Legato Drops on Poor Report

Shares of Legato Systems plummeted Tuesday after the storage software maker reported second-quarter results that were slightly short of Wall Street estimates.

Shortly before the close of trading, Legato was down 77 cents, or 20.5%, to $2.98.

Mountain View, Calif.-based Legato reported a net loss according to generally accepted accounting principles of $45.9 million, or 45 cents a share, in the second quarter. That compares to a net loss of $10 million, or 11 cents a share, in the same period a year ago and a net loss of $46.7 million, or 52 cents a share, in first-quarter 2002.

Excluding items, Legato posted a pro forma net loss of $7.6 million, or 7 cents a share, compared to a net loss of $2.1 million, or 2 cents a share, for the year-ago period and a net loss of $5.7 million, or 6 cents a share, in the first quarter of 2002.

That loss was a penny greater than the 6 cents a share pro forma net loss expected by analysts surveyed by Thomson Financial/First Call.

Second-quarter revenue dropped 1.4%, to $61.6 million, from $62.5 million for the year-ago period, but rose 10.8% sequentially from $55.6 million in the first quarter.

Analysts were expecting revenue of $58.1 million, but that number did not include approximately $5.6 million in revenue recognized by Legato from its recent acquisition of OTG. Deducting that figure from Legato's reported revenue brings it down to $56 million -- about $2 million shy of the consensus estimate.

In addition to that slight shortfall, Punk, Ziegel & Co. analyst Steve Berg said he thought the market was reacting to the 62% drop in Legato's cash balance to $55.4 million from $145.7 million on Dec. 31, stemming from the payout of a lawsuit settlement. "Put all of those things together and you've got lackluster [results]," said Berg, who has a market perform rating on Legato. His firm hasn't done any banking with the company.

In a press release, CFO Andy Brown said the company expects to narrow its loss in the third quarter on revenue ranging from $65 million to $70 million. The consensus estimate for the third quarter called for Legato to register a pro forma loss of 3 cents a share on $63.1 million in revenue.

Chairman and CEO David B. Wright said the company is poised to return to profitability by the end of the year. Analysts were expecting Legato to lose a penny a share in the fourth quarter.