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Wireless Ronin Technologies, Inc. (NASDAQ:RNIN)

Q4 2008 Earnings Call

February 17, 2009 4:30 pm ET

Executives

Linda Hofflander - Vice President, Chief Marketing Officer

James C. Granger – President, Chief Executive Officer

Brian S. Anderson – Vice President, Controller, Interim Chief Financial Officer

Scott W. Koller - Executive Vice President, Sales and Project Management

Analysts

Atul Bagga - Thinkequity

Jay Meier - Feltl & Company

Dick Ryan – Dougherty & Company

Rick D’Auteuil - Columbia Management

Paul Adahl - RBC

Operator

Good afternoon. My name is Shanelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Wireless Ronin 2008 fourth quarter earnings call. (Operator Instructions) I would now like to turn the call over to Linda Hofflander, Vice President and Chief Marketing Officer.

Linda Hofflander

Thank you, Shanelle and welcome everyone to our 2008 fourth quarter conference call. With me today are James C. Granger, Jim, President and Chief Executive Officer and Brian Anderson, Vice President, Controller and Interim Chief Financial Officer. Scott Koller, Executive Vice President of Sales and Project Management will join us for the Q&A portion of today’s call.

After brief comments from management, we will open up 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. Risks 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 cautionary statement we filed on Form 10-Q on May 9, 2008.

In addition, our comments may contain certain non-GAAP financial measures including adjusted operating loss and adjusted gross margins. For additional information including reconciliation from GAAP results to 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 would like to introduce and turn the call over to our new President and Chief Executive Officer, Jim Granger for opening comments. Jim?

James C. Granger

Thank you, Linda. First let me say that it’s a pleasure to speak to all of you today in my new role as President and Chief Executive Officer for Wireless Ronin. I’m excited to be here and look forward to applying my experience in the technology industry to the challenges and opportunities of the digital signage industry.

The digital signage industry has been evolving over the past two decades. What is exciting for Wireless Ronin and our future is that there are clear signs that the industry is coming of age and has grown into a more effective and capable medium. It is true that today’s economic environment has presented concern. However, to our recent actions, to right-size our organization and infrastructure, we have shifted our business model to one that is nimble and quickly scalable.

On November 3 and December 17 of 2008, we implemented two separate workforce reductions to align our infrastructure and expenses with sales levels and current client projects, particularly in light of the recent economic downturn. As a result, we reduced our headcount by approximately 40%. This will in the near-term decrease our expenses and in the long-term, make Wireless Ronin a more efficient organization.

Despite the challenging economic environment throughout the latter half of 2008, I’m enthused by several accomplishments that were made over the year. During 2008, the company was able to preserve and expand key client relationships and in fact, attract new customers. We were able to grow year-over-year revenues. We took control of our expenses and infrastructure costs to better scale and leverage our operating model. Further, we have invested in our product offering creating what is considered to be the best-in-class software offering in this industry and we ended the year by reversing the downward pressure of our gross margin levels.

Now I would like to turn the call over to Brian Anderson for a closer look at our fourth quarter and year-to-date results. Brian?

Brian S. Anderson

Thanks, Jim.

We reported fourth quarter 2008 total sales of approximately $1.9 million, up 18% from $1.6 million in the fourth quarter 2007 and flat to the third quarter of 2008. On the bottom line, we experienced a $6.9 million net loss in the fourth quarter of 2008 compared to a $3.7 million net loss in the fourth quarter of 2007 and a $4.6 million net loss in the third quarter of 2008. The net loss from the year-ago quarter was primarily attributable to the impairment charges of our network equipment held for sale asset of $1.8 million, intangible assets of $1.3 million, and $247,000 of severance expense related to the fourth quarter workforce reductions.

Increased year-over-year expenses resulted primarily from higher operating expenses to support anticipated growth opportunities, investments in the company’s Network Operations Center for customer testing and program pilots, and the one-time adjustment securing in the fourth quarter. Excluding one-time expenses and non-cash charges, the fourth quarter adjusted net loss would have totaled approximately $2.8 million.

In the fourth quarter of 2008, we reported a basic and diluted loss per share of $0.47 compared to a basic and diluted loss per share of $0.25 last year and a $0.31 loss in the third quarter of 2008. Gross margin for the fourth quarter was approximately 12% as compared to 25% for the year-ago period and 5% in the third quarter of 2008. Impacting the 2008 fourth quarter gross margin was a one-time lower cost or market adjustment of approximately $65,000 and a continued net loss from our NOC. Excluding these adjustments, adjusted gross margin would have been 25% in the fourth quarter compared to 17.3% in the third quarter. The quarter-over-quarter increase in adjusted gross margin was primarily due to recent reductions in labor costs in the NOC.

Gross margins are primarily impacted by pricing, labor costs and product mix. We have recently implemented improved controls and processes around pricing and reduced labor costs with our recent reductions in workforce. Going forward, quarterly gross margin levels will be impacted by fluctuations in the mix of higher margin software sales and lower margin hardware sales. Our focus continues to be on improving margins either through better pricing or reduced expenses while maintaining our level of quality service to our customers.

Total operating costs for the fourth quarter were $7.2 million, up from $4.4 million in the fourth quarter 2007 and $4.9 million in the third quarter of 2008. The year-over-year increase was primarily due to the previously outlined impairment of our network equipment held for sale asset of approximately $1.8 million, the impairment charge in the intangible assets of approximately $1.3 million and severance charges of approximately $247,000, offset by a decrease in most other expenses categories. Based upon our recent actions to realign expenses with expected sales levels, excluding one-time adjustments and non-cash items, total adjusted operating and direct costs decreased by approximately $1 million from the third quarter of 2008. We anticipate that quarterly expenses will decline by an additional $1 million commencing in the first quarter of 2009 for a total reduction of approximately $2 million as it relates to these actions or $0.13 per basic and diluted share.

The company previously included depreciation and amortization and general and administration expenses. We now show depreciation and amortization as a separate line on the income statement to better reflect the infrastructure investments made to-date.

As we have provided in prior financial results announcements, we included reconciliations between the GAAP and adjusted operating loss in today’s earnings release. This highlights how we look at profitability and cash utilization for the company. It is similar to EBITDA but adjusted for certain other one-time items and FAS123R expense for stock-based compensation. This supplementary schedule details the items and effects of fourth quarter one-time adjustments and shows the trend in reduced costs and improvements in our adjusted operating loss for the quarter.

As Jim pointed out, on November 3 and December 17, we announced two separate reductions in our workforce to align our expense rate with our current expected sales levels and project commitments from clients. As a result, we have reduced our total headcount by 63 or approximately 40% with reductions spread across the organization. The combined severance charge from the two workforce reductions total approximately $274,000 or $0.02 per basic and diluted share in the fourth quarter of 2008. Our headcount now totals 96.

Turning to the balance sheet, at the end of the fourth quarter of 2008, cash and cash equivalents, a combination of marketable securities and restricted cash of $450,000, totaled approximately $14 million compared to $29.6 million as of December 31, 2007 and $18 million as of December 30, 2008. The year-to-date decrease in cash balances primarily resulted from funding our net loss.

Our cash burn for the fourth quarter was $3.9 million, down from $4.3 million in the third quarter of 2008. The decrease in cash burned during the quarter was primarily due to the effect of reducing expenses partially offset by other timing differences and changes to working capital accounts. We believe that cash balances in combination with the actions that we’ve taken to reduce our burn rate have created a platform that is sufficient to fund our business well into 2010. Our plan is to continue to match operating expenses with sales and projects and adjust our plan based upon actual sales and customer requirements.

During the fourth quarter, we wrote off the network equipment held for sale asset and took an impairment loss on our intangible assets related to our Canadian acquisition in 2007. The 2007 acquisition of McGill Digital Solutions included a continued portion of purchase price based on future financial performance of the Canadian subsidiary. The earn-out criteria for 2007 and 2008 were not met and no earn-outs will be paid. The company accrued for the 2008 earn-out of approximately $1 million in 2007 and included this amount in the initial valuation of the intangible assets. The $1 million approved purchase price liability was reversed prior to testing for impairment.

As discussed on our third quarter conference call, NewSight defaulted on its note obligation in August 2008 and pursuant to a written agreement with NewSight, we took ownership of the hardware and software related to the Meijer network. As a result of this default and our contractual resolution, we re-classed the NewSight net receivable balance of $1.9 million to network equipment held for sale during the third quarter of 2008. This current asset consisted of both in-box inventory and install base of equipment representing a current operating network for 102 Meijer’s stores. Meijer was expected to choose a network provider in the fourth quarter with which to move forward. We expected to sell the existing network and the in-box inventory to the new network owner.

During the third quarter, the advertising dollars expected to fund this network, decreased significantly due to the ongoing economic downturn. As a result, Meijer recently informed us that there are no current funds or plans to continue operation of this network. Therefore, we have moved approximately $171,000 of computers and streams from our in-box collateral base in the inventory and wrote-off the remaining approximately $1.8 million network equipment held for sale.

Turning to our impairment analysis, the company reviews the current value of long-lived assets including intangible assets with finite lives, from impairment in accordance with a Statement of Financial Accounting Standards No. 144. Under FAS144, impairment losses are recorded whenever events or changes in circumstances indicate the current value of an asset may not be recoverable. If the impairment tests indicate that the current value of the asset is greater than the expected undiscounted cash loss to be generated by such asset, the impairment loss is recognized. Our intangible assets were initially valued based on cashable estimates prepared by management at the time of the acquisition of our Canadian subsidiary in August 2007. The majority of the Canadian entity’s revenues have been derived by products and services provided to the automotive industry, more specifically the majority of such revenues that historically come from Chrysler Corporation or through Chrysler’s ad agency, BBDO Detroit and BBDO Windsor.

During the fourth quarter of 2008, we tested the intangible assets required for impairment. We determined that the underlying assumptions and economic conditions surrounding the initial evaluation of these assets had significantly changed leading us to conclude that an impairment loss should be recognized for the $1.3 million net book value of these assets.

Finally, I would like to summarize the financial results for the quarter as follows: we achieved our quarterly revenue target of $1.9 million. Gross margin improved to 12% from 5% last quarter. We reduced our workforce and expenses by approximately 40%. We took impairment charges on our network equipment held for sale asset and intangible assets of approximately $3 million and excluding one-time and non-cash items, our expenses improved by approximately $1 million from the third quarter of 2008. We expect that on-going quarterly expenses will decline further by approximately $1 million in the first quarter of 2009 and related to actions taken in the fourth quarter.

Now, I would 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, Brian.

I would like to take a moment to focus on the core underlying business decisions that were made during the fourth quarter of 2008. Wireless Ronin’s management team began to make some tough decisions even before I arrived to set the stage for the future growth that we envision. Unfortunate as it was to have had to reduce our workforce, it was imperative that we right-size the company for long-term success. We believe that by focusing on the delivery of best-in-class software and support services, we are in position now for success as we move into 2009 and 2010.

The digital signage market is still young. Companies large and small are looking for business models that have long-term viability. Wireless Ronin is in a unique position with outstanding software and services which to our ongoing development process are getting even stronger and more feature-rich every day. We combine that best-in-class software with the ability to deliver both standard and customized web portal online management systems which are key in leveraging our ability to provide hosted solutions while simultaneously giving the customer control of desired features and functions for their networks. Add to this, an established support infrastructure, our Network Operation Center, for real-time monitoring of network deployments and we have a business model that is positioned for the long-term. Software and the ongoing support of that software through maintaining and enhancing digital signage deployments are areas that leverage the built-in expertise the Wireless Ronin team has and are proven across a wide range of industries to be a business model that when successfully executed upon, provide the type of margins that drive shareholder value.

Therefore, our tasks are clear. First, focus on the part of the business we do best, developing and delivering software solutions and digital signage support services and second, to make sure our cost structure is such that we deliver margins which will be rewarded through increased valuation.

Now, I would like to provide you some updates on our sales efforts. We are currently preparing to exhibit with KFC marketing at the 2009 KFC Franchise Show in Washington, DC. KFC will kick off it’s Year of the Franchise campaign and we will be demonstrating the digital menu board system throughout the convention. We currently have 78 installations for KFC across 17 states. Both Louisville and Oklahoma City markets are 100% digital. In January, we expanded our footprint in the Oklahoma City stores in two key areas, beverages and dining. An additional screen has been added near the beverage station to generate sales lift for new products and promotions and a screen has been added to the dining area for entertainment featuring music videos and promotions. KFC remains committed to Wireless Ronin and the menu board initiative.

In addition, we continue to see progress with other opportunities in the quick-serve restaurant industry. We are aggressively pursuing opportunities in the QSR market and expect that these efforts will generate results in the upcoming months.

In January, we attended the National Automobile Dealership Association Show in New Orleans to promote our newest product for the automotive industry, Auto-PIC. Our alliance with Chrome Systems, Inc. and eVox Images allows us to create a powerful automotive product information center now available in RoninCast for Automotive. The primary advantage of Auto-PIC is that we can deliver highly customized interactive content for virtually any automotive brand to a dealership at a fraction of the cost it would be to generate this content on a case-by-case basis. In addition, we have added a menu board type product for the parts and services areas allowing our clients to make real-time changes to products and promotions in the service department.

Our exciting global relationship with Thomson Reuters continues to grow. We are now installed in 208 locations in over 35 countries. Our delivery of a complete solution of software services and hardware where applicable, continues to add value through the Thomson Reuters InfoPoint network and we will begin deploying 140 additional locations in Asia commencing next quarter. Thomson Reuters has begun an even more aggressive initiative to expand the InfoPoint network.

On our last call, we highlighted our new relationship with Aramark. We have now successfully completed five installations with six additional installs under contract with Aramark and are beginning to see greater interest throughout the higher education and healthcare groups. Each of these groups is aggressively pursuing new opportunities and we expect that our installation pipeline will continue to grow with this important customer.

While all of these are encouraging, it is clear that most companies including Wireless Ronin, face difficult economic challenges with regard to the overall economy. All businesses, including the ones we seek to serve, are extremely cautious with regard to any capital expenditure and credit markets continue to be nearly closed. Recessionary headwinds have almost certainly delayed customer commitment. That being said, I personally have never been connected with an industry where the ROI or return on investment was any more clear or compelling.

I believe this will ultimately result in the tidal shift in digital signage solutions as the economy normalizes and with Wireless Ronin and the steps that we have taken and continue to take, we will be there to take advantage of this shift. Our goal moving forward will be to fulfill our vision by maintaining our position as the recognized leader in the digital signage industry. We will strive to continue our steady growth year-over-year, to be a great place to work for our employees and to deliver returns to our shareholders by driving higher profitability, cash flow and return on invested capital.

I cannot close this call without taking the opportunity to tell everyone how honored I am to be a part of this extraordinary team of professionals here at Wireless Ronin. Through some very difficult times, they have remained first and foremost committed to outstanding customer service. I already have several stories of individuals going that extra mile to assure that our clients’ needs are met. Whether located here in Minneapolis or our Windsor, Canada location, this is a team that exemplifies our values of commitment and creativity. I’m proud of them and now proud to be a part of the team.

This concludes our prepared remarks and now I would like to open up the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Atul Bagga with

Thinkequity.

Atul Bagga – Thinkequity

Jim, can you give us an update on the contact with KFC and Chrysler?

James C. Granger

Well, we continue to work very closely with KFC. In fact, we are expecting to deploy another 34 stores over the next few months. So we continue to work very closely with them and continue to supply them with an outstanding digital signage solution. In terms of Chrysler, it continues to be a very difficult market with Chrysler and all of the automotive dealers and automotive companies. As you know, I don’t have to go into the details, the kinds of troubles that they have gotten themselves into the last couple of quarters, and those headwinds are certainly delaying deployments of any new technology.

Atul Bagga – Thinkequity

Last quarter, you mentioned you have a big contract working with KFC which was in advanced stages. Can you talk a little bit about that contract, is it still working? How many locations can we expect to see in 2009?

James C. Granger

I cannot comment on anything obviously that the former management might have said and I think you wouldn’t expect me to. At the same time, I can tell you that KFC continues to deploy in key markets with this technology and we continue to work with them on the rollout of this technology to stores across the country.

Atul Bagga – Thinkequity

Are you expecting to be cash flow-positive in 2009-2010?

James C. Granger

We certainly have the wherewithal in terms of the cost takeouts that we’ve done and in terms of the cash that we have to see ourselves well into 2010. The exact date of cash flow-positive, it is something that wouldn’t be wise for me to speculate on. That being said, we think we have the wherewithal to ride out this storm and still come out the winner at the other end.

Atul Bagga – Thinkequity

Let’s say if you guys did get the contract from KFC. What other dates are you going to ramp up your headcount back so you can serve that customer?

James C. Granger

I’m not sure we need to ramp up as far as we’ve ramped up before. I think we found that, I’ve seen this team do a remarkable job with the current headcount and with the current requirements that we have. That being said, were we to get a large deployment, we’d obviously need to add additional resources. But I think what this exercise has proven is that we can be more efficient as well as more effective. So we’ll only ramp up according to the goal of not only going cash flow-positive but to start showing real profits on the bottom line.

Operator

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

Jay Meier - Feltl & Company

Just four questions if I may. I’m a little confused by some of the verbiage in the press release. I think it’s on the second page, there’s reference to better alignment of internal resources with sales levels and talking about further reducing headcount. Is that describing the two force reductions you have already taken in November and December, or is there additional workforce reductions that I wasn’t aware of?

James C. Granger

I’ll let Brian; this is speaking to the two reductions that we have already taken, Jay. But Jay, you know me, and we will make sure that we take out costs that are unnecessary at any opportunity. Our job here is to make sure that we start making some real money and its imperative that we look at our headcount and at all of our expenses really to make sure that we keep those expenses inline and then start growing according to what comes in terms of the sales. Brian, that is correct in your assessment?

Brian S. Anderson

I just want to clarify that I did address the two headcount reductions that we did. So Jim answered that.

Jay Meier - Feltl & Company

Regarding potential future alignments, Jim would you suggest that that’s more a human capital issue or looking to do other things in terms of how the NOC is structured, software, what type of capital improvements do you anticipate going forward?

James C. Granger

One thing that I will tell you, we are going to invest in this key value of ours which is the software development and the ongoing software product that we present. So there we will take advantage of and make sure that we are adding the resources where we need to make sure that we continue to be best-in-class. I think what we really need to do is just make sure that’s across, it’s surgical at this point. We just need to make sure that across all of the organization that we are generating 110% and that leads to more effectiveness and more efficiency. I really do believe that efficiency does lead to effectiveness and we’ll look at that. It is not some wholesale lopping. It is really the, I think that has been accomplished. Now what we got to do is just make sure everyone’s operating in a most effective and efficient manner possible.

Jay Meier - Feltl & Company

As far as the business model going forward, you made a few comments about profitability in the cash flow, you’re striving to higher profitability, can we read into that at all about your views of essentially reselling hardware and if so, if there is a potential shift in model, how should we think about that for our models going forward? Let me drill on that in just a second. Should we assume that you guys are going to continue to try and pitch hardware as a steadfast component of your offering or is it deal by deal or will you eventually move out of hardware completely?

James C. Granger

Jay, it’s almost one of those pyramid answers which it is almost easier to draw than it is to talk about. But there are certain customers out there who will always want us to provide a total solution meaning that they will want us to include not only hardware but very often content services around a solution for them. In that case though, we must make sure that we achieve profit margin on those added areas. The software, software support web portal is where our margins are best and where we are most specifically targeted to be successful. So I guess to answer your question, at some customers, they’re going to want a total solution and we are glad to offer them that. We have an outstanding project management team. We have great content people and we have good relationships, great relationships with hardware providers to make sure that we can provide a total solution where that’s important. There are however, other customers which will find that they may be able to secure hardware from, directly for example or other channels that doesn’t provide for us the opportunity to make any margin. It makes no sense for us to pass through revenue that doesn’t add to our bottom line. It simply adds cost and can lead to things like write-offs at the end of the year if they’re not handled correctly. It’s going to be more on a case-by-case basis but certainly, we’re going to focus on the high-margin portion of our business which is our outstanding software, our web portal development, our services through the NOC, and the whole solution that we provide with digital signage software.

Jay Meier - Feltl & Company

Finally, regarding the McGill impairment, just so I understand that correctly, you had, and maybe Brian should take this –

James C. Granger

Yeah, Brian will take this one.

Jay Meier - Feltl & Company

You had already accrued $1 million in burn-out that was booked on the balance sheet somewhere then you reversed that accrual because they didn’t meet those expectations, do I understand that correctly?

Brian S. Anderson

That’s correct, Jay. We reversed that accrual and then we looked at the underlying assumptions that the intangible asset was initially booked at, then looking at those and the conditions of Chrysler and the economy and so forth, and those cash flows are just not what they were when they originally were gotten. That’s why we took the impairment charge.

Jay Meier - Feltl & Company

Is it safe to assume since my impression anyway of the McGill business was that it was primarily oriented around automobile manufacturers, is it safe to assume that this impairment is more related to obviously a recent realization that the automobile manufacturers are not doing so well?

Brian S. Anderson

Well, it’s a combination, it’s really though looking at the initial assumptions that were made when we valued those assets. There was significant cash flows attached to some of those intangible assets and those just are not going to or have not panned out. So it’s primarily that and also with the situation with Chrysler also impacting that.

Operator

Your next question is from the line of Dick Ryan with Dougherty.

Dick Ryan – Dougherty & Company

You mentioned QSRs other than KFC, can you talk about what’s going on there and are you hosting any other QSRs through the NOC at this point?

James C. Granger

We continue to work with that QSR industry. We don’t have a specific announcement of material nature that would be important for me to talk about on a call and obviously we have to respect the wishes and rights of anybody we would be working with. As soon as we were into something that required a notification, we’d make sure everybody knew about it.

Dick Ryan – Dougherty & Company

You mentioned the KFC franchisee show. What are they telling their franchisees?

James C. Granger

I’m going to turn this one over to Scott. He’s going to be there along with others from our company and I think he can give you a good example and good discussion of what we’re doing there.

Scott W. Koller

The key thing of the show is going to be the continued introduction to digital menu boards to the key franchisees, as a matter of fact, all the franchisees. The franchisees are going to be a part of making the decision on how they would roll out digital signage and how it would be funded. They are going to be given the opportunity to purchase digital menu boards if they want to. So that is a change of heart that KFC has experienced over the last couple of months. KFC is still committed to the menu board project and it still stands as Dave Novak had pointed out last year that they would like to see all stores converted to digital by the end or convert to digital that can support calorie information by the end of 2010. With that said, during this show, it will be the continued introduction of the digital menu board and it will be opened up for individual franchisees and groups of franchisees to purchase the menu board product.

Dick Ryan – Dougherty & Company

Have they rolled out a funding option for the franchisees, Scott?

Scott W. Koller

Not that I’m aware of at this point.

Dick Ryan – Dougherty & Company

So this would be on the back of the franchisees to pay for this?

Scott W. Koller

Some have made that point. In fact more than some have made that point. So coming off the recently funded onus to support some new products, it is not a decision yet on how the digital menu board will be funded.

James C. Granger

But some franchisees have made that choice on their own already.

Scott W. Koller

Yes. Key franchisees that participated in the install base already have the ability now to purchase and that was not an option before.

Dick Ryan – Dougherty & Company

So if you can look at the count, the 79 that is install and the other 34 that’s coming, can you break out company versus franchisees?

Scott W. Koller

I say it’s probably about a 70-30 mix, 70% franchisees, 30% corporate. One of the key things is if you know our big markets are Boston, Orlando, Oklahoma City and Louisville and we have a smattering of installs other places, the smattering of installs other places works to support very large franchisee groups for them to get familiarized with the menu board product.

Dick Ryan – Dougherty & Company

Today the appeals court of New York upheld the calorie posting in New York and we’ve seen this roll across the country, Philadelphia, California, Seattle and on, what are you hearing, Scott? What are some of the options that these QSRs are looking at and are you getting any feedback as to what’s working and what’s not?

Scott W. Koller

It’s actually all the QSR industry not just KFC but all the QSR industry was really looking for the federal government to step in and mandate how trans-fat or calorie information would be displayed. It doesn’t look like the federal government is going to do that. I think it’s going to be up to individual states and counties even if you will to mandate what they want to see on the menu board and how. This presents a very large challenge for the QSR industry which means that even as complicated as the menu boards can be today, adding the extra layer of complex content if you will and making sure that’s it’s conformist and actually associating with a fine if it’s not up there really adds a layer of complexity to the menu board that the QSR industry is going to have to address. One of the reprieves that they are getting is that the outdoor board where we all know that the hardware from an expense standpoint and a warranty standpoint really shows no ROI for digital at this point. But one of the reprieves that they’re getting is that the outdoor menu board doesn’t have to have calorie information on it and they can simply say the calorie information can be found indoors. However, that does not address or alleviate the issue that they have indoors on executing trans-fat and calorie information. So with that said, I really can see and we’ve heard this from clients, there is no other way but digital to be able to address the complexity and not only the complexity but the non-uniformity of how calorie information will have to be displayed.

Dick Ryan – Dougherty & Company

How are some of the restaurants doing it? Is it aesthetically -- ?

Scott W. Koller

Paper, stickers, it’s a variety of different ways. It’s county by county, the five boroughs in New York are allowing them to put up paper and Seattle is going to handle it differently, King County is going to handle it differently in California but right now it is sort of a scramble mode putting up temporary menu boards right now that it is just the minimum requirements for what those areas are asking for.

James C. Granger

Dave, this is one of the reasons why I said, this is a tidal wave that’s coming in digital signage because it’s not only getting it up there but it has to be in certain fonts and it has to be jurisdiction by jurisdiction. So you can have a franchise owner for example literally having a store in Minneapolis and one in St. Paul and having different requirements, both size, position, number, whatever for these things. This tidal wave of digital signage, there’s no going back. That’s in many ways what we are positioning ourselves to take advantage of.

Dick Ryan – Dougherty & Company

One last one for me. Aramark, you mentioned six new installs. When are they happening, Jim, and what’s kind of the footprint if you will, how many screens are they looking at?

James C. Granger

Well, some of them, it’s not like they’re happening. They have already happened and we’ve had some really pretty exciting installs in healthcare and education. You want to describe a typical one, Scott, maybe even include one with a kiosk option.

Scott W. Koller

There are really a couple of things that Aramark is trying to accomplish and really the footprint changes between higher education and healthcare which are the two that we’re gaining traction in right now. As you know, Aramark does a lot of institutional food and one of the things we want to do with just pure digital signage which isn’t kiosk or menu board-related is to break up what they consider the monotony of institutional food environments. You grab your tray, you get in line, you get your food, it’s a monotonous type atmosphere and they would like to break up the monotony by putting in digital signage. Another thing we are working on is a kiosk with them where we automate the order process so when you walk into an instructional food area that may have four different restaurants that you can dine at, the kiosk is actually streamlining that process by bringing all four menus together and you can select your food. Then there is the pure menu board initiative which is no different than what we’re doing in QSRs. So really those three things are what we’re doing and in healthcare and food, any one of those three can be accomplished. We’re looking at an elementary school. We’re looking at a new hospital coming in so it really depends, it’s sort of ala-carte depending on what they want to accomplish at each one of those venues and it really depends on what the venues wants to do.

James C. Granger

We will be presenting along with Aramark out at the Digital Signage Exposition in Las Vegas next week and Aramark will be actually talking about, not just what they are trying to do but the ROI and why they chose Wireless Ronin.

Operator

Your next question is from the line of Rick D’Auteuil with Columbia Management.

Rick D’Auteuil - Columbia Management

I was going to try to drill down a bit on your answer on the QSRs. I understand that none are meaningful as of now or material, I think you said. But without disclosing names, maybe you can talk about how many you are in discussion with and how many have begun testing just on a unnamed basis?

James C. Granger

We’ve been in discussion with a number and it’s really difficult, the more you drill down on that, the more difficult it becomes to not disclose something which we don’t believe at this point, we should classify as material and more importantly, where we haven’t talked with current clients. We are working with different clients on a number of different installations and programs.

Rick D’Auteuil - Columbia Management

You didn’t give any guidance here but I assume you’re hoping to make progress on the revenue line; you’ve already made progress on the expense line. Not a lot of progress was made sequentially from Q3 to Q4 on the burn rate, what can we expect the burn rate to look like in Q1?

James C. Granger

If I can, and with all due respect, I’d beg to differ with you, we’ve made about $1 million in the quarter –

Brian S. Anderson

No, he’s talking burn rate.

Rick D’Auteuil - Columbia Management

Burn rate in cash because that’s what counts here.

Brian S. Anderson

Burn rate in the third quarter was $4.3 million; we went to $3.9 million in the fourth quarter. You’re absolutely right, as far as timing differences in some of that, you will see approximately the same ultimate effect on cash flow as you see the expenses, and it’s just more of the timing of that. At the end of the year, you know, we probably expected to collect on a few more receivables and so forth which happened in January so again, that burn rate, you will see that impact here coming forward.

James C. Granger

We’re making progress on that.

Rick D’Auteuil - Columbia Management

I asked for a little more detail so is it half the rate that we saw in Q4, I mean, is that a more fair representation?

Brian S. Anderson

We talked about the expenses in that from our peak here in the third quarter until next year, that we’re going to see probably $2 million in expenses and that’s going to equate in cash as well.

Rick D’Auteuil - Columbia Management

If I take $4.3 million and subtract $2 million, will I get down to $2.3 million and figure you collected a couple of extra receivables; $2 million probably isn’t out of the ballpark.

Brian S. Anderson

Right.

Operator

Your next question is from the line of Paul Adahl with RBC.

Paul Adahl – RBC

Basically what I want to know and my clients want to know is, you’re new to Wireless Ronin. You had a few months to look through their model. What I’m hearing here is again about this Kentucky deal which would be great. Bear in mind we have been hearing about this Kentucky deal for a year and no one knows, I mean we don’t have enough information to view whether this is full-scale or not. Can you explain what it is that you’re going to do as CEO to, you have a company with just about $14 million in cash, you want to fairly gain stability, can you outline for us what it is that you can do differently from the former management to start to get us, now I know we are in a bad economy, so obviously I will take that into account. What can you bring to the table now going forward so that we don’t put our heads into one big deal and then basically run into that trap that I think a lot of us did last year.

James C. Granger

Again, I don’t want to speak or try to defend or even try to comment on comments that have been made previously. I guess I would say that if you look at my background and what I’ve done and my history and my experience, it’s really driving shareholder value and the way you do that is making sure that you first and foremost, control expenses, you build an outstanding team, you focus on the things which your company does best, and then you execute, execute, execute on that even in a tough economy. Now I know that maybe doesn’t tell you specific, but I do believe that we have some good current clients. In this last quarter, not anything that I’ve done, even in this last quarter in this tough economy, this company has added new clients that we’ve mentioned and talked about and we continue to add new clients. So the sales will come. Will they come in the first half of this year; it’s going to be pretty tough as this economy slows, as it continues to slow. That being said, this is a market that we’re going to stay viable with for many, many, years to come. So I’m here to make sure I take the steps to build a company that’s built to last by focusing on strong operations, strong execution, and by focusing on the core of the business on the customers that add the most value. Despite the fact that everybody says, jeez, we heard and heard and heard about KFC. I would remind everybody, we got 78 stores, 34 more on the way in the next couple of months, and we are continuing to roll this product out to KFC. Maybe it’s not a splash that everybody had talked about and I understand where it was talked about but it still continues to be a wonderful, wonderful customer for us and we have a wonderful working relationship with them and the other partners that are serving them.

Paul Adahl – RBC

But are there any other areas that you’re focusing on at this point that are away from the QSR?

James C. Granger

Absolutely. We have listed that we are in three primary areas, certainly the QSR. I think the other one is the whole area of retail. We haven’t talked a whole lot about that but we continue to find traction with significant customers that are actually buying total solutions from us and as we get the ability to make announcements around those and talk about them, I certainly will talk about them. But we are making some nice progress with the retail space that is pretty exciting, and finally, I think once automotive turns around and it will, our product and our solution is very viable. It makes enormous sense from a ROI perspective in the showroom and we’ll continue to take advantage of that. Scott, is there anything that has been spoken of before that I can make sure that I can talk about?

Scott W. Koller

I think a couple of things that get diluted that need not be; one is Aramark and what that means in QSR. Aramark controls 17,000 locations for institutional food and we are just at the cusp of really getting them exposed to digital signage and what it can bring to their customers. It’s a significant account for us so when we talk about QSR and making traction with other companies, I want to make sure that Aramark is mentioned. As we talked about before, we’re not positioned to talk about right now but we are actually engaged with other QSRs and in KFC, it isn’t a stand-alone entity. KFC is part of the YUM! Corporation which has other opportunities for us as well, so there is a lot of traction in QSR. Outside of QSR, I think Reuters also gets diluted.

James C. Granger

We can’t talk enough about that.

Scott W. Koller

We can’t talk enough about our relationship with Thomson Reuters. We continue on a monthly basis to expand our network operations support for them, in addition other services that we bring to them and they will be a significant client in years to come. Retail and where we see most of our traction is with the brands and with the brand retailers, we’ll continue to focus on that heavily. I encourage anyone that can to come to the Digital Signage Expo to see exactly what kind of presence we have in that expo and what kind of presence we have in the digital signage industry. As Jim mentioned, automotive, brands and brand retailers in the retail sector and QSR will be our focus and will have traction outside of KFC.

Paul Adahl – RBC

Okay, Jim, let me ask you something. Clearly, you are the new guy in town here. One of the problems I had, execution took a real long time, the turnaround between requests and proposals and not getting anything concrete on the table, can we see better execution this year from you?

James C. Granger

I absolutely think so. I think we will do a great job. I think also the thing that you’re going to not see and those of you who know me; my feeling is that what we should really be doing here is under-promising and over-performing. Maybe we got that a little out of balanced here at Wireless Ronin in the past but we’re going to focus on being able to come to you with real results, show real progress, real progress on cash burn, real progress on margin, real progress on what we’re doing with key accounts and tell you honestly and openly that we truly are excited about what’s ahead for us in the coming years.

Paul Adahl – RBC

Alright, Jim, well I appreciate what you’re doing. We really wish you the best of luck because it’s been a rough road so far and you got a rougher road now in this economy. So we’re really banking on you.

James C. Granger

Well, I do but I think we’re taking the steps to not only get through this economy but we all know it’s a tough economy. It has impacts across our customers and across ourselves but what we’re doing is positioning ourselves because we’re in this for the long-term.

Linda Hofflander

I think we have time for one more question.

Operator

There are no further questions at this time.

Linda Hofflander

Think you. I’d like to thank everyone for his and her participation on today’s call. Please remember that today’s call has been recorded and will be 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 dial-in information for domestic and international locations can be found on our website. Thank you and good bye.

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Source: Wireless Ronin Technologies, Inc. Q4 2008 Earnings Call Transcript
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