The ExOne Company XONE S
November 10, 2014 - 10:26am EST by
2014 2015
Price: 22.40 EPS -1.1 -1.1
Shares Out. (in M): 14 P/E 0 0
Market Cap (in $M): 323 P/FCF 0 0
Net Debt (in $M): -54 EBIT -16 -16
TEV (in $M): 269 TEV/EBIT 0 0
Borrow Cost: NA

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  • 3D Printing
  • Manufacturer
  • Customer Concentration


I think XONE ($22.40), a 3D printer manufacturer, is a short. In a more normal market environment I think this would be a sub $5 stock and it is probabably headed there eventually. XONE has a high short interest and borrow is tough, but you can sell calls with high implied vol (50%). Stocks in this sector are still very expensive, but price momentum is strongly negative. With XONE, you have a likely dilutive financing, accounting issues, aggressive analyst expectations, and a stock that is priced as a growth company at about 6x revenue, but revenue from its core business, printing machines, declined 16% in the first half of this year. Carbone wrote up the sector’s leader, DDD, and his report has industry background. XONE reports earnings on Thursday.

Catalyst. The company will likely need financing within the next 6 months. It is likely to be an equity financing. The company’s cash burn is accelerating and jumped from $40m in 2013 (cash used in operations and for capex) to an annual rate of $86m in the most recent quarter, 2Q14. Cash burn was $66m on an annual rate in 1H14. Cash on the balance sheet was $56m at the end of 2Q14. A financing could be a surprise as the company said on its 2Q call that it will have $45-50m in cash at the end of the year; I think this is an aggressively high estimate. 

Investors are excusing high burn rates for some companies these days if growth is high. But XONE only grew revenue 8%y/y in the first 6 months of the year and its core business of selling printeres (which drive fruture consumable sales) declined 16%. Operating loss and cash burn rose almost 4x. Operating loss was $2.6m in 1H13 and rocketed to $10.1m in 1H14. 

Inventory problem. In 2Q14 inventory doubled from a year ago while sales were up only 22%. From the peak in revenue in 3Q13 to 2Q14, inventory jumped 63% while revenues declined 4%. The company had 180 days of inventory at the end of 2Q14. The company's allowance for obsolescence decreased from a year ago despite inventory doubling. This allowance dropped by more than half from 9% of gross inventory to 4% from 2Q13 to 2Q14. If the company would have maintained the same % allowance, gross margin would have been 220bp lower every quarter of the last 4. The high level of inventory and likely higher future obsolescence charges will likely put pressure on gross margin in future quarters. 

Accounts receivable issue. DSO jumped to 119 days in 2Q14 from 56 in the year ago quarter. This could indicate a collection problem, or that the company offered extended terms as an incentive for customers to pull forward sales. ASP for printers was down 31%y/y in 2Q14 and 16% y/y in 1H14.

Aggressive analyst estimates.  Analysts expect revenue to jump from $11m in 2Q to $15m in 3Q and $20m in 4Q. This is an acceleration of y/y growth of 22% in 2Q14 to 32% in 3Q and 92% in 4Q. Analysts expect revenue growth in 2015 of 39% on top of unrealistic expectations for growth in 2014. Again, revenue from printers was down in the first half of the year, so this ramp seems very aggressive and unlikely, despite management's expansion of its factories. Furthermore, analysts expect significantly reduced operating losses on this growth despite the company's track record of losing more money as its revenues grow.

Very high customer concentration. Only 5 customers represented half of the company’s 2Q14 revenue.

No insider buying despite the stock falling significantly this year.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Dilutive financing.

Company does not acheive aggressive ramp in revenue and the profitability analysts expect in 4Q.

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