Pacific Crest Remaining On The Sidelines After ExOne's Q2

In a report published Tuesday, Pacific Crest analyst Weston Twigg commented on

's second quarter print in which the company reported a loss of $0.48 per share on revenue of $8.5 million which were both lower than the analyst's and consensus estimates. Shares of ExOne were trading lower by more than 4.50 percent late Wednesday morning and established new 52-week lows of $7.41. The stock traded as high as $31.85 in the past year when the sentiment surrounding the 3D sector was more bullish. According to Twigg, ExOne reported $1.1 million in related party sales in the quarter. The analyst added this initially "became a concern" last quarter when a separate company owned by ExOne's CEO Kent Rockwell purchased a high priced machine. In the second quarter, another machine was sold to a company related to a board member while the company sold a total of seven machines (at a much lower average selling price) which was above the analyst's estimates of three. ExOne also reported a gross margin of 13.0 percent in the quarter, "well below" the 35.0 percent the analyst was expecting. Twigg also pointed out that ExOne's cash suffered yet another sequential decline of more than $5 million. The company ended the quarter with $24.8 million in cash on hand and the analyst suggested that the downward trend will continue if machines sales don't pick up "quickly." "We see risk to cash dropping further as visibility remains low, revenue recognition for its shipped machines is a concern, especially given sales to international customers who have stringent import regulations, and its four shipped Exerial machines are priced lower than normal, which we think lends risk to future sales of Exerial machines at normal prices in the near term," Twigg wrote. Bottom line, the analyst did suggest that ExOne has the ability to optimize its working capital to improve cash but still needs to lower its operating expenses to preserve its cash reserves if machine sales don't improve "meaningfully" through 2016. Nevertheless, without any evidence of consistent customer adoption of the company's high-end machines, investors should remain on the sidelines. Shares remain Sector Weight rated with no assigned price target.