Financial: Iomega Announces Fourth Quarter Profit of $19 Million and Over $100 Million in Positive Cash Flow; Margins Improve over Third Quarter - Company Financial Information

Edge: Work-Group Computing Report, Jan 25, 1999

Iomega Corporation (NYSE:IOM) Thursday reported fourth quarter earnings of $19 million, or $0.07 per diluted share, compared to a third quarter 1998 loss of $(14.8) million, or $(0.06) per diluted share, and fourth quarter 1997 earnings of $36.1 million, or $0.13 per diluted share. Revenue for the fourth quarter of $501 million represented an increase of 28 percent over third quarter 1998 revenue of $392 million and a decrease of eight percent from fourth quarter 1997 revenue of $547 million.

Fourth quarter revenue included record Americas revenue of $313 million, European revenue of $154 million, and Asia Pacific revenue of $34 million. "I am pleased that we were able to deliver on our goal of fourth quarter profitability," said Jodie Glore, president and chief executive officer, Iomega Corporation. "And I'm extremely pleased with our balance sheet improvements. We generated over $100 million in positive cash flow and reduced inventory by an additional 16 percent beyond the improvements made in the third quarter. "As a result we exited the year with a strong balance sheet which will be critical to our future plans. Going forward we will be focused on growth, profitability, and asset management." "Our fourth quarter results are a strong indicator of the progress we have made, but we still have work to do," continued Mr. Glore. "Due to first quarter seasonality and component constraints associated with ramping new products, we expect our first quarter 1999 results to be approximately breakeven with the possibility of a small profit or loss." Fourth quarter 1998 gross margin increased to $139 million or 28 percent of sales, compared to $88 million or 22 percent of sales in the third quarter. This gross margin improvement was driven primarily by cost reductions in both the Zip and Jaz product lines and initial sales of Iomega's new Zip USB and Zip 250 drives. Gross margin in the fourth quarter of 1997 was $183 million or 33 percent of sales. Selling, general & administrative ("SG&A") expenses were $81.4 million or 16 percent of sales for the fourth quarter of 1998, compared to third quarter 1998 SG&A expense of $72.6 million, or 19 percent of sales. SG&A expenses were down 22 percent when compared with fourth quarter 1997. Research and development expenses of $24 million were flat with both the third quarter of 1998 and the fourth quarter of 1997. Total operating expense of $106 million in the fourth quarter compares to third quarter operating expense of $96 million (excluding purchased in-process technology) and is down 17 percent from $128 million in the fourth quarter of 1997. Iomega continues to implement its Six Sigma quality initiatives announced earlier this year and expects significant cost savings to result in 1999. Growth in Iomega's Zip and Jaz disk unit shipments in the fourth quarter of 1998 significantly outpaced drive shipments. Both Zip and Jaz disk unit shipments increased 47 percent in the fourth quarter of 1998 compared to the fourth quarter of 1997, while Zip drive units increased 26 percent and Jaz drive unit shipments decreased seven percent, for the same time periods. Total Zip product revenue for the fourth quarter was $353 million and total Jaz product revenue was $123 million. Revenue for the quarter included record disk revenue of $206 million, drive revenue of $287 million and other miscellaneous revenue of $8 million. Iomega's Clik! Digital Camera bundle configuration began shipping in mid-December but fourth quarter 1998 Clik! revenue was immaterial. Iomega's Clik! Mobile Computing bundle and its Clik! Plus bundle, for mobile computers and digital cameras, began shipping Thursday. For the year, revenue was $1.7 billion, approximately flat with 1997 revenue. The net loss for the year of $(54) million, or $(0.20) per diluted share, compares with 1997 net income of $115 million, or $0.42 per diluted share. Cash and temporary investments as of December 31, 1998 were $90 million, which compares to $46 million, as of September 27, 1998. Cash flow for the quarter was $106 million, driven by a reduction in days sales outstanding (DSO) and inventory and the receipt of expected tax refunds. Cash flow for the year was negative $146 million, including costs relating to the acquisition of Nomai S.A. in the third quarter. "We shipped some exciting new products last quarter," commented Mr. Glore. "Our Zip USB and Zip 250 drives will be significant revenue contributors in 1999 and our new Clik! drives and disks are opening up new markets for Iomega. "The change to a functional organization that we separately announced Thursday is designed to improve our top line growth rate with an increased focus on global market access and customer applications, as well as our overall organizational effectiveness." Iomega Corporation (NYSE:IOM) manufactures and markets the award-winning Zip, Jaz Clik! and Ditto 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 http://www.iomega.com.