The 3D printing space has been especially volatile lately, with bullish investors recognizing the transformative potential of the manufacturing industry even as more skeptical investors note the high levels of competition among the many players in the space. Nevertheless, ExOne (NASDAQ:XONE) has been at the forefront of the 3D printing revolution for a while now, with its proprietary metal-printing technology giving it a competitive edge over Stratasys, 3D Systems, and other companies that have more limited materials at their disposal.
ExOne reported discouraging figures for revenue and net income in its third-quarter report today, leading many shareholders to question whether its short-term prospects warrant continued enthusiasm. Yet the more important question is whether the company can claim a prominent spot in the growing industry over the long run. Let's take a closer look at how ExOne did last quarter and what the results mean for its future.
Another ugly quarter for ExOne
The most disappointing aspect of ExOne's third quarter came in the revenue category, where total sales fell 17% to just $9.6 million, far below the $15.3 million that most investors were hoping to see from the 3D printing business. Predictably, net income also suffered, with losses of $4.5 million equating to $0.31 per share, or far worse than the $0.13 per-share loss that investors were already bracing for.
Looking more closely at ExOne's results, though, it's clear that the culprit came from the traditionally lumpy figures related to outright sales of printers. Revenue from machine sales plunged 46% from year-ago levels. The company once again reiterated that the long sales cycle and high price of its equipment makes machine sales figures fluctuate sharply from quarter to quarter, and ExOne resists the inference that any one quarter's sales are indicative of a broader trend for the company.
The more bullish picture for ExOne came from its non-machine revenue, which includes its own in-house fabrication business allowing customers to use ExOne-owned printers to make the goods they need. Sales of those products, along with related materials and services, soared 42% in the quarter, and the revenue from the non-machine division now makes up the majority of what ExOne brings in overall.
CEO Kent Rockwell sees the jump in revenue from sources other than outright machine sales as a long-term positive. In particular, Rockwell held out the possibility that heightened customer use of ExOne printers could lead to eventual sales, pointing out that "acceptance of our binder jetting technology is demonstrated first in non-machine revenue generated from our production service centers and then through machine sales."
Are better times coming for ExOne?
Unfortunately, even if those greater sales eventually come, it's going to take time for ExOne to get things moving more quickly in the right direction. Due in part to the shortfall in the third quarter, ExOne cut its full-year 2014 revenue estimate by $10 million to a range of $45 million to $50 million.
Nevertheless, ExOne isn't slowing down its expansion plans. The company noted that its move into its new European headquarters could allow ExOne to triple its production capacity. Moreover, with a similar expansion doubling its capacity at its North Huntingdon facility in Pennsylvania, ExOne believes that its future will bring greater customer demand, and that it therefore needs to move aggressively right now in order to pave the way for future sales growth. In addition, research and development remains a priority as well, with expectations that ExOne will therefore have more space to develop new metals for use in its printers and thereby develop new applications for potential customers down the road.
ExOne shareholders weren't happy with the numbers, sending shares falling more than 5% immediately after the release in after-hours trading. But ExOne's results are so reliant on individual machine sales that reading too much into a single quarter's numbers can be dangerous. Nevertheless, eventually, ExOne needs to produce sustained growth that demonstrates the commitment of its customers to its technology. Otherwise, ExOne might well never reach the full potential that the 3D printing industry is offering it and its peers.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems, ExOne, and Stratasys. 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.