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The ExOne Company (XONE) made its public debut on Thursday, February 7. Shares of the manufacturer of 3D printing machines and printing products ended its first day with gains of 47.3% at $26.52 per share. Shares peaked at levels a little over $33 per share in the days following the offering, before falling back to levels around $27 at the moment.

The Public Offering

The ExOne is a global provider of 3D printing machines and related products to industrial customers. The company offers pre-production collaboration for its customers through the Production Service Centers located in the U.S., Germany and Japan. Besides selling printing machines, the company offers associated products, replacement parts, training and technical support.

The ExOne sold 5.3 million shares for $18 a piece. The company raised $95 million in gross proceeds in the offering process. Based on the offer price of $18.00, the company is valued at $230 million.

The offering has been a great success. The offer price was set far above the initial price range of $14-$16 per share set by the firm and its bankers. In total, 41% of the company's shares outstanding were offered. Based on Tuesday's closing price of $27.10, the firm is valued at $347 million. The major banks that brought the company public were FBR, BB&T Capital Markets and Stephens.

Valuation

The ExOne's 3D printer differs from the competition in that ExOne's machines are able to print the products in the materials desired by the customers, opposed to many other competitors, which can only print in plastic.

The company reported annual revenues of $15.3 million for the full year of 2011 on which it lost $8.0 million. For the first nine months of 2012, The ExOne generated revenues of $15.9 million, up 26.6% on the year before. Net losses more than doubled to $11.1 million, mainly the result of $7.7 million in non-cash equity based compensation.

So far in 2012, the company has sold five machines, which compares to four machines in the full-year of 2011. The backlog at the end of 2012 stood at six machines. The ExOne's customers include high-end large corporations including Ford (F), Caterpillar (CAT) and Boeing (BA). Because of the diversity of used materials the company is focused on the industrial users in the aerospace, automotive and heavy equipment business.

The usage of 3D printing is rapidly increasing as the methods have some key advantages over traditional manufacturing processes. 3D usage allows for greater design freedom, a reduced cost of complexity, mass customization and just-in-time manufacturing. At the moment the industry is still in an experimental phase and most often is used to design prototypes and produce usable parts.

ExOne will use the proceeds of the offering to further improve the efficiency and capacity of the company's machines as well as the number of materials that can be used to make products. The company will furthermore expand the number of Production Service Center locations and use $9.8 million to repay a revolving credit line.

The company will operate with approximately $75 million in cash and equivalents and $9 million in short- and long-term debt, for a comfortable net cash position. With a market capitalization of $347 million, operating assets are valued around $280 million. If the company were to generate $30 million in revenues for 2012, shares are valued at approximately 9 times annual revenues.

Investment Thesis

As noted above, the offering of The ExOne Company has been a great success. Shares showed a 47.3% return on the first trading day, currently trading up 76.8% above the midpoint of the preliminary offer range. Trading at $33 in the days following the offer, shares have even more than doubled compared to the initially guided offer price.

The market for 3D-systems and printers is red hot. Already publicly listed competitors 3D Systems (DDD) and Stratasys (SSYS) have shown strong returns over the past year as investors have hyped up the prospects of the industry.

The expectations for the fourth-quarter report of 2012 will be sky high. The company already announced that it has shipped 8 machines during the quarter, more than during the entire first nine months of the year. While the shipments of machines has been very strong in the final quarter of the year, one cannot automatically translate this into a strong start of 2013. The final quarter is traditionally strong and the ending backlog of 6 machines is the same as the year before.

Positive is the large degree of "service" revenues or "consumables" as the installed machine basis grows. The company is already generating almost two thirds of its total revenues from parts, materials and other sources, which makes future revenue predictions more stable.

Overall I like ExOne's prospects within the 3D industry. Unlike some other competitors, including 3D-Systems, ExOne does not focus on consumers but solely on high-end large industrial users with deep capital expenditure budgets. Despite the fact that shares have roughly doubled from an initial guided price range, the company is "only" valued at $350 million. This is roughly 10 times less than its major other publicly listed competitors, and as experienced investors know it is easier to grow off a relatively smaller base.

Note that at investment in The ExOne is very opportunistic as the company's operations are still very volatile, loss-making and the evolution of the competitive landscape is highly uncertain. Investors looking for an opportunistic gamble could buy on dips, while long-term value investors have no reason to get involved. It is up to you to define your risk profile.

Source: The ExOne Company - 3D Market Remains Red Hot