ExOne’s Timing Challenges

 The 3D printed handle on ExOne’s X1 25PRO industrial 3D printer [Source: Fabbaloo] The 3D printed handle on ExOne’s X1 25PRO industrial 3D printer [Source: Fabbaloo]

ExOne suffered a dent in their stock price this past week, apparently due to timing.

The Pittsburgh-based company is one of the older 3D printer manufacturers, having produced a line of industrial sand and metal 3D printers for a couple of decades. Our last encounter with them involved their new X1 25PRO device, which sports a 3D printed case, a first for an industrial 3D printer.

 ExOne’s stock suddenly dropped! [Source: Google] ExOne’s stock suddenly dropped! [Source: Google]

ExOne Stock Drop

However, the company has an issue that came up this week: their stock price dropped suddenly on Oct 11, losing around 14% overnight.

What happened to cause such a dramatic drop?

Apparently their previous financial guidance indicated they would likely achieve a revenue level of around US$15M in the third quarter of 2019. However, on October 10th — the day before the stock price drop — the company issued a statement abruptly updating their guidance to suggest they were likely to achieve only US$10M in revenue, a drop of a third from previous predictions.

Investors had been using the prior guidance to determine the price of ExOne’s stock, but suddenly that logic was invalid upon release of the new guidance. The stock price then changed to the lower value quite quickly, where it remains today.

Why the drop? This is the interesting part of the story.

ExOne Delivery Challenges

It seems that ExOne was having challenges delivering five systems to clients. They explain:

“In the third quarter, we were unable to finalize installation of five of our machine projects located at customer facilities, valued at approximately $5 million, which would have contributed to meeting our third quarter goal. We anticipate completion of these projects during the fourth quarter.”

There are some things to unpack here.

First, it seems that the typical value of a system sale to ExOne is around US$1M. That’s a pretty high value in an industry where many 3D printers are priced substantially lower — although they may have different purposes.

ExOne Business Model

This shows that ExOne is a company that “sells few expensive items”, rather than one that “sells many inexpensive items”. It’s a valid, but different, business model — and it involves different kinds of risks.

One of the risks is that their revenue arrives in large chunks, rather than the more smooth revenue found in companies selling larger quantities of lower-priced equipment. In the case of ExOne, they seem to be selling around 10-15 units per quarter.

That’s not very many, and should one or two (or five) sales fall through or be delayed by any random reason, their revenue line could be significantly impacted.

That seems to be what’s happening here, at least for the third quarter. In fact, it sounds like they’ve made the sale, but were unable to complete the installation and thus also unable to count the sales’ revenue. Installations are always subject to the whims of the client, who might incur all kinds of delays, logical or illogical. It’s out of the hands of ExOne.

It seems they got caught in that very situation in this quarter.

Timing is everything.

Via Seeking Alpha

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