ExOne: Shares Lower After Failing To Beat Sky-High Expectations

Aug.14.13 | About: ExOne (XONE)

Shares of ExOne (NASDAQ:XONE) are selling off after the release of second quarter results. After expectations for the report were sky-high given the run-up in its shares, the absence of a blow-out report caused nervousness among investors.

At this sky-high valuation, traditional value investors have nothing to search for.

Second Quarter Results

ExOne generated second quarter revenues of $9.2 million, up 97% on the year before, and roughly in line with analysts estimates of $9.3 million.

At the same time net losses narrowed significantly from $3.6 million last year to just $1.1 million. Losses came in at $0.08 per share, missing consensus estimates for a loss per share of $0.06.

Looking Into The Results

Revenue growth was driven by machine revenues which totaled $5.8 million compared to just $1.5 million last year. The company sold 4 S-Max platform machines to clients in Japan, India, Russia and the US. Last year, ExOne sold just one machine. Production Service Center revenues rose by 6% to $3.4 million.

Gross margins increased by a full 12 percent points to 45.3% of total revenues. The bottom line saw a further improvement as selling, general and administrative expenses fell roughly 10% to $3.9 million. Note however that last year's SG&A expenses included a $1.8 million equity-based expense charge.

Looking Ahead

Full year revenues for 2013 are now expected to come in at the low end of the previously guided $48 to $52 million. This assumes there will be no additional micromachine sales in 2013. The cautious guidance comes unexpected as analysts were expecting ExOne to report $50.5 million in annual revenues.

Gross margins are expected to come in at the high end of the previously guided 42% to 46%. Operating expenses are expected to come in at the high end of the previously guided $18 million to $21 million.


ExOne ended its second quarter with $64.5 million in cash and equivalents. The company operates with $3.5 million in total debt, capital and financing leases.

Revenues for the first six months of the year came in at $17.2 million, up 132% on the comparable period last year. Net losses narrowed to $2.9 million from $5.0 million last year. Given the previous outlook, ExOne expects revenues in the second half of the year to double from the level in the first half of the year.

Trading around $68 per share, the market values ExOne around $900 million, or its operating assets at $840 million. As such, ExOne's operations are valued around 17 times annual earnings.

ExOne does not pay a dividend at the moment.

Some Historical Perspective

Shares of ExOne were sold to the general public as recently as February of this year. Shares were offered at just $18 per share, witnessed first day returns of 47.3%, and have gained significant ground from that point in time.

Shares have quadrupled as they set fresh highs of $79. At recent highs the business was valued at a cool $1 billion.

Investment Thesis

ExOne's absolute revenues are still tiny, but revenue growth remains extremely impressive. As such revenue growth will continue to accelerate into the third and fourth quarter, as the company has guided for another $31 to $35 million in revenues in the third and fourth quarter combined.

Right now the focus is still on the Max platform, while the Print and Flex platform will start to contribute in the second half of this year and into 2014. ExOne still targets 5 shipments of the Flex machines this year after making 3 sales already to be shipped in the second half.

Yet the pace of revenue recognition is slowing down, not because of lack of demand but rather execution issues including customer financing. As such total revenues are tilted more toward the second half of this year, and even more so to the fourth quarter.

ExOne's cash balances of around $65 million are much needed as the company plans to invest some $40 to $50 million in 2013 and 2014 to boost the manufacturing capacity, PSC development and other key investments.

I took a look at ExOne's propects after its public offering earlier this year. I liked the focus on high-end industrial users rather than a focus on consumer applications. I concluded that an investment in the company was very opportunistic as the industry landscape and future developments are still highly uncertain.

I concluded that investors with a taste for an opportunistic gamble could pick up some shares, while traditional value investors should not get involved. The same advice applies today. Traditional investors have no business here.

Opportunistic investors who hope to make a right bet for the coming decade could have found a sweet spot, as long as they realize the can lose the majority or all of their investment in the meantime.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.