Insignia Systems, Inc. (NASDAQ:ISIG) Q2 2016 Earnings Conference Call July 27, 2016 5:00 PM ET
Kristine Glancy - President and Chief Executive Officer
Mark Cherrey - Interim Principal Financial Officer, Interim Principal Accounting Officer
Jacob Ma-Weaver - Cable Car Capital
Greetings and welcome to the Insignia Systems Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Kristine Glancy, Chief Executive Officer and President for Insignia Systems. Thank you. You may begin.
Thank you, Adam, and thank you everyone for joining us on the call this afternoon. On the phone with me today is Mark Cherrey, our Director of Finance and Controller and as announced in May, our acting Interim Principal Accounting and Financial Officer. I’ll open with comments on the quarter and then open up the call for questions after that.
I would like to spend the time on the call today reviewing three main topics. First, overall Q2 performance; second, an update on expenses and impact to our financial statements; and third, an update on my initial days with the Company.
First, on Q2 performance. Our Q2 net sales were down 0.8% versus Q2 2015. Overall for the first half of 2016, our net sales were down year-over-year by 3.9%. The decline in Q2 was primarily driven by a 2% decrease in our average price per sign. Despite reporting two consecutive quarters of net sales decline versus prior year. Our second quarter revenue did show an improvement in the trend versus Q1 which was down 7% year-over-year.
As noted in our Q1 earnings, we did see approximately 400,000 in our just in time programs shift from Q1 into Q2, which is a program we offer our customers to have the ability to line up their programs with their new item introductions at store level. Q2 2016 experienced a net loss of $87,000 compared to the same time period in 2015 of net income of $250,000 and a first half 2016 net loss of $409,000 compared to net income of $346,000 in the first half 2015.
These variances are primarily driven by unusually high legal fees for general, corporate, and board matters as discussed in our Q1 earnings call, as well as expenses related to strategic investments we are making. These were partially offset by a decline in both selling and marketing expenses. We do expect our legal expenses to return to a more normal level in second half.
We are investing in both our existing core products and continuing our efforts to identify and evaluate other products that could complement our portfolio. We are on track for implementing our new technology operating infrastructure in mid-2017, which is expected to provide significant improvements in our day-to-day operations and facilitate future product expansion.
As of Q2 2016, cash, cash equivalents, and debt security investments are $17 million compared to $18 million as of December 31, 2015. The key contributors to this difference are three folds. One, our share repurchase program as noted in our release; two, investment into our technology operating infrastructure; and three, a function in payables and receivables which fluctuate in the normal course of business. Our working capital is $21.5 million as of Q2 2016 compared to working capital of $21.3 million as of December 31, 2015.
Lastly, in my first two months with the organization I have completed a comprehensive assessment of the business, operating model, and organization as well as have met with key retailer and CPG customers. I will be meeting with the Board after my initial 90 days to report on my observations and provide recommendations on the future operations and strategy of the Company.
This concludes the formal part of our presentation. With that, I would like to turn it back to Adam to open the lines for questions.
Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Jacob Ma-Weaver from Cable Car Capital. Please go ahead.
Hi, Kristine. Thanks for the update. Just a quick one for you, something you could quantify for us, the exact amount of extraordinary expenses through the P&L this quarter?
Hi, Jacob. Good to hear from you. I’ve stated earlier the drivers of the difference were really driven by the unusually high legal fees for general, corporate, and board matters, as well as expenses related to our new technology infrastructure and at this point we expect those expenses to normalize in the second half of 2016.
Would it be possible to share a number at this time?
At this point, we are not going to comment on that.
Well, thanks for the update.
Yes. Thanks, Jacob.
Thank you. Our next question comes from the line of J. L. Hoffman, a Private Investor. Please go ahead.
Hi, Kristine. I’m glad you are there and I’m sure it’s been a pretty eventful 60 days. Could you tell us your opinion of the venture investment you are making in the Chicago Company, The Like Machine and the appropriateness of a NASDAQ Company making venture capital type investment? And I like to know what kind of equity will result from that investment [indiscernible] I guess?
Hi, J.L., I hope you are doing well. Couple of comments to your quick questions. One, we reported earlier that we have restructured our arrangement with The Like Machine to be a distributor of the product. We have a number of customers who are engaged and actively working with us in rollout.
Our focus is on exploring the potential of this products and others as we expand our offering. And in terms of the net use of funds, we had our independent auditors and legal counsel conduct a thorough review of the relationship between Insignia and The Like Machine and they found the relationship to be properly structured and expenses and resources to be appropriately allocated.
And then in terms of the equity question, I have evaluated The Like Machine in the context of my assessment of the entire business and feedback from our clients overall has been very positive and they are very encouraged by the overall results to date.
I have a follow-up question if I could.
Is the Board considering a dividend to use some of that cash back to the investors?
I’m meeting with the Board after my first 90 days, and we will be evaluating future strategy and operating structure at that point including investment back to shareholders.
Okay. Thank you.
Thank you, J.L.
Thank you. [Operator Instructions] Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.
I just want to say thank you everybody for your time this afternoon. This concludes the formal part of our presentation. Have a great day.
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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