various years through 2026. In addition, the Company leases certain equipment and vehicles under finance lease arrangements, which are not significant.

For all operating lease arrangements (with the exception of short-term lease arrangements), the Company presents at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. 

The Company has elected, as a practical expedient, not to separate non-lease components from lease components, and instead account for each separate component as a single lease component for all lease arrangements, as lessee. In addition, the Company has elected, as a practical expedient, not to apply lease recognition requirements to short-term lease arrangements, generally those with a lease term of less than twelve months, for all classes of underlying assets. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions. As a result, lease payments under these short-term lease arrangements are recognized in the accompanying condensed statement of consolidated operations and comprehensive loss on a straight-line basis over the lease term.  

The Company uses its incremental borrowing rate in determining the present value of lease payments, as the implicit rate of the lease arrangements is generally not readily determinable.

Through July 2019, certain of the Company’s operating lease arrangements were with related parties under common control (Note 17). Lease cost under operating lease agreements with related parties, included within short-term lease cost below, was $12 for the three months ended March 31, 2019.

Future minimum lease payments of operating lease arrangements (with initial terms greater than twelve months) at March 31, 2020, were as follows:

For the three months ended March 31, 2020 and 2019, lease cost under operating lease arrangements was $504 and $113, including $31 and $65 relating to short-term lease arrangements, respectively.

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Supplemental information related to operating lease arrangements was as follows as of and for the three months ended March 31, 2020:

On December 10, 2019, ExOne Property GmbH and ExOne GmbH, the German subsidiaries of the Company (the “German Subsidiaries”), entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of the Company’s European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a purchase price of approximately $18,500 (€17,000), of which approximately $2,200 (€2,000) was received prior to December 31, 2019. Concurrent with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling approximately $1,700 (€1,500), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the two five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020. In connection with the completion of the sale-leaseback transaction, the Company recorded an operating lease right-of-use asset and corresponding operating lease liability of $4,605, which was representative of the present value of future minimum lease payments over the initial three-year term, as there were no penalties or other factors associated with the lease that result in reasonable assurance of its extension at inception.

Lessor

The Company leases machinery and equipment to customers (principally 3D printing machines and related equipment) under lease arrangements classified as either operating leases or sales-type leases. The Company’s operating lease arrangements have initial terms generally ranging from one to five years, certain of which may contain extension or termination clauses, or both. Such operating lease arrangements also generally include a purchase option to acquire the related machinery and equipment at the end of the lease term for either a fixed amount as determined at inception, or a subsequently negotiated fair market value. At March 31, 2020, the Company estimated that the total fair market value significantly exceeded the related net book value of the machinery and equipment held under the Company’s operating lease arrangements. The Company’s sales-type lease arrangements generally include transfer of ownership at the end of the lease term, and as such, the Company’s net investment in sale-type lease arrangements presented in the Company’s accompanying condensed consolidated balance sheet generally does not include an amount of unguaranteed residual value.

For certain of its arrangements, the Company separates and allocates (Note 5) certain non-lease components (principally maintenance services) from lease components. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from lease income) basis. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions. Additionally, certain of the Company’s lease arrangements do not qualify as sale-type leases, as collectability is not reasonably assured.

The Company recognized the following components under operating and sales-type lease arrangements in the accompanying condensed statement of consolidated operations and comprehensive loss for the periods indicated:

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The Company’s net investment in sales-type leases consisted of the following as of the dates indicated:

Future minimum lease payments of non-cancellable operating and sales-type lease arrangements at March 31, 2020 were as follows:

Note 11. Contingencies and Commitments

Contingencies

On March 1, 2018, the Company’s ExOne GmbH subsidiary notified Voxeljet AG that it had materially breached a 2003 Patent and Know-How Transfer Agreement and asserted its rights to set-off damages as a result of the breaches against the annual license fee due from the Company under the agreement. At this time, the Company cannot reasonably estimate a contingency, if any, related to this matter.

The Company is subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on the financial position, results of operations or cash flows of the Company.

Commitments

In the normal course of its operations, ExOne GmbH issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank.

On February 24, 2020, ExOne GmbH entered into an amendment and replacement of its credit facility with a German bank. The credit facility amendments included the elimination of the overdraft credit and short-term loan features of the prior agreement and replaced them with an increased capacity amount of approximately $3,800 (€3,500) for the issuance of financial guarantees and letters of credit for commercial transactions requiring security. The cash collateral requirement for the issuance of financial guarantees and letters of credit for commercial transactions requiring security was eliminated for amounts up to approximately $1,100 (€1,000) as the amendment provided the German bank with a collateral interest in the accounts receivable of ExOne GmbH. Amounts in excess of approximately $1,100 (€1,000) continue to require cash collateral under the amended credit facility.

At March 31, 2020, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the amended credit facility were $863 (€785), with expiration dates ranging from October 2020 through February 2023. At December 31, 2019, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the former credit facility were $560 (€499).

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Note 12. Related Party Revolving Credit Facility

On March 12, 2018, the Company and its ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was the Executive Chairman of the Company (a related party) at such date and is currently Chairman of the Company, relating to a $15,000 revolving credit facility (the “Credit Agreement”) to provide additional funding to the Company for working capital and general corporate purposes. The Credit Agreement provided a credit facility for a term of three years (through March 12, 2021), bearing interest at a rate of one-month LIBOR plus an applicable margin of 500 basis points (6.8% at December 31, 2019 and 6.0% at March 31, 2020). The Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties.

On February 18, 2020, the Loan Parties and LBM entered into a First Amendment to the Credit Agreement (the “Amendment”) which (i) reduced the available capacity under the revolving credit facility to $10,000, (ii) extended the term of the credit facility until March 31, 2024, (iii) increased the commitment fee to 100 basis points, or 1.00%, on the unused portion of the revolving credit facility, and (iv) provided a process for the replacement of the LIBOR index after 2021. In addition, the accounts receivable of ExOne GmbH no longer serve as collateral for borrowings under the amended revolving credit facility.

Borrowings under the credit facility are required to be made in minimum increments of $1,000. The Company may terminate or reduce the credit commitment at any time during the term of the amended Credit Agreement without penalty. The Company may also make prepayments against outstanding borrowings under the amended Credit Agreement at any time without penalty. At December 31, 2019 and March 31, 2020, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the credit facility.

The amended Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance of insurance, properties, and licenses; and compliance with laws. The amended Credit Agreement also contains several negative covenants including restricting the incurrence of certain additional debt; prohibiting future liens (other than permitted liens); prohibiting investment in third parties; limiting the ability to pay dividends; limiting mergers, acquisitions, and dispositions; and limiting the sale of certain property and equipment of the Loan Parties. The amended Credit Agreement does not contain any financial covenants. The amended Credit Agreement also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.

The Company does not consider the Credit Agreement, as amended, indicative of a fair market value lending, as LBM was determined to be a related party based on common control by S. Kent Rockwell. S. Kent Rockwell is the indirect sole owner of LBM. Prior to execution, each of the Credit Agreement and the Amendment was reviewed and approved by the Audit Committee of the Board of Directors (the “Board”), in accordance with The ExOne Company Policy and Procedures with Respect to Related Person Transactions, and subsequently by a sub-committee of independent members of the Board. At the time of execution of the Credit Agreement, the available loan proceeds were deposited into an escrow account with an unrelated, third party financial institution acting as escrow agent pursuant to a separate Escrow Agreement by and among the parties. Loan proceeds held in escrow are available to the Company upon its submission to the escrow agent of a loan request. Such proceeds will not be available to LBM until payment in-full of the obligations under the amended Credit Agreement and termination of the amended Credit Agreement. Payments of principal and other obligations will be made to the escrow agent, while interest payments will be made directly to LBM. Provided there exists no potential default or event of default, the amended Credit Agreement and Escrow Agreement prohibit any acceleration of repayment of any amount outstanding under the amended Credit Agreement and prohibit termination of the amended Credit Agreement or withdrawal from escrow of any unused portion of the available loan proceeds.

There were no borrowings under the credit facility during the three months ended March 31, 2020 or 2019.

The Company incurred $265 in debt issuance costs associated with the inception of the credit facility (including the aforementioned up-front commitment fee paid at closing to LBM) and $41 in debt issuance costs associated with the Amendment.

During the three months ended March 31, 2020, the Company recorded interest expense relating to the credit facility of $45. Included in interest expense for the three months ended March 31, 2020 was $18 associated with amortization of debt issuance costs (resulting in $130 in remaining debt issuance costs at March 31, 2020, of which $33 was included in prepaid expenses and other current assets and $97 was included in other noncurrent assets in the accompanying consolidated balance sheet). Included in interest expense for the three months ended March 31, 2020 was $27 associated with the commitment fee on the unused portion of the revolving credit facility all of which was included in accounts payable in the accompanying consolidated balance sheet at March 31, 2020. In connection with the Company’s efforts to conserve cash as a result of the COVID-19 global pandemic, LBM agreed to defer cash payments of its commitment fee on the unused portion of the revolving credit facility to a future date (to be determined upon mutual agreement by the parties). There are no incremental interest or other fees to be incurred by the Company as a result of this deferral.

During the three months ended March 31, 2019, the Company recorded interest expense related to the credit facility of $50.

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Note 13. Income Taxes

The provision (benefit) for income taxes for the three months ended March 31, 2020 and 2019 was $226 and ($800), respectively. The Company has completed a discrete period computation of its provision (benefit) for income taxes for each of the periods presented. The discrete period computation was required as a result of jurisdictions with losses before income taxes for which no tax benefit can be recognized and an inability to generate reliable estimates for results in certain jurisdictions as a result of inconsistencies in generating net operating profits (losses) in those jurisdictions.

The effective tax rate for the three months ended March 31, 2020 and 2019 was 6.6% (provision on a loss) and 15.1% (benefit on a loss), respectively. For the three months ended March 31, 2020, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to net changes in valuation allowances for the period. For the three months ended March 31, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to the reversal of previously recorded liabilities for uncertain tax positions (further described below) and net changes in valuation allowances for the period.

The Company has provided a valuation allowance for certain of its net deferred tax assets as a result of the Company not generating consistent net operating profits in certain jurisdictions in which it operates. As such, certain benefits from deferred taxes in the periods presented have been fully offset by changes in the valuation allowance for the related net deferred tax assets. The Company continues to assess its future taxable income by jurisdiction based on recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that the Company may be able to enact in future periods, the impact of potential operating changes on the business and forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that the Company is able to reach the conclusion that net deferred tax assets are realizable based on any combination of the above factors in a single, or in multiple, taxing jurisdictions, a reversal of the related portion of the Company’s existing valuation allowances may occur.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including accrued interest and penalties) was as follows for the periods indicated:

The Company includes interest and penalties related to income taxes as a component of the provision (benefit) for income taxes in the accompanying condensed statement of consolidated operations and comprehensive loss. There were no such interest or penalties included in the provision (benefit) for income taxes for the three months ended March 31, 2020 or 2019.

At December 31, 2018, the Company’s ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities in Germany. In January 2019, this examination was concluded by the local taxing authorities in Germany without significant adjustment to previously established tax positions. As a result, during the three months ended March 31, 2019, the Company recorded a reversal of certain of its previously recorded liabilities for uncertain tax positions of $1,075, of which $257 was offset against net operating loss carryforwards.

Note 14. Equity-Based Compensation

On January 24, 2013, the Board adopted the 2013 Equity Incentive Plan (the “Plan”). In connection with the adoption of the Plan, 500,000 shares of common stock were reserved for issuance pursuant to the Plan, with automatic increases in such reserve available each year annually on January 1 from 2014 through 2023 equal to the lesser of 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year or, a number of shares of common stock determined by the Board, provided that the maximum number of shares authorized under the Plan could not exceed 1,992,241 shares, subject to certain adjustments. The maximum number of shares authorized under the Plan was reached on January 1, 2017. At March 31, 2020, 602,283 shares remained available for future issuance under the Plan.

Stock options and restricted stock issued by the Company under the Plan are generally subject to service conditions resulting in annual vesting on the anniversary of the date of grant over a period typically ranging between one and three years. Certain stock options and restricted stock issued by the Company under the Plan vest immediately upon issuance. Stock options issued by the Company under the Plan have contractual lives which expire over a period typically ranging between five and ten years from the date of grant, subject to continued service to the Company by the participant.

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On February 6, 2019, the Compensation Committee of the Board adopted the 2019 Annual Incentive Program (the “2019 Program”) as a subplan under the Plan. The 2019 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others. The target annual incentive for each 2019 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial goals (as approved by the Compensation Committee of the Board). The Compensation Committee of the Board retained negative discretion over amounts payable under the 2019 Program. During the three months ended March 31, 2019, the Company recorded $142 in equity-based compensation expense based on the estimated outcome of the defined financial goals for 2019 under the 2019 Program.

On February 5, 2020, the Compensation Committee of the Board adopted the 2020 Annual Incentive Program (the “2020 Program”) as a subplan under the Plan. The 2020 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others. The target annual incentive for each 2020 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial goals (as approved by the Compensation Committee of the Board). The Compensation Committee of the Board retained negative discretion over amounts payable under the 2020 Program. During the three months ended March 31, 2020, the Company recorded no equity-based compensation expense based on the estimated outcome of the defined financial goals for 2020 under the 2020 Program.

The following table summarizes the total equity-based compensation expense recognized by the Company for the periods indicated:

At March 31, 2020, total future compensation expense related to unvested awards yet to be recognized by the Company was $710 for stock options and $269 for restricted stock. Total future compensation expense related to unvested awards yet to be recognized by the Company is expected to be recognized over a weighted-average remaining vesting period of 1.3 years.

The fair value of stock options granted during the three months ended March 31, 2019, was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

For certain stock option awards, volatility is estimated based on the historical volatility of the Company when the expected term of the award is less than the period for which the Company has been publicly traded. For certain stock option awards, volatility is estimated based on the historical volatilities of certain peer group companies when the expected term of the award exceeds the period for which the Company has been publicly traded. The average risk-free rate is based on a weighted average yield curve of risk-free interest rates consistent with the expected term of the awards. Expected dividend yield is based on historical dividend data as well as future expectations. Expected term is calculated using the simplified method as the Company does not have sufficient historical exercise experience upon which to base an estimate.

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The activity for stock options was as follows for the periods indicated:

At March 31, 2020, intrinsic value associated with stock options exercisable was less than $1. At March 31, 2020, there was no intrinsic value associated with stock options expected to vest. The weighted average remaining contractual term of stock options exercisable and expected to vest at March 31, 2020, was 3.6 years and 4.5 years, respectively. During the three months ended March 31, 2019, stock options with an aggregate intrinsic value of $221 were exercised by employees resulting in proceeds to the Company from the exercise of stock options of $165. The Company received no income tax benefit related to these exercises. There were no stock option exercises during the three months ended March 31, 2020.

The activity for restricted stock was as follows for the periods indicated:

Restricted stock that vested during the three months ended March 31, 2020 and 2019, had a fair value of $248 and $274, respectively.

During the three months ended March 31, 2019, the Company made cash payments for taxes of $68 relating to the net settlement of certain equity-based awards. There were no cash payments for taxes or net settlement of equity-based awards during the three months ended March 31, 2020.

Note 15. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its consolidated financial statements, in accordance with GAAP. At March 31, 2020 and December 31, 2019, the Company had no financial instruments (assets or liabilities) measured at fair value on a recurring basis.

The carrying values and fair values of other financial instruments (assets and liabilities) not required to be recorded at fair value were as follows as of the dates indicated:

The carrying amounts of cash and cash equivalents, restricted cash and current portion of long-term debt approximate fair value due to their short-term maturities. The fair value of long-term debt – net of current portion has been estimated by management based on the consideration of applicable interest rates (including certain instruments at variable or floating rates) and other available information (including quoted prices of similar instruments available to the Company). Cash and cash equivalents and restricted cash were classified as Level 1; Current portion of long-term debt and long-term debt – net of current portion were classified as Level 2.

Note 16. Concentration of Credit Risk

During the three months ended March 31, 2020 and 2019, the Company conducted a significant portion of its business with a limited number of customers, though not necessarily the same customers for each respective period. For the three months ended March 31, 2020 and 2019, the Company’s five most significant customers represented 33.1% and 30.9% of total revenue, respectively. At March 31, 2020 and December 31, 2019, accounts receivable from the Company’s five most significant customers were $1,775 and $3,230, respectively.

Note 17. Related Party Transactions

Purchases of products and/or services from related parties during the three months ended March 31, 2019 were $15.  Purchases of products and/or services by the Company during the three months ended March 31, 2019 included leased office space and website design services from related parties under common control by S. Kent Rockwell, (currently Chairman of the Board of the Company and previously the Executive Chairman and Chief Executive Officer of the Company). None of the transactions met a threshold requiring review and approval by the Audit Committee of the Board. There were no purchases of products and/or services from related parties during the three months ended March 31, 2020. There were no amounts due to related parties at either March 31, 2020 or December 31, 2019.  

Refer to Note 12 for further discussion relating to the Company’s revolving credit facility with a related party.

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Note 18. Other (Income) Expense – Net

Other (income) expense – net consisted of the following for the periods indicated:

Note 19. Subsequent Events

Paycheck Protection Program

On April 18, 2020, the Company entered into an unsecured promissory note (the “Note”) in favor of The Huntington National Bank (the “Lender”) reflecting a loan in the principal amount of $2,194 (the “Loan”). The Loan was granted pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Pursuant to the terms of the Note, the Loan bears interest at a rate of 1.00% per annum and matures on April 18, 2022 (the “Maturity Date”). Principal and interest payments on the Loan are deferred until November 18, 2020, at which time equal installments of principal and interest will be due and payable monthly through the Maturity Date. The Note may be prepaid by the Company at any time prior to maturity without penalty. If the Company defaults on the Note, the Lender may, at its option, accelerate the maturity of the Company’s obligations under the Note.

Pursuant to the terms of the PPP, the Loan, or a portion thereof, may be forgiven if Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. The Company intends to use all or a significant majority of the Loan proceeds for qualifying expenses. The terms of the Loan, including eligibility and forgiveness, may be subject to further requirements in regulations and guidance adopted by the SBA.

The Company has evaluated all of its activities and concluded that no other subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements, except as described above.

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in thousands, except per-share amounts)

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2019.

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to our future financial or business performance, strategies, or expectations. Forward-looking statements typically are identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” as well as similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could” and “may.”

We caution that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty, and do not undertake, to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to items described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q, the following factors, among others, could cause results to differ materially from forward-looking statements or historical performance: the severity and duration of world health events, including the recent outbreak of the novel strain of coronavirus COVID-19 and the related economic repercussions and operational challenges; our ability to consistently generate operating profits; fluctuations in our revenues and operating results; our competitive environment and our competitive position; our ability to enhance our current three-dimensional (“3D”) printing machines and technology and develop and introduce new 3D printing machines; our ability to qualify more industrial materials in which we can print; demand for our products; the availability of skilled personnel; the impact of loss of key management; the impact of market conditions and other factors on the carrying value of long-lived assets; our ability to continue as a going concern; the impact of customer specific terms in machine sale agreements on the period in which we recognize revenue; risks related to global operations including effects of the COVID-19 global pandemic; foreign currency; the adequacy of sources of liquidity; the amount and sufficiency of funds for required capital expenditures, working capital, and debt service; dependency on certain critical suppliers; nature or impact of alliances and strategic investments; reliance on critical information technology systems; the effect of litigation, contingencies and warranty claims; 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 impact of disruption of our manufacturing facilities or ExOne Adoption Centers (“EACs”); the adequacy of our protection of our intellectual property; 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; and other factors beyond our control, including the impact of the COVID-19 global pandemic.

Overview

Our Business

We are a global provider of 3D printing machines and 3D printed and other products, materials and 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 installed base of 3D printing machines. Our machines serve direct (metal) and indirect (sand) applications.  Direct printing produces a component; indirect printing makes a tool to produce a component. We offer pre-production collaboration and print products for customers through our network of EACs. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, that are necessary for purchasers of our 3D printing machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading volumetric output (as measured by build box size and printing speed), uniquely position us to serve the needs of industrial customers.

Outlook

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. The impact of the COVID-19 global pandemic and related economic, business and market disruptions are evolving rapidly, and their effects are uncertain. Other than a temporary closure of our North Huntingdon, Pennsylvania facility effective for the period from March 23 through March 30, 2020, our operations were not materially affected by the COVID-19 outbreak as of and for the three months ended March 31, 2020. Beginning in March 2020, restrictions imposed by various governmental authorities on international shipping and travel have caused a disruption to the timing of shipment of our 3D printing machines and our ability to complete installations of 3D printing machines. The duration and severity of the outbreak and its long-term impact on our business are uncertain at this time. We are unable to predict the impact that COVID-19 will have on our future financial position, results of operations and cash flows.

In response to adverse market conditions associated with the COVID-19 global pandemic, beginning in March 2020 and through April 2020, we initiated various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as

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reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity. We have targeted a net cost reduction for the remainder of 2020 of approximately $5,000 as a result of these actions. Given the high level of uncertainty associated with the timing and extent of the COVID-19 global pandemic, we expect to continue to assess whether additional cost actions are necessary to further adjust our operating model.

We are the global leader in industrial 3D printers utilizing binder jetting technology for non-polymer-based materials. Our continued focus is to achieve profitable growth via three strategic initiatives:

Our results for the three months ended March 31, 2020, while favorable as compared to the three months ended March 31, 2019, continue to be impacted by a prolonged downturn in global manufacturing trends which has influenced the capital expenditure investments of our customers. Despite these headwinds, we ended the first quarter with a record backlog balance of approximately $33,800. We expect the combination of our backlog at March 31, 2020 and an acceleration in market adoption of our newly introduced printer platforms (our X1 25Pro^TM for metal applications and S-Max Pro^TM for sand applications, both introduced to market during the three months ended December 31, 2019) to provide the basis for our operating stability in 2020 despite continuing negative macroeconomic trends for global manufacturing, including the impact of the COVID-19 global pandemic.

Sale-Leaseback of European Headquarters and Operating Facility in Gersthofen, Germany

On December 10, 2019, ExOne Property GmbH and ExOne GmbH (our “German Subsidiaries”), entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of our European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a cash price of approximately $18,500 (€17,000), of which approximately $2,200 was received prior to December 31, 2019. Concurrently with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling approximately $1,700 (€1,500), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the two five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020.

As a result of the completion of the sale-leaseback transaction further described above, we recorded or expect to record the following effects on our results of operations, financial condition and cash flows:

Backlog

At March 31, 2020, our backlog was approximately $33,800 of which approximately $29,800 is expected to be fulfilled during the next twelve months notwithstanding uncertainty related to the impact of the COVID-19 global pandemic (further discussed above) including, but not limited to, international shipping and travel restrictions brought about by the global pandemic which could have an adverse effect on the timing of delivery of products and/or services to customers. At December 31, 2019, our backlog was approximately $31,100.

Seasonality

Purchases of our 3D printing machines are often subject to the capital expenditure cycles of our customers. Generally, 3D printing machine sales are higher in our third and fourth quarters than in our first and second quarters; however, as acceptance of our 3D

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printing machines as a credible alternative to traditional methods of production grows, we expect to limit the seasonality we experience.

We believe that the COVID-19 global pandemic may have an adverse effect on the future capital expenditure decisions of our customers outside of their normal spending cycles, which may impact the timing and extent of such decisions.

Results of Operations

Net Loss

Net loss for the three months ended March 31, 2020 was $3,648, or $0.22 per basic and diluted share, compared with a net loss of $4,496, or $0.28 per basic and diluted share, for the three months ended March 31, 2019. The decrease in our net loss was principally due to an increase in our revenues and gross profit driven by an increase in customer demand for our products, offset by an increase in our operating expenses based on investments made in our research and development activities (primarily headcount) and selling, general and administrative expenses (primarily headcount increases associated with our global marketing and sales infrastructure). During the three months ended March 31, 2020 we recognized a gain from sale-leaseback of property and equipment of $1,462 associated with the sale of our European headquarters and operating facility in Gersthofen, Germany. During the three months ended March 31, 2019, we recorded an income tax benefit of $818 associated with the reversal of previously recorded liabilities for uncertain tax positions following the completion of a tax examination of our German operations.

Revenue

The following table summarizes revenue by product group for the periods indicated:

Revenue for the three months ended March 31, 2020 was $13,383, compared with revenue of $9,579 for the three months ended March 31, 2019, an increase of $3,804, or 39.7%. The increase in revenue resulted from an increase in revenue attributable to both of our product groups.

The increase in revenues from 3D printing machines of $2,988, or 89.8%, resulted from higher volumes (14 units sold during the three months ended March 31, 2020 versus 8 units sold during the three months ended March 31, 2019) and a favorable mix of machines sold.

The increase in revenues from 3D printed and other products, materials and services of $816, or 13.1%, resulted from an increase of $593 in consumable materials and aftermarket revenues based on growth in our global installed base of 3D printing machines. We also experienced an increase in revenues of $417 associated with research and development arrangements primarily due to an automotive project which commenced during the three months ended December 31, 2019. Offsetting these increases were reductions in revenues of $144 from our global EACs (metal and sand) based on lower customer demand for printed products.

Cost of Sales and Gross Profit

Cost of sales for the three months ended March 31, 2020 was $9,754, compared with cost of sales of $6,937 for the three months ended March 31, 2019, an increase of $2,817, or 40.6%. Gross profit for the three months ended March 31, 2020 was $3,629, compared with gross profit of $2,642 for the three months ended March 31, 2019, an increase of $987. Gross profit percentage was 27.1% for the three months ended March 31, 2020, compared with 27.6% for the three months ended March 31, 2019.

The increase in gross profit was primarily due to our higher revenue volumes during the three months ended March 31, 2020, offset by lower realized pricing on sales between the periods which unfavorably impacted our gross profit as a percentage of sales. We experienced higher overhead costs during the three months ended March 31, 2020, based on an increased global headcount and facility rent expense (versus depreciation) following completion of the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany during the three months ended March 31, 2020, as well as comparably unfavorable product warranty experience of $157. Offsetting these unfavorable impacts was a reduction in net charges for slow-moving and obsolete inventories of $86 between the periods.

Research and Development

Research and development expenses for the three months ended March 31, 2020 were $2,476, compared with research and development expenses of $2,432 for the three months ended March 31, 2019, an increase of $44, or 1.8%. The increase in research

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and development expenses was primarily due to an increase in employee-related costs (salaries and benefits) of $167 due to an increased headcount, offset by a decrease in consulting and professional fees of $82 associated with lower machine development costs.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended March 31, 2020 were $6,163, compared with selling, general and administrative expenses of $5,423 for the three months ended March 31, 2019, an increase of $740, or 13.6%. The increase in selling, general and administrative expenses was principally due to an increase in employee-related costs (salaries and benefits) of $655 due to investments made during 2019 and early 2020 in our global marketing and sales infrastructure and an increase of $144 in sales commissions based on higher revenues. In addition, during the three months ended March 31, 2020, we incurred a net provision for bad debts of $51 as compared to net recoveries for bad debts of $73 during the three months ended March 31, 2019. Offsetting these increases was a decrease in expense incurred under our annual incentive plans of $137 based on the expectation of under performance against targets established for 2020 in advance of the impact to market conditions of the COVID-19 global pandemic.

Interest Expense

Interest expense for the three months ended March 31, 2020 was $64, compared with interest expense of $71 for the three months ended March 31, 2019, a decrease of $7, or 9.9%. The decrease in interest expense was principally due to lower debt issuance cost amortization associated with our related party revolving credit facility following amendment and extension of the agreement in February 2020.

Other (Income) Expense – Net

Other (income) expense – net for the three months ended March 31, 2020 was ($190), compared with other (income) expense – net of $12 for the three months ended March 31, 2019. The change of $202 was principally due to favorable foreign exchange rate changes and the related impact on certain intercompany transactions between subsidiaries for which settlement has occurred or is planned.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes for the three months ended March 31, 2020 and 2019 was $226 and ($800), respectively. We have completed a discrete period computation of our provision for income taxes for each of the periods presented. The discrete period computation was required as a result of jurisdictions with losses before income taxes for which no tax benefit can be recognized and an inability to generate reliable estimates for results in certain jurisdictions as a result of inconsistencies in generating net operating profits (losses) in those jurisdictions.  

The effective tax rate for the three months ended March 31, 2020 and 2019 was 6.6% (provision on a loss) and 15.1% (benefit on a loss), respectively. For the three months ended March 31, 2020, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to net changes in valuation allowances for the period. For the three months ended March 31, 2019, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to the reversal of previously recorded liabilities for uncertain tax positions (further described below) and net changes in valuation allowances for the period.

We have provided a valuation allowance for certain of our net deferred tax assets as a result of our inability to generate consistent net operating profits in certain jurisdictions in which we operate. As such, certain benefits from deferred taxes in the periods presented have been fully offset by changes in the valuation allowance for the related net deferred tax assets. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and 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 net deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.

At December 31, 2018, our ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities in Germany. In January 2019, this examination was concluded by the local taxing authorities in Germany without significant adjustment to previously established tax positions. As a result, during the three months ended March 31, 2019, we recorded a reversal of certain of our previously recorded liabilities for uncertain tax positions of $1,075, of which $257 was offset against net operating loss carryforwards.

Impairment

During the three months ended March 31, 2020, as a result of continued operating losses and cash flow deficiencies, we identified a triggering event requiring a test for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management.

For purposes of testing long-lived assets for recoverability, we operate as three separate asset groups: United States, Europe and Japan. In assessing the recoverability of long-lived assets held and used, we determined the carrying amount of long-lived assets held and used to be in excess of the estimated future undiscounted net cash flows of the related assets. We proceeded to determine the fair value of our long-lived assets held and used, principally through use of the market approach. Our use of the market approach included

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consideration of market transactions for comparable assets. Management concluded that the fair value of long-lived assets held and used exceeded their carrying value, and as such, no impairment loss was recorded.   

A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used, which could result in a material adverse effect on our financial position and results of 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

Liquidity

We have incurred a net loss in each of our annual periods since our inception. We incurred a net loss of $3,648 for the three months ended March 31, 2020. At March 31, 2020, we had $16,813 in unrestricted cash and cash equivalents.

In addition to our unrestricted cash and cash equivalents, we also have access to additional capital through our $10,000 related party revolving credit facility (further discussed below). Also, on April 18, 2020, we received additional unrestricted cash proceeds of $2,194 in connection with a Paycheck Protection Program loan (further discussed below).

Since our inception we have received cumulative unrestricted net proceeds from the sale of our common stock (through our initial public offering and subsequent secondary offerings) of $168,361 to fund our operations. We maintain additional access to capital through our active shelf registration statement which allows for the sale of various equity or debt instruments up to an aggregate amount of $125,000. Future sales of securities through our active shelf registration are dependent on market conditions which may restrict the timing and extent of any future offering of securities by us.

We have previously exhibited our ability to modify our operating structure and support our liquidity position through various restructuring and other actions, including our 2018 global cost realignment program. As further discussed above, in response to adverse market conditions associated with the COVID-19 global pandemic, beginning in March 2020 and through April 2020, we commenced various cost savings actions including a mix of employee terminations, furloughs and pay rate reductions, as well as reductions in consulting and other expenses, all in an effort to conserve cash and maintain adequate liquidity.  

We believe that our existing capital resources will be sufficient to support our operating plan. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital (in addition to those further described above). We may also seek to raise additional capital to support our growth through additional debt, equity or other alternatives (including asset sales) or a combination thereof.

Related Party Revolving Credit Facility

On March 12, 2018, we and our ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was our Executive Chairman (a related party) at such date and is currently our Chairman, relating to a $15,000 revolving credit facility (the “Credit Agreement”) to provide additional funding to us for working capital and general corporate purposes. The Credit Agreement provided a credit facility for a term of three years (through March 12, 2021), bearing interest at a rate of one-month LIBOR plus an applicable margin of 500 basis points (6.8% at December 31, 2019 and 6.0% at March 31, 2020). The Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties.

On February 18, 2020, the Loan Parties and LBM entered into a First Amendment to the Credit Agreement (the “Amendment”) which (i) reduced the available capacity under the revolving credit facility to $10,000, (ii) extended the term of the credit facility until March 31, 2024, (iii) increased the commitment fee to 100 basis points, or 1.00%, on the unused portion of the revolving credit facility, and (iv) provided a process for the replacement of the LIBOR index after 2021. In addition, the accounts receivable of ExOne GmbH no longer serve as collateral for borrowings under the amended revolving credit facility.

Borrowings under the credit facility are required to be made in minimum increments of $1,000. We may terminate or reduce the credit commitment at any time during the term of the amended Credit Agreement without penalty. We may also make prepayments against outstanding borrowings under the amended Credit Agreement at any time without penalty. At December 31, 2019 and March 31, 2020, the total estimated value of collateral was in significant excess of the maximum borrowing capacity under the credit facility.

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The amended Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance of insurance, properties, and licenses; and compliance with laws. The amended Credit Agreement also contains several negative covenants including restricting the incurrence of certain additional debt; prohibiting future liens (other than permitted liens); prohibiting investment in third parties; limiting the ability to pay dividends; limiting mergers, acquisitions, and dispositions; and limiting the sale of certain property and equipment of the Loan Parties. The amended Credit Agreement does not contain any financial covenants. The amended Credit Agreement also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.

We do not consider the Credit Agreement, as amended, indicative of a fair market value lending, as LBM was determined to be a related party based on common control by S. Kent Rockwell. S. Kent Rockwell is the indirect sole owner of LBM. Prior to execution, each of the Credit Agreement and the Amendment was reviewed and approved by the Audit Committee of the Board, in accordance with The ExOne Company Policy and Procedures with Respect to Related Person Transactions, and subsequently by a sub-committee of independent members of the Board. At the time of execution of the Credit Agreement, the available loan proceeds were deposited into an escrow account with an unrelated, third party financial institution acting as escrow agent pursuant to a separate Escrow Agreement by and among the parties. Loan proceeds held in escrow are available to us upon our submission to the escrow agent of a loan request. Such proceeds will not be available to LBM until payment in-full of the obligations under the amended Credit Agreement and termination of the amended Credit Agreement. Payments of principal and other obligations will be made to the escrow agent, while interest payments will be made directly to LBM. Provided there exists no potential default or event of default, the amended Credit Agreement and Escrow Agreement prohibit any acceleration of repayment of any amount outstanding under the amended Credit Agreement and prohibit termination of the amended Credit Agreement or withdrawal from escrow of any unused portion of the available loan proceeds.

There were no borrowings under the credit facility during the three months ended March 31, 2020 or 2019.

In connection with our efforts to conserve cash as a result of the COVID-19 global pandemic, LBM agreed to defer cash payments of its commitment fee on the unused portion of the revolving credit facility to a future date (to be determined upon mutual agreement by the parties). There are no incremental interest or other fees to be incurred by us as a result of this deferral.

Paycheck Protection Program

On April 18, 2020, we entered into an unsecured promissory note (the “Note”) in favor of The Huntington National Bank (the “Lender”) reflecting a loan in the principal amount of $2,194 (the “Loan”). The Loan is granted pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Pursuant to the terms of the Note, the Loan bears interest at a rate of 1.00% per annum and matures on April 18, 2022 (the “Maturity Date”). Principal and interest payments on the Loan are deferred until November 18, 2020, at which time equal installments of principal and interest will be due and payable monthly through the Maturity Date. The Note may be prepaid by us at any time prior to maturity without penalty. If we default on the Note, the Lender may, at its option, accelerate the maturity of our obligations under the Note.

Pursuant to the terms of the PPP, the Loan, or a portion thereof, may be forgiven if Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. We intend to use all or a significant majority of the Loan proceeds for qualifying expenses. The terms of the Loan, including eligibility and forgiveness, may be subject to further requirements in regulations and guidance adopted by the SBA.

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Cash Flows

The following table summarizes the significant components of cash flows for the periods indicated, and our cash, cash equivalents, and restricted cash balances as of the periods indicated:

Operating Activities

Net cash used for operating activities for the three months ended March 31, 2020 was $4,739, compared with net cash used for operating activities of $1,386 for the three months ended March 31, 2019. The net increase in cash outflows of $3,353 was due to an increase in our net loss (net of noncash items) and a net increase in working capital attributable to a decrease in net cash inflows from customers (principally due to timing of cash collections on 3D printing machine sales) partially offset by a decrease in net cash outflows related to inventory production of our 3D printing machines and the timing of payments to our suppliers and vendors for our production and operating expenses.

We expect to maintain a balanced net working capital position for the remainder of 2020, with a targeted reduction in inventories consistent with our revised production plans expected to offset lower commercial activity (customer prepayments) stemming from the impact of the COVID-19 global pandemic.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2020 was $15,890, compared with net cash used for investing activities of $347 for the three months ended March 31, 2019.

For the three months ended March 31, 2020, net cash provided by investing activities included $16,228 in proceeds from the sale of property and equipment, including the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany.

Activity for both periods included cash outflows for capital expenditures (consistent with our operating plans).

We expect our remaining 2020 capital expenditures to be limited to spending associated with sustaining our existing operations and strategic asset acquisition and deployment (additional estimated spending of approximately $1,000 to $2,000, which reflects a reduced spending target as part of our capital conservation plans in response to the COVID-19 global pandemic and its effect on our operations).

Financing Activities

Net cash used for financing activities for the three months ended March 31, 2020 was $42, compared with net cash provided by financing activities of $56 for the three months ended March 31, 2019.

Activity for both periods included principal payments on outstanding debt.

For the three months ended March 31, 2019, net cash provided by financing activities included $165 in cash inflows associated with proceeds from the exercise of stock options by employees. This amount was offset by $68 in cash outflows associated with taxes related to the net settlement of equity-based awards. There were no stock option exercises or taxes related to the net settlement of equity-based awards during the three months ended March 31, 2020.

Financial Condition

The following summarizes the material changes in our financial condition from December 31, 2019 to March 31, 2020:

Restricted cash decreased by $470 following an amendment to our credit facility agreement with a German bank completed in February 2020 which relieved us of a cash collateral requirement up to approximately $1,100 for financial guarantees and letters of credit issued by us for commercial transactions requiring security.

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Accounts receivable decreased by $1,568 based on the timing of cash payments by customers (principally the timing of cash collections on 3D printing machine sales).

Inventories increased by $1,883 due to an increase in finished goods inventories (principally 3D printing machines prepared for sale in accordance with customer specifications pending delivery to or acceptance by customers) consistent with growth in our backlog. In addition, raw materials and components inventories increased in connection with our production plans.

Prepaid expenses and other current assets increased by $605, mostly due to increases in prepayments to suppliers for 3D printing machine components and subassemblies.

Property and equipment – net decreased by $18,175, mostly due to the impact of the sale-leaseback of our European headquarters and operating facility in Gersthofen, Germany (which resulted in a derecognition of $17,282 of related property and equipment) and depreciation expense of $923 incurred during the period.

Operating lease right-of-use assets increased by $4,357, principally as a result of the sale-leaseback transaction further discussed above.

Accounts payable decreased by $1,433 due to the timing of payments to our suppliers and vendors for our production and operating expenses.

Accrued expenses and other current liabilities decreased by $2,352, mostly due to the sale-leaseback transaction further discussed above based on the release of $2,243 of a deposit liability received from the buyer in December 2019.

Operating lease liabilities increased $4,357, principally as a result of the sale-leaseback transaction further discussed above.

Contract liabilities increased $1,744 based on the timing of cash payments by customers (principally the timing of cash collections on 3D printing machine sales consistent with growth in our backlog).   

Off Balance Sheet Arrangements

In the normal course of our operations, our ExOne GmbH subsidiary issues financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security. At March 31, 2020, total outstanding financial guarantees and letters of credit issued by us were $863 (€785) with expiration dates ranging from October 2020 through February 2023. At December 31, 2019, total outstanding financial guarantees and letters of credit issued by us were $560 (€499). For further discussion related to financial guarantees and letters of credit issued by us, refer to Note 11 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recently Issued and Adopted Accounting Guidance

Refer to Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Refer to Note 1 to the condensed consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

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Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

Item 4.     Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, as a result of certain material weaknesses in our internal control over financial reporting (further described below), our disclosure controls and procedures were ineffective. 

In connection with the preparation of our condensed consolidated financial statements as of and for the three months ended March 31, 2020, we concluded that there are material weaknesses in the design and operating effectiveness of our internal control over financial reporting as defined in Securities and Exchange Commission Regulation S-X. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

A description of the identified material weaknesses in internal control over financial reporting is as follows:

Notwithstanding the identified material weaknesses described above, management believes that the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2020, as a result of the identification of the material weaknesses further described above, management has commenced its remediation plans in an effort to ensure that our disclosure controls and procedures are effective. Our remediation plans include a comprehensive evaluation of the people, processes and systems responsible for each of the underlying control activities. We expect to complete this evaluation in 2020 and put measures in place in an effort to remediate the identified material weaknesses. However, we cannot be certain that the measures we may take will ensure that we establish and maintain adequate controls over our financial processes and reporting in the future or that material weaknesses identified will be remediated.

Other than the items further described above, there were no changes in our internal control over financial reporting during the three months ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.     Legal Proceedings.

We are subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

Item 1A.     Risk Factors.

We face risks related to the COVID-19 global pandemic which could significantly disrupt our operations and impact our operating results and/or cash flows.

In addition to the commercial risks, the long-term effects of the COVID-19 global pandemic may also include risks associated with employee health and safety, resultant operating facility closures and supply chain disruption, each of which may have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, except as described above.

Item 6.     Exhibits.

(a)(3) Exhibits

The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.