Exhibit 99.2
Remarks of Bernard P. Aldrich
Rimage Corporation 3rd Quarter/FYE 2006 Conference Call
October 31, 2006
| § | Good afternoon and thank you for taking the time to participate in our third quarter earnings conference call. |
| § | Joining me today is Rob Wolf, our chief financial officer, who will review our recent operating results in some detail. |
| § | Also with us is Manny Almeida, our chief operating officer. |
| § | We will be pleased to take your questions at the conclusion of our opening remarks. |
| § | Since Regulation FD prohibits us from providing any forward-looking statements unless they are simultaneously released to the public, we have provided financial guidance for the fourth quarter of 2006 in this afternoon’s earnings release. |
| § | It is important to understand that this guidance is subject to a number of risks that could affect our anticipated performance. |
| § | These risks are set forth in our filings with the Securities and Exchange Commission, which we urge you to review. |
| § | Turning now to the subject of this conference call, Rimage reported strong operating results for the third quarter of 2006. |
| § | Sales totaled $24.8 million, which was at the high end of our previously reported guidance for this period. |
| § | This was down from $28 million in last year’s third quarter, which benefited from a retail order of approximately $6.0 million. |
| § | Third quarter earnings rose 9% to a quarterly record of $4.4 million or $0.43 per diluted share. |
| § | Our earnings, which significantly exceeded our third quarter guidance, included stock compensation expense of approximately $637,000. |
| § | Since Rob Wolf will review the specifics of our third quarter performance, I will only present a few general highlights at this time. |
| § | We recorded strong sales of our mission-critical Producer CD/DVD publishing systems for retail applications, including digital photography and video-on-demand. |
| § | Producer sales for medical imaging applications also were robust. |
| § | As a result, Rimage’s gross margin increased on both a quarterly sequential and year-over-year basis. |
| § | Total operating expenses declined by nearly $850,000 from the year-earlier quarter. |
| § | This is all the more noteworthy since we incurred costs related to the successful cutover in early October to our new enterprise resource planning system for Rimage’s domestic operations. |
| § | We expect to invest more than $4 million in this initiative during 2006, of which approximately $2 million will be capitalized. |
| § | We will start implementing our new ERP system at our European operation in the fourth quarter, with the goal of achieving a cutover by the end of the first quarter 2007. |
| § | Finally, we benefited from a temporarily lower income tax rate in the third quarter, due primarily to higher than previously expected tax-exempt interest income and a reduction in the reserve for a prior year’s income taxes. |
| § | As I said earlier, Rob will delve deeper into each of these issues. |
| § | Now, I would like to discuss some of the key operating strategies that are driving Rimage’s profitable growth. |
| § | Some of you may be somewhat familiar with these strategies, but I think it’s a good idea to review them from time to time to help ensure that you fully understand how we are approaching our business and where we are heading. |
| § | First, and probably most importantly, we are focusing on mission-critical applications, where customers attach considerable value to our unique capabilities in on-demand CD/DVD publishing. |
| § | By mission-critical, we mean applications where our systems are absolutely central to the successful execution of the customer’s business model. |
| § | Among other things, this can mean disc production on a 24/7 basis, which requires extremely reliable and robust disc handling robotics. |
| § | It means network-ready software that ensures both consistent performance and unerring data integrity. |
| § | It means the production of medium to high volumes of discs, with any disc in a production run capable of containing customized content and labels. |
| § | And, it means disc labeling with complex, full color graphics. |
| § | These and other capabilities have enabled us to penetrate a number of high-growth applications. |
| § | Retail, involving the on-demand publishing of customized discs, containing photos, video, music and software. |
| § | Medical imaging in hospitals and clinics, where digital output is a highly cost-effective alternative to conventional film. |
| § | And, business services, where our systems publish customer documents on discs instead of paper for financial and various business applications. |
| § | A second key strategy involves having our publishers designed and integrated into the workflows of OEM equipment. |
| § | This is a complex process that requires expertise in software integration. |
| § | It is not easy and it generally entails considerable lengths of time. |
| § | But, once the integration is completed, it results in a unique relationship, a true partnership, between Rimage and its customers. |
| § | A good example of this is the work we did with Fujifilm, when we were integrated into its digital photo processing labs for retail stores. |
| § | Our systems enable Fujifilm’s equipment to publish customers’ photo’s... either directly from a digital camera or from film...onto a CD with customized color labeling that incorporates thumbnails of each photo on the disc. |
| § | Similarly, we have been integrated into the workflows of GE Medical’s digital radiography systems. |
| § | In this case, we have enabled GE Medical to publish a patient’s scan on a disc instead of large, bulky and more expensive film. |
| § | Disc-based scans also provide physicians with data viewing capabilities that simply are not possible with conventional film. |
| § | In these and other cases, Rimage’s CD/DVD publishing systems function as the digital output solution for OEM equipment in high-growth applications. |
| § | A third operating strategy is based upon the fact that our markets are truly global in scope. |
| § | For example, the opportunities for our digital output solutions in Europe are at least as great as they are here in North America. |
| § | This is why we have established and are continuing to strengthen our Rimage Europe operation. |
| § | We also know that significant opportunities exist for our solutions in the developed economies of Asia. |
| § | As a result, we have opened and are expanding a Tokyo sales office in order to expand Rimage’s presence throughout the Pacific Rim. |
| § | Reflecting these initiatives, roughly one-third of our sales are now generated in overseas markets. |
| § | We believe that number should be closer to 50%, and we are actively striving to attain that goal. |
| § | To help us expand our international presence, we have implemented a fourth strategy that focuses on providing customers around the world with global support and maintenance. |
| § | A multinational corporation with operations in Japan or Australia won’t buy our systems if they cannot be maintained efficiently and effectively. |
| § | Over the years, we have devoted substantial resources toward building a worldwide customer support and maintenance infrastructure. |
| § | As a result, a Rimage customer in Berlin, London or Tokyo can be assured the same level of support and maintenance services as a customer in Minneapolis, Boston and Los Angeles. |
| § | Leveraging the life cycle of our worldwide installed base through consumable supplies and maintenance contracts is a fifth, key operating strategy. |
| § | The mission-critical applications that we are pursuing offer significant potential for generating strong volumes of recurring sales in the form of consumables. |
| § | To capitalize on this opportunity, we sell our customers Rimage-branded kits that contain blank CD/DVD discs and replacement label printer ribbons and cartridges. |
| § | This offering makes it easy and convenient for customers to order the consumables that are needed to keep their systems operating efficiently. |
| § | Equally important, we provide quality media that have been designed to optimize the performance of our publishers and printers. |
| § | We know that poor quality discs are one of the main reasons for unreliable performance, and we address this issue through our consumables strategy. |
| § | Providing mission-critical solutions...becoming integrated into OEM workflows...penetrating global markets...providing unsurpassed worldwide support and maintenance...and offering consumable supplies are five strategies driving Rimage’s long-term success. |
| § | We will continue focusing our resources on these strategies in coming years, which makes us very optimistic about Rimage’s future. |
| § | Turning to the guidance contained in this afternoon’s release, we are forecasting earnings of $0.23 to $0.28 per diluted share on revenues of $23 to $25 million for the fourth quarter of 2006 ending December 31. |
| § | This guidance incorporates several factors, including a $2 million backlog at the start of the fourth quarter that will ship during the fourth quarter of 2006 and the first quarter of 2007 and estimated stock compensation expense of $400,000 to $500,000 on a pre-tax basis. |
| § | Attaining fourth quarter guidance at this level would make 2006 another very successful year for Rimage. |
| § | Thank you. Now, Rob Wolf will review our third quarter results in some detail. |
Remarks of Robert M. Wolf
Rimage Corporation 3rd Quarter/FYE 2006 Conference Call
October 31, 2006
| § | Since our top line growth has already been covered in some detail, I will run through only a few highlights about our third quarter sales. |
| § | Recurring revenues, including sales of printer ribbons and cartridges, parts, blank CD/DVD media and maintenance contracts, increased 15% in the third quarter of 2006 and accounted for 45% of sales, compared to 35% in the third quarter of 2005. |
| § | The growth of consumable supplies has been generated by strategic efforts to capitalize upon the continued expansion of Rimage’s worldwide installed base of CD/DVD publishing systems. |
| § | International sales accounted for 29% of total sales during the third quarters of 2006 and 2005. |
| § | We are moving forward with efforts to strengthen our large European operation, which continued to generate the majority of the quarter’s international sales. |
| § | Currency effects increased worldwide sales by 1% in the third quarter of 2006. |
| § | Reflecting strong sales of our Producer systems, in addition to the introduction of our next-generation P3 Producer product line, Rimage’s gross margin increased to 49% from 46% in the second quarter and 48% in last year’s third quarter. |
| § | Our gross margin in this year’s fourth quarter is expected to be in the 43% to 45% range due to a projected change in product mix related to a portion of the retail sales that we are forecasting for this period. |
| § | Moving down the P&L, total operating expenses dropped by nearly $850,000 from the year-earlier level, which included approximately $1.1 million of expense related to the strategic study that was conducted by an international consulting group. |
| § | However, total operating expenses were also down by more than $200,000 from this year’s second quarter, despite incurring costs associated with the cutover to our new ERP system. |
| § | Within total operating expenses, third quarter R&D expense came to $1.5 million, a level that has remained relatively constant on both a quarterly sequential and year-over-year basis. |
| § | As a percentage of sales, R&D expense was 6% in the third quarter, up from 5% in both this year’s second quarter and last year’s third quarter. |
| § | Fourth quarter R&D expense is forecasted to remain at or near the third quarter level. |
| § | Selling, general and administrative expense, which included stock compensation expense as well as costs related to the implementation of our new ERP system, totaled $5.0 million in the third quarter, unchanged from this year’s second quarter but down by approximately $1.0 million from last year’s third quarter. |
| § | As a percentage of sales, SG&A remained unchanged at 20% in comparison to the second quarter level but was down from 21% in the third quarter of 2005. |
| § | We believe fourth quarter SG&A should increase by 5% to 10% over the third quarter level, due primarily to initiatives aimed at further strengthening our sales and marketing organization. |
| § | Now, a few word about taxes. |
| § | In the third quarter, we benefited from higher than previously expected tax-exempt interest income and a reduction in the reserve for a prior year’s income taxes. |
| § | Due primarily to these items, our effective tax rate for the third quarter of 2006 declined to 32% from 36% in last year’s third quarter. |
| § | Our effective tax rate for full-year 2006 is forecasted to return to a normalized level of 36% to 37%. |
| § | Turning now to our balance sheet, Rimage is continuing to generate significant cash flows from internal operations despite our high level of business investments. |
| § | Cash and investments totaled $73.3 million at the end of the third quarter, up from $69.6 million at the end of the second quarter and $64.5 million at year-end 2005. |
| § | Finally, stockholders’ equity rose to $90.5 million at the end of the third quarter, from $84.1 million at the end of the second quarter and $76.5 million at the end of 2005. |
| § | That wraps up our formal remarks, and now the conference call operator will poll you for any questions. |
