When last analyzing ExOne (NASDAQ:XONE), the 3D printing stock was again missing revenue expectations due to revenue recognition delays. Since last November, the company has seen some improvement in meeting expectations while not setting the world on fire with growth expectations.
Interestingly though, the stock trades substantially off the lows. Back in January, the stock retested those November lows, but the news flow has improved lately to support a rebound. Even at $12.50, ExOne trades far off the post-IPO highs. The stock chart looks better, but is the stock getting ahead of itself with a market cap of $200 million and questionable visibility on sales?
The Q4 results were meaningful in that ExOne actually surpassed earnings targets set in the previous quarter. As a public company, ExOne has a bad history of missing targets usually by a wide margin.
The good news was that the company beat Q4 estimates. The bad news is that the company still generated a small loss in the seasonally strongest quarter while not providing any formal guidance for 2016. The CEO did make the following encouraging comment about prospects for the year on the earnings call:
I have to say that we do not see anything close to flat, and it's really the question of how much growth can we consume in this year... with the backlog that we have, that we're going to burn off if - we have to have a substantial double-digit growth at the very minimum in this year.
The crux though is that ExOne is leaning heavily on the increased backlog that is only $16.5 million. The year-end number is a small improvement from the $13.2 million backlog at the end of 2014. The backlog growth is even more mixed as the company continues to forecast a pick up in orders taking place in the Q2/Q3 time frame that will lead to revenue recognition slipping into 2017.
Revenue Recognition Issues Persist
The biggest problem with ExOne is that the company has large lags in recording revenue on machines that are built and shipped to the customer. Other 3D printing customers don't run into these issues or have sizable revenue bases that the issue doesn't pop up. Not to mention, the company didn't disclose the issue existing until after continuously missing guidance in part due to the constant lags in recording shipped machines as sales.
The company ended the year with four Exerial machines that have a listed cost of $1.8 million a piece in the backlog. A prime reason the company can't provide guidance any more is the huge lag in the needed customer acceptance in order to book the revenues. In theory, the customer could reject the machine and send it back to the company and revenues wouldn't ever be recorded.
The below slide breaks out the amount of machines shipped during the year and the corresponding ones booked as revenue. ExOne shipped a record 38 machines for the year, but the amount booked to revenue was only 26.
The next step is for the company to provide numbers surrounding actual order dollar amounts for the period versus the machine numbers and the ending backlog. The ability to turn backlog into expected revenue numbers in Q4 provides some credibility regarding orders ultimately turning into revenues.
These ongoing revenue recognition issues and expected timing of orders this year suggest the analyst estimates are too aggressive. While the CEO guides to double-digit revenue growth in 2016, analysts are now forecasting revenues growing nearly 30% for the year.
With reasonable expectations for minimal growth, the stock would become interesting. The market though expects large losses on difficult to match revenue expectations. The combination is a recipe for disaster in the short term. As ExOne increases machine volumes, the impacts of individual machine delays will have less impact on the stock.
For now, the recommendation remains to avoid the stock as the company had to sell stock to the CEO to improve liquidity. If ExOne starts getting larger orders from the auto industry or a rebounding energy sector in mid-2016, investors will want to own the stock heading into 2017.
Disclosure: I/we 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.
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