The ExOne Company: Irrational exuberance obscures black clouds building around 3-D printing

by Sonya Colberg, Senior Investigative Reporter, 8/28/2013 9:41:02 AM

The ExOne Company’s (NASDAQ: XONE) surprise stock offering last week irritated investors.

The 3-D printer maker is diluting investors‘ shares to raise millions just six months after its public offering.

But the company has buried reasons for even more irritation deep within the S1registration papers it  filed after the bell Aug. 21.

The chief executive and his interests get far more money under this deal than the company itself.

It’s roughly $100 million for him versus $72 million for the company. That’s 1.55 million shares and 1.1 million shares respectively at the $65 per share listed in the filing. The registration papers specify the shares will be offered by the company and by “selling stockholders.” A dig through the gibberish reveals those “selling stockholders” are actually CEO Kent Rockwell - through his two entities and trust.

Funny timing on that trust. Exactly one day before the registration announcement, Mr. Rockwell, through an entity, boldly gave his trust 450,000 shares worth about $30 million.

The stock reached $70 on the  day he gave away the shares. As is common, share prices dropped right after the company announced the offering, falling for a time below $65.

And there’s more to this deal. Mr. Rockwell himself ultimately stands to benefit yearly from his charitable deed.

The “ remainder trust ” benefits Lafayette College, Rockwell’s alma mater. It requires Lafayette to pay Rockwell’s entity 5 percent of the trust’s assets each year for 10 years (likely over $1 million the first year). Whatever’s  left over after a decade goes to Lafayette.

Once approved, the stock offering could also include up to 398,400 additional shares held by Rockwell’s entities, President David Burns (whose total 2012 compensation exceeded  $3.5 million ), Chief Financial Officer John Irvin (whose compensation exceeded $1.8 million) and two other execs. These are over-allotment shares exercisable within 30 days of the offering if the public demand is high enough.

The other millions of shares are locked up for 90 days or the end of November.

Yet another lockup release date hits just around the corner in early September. One minute before midnight on Friday, Aug. 30 is when the 180-day post initial public offering  lockup expires, potentially unleashing more than 7 million shares onto the market. The lockup release initially set for Aug. 5 was delayed until after the company reported its 2Q earnings in mid-August.

At nosebleed valuations, the company and Mr. Rockwell are likely to sell far more stock than if the valuation had been depressed.

Personal piggy bank

XONE reported proceeds of about  $92 million from the initial public offering in February. But about  $16.6 million of this went into Mr. Rockwell’s pockets through his entities for things such as land payments, and repayment of loans and one entity’s entire debt. He also sold more than  $10.2 million of stock in the IPO.

After subtracting costs such as offering expenses, our figures show XONE realized IPO proceeds of about $63.3 million.

The initial public offering made Mr. Rockwell about $26.8 million richer.

Indeed, Mr. Rockwell seems to be having a lot of success in making XONE his own personal piggy bank. The two offerings potentially could make him $97 million to $127 million wealthier.

Mr. Rockwell’s ownership has gone from 71.1 percent pre-IPO to about 22-23 percent or over 3 million shares,  according to the filing. They’re worth somewhere around $198 million. Yet he’s apparently not afraid to pinch pennies - he charges XONE hundreds of thousands of dollars for the use of his entity’s airplane and services.