Shares of The ExOne Company (XONE) have been among the most volatile in the 3D printing space. This trend continued following their January 14th revenue expectations update. The company lowered expectations for 2013 from $48M to between $40M and $42M. This equates to Q4 revenue of between $11.2M and $13.2M compared with Q3 revenue of $11.6M. The share price fell sharply as a result.
ExOne points to delayed deliveries of five orders as the cause of the revenue miss. They have mentioned many times that because they operate internationally, substantial paperwork can sometimes get in the way of delivery schedules. It is not entirely clear whether this delay was caused by paperwork or by their clients' desire to defer delivery and payment to 2014. They do report that no orders were cancelled, and that these sales should be expected in the next quarter.
The fact that no orders were cancelled is reassuring, but the delay in Q4 resulted in quarterly revenues being missed by 30-40%. This wreaks havoc on the PPS in the short term and leaves investors wondering what to do. Because of ExOne's small size and its reliance on big-ticket machine sales, the company is subject to relatively large fluctuations in earnings each quarter. At this point in the company's life cycle, the sale of each printer represents about 8-10% of their total quarterly revenue.
This is not the only obstacle that has impeded growth of the share price. On August 31st, the IPO lockup period for shares expired; shortly thereafter on September 3rd, the company issued a second offering of approximately 2.7M shares. Q3 results were announced November 14th, resulting in a temporary bounce followed by a precipitous drop. The chart below highlights some of the recent negative trends in the stock.
With such large volatility in share price and a small margin for error on orders, the decision to invest in ExOne should be based on whether the market has appropriately priced the company's future growth. To help make this determination, the table below shows an industry comparison.
Sales Growth 1 Year
Gross Profit Margin
3D Systems (DDD)
As calculated by Charles Schwab on 01/23/2014
ExOne compares favorably to the other pure 3D printing plays on several of these metrics, particularly price-to-book and sales growth. Because it is a smaller company, it should be able to achieve revenue growth rates that surpass the industry-wide estimates of 29%. In fact, the company predicts revenue growth between 40% and 50% in 2014. They plan to accomplish this in a number of ways:
- Tripling sales of their M-Flex units to 18
- Increasing the global reach and number of their service centers from 7 to 15 by 2015
- Looking for acquisitions that will complement their ExCAST service
- Continuing the development of new materials and associated IP
The service centers are the company's best opportunity to smooth their lumpy revenue stream. They allow clients to order products from ExOne without having to purchase a machine for themselves. This "try before you buy" approach has also proven itself successful for the company in the past at generating future machine sales. They will also continue to focus on their ExCAST service, which offers a complete solution for companies with 3D printed parts needs. ExCAST involves working with a business step-by-step, beginning with optimizing the design of products for 3D printing and extending through the finishing and delivery of printed pieces. The company believes that these all-inclusive services will be the catalyst for future growth as they help clients grow accustomed to the use of 3D technology and ensure that early adopters are receiving the full benefits available to them.
The company's two share offerings thus far, place them in a strong position to execute their growth strategy. At the end of Q3, they had an estimated $113M in cash. Because they are now operating at a profit in recent quarters, the money can be used for growth and research. ExOne has already begun to expand their reach, with service centers located in or targeted for Western Europe, Las Vegas, Brazil, Japan, China, Germany, Asia, and Washington State, among others. They have also hinted repeatedly that they are in the market for an acquisition that will enhance their ExCAST approach to offering a complete 3D printed product solution rather than just selling machines. Their goal is to have 50% of their revenues be derived from their service centers and ExCAST activities by the end of 2015.
Another potential boon for the 2014 share price is the significant short interest remaining in the company. The table below shows the short interest relative to daily volume for the companies in the 3D industry. Because Arcam is traded over the counter, short interest is not included for them.
Average Daily Share Volume
Days to Cover
The table indicates that with crowded short positions in XONE, many may have increased incentive to buy early on price dips, thus limiting the impact of negative news. This may help create a smoother ride for investors this year and also explains some of the reasons for the severe drops in PPS during 2013.
The company is focusing on expanding to 15 service centers by 2015. The goal of generating 50% of revenues from these centers will help prevent large revenue swings on a quarterly basis. However, until the centers are completed the company remains exposed to potential machine order delays or cancellations. This risk is partially mitigated by the potential for a large positive revenue boost should the company manage to complete extra machine orders.
The 3D printing industry is evolving quickly, and many new entrants are expected in 2014 and beyond. ExOne must continue to expand its materials portfolio, increase build speeds and sizes, and balance R&D with growth expenses in order to stay competitive. One indicator of the company's likely success to watch will be its ability to retain long-standing clients.
It appears that ExOne is past many of the growing pains in their early life cycle. The company has a war chest stuffed with cash and is recently profitable. Looming acquisitions, new material development, and a solid growth strategy focused on client needs should increase EPS in 2014. Management has taken steps to increase their sales force, expand R&D, grow internationally, and adapt their products and services to a larger audience through ExCAST. Substantial short interest has created an artificial price floor, which will help buoy the stock should negative news arise. These elements indicate there may be fewer bumps in the road for investors in 2014. Their current price-to-sales ratio is comparable to the other 3D printing companies. If they maintain their ratio of 19.44 throughout the year while hitting their 50% revenue growth target, the price per share should be approximately $83.75 at the end of the year. This would be an increase of 53% over the current PPS of $54.57. The likelihood of ExOne reaching their revenue target in 2014 is bolstered by the deferral of the five orders in Q4 2013 to Q1 2014.