Insignia Systems, Inc.
Q3 2013 Earnings Call Transcript

Published: 31 Oct 2013

[Operator:]

Good day, everyone, and welcome to the Insignia Systems’ Third Quarter Earnings Conference Call. Just a reminder, today’s conference 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 material 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, 2012, 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 call over to Mr. Glen Dall, President and Chief Executive Officer. Please go ahead, Mr. Dall.

[Glen Dall:]

Thank you, Rebecca. And thank you all for participating in this conference call in which we’ll discuss our third quarter and 2013 year-to-date results, then will answer any questions you may have. With me is John Gonsior, our CFO. John will review the numbers and then I have some comments before opening the call up for questions. John go ahead.

[John Gonsior:]

Thanks Glen. Good afternoon, everybody. As you can see in the earnings release from earlier today we just completed our fifth consecutive profitable quarter. I will first go over those quarterly and year-to-date results and then provide some other financial highlights and commentary on our third quarter. Our quarterly results were as follows; net sales were $7.3 million, of which $6.9 million was from POPS revenue. This compares to net sales of $6.1 million for the third quarter of 2012, of which $5.7 million was POPS revenue. This represents a 21% increase in year-over-year revenue. Net income for the third quarter was $354,000 or $0.03 per share. This compares to net income of $380,000 or $0.03 per share in the third quarter of 2012. Net sales through nine months of 2013 were $20.8 million, of which $19.6 million was POPS revenue, which compares to $14.8 million for the first nine months of 2012, of which $13.5 million was from POPS revenue. These year-to-date amounts represent almost a 46% increase in year-over-year POPS revenue and a 41% increase in year-over-year total revenue. Net income through the first nine months of 2013 was $938,000 or $0.07 per share. This compares to a net loss of $1.7 million or $0.12 per share for the first nine months of 2012. Now I’d like to comment on a few other highlights. As I just mentioned we have seen upwards of a 41% increase in total revenue through nine months year-over-year. This is significant accomplishment, however, I do want to mention that we did not expect this growth will need to be matched in 2014, while we are focused on growing top-line revenue next year. We are also focused on diversifying our product offering given that we now have built a stronger base in our core business. Our gross margin percentage has remained at approximately 45% in both the current quarter and the nine months ended September 30. Our margin is highly dependent on sales levels, however, we have continued to scrutinize that our cost of doing business and our investments in technology are allowing us to gain revenue efficiently. We will continue to invest in our business to help ensure future growth. Our cash and equivalents balance as of September 30 was $20.7 million versus $20.3 million as of December 31, 2012, while the growth in cash is modest, given our results this year, we did use approximately $2.2 million to repurchase shares through our tender offer that concluded in August. There are no further plans at this time for further repurchases or other significant uses of cash that I can comment on. Additionally, as we have talked about previously in 2013, we began tying a larger percentage of compensation to performance, given a strong performance we have seen this year as well the anticipated performance for the fourth quarter several performance based compensation expenses were incurred during this quarter. While it reduce profitability in the third quarter, we view it as a success as a means of the incentives we have put in place this year worked and helped in a big way to aid in the drastic recovery we have seen taking place. Finally, we have approximately [ph] $5.8 million in POPS program set to run in the fourth quarter with approximately three weeks of selling time remaining. With that I will turn it back over to Glen.

[Glen Dall:]

Thank you, John. I would like to start by saying we are extremely proud of the entire team in Insignia that continues to deliver successfully and what is shaping up to be a very nice year for us. Our employees believe in Insignia 2.0 vision and they are truly delivering value. Our 2013, CPG sales team growth plan has now been completed. It is helping our sales to assets nearly double that of the year ago. We are looking for that team to pay off on the investment we made in them by penetrating deeper and radiating wider in our current and future CPG relationships. This also gives then us strength in the sales team for potential new products that we may offer. Now that the CPG sales team is delivering more program content, we are looking into the retail sales team to leverage that to grow our retailer network and we have placed great focus on this as we moved in 2014. Just this week, we brought on a new retail sales rep on board that has extensive experience with larger and more prominent growth to retailers. A [ph] careful growth strategy leveraging our CPG program content against retailer growth to help us to maintain profitability and avoid us over spending. Given the success we have in growing revenue profitability, we are now able to focus more time in resources and to developing a longer term growth strategy. As we begin investing into excluding elements of that strategy we may see impact on short time profitability as we grow the organization and marketing our product development. However, our focus is still on producing consistent profitability. As John mentioned, the investments we have been making in technology and operation should position us well for growth in POPS and other existing products without the need to have increased capacity there. We were pleased with the results that the tender offer and that our investors – for the tender offer that we completed and then our investors who desired liquidity achieved also the mandate shareholders remain in our stock believe in the company as we do. So in closing, we see our challenges as maintaining focus on continued albeit modest to this year as John mentioned growth in POPS sales, developing and then beginning to execute on a plan for longer term growth, while responding to the ever changing business environment we are operating in. But the given the strength of the team, movement we have achieved together we remain optimistic for the future. So given that we will now open it up for questions.

[Operator:]

(Operator Instructions) And we do have a question from line of David Polonitza with AB Value Management.

[David Polonitza:]

Hi, guys. It was a good quarter. Just had a few questions here. John, you commented on the performance based comp, is that expense going through the G&A line or is that a [ph] sale in the expense?

[John Gonsior:]

It would be both. It would tend to be actually – it would run through every expense line item that we have.

[David Polonitza:]

Okay. I was just curious. And also with developing kind of the internal sales team, how was that affecting the kind of the existing POPS booking number, it sounds like you feel – you kind of hit the low hanging fruit with kind of getting that number to kind of where its today. And you don’t expect a lot more growth there. Is there challenges to grow to $7 million or $8 million number?

[Glen Dall:]

I just can’t comment generally on that. Sales team we in place. We are still in training but look some of those individuals that have been brought on more recently as well as allowing the focus with the sales team is on – our inside sales team we have three individuals as well as – and we have 5 account director positions nationally. And much the focus there, we will be focused on Tier-2 and Tier-3 CPG customers where we will be seeing more transactions of smaller dollar amounts as we grow. I think we have done a really good and our senior sales team has done a great job this year in capitalizing on the opportunities within our a lot of large clients. Those still exists. But I think in summary here kind of logging through analogy maybe accurate. But we still do see growth potential.

[David Polonitza:]

Okay. Thank you.

[Glen Dall:]

Sure. Thanks Dave.

[Operator:]

(Operator Instructions) Your next question comes from the line of Howard Rosencrans from Value Advisory.

[Howard Rosencrans:]

Yes, hi. Where shall we be thinking about going forward in terms of – [indiscernible] the selling bumped up a lot and you said that the incremental expense, although the incremental higher is ramping both the selling line and the G&A line. Where should we be thinking in terms of the expense levels, going forward in 2014 as to what the increment would be or what sort of or asked in other way, what sort of flow through we would see on that would give you over 45% margin or sort of flow through you can see incrementally on incremental sales?

[Glen Dall:]

Howard, it’s pleasure to hear you on the call. I’m actually going to turn that question over to John.

[John Gonsior:]

And I think that the profitability and mainly the operating income line in Q3 was negatively impacted. There was a bit of catch up of expense, as I’m sure you’d know what the accounting rules that are out there that you’ve got -- you need to book expense at a certain period of time. And so there was -- it was a bit heavy in Q3 rather than where I really see it continuing on a go forward basis. That said, we will be tying more and more compensation to performance since so as the company succeed the expenses well therefore increase at a reasonable – you got a reasonable rate. But I think that Q3 was higher than what we’d expected to see on a go forward basis given the factors I described.

[Howard Rosencrans:]

Okay. So in terms of going forward should we sort of, if think about 30% and 35% close and one incremental sales or what sort of flows that you --?

[John Gonsior:]

You can use Q3 as a baseline and to do with it that what you will, I can’t really comments and where I expect margins and an incremental dollars coming in. But I think, like I said if you take Q3, understand there were some catches of expense that happened and take that out of that. It should be hopefully a representative quarter.

[Operator:]

And your next question comes from the line of [ph] Steven Madsen from Shareholder Company.

[Unidentified Analyst:]

I had a question guys about the $20 million in the bank. Now that you stated that you are not interested in any more share repurchase, what is the balance of money that generate some income maybe put in, started with some of the money and the some kind of fixed income to generate some revenue?

[John Gonsior:]

We have. We continue to -- our policy on that is safety, safety, safety and as you can see in the release, the returns are pretty modest there. But it’s not, we’re not going to be chasing any risks with that money from a credit standpoint. So there is nothing extravaganza going on with the cash itself, nor could I comment necessarily on future plans forward but right now it is all fully ensuring collateralized and safe.

[Unidentified Analyst:]

But I can assume that return is virtually zero on the $20 million?

[John Gonsior:]

It’s in that range, yes.

[Unidentified Analyst:]

All right. And that’s what I needed to know.

[John Gonsior:]

Okay.

[Operator:]

(Operator Instructions) And the next question from Howard Rosencrans from Value Advisory.

[Howard Rosencrans:]

Hi, thank you, Glen and John. Just a quick question. I’m just wondering whatever strategy you talk about, are you seeing any interest in rich acquisition candidates out there, that what we’re actually going to look at stuff that might be interesting or is that further away in the future?

[Glen Dall:]

Good question, Howard. So, right now, we are really taking time to assess the landscape, I spend a lot of time over the last quarter on the roads speaking with retailers and with our customers, went to some trade shows and talking to new investors as well to just really get a lay [indiscernible], what the future holds for us. And now we’re really head down working on a longer range strategic plan of which of course there are a lot of interesting opportunities for us that we’ve been looking at. And among them could be a potential acquisition could also be organic growth through research and developments, IP, et cetera. There are really a lot of exciting growth areas and CPG promotions and potentially even other retailer channel there at outside of where we currently operate in. That’s the deal with these comments specifically on any direction that we’re looking at, it would be unable to exit it, it really is premature. Really is the fact that we’re working on a cohesive growth plan.

[Howard Rosencrans:]

Sure. Okay. Thanks very much [indiscernible].

[Glen Dall:]

Thank you Howard. Good to hear from you.

[Operator:]

And your next question is from David Polonitza from AB Value Management.

[David Polonitza:]

Hi Glen, you said a quick question, the company just added a new member to their board, if you could just comment on the skill set he is bringing kind of why the decision was made?

[Glen Dall:]

Sure, that’s a great question. Actually, I’d like to turn over to John because the new board member is serving as our audit share and does have a background in financial industry.

[John Gonsior:]

Yes. Steve has a wealth of past experiences as we saw on the release at a large accounting firm and is pretty experienced with all aspects of that. And really it wasn’t -- it was done to increase the overall capability of the Board and added another layer in there that we felt we need it. And so, I think Steve is already had a good impact and he is someone that’s pretty well versed with company’s of our size and companies that are much bigger. So he brings a good skill set to the Board.

[David Polonitza:]

Thank you.

[Glen Dall:]

Thank you, Dave.

[Operator:]

And your next question comes from Jacob [indiscernible] Core Capital.

[Unidentified Analyst:]

Hi, I understand that you can’t comment specifically on your plans for the cash balances. And I’m wondering if you could elaborate a little bit on maybe what do you think the rate level of cash that beats around the business and what might be considered to excess that you could evaluate returning to shareholders in sometime or another given that you had a little more yield to buyback at a lower little price?

[Glen Dall:]

Jacob, it’s a great question but we really would be unable to answer that question at this moment. And I refer back to the fact that right now we are really looking at a longer term growth plan of which some part of a cash balance could be considered in that. But at the moment really have no specific plans and certainly nothing we could comment on. I appreciate the comment.

[Unidentified Analyst:]

Okay. I guess I’m curious about as [indiscernible] you still consider there to be $10 million of excess, it’s not needed to your core operations and would be -- but you’re thinking about in terms of [indiscernible] possibilities?

[Glen Dall:]

Jacob, sorry I can’t comment more at this point in time.

[Unidentified Analyst:]

No problem.

[Operator:]

(Operator Instructions) And there are no further questions at this time.

[Glen Dall:]

Okay. With that we can conclude our call. We’re back up. Thank you very much for your help and to everyone who participated in the call. We appreciate your interest and support.

[Operator:]

Thank you for participating in today’s conference call. You may now disconnect.