ExOne Co Earnings: Disappoints, but Offers a Bright Outlook

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Shares of ExOne (NASDAQ: XONE  ) are having a wild run on Wall Street today. Following the company's earnings release, the stock traded down by as much as 10%. Later in the day, it swung in the other direction and settled on more moderate losses.

The 3-D printing specialist once again missed analyst expectations, which accounts for the huge dip. The conference call, however, shed some light on opportunities on the horizon, and how ExOne plans on attacking those opportunities.

Source: ExOne. 

More disappointing results
Yesterday, I highlighted three metrics that investors should look for in ExOne's earnings. Here's how the company matched up, starting with earnings and revenue expectations.

 

Expected

Actual

Q2 EPS

($0.13)

($0.32)

Q2 Revenue

$12.1 million

$11.2 million

2014 Revenue

$55.5 million

$55 million-$60 million

Source: E*Trade, ExOne.

ExOne lost far more money than Wall Street was anticipating, and also fell short of the revenue expectation. While that's never good news, it's important to note that the company itself doesn't offer quarter-by-quarter guidance.

ExOne only offers full-year guidance; in that respect, it reaffirmed its previous goal of $55 million-$60 million in revenue. Hitting the midpoint of those expectations would represent 75% growth in sales in the second half of the year.

CEO Kent Rockwell wasn't shy about his decision to ramp up spending during the first half of the year, which resulted in the larger than expected losses. "When the opportunities are out there, I'm going to spend the money as wisely as we can." That spending was used to further build out the infrastructure for the ExCast program, which allows customers to order parts made using ExOne printers without actually buying a printer. The money also funded research and development on new materials and printers that Rockwell sees the market demanding (more on that below).

Costly errors still popping up
ExOne, given its relatively small size and the large sticker price of its printers, is subject to big swings in revenue and margin figures based on one-time events. These have been a thorn in management's side in the past, and that trend continued in the latest quarter.

While the company admitted that one printer purchase had to be pushed into the third quarter -- resulting in lower revenue and shrinking margins -- that sort of problem is largely out of ExOne's hands.

Of far more concern was the fact that after testing casted parts made for one ExCast customer, it was determined that the parts "were not going to qualify for airline certification."

Management acknowledged disappointment with those findings, but was also eager to highlight how much was learned through the process, and the high barriers to entry these struggles represented.

While learning from mistakes is certainly necessary, investors need to gauge their comfort level with such snafus moving forward.

ExCast heating up
By far the best news from the quarterly report was the strength of the company's nonmachine sales. The ExCast initiative showed continued strength.

Source: ExOne. 

This nonmachine revenue is a combination of ExCast revenue and material sales to customers who already own an ExOne printer. This 53% jump in nonmachine revenue came on the heels of the preceding quarter's 33% growth.

As a whole, this is a hugely positive development for the company.

Rockwell singled out a Tech Crunch article as a reference for how he sees ExOne's evolution. The article posits that large incumbent companies usually sit on the sidelines before making major purchases or deciding to cooperate with start-ups like ExOne.

ExCast's purpose -- besides providing an opportunity for small companies that can't afford a printer to use its technology -- is to prove the validity of ExOne's printers and motivate larger players to adopt the company's disruptive technology.

A hopeful outlook
Beyond these metrics, two tidbits stood out to me in the conference call.

First, Rockwell stated that "We have 50 machines in the second half of this year that we ... have the ability to make delivery on." Though Rockwell also made it clear that it was unlikely for the company to close on all 50 of these potential sales, the number is encouraging. 

To put it in perspective, ExOne sold 20 printers in the second half of last year. If the company can close on 80% of its potential sales this year, it would double the number of printers sold.

Furthermore, COO David Burns offered hints for where the company could be headed in the years to come. Specifically, Burns said the company had "launched significant efforts to produce our first high-volume, high-production machine ... for industrial parts." He added that the company would have more information to offer on the initiative before year's end.

The introduction of a high-volume printer could be a watershed moment in the manufacturing industry.

That said, investors should know that such a printer is far from a sure deal. The focus should remain on watching the success of ExCast, along with management's ability to close on a significant percentage of the 50 possible machine sales moving forward.

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