ExOne: Execution Turnaround Or Continued Disappointment?

| About: ExOne (XONE)


Q1 results could mark a turnaround in ExOne’s execution expectations, after four quarters of disappointing results.

Previous downside target of $25 proved as correct, but the company really needs to live up to what it promised this year.

Although the growth prospects seem compelling, if the company fails deliver above estimates in Q1, its share price will be punished.

The 3-D printing sector has suffered immensely since the start of 2014, and ExOne (NASDAQ:XONE) was not spared. ExOne is down 60% from its all-time high and almost 50% year-to-date. In my previous article on ExOne, I suggested that the worst might not be over, and that ExOne could fall to $25 (the price was $36 at the time of writing). This is what essentially happened, and the stock bottomed on April 15 slightly below $25 intraday and proceeded to rally 40% in the next two weeks. The swift recovery off the lows seems extended and seems normal after such a steep decline. The company is due to report earnings on May 14, and the report might prove as crucial for the short and intermediate share price trend.

ExOne needs to deliver the growth to support its current share price

ExOne's earnings reports have been a source of disappointment for its investors, as the company missed expectations in all four quarters since going public. This needs to change, and needs to change soon. Management has been optimistic about the growth prospects and opportunities in the past, but has failed to deliver what it has promised. No one was twisting their arms to guide high and fail to deliver. I think that it was better for them to guide low and initially disappoint investors and then to execute ahead of those expectations. I hope that they have learned the lesson, and that they will do a better job this year. However, the fall of the share price is not all on management's hands, but rather a consequence of the overall trends in the 3-D printing sector, as all of the stocks in the group corrected severely in 2014. High expectations have created strong headwinds for 3-D printing companies in the past six to twelve months, and as it turned out, investors expected too much and their share prices collapsed. I stated in my previous articles on 3D Systems (NYSE:DDD) that the bottom may be near, and ExOne's share price will certainly depend on the overall price trends of 3-D printing group.

What to expect from the Q1 report?

After four quarters of disappointing numbers, analysts are now projecting modest Q1 revenue growth of 24.4% and $0.12 EPS loss. Earnings expectations for Q1 and FY 2014 have declined in the last 90 days (see table below). If the company fails to deliver above these modest expectations, the share price might decline significantly after the earnings report. A lot of attention will be directed at the full-year guidance, and a downward revision might have a profound negative effect on the share price. However, I expect that ExOne will deliver revenue ahead of expectations, since the reason for missed expectations in Q4 was uncompleted machine sales for customers in Russia, India, Mexico and France, which were deferred into 2014 (although these machine deliveries might not happen in Q1). Since the company sells just a few machines in one quarter, any delay results in a significant revenue miss, and that was one of the major issues for the company in 2013. This year might prove as transformative for the company, and I expect better execution and perhaps some upside for the full-year guidance. ExOne is also investing heavily into services projects, and these investments will be visible in the top and bottom line in the next six to twelve months. Once the transition is over, and if is effective, the growth should really ramp up in 2015 and beyond. There may be room for some tuck-in acquisitions down the road, which might help ExOne establish a stronger footprint in the market.

Source: Yahoo! Finance


While the Q1 report might not be crucial for ExOne as a company, it is very important for its share price. After four quarters of disappointing results, investors will be eager to see better execution in the first quarter. I expect that the company should beat its revenue expectations, and management should at least reiterate the full-year guidance. However, 3D Systems and Stratasys have been very cautious with their guidance, and we might expect similar behavior from ExOne. If the company manages to deliver above expectations, it might spark confidence in management's execution abilities, which ExOne really needs at the moment.

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.