Insignia Systems, Inc.
Q4 2014 Earnings Call Transcript

Published: 26 Feb 2015

[Operator:]

Greetings, and welcome to the Insignia Systems' Fourth Quarter Year-End Results Conference Call. Just a reminder, today’s call is being recorded. Except for the historical information mentioned, the matters discussed in 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 ending December 31, 2013, and other recent filings with the Securities and Exchange Commission. The company wishes to caution listeners to not place undue reliance upon such forward-looking statements, which speak 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, Devin. Thank you everyone for participating in this conference call, in which we will discuss the fourth quarter and full year 2014 results, and then answer any questions you may have. John Gonsior, our CFO; and Tim Halfmann, Chief Sales and Marketing Officer are with me as well. John will first review the numbers, and then I will have some comments before opening up the call for questions. John?

[John Gonsior:]

Thanks, Glen. Good afternoon, everybody. I will start with some highlights from our quarterly and annual results and then provide some other commentary after that. The following amounts relate to our fourth quarter this year as compared to the fourth quarter of 2013. Net sales were $6 million, which produced a pre-tax loss of $633,000. This compares to the fourth quarter of 2013, where we had net sales of $6.9 million and pre-tax income of $716,000. Included in the 2014 period was a pre-tax restructuring charge of approximately $130,000. This restructuring charge was largely due to vacated space in our office in Minneapolis. In the fourth quarter, we saw a decline in gross margin to 41.2% as compared to 48.5% in fourth quarter of last year. Gross margin was down in the 2014 period due in part to the restructuring charge that we spoke of mainly due to the softness in sales as we have a highly leveraged cost model as well as program mix. We produced a net loss of $398,000 in the fourth quarter, which resulted in a loss of $0.03 a share compared to net income in the fourth quarter of 2013 of $441,000, which resulted in earnings of $0.03 a share. The following amounts relate to the 2014 annual results compared to last year. Net sales were $26.3 million with pre-tax income of $509,000, which compares to 2013 net sales of $27.8 million with pre-tax income of 2.4 million. Net income was $211,000, which resulted in diluted EPS of $0.02 a share compared to 2013 where we had net income of $1.4 million, which resulted in diluted EPS of $0.10. As we have done in past releases, we highlighted two forward-looking figures that I wanted to highlight. The first one is total backlog. As we have talked about before, our total backlog represents programs that are contracted to run in the next 12 months from today forward. Total backlog today sits at approximately $13.1 million, which is 14% ahead of last year's backlog at this point in the year. We believe this gives our investors a sense of what trends we are seeing on a longer-term basis as compared to prior year, but I do want to point out that this trend versus the prior year does tend to fluctuate month-to-month, so it is not necessary enough to be a prediction of future revenue, but more directional in nature. The second figure is total bookings for the quarter that is currently underway. That number sits at $6 million, which is up slightly compared to where we were last year. While we are disappointed with the 2014 results, we are optimistic about 2015 given the early trends that we are seeing. With that, I will turn it back over to Glen.

[Glen Dall:]

Thanks, John. As John said, we are disappointed in 2014, and particularly the Q4 results. The challenges for many of our consumer packaged goods customers, and changes in two of those companies, which were larger CPG customers their promotional spending heavily influenced our revenue results. However, in 2014, there were achievements. One is that we maintained distribution in the form of Valassis grocery retailers, including a direct relationship with SUPERVALU. We secured the right to sell directly to a set of CPGs that Valassis formally held resell rights to. We had growth in our sales for our legacy products and we added more quality team members in marketing sales and retail sales. While we did make investments in 2014 for growth in our sales and marketing areas that helped us to launch The Like Machine and expand the our focus on innovation, our 2015 plan has us focused on improving both topline and bottom-line results, continuing to launch The Like Machine, and looking for additional ways to grow our portfolio of offerings and our value proposition, so we can expand our customer and retail basis. We are optimistic about the 12-month backlog number, but also aware of softness in business results for many of our CPGs putting pressure on their budgets, and the alternatives they have for marketing and promotional vehicles. This serves to put continued pressure on our business. On the retail side, we ended the year with direct relationships with nearly 9,000 stores in the grocery channel and nearly 23,000 stores total in our network. Our retail team has focused on increasing the quantity and quality of that network. The Like Machine, our beta market test is underway and involves many leading CPG brands in several markets. There are no definite results yet, but we are seeing the number of shopper engagements as seen in the number of at-shelf likes that has exceeded our expectations from our alpha test. Directionally, it demonstrates to us that the machine does in deed tap into what has become everyday behavior of liking that increases engagements with brands [indiscernible] on the shelf, and participating retailers from the beta test that had positive feedback as well. To sum up, we are disappointed with the quarter and the year results. We are pleased with the number of 2014 achievements, a number of those. We like the backlog that we see, and we are cautiously optimistic given the market. We intend on delivering a successful 2015, and we continue to be excited with The Like Machine introduction and its future potential. With that I would like to open it up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Beth Lilly with Gabelli. Please proceed with your question.

[Beth Lilly:]

Good afternoon, Glen and John.

[Glen Dall:]

Hi, Beth. How are you?

[Beth Lilly:]

Good. How are you doing?

[Glen Dall:]

Really good, thanks.

[Beth Lilly:]

I wanted to understand a couple of things. Talk to me about why you are optimistic for 2015 and the bookings versus the backlog, and then as you look out -- if I look at your results this year versus last year, what do you think you can achieve in terms of operating margins? Can you get back to the 8.6% that you had in 2013?

[Glen Dall:]

I will take the first part of the question and then give the second part of the question to John. I would say that we are cautiously optimistic. The backlog trend and some of the other predicted trends in the business do look positive. At the same point in time, we do feel we have a good team in place, and the additions last year of the retail direct relationships and CPGs does give us calls [ph] that we believe we can deliver on the plan we intend to deliver on for 2015. On the margin question, I am going to turn that over to John.

[John Gonsior:]

Beth, just to rephrase the question, it was more about what we expect. If we think we can get back to the 2013 operating margins, was there anything past that?

[Beth Lilly:]

As you look out, what does the model look like at a minimum, can you get back to the 2013 margins?

[John Gonsior:]

Well, that is certainly our goal, not only to get back there, but to exceed that. As I mentioned in my remarks, our model is very leveraged, so when we have got lower revenues, it does impact us as we saw in Q4, and honestly a couple times during 2013. Also, as we saw in the third quarter of 2013 or 2014, when that revenue takes off, the margins and the profit underlying that get pretty attractive, and so certainly we did not go through the efforts that Glen just mentioned as far as the successes that we made in 2014. We didn't make those moves just to kind of get back to where we were in '13. We are trying to advance the company. I think, I am not going to sit here and predict, but yes we are definitely going to do it, but everything that we have put in place has been driving towards that. I certainly think that once we get over the kind of the necessary hurdles as far as revenue goes; it gets pretty attractive from a margin and profit perspective.

[Beth Lilly:]

Yes. Okay. Great. Thank you. That is all my questions.

[Glen Dall:]

Thank you, Beth.

[Beth Lilly:]

Yes.

[Operator:]

Thank you. [Operator Instructions] Gentlemen, there appear to be no further questions at this time. I would like to turn the floor back over to you for closing comments.

[Glen Dall:]

Okay. No formal closing comments, I just want to thank everyone on the call and our shareholders for their continued support. As John said, we are intent on delivering success in 2015. Thank you very much.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.