STEC's 1Q Loss Narrower Than Expected - Analyst Blog
May 13 2013 - 5:40AM
Zacks
STEC Inc.’s (STEC)
first-quarter 2013 adjusted loss per share of 48 cents was narrower
than the Zacks Consensus Estimate of 50 cents loss per share. The
adjusted or non-GAAP loss per share excludes employee severance
fees, litigation costs and deferred tax valuation allowance, but
includes stock-based compensation expense. The quarter’s loss per
share was however significantly wider than a loss of 22 cents per
share incurred in the year-ago period. The disappointing result was
due to higher costs, lower pricing and market share loss.
Revenues
Total revenue for the first quarter was $22.0 million, down 56.3%
on a year-over-year basis. The quarter’s result missed the Zacks
Consensus Estimate of $28.0 million and was within the company’s
guided range. The sales decline was due to market share loss.
Operating Results
Reported gross margin in the quarter was 26.8%, down from 35.9% in
the year-ago quarter. Higher percentage of fixed production
overheads and labor costs on revenues and competitive pricing
pulled down the gross margin. This was partially offset by
favorable flash-component costs.
Operating margin was (115.4%) versus (27.5%) in the year-ago
quarter. The company’s total operating expenses decreased 2.1% on a
year-over-year basis. Lower operating expenses were mainly due to a
21.4% and 1.5% year-over-year decline in research & development
and selling & marketing expenses, respectively. This was
partially offset by a 31.3% increase in general &
administrative expenses.
Net loss on a GAAP basis was $25.5 million or 54 cents per share
compared with a net loss of $10.7 million or 23 cents in the
year-ago quarter.
After excluding non-recurring items associated with cost of sales
and operating expenses after taxes but including stock-based
compensation expense, adjusted net loss for the first quarter was
$22.3 million or 48 cents per share versus $10.3 million or 22
cents loss per share in the year-ago quarter.
Balance Sheet & Cash Flow
Cash and cash equivalents were $132.9 million versus $158.2 million
in the previous quarter. Inventories were at $42.1 million compared
with $41.8 million in the prior quarter. Receivables were $7.3
million versus $13.5 million in the prior quarter. Cash from
operating activities was $8.7 million, down from $21.3 million in
the prior quarter. Capital expenditure was $1.5 million compared
with $1.8 million in the prior quarter.
Outlook
Earlier, STEC marketed its products through OEMs (original
equipment manufacturers). However, since the past few months, it
has been marketing its products directly to enterprises and
end-users. Management believes that the transition could lead to
solid contributions from enterprise verticals. With this
diversification strategy, the company believes that customer
concentration risks will be mitigated. Moreover, the company
expects the diversification procedure to start paying off from
2013.
For the second quarter of 2013, management expects revenues in the
range of $23.0–$26.0 million. Non-GAAP loss per share is expected
between 41 cents and 43 cents.
Our Take
STEC’s first-quarter results were disappointing as both the top and
bottom lines were significantly down from the year-ago quarter. The
company suffered the sixth consecutive quarter of loss. However,
the reported loss per share was a tad better than the Zacks
Consensus Estimate. The second-quarter guidance announced by the
company is modest as management believes that the diversified
marketing strategy will take some time to pay off.
Also, intense competitive pressure from SanDisk
Corporation (SNDK), Micron Technology
Inc. (MU) and OCZ Technology Group (OCZ)
is a concern.
Currently, STEC has a Zacks Rank #4 (Sell).
MICRON TECH (MU): Free Stock Analysis Report
OCZ TECHNOLOGY (OCZ): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis Report
STEC INC (STEC): Free Stock Analysis Report
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