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Imation Reports Q1 2016 Results

Imation Corp. announced financial results for its first quarter ended March 31, 2016.

For more information visit: www.imation.com


Unedited press release follows:

Imation Reports First Quarter 2016 Financial Results

Legacy Business Wind Down Completed, Gross Margin Improved and SG&A Decreased

OAKDALE, Minn., May 10, 2016 — Imation Corp. (NYSE: IMN) today released financial results for the first quarter ended March 31, 2016.

Overview
During the first quarter of 2016, Imation completed its legacy business wind down on time and under budget. The financial results related to the legacy businesses are reported as discontinued operations. Going forward, Imation will operate as a holding company with a subsidiary (Nexsan) engaged in the business of global data storage. 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.

The first quarter revenue from Nexsan was $10.7 million, down 31.8 percent from Q1 2015 due to the strategic decision to shutter underperforming regions and exit low-margin portions of the business. Gross margin percentage improved by 290 basis points from 38.2 percent to 41.1 percent. Selling, general and administrative expenses declined by $6.2 million, or 37 percent year over year, and the operating loss from continuing operations (excluding special charges) was reduced by $4.2 million to $9.6 million from a loss of $13.8 million year over year. The company’s cash balance and short term investments totaled $63 million as of March 31, 2016.

Imation’s Interim Chief Executive Officer Robert Fernander commented, “The quarter was successful on multiple fronts. First, the wind down of our legacy businesses is complete and the financial results are aligned with our expectations. Second, the storage industry has reacted positively to the launch of our UNITY product – the first unified storage solution with secure enterprise file sync and share for true data mobility support; this serves as an endorsement of our 2015 strategic acquisition of Connected Data. Third, our investment at Clinton Lighthouse Fund has yielded a $1.6 million profit (net of fees) in less than two months, exceeding upside expectations. Fourth, we have come to an amicable settlement with Spearpoint Management LLC and have retired the shareholder lawsuit they brought against the prior Board of Directors and management team. Finally, we have started our investment and activist initiatives outside of Imation’s core business areas, and we are fully engaged in executing our long-term strategy: helping investors in struggling businesses improve their returns.”

Detailed Q1 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 Q1 2016 was $10.7 million, down 31.8 percent from Q1 2015. The decrease was due to exiting certain unprofitable regions and eliminating low margin transactions. Imation expects the revenue to increase in Q2.

Gross margin for Q1 2016 was 41.1 percent, 290 basis point better than Q1 2015. The new management team has focused on supply chain optimization and profitable geographies and partnerships. Going forward, the company anticipates continued gross margin increases.

Selling, general and administrative expenses in Q1 2016 were $10.6 million, down $6.2 million (or 37 percent) compared to Q1 2015 expenses of $16.8 million. The decrease stemmed primarily from extensive cost reduction efforts, and management expects our SG&A expenses to continue to decline for the rest of 2016.

Research and development (R&D) expenses in Q1 2016 were $3.4 million, up from $3.0 million in Q1 2015, reflecting the Company’s increased investment in future and higher margin, differentiated storage products.

Special charges were $6.8 million in Q1 2016 compared to $0.6 million in Q1 2015. Special charges in Q1 2016 were chiefly related to restructuring consulting fees and pension settlement costs. Management expects the restructuring consulting fees will be immaterial for the rest of 2016.

Operating loss from continuing operations was $16.4 million in Q1 2016 compared to a loss of $14.4 million in Q1 2015. Excluding the impact of special charges described above, the adjusted operating loss would have been $9.6 million in Q1 2016 compared with an adjusted operating loss on the same basis of $13.8 million in Q1 2015.

Income tax expense was a benefit of $1.6 million in Q1 2016 compared with $0.1 million income tax expense in Q1 2015. The benefit of $1.6 million was mostly offset by the tax expense related to the discontinued operations.

Discontinued operations had a loss (after-tax) in Q1 2016 of $0.7 million excluding a non-cash cumulative translation adjustment of $75.7 million compared with a gain of $1.1 million (after-tax) in Q1 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 $0.40 in Q1 2016 compared with a loss per share of $0.38 in Q1 2015. Excluding the impact of special items, the adjusted loss per share would have been $0.21 in Q1 2016 compared with a loss per share of $0.36 in Q1 2015.

Cash and short-term investment balance was $63.0 million as of March 31, 2016, down slightly from $70.4 million at year end, driven primarily by the operating loss.

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 3:00 PM Eastern Time today, May 10, 2016, and will be available on the Internet on a listen-only basis at: https://www.webcaster4.com/Webcast/Page/1401/15140

A taped replay of the teleconference will be available at 5:00 PM Eastern Time on May 10, 2016, until May 17, 2016, by dialing 877-344-7529 or 412-317-0088 (conference ID 10085965). 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 operates through a subsidiary 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; 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 transition of our Board of Directors; and the volatility of our stock price due to our results or market trends.

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

Table One
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended
March 31
2016 2015
Net revenue $ 10.7 $ 15.7
Cost of goods sold 6.3 9.7
Gross profit 4.4 6.0
Operating expense:
Selling, general and administrative 10.6 16.8
Research and development 3.4 3.0
Restructuring and other 6.8 0.6
Total 20.8 20.4
Operating loss from continuing operations (16.4) (14.4)
Other (income) expense:
Interest income - (0.1)
Interest expense - 0.4
Other, net expense (0.1) 0.7
Total (0.1) 1.0
Loss from continuing operations before income taxes (16.3) (15.4)
Income tax provision (1.6) 0.1
Loss from continuing operations (14.7) (15.5)
Discontinued operations:
Loss on sale of discontinued businesses, net of income taxes 2.4 -
Loss from discontinued businesses, net of income taxes (78.8) 1.1
Loss from discontinued operations (76.4) 1.1
Net loss $ (91.1) $ (14.4)
Loss per common share – basic:
Continuing operations $ (0.40) $ (0.38)
Discontinued operations (2.06) 0.03
Net loss (2.46) (0.35)
Loss per common share – diluted:
Continuing operations $ (0.40) $ (0.38)
Discontinued operations (2.06) 0.03
Net loss (2.46) (0.35)
Weighted average shares outstanding:
Basic 37.1 41.0
Diluted 37.1 41.0
Table Two
IMATION CORP.
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
March 31, December 31,
2016 2015
ASSETS
Current assets:
   Cash and cash equivalents $ 26.2 $ 70.4
   Short term investments 36.8 -
   Accounts receivable, net 6.6 9.8
   Inventories 6.5 8.1
   Other current assets 4.4 19.1
   Current assets of discontinued operations 22.0 44.3
     Total current assets 102.5 151.7
Property, plant and equipment, net 3.5 4.2
Intangible assets, net 4.0 4.2
Goodwill 3.8 3.8
Other assets 0.8 0.8
Non-current assets of discontinued operations 3.1 3.7
     Total assets $ 117.7 $ 168.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
   Accounts payable $ 7.1 $ 5.0
   Other current liabilities 18.1 30.5
   Current liabilities of discontinued operations 49.2 74.6
     Total current liabilities 74.4 110.1
Other liabilities 28.9 27.0
Other liabilities of discontinued operations 4.7 6.9
     Total liabilities 108.0 144.0
Commitments and contingencies
Shareholders’ equity 9.7 24.4
     Total liabilities and shareholders’ equity $ 117.7 $ 168.4
Table Three
IMATION CORP.
SUPPLEMENTAL SEGMENT AND PRODUCT INFORMATION
(Dollars in millions)
(Unaudited)
Three months ended
March 31,
Three months ended
March 31,
2016 2015 % Change
Revenue % Total Revenue % Total
Nexsan $ 10.7 100.0% $ 15.7 100.0% -31.8%
  Total $ 10.7 100.0% $ 15.7 100.0%
Operating Income (Loss) OI % Operating Income (Loss) OI %
Nexsan $ (5.2) -48.6% $ (7.2) -45.9% -27.8%
Corp/Unallocated (1) (4.4) NM (6.6) NM -33.3%
Total operating loss from continuing operations $ (9.6) -89.7% $ (13.8) -87.9%
Gross Margin Gross Margin
Nexsan 41.1% 38.2%
NM – Not Meaningful
(1) Corporate and unallocated amounts include litigation settlement expense, corporate expense, and restructuring and other expenses which are not allocated to the segments. We believe the presentation of these items in Corporate and Unallocated avoids distorting the operating income for our segments.
Table Four
IMATION CORP.
ADDITIONAL INFORMATION
(Dollars in millions)
(Unaudited)
Three Months Ended
March 31
Cash and Cash Flow Information 2016 2015
Cash and cash equivalents – end of period $ 26.2 $ 96.2
Capital spending $ (0.1) $ (0.8)
Depreciation $ 0.5 $ 2.1
Amortization $ 0.2 $ 3.3
Asset Utilization Information *
March 31 December 31
2016 2015
Days Sales Outstanding (DSO) 43 32
Days of Inventory Supply 132 132
Debt to Total Capital 0.0% 0.8%
Other Information
Approximate employee count as of March 31, 2016: 270
Approximate employee count as of December 31, 2015: 600
Book value per share as of March 31, 2016: $ 0.26
Shares used to calculate book value per share (millions): 37.1
* These operational measures, which we regularly use, are provided to assist in the investor’s further understanding of our operations.
Days Sales Outstanding is calculated using the count-back method, which calculates the number of days of most recent revenue that are reflected in the net accounts receivable balance.
Days of Inventory Supply is calculated using the current period inventory balance divided by an estimate of the inventoriable portion of cost of goods sold expressed in days.
Debt to Total Capital is calculated by dividing total debt (long term plus short term) by total shareholders’ equity and total debt.
Table Five
IMATION CORP.
Non-GAAP Financial Measures
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2016 March 31, 2015
GAAP Adj * Non-GAAP GAAP Adj * Non-GAAP
Net revenue $ 10.7 $ - $ 10.7 $ 15.7 $ - $ 15.7
Cost of goods sold 6.3 - 6.3 9.7 - 9.7
Adjusted gross profit $ 4.4 $ - $ 4.4 $ 6.0 $ - $ 6.0
Adjusted gross margin 41.1% 41.1% 38.2% 38.2%
Adjusted operating loss from continuing operations $ (16.4) $ 6.8 $ (9.6) $ (14.4) $ 0.6 $ (13.8)
Adjusted income tax provision $ (1.6) $ - $ (1.6) $ 0.1 $ - $ 0.1
Adjusted loss from continuing operations $ (14.7) $ 6.8 $ (7.9) $ (15.5) $ 0.6 $ (14.9)
Adjusted loss per common share from continuing operations – diluted
$ (0.40) $ (0.21) $ (0.38) $ (0.36)
Adjusted weighted average shares outstanding – diluted 37.1 37.1 41.0 41.0
*  See Table Six
Table Six
IMATION CORP.
Non-GAAP Financial Measures
(In millions, except for per share amounts)
(Unaudited)
Operating income (loss) / Adjusted operating income (loss)
Three Months Ended
March 31
2016 2015
Operating loss $ (16.4) $ (14.4)
Restructuring and other:
Restructuring - 0.1
Other 6.8 0.5
Total adjustments 6.8 0.6
Adjusted operating income (loss) – Non-GAAP $ (9.6) $ (13.8)
Effect on diluted EPS:
Loss from operations $ (0.40) $ (0.38)
Restructuring and other:
Restructuring - 0.00
Other 0.18 0.01
Adjusted diluted EPS – Non-GAAP $ (0.22) $ (0.37)
EBITDA:
Operating loss from continuing operations (16.4) $ (14.4)
Depreciation 0.5 2.1
Amortization 0.2 3.3
  EBITDA $ (15.7) $ (9.0)
Restructuring and other 6.8 0.6
  Total adjustments 6.8 0.6
  Adjusted EBITDA $ (8.9) $ (8.4)

EBITDA is defined as operating income (loss) less depreciation and amortization. Adjusted EBITDA is defined as EBITDA before restructuring and other and inventory write-downs related to restructuring programs included in cost of goods sold.

The Non-GAAP financial measurements (adjusted operating income (loss), adjusted income (loss), adjusted diluted EPS, EBITDA and adjusted EBITDA) are provided to assist in understanding the impact of certain items on Imation’s actual results of operations when compared with prior periods. Management believes this will assist investors in making an evaluation of Imation’s performance against prior periods on a comparable basis by adjusting for these items. Management understands that there are material limitations on the use of Non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. These Non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. This information should not be construed as an alternative to the reported results, which have been determined in accordance with accounting principles generally accepted in the United States of America.

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