Creative Realities, Inc.
Q1 2009 Earnings Call Transcript

Published: 8 May 2009

[Operator:]

Good afternoon. My name is Sadie and I will be your conference operator today. At this time, I would like to welcome everyone to the Wireless Ronin 2009 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Ms. Linda Hofflander I turn the call to you.

[Linda K. Hofflander:]

Thank you and welcome everyone to our 2009 first quarter conference call. With me today are James C. Granger (Jim), President and Chief Executive Officer and Darren McAreavey, Vice President and Chief Financial Officer, Scott Koller, Executive Vice President and Chief Operating Officer will join us for the Q&A portion of today's call. After brief comments from management, we will open the call to your questions. Before we begin, please note that the information presented and discussed today includes forward-looking statements, which are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results in future periods may differ materially and you should not attribute undue certainty to forward-looking statements. Risk and uncertainties that could cause our actual results to differ from those expressed or implied by forward-looking statements, include those set forth in the Risk Factors of the Form 10-K we filed on March 13, 2009. In addition, our comments may contain certain non-GAAP financial measures, including non-GAAP operating loss and non-GAAP gross margins. For additional information, including a reconciliation from GAAP results to non-GAAP measures, how the non-GAAP measures provide useful information and why we're using non-GAAP measures, please see the non-GAAP reconciliation section of our press release which appears on our website at www.wirelessronin.com. Now I'd like to turn the call over to Jim, who will discuss our first quarter results. Jim?

[James C. (Jim) Granger:]

Thank you, and good afternoon everyone and thank you for joining us on today's call to discuss our 2009 first quarter results. The first quarter of 2009 has proven to be difficult for many businesses and Wireless Ronin is no exception. Because of the current economic conditions, customers are still reluctant to make buying decisions, that may result in large scale roll outs. Despite these difficult circumstances we believe the company is making good progress and meeting the goals we set out in the fourth quarter of 2008. First, we continue to focus on the delivery of software and services for the digital signing solutions in mission critical applications. Second, we continue to improve our cost structure to increase margins and lower overall operating costs in order to improve cash flow. And finally, we continued to provide successful implementations to our existing and key clients such as KFC, Aeromark and Thomson Reuters. In the first quarter of 2009, we continued to focus on the goal set out in the fourth quarter call of 2008 by expanding and further refining them. We believe creating a long term cost structure and continuing to focus on market expansion with our key clients will lead to increased value and help make Wireless Ronin a more efficient and effective organization. I'll take the opportunity to address these in more detail following a review of our first quarter financial results. It is my pleasure now to introduce to you our new Vice President and Chief Financial Officer, Darin McAreavey. Darin brings to Wireless Ronin 20 years of financial management experience with midsize, privately and publicly held high-tech companies, most recently at Xiotech Corporation. Prior to Xiotech, Darin served as Chief Financial Officer for Global Capacity Group. Darin's extensive experience in the financial management of high-tech companies, both public and private, positions him as an integral part of our team, as he strives to shape the financial success of Wireless Ronin. In his short tenure here, we've already seen the impact that he has made in all of our operations and will continue to see that impact moving forward. Darin will now provide an overview of our financial results for the first quarter of 2009. Welcome, Darin.

[Darin P. McAreavey:]

Thanks, Jim. It's my pleasure to be here and to speak to all of to you today. I'm excited to be part of such a wonderful team. Since joining Wireless Ronin in March, I've been focused on several initiatives to help manage our operating costs. In addition, I put in place a new financial reporting structure, which includes identifying and tracking several key performance indicators against our corporate goals which will become increasingly important in our efforts to drive bottom-line results to our shareholders. During the first quarter of 2009, we recorded total revenue of 1.4 million, which was down approximately $1.5 million or approximately 26% from the first and the fourth quarter of 2008. The decline in our first quarter revenue, when compared two prior year periods was primarily the result of a shift to solution sales of software and services and less emphasis on hardware sales. On a GAAP basis, our first quarter 2009 net loss totaled 2.9 million or $0.20 per basic and diluted share, compared to a net loss of 4.2 million or $0.29 per basic and diluted share for the same period a year ago, and down from our net loss of 6.9 million or $0.47 per basic and diluted share in the fourth quarter of 2008. The decrease in net loss from the year ago quarter was primarily attributable to the reduction in employee compensation and related expenditures that resulted from the work force reduction initiatives that were taken in both the third and the fourth quarter of 2008. Included in our first quarter results for both 2009 and 2008, are employee related severance charges of 237,000 and a120,000 respectively. Additionally, there was a general across the board reduction in almost all expense categories as the company continues to focus its efforts on better managing its operating costs. Excluding one-time expenses and non-cash charges, the first quarter 2009 non-GAAP operating loss totaled 2.3 million or $0.16 per basic and diluted share versus a non-GAAP operating loss of 3.7 million or $0.25 per basic and diluted share in the first quarter of 2008. Sequentially our non-GAAP operating loss improved approximately $1.5 million or $0.03 per basic and diluted share in the fourth quarter of 2008. Gross margins for the first quarter of 2009 was approximately 19% as compared to 21% in the year ago period and 12% in the fourth quarter 2008. Gross margin improvement from the fourth quarter of 2008 to the first quarter of 2009 was primarily the result of the cost reductions made in the prior quarter. If we look at our gross margins on a non-GAAP basis, which excludes the revenue and costs associated with our Network Operation Center or NOC and other one time charges, our first quarter of 2009 gross margin came in at 27% which compares to 25% in the fourth quarter of 2008 and 24% in the first quarter of the prior year. As we look to improve our gross margin percentage throughout 2009, we'll focus on the selling of software and services as hardware is traditionally held a lower gross margin percentage and negatively impacted the average gross margin of our project. Despite these lower margins, we believe that it is in the company's best interest to continue to serve select customers preference for having a single source to provide them with software, services and hardware. Total operating costs for the first quarter of 2009 were 3.2 million, down from $4.9 million in the first quarter of 2008 and 7.2 million from the previous quarter. The year-over-year decrease was primarily due to reduction of both employee compensation and related expenses, along with the general across the board reduction in almost all expense categories. In addition to the reductions mentioned above, the previous quarter included one time charges totaling $3.4 million. We'll maintain our focus to better align the company's operating expenses to current and expected sales levels as we continue to operate what is proving to be a very challenging business environment. As previously reported in our earnings call last quarter, we anticipated a sequential reduction in our non-GAAP operating expenses and direct cost by approximately $1 million for the first quarter of 2009 as a result of the actions taken in the previous quarter. I am pleased to announce that our actual savings exceeded this amount by approximately $200,000, when excluding our front loaded marketing initiatives in the first quarter. Going into 2009, our overall head count was 96 compared to 86 as of May 7. Included in today's earnings release and financial results is a reconciliation between the GAAP and the non-GAAP operating loss This highlights one way in which we look at profitability and cash utilization for the company. It is similar to EBITDA but adjusted for certain other one time and non-cash items. This supplementary scheduled details the items and effects of the first quarter one time adjustments and shows the trend to reduced cost and improvement in our non-GAAP operating loss for the quarter. Turning to the balance sheet; at the end of the first quarter of 2009, cash and cash equivalents in combination with marketable securities and restricted cash totaled approximately $11.7 million compared to $14 million at the end of 2008. Our cash spend for the first quarter of 2009, which primarily funded our operations was $2.4 million, which is an improvement of 1.5 million in the previous quarter. It is down $2 million when compared to the third quarter 2008 which totaled (Technical Difficulty) in the first quarter 2009 compared to 12% last quarter, versus 5% from the third quarter of 2008. This now represents three consecutive quarters of improving gross margins on a percentage basis. We exceeded delivering on a $1 million cost savings commitment made last quarter. When you exclude the front loaded marketing initiatives, we reduced our non-GAAP operating loss by 500,000 from the previous quarter. And lastly, we reduced our cash burn to 2.4 million in the first quarter of 2009, compared to 3.9 million and 4.4 million in the fourth and third quarter of 2008 respectively. Now, I'd like to turn the call back over to Jim for some closing comments, before we open up the call to your questions.

[James C. Granger:]

Thank you, Darin. Well, as Darin and I've noted, we continue to make progress on creating a long term cost structure for Wireless Ronin that can lead to increased value. One key to creating this cost structure is a more complete integration of our Canadian and U.S. operations under a simplified and streamlined model. There were three primary actions that took place during the first quarter to further accomplish this model. First, we felt it was imperative to restructure the software development team and appointed Viet Tran as Vice President, Product Development in order to do so. Prior to joining Wireless Ronin, Viet served as Chief Information Officer for Grand Sierra Resort and Casino. And before that he held technology management positions at ShopNBC and Ulysses Netsolutions, here in the twin cities. With Viet's background and expertise in the management of several concurrent software development projects across multiple geographic locations, we are creating a more unified and highly functioning development team that can quickly provide software solutions for our customers at reduced cost. This is particularly important, as we introduced our next generation RoninCast Software platform that combines the best of the current RoninCast platform along with elements of the Kiosk platform that had been developed under the former McGill organization. This new unified platform will enable us to stand out even further from our competition, validating our position as a recognized leader in software and solution creation within the digital signage industry. A second step in creating this unified streamline model between U.S. and Canada was the promotion of Scott Koller to Executive Vice President and Chief Operating Officer. This allowed Scott to fully control all customer facing operations within WRT, including sales, project management, content engineering and technical support, including our Network Operation Center. Lastly, Linda Hofflander, Vice President and Chief Marketing Officer now heads up our Business Development Organization. This new division of Wireless Ronin is developing substantial new business opportunities with the company's primary verticals as well as exploring secondary vertical opportunities that may continue to thrive in a down economy. In addition to direct outreach and deep dive exploration of opportunities within existing relationships, the Business Development team will also proactively target developing strategic alliances with ad agencies, signage companies, fixture companies, hardware manufacturers, architect and interior design firms as well as other avenues to contact with customers to address their mission critical initiatives. We feel these changes will be an integral part of our success. I would now like to comment on some significant sales and installations, which are completed during the quarter and on some opportunities looking forward. As previously discussed, the digital menu board was showcased in the corporate marketing booth at 2009 KFC Franchisee Show and was very well received. We have now completed a 124 installs with KFC with the most recent being in Las Vegas where 35 stores converted to digital menu boards as part of the official launch for the grilled chicken initiative. Moving forward, we've been told that all new corporate stores will be equipped with digital menu boards. We continue to gain momentum in the QSR market beyond KFC. With several clients engaged we believe that our efforts will be rewarded. In addition, nutrition regulation appears to likely drive both our current and potential clients towards a digital solution. We retain a strong relationship with Thomson Reuters, as you may have seen in our recent press release and earlier this week, we're now installed in 250 locations in 42 countries. One of the highlights of first quarter was the implementation of the InfoPoint on the Singapore JumboTron. The JumboTron is 102 feet long and located in the heart of Singapore financial district. It is viewed by millions each and every week. The custom content was a joint effort between Thomson Reuters and Wireless Ronin, taking months to finalize and was launched after approval of the Singapore Thomson Reuters's executive management. Moving forward, we're focused on the continued deployment of InfoPoint in Asia as mentioned in our last quarter. Our relationship with Aramark also continues to flourish. We have successfully completed six installations with multiple additional installs under contract. The latest install was at the children's hospital of Philadelphia, a redesigned cafeteria. This is the first install to leverage Aramark's internal resources to build menu systems. Aramark is using children's hospital installation to showcase their digital signage vision to visitors and customers. Aramark is a leader in professional service in many industries. The Wireless Ronin relationship has now expanded into their healthcare, hospitality as well as their sports and entertainment verticals. Our installations for Sun Tan City continue to expand. We currently have 33 sites installed. Sun Tan City is a rapidly growing tanning salon franchise with over 76 locations, headquartered out of Kentucky. We're providing promotional board application in the front lobby which is fully hosted solution from WRT, including hardware, software, installation and network operations. Sun Tan City is currently re-branding all locations where they will incorporate digital signage in the remodeled and new store locations. Again, the ROI, or return on investment in digital signage in mission critical applications is compelling. Businesses are starting to see the value proposition that this medium offers and WRT is uniquely positioned in the industry to take advantage of the spending that will occur. Individual customers have their own unique mission critical needs and business drivers. And as you can see, our organizational structure now supports these different needs with a lower cost model. Now some of our larger customers who want us to focus on the provision of software and services while they obtain the hardware solutions directly. Other customers will look to us to operate more as a general contractor, providing a complete solution including hardware, installation support, network operations and creative services to fill out the entire project. Despite the recessionary headwinds and the challenges we have faced, the company continues to make progress. We've taken the necessary steps to better position the company for growth and we will continue to make improvements where we see fit. During the first quarter of 2009, we focused heavily on reducing cash utilization and market expansion with key clients. Combining that with the further integration of our U.S. and Canadian operations we believe will greatly improve the way we operate and how we approach our current and future customers. We now have the right people in the right place to take advantage of the opportunities we see in front of us. Going forward, we will continue to expand and build upon these goals as well as proactively target strategic alliances as our business development initiatives grow. I continue to be optimistic that we are making the right moves now to position the company for the long-term success. Finally, I'd like to close by thanking the employees of Wireless Ronin for their support as we've made the necessary changes to streamline the company and to reduce the cost structure to position us for long-term success. Despite the difficult economy, we're better situated now to take advantage of the eventual turnaround in spending on digital signage and we're starting to see the results of our investments. Now this concludes our prepared remarks. I would like to open up the call now to your questions.

[Operator:]

(Operator Instructions). Your first question comes from Atul Bagga of ThinkEquity.

[Atul Bagga:]

Hey guys.

[James Granger:]

Hey.

[Atul Bagga:]

Thank you for taking my call and congratulations on the progress during the quarter.

[James Granger:]

Thank you, Atul.

[Atul Bagga:]

So can you give us an update on KFC. So you mentioned that you... all the new corporate stores will be digital menus. So do you guys have the contract to do digital menu for these corporate stores and how many stores can we expect to see coming up in Q2?

[James Granger:]

This is... I'd like to have Scott Koller address that question.

[Scott Koller:]

Yeah, they haven't identified a specific list of stores. What they have said is any new remodels and any new corporate stores that are getting upgraded moving forward, and we haven't got a complete number on that, will go digital. So it's still operating under original scope of work that we did for the market test, pilot test and all the 124 installs we've done to date. But what we were told that anything being remodeled on a corporate level or any new corporate stores would be given digital.

[Atul Bagga:]

And given digital, is it all the stores will be coming to Wireless Ronin or --

[Scott Koller:]

At this point in time, yes.

[Atul Bagga:]

Got you. And what about the big contract with KFC? Is there any progress on that that you've talked about in the past?

[Scott Koller:]

I think a clear way to state the status of KFC right now is they've just had a large initiative with launching the grilled chicken. And the grilled chicken has been very, very successful. That's important for us. As you've seen in recent history, KFC sales have been somewhat down and the success of the grilled chicken has certainly helped all of the endeavors they're doing. What they've done in Oklahoma and what they've done in Las Vegas is put together what they call perfect market, which means the stores have been upgraded. They've been painted. The employees been trained. They've got a digital menu board and they have all the new menu items. This is the Javier Benito, the CMO and Roger Eaton, the CEO's concept of the perfect store. And the results have been very good. So I would think that their long-term plan and again, they've talked about putting digital in by the end of 2010. But their long-term plan would be to mimic that perfect market in other cities.

[Atul Bagga:]

Makes sense. Perfect. And second question about, can you talk... can you give a little more color on the cost savings? So I think in the last quarter call, you talked about the steps that you've taken for cost savings. It would result about $2 million saving per quarter and you are expecting... I think first quarter, you did better than your expectation of $1 million saving. So going forward, I mean is the cost saving about $2 million a quarter, is it more than that or how should we think about that?

[Darin McAreavey:]

In that respect --

[James Granger:]

This is Darin.

[Darin McAreavey:]

Yes, it's Darin McAreavey. I am responding to the question. That was actually back from the third quarter. So in the fourth quarter, we made the statement from the reductions, the head count reductions that we're making that we would anticipate having $1 million subsequent quarter, which, again we achieved backing out absent the marketing initiatives that are front-end loaded for us in the year. So we should be on pace for a cumulative $2 million a quarterly reduction back from the third quarter of 2008.

[James Granger:]

And we will continue to find ways to streamline the company. I believe that making sure you have the most efficient and effective corporation in the long run is absolutely our job day one. And so we will continue to look for ways to reduce the cash burn.

[Atul Bagga:]

And when do you think the company will get back to cash positive level?

[James Granger:]

We have not made any projections as it relates to that. It's going to depend upon obviously the growth in sales and the continued management of our reductions. But we have not made a projection of that or have one on the street right at this time.

[Atul Bagga:]

Do you guys feel comfortable with the current cash position on hand?

[James Granger:]

Yes, we believe that we have the cash sufficient to see us well into 2010. And we also like what we see in terms of the opportunities in front of us.

[Atul Bagga:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Jay Meier of Feltl & Company.

[Jay Meier:]

Hey guys, thanks for having me on.

[James Granger:]

Hi Jay.

[Darin McAreavey:]

Hey Jay.

[Jay Meier:]

Hoping I can pull a little bit of color out of you on some of your operating metrics, maybe your gross margin, I mean these directionally. Give us... can you give us a target of where you think you can go with gross margin over the next few quarters or should we... how should we be thinking about that?

[Darin McAreavey:]

Yes, I mean it's obviously pretty hard to predict exactly where our gross margins are going to be any given quarter given the level of mix of hardware to software and software services. So our plan is again that we're going to try to work to expand those. We're seeing again, as indicated in the prepared remarks, that some customers are choosing directly to go to our display providers for hardware, which obviously would have a positive impact on the overall gross margins. So I don't have a specific number to provide to you given the fluctuations we can see in any given quarter at the moment.

[James Granger:]

But the goal of ever increasing those gross margins, Jay, as you and I have talked, is absolutely essential and I think very doable given what we're seeing in the marketplace as our sales grow.

[Jay Meier:]

Okay. So as you envision your business continuing to evolve over the course of 2009, would a reasonable person target a progressively improving gross margin outlook?

[James Granger:]

Absolutely.

[Darin McAreavey:]

Yes.

[Jay Meier:]

Okay. That's very helpful. Jim, both you and Darin have had... made a couple of comments talking about the tough economic environment. Can you give some color on that? I mean I know everybody knows the economy is bad and everybody knows things are kind of seems to be settling in a little bit. We're seeing some improvement in some areas. Are you seeing any light at the end of the tunnel and are you speaking specifically about existing customers or in general the broader economic climate as you see the horizon in new customers?

[James Granger:]

Yes, let me take a little bit to add some color to that and then I'm going to turn it over to Scott. I think what we've seen is that customers continue to be interested to trial, to work on digital signage solutions and to roll out in reasonable kinds of fashions given the access to capital. And let's face it, this all has access to capital issues around it. So what I see is that I hope, we all hope, because we're all looking for green shoots, I confess (ph) the word now, we're hoping that starts to loosen up. I can tell you that the conversations we have with multiple customers leads us to believe that they believe the spends will be coming. But it's slow, it is very slow because the access to capital, it is still a capital expenditure and the access to capital for every company is challenged at this time. Scott, some of your comments?

[Scott Koller:]

Yes, Jay, if you look at our primary focus that we've discussed before we've looked at retail, we looked that automotive, we looked at QSR. In the QSR world, there is a tremendous amount of opportunity right now and I can say regardless of what the economy is doing. There is... this market sector although has been is punished a little nowhere near to the level that retail and automotive has been. So if I had to rank them in a priority for us in the short term, QSR absolutely shows the most promise for rolling out larger scale installations. We continue to pursue all three aggressively. But if I had to rank them, QSR obviously offers the most opportunity for us in the near term to establish real relationships.

[Jay Meier:]

Okay. That segues into an interesting question. I noticed the services business was down. That was below my target, and that's historically been associated with the Canadian service operations with Chrysler. We all know Chrysler is in pretty dire shape, hopefully they come out of it someday. But should we assume that that business with Chrysler is on the back burner for a while?

[Scott Koller:]

I think that is probably a good safe assumption. It's very hard to get... that being said, we have no outstanding work with Chrysler debts or other measure. We are not exposed to Chrysler in any debt fashion at all, zero dollars. So they have paid us everything that they want done. It's how quickly they want to do additional work. And obviously in a company which is going through that situation, making decisions and getting approvals is challenged. And so I think you're right on in what you've seen and what your assumptions are.

[Jay Meier:]

Did you do any -- did you book any revenue with Chrysler during the quarter?

[Darin McAreavey:]

We did. We booked a -- it was less than a 100,000, directly with Chrysler. But we've already been paid for it and it was just a function of sitting in deferred and we recognized it in the first quarter.

[Jay Meier:]

Yup. Now that's fair. I just was thinking about how that could transition to future quarters. So that's -- we're already done along that line. That's great. And if you -- I just wanted to touch on KFC one more time. A YUM brand, I guess it's been expanded up to YUM brands sort of in their outlook on digital signage. A year ago, maybe a little further back, KFC was talking about all corporate and all franchises and then it kind of looks like all corporate and now it sort of looks like corporate stores that they are going to either remodel or new corporate stores. So the trajectory of that program seems to be changing and that's understandable given the economic situation. But do you expect to see in a large order at some time. I mean is that still reasonable to say, you know what, second half of the year the chicken is flying out the door and our budgets are back full again. We're going to buy 500 stores or should we expect to see in to small market after small market, 25 stores at a time something like that?

[James Granger:]

Jay I think you are absolutely right. As it gains momentum, as they gain momentum as a brand, digital is going to be a big part of their future. I believe that we already have another city on the horizon just like we did Oklahoma, just like we did Los Vegas, I don't think it will continue on a city-by-city basis. There will be a point in time where we do get the larger orders. I am very confident that they needed grilled chicken. We needed grilled chicken to be a success. I don't know if you've gone and tried it yet, but you should. I did twice so. Try to support KFC; if you can for me. No, they needed a big success. They needed the type of stuff that happened this week where Oprah actually endorsed the chicken. They're getting a lot of good press right now. That's good for the brand. And really Javier (ph) and Mr. Eaton and when you talk to them, this perfect market concept again is a recipe for them. Clean stores, courteous service, technology and new food is there, is really their footprint going forward. So I believe yes that it will move much faster at some given point in time.

[Jay Meier:]

Well, I'd love to tell you that I am having lunch with those guys everyday. But so next time I talk to Mr. Eaton, I'll let you know.

[James Granger:]

Okay.

[Jay Meier:]

Anyway, thank you very much.

[James Granger:]

Thanks, Jay.

[Darin McAreavey:]

Thanks, Jay.

[Operator:]

Your next question comes from Joe Craft (ph) of WSC.

[James Granger:]

Hey, Jo.

[Unidentified Analyst:]

Hi, my question's been answered. Thank you.

[James Granger:]

Okay, thanks.

[Operator:]

Your next question comes from Ars Tanglone of Supera Capital (ph).

[James Granger:]

Hi, Ars.

[Unidentified Analyst:]

Hi, good afternoon.

[James Granger:]

Good afternoon

[Unidentified Analyst:]

Couple of quick questions. You guys done sort of good job in terms of containing costs. Two questions around that. You mentioned the integration of Canada and U.S. in terms of software platform. What is the reasonable timeline, when do you think you will complete that?

[James Granger:]

We'll see that platform mid-year, mid to third quarter this year.

[Unidentified Analyst:]

That's great. So hopefully that will help save some cost, but also increase your capabilities significantly and differentiate you.

[James Granger:]

Yeah, I want to make sure everybody knows. The capabilities that we rollout today are every bit is good, but they can be improved upon. You can never -- there is nobody that's getting software today that isn't getting an absolute first class software. But where the new platform really comes in, as it helps reduce support costs and other costs around that. So it offers us the ability to provide a superior product, of course, but even more importantly, it's a lot easier and not a lot, but it's significantly easier to maintain and support from a back office perspective. And there are certain technical -- this is just the evolution of software technology. It's nothing brilliant or anything, but it's good software. So we're excited about it. We think it's a great new platform, builds upon the keys of both the RoninCast platform and the Kiosk platform and we're really excited for having that on hand to help drive that process.

[Unidentified Analyst:]

While talking to a lot of the competitors, our sense is that you are way ahead of the curve as it comes, as it relates to the menu boards, specifically and also on the automotive side as well. But so hopefully, that's --.

[James Granger:]

We also think in that financial services area that we mentioned, we're pretty far ahead of the curve as well. So I mean, company like Thompson Reuters, I don't think it will be rolling us out if they didn't think we had a pretty strong product to support them worldwide.

[Unidentified Analyst:]

And you mentioned Aramark --

[James Granger:]

Yes.

[Unidentified Analyst:]

Can you help us understand that in terms of because Aramark has a huge customer base if you will, can you help us understand how you see that relationship?

[James Granger:]

I'd like to turn that to Scott.

[Scott Koller:]

Yeah, Ars, thanks for the question. And when we looked and when we first started dealing with Aramark, we got introduced to the higher education, which were the universities and what not, institutional type food, the higher education and the healthcare. We have now opened that relationship up to sports and entertainment and a recap, they have about 17,000 locations in the U.S. where they serve food of some type, institutional food. Their number one goal now, is it's branding, it's differentiation in those areas but more importantly the average place they sell food in they classify as sort of wanting to break up the monotony. Not only be more efficient with products like the burger studio, we are doing for them, where it doesn't require a person to order your meal. You go through a touch screen kiosk, you get a receipt and you pick up your meal. To the normal type digital signage's, as we know it today throughout the children's hospital, Philadelphia they are trying to increase throughput while breaking up the monotony of that institutional type food arena. And they are very, very dedicated at the celebration of Chop, when they opened up the new area, the President of Aramark and the President of Chop were there and they got a lot of recognition. With that children's hospital of Philadelphia being right in the backyard, the user has a showcase to bring in their clients and their customers to say, hey we would like to do the same type of thing in your food area.

[Unidentified Analyst:]

So, I guess there is a big opportunity there and you guys obviously are...

[Scott Koller:]

Yeah, it's a little different opportunity as I would add in that. Unlike a QSR, which is a whole repetition of a very standard model, each one of these can be very different and if that presents its own challenges and you don't look for core -- big rollouts, what you do is have multiple open projects and we look forward to doing a number of those projects with Aramark.

[Unidentified Analyst:]

Sure and to your point, Scott we actually have been to-- we went to several KFC stores, they are lines in front of KFC stores. Today we've been to three of them and there were lines. In one case we were curious. It took about 15 minutes and they were sold out of the grilled chicken, more than couple of times.

[Scott Koller:]

Well I'll tell you the other side of it too, as Roger Eaton visited, when he had Australia is -- the demographic of the 18 to 24 year olds, I mean literally where the KFCs were in Australia, there are lines during lunch. And it was really based on the launch of a original recipe and every kind of formation you could think of in wraps, in chicken strips and popcorn chicken. But really utilizing the strength of the original recipe. So he believes original recipe in grilled will be the backbone for them sustaining that kind of a growth. Grill is going to be popular all over the board, but he still has a master plan to target the 18 to 24 year old market, which could be serious volume.

[Unidentified Analyst:]

They have done a pretty good job in terms of getting people in, because a lot of time if they're out of grilled chicken obviously, they're getting the fried, whatever and it looks very, very -- we haven't seen anything like this. So I don't know if Dallas is an exception or not, but-- ?

[James Granger:]

No, no not at all.

[Darin McAreavey:]

No, we're hearing the same.

[James Granger:]

Yeah, we're hearing great numbers. Our contact Chris Fuller, Kerry and what not at KFC are very thrilled with the acceptance of grilled chicken. The entire organization has a spring in their step right now. They've really done a great job of launching this product line.

[Unidentified Analyst:]

So I guess along the lines of the previous questions then. For them if they have success with this and they have been a believer in the digital signage, hopefully what would be -- I mean their access to capital should not be that of an issue. I guess, what would be the critical issue for them to basically say, this is what we want and we're going to just roll it out.

[James Granger:]

Yeah, there's two things there. One is, they did have a large expenditure for rolling out the grilled chicken. That was an expensive item they rolled down. Each of the franchisee's had to pay for a portion of that and I believe I don't know the details, but we've been told that Yum didn't, it didn't finance another portion of that. For us there's really two things that are going to drive digital. One is, that they are going to continue expand that menu board product line. There's rumors of breakfast, rumors of additional products and they're going to have a space management issue. And then the third is the lean act and meal act when it comes to transact and carry information, larger menu and then having to add some type of nutritional data to each one of those items in the same size font. It's going to be a space management issue and to effectively display the products they are trying to sell in the store when they want to sell them is really going to be the driver.

[Unidentified Analyst:]

I see. But those issues, they are starting to face them I guess. So --

[James Granger:]

Yes, I agree

[Unidentified Analyst:]

All right. And in terms of -- Jim, you mentioned you're dealing with many other QSRs. I guess in terms of the way you're approaching this, you don't have any exclusivity with KFC. Is it fair to think that you're basically attacking all possible... you're looking at all possible scenarios?

[James Granger:]

We are definitely looking at all possible scenarios. We do not have exclusivity. We cherish the relationship we have with KFC and hope that and always expect and hope that will expand. But at the same time, there are... we feel that the solution that we bring to the QSR market is very strong for a multiple number of customers.

[Unidentified Analyst:]

Well, congratulations.

[James Granger:]

Thank you.

[Scott Koller:]

Thank you.

[Operator:]

Your next question comes from the line of Dick Ryan from Dougherty.

[Richard Ryan:]

Hi, guys.

[James Granger:]

Hey, Dick.

[Richard Ryan:]

To belabor the point, KFC, of the 124 restaurants, Scott, can you give a rough mix of what's corporate and what's franchisee?

[Scott Koller:]

Well, I would say for about 40% corporate, 40 to 50% corporate.

[Richard Ryan:]

Okay. Now coming out of the franchisee show, have they given any input to the franchisees? You talked about them picking up some of the expense for the ovens. Have they provided any more details of their franchisees what might be available or are you hitting the franchisees directly?

[Scott Koller:]

No, we're not hitting the franchisees directly. Our client is corporate and they are in control the menu board initiatives inside not only the corporate stores, but the franchisees. It's not quite like POS where the franchisees can go and get their own systems. Because it's marketing, because it's media, franchisees at no given time are going to go out and start taking their own pitchers and buckets of chickens. So the corporate actually really controls that messaging and is probably going to get, I would think, a little bit more control given that the success of grilled chicken has been out there and they've really pushed that. I think both the franchisees and the corporate, a big strive of Mr. Eaton's is to make sure they were seeing eye to eye. And I think that's really starting to happen with the success of this product. So right now it's a mixture. I know there is three or four key franchisees that they want to get a menu board installed in and we did that. And that's our one-offs like in New Mexico and North Dakota and what not. So they keep them very close and very informed.

[Richard Ryan:]

After attending the show, I mean from the franchisees perspective, I mean is this something that they are trying to push forward as well outside of the grilled chicken issue?

[Scott Koller:]

Absolutely. But we are not exposed to an awful lot of that, but absolutely.

[Richard Ryan:]

Okay. A question on the knock (ph), can you give a sense of what... how many screens you're monitoring now and maybe what that was in the recent past and what it looks like going forward?

[Scott Koller:]

Well, I think it will be down just because of the Myer Network (ph) as previously discussed last quarter, because that represented about 1800 screens and we've added more additional screens. I mean 35 sites actually brings up another 200...150 to 200 screens for KFC and what not. But somewhere I would say in the 5500 to 6000 range would be it, because I think we peaked up at 6500 before and then lost... the Myer Network went away. And so we're monitoring --

[Unidentified Analyst:]

We've added screens.

[Scott Koller:]

Yes, so we've added screens since then.

[Unidentified Analyst:]

Look around --

[Scott Koller:]

Q4 is 6500, so we're back up to 6500. Aaron just looked it up for us. So even though those... we had attrition with the Myer Network, we've added other screens to it. And as far as any other question about the knock... but that's about how we are monitoring today.

[Richard Ryan:]

Okay. And just on the macro front for digital signage and menu boards, what are you doing with the ad agencies? Are they starting to become more active?

[Scott Koller:]

Yes, actually, I could... if Linda's online, Linda could respond with what the business development efforts that have been in QSR. We're in the middle of a very large campaign right now.

[Linda Hofflander:]

Hi, yes. We are actually doing a number of things with advertising agencies as part of our outreach program. We are actually meeting with AdFed and forays and what not, trying to expose them a little bit more to digital signage. What's kind of happened is a lot of organizations are interested in digital signage and their ad agencies might not have had a lot of knowledge about that digital signage industry. And so they were coming to us directly. So in our education process, we've been reaching out to them to get a little bit more information to them.

[Richard Ryan:]

Okay, thank you.

[Scott Koller:]

Thank you, Dick.

[James Granger:]

Thanks Dick.

[Operator:]

(Operator Instructions). Your next question comes from Joe Perez (ph) of WSC.

[Unidentified Analyst:]

Hi Jim.

[James Granger:]

Hey Jack.

[Scott Koller:]

Hi Joe.

[Unidentified Analyst:]

But it sounds to me like in this tough environment if you're only going to get the KFC corporate newbuilds, that you could get to the end of the year and really don't have too much more than 124 you already have.

[James Granger:]

Oh, no, no Joe. We have another city actually on the board right now, which I can't mention the name of. But we have another city that we're... I think it's this quarter, right?

[Scott Koller:]

It's this quarter or early third quarter.

[James Granger:]

Yes. And that's where we already know of right now in hand. Do I think we're going to be... Joe, I would suggest that we'll be well beyond 124 stores by the end of the year.

[Unidentified Analyst:]

Okay. But so far not doing any big tangible contracts next year?

[James Granger:]

At this point in time, KFC has not communicated that there is a large rollout that's imminent. But they told us two months ago, and they were very clear, we need grilled chicken to be a success and you watch what happens at KFC. And grilled chicken is a success and we're watching to see what happens at KFC. The menu boards are a very big hit. We have had lots of investors, more than one, call each of these stores and talk to the store manager. This really alleviates a major problem for them, keeping the menu boards updated and current and launching new products. Even with the grilled chicken launch, people are seeing white boards trying to advertise inside the store and what not. That's not KFC's vision. Their vision is it will be dynamic, it will be digital and I think it will happen sooner or later. When I said corporate stores moving forward, remodels and new stores, that's what our line of sight is today, but I'm very confident that it's going to be more than that.

[Unidentified Analyst:]

And how about other significant QSR? I'm just concerned when you get to the end of year here and the revenue, the top line is going to be about what it's been at the $1.4 million in this quarter?

[James Granger:]

We do not give guidance obviously on the revenue. That being said, I am confident that revenues will grow as well as gross margins will improve over the year.

[Unidentified Analyst:]

Okay, all right. Thank you very much.

[James Granger:]

And there are other customers out there that we're working with and we're real excited about.

[Unidentified Analyst:]

Okay, all right. Thank you very much.

[Operator:]

Your next question comes from Paul Adahl of RBC.

[Unidentified Analyst:]

Hi gentlemen, how are you?

[James Granger:]

Hey Paul.

[Scott Koller:]

Hello.

[Unidentified Analyst:]

Hi. I'm still a little bit concerned at majority of your growth. It's sort of dependent on this KFC, don't get me wrong. It could be big if it was to happen, but could you, are you still doing these RFPs, or you've changed that kind of marketing model or that kind of --

[James Granger:]

We are working, I don't know, I mean if I think in the conference call, I mentioned that we are working. It isn't just KFC, it is Aramark, which was a significant portion of our revenues last quarter. It is Thomson Reuters which continues to add revenue and grow. It is, it continues actually there are a couple of other things in the automotive area. It's the Sun Tan Cities of the world and there are other customers like that which are growing. So no, I don't feel like we are completely dependent on just what happens with KFC. And that's what we are -- and that's what I have been trying to be open about here without mentioning other customers.

[Unidentified Analyst:]

Right, well, Aramark and Thomson Reuters and the other one you mentioned, I guess I've heard the same customers talk about the conference call for the last, I guess four to six quarter as so.

[James Granger:]

Well, I can't speak to that. I can of course only speak to the last quarter, when I came on board. But these are certainly, what we said we are going to do is continue to penetrate and continue to work with our existing customers. That's always your best possible revenues. You learn to work with them and you become significantly -- significant as a partner to them. And then you add new customers as you go along. Sun Tan City was certainly a new customer. And we are doing tests with others. So in the coming quarters, I think you will hear new customers added as well.

[Unidentified Analyst:]

So you wouldn't be able to give this or quantify some kind of potential value based upon other customers going for this -- ?

[James Granger:]

No, we haven't given that kind of guidance at this point in time.

[Unidentified Analyst:]

Right, can we expect, at least I mean, with the perhaps within the next two or three quarters, in the newer type of customers, newer type of relationships, something?

[James Granger:]

Yes, of course.

[Unidentified Analyst:]

Okay, so I guess there are things in the works that you really can't just stop?

[James Granger:]

That's right.

[Unidentified Analyst:]

is it because it's running into the same type of problem like KFC, where it's in roll out process or test process or do we expect that --

[James Granger:]

Well, I think what has happened. I think there's a couple of drivers. Number one, we cherish these relationships and we respect the confidentiality of our relationships with our customers. Number two, I think there has been in the past sometimes people would jump to expectations that got out of hand and I don't want to repeat that kind of notion again. We're doing great things with very interesting customers and as they become material, then we definitely will announce them. But we -- you don't talk about things which haven't turned to quite that material level, but yet could be significant, because I think they might drive the company in ways that we don't want to have. We want to be honest with everybody. We want to make sure, most importantly, as I said in my very first conference call, our goal here is to under promise and overachieve. And that's the way I always approach these relationships and these potential customers.

[Unidentified Analyst:]

It's all tied from the Devourers (ph) type and the quick service of restaurant market, are you seeing an emerging, any other markets that's emerging to your favor? I mean that's talking in --

[James Granger:]

Well, I think the, I think that as we start to see turnaround in consumer spending, certainly the retail space where we focus on the retail space and I've used, we've mentioned other customers in the past. I mentioned one today. Where they have, where they have a significant number of what you might think of as company-owned stores. That's a perfect place where you have publicly-owned stores, more publicly owned or franchises that are dispersed across the wide part of the country of the world. And where you want a consistent image delivered along with the opportunities for the local people to have some control over certain parts of the content. This is a perfect application for what Wireless Ronin brings to the table, because through our sophisticated software as well as the web portals that we develop, we are giving a variety of customers to have access to separate sections of these streams. And being able to leverage that to drive both good corporate message that allowing the local control over the certain data or certain portions of the message. Those kinds of things are, I mean you -- every one of us could think of a dozen companies. I could mention some that we are working with, but as I said I won't do that. But there are numbers of companies in the retails space that I think fell into that category. And Linda and her team are working aggressively to open up those kinds of opportunities either through ad agencies, through partnerships or directly through new customer sets.

[Unidentified Analyst:]

And if you were to, I mean if I were to ask you in what you're working with? I mean is there like, like would you say you're 25% way through in terms of maybe getting into some kind of relationship or is it --

[James Granger:]

That's -- it depends upon the individual relationship and the individual customer.

[Unidentified Analyst:]

Okay. All right. Great, great. Good luck. Thank you very much.

[James Granger:]

Thank you.

[Darin McAreavey:]

Thanks.

[Operator:]

your next question comes from Jay Meier of Feltl & company.

[Jay Meier:]

Hi, I just had a quick follow-up question, back to KFC. For the last several quarters, KFC and Yum brands have been talking about remodeling the stores in the North America. And I know we've talked about this in the past, Scott, but is it fair now to associate since you talked about remodeling new stores and opening new stores it fair to associate KFC's remodeling program with the menu boards?

[Scott Koller:]

I think its very fair to associate those two together, it's not the only thing they are doing they are reallywhen they look at theirs, I was in a meeting, in a marketing meeting once and they said, their assets are some of the older assets in the U.S. and they really want to greatly improve those assets, each of those store locations. The remodel would absolutely include digital along with a lot of other initiatives as far as dinning and throughput and drive-through and what not.

[Jay Meier:]

And do I recall your previous comments or your characterization is correctly in that, you didn't always associate the digital signage with this remodeling plan.

[Scott Koller:]

I think that's very to say, that it wasn't a given that when they remodeled it, digital signs were going in, I think it's very fair to say that now.

[Jay Meier:]

Okay, All right. Thank you very much.

[James Granger:]

Thanks Jay.

[Operator:]

Your next question comes from Adam Hack of Heartland (ph).

[James Granger:]

Hi, Adam.

[Unidentified Analyst:]

Good afternoon. How're you guys doing?

[James Granger:]

Good.

[Scott Koller:]

Hey, Adam.

[Unidentified Analyst:]

I'm sorry if I missed this. But has KFC disclosed to you, if there's any lift in sales in stores with the menu board without a remodel?

[Scott Koller:]

Without a remodel?

[Unidentified Analyst:]

Yes.

[Scott Koller:]

We haven't got that number. They have shared some information that there's been a positive result of the menu board. And I can't go whole lot of details. But it really comes down to the day parting and be able to really emphasize what they want to sell at what hour. But yeah, there's been a positive, because if you think about it even before the grilled chicken initiative, and even before Oklahoma and Las Vegas, we were continuing to install. And I believe that was driven by the results they were seeing from their previous tests.

[Unidentified Analyst:]

Yeah.

[James Granger:]

They are -- we cannot, I mean, I mean we've heard, but that's not something that we would disclose. But that's not something that we would disclose, but they are getting a lift.

[Unidentified Analyst:]

Okay. So they are getting lift and they can point to the board?

[James Granger:]

Yes.

[Unidentified Analyst:]

Okay, great. Thank you.

[James Granger:]

Thank you.

[Operator:]

There are no further questions at this time. Ms. Hofflander, I hand the call back to you for any closing remarks.

[Linda Hofflander:]

Thank you. I'd like to thank everyone for his or her participation on today's call. Please remember that today's call has been recorded and we will archive, it will archived in the Investor Section of our website at www.wirelessronin.com. Also this call will be available for replay for a period of one month. Again the dialing information from domestic and international locations can be found on our website. Thank you and good bye.

[Operator:]

This concludes today's conference call. You may now disconnect.