Creative Realities Inc (CREX) 2008 Q4 法說會逐字稿

Good afternoon. My name is Chanelle, and I will be your conference operator today. At this time I would like to welcome everyone to the Wireless Ronin 2008 fourth quarter earnings call. (OPERATOR INSTRUCTIONS.) Thank you.

I would now like to turn the call over to Linda Hofflander, Vice President and Chief Marketing Officer.

Thank you, Chanelle, and welcome, everyone, to our 2008 fourth quarter conference call. With me today are James C. Granger, Jim, President and Chief Executive Officer, and Brian Anderson, Vice President, Controller, and Interim Chief Financial Officer. Scott Koller, Executive Vice President of Sales and Project Management will join us for the Q&A portion of today's call. After brief comments from Management, we will open up the call to your questions.

Before we begin, please note that the information presented and discussed today includes forward-looking statements which are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Our actual results in future periods may differ materially, and you should not attribute undue certainty 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 include those set forth in the cautionary statement we filed on Form 10-Q on May 9th, 2008.

In addition, our comments may contain certain non-GAAP financial measures including adjusted operating loss and adjusted gross margins.

For additional information, including reconciliation from GAAP results to non-GAAP measures, please see the non-GAAP reconciliation section of our press release, which appears on our website at www.wirelessronin.com.

Now, I'd like to introduce and turn the call over to our new President and Chief Executive Officer, Jim Granger, for opening comments. Jim?

Thank you, Linda.

First, let me say that it is a pleasure to speak to all of you today in my new role as President and Chief Executive Officer for Wireless Ronin. I'm excited to be here, and look forward to applying my experience in the technology industry to the challenges and opportunities of the digital signage industry.

The digital signage industry has been evolving over the past two decades. What is exciting for Wireless Ronin and our future is that there are clear signs that the industry is coming of age and has grown into a more effective and capable medium.

It is true that today's economic environment has presented concern. However, through our recent actions to right size our organization and infrastructure we have shifted our business model to one that is nimble and quickly scalable.

On November 3rd and December 17th of 2008 we implemented two separate workforce reductions to align our infrastructure and expenses with sales levels and current client projects, particularly in light of the recent economic downturn. As a result we reduced our headcount by approximately 40%. This will in the near term decrease our expenses and in the long term make Wireless Ronin a more efficient organization.

Despite the challenging economic environment throughout the latter half of 2008 I'm enthused by several accomplishments that were made during the year. During 2008 the Company was able to preserve and expand key client relationships and, in fact, attract new customers. We were able to grow year-over-year revenues. We took control of our expenses and infrastructure cost to better scale and leverage our operating model.

Further, we have invested in our product offering, creating what is considered to be the best in class software offering in this industry, and we ended the year by reversing the downward pressure on our gross margin levels.

Now, I'd like to turn the call over to Brian Anderson for a closer look at our fourth quarter and year-to-date results. Brian?

Thanks, Jim.

We reported fourth quarter 2008 total sales of approximately $1.9 million, up 18% from sales of $1.6 million in the fourth quarter of 2007 and flat to the third quarter of 2008. On the bottom line we experienced a $6.9 million net loss in the fourth quarter of 2008 compared to a $3.7 million net loss in the fourth quarter of 2007, and a $4.6 million net loss in the third quarter of 2008.

The increase in net loss from the year ago quarter was primarily attributable to the impairment charges of our network equipment held for sale asset of $1.8 million, intangible assets of $1.3 million, and $274,000 of severance expense related to the fourth quarter workforce reductions.

Increased year-over-year expenses resulted primarily from higher operating expenses to support anticipated growth opportunities, investments in the Company's Network Operations Center for customer testing and program pilots, and the onetime adjustments occurring in the fourth quarter. Excluding onetime expenses and noncash charges the fourth quarter adjusted net loss would have totaled approximately $2.8 million.

In the fourth quarter of 2008 we reported a basic and diluted loss per share of $0.47 compared to a basic and diluted loss per share of $0.25 last year and a $0.31 loss in the third quarter of 2008.

Gross margin for the fourth quarter was approximately 12% as compared to 25% in the year ago period and 5% in the third quarter of 2008. Impacting the 2008 fourth quarter gross margin was a onetime lower cost or market adjustment of approximately $65,000 and a continued debt loss from our NOC. Excluding these adjustments, adjusted gross margin would have been 25% in the fourth quarter compared to 17.3% in the third quarter. The quarter-over-quarter increase in adjusted gross margin was primarily due to recent reductions in labor cost in the NOC.

Gross margins are primarily impacted by pricing, labor cost, and product mix. We have recently implemented improved controls and processes around pricing and reduced labor cost with our recent reductions in workforce.

Going forward, quarterly gross margin levels will be impacted by fluctuations in the mix of higher margined software sales and lower margin hardware sales. Our focus continues to be on improving margins either through better pricing or reduced expenses while maintaining our level of quality service to our customers.

Total operating costs for the fourth quarter were $7.2 million, up from $4.4 million in the fourth quarter of 2007 and $4.9 million in the third quarter of 2008. The year-over-year increase was primarily due to the previously outlined impairment of our network equipment held for sale asset of approximately $1.8 million, the impairment charge and the intangible assets were approximately $1.3 million, and severance charges of approximately $274,000, offset by a decrease in most other expense categories.

Based upon our recent actions to realign expenses with expected sales levels, excluding onetime adjustments and noncash items, total adjusted operating and direct cost decreased by approximately $1 million from the third quarter of 2008. We anticipate that quarterly expenses will decline by an additional $1 million commencing in the first quarter of 2009 for a total reduction of approximately $2 million as it relates to these actions, or $0.13 per basic and diluted share.

The Company previously included depreciation and amortization in general and administration expenses. We now show depreciation and amortization as a separate line on the income statement to better reflect the infrastructure investments made to date. As we have provided in prior financial results announcements, we included reconciliations between the GAAP and adjusted operating loss in today's earnings release. This highlights how we look at profitability and cash utilization for the Company. It is similar to EBITDA but adjusted for certain other onetime items and the FAS 123R expense for stock based compensation. This supplementary schedule details the items and affects of fourth quarter onetime adjustments, and shows the trend in reduced cost and improvements in our adjusted operating loss for the quarter.

As Jim pointed out, on November 3rd and December 17th we announced two separate reductions in our workforce to align our expense rate with our current expected sales levels and project commitments from clients. As a result, we have reduced our total headcount by 63 or approximately 40% with reductions spread across the organization.

The combined severance charge from the two workforce reductions total approximately $274,000 or $0.02 per basic and diluted share in the fourth quarter of 2008. Our headcount now totals 96.

Turning to the balance sheet, at the end of the fourth quarter of 2008 cash and cash equivalents, a combination of marketable securities and restricted cash of $450,000 totaled approximately $14 million compared to $29.6 million at December 31st, 2007 and $18 million at September 30th, 2008.

The year-to-date decrease in cash balances primarily resulted from funding our net loss. Our cash burn for the fourth quarter was $3.9 million, down from $4.3 million in the third quarter of 2008. The decrease in cash burn during the quarter is primarily due to the affect of reducing expenses partially offset by other timing differences and changes to working capital accounts.

We believe that cash balances in combination with the actions we have taken to reduce our burn rate have created a platform that is sufficient to fund our business well into 2010. Our plan is to continue to match operating expenses with sales and projects and adjust our plan based upon actual sales and customer requirements.

During the fourth quarter we wrote off the network equipment held for sale asset and took an impairment loss in our intangible asset related to our Canadian acquisition in 2007. The 2007 acquisition of McGill Digital Solutions included a contingent portion of purchase price based on future financial performance of the Canadian subsidiary. The earn out criteria for 2007 and 2008 were not met and no earn outs will be paid.

The Company accrued for the 2008 earn out of approximately $1 million in 2007 and included this amount in its initial valuation of the intangible assets. The $1 million accrued purchase price liability was reversed prior to testing for impairment.

As discussed in our third quarter conference call, NewSight defaulted on its note obligation in August 2008, and pursuant to a written agreement with NewSight we took ownership of the hardware and software related to the Meijer Network. As a result of this default and our contractual resolution we reclassed the NewSight net receivable balance of $1.9 million to network equipment held for sale during the third quarter of 2008.

This current asset consisted of both in-box inventory and an installed base of equipment representing a current operating network for 102 Meijer stores. Meijer was expected to choose a network provider in the fourth quarter with which to move forward. We expected to sell the existing network and the in-box inventory to the new network owner.

During the fourth quarter the advertising dollars expected to fund this network decreased significantly due to the ongoing economic downturn. As a result, Meijer recently informed us that there are no current funds or plans to continue operation of this network. Therefore, we have moved approximately $171,000 of computers and screens from our in-box collateral base into inventory and wrote off the remaining approximately $1.8 million of network equipment held for sale.

Turning to our impairment analysis, the Company reviews the carrying value of all long-lived assets, including intangible assets with finite lives for impairment in accordance with statement of financial accounting standards number 144. Under FAS 144 impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. If the impairment tests indicate that the carrying value of the asset is greater than the expected undiscounted cash flows to be generated by such assets, an impairment loss is recognized.

Our intangible assets were initially valued based on cash flow estimates prepared by management at the time of the acquisition of our Canadian subsidiary in August 2007. The majority of the Canadian entity's revenues have been derived from products and services provided to the automotive industry, more specifically a majority of such revenues have historically come from Chrysler Corporation or through Chrysler's ad agency, BBDO Detroit and BBDO Windsor.

During the fourth quarter of 2008 we tested the intangible assets acquired for impairment. We determined that the underlying assumptions and economic conditions surrounding the initial valuation of these assets has significantly changed, leading us to conclude that an impairment loss should be recognized for the $1.3 million net book value of these assets.

Finally, I would like to summarize the financial results for the quarter as follows. We achieved our quarterly revenue target of $1.9 million. Gross margin improved to 12% from 5% last quarter. We reduced our workforce and expenses by approximately 40%. We took impairment charges in our network equipment held for sale assets and intangible assets of approximately $3 million. And excluding onetime and noncash items our expenses improved by approximately $1 million from the third quarter of 2008. We expect that ongoing quarterly expenses will decline further by approximately $1 million in the first quarter of 2009 related to actions taken in the fourth quarter.

Now, I'd like to turn the call back over to Jim for some closing comments before we open up the call to your questions.

Thank you, Brian.

I'd like to take a moment to focus on the core underlying business decisions that were made during the fourth quarter of 2008. Wireless Ronin's Management Team began to make some tough decisions, even before I arrived, to set the stage for the future growth that we envision. Unfortunate as it was to have had to reduce our workforce, it was imperative that we right size the Company for long-term success.

We believe that by focusing on the delivery of best in class software and support services we are in position now for success as we move into 2009 and 2010. The digital signage market is still young. Companies large and small are looking for business models that have long-term viability.

Wireless Ronin is in a unique position with outstanding software and services, which through our ongoing development process are getting even stronger and more feature rich every day. We combine that best in class software with the ability to deliver both standard and customized web portal online management systems, which are key in leveraging our ability to provide hosted solutions, while simultaneously giving the customer control of desired features and functions for their networks.

Add to this an established support infrastructure or network operation center for real-time monitoring of network deployments, and we have a business model that is positioned for the long term.

Software and the ongoing support of that software through maintaining and enhancing digital signage deployments are areas that leverage the built-in expertise the Wireless Ronin Team has and are proven across a wide range of industries to be a business model that when successfully executed upon provide the type of margins that drive shareholder value. Therefore, our tasks are clear.

First, focus on the part of the business we do best, developing and delivering software solutions and digital signage support services. And, second, to make sure our cost structure is such that we deliver margins, which will be rewarded through increased valuation.

Now, I'd like to provide you some updates on our sales efforts. We are currently preparing to exhibit with KFC Marketing at the 2009 KFC Franchise Show in Washington, D.C. KFC will kick-off its Year of the Franchise Campaign, and we will be demonstrating the digital menu board system throughout the convention.

We currently have 78 installations for KFC, across 17 states, both Louisville and Oklahoma City markets are 100% digital. In January we expanded our footprint in the Oklahoma City stores in two key areas -- beverages and dining. An additional screen has been added near the beverage station to generate sales lift for new products and promotions. And a screen has been added to the dining area for entertainment, featuring music videos and promotions. KFC remains committed to Wireless Ronin, and the menu board initiative.

In addition, we continue to see progress with other opportunities in the quick serve restaurant industry. We are aggressively pursuing opportunities in the QSR market and expect that these efforts will generate results in the upcoming months.

In January we attended the National Automobile Dealership Association Show in New Orleans to promote our newest product for the automotive industry, Auto-PIC. Our alliance with Chrome Systems Inc. and eVox Image allows us to create a powerful automotive product information center, now available in RoninCast for automotive.

The primary advantage of Auto-PIC is that we can deliver highly customized interactive content for virtually any automotive brand to a dealership at a fraction of the cost it would be to generate this content on a case-by-case basis. In addition, we have added a menu board type product for the parts and services areas, allowing our clients to make real-time changes to products and promotions in the service department.

Our exciting global relationship with Thomson Reuters continues to grow. We are now installed in 208 locations in over 35 countries. Our delivery of a complete solution of software, services, and hardware where applicable continues to add value throughout the Thomson Reuters InfoPoint Network. And we will begin deploying 140 additional locations in Asia commencing next quarter. Thomson Reuters has begun an even more aggressive initiative to expand the Infopoint Network.

On our last call, we highlighted our new relationship with Airmark. We have now successfully completed five installations, with six additional installs under contract with Airmark, and beginning to see greater interest throughout the higher education and healthcare groups. Each of these groups is aggressively pursuing new opportunities, and we expect that our installation pipeline will continue to grow with this important customer.

While all of these are encouraging, it is clear that most companies, including Wireless Ronin, face difficult economic challenges with regard to the overall economy. All businesses, including the ones we seek to serve, are extremely cautious with regard to any capital expenditure, and credit markets continue to be nearly closed. Recessionary headwinds have almost certainly delayed customer commitment.

That being said, I personally have never been connected with an industry where the ROI, or return on investment, was any more clear or compelling. I believe this will ultimately result in the tidal shift to digital signage solutions as the economy normalizes.

And with Wireless Ronin and the steps that we have taken and continue to take, we will be there to take advantage of this shift. Our goal moving forward will be to fulfill our vision by maintaining our position as the recognized leader in the digital signage industry. We will strive to continue our steady growth year over year, to be a great place to work for our employees, and to deliver returns to our shareholders by driving higher profitability, cash flow, and return on invested capital.

I cannot close this call without taking the opportunity to tell everyone how honored I am to be a part of this extraordinary Team of professionals here at Wireless Ronin. Through some very difficult times they have remained first and foremost committed to outstanding customer service. I already have several stories of individuals going that extra mile to assure that our clients' needs are met. Whether located here in Minneapolis or our Windsor, Canada location, this is a Team that exemplifies our values of commitment and creativity. I'm proud of them, and now proud to be a part of the Team.

This concludes our prepared remarks, and now I'd like to open up the call for your questions.

(OPERATOR INSTRUCTIONS.)

Your first question is from the line of Atul Bagga with ThinkEquity.

Morning, guys. Thanks for taking my call.

Good morning, good afternoon.

Jim, congratulations. Good afternoon, yes, sorry. Jim, can you give us some update on the big contract with KFC and Chrysler?

Well, we continue to work very closely with KFC. In fact, we are expecting to deploy another 34 stores with, over the next few months. And so we continue to work very closely with them and continue to supply them with an outstanding digital signage solution.

In terms of Chrysler, it continues to be a very difficult market with Chrysler and all the automotive dealers and automotive companies. As you know, I don't have to go into the details of the kinds of troubles that they have gotten themselves into over the last couple of quarters. And those headwinds are certainly delaying deployments of any new technology.

And in the past Management had told us that you guys have a big contract working with KFC which was in advanced stage. Can you talk a little bit about that contract? Is it still in the working? How many locations we can expect to see in 2009?

I cannot comment on anything, obviously, that the former Management might have said, and I think you wouldn't expect me to. At the same time, I can tell you that KFC continues to deploy in key markets with this technology, and we continue to work with them on the rollout of this technology to stores across the country.

Are you guys expecting to be cash flow positive in 2009, 2010?

Well, we certainly have the, now the wherewithal in terms of our -- in terms of the cost takeouts that we've done and in terms of the cash that we have to see ourselves well into 2010. The exact date of cash flow positive is something that it would be, it wouldn't be wise for me to speculate on. That being said, we think we have the wherewithal to ride out this storm and still come out the winner at the other end.

Okay. And let's say if you guys did get the contract from KFC, what does it take for you to ramp-up your headcount back so that you could serve that customer?

I'm not sure we need to ramp-up as far as we've ramped up before. I think we've found that, I've seen this Team do a remarkable job with the current headcount and with the current requirements that we have.

That being said, were we to get a large deployment we'd obviously need to add additional resources, but I think we, what this exercise has proven is that we can be more efficient as well as more effective. And so we'll only ramp-up according to the goal of not only going cash flow positive but to start showing real profits on the bottom line.

Thank you.

Your next question is from the line of Jay Meier with Feltl & Company.

Hi, Jay.

Thanks for having me. Just a couple quick, well, four questions if I may? I'm a little confused by some of the verbiage in the press release. I think it's on the second page, there's reference to better alignment of internal resources with sales levels and talking about further reducing headcount. Is that describing the two force reductions you've already taken in November and December, or is there additional workforce reductions that I wasn't aware of?

That is -- I'll let Brian -- this is speaking to the two reductions that we've already have taken, Jay. But, Jay, you know me, and we'll look for making sure that we take out costs that are unnecessary at any opportunity. Our job here is to make sure that we start making some real money, and it's imperative that we look at our headcount and all of our expenses, really, to make sure that we keep those expenses in line and then start growing according to what comes in in terms of the sales.

Brian, is that -- that is correct in the assessment?

Yes, I just want to clarify that it did address the two headcount reductions we did, so Jim answered that.

Okay. And regarding potential future alignments, Jim, would you suggest that that's more a human capital issue or are you looking to do other things in terms of how the NOC is structured, software, what type of capital improvements do you anticipate going forward?

Well, one thing that I will tell you, we are going to invest in this key value of ours, which is the software development and the software, and the ongoing software product that we present. So there we will take advantage and make sure that we're adding the resources where we need to to make sure that we continue to be best in class.

I think what we really need to do is just make sure that across, it's surgical at this point, we just need to make sure that across all the organization that we are, we're generating 110%, and that leads to more effectiveness and more efficiency. And I think, I really do believe that efficiency does lead to effectiveness, and we'll look at that. It is not some wholesale lopping, it is really -- I think that has accomplished. Now what we've got to do is just make sure everyone is operating in as most effective and efficient manner possible.

Okay. It sounds good. And as far as the business model going forward, you've made a few comments about profitability and cash flow, you're striving toward a higher profitability, can we read into that at all about your views of essentially reselling hardware? And, if so, if there's a potential shift in model, how should we think about that for our models going forward? And let me drill on that just a second.

Yes.

Should we assume that you guys are going to continue to try and pitch hardware as a steadfast component of your offering, or is it deal by deal, or are you -- will you eventually move out of hardware completely?

Well, Jay, let me -- you know, it's almost one of those pyramid answers, which it's almost easier to draw than it is to talk about, but there are certain customers out there who will always want us to provide a total solution, meaning that they will want it to include not only hardware but very often content services around a solution for them.

In that case, though, we must make sure that we achieve profit margin on those added areas. The software, software support web portal is where our margins are best and where we are most specifically targeted to be successful.

So I guess to answer your question, at some customers they're going to want a total solution, and we are glad to offer them that. We have an outstanding Project Management Team, we have great content people, and we have good relationships, great relationships with hardware providers to make sure that we can provide a total solution where that's important.

There are, however, other customers which will find that they may be able to secure hardware from directly, for example, or through other channels that doesn't provide for us the opportunity to make any margin. It makes no sense for us to pass through revenue that doesn't add to our bottom line. It simply adds costs and can lead to things like write-offs at the end of the year if they're not handled correctly.

So it's going to be more on a case-by-case basis, but certainly we're going to focus on the high margin portion of our business, which is our outstanding software, our web portal, our web portal development, our services through the NOC, and the whole solution that we provide with digital signage software.

Okay. That's a good answer. And, finally, regarding the McGill impairment, just so I understand that correctly, you had already -- and maybe Brian should take this?

Yes, Brian will take this one.

Okay. You had already accrued a million dollars in earn outs that was booked on the balance sheet somewhere, and you then reversed that accrual because they didn't meet those expectations -- is that -- do I understand that correctly?

That's correct, Jay.

What was the -- and there was one--?

We reversed that accrual, and then look at the underlying assumptions that the intangible asset was initially booked at, and then looking at those and the conditions of Chrysler and the economy and so forth, and those cash flows are just not what they were when they originally were done.

Okay.

It wasn't -- we took that impairment charge.

And is it safe to assume since my impression anyway of the McGill business was that it was primarily oriented around automobile manufacturers, is it safe to assume that this impairment is more related to obviously a recent realization that the automobile manufacturers aren't doing so well?

Well, it's a combination. It's really, though, looking at the initial assumptions that were made when we valued those assets. There were significant cash flows attached to some of those intangible assets, and those just are not going to or have not panned out. So it's primarily that, and it's also the situation with Chrysler also impacting that.

Okay. Very good. I'll drop back into the queue. Thanks.

Thanks, Jay.

Your next question is from the line of Dick Ryan with Dougherty.

Hi, Dick.

Good afternoon, Jim. So you mentioned QSRs other than KFC, can you talk about what's going on there, and are you hosting any other QSRs through the NOC at this point?

We continue to work with that QSR industry. We don't have a specific announcement of a material nature that would be important for me to talk about on a call, and obviously we have to respect the wishes and rights of anybody we would be working with. But as soon as we were into something that required a notification we'd make sure everybody knew about it.

Okay. You mentioned the KFC Franchisee Show, what are they telling their franchisees?

I'm going to turn this one over to Scott. He's going to be there, and along with others from our Company, and I think he'd give you a good example and good discussion of what we're doing there.

The key thing of the show is going to be, continue introduction to digital mini boards to the key franchisees, in fact, all the franchisees. The franchisees are going to be prior to making a decision on how they would rollout digital signage and how it would be funded, are going to be afforded the opportunity to purchase digital menu boards if they want to. So that is a change of heart that KFC has experienced over the last couple of months.

KFC is still committed to the menu board project, and it still stands as Dave Novak had pointed out last year that they would like to see all stores converted to digital by the end or converted to digital that can support the calorie information by the end of 2010. With that said, during this show it'll be a continued introduction of the digital menu board, and it'll be opened up for individual franchisees and groups of franchisees to purchase the menu board product.

And have they rolled out a funding option for the franchisees, Scott?

Not that I'm aware of at this point.

So this will be on the back of the franchisees to pay for the--?

And some have made that choice.

Yes, and some have made that point, in fact, more than some have made that point. So, yes, coming off the recently funded ovens to support some new products, it's not a decision yet on how the digital menu board will be funded.

But some franchisees have made that choice on their own already.

Yes, so key franchisees participated in the installed base already, have the ability now to purchase it, and that was not an option before.

So if you can look at the count, the 79 that's installed and the other 34 that's coming, can you break-out company versus franchisees?

Oh, I'd say probably about a 70%, 30% mix, 70% franchisees, 30% corporate.

Okay.

So one of the key things where if you know our big markets are Boston and Orlando, Oklahoma City and Louisville, and then we have a smattering of installs other places. The smattering of installs other places were to support very large franchisee groups, for them to get familiarized with the menu board product.

Okay. Today the Appeals Court of New York upheld the calorie posting in New York, and we've seen this roll across the country, and Philadelphia, California, Seattle, and on -- what are you hearing, Scott, what are some of the options that these QSRs are looking at? And are you getting any feedback of what's working and what's not?

Yes, it's actually all the QSR industry, not just KFC, but all the QSR industry was really looking for the Federal Government to step in and mandate how trans fat or calorie information would be displayed. It doesn't look like the Federal Government is going to do that. I think it's going to be up to individual states and counties, even if you will, to mandate what they want to see on the menu board and how.

This presents a very large challenge for the QSR industry, which means that even as complicated as their menu boards can be today, adding the extra layer of complex content, if you will, and making sure that it's in conformance and actually associating it with a fine if it's not up there, really adds a layer of complexity to the menu board that the QSR industry is going to have to address.

One of the reprieves they are getting is that on the outdoor board, where we all know the hardware from an expense standpoint and a warranty standpoint really shows no ROI for digital at this point. But one of the reprieves they're getting is the outdoor menu board does not have to have calorie information on it, and they can simply say the calorie information can be found indoors. However, that does not address and alleviate the issue they have indoor on executing trans fat calorie information.

So with that said, I think QSRs, I really can see and we've heard this from clients, no other way but digital would be able to address the complexity, and not only the complexity but the non-uniformity of how calorie information will have to be displayed.

How are some of the restaurants doing? I mean is it aesthetically, I mean is it--?

Paper, stickers, it's a variety of different ways. They're getting -- it's really county by county, the five boroughs of New York are allowing them to put up paper, and Seattle is going to handle it differently, King County is going to handle it differently, and California. But right now it's sort of a scramble mode of putting up temporary menu boards right now that address the minimum requirements for what those areas are asking for.

Dick, this is one of the reasons why I said this is a tidal wave that's coming in digital signage, because it's not only getting it up there, it has to be in certain fonts and it has to be jurisdiction by jurisdiction, so you could have a franchise owner, for example, having, literally having a store in Minneapolis and one in St. Paul and having different requirements, both size, position, number, whatever, for these things.

So this tidal wave of digital signage, there's no way, there's no going back. And that's many ways part of what we're positioning ourselves to take advantage of.

Okay. One last one for me. Aramark you mentioned six new installs. When are they happening, Jim, and what's kind of the footprint, if you will, how many screens are they looking at?

Well, some of them have already, I mean it's not like they're happening, they have already happened, and we've had some really pretty exciting installs in the healthcare and education. You want to describe a typical one, maybe even include, Scott, one with the kiosk option?

Yes, there's really a couple of things that Aramark is trying to accomplish, and it really depends, the footprint changes between higher education and healthcare, which are the two that we're gaining traction in right now.

As you know, Aramark does a lot of institutional food, and one of the things they want to do with just pure digital signage which isn't kiosk or mini board related is to break-up what they consider the monotony of institutional food environments. You grab your tray, you get in line, you get your food, and it's a monotonous type, you know, atmosphere. And they would like to break-up the monotony by putting in digital signage.

Another thing we're working on is a kiosk with them, where we automate the order process, so when you walk into an institutional food area that may have four different restaurants you can dine at, the kiosk is actually streamlining that process and bringing all four menus together and you can select your food. And then there's the menu board, pure menu board initiative, which is no different than what we're doing in other QSRs.

So really those three things are what we're doing. And healthcare and the food, any one of those three things can be accomplished. We're looking at an elementary school, we're looking at a new hospital coming in, so it really depends, it's sort of ala carte depending on what they want to accomplish at each one of those venues, and it really depends on what their venues want to do.

And we will be presenting with, along with Aramark, out at the Digital Signage Exposition in Las Vegas next week, and Aramark will be actually talking about not only what they're trying to do but the ROI and why they chose Wireless Ronin.

Okay. Thank you.

Thanks, Dick.

Thanks, Dick.

Your next question is from the line of [Rick Dautzel] with [Columbia Management].

Hi, Rick.

I was going to try to drill down a little bit on your answer on the QSRs. I understand that none are meaningful as of now or material, I think you said. But without disclosing names, maybe you can talk about how many you're in discussion with and how many have begun testing just on an unnamed basis?

Well, we've been in discussion with a number, and it's really difficult, the more you drill down on that the more difficult it becomes to not disclose something, which we don't believe at this point we should classify as material and, more importantly, where we haven't talked with current clients. But we are working with different clients on a number of different installations and programs.

Well, what do you -- you didn't give any guidance here, but I assume you're hoping to make progress on the revenue line, and you've already made progress on the expense line. Not a lot of progress was made sequentially from Q3 to Q4 on the burn rate. What can we expect the burn rate to look like in Q1?

Well, I -- if I can, and in all -- with all respect, I would beg to differ with you. We made about a million dollars in the quarter.

No, he's talking burn rate.

Burn rate and cash, because that's what counts here.

The actual burn rate in the third quarter was 4.3, we went to 3.9 in the fourth quarter. You're absolutely right, we didn't, you know, as far as timing differences and some of that, you will see approximately the same ultimate affect on cash flow as you do see in the expenses, it's just more the timing of that. At the end of the year we expected to collect on a few more receivables and so forth, which happened in January. So I mean again that burn rate you will see that impact here coming forward.

Yes.

Well, I, you know --

We're making progress.

-- I asked for a little more detail, so is it half the rate that we saw in Q4? I mean is that a more fair representation?

We've talked about the expenses in that from our peak here in the third quarter to next year that we're going to see probably a $2 million change in expenses, and so that's going to equate in cash, as well. So per quarter.

Okay, so if I take 4.3 and subtract 2, so I get down to 2.3, and figure you collected a couple of extra receivables, 2 probably isn't out of the ballpark?

Right.

Okay. Thank you.

Your next question is from the line of [Paul Adal] with RBC.

Hi, Jim. How are you doing?

Good, Paul.

Welcome to the Firm.

Thank you.

I don't know where to start because a lot of things are going on, but basically what I want to know and my clients want to know is you're new to Wireless Ronin, you had a few months to look through their model, what I'm hearing here again is about this Kentucky deal, which would be great. Bear in mind, we've been hearing about this Kentucky deal for a year, and no one knows, I mean we don't have enough information from you whether this is going to run to full scale or not.

Could you explain what is it that you're going to do as the new CEO to -- you have a Company with just about $14 million in cash, you know, certainly you want to gain scalability, could you kind of outline for us what is it that you could do different from the former management to start to get us -- now, I know we're in a bad economy, so obviously I take that into account, but what can you bring to the table now going forward, so that we don't butt our heads on one big deal and then basically again run in that trap that I think a lot of us did last year?

Well, and again, I don't want to speak or try to defend or even try to comment on comments that had been made previously. I guess I would say if you look at my background and what I've done in my history and my experience, it's really driving shareholder value, and the way you do that is making sure that you first and foremost control expenses, you build an outstanding team, you focus on the things which your Company does best, and then you execute, execute, execute on that, even in a tough economy.

Now, I know that doesn't maybe tell you a specific, but I do believe that we have some good current clients. In this last quarter, not anything that I've done, and even in this last quarter in this tough economy this Company has added new clients, that we've mentioned and talked about, and we continue to add new clients.

So the sales will come. Will they come in the first half of this year? It's going to be pretty tough as this economy slows, continues to slow. That being said, this is a market that we're going to stay viable with for many, many, many years to come. So I'm here to make sure I take the steps to build a Company that's built to last, by focusing on strong operations, strong execution, and by focusing on the core of the business, on the customers which add the most value.

And despite the fact that everybody says, "Jeez, we've heard and heard and heard about KFC." I would remind everybody we've got 78 stores, 34 more on the way in the next couple of months, we are continuing to roll this product out to the KFC. Maybe it's not the splash that everybody had talked about, and I understand it was talked about, but it still continues to be a wonderful, wonderful customer for us, and we have a wonderful working relationship with them and the other partners that are serving them.

Okay. But are you -- I mean is there any other areas you're focusing on at this point, you know, that's away from the QSR? I know you talked about --

Oh, absolutely. One of the areas -- I mean we have listed that we are in three primary areas. Certainly the QSR. I think the other one is the whole area of retail. We haven't talked a whole lot about that, but we continue to find traction with significant customers that are actually buying total solutions from us. And as we get the ability to make announcements around those or talk about them, I'll certainly talk about them, but we are making some nice progress with the retail space that is pretty exciting.

And then, finally, I think once automotive turns around, and it will, our product and our solution is very viable, it makes enormous sense from an ROI perspective in the show room, and we'll continue to take advantage of that.

Scott, is there anything that has been spoken of before, that I make sure I can talk about?

Yes, I think a couple things that get diluted, that need not be. And one is the Aramark relationship and what that means in QSR. Aramark controls 17,000 locations for institutional food, and we are just at the cusp of really getting them exposed to digital signage and what it can bring to their customers. It's a significant, a significant account for us. So when we talked about QSR and making traction with other companies, I want to make sure that Aramark is mentioned.

As we've talked about before, we're not in a position to talk about it right now, but we are actively engaged with other QSRs, and then KFC isn't a standalone entity, KFC is part of the Yum Corporation which has other opportunities for us, as well.

So there is a lot of traction in QSR. Outside of QSR I think that Reuters also gets diluted.

That's true, we don't talk enough about them.

We don't talk enough about our relationship with Thomson Reuters. We continue on a monthly basis to expand or network operation support for them. In addition, other services that we bring to them, and it'll be a significant client in years to come.

Retail, where we've seen most of our traction is with the brands and the brand retailers, and we'll continue to focus on that heavily. I encourage anybody that can to come to the Digital Signage Expo to see exactly what kind of presence we have at that Expo and what kind of presence we have in the digital signage industry.

But, as Jim mentioned, automotive brands and brand retailers in the retail sector and QSR will be our focus, and we will have traction outside of KFC.

Okay. Jim, let me ask something. Clearly, you're the new guy in town here. One of the problems I had was I think execution took a really long time, you know. Turnaround between the request for proposals and getting anything concrete on the table. I mean do you -- can we see better execution this year from you?

I absolutely think so. I actually think that we will do a great job. I think also the thing that you're going to not see and those of you who know me, my feeling is that what we should really be doing here is under promising and over performing. And maybe we got that a little out of balance here at Wireless Ronin in the past, but we're going to focus on being able to come to you with real results, show real progress, real progress on cash burn, real progress on margin, real progress on what we're doing with key accounts, and tell you honestly and openly that we truly are excited about what's ahead for us in the coming years.

All right, Jim. Well, I appreciate what you're doing. We really wish you the best of luck because it's been a rough road so far, and you've got a rougher road now in this economy. So we're really banking on you.

Well, I think, I do, but I think we're taking the steps to not only get through this economy, I -- we all know it's a tough economy, it has impacts across our customers and across ourselves. But what we're doing is position ourselves, because we're in this for the long term.

Well, I hope it all works out. Thank you very much. Good luck.

Thank you.

(OPERATOR INSTRUCTIONS.)

Chanelle, I think we have time for one more question.

There are no further questions at this time.

Thank you. I'd like to thank everyone for his or her participation on today's call. Please remember that today's call has been recorded and will be archived in the Investor Section of our website at www.wirelessronin.com. Also, this call will be available for replay for a period of one month. Again, the dial-in information for domestic and international locations can be found on our website. Thank you, and good-bye.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.