Wireless Ronin Technologies, Inc. (RNIN) Q3 2013 Earnings Conference Call November 7, 2013 4:30 PM ET
Erin Haugerud - Manager of Communications and IR
Scott Koller - President and CEO
Darin McAreavey - SVP and CFO
Doug Richard - Feltl
Jack Frid - Discovery Investments
Tom Pierce - Ben Clements
Good afternoon. Welcome to the Wireless Ronin Technologies Third Quarter 2013 Earnings Conference Call. My name is Cheryl and I will be your conference operator this afternoon. Before we begin today’s call, I would like to remind everyone that this call will be available for replay starting later this evening. A webcast replay will also be available via the link provided in the earnings press release as well as available on the company’s website at wirelessronin.com. I would now like to turn the call over to Erin Haugerud, Wireless Ronin’s, Manager of Communications and Investor Relations. Please go ahead, ma'am.
Thank you and welcome to Wireless Ronin’s third quarter 2013 earnings call. With me today are Scott Koller, President and CEO and Darin McAreavey, Senior Vice President and CFO. Following Scott’s opening remarks, Darin will review our financial performance for the quarter and the first nine months of the year and turn the call back over to Scott for an operational update. Then we will open up the call for your questions. To access today’s webcast, please go to the Investor Section of our corporate website at wirelessronin.com.
Please note that the information presented and discussed today includes forward-looking statements made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Our actual results in future periods may differ materially and you should not attribute undue certainties to our forward-looking statements. Risks and uncertainties that could cause our actual results to differ from those expressed or implied by forward-looking statements, including those set forth in the cautionary statements in the company’s current report on Form 8-K filed with Securities and Exchange Commission on May 23, 2013.
In addition, our comments may contain certain non-GAAP financial measures including non-GAAP operating loss and non-GAAP operating loss per share. For additional information, including reconciliations from GAAP results to non-GAAP measures, how the non-GAAP measures provides useful information and why we use non-GAAP measures, please see the reconciliation section of our press release, which appears on our corporate website.
Now I would like to turn the call over to President and CEO, Scott Koller. Scott?
Thank you, Erin. Good afternoon everyone and thank you for joining us on today’s call. Our performance this quarter was in line with our expectations and reflects our continued focus on adding new customers and diversifying our revenue base, given the large project nature of our business which can vary quarter to quarter we believe it’s important to take a longer term view and compare our first nine months of 2013 to the same year ago period. Our continued execution was evident from a top line growth in gross margin expansion on a nine month basis as well as our lowest operating expense level as a public company. The success of our efforts to broaden and diversify our customer base was demonstrated by new customer wins in Q3 with Benefax, a major financial institution to our relationship with Thomson-Reuters and the recent continued roll out at 35 additional Indian motorcycle locations. These wins along with our strong gross margins demonstrate our successful transition from a hardware centric company to a marketing technology solutions company including adopting a higher margin software and services business model. I will talk more about these wins and other operational highlights shortly, but first I would Darin to take us through the financial performance for the quarter in the first nine months of the year, Darin?
Thanks Scott, and good afternoon everyone, revenue in the third quarter of 2013 was 1.5 million compared to 1.8 million in Q3 of 2012. The decrease was primarily due to a decline in kiosk orders received from individual (inaudible) dealers partially offset by new orders from Indian Motorcycle.
For the first nine months of 2013 revenue increased 10% to 5.6 million compared to 5.1 million in the same year ago period, the increase was due to Delphi license in Q2, new orders from Indian Motorcycles and Aramark. Recurring revenue in Q3 of 2013 was 483,000 or 32% of total revenue. This compares to 537,000 or 30% of total revenue in Q3 of 2012.
For the first nine months of 2013 recurring revenue decreased slightly to 1.47 million or 26% of total revenue from 1.48 million or 29% of total revenue in the same year ago period. Gross margin in Q3 0.13 or 764,000 or 50% of total revenue. This compares to 896,000 or 51% of total revenue in Q3 of 2012.
For the first nine months of 2013 gross margin was 3.3 million or 59% of total revenue up from 2.8 million or 55% of total revenue in the same year ago period. Total operating expenses in Q3 of 2013 decreased 10% to 1.9 million from 2.1 million in Q3 of 2012. For the first nine months of 2013 total operating expenses decreased 15% to 6 million from 7 million in the same year ago period. The decreases were driven by lower cost. We continue to remain focused on effectively managing our cost and overhead.
Net loss in the third quarter of 2013 totaled 1.2 million or $0.20 per basic and diluted share. This compares to a net loss of 1.2 million or $0.25 per basic and diluted share in Q3 of 2012. For the first nine months of 2013, net loss totaled 2.6 million or $0.46 per basic and diluted share, an improvement from the net loss of 4.2 million or $0.91 per basic and diluted share in the first nine months of 2012.
Non-GAAP operating loss which we define as non-GAAP operating loss plus stock based compensation, depreciation and amortization, severance and other one-time charges totaled 814,000 or $0.14 per common share. This compares to a non-GAAP operating loss of 1 million or $0.21 per basic and diluted share in Q3 of 2012. For the first nine months of 2013 non-GAAP operating loss totaled 1.9 million or $0.34 per common share, an improvement from the non-GAAP operating loss of 3.4 million or $0.74 per basic and diluted share in the same year ago period.
During the third quarter we completed the restructuring plan announced on July 29 as we indicated on our Q2 call the restructuring was designed to converse our cash resource and to further align our ongoing expenses with our business by focusing sales efforts on high potential customers and prospects, reserving the R&D staff required to maintain and enhance our own test software and consolidating certain positions.
We expect to restructure and to reduce our annual operating cost by 1.3 million which will provide us with additional runway continue pursuing strategic and financial alternatives. We expect to see the full effect of the restructuring on our quarterly financial results in the fourth quarter.
Now turning to the balance sheet; At September 30th, we have 1.1 million in cash and cash equivalents compared to 2.2 million at the end of the prior quarter. During the third quarter we repaid the 400,000 we have borrowed under our line-of-credit with Silicon Valley Bank. This completes my financial summary. For a more detailed and complete analysis of these results, please reference our forthcoming Form 10-Q.
Now I’d like to turn the call back over to Scott.
Thanks Darin. We continue to diversify our pipeline and advance our industry leading technology offerings as demonstrated by new wins in the third quarter. As I briefly mentioned in my opening statement our relationship with Thomson Reuters continues to gain momentum. In August, we deployed a custom design 60 foot LED display along with Thomson Reuters in the lobby of a major retail financial institution in midtown Manhattan.
Rather than the typical mono-color right to left tickertape, we designed a truly one of a kind solution. The display features are full color multidirectional presentation that include stock prices and country logos for the top 40 NASDAQ and New York Stock Exchange listed companies as well as top new stories and branded promotional content. The content is fully integrated with Thomson Reuters Knowledge Direct data solutions, with market and news data feeds continuously updated throughout the day.
[indiscernible] sought a digital solution to differentiate them from their competition and engage both existing clients in the branch as well as prospective customers walking by. This custom solution demonstrates our Content Engineering team’s creative abilities to design a solution that delivers on our customer objectives. Based on the positive feedback from this initial deployment, we believe the customer plans to install the ticker solution in additional locations and including a San Francisco branch by year end.
Also during Q3 we’ve entered into an agreement with MENAFEX, a master franchise partner with several major brands to our digital marketing solutions at MOOYAH franchise location in Dubai. The solution was for the Dubai mall location, one of four new country launches planned for MOOYAH in the Middle East before year-end. The Dubai Mall restaurant is the first of at least 10 restaurants to be owned and operated by AWGAL Investments, which has entered into a multi-unit development agreement with MENAFEX, MOOYAH’s international development partner for the UAE.
The unique deployment featured two bilingual menu boards and two integrated promotional boards, as well as custom radio integration via MOOYAH Radio, powered by our partner Custom Channels. The promotional boards are seamlessly integrated with the music service to show a now playing feature, which displays information about the music being played, including artist, song title and album. Wireless Ronin provide ongoing hosting and maintenance services. This installation marked our 11th deployment in the Middle East and represents a tremendous opportunity for further international expansion. We were able to create a truly customized in store experience which should ultimately increase customer engagement and sales for the franchisee. This success of our installations at U.S. MOOYAH locations over the past three years was a key driver in establishing this new business relationship with MENAFEX.
As discussed on our Q2 earnings call, we received a purchase order from ARAMARK to launch Wireless Ronin Digital marketing solutions across more than 230 screens promoting nutritional information at select universities nationwide. During the third quarter, we installed updated RoninCast technology at 169 of these universities, which now makes the total number of ARAMARK sites -- Wireless Ronin is currently hosting and supporting at more than 428 locations.
We believe this implementation of new digital menu boards and promotional screens signals the food service industry's growing adoption of nutritional labeling. We look forward to continuing expansion of our relationship with ARAMARK and are confident our solutions will continue to drive measurable ROI.
Also during Q3 we received a follow-on order from Indian Motorcycles to install our digital marketing technology at 35 additional dealerships in the U.S. The order is part of Indian's previously announced initiative to install our technology throughout Indian's expanding dealer network. We work closely with the Indian team to design an interactive digital showroom experience featuring Indian motorcycles branded content deployed via Wireless Ronin's new omni-channel RoninCast 4.2 software.
This also includes essential Media Heart along with mobile tablets allowing customers to select content and play on a 46 inch Media Heart screen. We're not being controlled by the tablet; the Media Heart screen plays promotional video along with social media, local events and weather content.
We believe this order reflects Indian Motorcycles confidence in our uniquely powerful digital marketing technology. In the highly competitive motorsports market Wireless Ronin Solutions differentiates our customers offerings and to our return on investment. We look forward to working with Indian through their nationwide rollout.
Among many alternatives Indian chose to partner with us because of the robust capabilities and well architected HTML5 based platform of our RoninCast software. In Q3 we released RoninCast 4.2 which expands the functionality and interactivity of the platform, providing seamlessly communication between screens, mobile devices to deliver content to adjacent screens.
RoninCast 4.2 additional upgrades includes enhanced security features and integration with our digital music service partner Custom Channels. The RoninCast software now includes a Custom Channel widget that allows for easy integration of the Custom Channels music service and the ability to display what's playing now on nearby digital screens. Tying together in-store music with real time updates of artiste, title and album information on a visual display creating immersive brand experience for customer to see and enjoy. We continue to make tremendous progress advancing our technology and we believe RoninCast 4.2 will drive broader adoption by existing customers and generate new major wins like Indian Motorcycle.
Along these lines earlier this month we received an order from Denny's to install RoninCast 4.2 at Denny's Fresh Express concept in Las Vegas. The solution will feature digital menu and promotional screens that display a streamline menu for both Denny's Fresh Express and Denny's All Nighter concepts. These concepts are ideally designed for colleges, airports, hospitals, mass transit terminals, military installations and food courts.
RoninCast 4.2 met the complexities of the multi-system installation for Denny's locations with an existing third party system. The content will be managed from an offsite corporate location, while still allowing the local store the flexibility to edit prices onsite via Ronin's CMS. The first installation is targeted for completion this month. Denny's has plans to expand its Fresh Express and All Nighter concepts to hundreds of locations nationwide.
This deployment is another example of the unique flexibility and powerful management capability of our RoninCast 4.2 software. It demonstrates the tremendous opportunity not only with Denny's as it expands its Fresh Express and All Nighter concepts throughout the U.S. but also how we are along with our strategic partner Delphi display systems can help other QSRs with the university or food court locations that need to integrate with individual legacy systems.
Speaking of Delphi we continue to work with Delphi to integrate our RoninCast software with their state of the art product line. We're also seeing sales with Delphi aggressively promoting to QSRs both in the U.S. and on international level.
As stated in the Q2 call we’re confident that the [conversation] of Delphi and Ronin will be successful in the QSR industry and beyond.
In summary I would like to emphasize two additional points; first we continue to effectively manage costs and further optimize our expense structure. As Darin mentioned, the restructuring we completed in the third quarter decreased our operating cash burn to less than 1.9 million in the first nine months of the year excluding onetime severance cost of $200,000, versus 3.2 million in the comparable period last year.
Secondly, our expectations for the future remain high as we build upon the momentum we established and see a widening pipeline of growth opportunities, particularly, within our existing customer and partner relationships. Based on our financial and operational performance to date we are on track to realize year-over-year growth in revenue and gross margin dollars in 2013.
As demand for our new marketing technology continues to build we will well position with industry leading solutions and mark key customer base. We believe these key factors will help us expand our market share and further penetrate our target markets. To [indiscernible] our board executive team and employees remain committed to our Wireless Ronin’s long term success. We seek to achieve that success by continue to grow within our existing clients, obtaining new clients and managing our expenses.
Now with that, we’re ready to open the call for your questions. Operator, please provide the appropriate instructions.
(Operator Instructions). And our first question comes from the line of Doug Richard with Feltl. Please go ahead.
Doug Richard - Feltl
I have a question to ask you as I little surprised that your recurring revenues were down, can you elaborate on that a bit.
We actually had just a slight attrition with the Thomson Reuters in four point locations as they went through and audited and found that there were some of that were no longer active. But we do anticipate that it will balance here in the fourth quarter.
(Operator Instructions). Our next question comes from the line of Jack Frid with Discovery Investments. Please go ahead.
Jack Frid - Discovery Investments
Scott and Darin, I recently came across the [indiscernible] talking about the Food and Drug Administration, there's a labeling law that was supposed to have taken effect a couple of years ago might be done it by the end of the year and implemented by next summer. Can you comment on that and I know you commented a little bit about Delphi, could you get into a little bit more on the potential of some of the things you’re working on with Delphi?
As far as the nutritional -- thank you Jack, before as the nutritional information I think most of our clients are moving forward fully expecting that they’re going to have a requirement sooner or later and therefore even though the public pressure is there to put it up there regardless if the federal government ever gets its act together regarding that. So I do expect to just continue to drive the need for digital, continue to drive the need to be able to keep many boards updated in compliance, so that’s a positive thing. We haven’t heard and as well as you that we've waited quite a while to see if they would respond in a quicker manner but I believe that the real effect of it is our clients are moving forward as it will be a requirement anyway. So that’s a very positive thing.
As we mentioned on the call just a second ago, the order from ARAMARK in Q2 which was installed in Q3 was all based on nutritional information going into existing universities we’re already in. So, they already had technology playing there and they added another board in there to address calorie information. So, we fully anticipated being a requirement, moving forward and also that our clients will take it very seriously.
As far as Delphi, we’re still very new in the relationship, we talked about it in Q2, things are going very well. They are out there on our behalf and on their own behalf selling an integrated -- actively selling and promoting an integrated product line where it takes there -- a very robust products for QSR integrated with our software to QSR and we are seeing traction. I can’t talk specifics at this point in time but we are seeing traction and as I said in Q2 and as I said again in Q3, I believe this relationship will be very advantageous for both Delphi and Ronin.
Jack Frid - Discovery Investments
Just one another question, my understanding is that there are 30,000 quick serve restaurants now through the drive-through is that a true statement, can you confirm it?
Yes, their primary product here today has been order confirmation in the drive-through [indiscernible] an array of different products such telecommunications or headsets and other things for the drive-through. So primarily they have integrated with a variety of POS systems to bring an order confirmation to the drive-through. And they do have a very robust customer list and a very large installation base, yes.
Jack Frid - Discovery Investments
Okay and just one final question, then I take it out software is being incorporated with their software and products not just on the outside but the inside too for the menu board?
Absolutely, since they are sales and marketing arm to the QSR industry specifically those clients they have drive-through, but they are bringing an all-encompassing product line to those clients both indoor now.
Thank you. (Operator Instructions) Our next question comes from the line of Tom Pierce with Ben Clements. Please go ahead.
Tom Pierce - Ben Clements
I was just wondering I guess thinking that awhile back you were doing some stuff with U.S. Bank and I think you did it differently as 60 or 65 banks loan with Thomson Reuters, [indiscernible] I wonder if there is any update you can give on that?
We are still doing business with U.S. Bank. I think we’re in a total, Darin correct me if I am wrong, 55 to 60 locations with our product line, a specific need for them i.e. most of their mew marquee locations going in, they’re getting some type of signage. There are other opportunities with U.S. Bank. I am not at liberty to discuss specifics with them, but there are other opportunities with U.S. Bank, but we continue to get call from time to time during the quarter that they’re putting a new marquee location and we continue sell signage in those. Other activity I can’t discuss at this point in time, but yes we still have sound relationship with U.S. Bank.
Thank you and we have a follow-up question from the line of Jack Frid with Discovery Investments. Please go ahead.
Jack Frid - Discovery Investments
Scott and Darin, with all of the activity going on and can you give us an idea, I mean, how many different companies are we in discussion with at say this time, I certainly realize there are discussions only and there is some pilots going on that maybe you haven’t said?
Well, outside, really if you look at the top five opportunities growing Chesters, growing Polaris, it’s continuing to grow Chrysler, ARAMARK and Thomson Reuters along with what we do with KFC and our base of recurring revenue right now. Outside of that when we update the board on a quarterly basis, there is usually 12 to 15 to 16 other companies we’re talking about and we’re dealing with a lot more than, but roughly 12 to 16 companies are ones that we’re actually involved in either participating in RFP talking to the nebular project and/or positioning ourselves to be a provider of digital science and marketing technologies to them. So it is a robust pipeline. Jim continues to do a great job of filing it up with opportunities. So right now I would say actively at any given point in time we’re talking to 30 companies including our marquee ones about activity projects and hoping to win our fair share of those.
Jack Frid - Discovery Investments
Okay one last thing, I think one time we talked about Buffalo Wild Wings way back, can you give us kind of an update what’s happing there?
Yes, I don't have a major update. We continue to be installed in Buffalo Wild Wings and operating a variety of technology in 50, 59 locations I believe it is. Other than that I don't -- there hasn’t been a nationwide rollup by Buffalo Wild Wings and I really have no other update at this point in time.
Thank you. (Operator Instructions) And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Scott Koller for closing remarks.
Thanks to everyone for joining us on today’s call. I especially want to thank our investors for their continued support and patience as we continue to build Wireless Ronin into an industry leading digital marketing technologies provider. And we look forward to updating you on our next call. Thank you very much.
Ladies and gentlemen this concludes the Wireless Ronin Technology’s Third Quarter 2013 earnings conference. We thank you for participation. And at this time, you may now disconnect.
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