Qualstar Corp. :QBAK-US: Earnings Analysis: Q3, 2016 By the Numbers : November 11, 2016

Qualstar Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Qualstar Corp. – Imation Corp., International Business Machines Corporation, Vicor Corporation and Quantum Corporation (IMN-US, IBM-US, VICR-US and QTM-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2.67 million, Net Earnings of USD -0.05 million.
  • Gross margins narrowed from 21.94% to 19.84% compared to the same period last year, operating (EBITDA) margins now -0.26% from -12.93%.
  • Year-on-year change in operating cash flow of 110.21% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2014-12-31 2015-03-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 3.53 2.81 2.15 2.37 2.67
Revenue Growth (%YOY) 2.56 9.48 -21.79 -28.61 -24.43
Earnings (mil) -0.25 -0.49 -0.41 -0.34 -0.05
Earnings Growth (%YOY) 2.39 77.55 38.85 -4.35 78.37
Net Margin (%) -6.94 -17.36 -19.26 -14.18 -1.99
EPS -0.12 -0.24 -0.18 -0.16 -0.03
Return on Equity (%) -11.23 -23.25 -24.04 -24.59 -4.02
Return on Assets (%) -7.95 -16.92 -17.39 -17.25 -2.8

Access our Ratings and Scores for Qualstar Corp.

Market Share Versus Profits

Revenues History
Earnings History

QBAK-US‘s change in revenue this period compared to the same period last year of -24.43% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that QBAK-US is holding onto its market share. Also, for comparison purposes, revenues changed by 12.49% and earnings by 84.23% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from -12.93% to -0.26%. For comparison, gross margins were 23.25% and EBITDA margins were -11.73% in the last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

QBAK-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 172.05 days from 211.88 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

QBAK-US‘s change in operating cash flow of 110.21% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -14.20% to -1.99% and (2) one-time items. The company’s pretax margins are now -1.99% compared to -6.94% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Qualstar Corp.

Company Profile

Qualstar Corp. engages in the manufacture and trade of storage and power supply solutions. It operates through the Power Supplies and Data Storage segments. The Power Supplies segment designs, produces, and distributes power supplies used to convert alternating current line voltage to direct current voltages of electronic equipment. The Data Storage segment manufactures and sells automated magnetic tape libraries for electronic data storage, retrieval, and management. The company was founded by William J. Gervais and Richard A. Nelson in 1984 and is headquartered in Westlake Village, CA.

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