Sharp-Eyed Stock Market Analysis with a Focus On The Future

ExOne’s Earnings give a Black Eye to the 3D Printing Industry

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Individuals who are bearish on the future prospects of the 3D Printing Industry may have a strong example in ExOne Co. (XONE).  ExOne’s earnings are reminiscent of Ricky Vaughn’s major league debut in the movie “Major League”.    Their earnings were just a bit outside of the strike zone.

ExOne’s 2014 first-quarter revenue totaled $7.285 million, a decline by 8% from the first quarter of 2013.  ExOne’s first-quarter EPS was $0.38.   12 Wall Street analysts had anticipated revenue totals of 9.74 million and an EPS total of $0.12.

The revenue decline was sparked by a $1.8 million dollar decline in the 3D Printing Machines & Micromachinery revenue segment.  After all, ExOne only sold three 3D Printing machines during the quarter, including one M-Flex ™ machine.   Last quarter, the firm sold twelve 3D Printing machines, including 5 M-Flex ™ machines.

Additionally, ExOne reported a bigger net loss of 5.5 million.  Their bottom line declined by 211% year-over-year.     In similar fashion to 3D Systems, ExOne posted a significant increase in research and development expenditures.   R&D Expenditures increased by 115% year-over-year to a total of $1.844 million dollars.   According to ExOne, the R&D expenditure increase was largely due to continuous activity with regards to material qualification as well as improvements in machine technology.

ExOne’s gross margin was also the equivalent of a wild pitch.   Their gross profit margin declined by nearly 14% year-over-year to a total of 22.2%.  According to ExOne President & COO David Burns, their decline in gross profit margin was largely due to substantial development expenditures related to their ExCast Strategy for 2014.  The goal of ExOne’s ExCast Strategy is to ensure that the performance of each step of the additive manufacturing process is done within the confines of its production service centers.

ExOne cuts its gross margin forecast by 3%.  Originally, it was supposed to be in the range of 43%-46%.  Now ExOne expects gross margins within the range of 40%-43%.

On Thursday, ExOne’s shares fell by 17.29% to a total of $25.50 and took other 3D Printing stocks down with it.   Voxeljet (VJET), Stratasys (SSYS) and 3D Systems (DDD) fell 6%, 4% and 3% respectively.

In spite of its missed revenue targets, the company maintained its forecast for revenue to rise by 40%-50% in 2014.  The expected revenue target is $56.98 million.   Some of ExOne’s initiatives taken to reach their desired target include tripling the number of M-Flex ™ units and doubling the number of production service centers.   Additionally, they are looking to expand the international reach of their centers.

Quite frankly, I do not believe that ExOne will reach that target based on recent revenue trends.  I feel the firm will have to slash its revenue guidance for the future quarter.

In order for ExOne to reach its expected revenue target, the firm would have to generate an average revenue total of $16.565 million dollars for each remaining quarter for the year.   This can be seen in the graph below.

PROJECTED REVENUE TOTAL FOR EXONE TARGET

 

Yet, ExOne’s recent 8-K pointed out the possibility that there may be notable variations in machine revenue due to the long sales cycle with each machine.    As mentioned above, we have seen a significant fluctuation in the last two quarters in terms of machine revenue.    This next graph shows the recent trend in revenue growth within the past six quarters.    The fluctuations can be seen.  Most notably, there has not been a substantial increase in revenue growth.

As you can see, revenue totals have not been the same since the fourth quarter of 2012.

quarterly revenue3

 

Certainly, anything is possible.   However, ExOne would have to be a substantial upswing in revenue growth for the target to be justified.   Yet, the aforementioned trend only suggests that ExOne would fall short of its $56.98 million dollar revenue target for the year.     I would not be surprised to see a downward revision in ExOne’s revenue guidance in the very near future.

There is still a strong argument for the viability of the 3D Printing Industry.  However, ExOne’s earnings may have given 3D Printing Industry skeptics a stronger case.

Andre Waldron

Andre Waldron is the founder of Market Eyewitness. He provides financial analysis and commentary on equities, economic indicators, industries and mutual funds. In addition, Andre Waldron is also a contributor to Seeking Alpha as well as The Street.

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