Storing, Protecting and Connecting a Digital World · Q3 11: InfiniVault Data Archive Appliances...

Storing, Protecting and

Connecting a Digital World

Investing in the Future

January 2012

Imation: Storing, Protecting and Connecting 2

Risks and Uncertainties

Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements. The

words or phrases “is targeting,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar

expressions identify “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 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;

the ready availability and price of energy and key raw materials or critical components; our ability to pass along price increases to our

customers; changes in European law or practice related to the imposition or collectability of optical levies; our potential dependence on third

parties for new product introductions or technologies in order to introduce our own new products; our ability to introduce new offerings in a

timely manner either independently or in association with TDK, OEMs and other third parties and the market acceptance of newly introduced

product and service offerings; continuing uncertainty in global and regional economic conditions; our ability to identify, integrate and realize

the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; our ability to realize the benefits

from our global sourcing and development strategy for magnetic data storage products and the related restructuring; the volatility of the

markets in which we operate; foreign currency fluctuations; our ability to source and deliver products to our customers at acceptable quality,

volume and cost levels; 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 meet our revenue growth, gross margin and earnings

targets; our ability to secure adequate supply of certain high demand products at acceptable prices; changes in the supply and cost of raw

materials and key components of our products resulting from the effects of natural disasters including the October 2011 flooding in Thailand;

our ability to efficiently source, warehouse and distribute our products globally; a material change in customer relationships or in customer

demand for products; the future financial and operating performance of major customers and industries served; 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 possibility that our long-lived assets for any goodwill that we acquire in the future may

become impaired; the outcome of any pending or future litigation; and the volatility of our stock price due to our results or market trends, as

well as various factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and from time to

time in our filings with the Securities and Exchange Commission.


Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda

Imation: Storing, Protecting and Connecting 4 Company Background Our Opportunity Strategies Key Success Factors Financial Goals

Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda


Imation at a Glance

• 2010 revenue of $1.46 billion

• Located in Oakdale, Minnesota

• 1075 Employees as of 9/30/11

• Doing business in 100 countries

• Owns and takes to market major

brands (Imation, Memorex, TDK Life on Record, XtremeMac)

• Now focused on storing, protecting, and connecting digital

information

• Main product categories are Traditional Storage, Secure & Scalable

Storage, and Audio & Video Information


Our Product Categories

• Optical – Blu-ray growing, overall market

declining

– Leading position - 35% share

– 70% share in U.S.

– IMN, TDK, MMX, HP

– Competition – Sony, Verbatim,

Maxell

• Tape – Leading position – 30 to 35%

share

– Key OEMs (IBM, HP, Oracle)

investing in future

– Most cost efficient long-term

archive solution

– IMN, TDK, IBM, ORCL

– Competition – Fuji, Sony, Maxell

• Standard USB Flash and

Hard Drive – Overall markets large and

growing but very competitive (e.g.

- SanDisk, Buffalo, WD, Seagate)

• Secure Storage – Focus is the application, not the

product

– Small market, but sizable growth

opportunity and higher margins

than standard media

• Scalable Storage – Leading position in RDX

technology (both docks and

media)

– Major OEM’s have adopted RDX

technology (IBM, HP, Dell,

others)

– Primary focus is SMB

• Strong Memorex and TDK Life

on Record brand recognition

• XtremeMac brand strong with

Apple enthusiasts

• Full line of audio products

(speakers, headphones, iPod,

iPad and iPhone docks)

• Accessories focused on audio

and gaming

70% of revenues 17% of revenues 13% of Revenues

Traditional Storage (Optical & Magnetic)

Secure & Scalable Storage (Flash & HDD)

Audio & Video Information (Digital Audio & Accessories)


Strategic Highlights

Announced our strategic direction and long-term financial goals in

Feb. 2011

Closed on five acquisitions in 2011:

• Nine Technology’s IP for deduplication – acquired in December 2011

• IronKey’s secure hardware assets – acquired in October 2011 for $19 million

• ProStor Systems’ InfiniVault assets – acquired in August 2011 for $500,000

• MXI Security – acquired in June 2011 for $24.5 million

• ENCRYPTX – acquired in February 2011 for $1 million

Substantial reskilling over the last two years:

• More than half of management team new in last 18 months

• 20% of HQ staff new in last 12 months

• 56 new hires to RD&E in 2011

Company Background Imation: Storing, Protecting and Connecting 8

Our Opportunity Strategies Key Success Factors Financial Goals

Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda



Information is Growing Exponentially Producing a Storage Gap



Data Protection is Becoming a Critical Issue

• In 2010, 662 breaches were

reported in the U.S., causing

16,167,542 individual record

exposures (Source: Identity Theft Resource Center)

Data breaches are

relatively common and

extremely costly



Digital Connectivity is Becoming Increasingly Important

• Content is split

between mobile

platforms, CE

devices, local storage,

and the cloud

• Becoming extremely

difficult to manage for

businesses as well as

for consumers

It is estimated that there will be 1 billion mobile broadband devices by 2016 (Source: UMTS Forum)

Solutions Needed

Strategies Imation: Storing, Protecting and Connecting 12

Company Background Our Opportunity Key Success Factors Financial Goals

Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda



To be a global technology company dedicated to helping people and

organizations store, protect and connect their digital world

We Have a Clear Vision




Our Product Categories Align with Growing Applications



CONNECT

PROTECT

STORE

APPLICATION FOCUS






• Optimize profitability and cash

in declining markets

• Stabilize gross margins in

Optical in light of recent cost

volatility

• Continue multi-brand strategy

on both tape and optical

• Maintain market share position

• Invest organically and

inorganically

• Secure storage

• RDX

• Scalable storage

• Launch differentiated products

and rationalize low margin

businesses

• Focus on high margin

categories in digital audio and

accessories at mass merchants

and big-box retailers

• Direct resources primarily to

digital audio and accessories

We have three distinct product areas with three separate strategies

Declining Targeting rapid growth Targeting growth

Radically transform this segment by significantly growing both revenue and gross margin through a series of small/medium acquisitions

Generate cash and improve return on assets in Tape through a strategic partnership, and harvest the Optical business

Grow both revenue and gross margin through a continuation of our internal re-skilling efforts and focus on differentiation



To execute on this direction and strategy, we need to change….

• Followed storage technology with our

media technology

• Sold removable data storage media

• “Took orders” for media

• Sold commoditized CE products

• Develops Data Storage Appliances

technology and products

• Develops security technology and products

• Sells solutions and services

• Develops and sells differentiated Audio

products and accessories

• Moves its center of gravity to Secure &

Scalable Storage

We are transforming from a

company that primarily: To a company that:



Further expanding on Secure & Scalable Storage,

we have segments focused on Flash/Defender,

RDX/Appliances, and eventually Cloud

Future – Vision

Traditional

Storage

Audio & Video

Information Secure &

Scalable

Storage


Company Background Our Opportunity Key Success Factors Financial Goals Our Opportunity

Continued growth in revenue and margin

Strategies Key Success Factors Financial Goals



2010/2011: Market Leadership in Mobile Security

Strategies Company Background Our Opportunity Key Success Factors Financial Goals



Q2 11: A8 – First Imation Network Attached Storage Device




2012-2014

Continued organic and

inorganic growth

2012: DataGuard Data

Protection Appliances

Q3 11: InfiniVault Data Archive

Appliances (Global in Q2 12)


Q4 11: Nine Technology

Deduplication IP Acquisition

Imation: Storing, Protecting and Connecting 22 Key Success Factors Company Background Our Opportunity Strategies Financial Goals

Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda


Key Success Factors

Emerging technologies – Focus going forward

Recognized global brands

Customer and channel strength leveraging global footprint


Strategy: Invest in Four Core Product Technologies

Scalable Storage (for SMB space)

– Data Reduction: De-duplication &

Compression

– RHDD Automation & Integrated NAS

Back-up

– Secure RHDD

– Cloud Connectivity

Magnetic Tape

– Partnering with TDK to develop future

multi-terabyte tape formats based on

Barium Ferrite technology

Secure Storage

– Authentication & Encryption

– Central Management Software

– New Standards: FIPS 140-3; Opal HDD

– Secure Portable Computing

– Digital Identity

Wireless/Connectivity

– Wireless Audio

– Wireless AV & Data


Recognized Global Brands

Core Global Brands

Brands We Distribute:


Customer and Channel Strength Leveraging Global Footprint

• Relationships with mass merchants, big box retailers, OEMs and VARs

• Facilities in over 35 countries and capabilities to reach customers in more than 100 countries

Imation: Storing, Protecting and Connecting 27 Financial Goals Company Background Our Opportunity Strategies Key Success Factors

Company Background

Our Opportunity

Strategies

Key Success Factors

Financial Goals

Today’s Agenda

Imation: Storing, Protecting and Connecting 28 Financial Goals Company Background Our Opportunity Strategies Key Success Factors

Our Financial Goals Goals Progress to Date

Returning to top-line growth by end

of 2012

Decline rates moderated in 2011

Q2 and Q3 2011 decline rates under 10 percent

Improving product gross margins

towards 20% through product

differentiation (average of 15% to

16%, before charges, in recent past)

Steady improvement in gross margins

All product categories at or above 15% in Q3

Driving results through organic and

inorganic investment

Organically investing $15 million in 2011 to drive future

operating margin improvements

Four acquisitions completed in 2011 – total cash

investment of $45 million

Increasing operating margins to the

4% to 5% level (average of 1%,

before charges, in recent past)

Investing today for improvements in future

Continuing to generate operating

cash flow

Generated $300 million in operating cash flows in FY

2008, 2009 and 2010

Present cash balance of $230 million as of 9/30/11

Thank you

Financial Appendix


Comparison of GAAP to Non-GAAP Financial Measures

This presentation contains Non-GAAP financial measurements which 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.


Imation Income Statement

As reported Nine Months

$ in thousands except for EPS FY 08 FY 09 FY 10 YTD 11

Net revenue 1,981.0$ 1,649.5$ 1,460.9$ 948.1$

Gross profit 338.8 264.0 226.4 165.2

Operating expense 372.5 325.7 296.1 186.2

Operating (loss) income (33.7) (61.7) (69.7) (21.0)

Net (loss) income (33.3) (44.0) (158.3) (33.8)

Diluted (loss) earnings per share (0.89)$ (1.13)$ (4.19)$ (0.89)$


Imation Income Statement

As reported Nine Months

$ in thousands except for EPS Q1 11 Q2 11 Q3 11 YTD 11

Net revenue 316.5$ 323.0$ 308.6$ 948.1$

Gross profit 54.0 54.0 57.2 165.2


Operating (loss) income (3.4) (9.3) (8.3) (21.0)

Net (loss) income (7.2) (12.5) (14.1) (33.8)

Diluted (loss) earnings per share (0.19)$ (0.33)$ (0.38)$ (0.89)$


Imation Non GAAP Income Statement

Note: See reconciliation of GAAP to Non GAAP Operating income (loss) in Appendix

Nine Months

$ in thousands except for EPS FY 08 FY 09 FY 10 YTD 11

Net revenue 1,981.0$ 1,649.5$ 1,460.9$ 948.1$

Gross profit 340.8 264.0 240.6 166.7

% of Net revenue 17.2% 16.0% 16.5% 17.6%


% of Net revenue 15.7% 15.2% 15.0% 17.5%

Operating (loss) income 29.6 13.9 21.7 0.9

% of Net revenue 1.5% 0.8% 1.5% 0.1%


Imation Non GAAP Income Statement

Note: See reconciliation of GAAP to Non GAAP Operating income (loss) in Appendix

Nine Months

$ in thousands Q1 11 Q2 11 Q3 11 YTD 11

Net revenue 316.5$ 323.0$ 308.6$ 948.1$

Gross profit 55.2 54.3 57.2 166.7

% of Net revenue 17.4% 16.8% 18.5% 17.6%


% of Net revenue 17.3% 16.4% 18.8% 17.5%

Operating (loss) income 0.3 1.4 (0.8) 0.9

% of Net revenue 0.1% 0.4% -0.3% 0.1%


Imation Balance Sheet

$ in thousands 2009 2010

Dec Dec Mar Jun Sept

Cash 163 305 286 258 233

Accounts receivable 315 259 225 220 212

Inventories 236 203 216 221 235

Other current assets 164 74 66 62 60

Total current assets 878 841 793 761 740

Property, plant and equipment 110 67 67 62 58

Goodwill 24 - - 22 22

Intangible assets 337 320 315 321 317

Other assets 45 23 23 24 26

Total assets 1,394 1,251 1,198 1,190 1,163

Accounts payable 201 219 206 201 201

Other current liabitiles 171 172 141 139 153

Total current liabilities 372 392 347 340 354

Other liabilities 95 78 71 79 75

Shareholders' equity 927 782 780 771 734

Total liabilities and shareholers' equity 1,394 1,251 1,198 1,190 1,163

2011


Imation Working Capital

79 74

60 59 59

(77)

786972

6969758498 101

575761 65 61

58 5958

(76)(64)(76)(72)(63)(51)(60)(62)(62) (72)

566460625556

648485

10497

-100

-50

0

50

100

150

200

Mar '09 Jun '09 Sep '09 Dec '09 Mar '10 Jun'10 Sep'10 Dec'10 Mar'11 Jun'11 Sep'11

0

20

40

60

80

100

120

Days of Inventory Supply Days Sales Outstanding Days of Payables Net Working Capital Days


Reconciliation of GAAP Operating Income (Loss) to

Adjusted Non-GAAP Operating Income (Loss)

Imation Operating Income

Nine Months

$ in thousands FY 08 FY 09 FY 10 YTD 11

As reported - GAAP (33.7)$ (61.7)$ (69.7)$ (21.0)$

Goodwill impairment 32.4 - 23.5 1.6

Inventory write-off included in COGS 2.0 - 14.2 1.5

Restructuring and other 28.9 26.6 51.1 16.8

Litigation settlement - 49.0 2.6 2.0

Adjusted - Non-GAAP 29.6$ 13.9$ 21.7$ 0.9$


Reconciliation of GAAP Operating Income (Loss) to

Adjusted Non-GAAP Operating Income (Loss)

Imation Operating Income

Nine Months

$ in thousands Q1 11 Q2 11 Q3 11 YTD 11

As reported - GAAP (3.4)$ (9.3)$ (8.3)$ (21.0)$

Goodwill impairment 1.6 - - 1.6

Inventroy write-offs included in COGS 1.2 0.3 - 1.5

Restructuring and other 0.9 10.4 5.5 16.8

Litigation settlement - - 2.0 2.0

Adjusted - Non-GAAP 0.3$ 1.4$ (0.8)$ 0.9$


0%

5%

10%

15%

20%

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

% t

o r

even

ue

Gross Margins

Gross margins have been stable to improving. Going forward, we need to

continue improving margins in our growth categories to move our Company

to 20%

Total Imation Long-

term Goal:

20%

Traditional

Goal: Stabilize

Secure &

Scalable Goal:

Upper teens%+

AVI Goal: 20%+

Storing, Protecting and Connecting a Digital World · Q3 11: InfiniVault Data Archive Appliances...

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Transcript of Storing, Protecting and Connecting a Digital World · Q3 11: InfiniVault Data Archive Appliances...