GlassBridge Enterprises Formerly Imation: Fiscal 4Q16 Financial Results

GlassBridge Enterprises, Inc. announced its financial results for the fourth quarter and fiscal year ended December 31, 2016.

Overview
As previously announced, in Q4 2016, GlassBridge entered into a transformative, strategic transaction with Clinton Group, Inc., a diversified asset management firm and an investment adviser registered with the U.S. SEC. The transaction, which was structured to facilitate the quick and efficient scaling of our asset management business, allows for GlassBridge to place under Clinton’s management – within Clinton’s quantitative equity strategy – up to $1 billion of gross investment capacity for an initial term of five years and provides our investors with access to an existing strategy and infrastructure. The transaction closed in February 2017 with strong support from our stockholders. The company intends to launch dedicated investment funds in the near future.

Overview of Financial Results
Revenue for Q4 2016 was $11.3 million, down 28.5% from Q4 2015. All of the Q4 2016 revenue was attributable to partially-owned subsidiary, Nexsan Corporation. This revenue decrease was due to the strategic decision to exit Nexsan’s underperforming geographic regions and low-margin portions of the business to focus on the next-generation UNITY and other higher-margin products.

Gross margins improved from 42.4% in Q4 2015 to 45.1% in Q4 2016.

Selling, general and administrative expenses declined by $2.2 million, or 23.2% year-over-year, and operating loss from continuing operations was reduced by 37.8% to $5.1 million from a loss of $8.2 million in Q4 2015.

Cash balance and short term investments totaled $32.0 million as of December 31, 2016.

“We exit 2016 having completed a substantial transformation from Imation Corp. to GlassBridge Enterprises. Our company now has the required focus and infrastructure in place to execute our collective goal of building a profitable publicly-traded asset management company poised for long-term value equity value creation,” said Joseph A. De Perio, non-executive COB of directors.

Detailed Q4 2016 Analysis
The following financial results are for continuing operations, including Nexsan and the corporate holding company, for the current and prior periods unless otherwise indicated.

Net revenue for Q4 2016 was $11.3 million, down 28.5% from Q4 2015. The decrease was due to the strategic decision to exit underperforming geographic regions and low-margin portions of the business.

Gross margin for Q4 2016 was 45.1%, a 2.7% increase from Q4 2015. The improvement was primarily driven by production cost improvements, price optimization programs and product mix changes.

Selling, general and administrative expenses in Q4 2016 were $7.3 million, down $2.2 million, or 23.2%, compared to $9.5 million in Q4 2015. The decrease was primarily related to Nexsan cost reductions, including the exit from underperforming geographic regions and the workforce consolidations from 600 on December 31, 2015 to 175 on December 31, 2016 .

R&D expenses in Q4 2016 were $2.4 million, compared to $3.4 million in Q4 2015, due to Nexsan cost reductions in legacy products such as E-series.

Special charges were $0.5 million in Q4 2016 compared to $2.0 million in Q4 2015. Special charges in Q4 2016 were primarily related to severance and pension settlement costs, whereas in Q4 2015 they were primarily related to pension settlement costs and consulting fees.

Operating loss from continuing operations was $5.1 million in Q4 2016 compared to a loss of $8.2 million in Q4 2015.

Income tax expense was $2.4 million in Q4 2016 compared to none in Q4 2015. The Q4 tax expense was related to the reversal of all the prior quarter allocations of tax benefit from discontinued operations to continuing operations. 2016 full year tax expense is $0.1 million.

Discontinued operations had a loss (after-tax) in Q4 2016 of $9.8 million compared with a loss of $1.4 million (after-tax) in Q4 2015. The loss was primarily due to increased legal accrual in Q4 2016. Discontinued operations include the results of the IronKey business, which was divested, and the legacy Storage Media and Accessories businesses which we exited.

Loss per share from continuing operations was $3.27 in Q4 2016 compared with a loss per share of $2.30 in Q4 2015 based on shares outstanding of 3.6 million and 3.7 million, respectively, (adjusted to give effect to the February 2017 1:10 reverse stock split). 

Cash and short-term investments balance was $32.0 million as of December 31, 2016, down $17.6 million during Q4 2016, driven primarily by investment in Nexsan, losses on short term investments and the settlement payments related to discontinued operations.

Year-To-Date Summary
For the twelve months ended December 31, 2016, he company reported net revenue of $44.1 million, down 29.8% compared with the twelve months ended December 31, 2015.

Operating loss from continuing operations totaled $35.0 million for the twelve months ended December 31, 2016, including special charges of $7.6 million, and a diluted loss per share from continuing operations of $10.76.

For the twelve months ended December 31, 2015, GlassBridge reported net revenue of $62.8 million, an operating loss from continuing operations of $140.9 million, including special charges of $94.3 million, and a diluted loss per share from continuing operations of $35.68.