Imation Reports Second Quarter 2016 Financial Results

OAKDALE, Minn., Aug. 8, 2016 /PRNewswire/ -- Imation Corp. (NYSE: IMN) today released financial results for the second quarter ended June 30, 2016.

Overview

Our Nexsan subsidiary released the UNITY™ product line, a next-generation storage platform that combines the performance, scalability and value of DRAM and Flash along with private cloud file system synchronization and true data mobility support. These features, in addition to universal connectivity for Fibre Channel, Ethernet and SAS, and advanced services including NAS and SAN, are all integrated into a single product. This unique product will provide multi-site enterprise n-Way Sync., 24X7 secured access to the enterprise private cloud for all mobile devices, tablets and PC, eliminate the drudgery of using unpopular and aging VPN technologies. The final product is expected to be ready by Q4 this year.

The second quarter revenue was $10.6 million, relatively flat from the prior quarter, down 37.3 percent from Q2 2015 due to our strategic decision to shutter Nexsan segment's underperforming regions and exit low-margin portions of the business to focus on next-generation UNITY™ product. Gross margin percentage improved by 350 basis points from 40.8 percent to 44.3 percent. Selling, general and administrative expenses declined by $8.8 million, or 51.4 percent year over year, and the operating loss from continuing operations (excluding special charges) was reduced by $6.3 million to $6.8 million from a loss of $13.1 million in Q2, 2105. The company's cash balance and short term investments totaled $56.2 million as of June 30, 2016.

Imation's Interim Chief Executive Officer Robert Fernander commented, "Though Q2 revenues were flat compared to the prior quarter, we are delighted with our progress in reducing the operating loss, a significant milestone towards achieving a cash flow break even at Nexsan.  Gross margin improvements, the UNITY™ product introduction and a transformation of our go to market architecture support our transition from stabilization to growth."

During the second quarter of 2016, Imation's newly formed asset management subsidiary received approval from the SEC as a registered investment advisor. To lead the subsidiary, Imation has recruited a leading senior executive to spearhead the formation of the next generation alternative investment platform.

Detailed Q2 2016 Analysis

The following financial results are for continuing operations, including Nexsan and the corporate holding company, for the current and prior periods unless otherwise indicated.

Net revenue for Q2 2016 was $10.6 million, down 37.3 percent from Q2 2015. The decrease was due to the strategic decision to shutter underperforming regions and exit low margin portions of the business.

Gross margin for Q2 2016 was 44.3 percent, 350 basis points better than Q2 2015. The improvement was primarily driven by the supply chain improvement, eliminating low margin revenues and product mix changes.

Selling, general and administrative expenses in Q2 2016 were $8.3 million, down $8.8 million (or 51.4 percent) compared to Q2 2015 expenses of $17.1 million. The decrease stemmed primarily from corporate cost reduction and underperformed region exits.

Research and development (R&D) expenses in Q2 2016 were $3.2 million, up from $2.9 million in Q2 2015, reflecting the Company's increased investment in the UNITY™ product.

Special charges were a benefit of $1.0 million in Q2 2016 compared to a charge of $0.9 million in Q2 2015. Special charges in Q2 2016 were chiefly related to the property tax refund for the former Oakdale headquarters and pension settlement costs.

Operating loss from continuing operations was $5.8 million in Q2 2016 compared to a loss of $14.0 million in Q2 2015. Excluding the impact of special charges described above, the adjusted operating loss would have been $6.8 million in Q2 2016 compared with an adjusted operating loss on the same basis of $13.1 million in Q2 2015.

Income tax expense was a benefit of $0.5 million in Q2 2016 compared with $0.0 million income tax expense in Q2 2015. The benefit of $0.5 million was mostly offset by the tax expense related to the discontinued operations.

Discontinued operations had a gain (after-tax) in Q2 2016 of $0.6 million compared with a loss of $3.3 million (after-tax) in Q2 2015. Discontinued operations include the results of the IronKey business, which was sold, and the legacy Storage Media and Accessories businesses which Imation closed down.

Loss per share from continuing operations was $0.17 in Q2 2016 compared with a loss per share of $0.34 in Q2 2015. Excluding the impact of special items, the adjusted loss per share would have been $0.20 in Q2 2016 compared with a loss per share of $0.32 in Q2 2015.

Cash and short-term investment balance was $56.2 million as of June 30, 2016, down $6.8 million during the quarter, driven by primarily operating losses and, to a lesser extent, the remaining charges from the Company's restructuring and an unrealized loss on the Company's short-term investment portfolio.

Year-To-Date Summary

For the six months ended June 30, 2016, Imation reported net revenue of $21.3 million, down 34.7 percent compared with the same period last year. Operating loss from continuing operations totaled $22.2 million for the six months ended June 30, 2016, including special charges of $5.8 million, and a diluted loss per share from continuing operations of $0.56. For the six months ended June 30, 2015, Imation reported net revenue of $32.6 million, an operating loss from continuing operations of $28.4 million, including special charges of $1.5 million, and a diluted loss per share from continuing operations of $0.72 (See Tables Five and Six for non-GAAP measures).

Fernander concluded, "We are on the path we set out to maximize shareholder value, and we look forward to continued progress on this agenda throughout 2016."

Webcast and Replay Information

A teleconference is scheduled for 10:00 AM Eastern Time today, August 8, 2016, and will be available on the Internet on a listen-only basis at:
https://www.webcaster4.com/Webcast/Page/1401/16470

A taped replay of the teleconference will be available at 12:00 PM Eastern Time on August 8, 2016, until August 15, 2016, by dialing 877-344-7529 or 412-317-0088 (conference ID 10090642). All remarks made during the teleconference will be current at the time of the teleconference, and the replay will not be updated to reflect any subsequent developments.

Description of Tables

Table One - Consolidated Statements of Operations
Table Two - Consolidated Balance Sheets
Table Three - Supplemental Segment and Product Information
Table Four - Additional Information
Table Five - Non-GAAP Financial Measures
Table Six - Non-GAAP Financial Measures

About Imation Corp.

Imation (IMN) is a holding company that also is involved in asset management.  The Company's Nexsan subsidiary is engaged in global data storage and data security business. At the corporate level, there is an ongoing strategic review as Imation expects to seek and explore new opportunities that will allow it to pursue a diverse range of business opportunities and deploy its excess cash. For more information, visit www.imation.com.

Risk and Uncertainties

Certain information contained in this press release which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include various factors set forth from time to time in our filings with the Securities and Exchange Commission including the following: Our ability to successfully implement our strategy; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; our ability to meet future revenue growth, gross margin and earnings targets; the ability to quickly develop, source, introduce and deliver differentiated and innovative products; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; our ability to successfully implement restructuring plans; foreign currency fluctuations; the ready availability and price of energy and key raw materials or critical components including the effects of natural disasters and our ability to pass along raw materials price increases to our customers; continuing uncertainty in global and regional economic conditions; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; the possibility that our goodwill and intangible assets or any goodwill or intangible assets that we acquire may become impaired; the ability of our security products to withstand cyber-attacks; the loss of a major customer, partner or reseller; changes in European law or practice related to the imposition or collectability of optical levies; the seasonality and volatility of the markets in which we operate; significant changes in discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of inspections by various tax authorities; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation and patent disputes; our ability to access financing to achieve strategic objectives and growth due to changes in the capital and credit markets; limitations in our operations that could arise from compliance with the debt covenants in our credit facilities; our ability to retain key employees; increased compliance with changing laws and regulations potentially affecting our operating results; failure to adequately protect our information systems from cyber-attacks; the effect of the announcement of our review of strategic alternatives; the effect of the proxy contest for the election of directors at our annual meeting and other activist shareholder activities; and the volatility of our stock price due to our results or market trends.

Imation, Nexsan, Assureon, NST, UNITY are trademarks of Imation Corp. All other trademarks are the property of their respective owners.

SOURCE Imation Corp.

Related Links

http://www.imation.com