Exhibit 99.2
BERNIE ALDRICH REMARKS
RIMG 3Q03 CONFERENCE CALL
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o Good afternoon and thanks for taking the time to participate in our
third quarter conference call.
o Joining me today is Dave Suden, our chief technology officer, and Rob
Wolf, our chief financial officer.
o In keeping with Regulation FD, which prohibits us from providing any
guidance or other forward-looking statements unless they are
simultaneously released to the public, we have provided financial
guidance in our third quarter release.
o Our guidance is subject to a number of risks that could affect our
anticipated performance.
o These risks are set forth in our filings with the Securities and
Exchange Commission, which we urge you to review.
o Turning now to the subject of this conference call, the third quarter
was another solid period for Rimage, as we reported higher sales and
earnings on both a year over year and sequential basis.
o Third quarter sales of $13.8 million and earnings of approximately $2.0
million were also consistent with our previously issued guidance for
this period.
o Our third quarter results were generated by a very balanced sales
effort, with no single customer or market accounting for a
disproportionately large share of our third quarter sales.
o Our targeted markets, which include digital photography, medical
imaging, banking and finance, and government, accounted for 64% of our
third quarter sales total.
o We also benefited from another solid contribution from our European
operation, which posted third quarter sales growth of 32% and accounted
for 34% of our total sales volume for this period.
o In addition, our third quarter performance was fueled by growing sales
of our re-engineered Desktop line of CD/DVD publishers, which are
starting to penetrate a variety of lower-volume applications in
business office environments.
o The strong growth of the Desktop line is particularly encouraging,
since we are still in the process of building a specialized
distribution channel for this product.
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o We believe the outlook for this lower-priced, user-friendly system is
very encouraging.
o Finally, we ended the third quarter with an order backlog of
approximately $750,000, all of which is scheduled to ship before
December 31.
o Now, I will now discuss several important recent business developments.
o To help determine acceptance by consumers for having their photographs
published on CDs, a major national retailer recently started field
testing our DiscLab CD publishing equipment in a significant number of
its in-store, one-hour photo labs in one of its local markets.
o To support this major retail test, our DiscLab equipment was integrated
into the photo-finishing system of a strategic partner that serves this
national retailer.
o Consequently, DiscLab functions as the digital output solution for
publishing film-based or digital camera pictures on a CD.
o Additional field trials of our equipment are also underway in the
retail photo labs of several other national retailers.
o To further strengthen our focus on our targeted markets, we made
several key appointments during the third quarter.
o Manny Almeida, formerly an executive with Fuji Photo Film USA, joined
Rimage as executive vice president.
o Manny, who had been with Fuji for 23 years, served as vice president
and general manager of Fuji's Commercial Imaging division since 1999.
o He previously held the same position for Fuji's Digital Imaging
division, where he launched Fuji's consumer digital camera initiative
as part of the digital branding strategy that he developed.
o Given his strong industry background, we believe Manny will be
instrumental in helping Rimage pursue promising opportunities in the
digital photography and medical imaging markets.
o In another key appointment, we hired T. Luke Wigger, who was formerly
regional business manager for Kodak's Health Imaging division, as vice
president of business development and medical markets.
o Luke held various management positions in sales, marketing and
operations during his 15 years with Kodak's Health Imaging Division,
which manufactures and markets a wide range of radiography products.
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o He also previously served as administrative director of radiology for
two hospitals.
o We are confident that Luke's extensive and focused background will
facilitate our efforts at further penetrating the medical imaging
arena, which has been our fastest growing market in recent periods.
o I will conclude my remarks by reviewing the financial guidance included
in today's earnings release.
o For the fourth quarter of 2003 ending December 31, we are forecasting
earnings of $0.20 to $0.22 per diluted share on revenues of $13.5
million to $14.5 million.
o Fourth quarter results at these levels would lead to full-year 2003
sales of approximately $51.5 to $52.5 million and earnings of $0.74 to
$0.76 per diluted share.
o This would be an excellent outcome for the current year.
o We have remained strongly and consistently profitable throughout an
extended period of weak economic conditions, a performance that we
believe bodes well for our prospects in a strengthening economy.
o We are very optimistic about our future and continue to believe that
Rimage's best years are yet to come.
o Thank you. Now, Rob Wolf will review our third quarter results in some
detail.
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ROB WOLF REMARKS
RIMG 3Q03 CONFERENCE CALL
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o Thanks, Bernie
o Our business remained on a fairly steady course during the third
quarter, meaning that we experienced no real surprises and that certain
prior trends continued to have a positive impact on our performance.
o For example, international sales and recurring revenues again made
strong contributions to our third quarter results.
o Our top line also benefited from growing sales of the Desktop product
line.
o Since our old Desktop product line incorporated a printer that was
manufactured by a competitor, we received no recurring revenues on
sales of replacement cartridges for that printer.
o Our new Desktop line includes an inkjet printer based on HP technology,
and we are now realizing a recurring revenue stream on sales of
replacement cartridges for this printer.
o As Desktop sales continue to grow, we would anticipate a further
expansion of recurring revenues.
o Reflecting a shift in our third quarter sales mix toward the Desktop
line, which carries somewhat lower margins than our Producer line,
Rimage's third quarter gross margin was 48%, down from 49% in the
year-earlier period and 50% in this year's second quarter.
o R&D expense of $867,000, or 6% of sales, was largely unchanged from
last year's third quarter.
o Selling, general and administrative expense increased 12% in the third
quarter to $2.8 million, due to investments in sales and marketing
programs aimed at strengthening Rimage's penetration of its targeted
markets.
o However, as a percentage of sales, SG&A remained unchanged at 20% on a
year over year basis but was down from 22% in this year's second
quarter.
o Reflecting the impact of the quarter's higher sales volume, our
operating margin of 22% was up from 20% in this year's second quarter
and unchanged from last year's third quarter.
o Turning now to our balance sheet, cash and investments totaled $43.4
million at September 30, 2003, up from $36.3 million at the end of
2002.
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o Due to our strong margins and relatively low capital requirements, we
continue to generate strong operating cash flows.
o Our strong cash increase was attained despite increased inventories,
which rose to $4.1 million at the end of the third quarter from $3.0
million at year-end 2002.
o A number of factors help explain this increase.
o Most importantly, we elected to increase inventories of Everest
printers, which are manufactured in Asia by Alps, to provide us with a
cushion in the event of another SARS outbreak as well as in the event
of a significant customer order.
o Reflecting our strong emphasis on service and support, we have also
increased our parts inventories.
o And relatedly, we have had to increase stocks of printer ribbons and
cartridges due to our growing worldwide installed base.
o Given all of these factors, we believe it is unrealistic to expect
inventories to return to prior levels in the range of $3.0 million.
o Instead, we believe inventories should trend downward over the next
several quarters to the general vicinity of $3.5 million.
o Finally, shareholders' equity rose to $49.4 million at the end of the
third quarter, from $42.2 million at year-end 2002.
o That wraps up our formal remarks, and now I will turn the conference
call back to the operator, who will poll you for any questions.
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