Quantum Reports 1Q Loss

Quantum Corp. ( QTM - Snapshot Report ) reported first quarter 2013 adjusted loss per share of 5 cents per share, which was in line with the Zacks Consensus Estimate. The adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expense. The quarter’s earnings dropped 223.2% from the year-ago level.

Revenue

Total revenue for the first quarter was $140.9 million, down 8.2% on a year-over-year basis. The lackluster performance was due to feeble performances by all the operating segments. A challenging macroeconomic situation in Europe and less number of large deals led to the weak result.

Year over year, Product revenue decreased 8.3% to $93.8 million, Service revenue decreased 1.7% to $36.1 million, and Royalty revenue decreased 24.6% to $11.0 million.

Despite the miss, the company noticed demand ramp up for its StorNext software and appliances and DXi disk-based data protection appliances.

Operating Results

Reported gross margin in the quarter was 39.6%, down from 41.2% in the year-ago quarter.

Operating margin was (10.5%) versus (1.1%) in the year-ago quarter. The company’s total operating expenses increased 8.7% on a year-over-year basis. Higher operating expenses were mainly due to 15.6% and 4.9% year-over-year increases in selling and marketing, and general and administrative expenses, respectively. This was partially offset by a 0.2% decline in research and development expenses.

Net loss on a GAAP basis was $17.5 million or 7 cents per diluted share compared with $5.2 million or 2 cents in the year-ago quarter.

Excluding the amortization of acquisition-related intangible assets but including stock-based compensation expense, adjusted net loss for the first quarter was $12.9 million or 5 cents per diluted share compared with net income of $0.5 million or break-even in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and restricted cash were $50.2 million versus $55.5 million in the previous quarter. Long-term debt remained unchanged sequentially at $49.5 million. Quantum used $1.1 million cash from operating activities and invested roughly $4.0 million in purchasing property and equipment.

Outlook

Management asserted that it will continue to enhance its product portfolio and focus more on increasing brand value.

For the second quarter, management expects revenue in the range of $150.0–$155.0 million, GAAP gross margin of 41.0% and non-GAAP gross margin of 42.0%. GAAP operating expenses are expected in the range of $70.0–$72.0 million, while non-GAAP operating expenses are expected between $64.0 million and $66.0 million. The company also expects interest expense of $2.0 million and tax provision of $1.0 million.

The company did not provide any earnings guidance. The Zacks Consensus Estimates for second quarter and fiscal 2013 are pegged at 2 cents and 4 cents loss per share, respectively.

Our Take

Quantum first quarter loss per share matched our Zacks Consensus Estimate. However, Quantum provided an upbeat second quarter revenue guidance irrespective of its dismal first quarter performance, reflecting decent sequential comparison.

Though the company’s commentary on its product strategy is encouraging, persisting Euro concerns, high debt burden and intense competition from EMC Corporation ( EMC - Analyst Report ) , IBM Corporation ( IBM - Analyst Report ) , Hewlett-Packard Company ( HPQ - Analyst Report ) and NetApp Inc. ( NTAP - Snapshot Report ) pose challenges.

Currently, Quantum has a Zacks #4 Rank, implying a short-term Sell rating.