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Wireless Ronin Technologies, Inc. (NASDAQ:RNIN)

Q4 2011 Earnings Call

March 8, 2012 4:30 p.m. ET

Executives

Brenda Seiler – Marketing Communications

Scott Koller - President and Chief Executive Officer

Darin McAreavey - Senior Vice President and Chief Financial Officer

Analysts

Nick Mara - Sidoti & Company

Ty Lilga - Feltl & Company

Don McKiernan - Landolt Securities

Tom Pierce - Feltl & Company

Operator

Good afternoon. Welcome to Wireless Ronin Technologies’ Fiscal 2011 Year End Earnings Call. My name is Craig and I will be your conference this afternoon. Before we begin today’s call, I would like to remind everyone that this call will be available for replay through April 8, 2012 starting later this evening. A webcast replay of this will also be available via the link provided in today’s press release as well as available on the Company’s website at www.wirelessronin.com.

I would now like to turn the call over to Brenda Seiler, Wireless Ronin’s Marketing Communications. Brenda?

Brenda Seiler

Thank you and welcome, everyone, to Wireless Ronin’s Fiscal 2011 Year End 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 year and turn the call back over to Scott for operational update, then we will open up the call to your questions. To access today’s webcast, please go to the Investors section of our corporate website at www.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. Risk 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 Risk Factors section of the annual report of Form 10-K we filed on March 22, 2011.

In addition, our comments may contain certain non-GAAP financial measures including non-GAAP operating loss per share. For additional information, including reconciliation 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 website at www.wirelessronin.com.

Now, I’ll turn the call over to our President and CEO, Scott Koller. Scott?

Scott Koller

Thank you, Brenda. Good afternoon, everyone, and thank you for joining us on today’s call to discuss our fiscal 2011 results. 2011 was an exciting year for Wireless Ronin and marked our third consecutive year of revenue growth. It also marked a year of transformation for Wireless Ronin. With a stronger more diversified technology offering and a stronger executive team and board of directors, I believe we have laid the foundation for a successful 2012.

But before I comment further, I’d like to turn the call over to our CFO, Darin McAreavey, who will walk you through the financial results. Afterward, I will talk about operational highlights and business outlook.

Darin?

Darin McAvearey

Thanks, Scott, and good afternoon, everyone. Revenue for 2011 increased 8% to a record $9.3 million from 2010. The increase was primarily attributable to Chrysler’s deployments of our iShowroom-branded tower application into Chrysler and Fiat dealerships. Since the inception of the program, we have now received orders for 578 dealerships. We believe that Chrysler will continue to roll out additional interactive kiosks between the iShowroom application with further dealership adoption of 2012.

Total revenue generated at 2011 from Chrysler and Fiat dealerships was up 28% to $5.1 million from 2010. Revenue in 2011 was also driven by orders from ARAMARK, which were up 48% to $1.7 million from 2010. We continue to expand the number of grow-work installations with several new colleges and universities. Upon the completion, the installation for orders received through December 31, 2011, the total number of ARAMARK locations being managed through our network increased more than 175% to approximately 250 sites compared to 90 sites at the end of 2010.

Recurring revenue for 2011 increased 23% to a record $1.6 million or 17% of total revenue as compared to $1.3 million or 15% of total revenue in 2010. At the end of the fourth quarter we had a total of $1.3 million of purchase orders for which revenue will be recognized in future quarters. Gross margin of 2011 was 44% as compared to 47% in the prior year. The decrease was primarily due to hardware and software sales mix. We believe our gross margin percentage will increase as our recurring revenue continues to grow.

Our 2011 net loss totaled $6.7 million or $0.34 per basic and diluted share, an improvement from a net loss $7.9 million or $0.44 per basic and diluted share in 2010. During 2011 net loss included $740,000 of non-cash stock compensation expense compared to $868,000 in 2010.

For 2011 non-GAAP, operating loss totaled $5.5 million or $0.28 per basic and diluted share, an improvement from a loss of $6.3 million or $0.35 per basic and diluted share in 2010. It is also important to note fiscal 2011 marked our lowest level of cash burn in the Company's history since our IPO in 2006.

Now, turning to the balance sheet; our networking capital position was $5 million at the end of the fourth quarter compared to $3.3 million in the prior quarter. The increase was due to the $3.3 million financing we closed on December 12, 2011. This completes my financial summary.

For a more detailed and complete analysis of our financial results, I would like to direct everyone to our Form 10-K, which we expect to file on March 31, 2012 and will be available at www.sec.gov as well as our website and I'm also happy to answer any questions you have during the Q&A session of today's presentation.

Now, for an overview of our operational activity and developments, I'd like to turn the call back over to Scott. Scott?

Scott Koller

Thank you for the financial overview, Darin. 2011 was a transformative year for Wireless Ronin. From an operation perspective we achieved year-over-year revenue growth. Launched a new strategic plan with our marketing technologies portfolio products, enhanced our executive team and board of directors, developed strategic industry relationships and further penetrated our key verticals.

In 2011 we transitioned from a digital signage company to a marketing technologies company by taking a comprehensive approach, bringing together digital signage, interact kiosks, mobile, social media and web to provide our clients with solutions that drive customer experience while delivering the business intelligence and data analytics required to measure success.

These measurements drive affective business decisions that impact both top line results and bottom line margins. Our focus is to maximize the profitability of in-person interactions and to extend the customers' relationship with our clients in order to increase the number and profitability of these interactions. We received strong validation for our approach in 2011 giving us confidence that the strategic direction we have taken will differentiate Wireless Ronin and align our solutions with our clients' marketing technology needs. With this new strategic direction is beginning to generate success.

In Q4, we initiated the rollout of our RoninCast system to 40 sites of a major retailer with more than 390 stores across North America. We were chosen based on our proven ability to streamline the sales process with a comprehensive solution that provides client satisfaction and delivers a high ROI.

To enhance the various test points within the sales cycle, the retailer engaged Wireless Ronin to develop interactive experiences, manage to do a network Apple iPad devices for sales consultants, customer-facing, in-store touchscreen kiosks and a consumer Web interface.

Integrating marketing and sales support communications across various customer touch points was one of our main objectives for this client and this is what we excel at. Our innovative and highly engaging retail solutions turn regular store environments into powerful customer experiences that can take a brand to new levels. We are especially excited about this project as it is a great example of our marketing technologies, capabilities, in action and provides conformation that the market is looking for these types of multichannel digital solutions. We believe this type of deployment represents a springboard to more wins in 2012.

During 2011, we also grew the number of sites deploying Thomson Reuters Infopoint digital signage to 440 locations and look forward to new opportunities with Thomson Reuters in 2012. This expansion with Thomson Reuters, as well as several other clients, including Chrysler, ARAMARK, SNAP Fitness, and Johnny Rockets, brings the total number of media players supported by Wireless Ronin's technology to more than 7,000.

As we look to 2012, we see our sales opportunities and pipeline in our three key verticals, QSR, Automotive and Retail, growing. And we continue to receive orders from various clients in these vertical as they integrate technology to create a unique experience for their customers.

Additionally, we continue to make traction on our pilot work in our QSR vertical, particularly as we anticipate the FDA announcement for its new nutritional disclosure regulations for QSR menu boards in 2012. We are confident that our centralized digital solution will create operating efficiencies and promote higher compliance for QSRs under the FDA regulations.

Also in 2011, we significantly enhanced our leadership team adding four key new board members with relevant industry and financial experience as well as bringing on a new Senior Vice President of Sales, Jane Johnson and Ben Nelson as Senior Vice President of Product Development and Chief Technology Officer. Their collective experience, knowledge, and enthusiasm, will guide Wireless Ronin to continue success.

Jane is working closely with our new marketing partner, Keyser Industries, a provider of many boards to McDonald's in the U.S. and a number of other important QSRs. Our combined companies can help our clients offer a more integrated marketing approach that can provide a superior ROI by enhancing the customer experience and driving lift. We believe our joint marketing agreement with Keyser Industries, together with our strength and balance sheet gives us the resources to pursue new clients and large scale rollouts in QSR and other verticals.

In summary, our improving financial results reflect our commitment to achieving profitability. We continuously push ourselves to optimize our organization and prove our processes and reduce expenses. The growing demand for new marketing technologies continues to accelerate and we believe we now have the key elements in place to realize future revenue growth through further penetration of our verticals.

As we reflect on 2011 and look forward to the success of 2012, I am reminded of what we accomplished during my first year as CEO. We developed and successfully launched a new strategic plan, taking our product line far past traditional digital signage systems and into an array of different marketing technologies. This shift in strategic direction has already paid dividends as we have continued to grow revenue while we target new opportunities outside our historic core competencies.

Wireless Ronin continues to show our commitment to profitability and wants our investors to know we are focused on revenue growth while making sure that our expenses are aligned to meet our clients' commitments and in line with our anticipated revenue.

As outlined by Darin, revenue continued to grow with Chrysler up 28% and ARAMARK up 48% year-over-year. We believe our pilot programs and pipeline will yield other key accounts that will contribute to revenue in 2012.

And we strengthen our executive team during the year adding key executive like Jane Johnson and Ben Nelson and new board members, including Michael Howe, Howard Liszt, Kent Lillemoe and Oz Tangun. Together, the executive team and board of directors have worked as a cohesive team and are committed to delivering continued success.

Before we open the call to your questions, I would like to express on the behalf of the entire leadership team our appreciation for continued support we received from our partners, clients, employees and shareholders. Now with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

Question-and-Answer Session

Operator

Thank you very much. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator instructions) And our first question does come from the line of Nick Mara with Sidoti & Company.

Nick Mara - Sidoti & Company

Hey, guys. How are you doing?

Darin McAreavey

Hey, Mara. How are you doing?

Nick Mara - Sidoti & Company

Good. With the iShowroom for Chrysler it seems like some of the revenues from work that's being done it keeps getting pushed back. You know when you might start collecting on some of that?

Scott Koller

As Darin has stated in the fourth quarter, definitely saw what is a slow down in the Chrysler ordering. However, we've seen that before as seasonality between November and December like a lot of the clients we deal with, ARAMARK and Chrysler, very large companies, and we do see some of the seasonality of the vacation time period. However, just like last year when we were anticipating further kiosk orders, we're in the same position as we were last year that we anticipate that they'll continue adoption and we'll have further kiosk orders moving forward.

Nick Mara - Sidoti & Company

Okay. So just kind of like a seasonality after the quarter, which is why the revenues were down a little bit?

Scott Koller

Yes, you could contribute the revenue being down to that, exactly.

Nick Mara - Sidoti & Company

Okay. And then you might have mentioned, I could have missed it, but the gross margins also took a big hit in this quarter as well. Can you talk about that?

Darin McAreavey

Yeah, there were a couple of things that were affected. One is we had to take a one-time charge on the hardware just as part of our annual audit. Going through and doing an inventory review, we identified some items that we had to reserve for, and that was probably the larger impact of the quarter. And then our Services, too, was down. Couple things going on there; one is that we did add some resources. We're focused on scalability and also with the continued work we're getting with Chrysler, the development projects, that we had to bring on some contract workers. But we do expect them to increase, here, going forward, bouncing back from what we experienced in the fourth quarter.

Nick Mara - Sidoti & Company

Okay. So 2012, you should see the gross margins get back to the normal rates that they were earlier in the year?

Darin McAreavey

Yep. That's what we're-, that's the feeling right now.

Nick Mara - Sidoti & Company

Okay. And then for 2012, it sounds like you've got a few things going on. What kind of growth can we expect?

Scott Koller

Historically, we don't give any type of guidance, but I would tell you that we're confident that we'll continue to see revenue growth as we did last year and the year before. You saw the press release today on ECOtality. And you look back, and the reason I highlighted in the summary the growth with ARAMARK and the growth with Chrysler is, again, bringing in companies like an ECOtality, continuing to grow with Thompson Reuters, getting one, two, three more major companies that are contributing like ARAMARK and Thompson Reuters are, we expect to see continued revenue growth, but we're not going to put a number out on the street.

Nick Mara - Sidoti & Company

Okay. And are you still planning- , you have that partnership with Keyser, is that correct?

Scott Koller

Absolutely, yeah. That partnership's still in place. It's very healthy. We've done numerous calls, joint calls, with an array of different companies, not just the ones that have been focused on in the past. And it is a valuable asset for us and for them to be able to bring in both the perspective of the merchandising and the marketing influence as well as the technology to back up what they design. So it's a very healthy relationship and it will bear fruit. We're very confident in that.

Nick Mara - Sidoti Company

Okay. And then lastly, just trying to look at the share count of 2012. Are you going to- , do you anticipate raising any kind of equity in the upcoming year?

Darin McAreavey

We have roughly 23 million shares outstanding right now. I mean, it's not our intention to go out and raise capital at this point. We completed that raise in the fourth quarter and feel that have adequate capital to execute here in 2012.

Nick Mara - Sidoti & Company

Okay. All right, thank you.

Darin McAreavey

Yep, thanks

Scott Koller

Thanks.

Operator

And our next question comes from the line of Ty Lilga with Feltl & Company.

Ty Lilga - Feltl & Company

Hi, guys. Thanks for taking my questions.

Scott Koller

Hi, Ty.

Darin McAreavey

Hi, Ty.

Ty Lilga - Feltl & Company

Hey, first question, you mentioned you had $1.3 million in orders at the end of the first quarter. Was that from one customer? Was that mixed between a couple?

Darin McAreavey

No, it's going to be several, but the majority of it will be Chrysler, a lot of Chrysler development work that we'll be working on in the first quarter. Some of it will bleed over to the second, but the majority of it should get done in the first quarter, here. And then there's also ARAMARK. Sure, we had some installations that we were finishing up here in the first quarter and then it falls off pretty quickly after that.

Ty Lilga - Feltl & Company

Okay. And so it's development work from Chrysler?

Darin McAreavey

Correct.

Scott Koller

Correct. We've mentioned that before that we've, along with hosting the website on chrysleracademy.com and doing the in-store kiosk and doing a lot of content work for them, we're also developing the iPad application and also working on taking iShowroom to a more mobile, global aspect, so there is development work.

Ty Lilga - Feltl & Company

Are they holding off on getting more iShowroom until the content work is done or is it just kind of random fluctuations?

Scott Koller

No, there's - I can't speak entirely for Chrysler. They're pretty big and complex in the way they manner their dealerships, but they put their Dealer Standards program on hold earlier in the year. That didn't just affect us; it affected a lot of people, and they're trying to understand what they're going to do with their dealerships. But I really can't talk for them, but no, it doesn't displace that work.

Ty Lilga - Feltl & Company

Okay, sure.

Scott Koller

Yeah.

Ty Lilga - Feltl & Company

And also, I was wondering if you'd give us an update on where thing stand with Thompson Reuters, kind of who they're approaching with Infopoint. What's the sales pitch? What's the interest level?

Darin McAreavey

Yeah, we hope to- , there is interest. I can tell you in a lot of confidence there is interest. We're hoping to be able to add some transparency to that relationship in the near future. But we're working very closely with them and historically, had been in the marketing group only and we're working with other groups within that that are actually responsible to take into the street, and there is interest. But at this point in time, formally, we'd like to wait until we're in a position to talk about it in a more formal manner.

Ty Lilga - Feltl & Company

Okay, sure. Also just, I way you cut operating expenses significantly in the quarter. I was wondering, is that kind of a one quarter thing or is that what we should think about for a run rate going forward?

Darin McAreavey

Yeah, you can expect that. Our goal all along was to get it down, so if we were at a $4 million quarterly revenue level is approximately is approximately 50% margin that we were going to be at a break-even, and we're continuing to look to optimize our expenses, here, within the organization. So yes, you can expect- , you may see a little bit of an increase in the first quarter, given the [FICA re-tech]. We do have some trade shows that have taken place during the quarter, although we elected not to have the big spend at DSC this year, so you won't see a dramatic increase like you saw in 2011 in 2012, here, as a result.

Scott Koller

I think that what's also important, Ty, is we talked a lot in the script about adding some key people, a senior VP of Sales and also bringing on my Chief Technology Officer, Ben Nelson, and we've also had key additions in the NOC, and we've been able to add those additions while optimizing costs in other areas and maintain that OpEx at a level we want it at.

Ty Lilga - Feltl & Company

Okay, sure. All right, thanks. I'll get back in queue.

Scott Koller

Thanks, Ty

Operator

(Operator instructions) And our next question does come from the line of Don McKiernan with Landolt Securities.

Don McKiernan - Landolt Securities

Thank you. Wondering if, if the QSR space, if there's been any decision making by any of these QSRs to go with a competitor?

Darin McAvearey

Well, I think there was some public knowledge earlier, that Dairy Queen went with another competitor. But the ones that we've been in pilot with, and the ones we've been working with, no.

Don McKiernan - Landolt Securities

Okay. Is that the only one out there, Dairy Queen, that you're aware of or?

Scott Koller

Yeah. That's the only one that, that we can say that we were not chosen.

Don McKiernan - Landolt Securities

Okay.

Scott Koller

With the ones that we're working with right now and piloting with right now.

Don McKiernan- Landolt Securities

Well, you would think that by now, of course, sounds like a broken record the last couple of quarters, but something, some decision making would be made and things would be moving forward, but I guess we'll have to continue to wait, so.

Scott Koller

I can add a little to that. The, the, the urgency with the calorie information to get on the menu board has subsided just a tad. The FDA has not come out with their final ruling. We don't know when they're going to. They haven't given any guidance when they'll come out with the final ruling. However, in an election year it's our gut feel that it may not come out in this year prior to the election, but at the same time they continue to say that they were coming out with some kind of mandate for the calorie count. It just hasn't come out and we've been waiting since probably, with the rest of the industry, since August.

Don McKiernan- Landolt Securities

Right, right. Okay. Thanks and good luck this year.

Scott Koller

All right, thank you.

Operator

And our next question does come from the line of Tom Pierce with Feltl & Company.

Tom Pierce - Feltl & Company

Hi, guys.

Scott Koller

Hey, Tom.

Tom Pierce - Feltl & Company

You, I think, Scott, just got back from the Digital Signage Expo and I know you guys were in the running with Starbucks for an award and I'm just curious if you got one?

Scott Koller

Yes, we did get an award and we should be able to share that soon, but, yes, we did.

Tom Pierce - Feltl & Company

Very good. So Starbucks walked away with the trophy or did you both get one?

Scott Koller

We both get one. And we just want to thank Starbucks for letting us work on that particular initiative with them because it was very-, it's been a rewarding initiative and the store celebrated last night, which was good for Starbucks.

Tom Pierce - Feltl & Company

And that was in the Time Square?

Scott Koller

Yes.

Tom Pierce - Feltl & Company

Yeah, okay. Thank you. That's all.

Scott Keller

Thank you.

Darin McAvearey

Thanks, Tom.

Operator

(Operator instructions) And at this time I'm not showing any further questions in the queue. I would like to turn the call back over to management for any closing comments.

Scott Koller

We want to thank our investors and everybody involved for their continued support and we appreciate it. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.

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