Insignia Systems, Inc.
Q2 2014 Earnings Call Transcript

Published: 31 Jul 2014

[Operator:]

Good day, everyone, and welcome to the Insignia Systems’ Second Quarter 2014 Earnings Conference Call. Just a reminder, today’s conference call is being recorded. Except for the historical information mentioned, the matters discussed on this conference call are forward-looking statements. The company’s actual results could differ materially from these forward-looking statements as a result of a number of factors, including risks and uncertainties as described in the company’s Form 10-K for the year ended December 31, 2013, quarter ended March 31, 2014 and other recent filings with the Securities and Exchange Commission. The company wishes to caution listeners not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. At this time, I would like to turn the conference over to Mr. Glen Dall, President and Chief Executive Officer. Please go ahead, Mr. Dall.

[Glen Dall:]

Thank you, [Lithuania] [ph]. Thank you all for participating in this conference call, we’ll discuss the second quarter 2014 results. And then of course open up for any questions you might have for us. John Gonsior, our CFO; and Tim Halfmann, our Chief Sales & Marketing Officer are with me as well. So I’ll let John review the numbers first, I’ll add some comments and then we’ll open up to questions. John, go ahead.

[John Gonsior:]

Okay thanks. Good afternoon everybody. I’ll start with some financial highlights and then go through some other commentary after that. The following amounts relate to our second quarter as compared to our second quarter 2013. Net sales were $6.3 million with pre-tax income of approximately $%118,000. This compares to the second quarter of 2013 where we had net sales of $6.1 million and pre-tax income of $176,000. Net income was $70,000 during the quarter which represented diluted EPS of a penny share, compared to net income in the second quarter of 2013 of $164,000 which also resulted in diluted EPS of a penny share. The following amounts relate to our year-to-date results compared to the year-to-date results in 2013. Net sales were $12.8 million with pre-tax income of $291,000. This compares to the 2013 period where we had net sales of $13.5 million pre-tax income of $1.2 million. Net income was a $185,000 which resulted in diluted EPS of a penny a share compared to 2013 where we had net income of $584,000 which resulted in diluted EPS of $0.04. In our release, we also highlighted a trailing 12 month revenues as well as our total backlog both of those metrics are trending in a positive fashion which leaves us optimistic for the results in coming quarters. Additionally we highlighted our bookings number for Q3 which sits at $7 million to help demonstrate the trends that we are seen. Now I would like to comment on few other highlights. As we’ve discussed in our last several calls are investments in technology, sales and marketing efforts and new product introductions are initiatives that we view as core to our long-term success and we have allocated spending to those areas in 2014. Also has noted in our release, we began repurchasing shares under our repurchase program and during the quarter we repurchased approximately 147,000 shares and an average cost of $3.05. With that, I’ll turn it back over to Glen.

[Glen Dall:]

Thanks a lot John. So while you’ve seen the past revenue did not meet our expectations in the quarter, maintaining distribution in our past network needed to be the priority in the quarter and we’re really pleased with the outcome on that front. The easier factor we talked about in our last call did prove out April was a very strong sales month. But the confusion in the marketplace following the determination of our agreement with Valassis, we feel really slowed our sales momentum in May and June. Still when you look at the quarter it’s the fourth largest Q2 for Insignia, there is some other great progress being made in the quarter. So far in 2014, we’ve signed the 21 new CPG accounts. We’ve also made sales in 8 of the Valassis CPGs that we just gained direct relationship with earlier this year and we feel that’s very significant. Also very significantly our legacy product sales team grew very strongly year-over-year on Q2 29%. So these talk about in the release we’ve got nearly all the Valassis retailers in our network. Our expanded relationship with Supervalu is a strategic relationship that is direct and is with the hometown company right here in Minneapolis that we’re very pleased with and we feel that’s going to allow us a lot better conversations, stronger conversations over the upcoming years where we can add value. We remain in positive talks with the remaining VCI, former VCI grocery retailers. We’ve also seen growth in other grocery retailers that offset any VCI retailers that we have in secured. Our retail team has been doing a great job getting out there in the field. The result, we now have direct grocery relationships with over 8,000 stores and that’s very strong for us. We’re also still talking with several other key regional grocers out there and also in discussions with retailers outside of the grocery channel as we talked about before. As soon as we had signed agreements with any retailers, we’ll of course be able to announce those. Our relationship with News America still continues to be a productive business relationship. John talked about the investments for growth that we’ve been making and as you know we brought Tim Halfmann recently and lot of those areas that we were making investments in are reporting that Tim is doing a great job leading that. We’ve made some key hirers of marketing innovation some personnel that have strong backgrounds in both CPG and retail. We’re investing in research and development and in rebranding ourselves in developing stronger sales materials for sales people both on the CPG and the retail teams. We’re looking to increase our product portfolio, because we really do believe that’s key to increase our retailers, our customers and our operating leverage. Outside of sales and marketing, we continue to invest in our enterprise systems and infrastructure that will allow us to grow. I just want to reiterate quickly what I talked about before, when we were talking about the new products and what we’re looking at, we’re looking at things that are organic that we can license or partnership with that are close to the core strength that we have now that allows to expand potentially another channels into the future. So sitting where we are today, we’re little less than two weeks remaining on our Valassis agreement and we’re very happy with where we sit. We’ve now have great control of our destiny via the direct relationships with those retailers and all the potential CPG customers. This is going to offer us a lot more control and a lot greater potential on a long-term growth basis. The team that we’ve been building and continue to build is very strong and we’re very fragile and we’re going to be favorable to take care of changes in the marketplace that we see upcoming, the changes that we see in shopper behavior and what retailers are looking for and what our CPG customers are looking for. And we feel that’s going to leave us well poised for innovation going into the future. So with that, I’m going to open it for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Michael Conti with Sidoti. Please proceed with your question.

[Michael Conti:]

Hey guys good afternoon.

[Glen Dall:]

Hey Mike how are you doing?

[Michael Conti:]

Pretty good, pretty good thanks. Just quick question regarding the SG&A, where there any cost relating to the Valassis payment in that number?

[John Gonsior:]

Nothing significant now.

[Michael Conti:]

Can you give us a dollar amount?

[John Gonsior:]

Really the amount that we’ll be talking about that would have hit the P&L and I assume you’re talking about the payment that was made under that agreement that we previously announced?

[Michael Conti:]

Yes.

[John Gonsior:]

Yes. The payment related to that, I’m sorry the expense that would have hit the P&L would have been the amortization of that cost and so it would have been fairly negligible.

[Michael Conti:]

Okay. And can you give us what was the POPS revenue for the quarter, because I was kind of expecting a bit more of a jump considering the impact of Easter for the second some kind of curious as to whether the POPS revenue if you had any trouble winning new cycles and customers/

[John Gonsior:]

Yes, the POPS number was $5.8 million, $5.9 million something like that Michael. Yes, Mike and the second part of your question, I’m sorry.

[Michael Conti:]

Was there any, do you have any issues winning new cycles from customers or considering, determination of Valassis agreement, Glen mentioned that on the press release that can you give any comment on that?

[Glen Dall:]

Mike this is Glen, I’ll come in directly on that. I would – I say definitely yes we really believe so. While we did see what we call the Easter effect April was the strong month for us on the POPS side. There was a lot of confusion in the marketplace as to whether those retailers would stay in our network and there was uncertainty there for some customers to make that and place contracts for following time periods. So while we’re working and really focusing on ensuring that those retailers did stay within the network that we would have distribution for them going forward, I would say quite an effect on our POPS revenue in Q2.

[Michael Conti:]

Sure, sure. And I just laid on it, did you say that you had direct relationships with 8,000 new retailers, did I get that right?

[John Gonsior:]

Not new Mike that would be the direct retailers that Insignia has relationships with that. We have direct contracts with.

[Michael Conti:]

Okay then with just regarding with the, 10,000 retailers from the Valassis agreement, how many of those did you guys add year-to-date from determination agreement up to now?

[John Gonsior:]

Yes, as we said in the release Mike we have secured 90% of the grocery retailers under that agreement, with remaining, with talks remaining on the talks ongoing with the remaining retailers.

[Michael Conti:]

Okay and of that 90% how many would you say are, direct or through third-party?

[Glen Dall:]

The direct, the most significant direct relationship that we signed was with Supervalu and that’s what we highlighted in the way that we did. I’m sorry Mike, I can’t be more specific on some of this, because of the aspects of the agreement with Valassis and what we can say and we can’t say, so I’m trying to just give you the information that I can. But I can say that, we’re extremely proud about the direct relationship that we have with Supervalu that’s something we previously did not have. And as far as the retailers we are previously serving under the Valassis agreement of those grocery retailers we’ve retained 90% of them with ongoing discussions for the remainder.

[Michael Conti:]

Okay, great, great. And I guess can you guys comment on the competitive landscape since the takeover Valassis, I mean are you guys finding it easier or more difficult to gain new customers or cycles?

[John Gonsior:]

Mike I couldn’t comment directly in terms of how that relates the Valassis for any strategies, I would continue to reiterate that going forward we see News America to be continued our only and largest competitor in the in-store space and I would say the competition still continues to be strong there as well as from other promotional vehicle choices that CPG marketers have.

[Michael Conti:]

Okay, great, I appreciate it.

[Glen Dall:]

Welcome Mike, take care.

[Operator:]

[Operator Instructions] Our next question comes from Jacob Ma-Weaver with Cable Car. Please proceed with your question.

[Jacob Ma-Weaver:]

Hey guys how are you/

[Glen Dall:]

Good Jacob, how are you doing?

[Jacob Ma-Weaver:]

Doing well. Glad to hear the retention efforts and I was just looking if you could clarify, I don’t wanted to comment the price I guess in the quarter, so when you say 90% that is grocery retail and does not include the February dollar stores?

[John Gonsior:]

That is grocery retail yes.

[Jacob Ma-Weaver:]

Okay. And then is dollar stores are an area where you plan to have must focus going forward?

[John Gonsior:]

We still – continue to have offer family dollar in our network and we still continue to offer that to our clients, it is a smaller part of our business, as it relates to the grocery retail, are still our sweet spot I would say is primarily in grocery retailer and that’s also within the CPG that we sorted.

[Jacob Ma-Weaver:]

Okay, just the handful for accounts, are you in talks with the small to potentially continue as the direct client going forward?

[Glen Dall:]

It wouldn’t be the comment on who were in direct talks with for competitive reasons, but as soon as we would have any contracts signed with anyone, we would be able to announce that. And certainly I would say that any significant grocery retailer would be someone that we would be talking to are interested in talking to as well as looking at other channels where we feel our CPG clients and potentially additional clients beyond CPG might be interested in running POPS signs.

[Jacob Ma-Weaver:]

Okay great. And then on Supervalu, just want to clarify at least they own that a license number of different payments, the agreement just for the Supervalu been there or are there other stores included this much?

[Glen Dall:]

There are other banners included in that, correct. That would include Cub, Hornbacher’s, Farm Fresh, Shoppers, as well as the Supervalu banners. And that would be the both our corporate-owned and our independent. We also do have relationships although it’s not direct with the other former Supervalu banners that are now owned either by Albertson’s so let’s refer to is new Albertson’s Inc.

[Jacob Ma-Weaver:]

Okay, I got it. And those non-direct relationships that serve through today are basically Valassis and News America?

[Glen Dall:]

Those would be any other stores would be through our News America agreement.

[Jacob Ma-Weaver:]

Okay great. Well thanks guys looking forward to the next update.

[Glen Dall:]

Great Jacob, take care.

[Operator:]

[Operator Instructions] We have a follow-up question from Michael Conti with Sidoti. Please proceed with your question.

[Michael Conti:]

Yes. I just had a follow-up with the third quarter bookings, I mean is that $7 million that contingent on additional 300 stores coming online in August as well as the potential increase of the rest of the balance of the 10%?

[John Gonsior:]

Yes, the number that I guess it’s not – it’s not any more contingent than anything we’ve said in the past as far as future bookings, it’s based on the store account that we anticipate in Q3 and the programs that we’ve signed up for that the number is $7 million right now. So I don’t know if that clarifies that at all Mike. I mean there is really nothing more that needs to happen for those programs to, it’s not – it’s not that we need to sign contracts for a bunch more store is for that to happen or anything like that there is none of those contingencies out there.

[Michael Conti:]

So you guys taken into account the incremental 300 stores when you’re calculating that number?

[Glen Dall:]

Mike it would be for any of the verifiable store account that we’re able to offer in any one of the promotional cycles that those contracts run in.

[Michael Conti:]

Okay. That makes sense, all right. Thanks.

[Glen Dall:]

Good, take care.

[Operator:]

[Operator Instructions] There are no questions in queue at this time. I would like to turn the call over to management for closing comments.

[Glen Dall:]

Great, thank you [Lithuania] [ph]. So thank you everybody for participating. And I would just like to wish everyone a good day and reiterate the fact that we are in optimistic form here in Insignia and looking forward to future and look forward to talking to you all on the next call. Thank you.

[Operator:]

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.