ExOne Company: What Investors Need to Know About Its Q4 Earnings Miss and 2014 Guidance

Here are key details beyond just the headliner numbers about 3-D printing company ExOne's results.

Mar 21, 2014 at 11:03AM

Shares of ExOne (NASDAQ:XONE) fell nearly 10% on Thursday after the industrial-focused 3-D printing company reported a huge miss on fourth-quarter 2013 earnings and provided 2014 guidance below analysts' expectations when it released results after the market closed on Wednesday.

First, the highlights:

  • Revenue fell 16% to $10.7 million, missing estimates of $12.1 million.
  • Earnings per share were negative $0.22 versus a $0.04 profit in the year-ago period, falling short of the consensus of $0.01.
  • Gross profit margin was 30.9%, down from 49% in the previous year's period.
  • Revenue mix was 66% printer sales and 34% PSC (production service center revenue includes revenue from services and materials).
  • 12 printing machines were sold, compared to eight in the year-ago period, as well as eight in the previous quarter.
  • Printer revenue fell 22%, due to the printer mix.
  • PSC revenue decreased 3%, due to capacity used to work on two sizable castings orders that will be delivered in the first half of 2014.
  • Guidance for 2014 was issued with a revenue range of $55 million-$60 million, below the consensus of $61.5 million, and an adjusted gross margin between 43% and 46%. 

Why revenue missed and earnings fell considerably short
The revenue miss should only come as a small surprise, as in mid-January, ExOne lowered its 2013 revenue expectation to a range of $40 million-$42 million, below its prior guidance of $48 million. That implied fourth-quarter revenue of $11.2 million-$13.2 million, whereas quarterly revenue came in at $10.7 million, and annual revenue at $39.5 million. These numbers only slightly missed the lower end of the stated annual and implied quarterly guidance ranges. One would expect, however, that ExOne would have at least met the lower end of the ranges, given the quarter had ended a couple weeks prior to ExOne's revenue preannouncement. 

At the time of the preannouncement, the company cited delayed approvals for foreign sales of four systems as the reason for the anticipated revenue shortfall. ExOne stated that it expected to book these orders in the first half of 2014 -- and that expectation was reiterated on the company's conference call. So this still seems to be just a case of revenue shifting.

The primary reasons for the considerable earnings miss were the unfavorable printer mix and higher fixed costs. While the company did sell 12 printers in the quarter, three of them were X1-Lab systems, which are small, lower-priced systems that customers use for R&D. So, the actual number of production systems sold was nine, just one more than in the previous period's quarter and in the trailing quarter. Further, not as many of the large-capacity, higher-end S-Max systems were sold. The breakdown of the eight systems sold in the quarter was three S-Max, one S-Print, and five M-Flex, whereas in the prior year's quarter five S-Max and three S-Print systems were sold. ("S" is for "sand," with the S-Max and S-Print comprising the company's sand casting line while "M" is for metal.) 

While the S-Max/S-Print sales mix wasn't favorable, the positive news is that five M-Flex systems were sold in the quarter, which makes six M-Flex sales in 2013. This system, which prints directly in metals (specifically, stainless steel, bronze, or tungsten), was rolled out in the fall of 2012, so these sales seem to reflect positive initial acceptance in the marketplace. As I recently wrote, the metals 3-D printing space is the place to be in 2014 and beyond. And, in fact, ExOne expects to triple it sales of M-Flex systems in 2014.

Given the company's small size and lumpy quarterly sales, it's best to look at the full-year picture. Here's how the printer sales breakdown by type over the last three years: 

Printer Type 2013         2012             2011     
S-Max 13 9 1
S-Print 3 3 1
S15 (refurbished) 1 1 2
M-Flex 6 -- --
X1-Lab 5 -- 1
Micromachinery 1 -- --
Total 29 13 5

Source: ExOne.

Investors need to remember the company is small and young
ExOne is considerably smaller than the industry's two biggest players; it has a market cap of $567 million, whereas 3D Systems and Stratasys have market caps of $6.2 billion and $5.6 billion, respectively. Additionally, it's a much newer public company, as it just went public in February 2013. So, it's to be expected that ExOne's quarterly revenue will be quite "lumpy" for awhile, and that its revenue and earnings in its first few years of being a public company will be difficult to estimate. ExOne sells pricey machines -- some are priced at more than $1 million -- so educating industrial customers as to the benefits of buying these higher-end 3-D printers to augment and/or replace their traditional manufacturing equipment shouldn't be expected to be a short-term process.

That said, the fact remains that ExOne has now missed analysts' estimates in every quarter since it's been public. This is likely a case of analysts expecting too much of this small and relatively new company. However, management also bears some responsibility for not being more conservative in its guidance, which it needs to start doing. And, in fact, CEO S. Kent Rockwell did state on the earnings call that management will indeed be guiding more conservatively.

2014 expected to be another "transition year"
ExOne expects 2014 revenue to increase 40%-50% to approximately the $55 million-$60 million range. The consensus estimate prior to going into earnings was $61.6 million. The company expects adjusted gross margin to be between 43% and 46%; this excludes the costs of facility expansions, anticipated to be $1.5 million-$2.5 million.

Further, ExOne expects 2014 SG&A (selling, general, and administrative expenses) to be in a range of $19 million-$21 million and R&D expenses to be in a range of $6 million-$7 million. Capital expenditures in 2014 are expected to be between $31 million and $34 million.

ExOne doesn't provide earnings guidance, which is prudent at this stage of the game. When questioned by an analyst during the conference call about earnings expectations, Rockwell did note that the company could turn a profit in 2014 if all proceeds according to plan, but he didn't state this as a definite. The consensus estimate for 2014 earnings per share is $0.25, though I'd expect analysts to lower this expectation due to ExOne's fourth-quarter results and 2014 guidance.

In short, Rockwell expects 2014 to be another "transition year." Starting in 2015 and 2016, the company anticipates it will begin receiving multiple printer orders from companies that are pleased with the single printer they have and plan to incorporate multiple systems into their mass production processes.

Foolish final thoughts
ExOne posted weak quarterly results. While there seems to be explainable reasons for these results, the company needs to start doing a better of job managing expectations.

There's no doubt that the industrials 3-D printing space -- and, in particular, the industrial metals space -- is an attractive one. ExOne's sales of five M-Flex systems in the quarter and anticipation of tripling M-Flex sales in 2014 is a good sign. However, it's too early to glean if the 2014 sales will pan out and whether this system will gain considerable favor in the marketplace.

If I were an investor, I'd be monitoring the company's progress in 2014 in selling more S-Max systems, looking for the company to hit its revenue and gross margin targets in 2014, and for it to come at least close to its goal of tripling M-Flex sales. 

3-D printing stocks aren't the only growth stocks around -- here are six top picks
Motley Fool co-founder  David Gardner has proved the skeptics wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

 

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends and owns shares of ExOne. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers