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Quantum Continues to Incur Loss

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Quantum Corp. reported second quarter fiscal 2013 adjusted loss per share of 3 cents, which is slightly better than the Zacks Consensus Estimate of loss of 4 cents a share. The adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expense.


Total revenue for the second quarter was $147.0 million, down 10.7% on a year-over-year basis. The year-on-year decline in revenue was attributable to weaker-than-expected OEM sales and also lowers sales of branded tapes and automation revenue.

Year over year, Product revenue decreased 13.1% to $100.1 million, Service revenue slipped 0.5% to $35.7 million, and Royalty revenue decreased 17.5% to $11.6 million.

Operating Results

Reported gross margin in the quarter was 40.2%, down from 43.4% in the year-ago quarter.

Operating loss margin was (6.8%) versus operating profit margin of 4.2% in the year-ago quarter. The company’s total operating expenses increased 4.5% on a year-over-year basis. Higher operating expenses were mainly due to 10.7% year-over-year increase in selling and marketing expenses.

Net loss on a GAAP basis was $12.3 million or 5 cents per diluted share compared with net earnings of $3.6 million or 1 cent in the year-ago quarter.

Excluding the amortization of acquisition-related intangible assets but including stock-based compensation expense, adjusted net loss for the second quarter was $48.0 million or 3 cents per diluted share compared with net income of $9.9 million or 4 cents in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and restricted cash were $32.9 million versus $50.2 million in the previous quarter. Long-term debt remained unchanged sequentially at $49.5 million.


Management will continue to introduce new products and focus more on increasing brand value.

For the third quarter, management expects revenues to be roughly $160 million. This apart, the company expects GAAP Gross margin of 41.0% and non-GAAP gross margin of 42.0%. The company expects GAAP operating expenses to range between $67.0 million and $69.0 million. Non-GAAP operating expenses are pegged at $62.0 million to $64.0 million.

For fiscal 2013, revenue is projected to be approximately $600 million and GAAP gross margin is expected to be 41.0%. Non-GAAP gross margin rate is estimated at 42.0%. Management expects GAAP operating expenses to be around $273 million and non-GAAP operating expenses are projected to be roughly $250 million.

Our Take

Quantum’s second quarter loss per share was better than the Zacks Consensus loss Estimate. However, Quantum provided an upbeat third quarter revenue guidance irrespective of its discouraging first and second quarter performance.

The company is facing intense competition from EMC Corporation , IBM Corporation (IBM - Free Report) , Hewlett-Packard Company (HPQ - Free Report) and NetApp Inc. (NTAP - Free Report) as they are slowly tightening their grip on the market. Though the company’s commentary on its product strategy is encouraging, persisting Euro concerns and high debt burden make us a little apprehensive about the stock.

Currently, Quantum has a Zacks #3 Rank, implying a short-term Hold rating.

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