Imation: Fiscal 4Q15 Financial Results

Imation Corp. released financial results for the fourth quarter ended December 31, 2015.

Q4 Overview
Due to Imation’s announced exit of its legacy storage media business, for Q4 2015, Imation reported net revenue of $94.0 million, down 52.3% compared to Q4 2014. Operating income from continuing operations totaled $0.3 million during the quarter, including special charges of $5 million. The net loss was $9.9 million, or $0.27 loss per diluted share. This compares to an operating loss from continuing operations of $12.1 million, including special charges of $2.1 million, and a net loss of $14.4 million, or $0.35 per diluted share, in Q4 2014. Excluding a loan repayment, the company’s cash balance was essentially unchanged from the end of the third quarter.

During Q4 2015, the company continued to wind down all declining legacy consumer storage and magnetic tape businesses as quickly as possible. Further, in October, Imation acquired Connected Data, Inc., an emerging enterprise private cloud sync and share company.

Imation’s interim CEO Robert Fernander commented: “We are very pleased with our Q4 results. We have nearly completed the restructuring and wind down of our legacy business operations and have sold a number of non-core assets. Importantly, we have also integrated Connected Data into our Nexsan business and repositioned our ongoing storage business to maximize profitability and enterprise value with technology. Furthermore, we have made significant progress in developing strategies to use the company’s excess cash; this involves considering acquisition and investment opportunities outside of Imation’s historical focus to diversify our business activities. At December 31, 2015, our net cash position stood at approximately $70 million.”

Detailed Q4 2015 Analysis
Due to the change of the management team and strategies, our reportable segments as of December 31, 2015 were Storage Media and Accessories (including previous Consumer Storage and Accessories segment and the magnetic tape business), Nexsan and Ironkey. Ironkey business was sold in February, 2016. The following financial results are for continuing operations for the current and prior periods unless otherwise indicated.

Net revenue for Q4 2015 was $94.0 million, down 52.3% from Q4 2014. From a segment perspective, Storage Media and Accessories declined 57.6% due to planned wind down activities. Nexsan and Ironkey declined 14.1% and 14.0%, respectfully, as we rationalized our product portfolio and regional footprints to improve the profitability.

Gross margin for Q4 2015 was 26.5%, 6.4 percentage points higher than Q4 2014. Storage Media and Accessories gross margin was 20.5%, up from 17.3% in Q4 2014. Nexsan gross margin for Q4 2015 rose to 42.4%, up from 32.0% in Q4 2014, again due to product rationalization. Ironkey gross margin for Q4 2015 was 64.2%, compared to 64.7% in Q4 2014.

Selling, general and administrative expenses in Q4 2015 were $14.8 million, down $29.7 million, or 67%, compared with Q4 2014 expenses of $44.5 million. Imation exceeded the Q4 cost reduction targets set in the company’s restructuring plan.

R&D expenses in Q4 2015 were $4.8 million versus $5.1 million in Q4 2014. The company continued to invest in new product development in its Nexsan business and has terminated the R&D expenses associated with legacy storage media products.

Special charges were $5.0 million in Q4 2015 compared to special charges of $2.1 million in Q4 2014. Special charges in Q4 2015 were primarily related to European restructuring costs as Imation reached severance agreements with local employees.

Operating income from continuing operations was $0.3 million in Q4 2015 compared with an operating loss of $12.1 million in Q4 2014. Excluding the impact of special charges described above, adjusted operating income would have been $5.3 million in Q4 2015 compared with adjusted operating loss on the same basis of $10.0 million in Q4 2014.

Income tax expense was $8.6 million in Q4 2015 compared with $1.3 million in Q4 2014. The expense in Q4 2015 was chiefly related to a valuation allowance recorded for the deferred tax assets as a result of Imation’s wind down of its legacy businesses.

Loss per diluted share from continuing operations was $0.27 in Q4 2015 compared with a loss per diluted share of $0.35 in Q4 2014. Excluding the impact of special items, adjusted loss per diluted share would have been $0.13 in Q4 2015 compared with an adjusted loss per diluted share of $0.30 in Q4 2014 (see Tables Five and Six for non-GAAP measures).

Cash and cash equivalents balance was $70.4 million as of December 31, 2015, down $23.9 million during the quarter. Excluding the loan repayment, cash level was consistent with Q3 2015.

Full Year Summary
For the year ended December 31, 2015, Imation reported net revenue of $529.2 million, down 27.5% compared with net revenue of $729.5 million during the 2014 year. Operating loss from continuing operations for the year totaled $177.3 million, compared with an operating loss from continuing operations of $104.1 million during the previous year, and included special charges of $121.6 million, up from $53.6 million in special charges during the prior year period. Special charges during 2015 stemmed from the restructuring, goodwill impairments and other, intangible impairments. Diluted loss per share from continuing operations for the 12 months ended December 31, 2015 was $4.84 compared with $2.74 during the prior year period.

Fernander said: “This was a productive year, and our focus is now firmly on our growth areas, Nexsan and Connected Data. As we finish winding down our legacy businesses, we will continue to look at all options to build and create shareholder value.”