Insignia Systems' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.26.14 | About: Insignia Systems, (ISIG)

Insignia Systems, Inc. (NASDAQ:ISIG)

Q4 2013 Results Earnings Conference Call

February 26, 2014 05:00 PM ET

Executives

Glen Dall - President and CEO

John Gonsior - Vice President of Finance and CFO

Analysts

Steven Moore - Woodstone Securities

Operator

Good day, everyone. And welcome to the Insignia Systems’ Fourth 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 those forward-looking statements as a result of number of factors including risk and uncertainties as described in the company’s Form 10-K for the year ended December 31, 2014 and other recent filings with the Securities and Exchange Commission.

The company wishes to caution our 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 Executive Officer. Please go ahead, Mr. Dall.

Glen Dall

Thanks, [Liya]. Thanks everybody for joining us this afternoon, so good afternoon, we’ll use the usual format for the call. John will go to the numbers, I’ll make some comments after that and of course we’ll open up to questions. So, John if you are ready you can go ahead.

John Gonsior

Good afternoon, everyone. I’m very pleased to be talking with you today having just issued our press release for the fourth quarter and fiscal year 2013. As you may have seen we ended our year in encouraging fashion. I will go over a few highlights from our quarter and year-to-date results and then provide some other commentary.

In the fourth quarter we produced the following results; net sales were $6.9 million, which is up 30% year-over-year, operating income was $708,000 versus $208,000 from the fourth quarter of 2012. Finally EPS was $0.03 a share and net income of $441,000 which compares to EPS of $0.01 a year ago.

Looking at 2013 in total, I would like to highlight the following; net sales grew 38% to $27.8 million. We produced operating income of $2.4 million which is a substantial increase over the operating loss we had in 2012 of approximately $2.3 million. Net income improved to $1.4 million from $1.6 million loss. And finally EPS was $0.10 this year which again is a substantial improvement over 2012, $0.12 loss.

Now I would like to comment on a few other highlights. Our gross margin percentage was strong for our 2014 however our margin continues to be highly influenced by sales levels. We have continued to scrutinize our cost of doing business and our investments in technology are allowing us to gain revenue more efficiently than we had been able to do in the past.

Our investment in technology along with continuing to build out our sales and marketing functions are initiatives that are core to our long-term success. Along those lines we have allocated spending to those areas in 2014.

Our cash and equivalents balance as of year-end was $21.8 million versus $20.3 million as of December 31, 2012. Keeping in mind that we used over $2 million in the tender offer this past summer, cash generated by our business was approximately $3.8 million in 2013 or nearly $0.30 per outstanding share.

Our Board has approved a $5 million share repurchase as we announced this past December and we do anticipate commencing repurchases under that plan in the first quarter of 2014.

Additionally, as we’ve talked about previously, in 2013 we began tying a larger percent of compensation to overall company performance that seem to work pretty well in 2013 as shown by the strong results. And it’s a philosophy we’ll be continuing in the coming year.

Finally, you may have noticed a change in the bookings number that we put in the press release. As we’ve talked about for some time, our revenues have typically been rather choppy from quarter-to-quarter. Given our focus on the year in total and investing in our business for long-term success this will be the last quarter that we referenced a bookings number for the immediately following quarter. Instead we plan to focus more attention on other measures of annual success including total bookings or other items that would help our shareholders gain insight into how Glen and I view the business.

That said, we do have total bookings of approximately $14.5 million that are set to run in various points in 2014 which is up 11% from what that figure was a year ago. Of the $14.5 million in total bookings, approximately $6 million of those are expected to run in the first quarter which is down for about 13% from first quarter bookings from a year prior.

With that I’ll turn it back over to Glen.

Glen Dall

Thanks a lot John. What a great year. It’s really rewarding to see the team has embraced what we put in place of Insignia 2.0 about year and a half ago and to see it pay-off. What really drove part of that is 42% increase in POP sales which are really phenomenal; the POP sales team did a great job. They’ve brought in 39 new accounts last year that added $2.6 million to that revenue. Also our legacy products team did a very solid job and less product to sell last year and a few less people, but nonetheless really performed. So that helped us a lot. That gives us a lot of momentum as we go in 2014 and while we don't provide specific guidance, we really do feel we have got a great infrastructure in place to deliver a top line number.

As John talked about our Q1 numbers little soft versus a year ago, one of the things we think really contribute to that is Easter, it was three weeks earlier last year and Easter’s a big promotional period for lot of our CPGs for the fact that it's later in April this year is affecting the number in Q1, but then as John talked about our yearly number is stronger versus last year. So that's very encouraging.

If we successfully execute on the plan our metrics should be either same or better as they are from last year. We have got the operations in place that we are going to continue to leverage for greater profitability and we're still looking in new products and feel very optimistic that we'll be able to bring something to market.

On the retailer side, we've got a couple of new experienced people on that team that have a lot of industry experience and that's really paying off for seeing more quality meetings with retailers. We have got nothing to report yet as it relates to a new contract getting a retailer to the network, but we're hoping that that will come in the future.

Actually, cash it's always a question, as John reported a strong balance sheet. We're always looking at strategic uses for that cash, what can we do to allocate to best increase the shareholder value. And when they do want to play out over last year, we’ve committed to returning up to $7.2 million of that cash back to shareholders to the Dutch auction and then now through the share repurchases starting.

Valassis, you may have seen in the 8-K they went up this afternoon. This is a restructure of our previous partnership agreement with Valassis and it's a good thing, it gives us access to more CPGs, which really over the long-term, we feel it's going to provide value for us. A question is well on Valassis’ new ownership and how that might affect our future. I'd tell you that's up to their new owners Harland Clarke Holdings but of course, we are always looking to see how we can make advantage for Insignia out of that relationship and this continues to be productive. Same with our news American relationship continues to be productive.

So as I close up the comments here. I just have to say, we are really looking forward to 2014 and years that follow. We’ve got a great team in place that’s growing and they’ve really embraced the value of the principals and what we need to do to turn this company around to bring a successful year like 2013, their energized going into ‘14 and we are confident that they will be able to deliver.

So with that I think we can open up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we do have a question from the line of (inaudible).

Glen Dall

Go ahead.

Operator

(Inaudible) your line is open. Your next question comes from the line of Jacob (inaudible).

Unidentified Analyst

Hey, that’s (inaudible). Congrats on a good quarter guys.

Glen Dall

Thank you so much.

Unidentified Analyst

Just had a quick question on Valassis agreement, I am curious with your current mix of funds with price and funds without prices and how you think that might change in (inaudible)?

Glen Dall

I will let John, handle that one.

John Gonsior

Hey Jacob. We don’t really go into that level of detail, obviously that our tops business is the significant driver for our business right now. And as far as how that could change going forward obviously we’re optimistic about getting our CPG accounts back as Glenn mentioned, and we’re optimistic that we concern that into something meaningful in the future.

Unidentified Analyst

Thanks. Sure.

Operator

Your next question comes from the line of Bob Ramsdell.

Unidentified Analyst

Hi guys.

Glen Dall

Hi Bob.

Unidentified Analyst

Let’s say nice year. Why keep it to the quarter? On this Valassis deal, what is the difference from the original deal that was setup upon the settlement? Was the $500,000 payment (inaudible) parcel of that or is this an addition too?

Glen Dall

Bob, change in the agreement formally was a reseller agreement with Valassis and where they would resell top [sciences] some CPG accounts and now all CPG accounts will and now be available to Insignia for our selling [sign] of price.

Unidentified Analyst

I see. Was the $500,000 fee in previous or is that something new, that's going forward?

John Gonsior

Yes that was a negotiated fee going forward. So as we mentioned at (inaudible) during 2014 but that was not something that was setup in the old agreement.

Unidentified Analyst

I thought not, okay. And just another quick question regarding cash and the repurchase, I’m not clear you said that, have you in fact started the repurchase or is it going to start in the first quarter?

Glen Dall

Correct, it will start in the first quarter of 2014.

Unidentified Analyst

All right. So there has been no purchase today?

Glen Dall

That's correct.

Unidentified Analyst

I got you. Congratulation guys it’s a lot more fun listening.

Glen Dall

Thank you.

Operator

Your next question comes from the line of Michael (inaudible).

Unidentified Analyst

Hey guys. I have a few questions, could you quantify the tiers of the 39 new accounts you guys added last year?

Glen Dall

Actually look; I don’t have that level of detail. I do know that probably the lion share was brought on by our inside sales which typically calls on the lower tier CPG accounts that we really hadn’t allocated resources to in the previous time periods. And they have been doing a great job at that. But I would also say, I know that we have brought in new client pretty much across the board from our sales team.

Unidentified Analyst

Okay, great. And could you throw some color on how many retail salesmen you guys added 2014?

Glen Dall

So, we’ve got a retail sales team of four right now and two of those were recently added based on people have got some great industry experience in the retail sector with Tier 1 retailers as well.

Unidentified Analyst

Okay, good. And lastly, can you just talk about any new product offerings as well as advancing on your digital front, what should we expect to see for 2014?

Glen Dall

Well, it’s a question we always talk about and obviously digital is at the forefront of everybody’s minds and we have been doing some experimenting and some testing with digital as well as digital hybrids between our current products and some of the digital offerings that are out there such as downloadable coupons et cetera. And it’s one of those areas where we look to find products that are going to bridge the gap that our test so far found that consumers are not in great numbers utilizing digital means in the aisles of stores to buy grocery products but we do feel it’s something in the future. So as we look across the array of products that are available to us or might be able to develop, we are probably looking at something that might bridge that gap more. And I can’t be more specific at this time because of what we are looking at. But certainly as look forward, we would expect the things to have a more digital skew for the years upcoming.

Unidentified Analyst

Sure. And lastly the bookings numbers for 2014 is that organic growth because I know you mentioned you might be looking at acquisitions that might be a possibility?

John Gonsior

Yes. This is John. I’ll say that if there would have been any significant new acquisition or anything like that, we would have announced it. So the bookings number you’re going to see should be apples-to-apples with the prior year.

Unidentified Analyst

Okay, great. That’s all I have. Thanks guys.

Glen Dall

Thanks Michael.

Operator

And at this time, there are no further questions.

Glen Dall

We can hold for another minute or two to make sure everybody who wants to ask questions done.

Operator

(Operator Instructions) And you do have a follow-up question from the line of Jacob (inaudible).

Unidentified Analyst

Hi again. Since we’ve got some more time just a quick nitpicky one, I noticed on the press release announcing the conference call, you said you had 13,000 chain retail supermarkets in your network but then today it was back to 13,500. I am just wondering if there is a change there, if it’s just housekeeping.

John Gonsior

That’s more of a housekeeping matter, the 13.5 is the right number.

Unidentified Analyst

Okay, thanks.

Glen Dall

Yes. Thank you, Jacob.

Operator

And you do have a question from the line of Steven Moore.

Steven Moore - Woodstone Securities

Hi guys, great quarter.

Glen Dall

Hi Steve.

Steven Moore - Woodstone Securities

I’m being connected through a cell phone from a 1,000 miles away to another connection, so if it does -- if you don’t understand me, I’ll understand. I would just like -- if you would give us a little color on the retailer growth?

Glenn Dall

Certainly. Well, like I said, we don’t have anything to announce now. But obviously as we look across our target, there are some key Tier 1 retailers that would be great addition to our network as well as additional Tier 2 retailers as well and potentially even other channels outside of grocery. So, as I said, we did bring in some more experienced people, they have some contacts in that industry, we’re having some really good meetings and hope to have some progress there in 2014.

Steven Moore – Woodstone Securities

Okay, great. Well, thank you very much.

Glenn Dall

Thanks Steve. Hopefully you’re similar warm.

Steven Moore - Woodstone Securities

I’m very warm.

Operator

And at this time, there are no further questions.

Glenn Dall

Alright. Well, with that we’ll wrap up the call. Thank you everyone for listening in and for asking questions. We’ll talk to you next quarter.

Operator

Thank you, ladies and gentlemen for participating in today’s conference call. You may now disconnect.

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