Update: ExOne Earnings

Aug.14.14 | About: ExOne (XONE)

Summary

ExOne has announced 2Q14 earnings.

The conference call shows both opportunity and missteps in the company's recent development.

The timing of opportunity from my initial coverage was wrong, as I warned before most damage was done, but the long-term bull case has not been skewered yet.

ExOne (NASDAQ:XONE) has announced 2Q14 earnings of -32 cents per share on revenue of $11.2M. The former number is more than double the average analyst estimate, whereas the latter is about a 7.5% miss but represents over 20% growth year over year. The conference call provided a great deal of color on these figures. Growth in expenses is due to two main factors:

  • A mistake in production, where a large order which was discussed in the prior report, and was due to be realized this past quarter, could not be completed because one of the parts could not achieve aerospace qualifications. This caused ExOne to have to "reinvent" several parts of its ExCast process.
  • Accelerated build out of both the service and printer sides of the business. The latter includes a major revision to S-Max printers, and a new high volume, high production machine. The former may be related to the mistake discussed in the first bullet point and calls into question the usefulness of machines already sold.

Management maintains that both the mistake and the other expenses, will reap returns in 2015 and beyond. Nonetheless, it is clear that there is little visibility on the path ahead, although margins will continue to be somewhat depressed in the current quarter.

When I first wrote about XONE, the stock was over double its current price. I spoke about how to judge the progress toward long-term goals, and also of the prospect of a short squeeze catapulting the stock into momentum status. I was wrong on the latter point. Although a squeeze did occur, fundamental progress was lacking, as I noted to readers well before most of the subsequent damage was done. I continue to believe ExOne is a long-term disruptive, but speculative opportunity. As such, my warning from the first article is as true as ever:

This is a swing-for-the-fences investment that is best suited for investors who can either monitor it continually, or else be comfortable with losing the entirety of a small stake.

Going forward, ExOne could sell up to 30 machines in Q3 and has a backlog of over 50 machines ordered for the rest of the year. Some of those orders will slip, but sales do typically cycle to the end of the year. The company will also seek more governmentally funded research projects, in addition to selling printers and manufacturing parts through its PSCs (production service centers). This recalls the development path of another company that I've long-followed, which is just beginning to hit its stride. ExOne will also be introducing new materials and patents in 2015. I've followed several disruptive technology companies through this post-IPO boom and bust cycle.

ExOne remains a promising company whose time has not yet arrived. While it may make sense for current shareholders to hang on for the long-term, would-be investors should realize that, given the lack of visibility, there is likely to be plenty of time to choose an entry point. That said, share dynamics after a disappointing report like this often lead to extreme short term dip and recovery cycles just after options expiration next week. Any investor in XONE would do well to understand the fundamentals of the company's business and to review the types of developments which are best ignored from my first article. Only by doing so can we properly judge ExOne's progress.

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