Although ExOne's (NASDAQ:XONE) fourth-quarter earnings technically broke company records, they still managed to fall short of meeting Wall Street expectations, a hurdle the industrial 3D printing specialist has struggled with clearing since becoming a public company. Shares of ExOne were under pressure during early trading today after yesterday's release.
For the quarter, ExOne reported revenue growth of nearly 48% year over year to $15.8 million, translating to a net loss of $0.50 per share. Analysts had been hoping that ExOne would report $18.5 million in sales and lose only $0.05 per share.
Along with the release, ExOne also offered its guidance for its 2015 year, calling for revenues to grow between 32% and 50%, and generate $58 million to $66 million. The midpoint of this guidance range compares favorably to the $61.8 million consensus estimate.
Looking at the bigger picture, ExOne's earnings were a mixed bag.
Record machine revenue
Going into the fourth quarter, investors had a good indication that ExOne would report record machine revenue, or 3D printer sales, considering the company experienced multiple order shipment delays last quarter that forced it to miss out on realizing an additional $4 million to $5 million in revenue. As expected, ExOne's machine revenues grew by 45.7% year over year to $10.2 million.
However, on a full-year basis, ExOne's machine revenue declined by about 8.4% compared to its 2013 results. It's likely that ExOne's ongoing transition from targeting metal foundries to targeting their respective customers weighed on overall results.
Still, investors may find it discouraging to see the emerging growth company's machine revenues decline on a full-year basis, especially after taking into account that management would prefer that investors evaluate the company's performance on an annual basis.
Record non-machine revenue
ExOne's fourth-quarter non-machine revenue, or revenue it primarily generates from being hired by customers to produce industrial 3D-printed parts, continued its growth trajectory by increasing 51.4% year over year to $5.6 million. On a full-year basis, ExOne's non-machine revenue increased by 44.5% over 2013 results.
As management has explained in the past, non-machine revenue growth suggests that acceptance of the company's binder-jetting 3D-printing technology is growing in the industry. Additionally, a growing base of non-machine revenue could provide a greater volume of sales leads for potential machine sales.
Gross profit margin didn't recover
Management highlighted during its third-quarter conference call that 3D printer shipment delays weighed on the company's overall gross profit margin, and should improve in future periods as machine volume improves. Consequently, investors were made to believe that once those delayed orders were shipped, its gross profit margin should rebound in the fourth quarter.
Unfortunately, despite record machine revenues, ExOne's fourth-quarter gross profit margin declined by 6.4 percentage points on an annual basis and 1.3 percentage points on a sequential basis. Management attributed the continued weakness to a number of factors, including:
- $200,000 of incurred costs between moving machinery to its new 3D printing service bureau in Germany and expanding its North Huntingdon, Pa., facility.
- "Significant" inefficiencies resulting from disassembling, moving, and setting up operations in its new German and expanded North Huntingdon facility.
- $400,000 of inventory write-offs related to its micromachinery product line.
Fortunately, these expenses appear to be one-time in nature, and management anticipates that the company's gross profit margin will rebound to between 36% and 40% in 2015.
ExOne's fourth-quarter SG&A expenses rose by 83% year over year, but included several "atypical" charges, the most notable being a $2.2 million expense for debt owed due to "customer specific or macroeconomic factors." Obviously, if the occurrence of writing off bad debt increased in frequency, it could raise a potentially worrisome red flag for investors.
Putting it all together
ExOne's earnings may have missed expectations and raised some areas of concern, but overall the company appears be executing toward its longer-term goal of becoming a leading industrial-focused 3D printing player. As long as ExOne can continue growing its machine and non-machine revenue on a full-year basis without ongoing gross margin issues, the business remains in position to benefit over the long haul.