A 3D Printing IPO from the Past

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The main 3D printing companies, 3D Systems and Stratasys, recently hit all-time highs so naturally this would be a great time for a related IPO. Industrial 3D printing firm ExOne (NASDAQ: XONE) plans to join the party this week. A major surprise popped up when reading the prospectus. The company harkens back to the technology IPOs of the late 1990s when a stock had as much hope as hype.

The company focuses on manufacturing and selling 3D printing machines for industrial customers and printing products to specification for customers using in-house 3D printing machines. The company has Production Service Centers (PSCs) located in the United States, Germany, and Japan. It also supplies consumables and replacement parts for the machines to print products.

The major difference is that the company lacks size making it uniquely different from the social media IPOs and even other technology firms that recently hit public markets with maxed out revenue growth and billion dollar valuations. The positives are that investors have the opportunity to participate in the growth of this stock that has lately been lacking in typical stocks going public.

IPO details

The company plans to raise $75M by offering 5.48M shares, which includes 483K shares exercisable for over-allotment to the underwriters. The offering is expected to price in a range between $14 to $16. At the midpoint of that range, the stock would have a valuation of $192M. 

The company will only have 13M shares outstanding even after offering 42% of the outstanding shares. A very refreshing IPO from the social media stocks that went public at market caps in the billions with only a limited supply of stock available to the public.

The proceeds will be used to expand operations with a primary focus on tripling the PSCs to 15 by 2015.

The company isn’t much yet

The company focuses on industrial 3D printing machines with large build chambers. Though a relatively small company it does have over 80 machines installed around the world. The company uses a binder jetting process that allows for larger machines that can be used on the factory floor.

ExOne obtains roughly 42% of revenue from machines and 58% from the PSCs and consumables. The revenue base was only $15.3M in 2011 and $15.9M in the first 9 months of 2012. The CFO announced on the roadshow that the Q4 revenue spiked to $12M on the back of the 8 machines sold in that quarter or double the whole total for 2011. In total though, the company doubled revenue in 2012 yet it only amounted to $30M.

Refreshing opportunity

Based on the recent technology IPOs for the likes of Palo Alto Networks (NYSE: PANW) or even Ruckus Wireless (NYSE: RKUS), the company offers the retail investors access to a high growth company before all the gains were made. As an example, Palo Alto went public at over $4B and traded at over 10x revenue. Ruckus priced at a valuation of nearly $1B, both limiting the potential gains left for the retail investor.

Not surprisingly, Palo Alto Networks hasn’t provided any gains for investors in the aftermarket while Ruckus has surged to a market cap of $1.6B. An investor in ExOne would see a gain of 700% to reach a similar size.

A recent GSV Capital (NASDAQ: GSVC) presentation highlighted the recent push towards historically large IPOs. In fact, the company raised capital as a way to provide investors in the stock market with an opportunity to invest in small cap companies no longer going public. As an example, GSV owns stock in Twitter that was recently valued with a market value of around $9B.  

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Conclusion

This IPO is a refreshing change where a stock is going public before the large growth period has already occurred. Lately, similar growth stocks have obtained capital in the private markets via private equity firms or a company like GSV.

With the recent all-time highs of the 3D printing stocks, ExOne is sure to shine. If the company can expand on the Q4 numbers, the stock offers a very attractive price to investors that can obtain the IPO prices. Unfortunately, the stock is likely to price at higher levels. For investors though, a $300M stock going to $3B is more likely than a $3B stock going to $30B.

It isn’t apparent that the eventual IPO pricing will be more attractive to investors over buying a GSV Capital trading substantially below NAV, but it is very refreshing to see a company going public at a size prior to the major growth phase. Small investors may not get an attractive price, but they will eventually win if the small companies return to the public markets.


Mark Holder and Stone Fox Capital Advisors, LLC have positions in GSV Capital. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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