MTI Profit Makes Stock Scoot

Who knew 2 cents could mean so much? After posting modest Q4 profit, MTI's stock climbs UPDATED 3PM

July 11, 2003

4 Min Read
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MTI Technology Corp. (Nasdaq: MTIC) today reported a slight profit during its fiscal fourth quarter that ended in April -- sending its stock price zipping up as much as 23 percent earlier in the day (see MTI Reports Small Q4 Profit).

The Tustin, Calif.-based companys fourth-quarter earnings of $602,000, or 2 cents a share, were a significant improvement compared with the net loss of $10.8 million, or 33 cents a share, the company suffered for the same quarter a year ago. The results are also a step up from MTI’s third-quarter loss of $1.4 million, or 4 cents a share.

As the rest of the market slumped this morning, investors rewarded the company's profit-taking by sending its stock soaring almost 23 percent, allowing it to cross back over the $1 mark to $1.19 per share by early afternoon. Toward the end of the session MTI was trading at $1.11, up 14 percent on the day.

That was a diametrically different reaction than the 20 percent drop that hit MTI’s stock after it announced its woebegone fourth-quarter results in 2002 (see MTI Stuck in Storage Slump).

"This was a big improvement over where we were a year ago," said CEO Thomas Raimondi on a conference call today. "We believe... that the midrange marketplace is a fertile marketplace."MTI’s improved margins during the quarter may also have sweetened its stock today. The company saw its margins increase to 34.7 percent during the quarter, compared to 27.6 percent for the year-ago quarter.

On the downside, revenues for the quarter, which ended on April 5 this year, totaled $22.4 million, down from $25.7 million for the year-ago quarter, but up from $19.6 million the previous quarter. The revenues were split about 50-50 between product- and service-related sales, although they tipped in favor of product revenues, which accounted for $12.4 million. That’s down from $14.7 million for the fourth quarter of 2002.

The breakdown of service vs. product revenue is interesting, especially in light of MTI’s announcement in April that it would discontinue its branded SAN and NAS product lines (see MTI Halts Its Hardware). Instead, the company said at the time, it will resell EMC Corp. (NYSE: EMC) storage to its customers and reposition itself as a pure services company. Service revenues for the fourth quarter of 2003 accounted for a mere $10 million. The company says the results from the reseller deal are not reflected in its 2003 results.

This shift in strategy explains the delay in reporting fourth-quarter and full-year earnings, according to MTI’s CFO Mark Franzen. "With the new SEC rules and disclosure requirements, we wanted to be as accurate as possible, and to be late by a day or so was considered a small price to pay," he writes to Byte and Switch in an email.

While the initial reactions to MTI’s decision to phase out its own storage systems were resoundingly negative -- sending its shares spiraling down more than 23 percent in April -- today’s market enthusiasm may indicate a shift in mentality toward the deal.The question, of course, is whether reselling EMC gear will allow MTI to harvest enough cash to make up for the loss of more than half its revenues from its own branded product lines. Raimondi seems to think it will. Since signing the deal in April, he says, the company has sold more that $5 million worth of EMC products, and has increased its headcount with 11 salespeople and two new senior sales executives. "We are right on target in achieving our product and service margins," he said on today's call.

MTI has already stopped selling its own systems but is still supporting existing customers.

For the full year 2003, MTI posted a net loss of $11.2 million, or 34 cents a share, on revenue of $82.3 million. That compares to a net loss of $59.6 million, or $1.83 per share, on revenue of $117.9 million in 2002. The company also reports slashing its operating expenses nearly in half, from $60.9 million in 2002 to $34.5 million in 2003.

At the end of the fiscal year 2003, the company reports having $9.8 million in cash and cash equivalents, $1.7 million in bank loans, and $2.1 million in working capital. The company says its $7 million credit line with the Comercia Bank was extended to May 31, 2004.

— Eugénie Larson, Reporter, Byte and Switch

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