IOMEGA REPORTS THIRD QUARTER FINANCIAL RESULTS
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FOR IMMEDIATE RELEASE
IOMEGA REPORTS THIRD QUARTER FINANCIAL RESULTS
SAN DIEGO, October 26, 2006 – Iomega Corporation (NYSE: IOM) today reported revenue of $53.6 million and a net profit of $0.9 million, or $0.02 per diluted share, for the quarter ended October 1, 2006. These results included a number of items associated with previously announced corporate restructuring, goodwill impairment and other items which had a net negative impact on pre-tax income of $1.2 million, as detailed below.
By comparison, third quarter 2005 revenue was $55.9 million with a net loss of $12.3 million, or ($0.24) per share, which included $6.6 million of restructuring charges and $0.9 million of license and patent fee income. Also by comparison, second quarter 2006 revenue was $40.7 million with a net loss of $10.4 million, or ($0.20) per share, which included $4.3 million in restructuring charges, a $2.3 million goodwill impairment charge, $2.1 million of non-restructuring inventory and supplier claim charges, a $0.5 million charge for uncollectible VAT receivables and a $1.1 million gain from selling certain patents.
Pre-tax profit for third quarter 2006 was $1.1 million compared to a third quarter 2005 pre-tax loss of $11.9 million and a second quarter 2006 pre-tax loss of $11.2 million. Excluding the restructuring benefit of $0.2 million, the non-cash goodwill impairment charge of $2.5 million and the $1.1 million benefit from dissolving an inactive European subsidiary, our non-GAAP, adjusted pre-tax profit for third quarter 2006 was $2.2 million.
Our third quarter 2006 pre-tax profit compares to a second quarter 2006 non-GAAP pre-tax loss of $2.0 million, excluding $4.3 million of restructuring charges, a $2.3 million goodwill impairment charge, $2.1 million of non-restructuring inventory and supplier claim charges and an accrual of $0.5 million for uncollectible VAT.
Third quarter 2006 revenue of $53.6 million decreased by $2.3 million, or 4%, when compared to third quarter 2005. The decrease was primarily due to the expected decrease in the Zip ® product line of $8.6 million, partially offset by increases in Consumer Storage Solutions and REV ® product lines. The third quarter 2006 revenue represented an increase of $12.9 million, or 32%, from second quarter 2006, primarily due to increases in the Consumer Storage Solutions and REV product lines.
Third quarter 2006 gross margin was 22.8% as compared to third quarter 2005 gross margin of 19.6%. This improvement of 3.2 percentage points is a direct result of our initiatives with the external HDD and REV products along with cost reduction efforts implemented in previous quarters, partially offset by the decrease in Zip product line sales.
Second quarter 2006 gross margin was 16.7%. The third quarter 2006 improvement of 6.1 percentage points from second quarter 2006 is a result of incurring $2.1 million of inventory and supplier claim charges in second quarter 2006, which represents 5.2 percentage points, along with previously announced improvements in the HDD supply chain, launching new products in both the HDD and REV 70 product lines and cost savings from our restructuring actions.
Third quarter 2006 operating expenses were $12.9 million, which included a $2.5 million non-cash goodwill impairment charge associated with the Zip product line and a $0.2 million benefit from restructuring charge reversals. By comparison, third quarter 2005 operating expenses were $23.4 million, which included $6.6 million in restructuring charges and a $0.9 million benefit from license fee income. Further, second quarter 2006 operating expenses were $18.4 million, which included $4.3 million of restructuring charges and a $2.3 million non-cash, goodwill impairment charge and $1.1 million of income from sales of certain patents.
Third quarter 2006 sales of $53.6 million included REV product sales of $11.2 million; Consumer Storage Solutions product sales (consisting of HDD, optical, Mini USB flash and floppy drives) of $30.3 million; Network Storage Solutions (NSS) sales of $4.5 million; Services revenue of $1.3 million; and Zip product sales of $6.2 million.
As indicated earlier, these results include three items associated with previously announced restructuring, goodwill impairment and dissolution of an inactive European subsidiary. Although the quarter did not include any restructuring charges, we updated the previously recorded restructuring reserves for currently known factors such as severance and outplacement payments resulting in a benefit of $0.2 million in the current quarter. We recorded an additional non-cash, pre-tax goodwill impairment charge of $2.5 million associated with the Zip product line. Further, we recognized a $1.0 million tax benefit associated with the release of a tax liability for the goodwill timing difference. During the quarter, we dissolved an inactive European subsidiary, in which operations ceased in 1999. This dissolution resulted in a gain of $1.1 million recognized in other income and expenses.
During third quarter 2006, the Company’s total cash, cash equivalents, and temporary investments decreased by $7.8 million to $69.8 million as of October 1, 2006. The decrease was primarily a result of the acquisition of CSCI, Inc. ($4.3 million), payments associated with the restructuring actions ($1.8 million) and working capital requirements for the implementation of the new lower cost HDD supply chain.
“I am pleased with the speed and diligence our team has demonstrated this past quarter which resulted in a more competitive cost structure, a 32% increase in sales over second quarter 2006, entry into the managed services market and, most importantly, a return to profitability,” said Jonathan Huberman, CEO of Iomega.
“During the third quarter, we launched our new external HDD products and the new supply chain process. Although we did not see a full quarter’s benefit of these new products, we are already seeing the increased customer demand and improved gross margins. Similarly, we launched the new 70GB REV Backup Drive and our second generation automation device, the REV Loader 560. We also closed on the previously announced acquisition of CSCI, Inc. and entered the managed services market. Together with our technology partners, Juniper Networks and VeriSign Corporation, Iomega is delivering best-in-class, fully managed Internet security solutions in an affordable manner to our SMB target market,” concluded Huberman.
Conference Call Information
As previously announced, Iomega will host a conference call with simultaneous audio webcast beginning at 4:30 p.m. Eastern Time today to discuss Iomega's third quarter financial results and management’s goals. The webcast may be accessed at http://www.iomega.com and will be available for replay through the close of business on November 10, 2006.
Iomega Corporation provides easy-to-use, high value storage solutions to help people protect, secure, capture and share their valuable digital information. OfficeScreen, Iomega’s managed security services for SMBs, features industry-leading firewall/VPN, SSL VPN and IPSec bundles that create secure wide area networks that connect remote offices and workers to applications and data at a company’s headquarters, while countering security threats from hackers, worms and viruses across a company’s entire network. Iomega's award-winning storage products include the Iomega ® REV ® platform: the new Iomega REV 70GB Backup Drive, available in various computer interface models for server implementations; and the Iomega REV 35GB Backup Drive, available in several computer interface models for desktop backup and archive applications; as well as REV-based automation products such as new REV Loader 560, which utilizes a REV 70GB Backup Drive and up to eight REV disks. Iomega also offers its Zip ® 100MB, 250MB and 750MB drives; high-performance Iomega external hard drives, network hard drives and other HDD solutions; and other portable storage products. For small and medium business networks, Iomega NAS servers offer capacities of 160GB to 2TB. Iomega also offers businesses and consumers a comprehensive data recovery services solution for recovering lost data due to hardware failure, file corruption or media damage. The Company can be reached at 1-888-4-IOMEGA (888-446-6342), or on the Web at www.iomega.com. Resellers can visit Iomega at www.iomega.com/ipartner.
Special Note Regarding Forward-Looking Statements
Statements contained in this release regarding increased customer demand and improved gross margins for HDDs, Iomega’s return to profitability, and any other statements that are not purely historical are forward–looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are based upon information available to us as of October 26, 2006, and we disclaim any intention or obligation to update any such statements. Actual results could differ materially from current expectations. Factors that could cause or contribute to such differences include losses of key personnel; lower than anticipated sales of our products; any inability or failure to improve REV product sales or improve HDD product gross margins, unexpected technical, manufacturing, or supply issues with our products; our inability to achieve a competitive cost structure; competition; our inability to maintain stringent quality assurance standards and customer satisfaction; difficulties in identifying and completing strategic opportunities to grow our business; manufacturing and inventory issues; difficulties in integrating or growing Iomega’s new managed services business; intellectual property disputes; adverse final judgments in litigation; general economic and/or industry-specific conditions including significant changes in the landscape of data storage demand, pricing, or competition; and the other risks and uncertainties identified in the reports filed from time to time by Iomega with the U.S. Securities and Exchange Commission, including Iomega's most recent Annual Report on Form 10-K and quarterly report on Form 10-Q.
Copyright © 2006 Iomega Corporation. All rights reserved. Iomega, Zip, REV, OfficeScreen, StorCenter, iStorage, Micro Mini, and HotBurn are either registered trademarks or trademarks of Iomega Corporation in the United States and/or other countries. Certain other product names, brand names and company names may be trademarks or designations of their respective owners.