Iomega Corp. (IOM) 3 5/8 unch: removable storage products concern posts a Q3 operating loss of $0.03 a share, two cents narrower than the First Call estimate, vs year-ago profit of $0.29 a share; revenues were flat at $1.19 bln; see press release.....
Iomega Announces Significant Progress Toward Returning to Profitability
Business Wire - October 15, 1998 16:36
ROY, Utah--(BUSINESS WIRE)--Oct. 15, 1998-- Zip(R) Drive Shipments up 39%; Zip Disk Shipments up 30% Operating Expenses Reduced by 34%; Inventory Levels Down Sharply
Iomega Corporation (NYSE:IOM) today reported third quarter revenue of $392 million, a decrease of nine percent from its third quarter 1997 revenue of $432 million.
The Company's net loss for the third quarter was $7.6 million, or $(0.03) per diluted share before a non-cash special charge. The $7.6 million net loss includes a $3 million after-tax loss from Nomai S.A.'s ongoing operations and goodwill amortization.
In addition, Iomega recorded a pre-tax, non-cash special charge in the third quarter totaling $11.1 million related to purchased in-process technology, as part of its July 1998 acquisition of Nomai. The total after-tax loss for the third quarter, including this charge, was $14.8 million, or $(0.06) per diluted share. In the third quarter of 1997, Iomega earned $30 million, or $0.11 per diluted share.
"Last quarter we promised significant improvements in controlling operating expenses and we delivered," said James E. Sierk, president and chief executive officer, Iomega Corporation. "We said we expected to reduce operating expenses by more than $50 million in the second half of the year when compared to the first half of 1998.
"We achieved a $49 million reduction in the third quarter alone as compared to the second quarter. In addition to a 34 percent reduction in operating expense, inventories decreased by 30 percent to $196 million, and quality and customer satisfaction continue to improve. While we have made significant progress, we know we have more to do. Most importantly, we are on track to return to profitability in the fourth quarter."
By product category, Iomega shipped 2.4 million Zip(R) drives in the third quarter of 1998, an increase of 39 percent over third quarter 1997, and Zip disk unit shipments increased 30 percent over third quarter 1997.
Third quarter Zip revenue of $279 million was flat with third quarter 1997. Third quarter 1998 Jaz(R) revenue decreased 25 percent to $95 million from $126 million in the third quarter of 1997, but the product line showed improved profitability as compared with the second quarter of 1998. Iomega's Ditto(TM) revenue decreased 50 percent to $13 million from $26 million in the third quarter of 1997.
While total drive unit shipments showed a year over year increase, geographically, Iomega's Americas revenue declined seven percent to $268 million when compared to third quarter 1997. This decline was primarily due to price reductions on all product lines in the quarter. Compared to third quarter 1997, Iomega's third quarter 1998 European sales were down 19 percent to $88 million and sales in Iomega's Asia Pacific region were down 11 percent to $33 million.
Gross margin declined to $88 million, or 22.4 percent of sales for the third quarter of 1998, from $140 million, or 32.5 percent of sales for the third quarter of 1997. The price reductions taken on Zip(R) and Jaz(R) drives and disks in the third quarter of 1998 and a shift toward a higher mix of OEM Zip drive shipments were the primary causes of the decline in gross margin.
Iomega reduced its operating expenses by $49 million or 34 percent in the third quarter, as compared with the second quarter of 1998. Selling, general & administrative ("SG&A") expenses declined to $72.6 million, or 19 percent of sales, for the third quarter of 1998, as compared to $115 million, or 29 percent of sales, for the second quarter of 1998, and were flat on a dollar basis with third quarter 1997.
The decrease in SG&A expense as compared with the second quarter, was the result of a company-wide initiative to comprehensively reduce costs which included a reduction in worldwide headcount, a significant decrease in marketing and advertising expenses, and decreases in other discretionary spending. Research and development expenses were up slightly over third quarter 1997 at $24 million, and down 22% from the second quarter of 1998.
Iomega continues to implement its Six Sigma quality initiatives announced earlier this year and expects significant cost savings to result in 1999.
Cash and temporary investments as of September 27, 1998 were $46 million, which compares to $68 million as of June 28, 1998. Cash flow for the quarter was negative $21 million before the $45 million cost of acquiring Nomai S.A.
The Company expects to generate positive cash flow in the fourth quarter, but still anticipates being cash flow negative for the year. The Nomai acquisition was financed by $40 million in senior subordinated borrowings from Idanta Partners and other entities affiliated with David J. Dunn, chairman of the board, Iomega Corporation.
"Our two millionth Jaz(R) drive and our 18 millionth Zip drive are scheduled to ship this week, and later this quarter we expect to begin shipping both our new miniature 40 megabyte Clik! drive and our USB interface Zip(R) drive," continued Mr. Sierk.
"The success we've had this quarter in 'right-sizing' our business will enable us to capitalize on the success of our award winning product platforms. Looking toward the future, we are very excited about additional new product announcements to come which will further enhance Iomega's position as the worldwide leader in removable storage solutions."
For the first nine months of 1998, Iomega's revenue totaled $1.2 billion which is equal to revenue for the first nine months of 1997. Iomega's net loss for the first nine months of 1998, including second and third quarter non-cash special charges, totaled $73.3 million, or $(0.28) per diluted share. For the first nine months of 1997, Iomega earned $79.2 million, or $0.29 per diluted share.
Iomega Corporation manufactures and markets the award-winning Zip(R), Jaz(R) and Ditto(TM) drives and disks that help people to organize, manage, create, exchange and share their important information. Used in homes, businesses, government or education, and by creative professionals everywhere, Iomega storage solutions are the enabling technologies preferred by millions. The Company can be reached at 1-800-MY-STUFF (800-697-8833), or on the Web at iomega.com.
Special Note: The statements in this release related to the expected return to profitability in the fourth quarter of 1998, anticipated cost savings in the second half of 1998, expected savings in 1999 from Six Sigma quality initiatives, future cash flow and the anticipated availability of Clik! and USB Zip products in the fourth quarter of 1998 are forward-looking statements.
There are a number of important factors that could cause actual results to differ materially from those suggested or indicated by such forward-looking statements.
These include, among others, market acceptance of and demand for the Company's storage solutions, the impact of competition from other suppliers of data storage products, the success of the Company's cost reduction programs and its success in realizing cost savings from its Six Sigma quality initiatives, the impact of the Company's acquisition of Nomai S.A., the ability of the Company to reduce inventory levels, the timing of the Company's collection of accounts receivable and its receipt of anticipated refunds, its ability to maintain stringent quality assurance standards and enhanced customer services, the Company's successful completion of pre-release product testing, the availability of product components, the success of the Company's marketing activities, manufacturing and inventory issues, production costs, intellectual property rights, general economic conditions and the other factors described in Iomega's Annual Report to Stockholders for 1997 on Form 10-K, filed March 31, 1998 and its most recent quarterly reports filed with the SEC.
Note to Editors: Iomega, Zip, Jaz, and the stylized "i" logo are registered trademarks of, and Ditto is a trademark of, Iomega Corporation. All other products and brand names are the property of their respective owners. For maximum reliability, use only genuine Zip 100 disks featuring the genuine Zip 100 symbol in your Zip drive. |
