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Quantum's 4Q Loss Widens, Eyes Soft 1Q

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Quantum Corp. reported fourth quarter fiscal 2013 adjusted loss per share of 4 cents, wider than the Zacks Consensus Estimate of 3 cents loss per share. The adjusted loss per share excludes amortization of intangible assets and restructuring charges, but includes stock-based compensation expense.


Total revenue for the fourth quarter was $140.0 million, down 12.7% on a year-over-year basis and 5.4% from the Zacks Consensus Estimate. The year-on-year decline in revenues was due to weaker-than-expected sales of branded tapes, partially offset by higher sales of disk system and software.

Year over year, Product revenues decreased 15.7% to $92.6 million; Royalty revenues decreased 25.8% to $10.4 million while Service revenues grew 1.3% to $36.9 million.

During the quarter, Quantum acquired approximately 110 new mid-range and enterprise tape customers, which brought the total to roughly 550 new customers at the end of fiscal 2013.

Operating Results

Reported gross margin in the quarter was 41.2%, marginally up from 40.7% in the year-ago quarter due to better cost management.

Operating loss margin was (8.8%) versus (4.4%) in the year-ago quarter. The company’s total operating expenses decreased 3.3% on a year-over-year basis but were higher as a percentage on total revenue. Research and development expenses decreased 9.6%, sales and marketing expenses dipped 6.2% and general administrative expenses fell 4.1%.

Net loss on a GAAP basis was $14.5 million or 6 cents per share compared with net loss of $11.1 million or 5 cents in the year-ago quarter. Excluding one-time items but including stock-based compensation expense, adjusted net loss for the fourth quarter was 4 cents per share compared with loss of 1 cent in the year-ago quarter.

Balance Sheet & Cash Flow

Quantum generated $16.0 million in operating cash, up from $6.0 million in the prior quarter. Cash, cash equivalents and restricted cash were $72.0 million versus $54.9 million in the previous quarter. There was no long-term debt.


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

For the first quarter of 2014, management expects revenues to be in the range of $135.0–$140.0 million. The sequentially weak revenue guidance was due to typical seasonality but the company expects better revenues from disk systems and software. This apart, the company expects GAAP gross margin in the range of 41.3%–42.3% and non-GAAP gross margin in the range of 42.0%–43.0%. The company expects GAAP operating expenses to range between $64.9 million and $66.9 million. Non-GAAP operating expenses are likely to be in a range of $60.0 million to $62.0 million.

For fiscal 2014, management expects revenues in the range of $610.0–$630.0 million. GAAP and non-GAAP gross margin will be in the mid-40.0% range, with non-GAAP gross margin approximately 60 basis points higher than GAAP gross margin. This apart, the company expects GAAP operating expenses to range between $264.5 million and $269.5 million. Non-GAAP operating expenses are likely to be in a range of $245.0 million to $250.0 million. GAAP earnings per share are expected within (5 cents) to 0. Non-GAAP earnings per share are expected to range between 5 cents to 10 cents.

Our Take

Quantum’s fourth quarter was disappointing with both the top and bottom lines missing the Zacks Consensus Estimate. Year-over-year comparisons were dismal too. Quantum’s first-quarter guidance was weak citing seasonality and lower revenues from OEM and branded tapes. However, solid momentum in disk systems and software revenues could turn the tables.

Further, we are encouraged by the new product launches during the quarter, which could become key drivers for growth, given the increasing need for data security and big data management.

The company is facing intense competition from EMC Corporation , IBM Corporation (IBM - 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 a high debt burden make us a little apprehensive about the stock.

Currently, Quantum has a Zacks Rank #3 (Hold).

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