Insignia Systems, Inc.
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, everyone, and welcome to the Insignia Systems' Third 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 those 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 June 30th, 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, Royal (ph). Thank you everyone for participating in this conference call, we’ll discuss our third quarter 2014 results. Then answer any questions you might have. John Gonsior, our CFO, is in the room with us and Tim Halfmann, our Chief Sales & Marketing Officer is on the line as well. So I’ll let John review the numbers, and I’ll add some comments and then we’ll open up to everybody to questions. John, go ahead.

[John Gonsior:]

Thanks. Good afternoon. I’ll start with some highlights from our quarter -- quarterly and year-to-date results and then provide some other commentary after that. The following amounts relate to our third quarter this year as compared to our third quarter from last year. Net sales were $7.5 million with pretax income of $851,000. This compares to third quarter of 2013 where we had net sales of $7.3 million and pretax income of $550,000. In the third quarter we saw improvement in gross margin as well. Total gross margin percentage in the third quarter was 49.3% as compared to 45.4% in the third quarter last year. Both revenue and gross margin percentage were a highest that we have produced in four years. Net income was $424,000 which resulted in diluted EPS of $0.03 a share compared to net income in the third quarter of 2013 of $354,000 which also resulted in diluted EPS of $0.03 a share. The following amounts relate to our year-to-date results as compared to the prior year-to-date results. Net sales were $20.3 million with pretax income of $1.1 million which compared to 2013 year-to-date results where we had net sales of $20.8 million and pretax income of $1.7 million. Net income on a year-to-date basis was $609,000 which resulted in diluted EPS of $0.05 a share compared to 2013 where we had net income of $938,000 which resulted in diluted EPS of $0.07 a share. Next, in our release, we highlighted two forward-looking figures that I wanted to discuss. The first is our total backlog. This represents programs that have contracted to run in the next 12 months from today. We believe this gives our investors a sense of what we are seeing on a longer term basis as compared to prior year. That number is approximately 25%. The second figure is total bookings for the quarter that is currently underway, meaning the fourth quarter. That number is $5.1 million which is down compared to the prior year. Now, I would like to comment on a few other highlights. Some of you may have notice a significant decrease in our cash balance during the quarter. Although, this was partially due both the timing collections in account receivable and our continued funding of our share repurchase plan the main driver here with our commencing an investment strategy and that obtaining a higher return on available cash balances. This strategy involve investing in a short-term portfolio while providing enhanced returns without taking on significantly more risk. And further, as I just mentioned we continue to buy shares under our previously announced repurchase plan and during the quarter we repurchased approximately 455,000 shares at an average cost of $3.10. With that, I’ll turn it back over to Glen.

[Glen Dall:]

Thank you, John. I want to say that I am really pleased with the POPS and core legacy sales groups and our sales in Q3 resulting increased profitability, and the fact, this is our largest quarter in four years. And I want to take the opportunity to congratulate the team for making that happen. Some other sales news. So far in 2014, we have done business with 45 new CPG accounts and made sales in 10 of the CPGs that we obtained right through from the Valassis termination and agreement. That being said, we have to say that we are not pleased with the Q4 bookings, but directionally we are optimistic about the 12 months backlog. We are hearing to one of our CPG customers that they are seeing challenges in our business and, of course, as we talk before they are constantly looking for new ways to engage consumers in digital, mobile and social and to reach the millennial audience. On top of that, we have always had historical issue of lumpy quarters and inconsistent CPG spend and what is predominantly a single product line with the POPS business. So we see that all is underlying to be important to furthering our efforts to launch additional innovative products to take advantage of the shift in spend. Also we previously announced, within Q3 that we secured distribution and 100% of the formal Valassis grocery retailers, so that means that we now have direct relationship with nearly 9,000 stores in the grocery channel and an approximately 23,000 stores overall in our network. We have also really excited about The Like Machine. We introduced it last week at the Path to Purchase Institute's Shopper Marketing Expo that took place here in Minneapolis and had a lot of great feedback. We see this as a new media that we call social at the shelf. Consistent with our strategy of introducing innovative ways to help CPGs and retailers engage with and motivate shoppers to purchase which we will continue to pursue with our strategy, and I am proud of the team that we assemble that will be able to that new product to market. We are going continue to invest in resources to be the leader in innovation in the industry. So overall, to summarize, we are very pleased with the quarter. We are not pleased with the Q4 bookings. We do like the backlog that we see looking out for 12 months. We are extremely excited about The Like Machine introduction and its future potential and we are going to continue to seek in and invest in innovation looking forward. So that being said, I would like to open it up for questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from line of Seth Barkett with Groveland Capital. Please proceed with your question.

[Seth Barkett:]

Hey, guys. Nice quarter.

[Glen Dall:]

Thanks a lot.

[Seth Barkett:]

Just trying to better understand the SUPERVALU relationship. Is there any detail or insight you can give us into what the economic of that will look like?

[Glen Dall:]

Yeah, we have talked in previous calls with the SUPERVALU relationship, now -- it's now a direct relationship. And given that we are direct with them, it does give us the opportunity to improve on margin provided that we have got the revenue levels to give us operating leverage. The other advantage we see as we do have direct communication with SUPERVALU now and we see that as a way that we can contribute for innovation working with them more on a partner share basis.

[Seth Barkett:]

Is there -- I guess in terms of top line, is there any guidance that you can give us or if not, that's fine.

[Glen Dall:]

Now, we wouldn’t be able to provide guidance

[Seth Barkett:]

Okay.

[Operator:]

Thank you. Our next question comes from the line of Jeffrey Ridner with UNS (ph). Please proceed with your question.

[Unidentified Analyst:]

Thank you. UBS, that is. Very good quarter, gentlemen. Thank you. Just a housekeeping question. Can you give me the share count at the end of the quarter both the basic and diluted?

[John Gonsior:]

Yeah, the -- one second. I want say to basic, weighted basic was 12593 and then the -- let's see here, I was right 12593 and the diluted was 12824.

[Unidentified Analyst:]

Okay. Thanks very much.

[Glen Dall:]

Thank you, Jeffery.

[Operator:]

Thank you. (Operator Instructions) Thank you. Our next question comes from the line of Beth Lilly with GAMCO Investors. Please proceed with your question.

[Beth Lilly:]

Good afternoon, Glen and John.

[Glen Dall:]

Hello, Beth.

[Beth Lilly:]

So when you alluded to -- in your comments about the overall environment with CPGs and spending outlook. So can you just talk a little bit more about what you are seeing in terms of their willingness to spend on promotions and such, overall feel for the environment?

[John Gonsior:]

Sure. Overall -- with the -- some of our customer base and definitely you hear Minneapolis since the General Mills announced layoff recently, they are having some impact especially in center store packaged goods product. At the same point in time, there is a pretty large spend pool promotional tactics, so that's why when we look out at our backlog over the 12 months, it does give us optimism that we are up there. But, also the same point in time, we continue to hear that they are very interested in continuing to look for additional innovative ways to reach their shoppers and that’s just -- again, you got the societal trends about social, mobile and digital and that’s why we see TLM as a great product and great innovative product to tap into those kinds of pools. And again, we are going to continue to look for other innovative products we can bring to the marketplace that allow us to do that and really leverage the relationships we have the CPG brands.

[Beth Lilly:]

So it's less about them cutting back on the spending and more about them trying to reach the consumer in a different way?

[Glen Dall:]

Yes, I would say it's both, because we do -- some of our large customers we did see some pullback or reallocation of some spends and it really goes back to when look and we've done a lot of analysis and trying to forecast our trends, depending on where that customer base is any a given time, where they are at with their business and also their new product introduction cycle, that’s where we see the lumpy quarters.

[Beth Lilly:]

Okay. That’s all my questions. Thank you.

[Glen Dall:]

Sure. Thank you, Beth.

[Operator:]

Thank you. Our next question comes from line of Jacob Ma-Weaver with Cable Car Capital. Please proceed with your questions.

[Jacob Ma-Weaver:]

Hi, guys. How are you?

[Glen Dall:]

Good, Jacob. How are you?

[Jacob Ma-Weaver:]

Doing well. I was wondering since you mentioned, Tim is on the line, I don’t believe we've heard from him with investors, Glen, and I was just hoping to hear a little bit about The Like Machine and how that idea surfaced conceived and what sort of early feedback you are getting from retailers?

[Glen Dall:]

That’s a -- I'm glad you asked that, Jacob, it's great, while Tim the opportunity to do it. So Tim could you tell us little bit about The Like Machine and why we brought to market?

[Tim Halfmann:]

Yeah, sure. Thanks Jacob. Thanks for giving me a couple of minutes, Glen, I appreciate it. I guess, Glen, hereon the shift, not just as us as a society, but in a broader context for all the promotional vehicles that are going out right now and the way the marketers launch trying to reach consumers with digital and mobile and social, we are sort of missing out of that equation. And that shifting of dollars has precipitated an enquiry into our marketers getting that media to work for them as officially as they can and as officially as the promises. And I think what we believe is that there is a disconnect between the point of purchase in the store and having social context. So much of the story of The Like Machine revolves around how all of us go to -- we purchase things on Amazon, we go to TripAdvisor, we go to Yelp. And as we are about to make important purchase decisions, we all have that context next to us of whether its ratings, reviews, likes, comments that people have put and that has become important as we make those decisions. Brick and mortar doesn’t have that option today until The Like Machine. And what The Like Machine does is, it actually gives shoppers the opportunity to see both how to express themselves and say, I like that brand and I want to tell other shoppers that. I want to share my opinion. I want that local retailer to understand my opinion. But I also want to be able to decide on brands that I choose to put in my basket predicated upon that group source of opinions. And so far we've talked to shoppers in fair amount of detail, and shoppers liked the concept and they participate in a big way with the concept. Marketers like to promise what it can do for their brands. It gave them -- able to actually gather data and gather opinions back from other shoppers. And for retailer it provides a really great way to drive interest in the center store, like Glen referred about earlier. It gives an opportunity to apply the label brands, to participate in social media in the scale and way that they haven’t been able to do. So it's been very, very well received last week. It's been well received in sales calls both retail and on our CPG marketing side and we think it has some very nice promise for us to get into that space in 2015 and beyond.

[Jacob Ma-Weaver:]

Great. Thank you. And I do have one question on the core business, I was curious -- you've referenced some previous calls, the exit of Valassis from grocery retail. And I'm wondering now that the marketplace is more of a duopoly if you are seeing any shift in share?

[Glen Dall:]

Jacob, I would say that what we've characterized before on the call that we don’t see Valassis as a competitor anymore within the space, the in-store space, especially in grocery. And in terms of shifting share, we don’t see anything yet. What we do like about it is the fact that we now have direct relationships with those grocery retailers that we formerly had access to under the Valassis relationship or the Valassis agreement and then the fact that we definitely control those relationships for ourselves directly going forward.

[Jacob Ma-Weaver:]

Okay. Thank you.

[Glen Dall:]

Thanks Jacob.

[Operator:]

Thank you. (Operator Instructions) Thank you. We have no further questions in queue at this time. I would like to return the floor back over to management for any closing comments.

[Glen Dall:]

Thank you for your help Royal. I just wanted to thank everyone their interest and support in Insignia and for participating in the conference call. And we will talk to you after the next quarter. Thank you.