Imation: Fiscal 1Q13 Financial Results
Imation Corp. released financial results for the quarter ended March 31, 2013.
The company reported Q1 2013 net revenue of $224.4 million, down 14.8% from Q1 2012, an operating loss of $14.7 million including special charges of $4.2 million, and a diluted loss per share from continuing operations of $0.39. Excluding special charges, Q1 2013 operating loss would have been $10.5 million and diluted loss per share from continuing operations would have been $0.31.
Imation president and CEO Mark Lucas commented: "Imation's strategic transformation continues to center on leveraging our roots in storage to build a platform for long-term growth and profitability. In the first quarter, our storage and security solutions business delivered strong results, led by our recently acquired Nexsan portfolio of products. Additionally, we made good strides in reducing our operating costs and implemented our reorganization into two business units to streamline decision making."
Lucas continued: "Though we are making good progress, we are not yet where we need to be long-term and more work remains."
The company announced in February that a process would be run to divest both the Memorex and XtremeMac consumer electronic businesses. That process is moving forward and progress has been made in identifying interested parties. The consumer storage business under the Memorexand TDK Life on Recordbrands will be retained.
Starting January 1, 2013, the company reorganized into two new business segments: Consumer Storage and Accessories (CSA) and Tiered Storage and Security Solutions (TSS). With these two business segments, Imation is becoming a more customer-centric and nimble organization.
Imation's CSA business unit generates solid cash flows for the company. This segment includes consumer storage media, primarily optical and flash, as well as storage and electronic accessories. With the planned consumer electronics divestitures, Imation will be able to refocus on storage at the retail level. For example, the company recently introduced a 3.0 external SSD with ultra-quick data transfer in a portable form under the TDK Life on Record brand. The CSA business unit plans to launch several other new products in the upcoming quarters.
The TSS business unit provides strategic opportunities for revenue growth and margin expansion. TSS includes both Imation and Nexsan branded tiered and scalable storage solutions, IronKeybranded mobile security solutions and commercial storage media. During the quarter, gross margins in the TSS segment increased to 22% compared to 19.4% in the prior-year period.
Imation's Nexsan products have strong momentum and posted double-digit growth. The mobile security platform gained a significant win with the Japanese government by landing a contract for Imation's portable workspace PC on a Stickproduct IronKey Workspace 300, which is Microsoft - Certified for Windows to Go. Additionally, Imation launched several other new IronKey flash drives. These storage and security solutions categories delivered gross margins well in excess of 40%. Commercial storage media declined 22.4%, as expected, driven by magnetic tape.
Lucas concluded: "In the first quarter, our businesses performed as we expected across all major geographies and product categories. Going forward we are continuing to work on introducing differentiated products, building gross margins, improving our cost structure and supporting our two business units. We are committed to achieving growth and profitability, and becoming a key player in storage and security worldwide."
Detailed Q1 2013 Analysis
As a result of the planned consumer electronics divestitures, the financial results for those operations are now presented as discontinued operations. The following financial results are presented for continuing operations for the current and prior periods unless otherwise indicated.
Net revenue for Q1 2013 was $224.4 million, down 14.8% from Q1 2012. From a segment perspective, TSS grew 1.4% and CSA declined 24.9%. Foreign currency exchange negatively impacted total Q1 2013 revenues by 2.5%.
Gross margin for Q1 2013 was 18.8%, down from 20.4% in Q1 2012. Gross margin in Q1 2013 was 19.7% excluding inventory write offs of $2.1 million, which were part of the company's restructuring program, compared to 20.4% on the same basis in 2012. TSS gross margin for Q1 2013 was 22.0% up from 19.4% in Q1 2012. CSA gross margin was 17.7% down from 21.0% in Q1 2012 (See Table Five for non-GAAP measures).
Selling, general and administrative (SG&A) expenses in Q1 2013 were $49.3 million, down $3.0 million compared with Q1 2012 expenses of $52.3 million. The reduction of 5.7% was driven by our cost reduction efforts and prior intangible write-offs, which reduced these costs by approximately 18%, partially offset by the Nexsan operating expenses added as a result of the acquisition.
R&D expenses in Q1 2013 were $5.4 million, down $0.2 million compared with Q1 2012 expenses of $5.6 million.
Special charges were $4.2 million in Q1 2013 compared with Q1 2012 charges of $1.3 million.
Operating loss was $14.7 million in Q1 2013 compared with an operating loss of $5.6 million in Q1 2012. Excluding the impact of special charges described above, adjusted operating loss would have been $10.5 million in Q1 2013 compared with adjusted operating loss on the same basis of $4.3 million in Q1 2012.
Income tax provision was $0.4 million in Q1 2013 compared with income tax provision of $1.3 million in Q1 2012. The company maintains a valuation allowance related to its U.S. deferred tax assets and, therefore, no tax provision or benefit was recorded related to its U.S. results in either period.
Discontinued operations was an after tax loss of $5.5 million in Q1 2013 compared with a $3.0 million loss in Q1 2012. Discontinued operations represent the direct results of the XtremeMac and Memorex consumer electronics businesses and included $1.1 million of restructuring charges in Q1 2013.
Loss per diluted share from continuing operations was $0.39 in Q1 2013 compared with $0.25 in Q1 2012. Excluding the impact of special charges described above, adjusted loss per diluted share would have been $0.31 in Q1 2013 compared with $0.21 in Q1 2012 (See Table Five for non-GAAP measures).
Cash and cash equivalents balance was $98.2 million as of March 31, 2013, down $10.5 million during the quarter, driven primarily by anticipated changes in working capital and payments for restructuring.