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Edited Transcript of IMN earnings conference call or presentation 15-May-18 2:00pm GMT

Q1 2018 Glassbridge Enterprises Inc Earnings Call

Oakdale May 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Glassbridge Enterprises Inc earnings conference call or presentation Tuesday, May 15, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel A. Strauss

GlassBridge Enterprises, Inc. - COO

* Danny Zheng

GlassBridge Enterprises, Inc. - Interim CEO, CFO & Treasurer

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Presentation

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Operator [1]

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Good morning, and welcome to the GlassBridge Enterprises, Inc. First Quarter 2018 Financial Results Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Danny Zheng, Interim CEO and CFO. Please go ahead.

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Danny Zheng, GlassBridge Enterprises, Inc. - Interim CEO, CFO & Treasurer [2]

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Thank you, Debbie. Good morning, everyone, and thank you for joining today's earnings call for the first quarter of 2018. I'm your host for today's call, and I'm joined by GlassBridge Chief Operating Officer, Daniel Strauss.

We will discuss our ongoing strategic activities and business progress, review first quarter result and have an opportunity for the questions at the end of today's call.

Before that, I would like to remind everyone that certain information discussed on this call that does not relate to historical information might be deemed to be forward-looking statements within the meaning of Private Securities Litigation Act of 1995. Such statements are subject to risks and uncertainties that could cause results to differ materially from any projected results. Risk factors that could cause results to differ are outlined in the press release issued earlier today as well as our filings with the SEC.

I would also like to remind everyone that nothing said on this call constitutes an offer to sell or solicitation to buy any securities in any investment vehicle managed by GlassBridge or its subsidiaries. Any offer or solicitation may only be made pursuant to the Confidential Private Offering Memorandum, which are provided only to qualified offerees and which should be carefully reviewed prior to investing.

With that, I will turn the call over to our Chief Operating Officer, Daniel Strauss. Daniel?

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Daniel A. Strauss, GlassBridge Enterprises, Inc. - COO [3]

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Thank you, Danny, and good morning, everyone. We would like to update you on several developments specific to the execution of the company's strategic vision and business plan. There are several topics to cover relating to our asset management business and holding company initiatives.

We remain focused on our goal of building a profitable publicly traded asset management company designed to create and sustain long-term equity value. We have repositioned the resources of the company to develop our asset management business while remaining focused on minimizing additional expenses.

As a recap, we have 2 distinct focuses within our asset management business: first, technology-focused alternative asset management driven by quantitative trading strategies; and second, our joint venture with Roc Nation, focused primarily on venture capital and private equity opportunities.

On the alternative asset management side, we have seeded the first investment vehicle managed by our investment adviser subsidiary, GlassBridge Asset Management, LLC. This investment vehicle utilizes a quantitative statistical arbitrage strategy, designed to generate attractive risk-adjusted returns that are uncorrelated to the performance of global equity markets. We believe our year-to-date performance is within the normal range of expected return parameters and that we remain well positioned to grow our asset management business. Since launch, we have experienced a gain of $1.1 million on our proprietary investments.

Thanks to the positive performance since the launch of our first investment vehicle, we were able to secure our first third-party client's investment during the fourth quarter of 2017. This was made possible through our capacity agreement with the Clinton Group, which provides us with the flexibility to customize specific quantitative-driven investment solutions for investors.

GlassBridge continues to engage in discussions globally with a number of strategic investors regarding coinvestment opportunities alongside our proprietary capital. These potential early investors are allocators and hedge fund investors, including wealth management platforms, trading platforms, family offices, foundations, endowments and high-net worth individuals. Several of these investors have expressed interest in becoming investors, and they are at various stages of their respective due diligence processes. The typical lead time for committing capital for these types of investors varies between 3 to 12 months. To date, we have engaged with over 100 potential investors and continue to cultivate a list of potential investors.

It is helpful that our first third-party investor has experienced positive performance on their initial investments. This has given rise to fee revenue in our asset management business for the first time. This transaction is with a sophisticated institutional investor with experience within the quantitative space, and this capital commitment helps validate our business plan.

Additionally, over the past 2 quarters, GlassBridge Asset Management has continued to develop global distribution efforts, including specifically within the Asian markets. We announced a joint venture several weeks ago that we plan to offer dedicated quantitative products for the Asia financial markets. These geographies are ripe with opportunity for technology-driven products, and there has been positive institutional feedback. We will keep you updated on the progress over the coming weeks.

We are currently in discussions with several well-established financial institutions, including several that specialize in digital distribution. Our strategy is to continue discussions with strategic investors and to broaden our approach to include larger institutional investors, such as pension funds, consultants and fund of funds that sometimes require longer lead time to close.

Consistent with our business plan, we will continue to grow the asset management business in a measured way over the coming quarters. In addition to our technology-driven quantitative strategy, our asset management initiatives include our venture capital and private equity business. The ARRIVE transaction provides GlassBridge shareholders exposure to a venture capital partnership with 2 experienced collaborators who provide unique value proposition to potential portfolio companies. This partnership has led to a number of proprietary business opportunities and transactions, which have already added value to GlassBridge.

Typically, these investments are longer term and less liquid in nature. That said, of the 3 investments ARRIVE has made to date, 2 of the companies are in the process of raising capital at higher valuations than at which ARRIVE invested. Since the end of the first quarter, ARRIVE has funded 2 additional investments, which fit squarely within its mandate and value proposition.

We continue to evaluate and pursue both venture capital and private equity opportunities arising out of the ARRIVE partnership. ARRIVE continues to see strong deal flow and partnership opportunities. We continue to work on larger transactions which may impact the bottom line over the coming months, and we will keep you updated as these opportunities progress.

Both the GlassBridge quant strategies and ARRIVE transactions offer clients and investors of GlassBridge a differentiated product offering within some of the most attractive areas of the asset management industry. We have been able to call upon the full resources of the Clinton Group to support the evaluation of opportunities as they present themselves.

The incremental overhead for the asset management business is significantly lower than our peers, and we will continue to leverage Clinton's infrastructure as we build our business and evaluate these opportunities. We will continue to share updates on these initiatives as appropriate.

I'll now turn the call back over to Danny to take you through an update on our corporate-level activities and financial results. Danny?

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Danny Zheng, GlassBridge Enterprises, Inc. - Interim CEO, CFO & Treasurer [4]

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Thanks, Daniel. In the last earnings release, I discussed the issues related to our partially owned Nexsan business and our strategy to turn the business around. This will require a renewed focus on our core strengths, what we call getting back to basic, as well as extremely disciplined approach to spending and cost controls. For sure, the past quarter was quite a challenge, but I'm pleased to share with you that we have successfully executed on our strategy, resulting in the return to profitability in Q1 for our Nexsan business.

I must say that I'm extremely proud of our Nexsan team. Despite all the challenges, this resilient team has executed on every aspect of our plan. We significantly reduced operating costs while at the same time growing revenue and improving gross margin quarter-over-quarter. Sales across our core E-Series line as well as in our UNITY and assurance lines held very much to our forecast.

Perhaps more importantly, we have begun to execute on our cloud strategy. A key component of this strategy is to leverage Nexsan assurance proprietary technology as the backbone of an innovative approach to managing and protecting cloud storage.

We believe that our cloud initiative represent a tremendous growth opportunity. Product testing of the first phase of our cloud strategy is nearing complete, and we plan to announce this during summer.

While return to profit is the first milestone in our journey, we are fully aware of competitive landscapes and the many challenges still ahead. We will continue to leverage Nexsan's competitive advantages across all of our product lines to generate cash, investing in business and growth. This will allow GlassBridge to preserve cash and focus on its core asset management business.

I will now review the financial result in detail. The following financial result are for continuing operations, including our asset management, partially owned Nexsan business and the corporate holding company, for the current and prior period, unless otherwise indicated.

Net revenue for Q1 2018 was $9.4 million, sliding down by 2.1% from Q1 2017. The revenue was mostly related to our Nexsan business. The revenue decline was primarily a result of our effort to optimize investment in sales and marketing, which was scaled back by approximately 33% year-over-year.

Gross margin for Q1 2018 was 52.1%, a 6.3% increase from Q1 2017. The increase was primarily driven by product differentiation and product mix change toward our high-margin service business.

Selling, general and administrative expense in Q1 2018 were $5.2 million, down 41.6% from Q1 2017. The decrease was primarily due to corporate cost reduction and cost reductions for our partially owned data storage Nexsan business.

Research and development expense in Q1 2018 were $1.2 million compared to $2.5 million in Q1 2017. The decrease was primarily due to eliminating investment in Nexsan Transporter technology, which did not generate sufficient returns and headcount reductions.

Operating loss for continued operation was $1.6 million in Q1 2018 compared to a loss of $7.5 million in Q1 2017, mostly driven by improvements in our Nexsan business and the lower corporate, general and administrative expenses.

Income tax provision was $0.1 million in Q1 2018 compared to an income tax benefit of $0.1 million in Q1 2017. The change in the income tax provision was primarily related to foreign subsidiary income tax accruals.

Discontinued operation had a loss after tax in Q1 2018 of $0.4 million compared with a loss after tax of $2.0 million in Q1 2017. The decrease was primarily due to reductions in legal and consulting costs. Discontinued operation include the result of IronKey business, which was divested in February in 2016, and the legacy business we substantially wound down in the first quarter of 2016.

Net loss excluding noncontrolling interest was $1.7 million for Q1 2018 compared to a net loss of $7.8 million in Q1 2017.

Loss per share from continued operation attributable to GlassBridge common stockholder was $0.25 in Q1 2018 compared with a loss per share of $1.41 in Q1 2017, based on weighted average shares outstanding of 5.1 million and 4.1 million shares.

Our cash balance and short-term investment was $8.4 million as of March 31, 2018. Our liquidity needs for the next 12 months is estimated at approximately $5 million to $7 million, including corporate expense of approximately $3 million to $4 million, pension funding of approximately $2.8 million, legal settlement payments of $0.5 million and others of $0.5 million, plus or minus any cash flow or proceeds associated with Nexsan and the asset management business. As we discussed earlier, we also expect to receive $1.2 million tax refund in the next 12 months.

We expect that our cash and the short-term investment will provide liquidity sufficient to meet the obligations when it become due in the next 12 months. Beyond 12 months, we expect profit generated from our asset management business will offset the corporate operating expenses. If necessary, we may raise additional capital and monetize certain nonstrategic assets. However, there will be no assurance such initiative will be successful.

I will now turn it over to Daniel for closing remarks. Daniel?

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Daniel A. Strauss, GlassBridge Enterprises, Inc. - COO [5]

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Thanks, Danny. Our initial investment vehicle infrastructure has been created, and we have experienced initial positive risk-adjusted returns, and we expect to generate additional revenue in the coming quarters. We remain focused on using the asset management platform we have built to grow our business by continuing to raise third-party assets and executing select accretive transactions. We will continue to execute our business plan to drive our business forward.

I hope today's call has served to articulate our progress and expected drivers of shareholder value, our asset management efforts and our capital deployment strategy. The board and the management team remain pleased with our progress to date and the velocity and efforts with which our team continue to press forward.

We will now take any questions you may have. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) At this time, there are no questioners in the queue. I would like to turn the conference back over to Daniel Strauss. Daniel?

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Daniel A. Strauss, GlassBridge Enterprises, Inc. - COO [2]

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Thank you, everybody, for dialing in, and we look forward to updating you in the near future. Have a nice day.

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Operator [3]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.