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Insignia Systems, Inc. (NASDAQ:ISIG)

Q1 2013 Earnings Conference Call

May 1, 2013 17:00 ET

Executives

Glen Dall - President and Chief Operating Officer

Scott Drill - Chief Executive Officer

John Gonsior - Chief Financial Officer

Analysts

Bob Ramsdell - Independent Investor

Steven Riley - Private Investor

Steven Moore - Woodstone Securities

Steve Emerson - Emerson Investment

Mason Matschke - Raymond James

Operator

Good day, everyone, and welcome to the Insignia Systems’ First 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 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 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 upon any such forward-looking statements, which speak only as of the date made.

At this time, I would like to turn the conference over to Mr. Glen Dall, President and Chief Operating Officer. Please ahead, Mr. Dall.

Glen Dall

Thank you, Karin for the introduction. And thank you everybody for participating in this conference call. We are going to discuss our first quarter 2013 results and then answer any questions you may have. With me are Scott Drill, CEO and John Gonsior, our CFO.

John will review the numbers, and I have some comments before opening up the call for questions. John?

John Gonsior

Okay, thanks Glen. Good afternoon everybody. As you can see in the earnings release from earlier today, we just completed another profitable quarter. This is our third straight quarter with profitability and a highest revenue that we have had in almost three years. I will first go over those quarterly results and then provide some other financial highlights and commentary on our first quarter.

Our quarterly results were as follows. Net sales were $7.4 million, of which $7 million was from POPS revenue. This compares to net sales of $4 million for the first quarter of 2012, of which $3.5 million was from POPS revenue. This represents over 100% increase in POPS revenue from the first quarter of 2012. Net income for the first quarter was $420,000 or $0.03 per share. This compares to a net loss of $1.6 million or $0.12 per share in the first quarter of 2012.

Now, I wanted to comment on a few other financial highlights. As you may have seen in our press release, our gross margin percentage has been increasing in recent quarters. While this is in part due to increased revenues, it is also due to our continued focus on the various operational aspects of our business and making sure that we are gaining incremental revenue in an efficient manner. Our cash and equivalents balance as of March 31, 2013 was $19.5 million versus $20.2 million as of December 31, 2012. However, as we stated in our press release from today, our cash balance has rebounded in the past months to over $21.6 million as of April 30.

Additionally, we have nearly $22.7 million in working capital as of March 31, which is an increase of nearly 900,000 over the amount of working capital as of the end of 2012. And finally, we have roughly $5.3 million in POPS program set to run in the second quarter of this year with approximately three weeks of selling time remaining.

With that, I will turn it back over to Glen.

Glen Dall

Thanks John. I would like to congratulate the entire Insignia team for selling and executing on the $7 million quarter in POPS revenue we saw in Q1. As John pointed out, it doubled what we did just one year ago. That combined with the efficiencies we have influenced in the past year with Insignia 2.0 allows us to report a solid profit on net revenue.

While CPG spend obviously appears healthy, brands continue to have more and more options to reach and influence consumers, but concomitant on us to continually work with them and surely understand the effectiveness of our brands to inspire shoppers and deliver value and bring new products to them. We just added another member to our sales team and we have got several other candidates in the pipeline. Year-to-date, we have had the 13 new CPG customers that never run programs with us before.

On the digital front, consumer interaction is proving modest. We are not achieving the ROIs that are expected of a full scale commotional vehicle, but we will continue to test and learn with our CPG and retail partners as we look to see a tipping point in the consumer behavior. We have been learning a lot from the digital Italian POPS sign, and we are likely offering several additional digital tactics over the next quarter.

Our Valassis and News America marketing relationships continue to function well. Our newly launched websites give us a better presence on the internet, has already generated an increase in increasing leads. We are embarking on a digital and social marketing strategy to leverage this asset and see if it can prove to be a viable sales channel for future growth.

As we stated in our Shareholder Meeting last May, our short-term go-forward plan was to execute on the basics of selling, supporting, dating. The results show that we have been successful. Our next goal will be to continue executing well on the core business and begin to formulate a long-term strategy for increased growth.

And with that I would like to open it back up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from line of (indiscernible).

Unidentified Analyst

Hi good afternoon, thanks for taking my call. Good work with the quarter. Say, I have a very general question. I’m wondering if you could discuss your – the competitive environment and your position and sort of how you are differentiated in front of these various customers that you have been successful in selling recently?

Glen Dall

Well, Daniel thanks for your question. The competitive environment is let me say could be a complicated question to answer though we will keep it short in the in-store marketing. The larger companies in the space would be News America marketing and Valassis. Our product differentiation and one of the reasons that our clients see value on it and I think leading to increasing sales is the fact that we offer a shelf sign that appears in front of the product around the consumer at the last moment their decision before they purchase the product features advertising for the brand and features a retail endorsement for the brand for the retailer that appears and it has the price of the product. We really believe that those features combined are really effective in motivating and inspiring consumers to purchase the brands for advertisers supporting this. Did I answer your question?

Unidentified Analyst

Yeah. So, how is – I mean presumably the market didn’t grow 100% from this most recent quarter – or this most recent quarter over 12 months ago. So, you in a way I guess you could say taken market share and is it because of this do you believe that this differentiation of offering this shelf sign that is working for you now?

Glen Dall

No, it’s I’d say there is many factors involved in that. One is that CPG spend versus a year ago has increased and has come back. I think there was a retraction in that due a lot of factors that we talked about last year. But also we’ve done a lot of restructuring work and focus over the last year and part of that, not part of that – a large part of that has been within our sales and marketing organization. So, we really got lot more focused. We’ve added more marketing support for our sales people to allow them to reach more CPG customers. And as a function of that, we really have broadened our customer base for CPGs. We added many new customers last year and I reported this year-to-date we’ve already added 13 additional customers that didn’t buy from us before.

Unidentified Analyst

Okay, great. Well, thank you for your time.

Glen Dall

Thank you.

Operator

Your next question comes from the line of Bob Ramsdell, Independent Investor.

Bob Ramsdell - Independent Investor

Hi Glen, great job you guys, nice to see the trend continuing in the right direction. The one thing that you didn’t touch on is new stores, has there been any movement there in that area, number one. And is there any hope or prayer as it relates to the safe ways of the world or some of these are the people we have been locked out in the past?

Glen Dall

Hi Bob, it’s always good to hear from you and thanks for your compliments. As it relates to store growth we’ve talked about on the last call that we’ve added through the first half of the year we’re adding up to almost 600 new retail grocery stores. Then as it relates to new news on those we don’t have additional banners that we can announce at this time. And of course there is always hope to add larger Tier 1 retailers and we are always working to do that. We’ve got a retail team that’s working diligently on that. They’ve got some taxes in place and I’m hoping that in future calls I can report some success with some retailers.

Bob Ramsdell - Independent Investor

Okay, great. Thank you. That is obviously part of the equation.

Glen Dall

Absolutely.

Bob Ramsdell - Independent Investor

Alright, thank you.

Glen Dall

Thanks Bob.

Operator

(Operator Instructions) And your next question comes from the line of Steven Riley, Private Investor.

Steven Riley - Private Investor

Yeah, great quarter again. Last conference you mentioned that if you came early to the second quarter to potentially the like, is there anything you mentioned that the second quarter was really flat, I think it was 5.3, are you going to see an acceleration you think to the third and fourth quarter from this second quarter?

Glen Dall

Well, Steve, nice talking to you, thanks for being on the call. At this time, we are not really going to give guidance for any of the future quarters, but just to report the bookings of 5.3, I would still reiterate a bit of a change from last year in terms of Easter being a little bit earlier and potentially some of the revenue fell into Q1, it might normally fall into Q2, but we are pleased with the 5.3 and we are pleased that we’ve got three more weeks to sell. So, we are encouraging our sales team to get out there and see what other additional....

Steven Riley - Private Investor

Stay at the 5.3 approximately and we would assume that in the breakeven quarter or a slight loss?

Glen Dall

I am going to hand over to John Gonsior.

John Gonsior

Steven, I think that we are obviously doing what we can to lower our cost structure and be as efficient as we can in any revenue that we get. And we’ve – we really haven’t commented in the past on what our profitability would be at any given revenue level because in any quarter there is going to be a big shift in profitability based on what network its going through, what the program rates are, which customer it is, what the shipping processes have to be and there is a variety of factors that go into it. And so we would – we will do everything we can do be profitable on every single quarter and beyond that I wouldn’t really want to comment on it.

Steven Riley - Private Investor

Okay, anymore conversations besides the strong cash at this point, is there any conversation, is there any kind of the buybacks that (indiscernible)?

John Gonsior

There is nothing that we have we’ve announced and nothing that I would say that we would announce on this call. But we – our board and the management team is always considering all options in front of us.

Steven Riley - Private Investor

Okay, pretty good. Thank you, guys.

Glen Dall

Thank you, Steven.

Operator

Your next question comes from the line of Steven Moore with Woodstone Securities.

Steven Moore - Woodstone Securities

Hi guys, congratulations on the quarter. I have a question, we have accumulated some cash now and I don’t know it looks like we are about $1.60 to $1.65 in cash, is there any idea about a dividend or stock buyback or is that just nothing in it?

John Gonsior

As I had just commented I don’t think we’re going to – there is no plan, definite plans in place that we would announce anything of that nature.

Steven Moore - Woodstone Securities

Okay. How many shares you have total outstanding right now?

John Gonsior

13.7 million, roughly.

Steven Moore - Woodstone Securities

That’s initial, so that’s about $1.66 in cash I think something like that?

John Gonsior

Yes, the calculation sounds right.

Steven Moore - Woodstone Securities

Okay, that’s nice. That should be trading higher, it’s actually up 7% after hours, so congratulations on the quarter and keep up the good work you guys?

Glen Dall

Thanks a lot Steve.

Steven Moore - Woodstone Securities

Thank you.

Operator

Your next question comes from the line of Steve Emerson with Emerson Investment.

Steve Emerson - Emerson Investment

Congratulations, finally we get the results of your hard work.

Glen Dall

Thank you, Steve. Good talking to you.

Steve Emerson - Emerson Investment

In answer to Bob Ramsdell’s question you said you had about 600 new units what’s the base and how many of those units are from the News America legal settlement. And perhaps you can give us some flavor as to how that will evolve for instance are they going stay with us or can they opt out of the program or how long this agreement is for. And then if you could give us some of the metrics like how many signs per average store were now did in the quarter and how much is booked for next quarter or any metrics you care to give us?

Glen Dall

Okay, Steve. We are trying to tease out the individual questions within that. So, from the individual stores the base was a little less than 22,000 total stores.

Steve Emerson - Emerson Investment

Okay.

Glen Dall

In our network if there is anything but we have retail stores adding, dropping stores, closing some, opting out of the program, contract expiring etcetera. The stores themselves know them actually came from the News America lawsuit. They were organic within from our own retail team adding stores. Also some of them did come from our partnership with Valassis and that would have been around this chain based out of Milwaukee. The additional questions, I think we are on the metrics of signs for storage. John, do you have that information?

John Gonsior

As far as the metrics go, I’d say that I don’t have the exact information you had asked for, Steve, but I wouldn’t say there has been any significant movement in our average price per sign. So, all things equal, we have had roughly a double – we have doubled the amount of signs that we are putting out there and on average signs per store so. And then did you have – and then as far as guidance for Q2 signs per store, I think again it’s something where we are not seeing big shifts in the average price that we are selling at in any quarter this year or in recent quarters. And so that’s staying relatively consistent. So, any relative fluctuation in the business is going to be based on the signs that we are putting out more so than a pricing pressure.

Steve Emerson - Emerson Investment

Is this tremendous response due to mainly one or two retail or one or two packaged goods companies or has this been across the board acceptance of sign advertising? And perhaps another question, how much is due to our new electronic sign if anything is measurable.

John Gonsior

Steve, I’d say it’s for the most part across the board within CPGs. And it’s also the increase in the number of CPG that we are contacting and selling to. We have been growing our sales team and had restructured our territories. So, we are definitely seeing new CPGs coming in purchasing our products from us that we hadn’t seen before. As indicated earlier, we had 13 new CPGs in the first quarter alone for this year. As it relates to the digital sign product, I can’t tell you that we have seen any significant growth on that. As I indicated, consumers are slow to adopt using the digital products in isle. And as a result, CPGs have not been willing to invest large amounts in them, because they are really not moving a lot of volume versus the regular POPS sign. It’s still something though that we are learning a lot from it. We see that expanding as consumers do learn the behaviors and start using them more in isles or grocery stores. So, I think that would be a future growth initiative at this time, not a significant company driver for us.

Steve Emerson - Emerson Investment

Well, sounds excellent and keep up the great work.

John Gonsior

Thank you very much, Steve. It’s nice talking with you.

Operator

(Operator Instructions) And you have a follow up question from (indiscernible).

Unidentified Analyst

Hi, thanks for taking my follow-up question. When you talk about cost savings and lowering your cost, does that include your cost of services and cost of goods sold as well as the operating expenses meaning are there further possibilities to improve the gross margin?

John Gonsior

Certainly, yes. So, the costs savings I was talking about is really across the board for our company. As you may remember roughly a year ago we did have a significant restructuring, which did take a lot of cost out of our business and that was really in all areas. The more recent cost savings that I referenced with gross margin increasing is more I’d say on the production side and just with efficiencies that we have gained in the way that our processes had worked more so than trying to physically take cost out of our business. I think that any sort of significant amount of savings that we could do have been done. And I think that any – the increase in gross margin percentages and increase in gross margin dollars is going to come through the reaping the rewards of those, the investments we have made in growing revenue in an efficient manner if that makes sense.

Unidentified Analyst

Yeah. So, economies of scale reported and hopefully grow revenues.

John Gonsior

Exactly.

Unidentified Analyst

Okay. Alright, thank you.

Operator

Your next question comes from the line of Mason Matschke with Raymond James.

Mason Matschke - Raymond James

Hi guys, how are you?

Glen Dall

Good, Mason. How are you doing? Long time no talk.

Mason Matschke - Raymond James

Yeah, great. The good news here on another quarter, I apologize if we have any background noise. My question was from looking at Valassis and listening to a couple of their conference calls, they talk about being a one stop shop and they have multiple products I believe that they can sell to the CPGs. Is there an opportunity for Insignia to be a junior one stop shop with 22,000 stores now in the sales team as I believe just shows a sign with price on it? What are the opportunities to increase our platform?

Glen Dall

I think there are definitely opportunities there, Mason, and inspire to be a junior one stop shop, but frankly and seriously when we look back and where we have been looking to over the last year, it really was to go back to the fundamentals on our core business and really firmly reestablish that. And we feel now this third profitable quarter under our belt that we are getting there and/or are there. And certainly, the next steps are to really look at what’s the longer term growth strategy and certainly product diversification is part of that, and certainly being able to give our sales people more tools in their toolbox to go to our CPG brands offer more solutions with certainly a part of that.

Mason Matschke - Raymond James

I really look forward to that. Now, keep up the good work guys. Thank you.

Glen Dall

Thanks a lot.

Operator

We have a follow-up question from (indiscernible).

Unidentified Analyst

Hi guys. Just the follow-up, how many salesmen totally do we have now or from when we started our program a year ago, how many have we added?

Glen Dall

Yeah, we’ve got 8 sales representatives on our CPG side. And it’s also interesting though Bob is we have really restructured the sales team into kind of a two tier, where we have a Senior Vice President in a territory and then we have positions opened for a Director level underneath those people supporting them and working directly with our clients as well as the fact that we have now established an inside sales team that’s now consisting of three people that we didn’t previously have. And those – that team is really in charge of reaching out to a lot of the say Tier 2 or Tier 3 smaller brands that physically accepted and yes, it will be four. And when we talked about increase the new CPG that team is better software for a fair amount of that activity.

Unidentified Analyst

That’s great news, that’s terrific news, because there is a large number of customer – potential customers out there we do not go over is not correct?

Glen Dall

That’s correct. But that’s a situation with the inside sales team and we also think with our digital strategy utilizing the internet more that we can reach out for those smaller CPGs as well as deeper into some of the larger CPGs.

Unidentified Analyst

In the reorganization, has there been any shift in the cost related to sales, has that number changed significantly or adjusted itself down in anyway you should form?

John Gonsior

You are referring to the reduction that we had…

Unidentified Analyst

Yeah, the percentage of sales, that’s going to sales, percentage of revenue growth is going to sales?

John Gonsior

Yes, it has gone down over time. And I think where we would look to keeping at the current level, I guess, going forward.

Unidentified Analyst

Okay. So, it has come down slightly?

John Gonsior

Yes.

Unidentified Analyst

Terrific, thanks. Again congratulations guys keep it up.

John Gonsior

Thank you very much, Bob.

Operator

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

Glen Dall

Well, thank you very much everyone. Enjoy the rest of your day. Thank you for your support and we look forward to talking to you next time.

Operator

And this does conclude today’s conference call. You may now disconnect.

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