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In case yesterday's news from Stratasys wasn't enough of a drag on the 3-D printing sector, ExOne (NASDAQ: XONE ) decided after yesterday' market close to drop another bomb. The industrial 3-D printing company significantly lowered its full-year-revenue guidance for the remainder of its 2013 year. After closing down over 5% during the normal trading session, ExOne's stock finished down another 14% after hours.
The company now expects its full-year revenues will come in between $40 million and $42 million, which compares unfavorably to the $48 million it was initially expecting. The reasoning behind what feels like a last-minute revision has nothing to do with lost sales and everything to do with timing. In total, five 3-D printer sales were deferred into 2014 for customers in Russia, India, Mexico, and France. It turns out industrial sales cycles aren't exactly known for their promptness.
Racing against the clock
When a company lowers its sales guidance, there's usually a good chance a structural issue could be influencing results. However, given the drawn out nature of industrial sales cycles, the high cost of ExOne's printers, and the fact that the company hasn't actually lost any of its expected sales, I don't think this is the case.
In fact, during its third quarter conference call, ExOne CEO Kent Rockwell acknowledged that doing business in the industrial segment is a slower and more difficult process. This is not surprising, considering the five deferred 3-D printer sales imply a price tag of over $1 million each. It's not exactly an easy buy for a customer to make -- especially without approval.
Smoothing out results
Being an emerging growth company that only sells a handful of printers each quarter, ExOne has been working to grow its service center business, which could help smooth out the lumpiness of its product revenues. Service centers allow customers to utilize ExOne's 3-D printing technology by having parts made without having to own or operate its printers. Investors can think of it like a Shapeways for big industrial needs.
In the coming years, ExOne wants 50% of its revenues to come from these service centers, which accounted for about 33% of its revenue last quarter, including material sales. The goal is to get 15 service centers in operation throughout the world by the end of 2015, representing an increase of more than double from the seven it has in operation today.
Signs of encouragement
Along with lowering its revenue guidance, ExOne announced that it has completely sold out of the six M-Flex 3-D printers in its inventory, and it plans on quadrupling production and tripling sales of the M-Flex in 2014. In addition, the company affirmed its long-term organic revenue growth rate of 40% to 50%. Putting it all together, management still remains confident in the longer term potential of its business -- otherwise it wouldn't plan on quadrupling its manufacturing capacity or make such aggressive growth claims.
It comes with the territory
Undoubtedly, an emerging growth company like ExOne inherently carries a higher degree of investment risk than a more established business. When you're investing in companies in ExOne's position, the key is to extend your time horizon to help smooth out any short-term volatility that comes your way.
At the end of the day, ExOne is currently building a business to take on more and has a management team that remains committed to the long-term story. Investors shouldn't get too hung up over this lowered guidance fiasco, because the company didn't actually lose out on any sales -- they were simply delayed. In this context, I see little reason for long-term investors to bat an eye at this development. Should shares continue getting punished, I may become tempted to double down on my position.
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