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Insignia Systems, Inc. (NASDAQ:ISIG)

Q42012 Earnings Call

February 27, 2013 17:00 am ET

Executives

Glen Dall - President, Chief Operating Officer

John Gonsior - Chief Financial Officer, Vice President - Finance, Treasurer

Scott Drill - Chairman of the Board, Chief Executive Officer, Secretary

Analysts

Steve Moore - Woodstone Securities

Bill Raimi - Private Investor

Tim Finnegan - IMS

Benj Gallander - Contra the Heard

Bob Frendell - Private Investor

Operator

Good day, everyone, and welcome to the Insignia Systems fourth quarter 2012 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 materially from these forward-looking statements as a result of a number of factors, including risk and uncertainties as described in the company's Form 10-K for the year ended December 31, 2011, and other recent filings with the Securities and Exchange Commission. The company wishes to caution listeners not to place undue reliance under--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 COO. Please ahead, Mr. Gall.

Glen Dall

Thank you, and then thank you all for participating in this conference call. We are going to discuss our fourth quarter and our 2012 results and then we can answer any questions you may have after that. With me are Scott Drill, Chairman and CEO and John Gonsior, our CFO.

John will review the numbers, then I will have some comments before opening up the call to your questions. John, you want to go ahead?

John Gonsior

Sure, thanks, Glen. Good afternoon, everybody. As you can see in the earnings release from earlier today, we just completed another successful quarter which was our second straight quarter with profitability. I will first go over those quarterly results as well as the annual results and then provide other financial highlights and commentary on our fourth quarter.

Our fourth-quarter results were as follows. Net sales were $5.3 million of which $4.9 million was POPS revenue. This compares to net sales of $4.2 million for the fourth quarter of 2011, of which $3.6 million was POPS revenue. This represents a 36% increase in POPS revenue from the fourth quarter of 2011. Net income for the fourth quarter was $69,000 or $0.01 per share. This compares to a net loss of $388,000, or $0.03 per share in the fourth quarter of 2011.

Our annual results were as follows. Net sales were $20.2 million, of which $18.4 million was POPS revenue. This compares to net sales of $17.2 million for 2011 which of $15 million was POPS revenue. This represents a 23% increase in POPS revenue year-over-year. Our net loss was approximately $1.6 million or $0.12 per share this year, which compares to net income of approximately $51 million a year ago which of course included a gain from our little legal settlement of $55 million net of tax.

Some other financial highlights include the following. Our cash and equivalents balance increased nearly $500,000 during the fourth quarter to $20.2 million. Additionally, we have $21.8 million in working capital which is also an increase over the amount of working capital from one quarter ago by over $400,000.

Finally, as we have spoken about previously, our breakeven is now much lower than it used to be. It will continue to fluctuate in future periods based on the pricing of programs, then networking mix of programs and other costs that it takes to produce our product. With that, I will turn it back over to Glen.

Glen Dall

Thanks a lot, John. So (inaudible) to report our second consecutive profitable quarter. Our sales and internal team worked really hard to get us here and continue the positive momentum in to 2013 as witnessed by our strong Q1 bookings. We are cautiously optimistic but its still how I describe our outlook for 2013 given the relative softness that we are seeing right now in Q2. we will continue to look for efficiencies. We will also invest in people and resources to drive our increase revenue in this year especially upcoming years.

CPG, SPAN and in-store as a sector of promotional marketing spend is obviously up versus a year ago prior levels and we believe that it bodes well for us in 2013. We recently reorganized our sales teams to add more resources against reaching more CPG accounts to broaden the base of clients which can help protect against fluctuations in spending from our more concentrated base of CPGs. In 2012, we were successful in this. Me have seen increase in the number of CPGs we serve by 43% and added 18 CPGs who we had never run programs for before.

We were successful in expanding our access to nearly 600 incremental quality regional grocery stores like Roundy's, who we got through our partnership with Valassis and others like Piggly Wiggly, Food Giant, IGA and Lucky Supermarkets and those are through direct relationships with Insignia. We will be seeing those stream in through July of this year. Additionally, our retail teams are going to continue to focus on adding additional quality retailers to that.

We are continuing to offer and have executed programs with our digital tie and pop signs and we are looking for ways to increase consumer interactions with those signs as well as offer the programs at additional retailers. A want to stress that the product itself is still at a really early-stage, not a lot of consumer adoption but we are exploring additional options to get consumers more involved with the offering but the point of this right now, we really can't predict any meaningful revenue from those digital products in the near term.

At Valassis, the News America marketing relationships continue to be productive and so you may have noticed we launched our first phase of our updated website this week. We have got plans for significant addition to it throughout the year and we are going to tie those improvements we are seeing in our internal enterprise system. So overall we feel we are in a far better place as an organization than we were a year ago. We have embraced Insignia 2.0. We are committed to inspiring shoppers and delivering value. We will be able to focus more on our long-term strategy for continued growth.

So with that I would like to open it up questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steve Moore of Woodstone Securities.

Steve Moore - Woodstone Securities

Congratulations. I am excited to see you have profit this quarter. We didn’t think when you had the last conference call, it was going to be profitable. So I am really happy. Congratulations. Seems it has changed, it rang out a good year. That’s great. I hope you don’t mind my (inaudible) there. I noticed that finally that '13 would be (inaudible) bought about 1 million shares of Insignia and I welcome him to the club and I was wondering. I hope he calls in and I made a comment on his buy but can you guys comment anything about that? He is from your area. He likes the fact that its undervalued.

Scott Drill

Steve, this is Scott Drill. That was not a new purchase. For some reasons I don’t fully understand, until recently he did feel there was a legal requirement to file his various holdings, perhaps because of where he held the stock. But the main point I want to make is he has been a long-term shareholder and that was not a recent purchase.

Steve Moore - Woodstone Securities

All right, another question I had was, would this Roundy chain and the relationship with Valassis, we have a contract with Valassis for the next four years to inner sell, and they have had a lot of top business. They have capped over 17,000 locations and do we really look we are going forward here with this deal?

Scott Drill

Steve, as I had commented already that we do enjoy a good relationship with Valassis and we are the (inaudible) with price, in-store within our offerings and stores like Roundy's and Supervalu Inc., the Winn-Dixie and we expect that to continue going forward.

Steve Moore - Woodstone Securities

Okay. Now we don’t have CPGs for drugstores. Is that correct? Because they signed up (inaudible) and now Roundy's have also has about 100 drugstores. I was wondering if you working at CPGs for drugstores?

Glen Dall

See, we do have some CPGs area that would have help them get you product and types of good products you would find in drugstores but you are right, that our core competency really is more with consumer packaged companies that’s focused on food products that you find in grocery stores. Definitely, that’s part our business development strategy. We are looking to expand our CPG client base. So if we have the outlets that we could sell in to them, grow some dollar if we have, we will be looking to look at CPGs that would have products in those channels.

Steve Moore - Woodstone Securities

Great, that’s great. This quarter, now is $6.8 million, that phenomenal. I am really happy. You guys say things are softening. You all came up with a home run there. So I am really happy. We call it (inaudible) for a half line but that’s a good thing. I am really pleasantly surprised. So congratulations. I am very happy with the numbers today. Just continue the great work. Thank you.

Operator

Your next question comes from the line of Bill Raimi, a private investor.

Bill Raimi - Private Investor

A quick question for you. I really like the trend in the gross profit. As a percent of the sales, it seems to be going up, matter of fact, every quarter since the third quarter of 2011. It seems odd, almost, that the sales, although they went up 27%, the cost of the goods sold went down 15%. Do you see the trend in the gross profit percentage continuing to increase?

John Gonsior

Well, that’s certainly our goal, right. The thing to make sure that you understand about our business is that we are extremely, we get more and more profitable as far as a percentage of revenue as volume picks up. So when volumes are very low, our gross profit percentage is pretty hammered. But as that volume picks up, we realize a lot of efficiencies.

We worked hard to try to get down to cost of our products that we are producing, from the materials to the shipping to everything else and certainly it has ramped up pretty good at the end of the year. Where that’s going to go in the future, I can't really comment on it but believe me, we will continue to just try and get that gross profit percentage up. Like I said, if we can keep volumes growing that should continue to be beneficial to us.

Bill Raimi - Private Investor

You are one time adjustments in the fourth quarter. Were that connected to that gross profit percentage as high as it was at 44%. It is as high as I have ever seen for this company.

John Gonsior

Correct. Well, like in any company, you are going to have some kind of year-end true-ups. But nothing that’s going to, I would say, influence it by 5% or 10% or anything to that nature. But of course you are going to have, as you go through year-end something of that nature. But overall, I think, we are headed in the right direction. And as volume picks up, gross profit percentage should pick up as well, or at least stay higher than it has been in past quarters.

Bill Raimi - Private Investor

I think the percentage you have now is fantastic looking back. So if you just keep that going, at the $6.8 million on sales, things should continue to improve at the bottom line significantly in the future.

John Gonsior

Certainly hope so.

Bill Raimi - Private Investor

Yes, spectacular quarter. Thanks, guys.

Operator

Your next question comes from the line of Tim Finnegan with IMS.

Tim Finnegan - IMS

Congratulations on a second quarter of profitability. That’s wonderful. I have a question on that $6.8 million booking for Q1. Is that POPS only?

Scott Drill

Yes, the $6.8 million is a POPS number.

Tim Finnegan - IMS

Okay, so there would be additional other products revenue in that number.

Scott Drill

That’s the goal. Yes.

Tim Finnegan - IMS

Cool. Are there any additional weeks left the booking time for Q1 or is that closed now?

Scott Drill

It is pretty much closed right now.

Tim Finnegan - IMS

Okay. I had a question on the reference to the guidance going into Q2. It is a little unusual to give us a little clarity going that far forward. Is that because Q1 is already closed? I guess I am asking how much Q2 are we into? I know you are pretty booked.

Glen Dall

Tim, this is Glenn. There are still significant time for sell into Q2. The goal was, I mean Q1 is a really strong number. really strong booking number that we are talking about right now. I just want to not get people too euphoric with that kind of number and thinking that we see that increasing in Q2. We just basically want to be reflective of what we are seeing right now. And what we are seeing right now with bookings is that it is a little soft.

Tim Finnegan - IMS

And that being probably a week or two worth of data?

Glen Dall

Its not a week or two worth of data. It depends on when you are talking to time periods. One thing that we have noticed and this is, if you have listened to Valassis call as well. Easter was a week earlier this year. It is a week earlier in 2013 and we really did see a lot of bookings prior to Easter, as it is typical of consumer food packaged goods companies versus those weeks after Easter. So there may be some, slight effect there, following some of the programs into Q1 versus Q2.

Tim Finnegan - IMS

Okay, so it looks like we are extremely strong quarter for Q1 to date and with several additional revenues, pretty much everything is booked and Q2 is pretty too early to really look at much further than to saying that for the period of time we have right now feels soft.

Glen Dall

That’s a great restatement, Tim.

Tim Finnegan - IMS

You mentioned Valassis, and maybe I will just ask you one question. Independent of Insignia, I noticed on the Valassis website, under their offerings, that under what used to be other products in their in-store section, we were featured. I don’t see that reference anymore. Is that shift in marketing strategy? Or you want to comment on that?

Glen Dall

Tim, I really won't be able to comment on that. That would be a question for Valassis.

Tim Finnegan - IMS

Okay. They maybe I will ask a likewise question. You used to feature their name on our website through Insignia. I don’t see that now on the new website.

Glen Dall

First, I don’t know if there is any intention on that or not. I just want to point out that it’s the first phase of the website with the new redesign. So potentially we will be seeing changes in that going forward.

Tim Finnegan - IMS

Okay. Just trying to see if there was something I should know, but thanks. Great quarter, congratulations. You guys have all worked very hard. I know that personally. I also take the opportunity to thank each and every one of you for your hard dedicated work there. It is much appreciated as a shareholder.

Glen Dall

Thanks a lot. The team really did work hard here on Q4. I guess this is all. I can't stress that enough.

Tim Finnegan - IMS

Well, the numbers reflect itself. Thank you very much.

Operator

Your next question comes from the line of Benj Gallander with Contra the Heard.

Benj Gallander - Contra the Heard

Kudos on another profit and the way guys are trending. I am just wondering, in terms of the competition and the changing technology, is that going to hurt you or help you in some ways?

Glen Dall

Could you clarify the question, in terms of competition in the second half?

Benj Gallander - Contra the Heard

Well, in terms of signage. So you have a way of doing things. I am just wondering with even the internet and other technologies and other ways of advertising, how might that be impacting you?

Glen Dall

Definitely, at this point there, we do see some impact in terms of bulk retailers at CPGs being very much interested in digital or mobile strategies, as they should be and as we are as well. At this point in time, what we have done with digital, we do have some programs out there, there is still lower consumer acceptance with those program's interaction and really not a lot of volume being moved using those overall from what we are seeing in the CPG.

Now, moving forward, we are definitely looking at a lot of those technologies and looking to see how they can help us in our long term growth strategy. So it is currently impacting. It will impact to a great degree in the future and we definitely are looking to the future to see how we can integrate our programs with those technologies.

Benj Gallander - Contra the Heard

Okay, and in terms of future profitability, I noticed you guys have been looking ahead at results, but I am just wondering if you can stay profitable given the look into this upcoming quarter and moving further ahead, or if you suspect that we are going to hit some red ink again.

John Gonsior

This is John. I guess I will comment on that. we have typically only given sort of, if you want to call it guidance. We have only given our bookings number for future period. We don’t really comment of profitability. Anything inferred at revenue level or the bookings number at where we are at. We feel good about that. As far as where profitability of future quarters is going to come in, like I said, our breakeven can fluctuate greatly based on the products or the programs that we are running, the networks we go into. So there is a lot of variables that are going to affect that.

But believe me, we are working hard to do stay in the black for the whole year. So that’s the goal and I very optimistic that I will be able to say that or at least hopeful that I will be able to say that.

Benj Gallander - Contra the Heard

Okay, well that’s good to hear and again thank you for the tremendous turnaround that you have done thus far and I am hopeful for the future.

Operator

(Operator Instructions) Your next question comes from Bob Frendell, a private investor.

Bob Frendell - Private Investor

Nice going, guys. Good to see those black numbers for a change. That’s terrific and hopefully you can keep it rolling. I know it’s a tough business out there. My one question, Glen, is you mentioned something about the sales force and (inaudible). Could you just kind of explain exactly or enumerate what exactly you have been doing? I know that we lost the one sales manager but what else is being done in that area? Are you hiring people? What's going on there?

Glen Dall

We have done some reorganization in terms of our sales territories to allow for greater focus and we actually have opened up some positions in the sales team in those territories. Also, we are expanding efforts what we are calling our inside sales group and those are people that we have actually added one person last year, one person just this year and have plans to add some more. Those are the people that are reaching deeper down into the CPG, reaching out to regional CPGs and selling the Insignia POPS product to them. Actually the concentration that we typically had on just the larger CPGs. So that’s one of the strategies that we are using to really broaden our base of CPG client as we go forward.

Bob Frendell - Private Investor

That, I think, is a terrific idea. As Scott will tell you, I have always thought that that’s something we should be doing and I am glad that doing it. Again, congratulations to you, guys.

Operator

There are no other questions in queue at this time.

Glenn Dall

Oaky, great. Well, thank you very much everybody. We appreciate your support. We appreciate your questions and participation. We talk to you next quarter.

Operator

Ladies and gentlemen., this concludes today's conference call. You may now disconnect.

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