3D Printing Maker ExOne Posts Dismal Earnings; Shares Tank - Analyst Blog

Shares of The ExOne Company XONE plunged 17.3% after it reported poor first-quarter 2014 results on May 14. The company reported a loss of 38 cents a share, wider than the Zacks Consensus Estimate of a loss of 14 cents per share. ExOne had reported a loss of 20 cents a share in the prior-year quarter.

Loss during the quarter was primarily due to the prevailing sluggishness in the industry coupled with the negative impact from the longer sales cycle and the volatile nature of the machine business.

Quarterly Details

ExOne reported quarterly revenues of $7.3 million, reflecting a year-over-year decline of 8.2%. Revenues also fell significantly short of the Zacks Consensus Estimate of $10 million. Decline in the top line was primarily due to weak performance of the company's 3D Printing Machines & Micromachinery business.

For the reported quarter, product-wise, sales in the 3D Printing Machines & Micromachinery category plummeted 42.9% to $2.4 million while 3D Printed Products, Materials and Other Services revenues grew 32.4% to $4.9 million.

Margins

For the first quarter, gross margin declined to 22.2% compared with 35.8% in the prior-year quarter. The decline in gross margin was due to additional costs related to the company's ExCast strategy. This apart, increased costs and lower volumes proved to be drag on the company's financials.

During the quarter, ExOne's selling, general and administrative (SG&A) expenses increased 46% year over year to $5.2 million while research and development (R&D) expenditure surged 115% to $1.8 million. In the first quarter, the company's expenditure on strategic acquisitions stood at $0.2 million. In the quarter, the company reported operating loss of $5.4 million compared with an operating loss of $1.6 million in the comparable prior year quarter. As such, the operating margin for the quarter came in at -74.5% versus -20.0% in the first quarter of 2013.

Cash and Balance Sheet

The company ended the quarter with cash and cash equivalents of $77.6 million compared with $98.4 million as on Dec 31, 2013. Net cash flow from operating activities was a negative $6.3 million, wider than the negative flow of $3.0 million in the prior-year quarter. Capital expenditures for the quarter amounted to $5.1 million.

Outlook

Along with its earnings release, the company updated the revenue guidance for fiscal 2014. Management expects revenues in fiscal 2014 to be in the range of $55 million to $60 million, reflecting year-over-year growth in the range of 40%–50%.

The company anticipates gross margin to be in the band of 40% to 43%, which excludes the expected one-time costs of $1.5 million to $2.5 million, owing to the expansion of facilities.

ExOne expects SG&A expenses to increase to a range of $19 million to $21 million, whereas R&D expenses are projected to increase in a range of $6 million to $7 million.

The company is also investing in capacity expansion and ERP implementation across the globe that is likely to result in capital expenditures between $31 million- to–$34 million in 2014.

Management also believes that despite short–term headwinds due to increased expenses, the company is favorably positioned to reap immense benefits from the R&D investments going forward. The company is optimistic about the performance of its binder jetting technology, especially the novel use of the nickel-based Inconel alloy 625, a 99% dense metal in the technology.

Looking Ahead

The 3D printing market presents a favorable long-term opportunity as a significant number of engineers, designers, architects and entrepreneurs are opting for 3D solutions for their primary designing and product modeling. As such, several players like Hewlett-Packard Company HPQ are venturing into the market. Hewlett-Packard is expected to unveil its commercial 3D printers as early as June this year.

However, the industry has been facing some tough times since the beginning of this year due to the prevailing sluggishness and increasing costs.

Zacks Rank

ExOne currently carries a Zacks Rank #5 (Strong Sell).

Performance of Other Stocks in the Same Sector

3D Systems Inc. DDD, the bellwether in 3D printing industry, reported first-quarter 2014 non-GAAP earnings of 15 cents a share, which surpassed the Zacks Consensus Estimate of 12 cents.

Stratasys Ltd. SSYS, another leading player in the 3D printing market reported first-quarter adjusted earnings of 30 cents, which lagged the Zacks Consensus Estimate of 33 cents. However, adjusted earnings increased 3.0% on a year-over-year basis.