Creative Realities Inc (CREX) 2009 Q4 法說會逐字稿

Good day, everyone. Welcome to the Wireless Ronin 2009 fourth quarter earnings conference call. Today's call is being recorded.

At this time, I'd like to turn the call over to Linda Hofflander. Please go ahead.

Thank you and welcome, everyone, to our 2009 fourth quarter and full year conference call. With me today are James C. Granger (Jim), President and Chief Executive Officer; Darin McAreavey, Vice President and Chief Financial Officer; and Scott Koller, Executive Vice President and Chief Operating Officer. After Jim's opening remarks, Darin's detailed financial review and Scott's update on operational aspects of our business, 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 section of the Quarterly Report on Form 10-Q we filed on November 9, 2009.

In addition, our comments may contain certain non-GAAP financial measures including non-GAAP operating loss per share. For additional information including a reconciliation from GAAP results to non-GAAP measures, how the non-GAAP measures provide 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'd like to turn the call over to Jim who will discuss our fourth quarter and full year results. Jim?

Thank you, Linda. Good afternoon, everyone and thanks for joining us on today's call. As we look back over the past year, 2009 was a significant challenge as most of our customers were dealing with very constrained capital budgets during the economic downturn. As an example, according to the National Restaurant Association, capital expenditure for the US restaurant industry continued to drop during 2009. Only 31% of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months of 2009 making this the lowest level on record. As a result, our customers were unwilling to commit capital dollars to large scale digital signage deployments during that time. The lack of customer adoption of digital signage is an industry wide issue and not just specific to Wireless Ronin. We see companies across many vertical markets holding off on committing capital dollars to equipment, expansion or remodeling, and this affects our entire industry. While there are signs that the economic slide may have reached a bottom, it is uncertain when we will start to feel the effects of the potential turnaround. We are certain, however, that we are prepared as a Company for the eventual turnaround. There is real growth potential for Wireless Ronin as well as the digital signage industry and we believe we are well positioned for this growth.

We used 2009 to work on elements within the Company which we feel we could control because of poor economic climate and its effects on WRT were, in many respects, out of our control. We knew we had to focus on operational execution to position ourselves for 2010 and beyond. And so in 2009 we laid the ground work by significantly reducing our operating costs and quarterly cash burn which we cut in half from 2008 to 2009. We engaged new clients and expanded our customer base. We shifted our sales strategy to concentrate on selling higher margin offerings to improve our gross margin percentage, which in fact rose from 12% in the fourth quarter of 2008 to over 37% in the fourth quarter of 2009. We greatly increased our recurring revenue base which actually grew five-fold from January to December of 2009. And most importantly, we strengthened our balance sheet by raising $6.9 million of cash in a registered direct stock offering. And now in March we secured the availability of a $2.5 million line of credit with Silicon Valley Bank, giving us $12.7 million of cash and zero debt at the end of 2009. So hopefully this gives you a sense for the steps that we have taken to position our Company for growth when capital spending picks up again. With these improvements, we feel we have built an even stronger foundation. We have executed against our strategy to create a more efficient operating platform and have set the stage for the future.

With that, I would now like to turn the call over to Darin for a closer look at our fourth quarter and full year 2009 results. Darin?

Thanks, Jim, and good afternoon. Today, we announced that our fourth quarter revenue totaled approximately $1.5 million compared to $1.9 million for the same quarter in the prior year. As of December 31, 2009, we received purchase orders totaling approximately $1.1 million for which we have not recognized revenue, including one from Chrysler I'll discuss in further detail. Although our revenues in the fourth quarter of 2009 declined 19% when compared to the same period in the prior year, sales of our proprietary RoninCast software were actually up 47%. During the fourth quarter we received and recognized revenue on a purchase order totaling $443,000 from a major foodservice provider, of which $114,000 was for our RoninCast software. In addition we received a purchase order from Chrysler for approximately $500,000 related to further enhancements for the iShowroom web-based system which was launched to all of the dealers in the fourth quarter of 2009. We expect to recognize the revenue on these enhancements as they are delivered over the first half of 2010.

As we finish up 2009, we were encouraged to see early signs from our customers that they may move forward in deploying mission critical digital signage solutions later in 2010. However, due to the lengthy sales cycle and the unpredictability around timing of when our customers and prospects will move to a large scale rollout, we are still not in a position to accurately forecast when we expect to see a significant increase in our revenues. Revenues for 2009 totaled $5 million compared to $7.4 million in the prior year period. The primary reason for the year-over-year decline was due to certain customers choosing to directly source displays and media players and lower revenue generated with Chrysler and BBDO Detroit, an advertising agent for Chrysler. Although our revenue declined year-over-year, our gross margin dollars were up significantly when compared to the prior year going from $800,000 to $1.4 million. Also our gross margins on a percentage basis expanded from 12% in the fourth quarter of 2008 to 37% in the fourth quarter of 2009. This was the result of us continuing to focus on the higher margin sales which include our RoninCast proprietary software and our value-added services of software development, customer content creation, and our 24 x7 network hosting.

On a GAAP basis, our fourth quarter 2009 net loss totaled $2.2 million or $0.13 per basic and diluted share compared to a net loss of $6.9 million or $0.47 per basic and diluted share for the same period a year ago, and down from our net loss of $2.5 million or $0.17 per basic and diluted share in the third quarter of 2009. The decrease in our net loss from the year ago quarter was primarily attributable to the reduction in employee compensation and related expenditures that resulted from the workforce reduction initiatives taken during the fourth quarter of 2008 and other general cost cutting initiatives primarily implemented during the first half of 2009. In addition, during the fourth quarter of 2008, we recorded impairment charges totaling $3 million related to network equipment held for sale and also the intangible assets acquired in the McGill acquisition. Including the $3 million impairment charges, our operating costs have come down $10.4 million or 47% when comparing the full year of 2009 to 2008. Our operating costs include maintaining a highly skilled product development team who are continuously focused on enhancing our RoninCast software and also the costs associated with providing a fully supported 24 x7 network operations center. Finally, we are also faced with the costs associated of being a public company.

Excluding one-time expenses and non-cash charges, the fourth quarter 2009 non-GAAP operating loss totaled $1.7 million or $0.10 per basic and diluted share versus a non-GAAP operating loss of $2.8 million or $0.19 per basic and diluted share in the fourth quarter of 2008. This represents a 40% improvement to our non-GAAP loss and leads us to believe that as our margin dollars expand we should be able to continue to make incremental gains in further reducing our operating losses as we've proven the business has the ability to scale. Sequentially our non-GAAP operating loss improved approximately $400,000 or $0.04 per basic and diluted share. Our non-GAAP operating loss for 2009 totaled $8.3 million or $0.54 per basic and diluted share versus a non-GAAP operating loss of $14.6 million or $1 per basic and diluted share for the same period in the prior year. Gross margin for the fourth quarter 2009 was approximately 37% as compared to 12% in the year ago period and up from 34% in the third quarter of 2009. The improvement on a sequential basis was due to a larger percent of our revenues coming from our sales of our RoninCast software, favorable hardware margins and achieving our first profitable quarter for our NOC.

Our recurring revenue has increased five-fold from January to December of 2009, and as we enter into 2010, our recurring revenue is currently on an annual run rate of $1.2 million and growing. We believe we'll be able to expand our hosting gross margin as the base continues to grow in 2010. The fourth quarter of 2009 now represents the sixth consecutive quarter of improving gross margins on a percentage basis. Our focus will continue to be on expanding our overall gross margin in 2010 as we continue to place a greater emphasis on our higher margin offerings.

Total operating cost for the fourth quarter of 2009 were $2.7 million down from $7.2 million in the fourth quarter of 2008 and down approximately $100,000 from the previous quarter. For 2009, our total operating costs were $11.7 million compared to $22.1 million for the prior year. The decreases were again due to reduction in both employee compensation and related expenses from the workforce reductions taken in the fourth quarter of 2008 and other cost reductions implemented primarily during the first half of 2009. In addition, during 2008 we recorded impairment charges totaling $3 million, as previously mentioned. Included in 2009 and 2008 were severance charges of approximately $400,000 and $1 million, respectively. The remaining severance liability as of December 31, 2009 was less than $50,000.

Included in today's earnings release and financial results is a reconciliation between the GAAP and non-GAAP operating loss. This highlights one way in which we look at profitability and cash utilization for the Company. It is similar to EBITDA but adjusted for certain other one-time and non-cash items. This supplementary schedule details the items and effects on non-cash and one-time adjustments and shows the trend in reduced costs and improvements in our non-GAAP operating loss for the quarter.

Turning to the Balance Sheet. At the end of the fourth quarter 2009, cash and cash equivalents in combination with restricted cash totaled approximately $12.7 million compared to $7.5 million at the end of September 2009 and $14 million at the end of 2008. During the fourth quarter we completed the sale of 2.6 million shares of our common stock at $2.90 per share pursuant to a registration statement on Form S-3 which was declared effective by the SEC in September of 2009. We obtained approximately $6.9 million in net proceeds as a result of this registered direct offering. Also in March of this year we entered into a loan and security agreement with Silicon Valley Bank to make available a line of credit up to $2.5 million. All else remaining equal, we believe our year-end cash balance and access to capital is sufficient to support our operations well into 2011. Excluding the net proceeds from the capital raise, our cash burn for the fourth quarter was $1.8 million which was down sequentially from $2.3 million for the third quarter of 2009 and down from $3.9 million when compared to the same period in the prior year. We believe our ability to further improve our quarterly cash burn will largely depend on achieving higher sales and gross margins in 2010.

Finally, I'd like to summarize our financial results for the quarter and the year as follows. We saw our sixth consecutive quarter of gross margin percentage improvement. We achieved significant growth in our recurring revenue base. We continued to reduce our operating cost and made our operating model more efficient. We saw an improvement in our non-GAAP operating loss in the second half of the year. We made significant improvements on our cash burn. And we ended the year with sufficient capital base to fund our Company into the future.

Now I'd like to turn the call over to Scott Koller before we open the call to your questions.

Thanks, Darin. As previously mentioned, 2009 proved to be a difficult year for our industry. We believe the slowdown in 2009 is not indicative for the long term growth potential yet to be realized in digital science industry and at Wireless Ronin. In addition we hope that 2010 may bring an increase in digital signage adoption rate specifically in our key verticals of foodservice, automotive and branded retail. So let me update you on some of the developments in our key vertical markets.

The activity in the foodservice industry continues to grow. Several large QSR and fast casual companies are in advanced stages of testing digital signage in a variety of different formats including menu boards, promotions and entertainment. Our relationship at KFC continues to be very strong. Currently there are 156 KFC restaurants installed with digital menu boards and promotion. In addition we currently have line of sight to over 40 new store installations. Earlier this year we attended the KFC franchise show and continue to see a strong response from the franchisee community. KFC has indicated that their initiative would be to have all corporate stores, approximately 800 locations, convert to digital in conjunction with their committment to have calorie information displays in all corporate stores by January 2011. We're hopeful we'll continue to see a steady stream of sales from KFC, and that the corporate store rollout is solidified.

Our hard work at KFC is starting to pay additional dividends at YUM. With our partner NEC we have installed our first ten locations with Taco Bell. These locations are Taco Bell/KFC combo stores and this earmarks our first work directly with Taco Bell and we are clearly excited to grow this relationship.

We continue to be active with other QSR beyond KFC and Taco Bell. And although we are not at liberty to talk about our test initiatives with other QSR clients, we can say that Wireless Ronin has been able to successfully navigate through several large RFPs and we are currently engaged in tests with several different restaurant chains. We believe this hard work we have put in during 2009 will yield positive results sometime in 2010.

Our work with the foodservice industry is also highlighted by our relationship with ARAMARK. ARAMARK's digital signage initiatives continue to gain momentum. We currently have 23 locations installed with an additional three locations being installed within the next few weeks. Our efforts this year with ARAMARK was recently recognized with both an apex and content award at this year's 2010 digital signage expo. Wireless Ronin and ARAMARK received a silver apex award in hospitality category for the overall network powered by the RoninCast digital signage software. And the new ARAMARK campus dining brand, Burger Studio, was recognized for best product content for its use of innovative and compelling interactive media created for its ordering kiosk which allows customers to build your own burger. It's rewarding for our team to see that our continued innovation and hard work are recognized by the industry at this key event.

As you know, 2009 was a very difficult year for the automotive industry which in turn directly affected WRT. But we believe that as the automotive industry recovers the digital signage industry will advance too. With overall vehicle sales in North America on the rise in 2010, there's early indication that digital signage activity in automotive is also starting to gain momentum. Our attendance at the National Automotive Dealer conference in January confirmed that manufacturers and dealers are ready to start thinking strategically again about new ways to enhance their market share and reduce overall operating expenditures through advanced technologies.

Our activity with Chrysler, in particular, is a good example. As previously mentioned, our work with Chrysler took a significant hit in 2009. In November of 2009 Chrysler officially launched iShowroom to its newly restructured dealer body. The content in iShowroom integrates with multiple Chrysler data services to provide realtime features and benefits and presentations which allows customers to identify their preferences by compiling a personalized wish list, and presents vehicles in dealer inventory that best match those customer preferences. The content engineering to support iShowroom is completely funded by Chrysler through monthly recurring fees. For dealers wishing to place iShowroom kiosks in their facilities, the hardware and installation are available starting in 2010 through a purchase or lease program. A real differentiator by selecting Wireless Ronin for this program lies with the RoninCast for automotive digital signage platform and ability for all digital signage content to be multiple purpose through a browser based desktop application. Chrysler makes available this desktop version for iShowroom at no charge to all 2,300 US dealers which serves as an ongoing promotion to dealers of all digital signage options. Since the launch of iShowroom in November, many stakeholders at Chrysler have identified opportunities to expand the scope of this program to further extend its reach into the mission critical retail sales process.

Outside of iShowroom and our interactive initiatives in automotive we have begun to see some serious interest for digital signage applications in the service area. From our QSR menu board program dealers are finding a need to have realtime service information available for their customers. We are optimistic that this interest, as well as the continued interest in interactive applications will help fuel our growth in the automotive sector. Chrysler and Wireless Ronin continue to work together to maximize the iShowroom footprint with the Chrysler dealer network. This case study demonstrates the power of RoninCast for automotive to the rest of the automotive industry which we continue to see interest in the form of market tests and pilots.

I also wanted to take a moment to update you on the work on Thomson Reuters. Thomson Reuters continues to be a highly valued client of Wireless Ronin. We have over 280 Infopoint locations installed in 42 countries and 14 additional locations which we install in the next two to four weeks. We are in our third year of the Infopoint project and although we continue to see a steady stream of new locations in 2009 we hope to see this activity ramp up during 2010.

We believe that the Wireless Ronin sales and marketing initiatives will continue to position our Company for growth in 2010. As mentioned in my opening comments, although 2009 was slow for the industry, we successfully navigated through several large RFPs and significantly improved our competitive position within the industry. With a cooperative economy which has the potential to improve capital spending, we hope to see digital signage adoption and large scale rollouts regain momentum in 2010.

Although a lot of our discussions revolve around our sales and marketing activity, I want to take some time to update you on the operational side of our business. It is important to position ourselves to take advantage of a better economy not only from a sales perspective but also from an operational standpoint which we heavily focused on during 2009. Our network operations center, or NOC, and our technical services group continue to be the backbone of our organization. With 24/7 and 365 operation, our NOC proactively supports and provides our clients with immediate response to address any current and/or potential issues with their digital signage network. Our hosting services resulted in a network up time rate exceeding 98% in 2009. Our Footprints tracking system helps record and measure important key performance indicators, or KPIs, that help us fuel our continuous improvement program. Two examples of KPIs are first call response rates and network up time.

Our project management group is responsible not only for getting our clients hardware and software installed. They also work very hard on assuring our projects are profitable. In the fourth quarter 2009 our estimated versus actual gross margin on installation was off less than 1%. As Darin indicated, the result is our sixth consecutive quarter of gross profit margin improvement. This improvement is a result of cohesive sales and project management team working together to insure that our clients expectations are met and our profit margin targets are realized.

Content engineering continues to be a strong differentiator for Wireless Ronin and is the solid platform for demonstrating relevance and a true return on investment for our clients . The majority of our clients rely heavily on the design and development skills of our content engineering group to manage everything from screen design to asset creation to complex data integration. During 2009 this highly scalable organization has further refined its skill and techniques to insure both client content and internal development content is effective, efficient and meeting our clients' business objectives. Each of our support groups and operations including our NOC, technical services group, project management and content engineering are working on programs that will allow our Company to scale our resources efficiently and cost effectively when our sales activity grows.

In closing, it's important to recap the significance of our teems working together. There is no doubt that growing both our projects and our recurring revenue streams with rollouts and new client adoption is the most critical task that faces Wireless Ronin. Insuring that we have the capability in our support groups to effectively meet clients' expectations cannot be overlooked. We feel that we put in place a support organization that is efficient and can be effectively scaled when required.

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

(Operator Instructions). Our first question will come from Jim Goss with Barrington Research.

Thank you. Got a couple. Maybe for a starting point for a broader bird's eye view, do you have an internal target as to a breakeven point as to the point that your GAAP financials would hit the zero mark?

Yes, Jim, this is Darin. I can respond to that. We've done some internal modeling. Obviously it comes down to mix for us with our cases that we're sourcing display and media players directly but we've come up with about a $5 million to $5.5 million breakeven point. It's a quarterly number.

And the time frame over which you hit that point is what?

Our internal plan is that we would hit that some time in 2010.

Okay. You made a comment that with KFC, the intent right now is that the 800 corporate store base would have the digital signage, your digital signage project rolled out by January 2011. And I'm wondering if you could characterize that rollout, how that would take place pace wise. And then also talk about the other issue you raised which is last year was a very tough year to get franchisees to open up their wallets when they're beleaguered in all fronts. Since we are seeing at least some signs of a turn, at what point do you expect there might be some greater inclination for the franchisees to try to participate?

Let me direct that question to Scott. As you may be able to tell from the voices, Scott Koller is out of the building today and taking this call remotely but let me have Scott go ahead and respond to that question for you, Jim.

Thanks for the question, Jim. The KFC franchise show, marketing and KFC corporate were in the booth telling the story to the franchisees, that they're going to hold true as of today, they're holding true to their corporate initiative to have calorie information on all corporate stores by the end of the year. This is a very difficult task without digital for Kentucky Fried Chicken, particularly. So the word in the booth was that our plan is to have the 800 stores installed and we would like to see as many franchisees participate in that as possible. With that said, we still don't have any really line of sight to when that would start and when that would end. We were very encouraged when recent information came out this week about Panera Bread committing to calorie information, that YUM responded that they were still holding true to their committment to have calorie information on those menu boards by the end of the year. So although we don't have a line of sight on when that would start and when it would stop, it's not a significant rollout of 800 stores as far as the task itself, it could be done in a rather rapid time and it really depends on when KFC wants to start that. So the 40 stores I mentioned are two more markets that will be done in a pretty quick time frame coming up and then we would have to wait and see if and when the plans for the corporate rollout are solidified.

Scott, could I interrupt just so that Jim gets the full color on this. As they have been rolling out the corporates, they have been actually rolling out city by city. As many people know, we've already done one city this year. We have two more cities that we've got line of sight to. In those cities, we are rolling out to both corporate and franchise locations, just so you understand. The 800 is the corporate stores which they say that they are committed to by the end of the year. But as they rollout city by city, it includes both corporate and franchise stores. That's a little clarification that I think is important.

That's an important one because it's probably about an 80/20 mix franchise versus Company owned isn't it?

Exactly.

And is the out of pocket for the franchisee now fairly low given the nature of technology driving down screen costs so that it's not quite the burden and they don't have other things on their plates quite as much?

I would say it's not quite the burden. It's still an expenditure to put that in but I think that the team at KFC has put together a very significant story that really makes sense over a five year time frame. So I think there's a lot of compelling reasons for digital menu boards. And you are correct, the continued decrease of the hardware expenditure has helped that ROI story.

Okay, thanks, Scott and Jim.

And we'll take our next question from Jay Meier from Feltl & Company.

Thanks, I have a series of questions. Just broadly, it seems to me that your visibility has actually deteriorated since your last quarterly update. Is that a fair characterization? We are talking about 22,000 stores you were bidding and screens, et cetera. You're not giving those characterizations today. Is it fair to say that your visibility has actually eroded since then?

No, I'd actually say that counts up, so no, I don't think that it's eroded. We're obviously involved in multi very large RFP, RFI opportunities around predictability, in terms of if and when we're going to win them, and when the timing around when a large scale would commence. It's almost impossible for us to predict, Jay. You've been following the story and this should not be anything new to you. So I don't think anything, the business has changed from last quarter.

And I think the important thing is in fact you're right. The number of stores or opportunities that are out there that we are working with in either pilot or proposal or test phase is actually increased over that 22,000.

Okay. And have you bid on any or participated in the RFP process? You've continued to say, "successfully navigated through RFP processes." I'd like to know what that means, and specifically have you lost any RFP awards? Did competitors win--

Jay, on any specific case, we are obviously under non-disclosure and I cannot comment directly on a specific case, either a win or a loss, until I have authorization and/or I'm no longer under a non-disclosure. So I can't speak to any specific cases and wouldn't. I can just tell you that we have successfully navigated, as Scott has mentioned, a number of very important and key opportunities and we continue to be engaged with those key opportunities going forward.

Okay, so let me take a crack at that from another direction. You've successfully navigated a number of very large RFP opportunities and you remain engaged on those large opportunities. Are there any large opportunities that you are no longer engaged in?

Again, I cannot speak to any specific case and would not. I can tell you that these are continuing opportunities. They have a myriad of contingencies. But we obviously are under very strict non-disclosure, number one. And number two, if there was a material event, you would be the first to hear about it.

Okay. Well, then let's hopefully get to something that you can talk about. Why don't you give us an update on NEC and VUKUNET.

As far as NEC and VUKUNET, they have successfully, as we understand, deployed a beta of that operation. It's highly dependent upon advertisers. We have no more specific line of sight but I would tell you we have a very wonderful relationship with NEC that continues across a whole myriad of operations.

Okay, and if I understand it correctly, you have direct visibility today of $1.2 million in annualized recurring revenue from the NOC.

Correct.

And today $1.1 million in purchase orders that remain to be filled.

At the end of December 31, 2009, we had $1.1 million of POs in hand we had not taken revenue on. And yes, we exited the year on a $1.2 million annual run rate in our NOC.

Okay. And have those levels materially changed since that time? Can you comment at all about trends since the end of December since we're at the end of March?

We'll be releasing, we're coming up on the end of the quarter and then we'll be releasing that information in May, so I can't comment on the first quarter results at this point, Jay.

Okay. And one last question. You've talked about the $2.5 million line of credit. Did you draw on that line of credit at all?

No, we just set it in place. Really we set it in place so that it wouldn't penalize us if we didn't draw down on it but we wanted to get it in place so when we do land one of these large scale rollouts, and there's going to be a situation where we would have to go out and procure the hardware, that we'd have a banker sitting on our back here to financially finance this for us.

We think that's a real advantage because as we found, even at the end of last year, some of the continuing business that we're doing, even though we focused on the higher margin software and services, there still are opportunities that we're working on that have large scale purchases of hardware. And having that in place we think is really prudent because it allows us not to have to drawdown on our cash.

Okay, thank you.

We'll take our next question from Arthur Friedman with Friedman Asset Management.

Yes, hi. Excuse my voice here, I'm a little hoarse. I have several questions also. The first one, I want to go back to the McGill acquisition. My questions really are about getting some clarity on a number of issues that the other people were also trying to inquire on. The first one is McGill. When the Company first acquired McGill, they were very very excited about it. So could you give us some color as to exactly why there was an impairment? What exactly was impaired?

This is Darin, I'll respond to that. Back in the fourth quarter -- this pre-dates me -- but my understanding was that they had to go through the process of looking at the future expected cash flows to be generated from that entity. And based on that analysis they couldn't support the carrying basis of that intangible asset that they had put on their books at the time of the acquisition so at that point it's really an accounting exercise to write-off that intangible asset, unfortunately.

So it's not a cash charge per se?

Non-cash charge.

Okay, okay. So that clarifies that. Now, the second thing is in regards to the KFC, and we're talking about the 800 stores going digital, are they going digital with you? In other words, do you have an actual contract yet? I've never understood that because for a long time your predecessor talked about the pilots come and the pilots come and then you have the pilot but I've never understood if you have the contract.

We certainly have, quote, a contract between ourselves and KFC. The contract allows them to drawdown on and order specific cities. Is KFC doing anything with anybody else? The answer is absolutely not and in fact last quarter, if you were on the call, we announced the large order that they gave us for the development of a very sophisticated web portal which allows for control by all parties, the franchisees, the store manager and the owner of the brand, KFC themselves, to operate. And that was an order for almost $300,000 for the development of a web portal which will allow them to manage all 5,400 stores eventually. So the answer to your question is that we are successfully deploying at this point. We just haven't had a recent purchase order for -- well, we've had recent purchase orders for a number of stores, we did, like I said, a city already this year and we have line of sight to two more cities here. And that's the way they are rolling it out. So we do have a contract, yes, and we are rolling out against that contract.

Okay, because I think what confuses me and I think other people that I've met before on this call, and I apologize, I wasn't on the last quarter's call, I had a scheduling conflict, but I'm still puzzled by, with all these great clients, Chrysler, KFC, Reuters and several others, when it comes down to it, the revenue for the quarter is still $1.5 million, or $1.537 million. So it's not a lot of revenue coming in still. I guess it's a concern. How does that get to $5.5 million for breakeven?

Obviously it is still -- that's what I tried to address in my conversation here. The capital constraints, and again, the capital constraint of last year was enormous. Nobody, as I mentioned, it was the lowest level of capital expenditure for the restaurant industry on record and there has to be a freeing up of capital resources for them to make these investments. What we've tried to do is make sure that we've sized the Company. We believe that we have sized the Company and continue to size the Company to make sure that we can be profitable as we move forward, but these large rollouts need to take place. They eventually will take place. We just have to be here and be strong. And the most important thing, and I think it's really worth mentioning, we have to be in a position where we are, as we were with KFC a couple years ago and as we are with others, where we are the preferred vendor because we provide. We start out with pilots, we start out with trials, and then we win RFPs, and the rollouts come and then hopefully they come with us. But to say that we are all expecting this industry to move forward, it's not just Wireless Ronin, it's the entire industry.

Right. What about, you had the success with the sports arena. Is there any possibility of cloning that effort into the other teams?

Yes, absolutely. We are, in fact, bidding a number of significant. And by the way, with the arena, I want to make sure everybody understands, that arena was menu boards and it was serving the Levy Brothers Restaurants that are managing that. There are a number of other opportunities like that and we are engaged in a number of RFPs in that same space.

Okay. Good luck. We're still rooting for you. I just wanted to make sure I understood the situation.

Yes, and I think the KFC one is a great one. It's by staying engaged, by providing quality support, quality service, quality software. Again it's not like KFC is saying, "Gee, am I trying this?" And I think it's really, I expected somebody to say, Hey, congratulations," because we've moved beyond KFC within YUM brands into the Taco Bell. Which has, Scott, how many total Taco Bell restaurants are there out there?

Off the top of my head, well above -- probably equal to KFC. I don't have the exact number, but within 20% plus or minus of KFC.

Thank you very much. I wanted to make one last comment. My understanding from about a year ago, because I used to be on all these calls with your Company, but the NOC, after that last upgrade, you're pretty much set with the NOC, right? It's state-of-the-art facility and it can handle any upgrade in traffic, correct?

Absolutely. And again, I think, while we would like to see the revenues higher, I don't know whether it's sunk in for everybody, but we increased recurring revenues during last year five-fold. And as Darin reported in his report, the NOC is profitable at this revenue level and it's growing. But we increased the revenues in the Network Operations Center, recurring revenue five-fold in one year. So the model scales. We've shown that the model has gross margins that make it very successful. And what we need to do is stay strong and win and continue to be there as this industry develops.

Okay, thank you very much, I'll let some other people ask some questions here.

(Operator Instructions). We'll hear next from Jeffrey Robinson.

My question had to do with the NEC relationship which wasn't addressed in your primary presentation but apparently has been discussed now, so thank you.

We'll take a follow-up from Jay Meier with Feltl & Company.

Great. Thanks. Regarding the Taco Bell movement, is there a solicitation RFP associated with that or is that just a clean move from KFC for you with no one else bugging you?

Your second characterization, I don't know if I would use those exact words but sounds good. But Scott would you want to add anything?

Absolutely, Jay. It was a migration of Taco Bell watching our activity at KFC, approaching NEC and ourselves and saying we would like to go down this path, and they did not go through a process, an RFP or an RFI process. We were just simply chosen based on our history and success with KFC.

And that is with corporate and not franchises?

Yes, sir.

Do you anticipate an RFP in the future from Taco Bell?

We haven't been given line of sight to an RFP. We hope these are installed. They continue to run well and that we can circumvent that system, but we understand, as well, if the client needs to go through that based on the significance of the order, we understand. It would not surprise us if they went through that but at this point in time we've been given no line of sight to them going down that process.

Okay, that's fine and hope it stays that way. Darin, you made some comments earlier about the breakeven level $20 million to $22 million in annualized revenue or $5 million to $5.5 million quarterly. And you also, I believe, said that your internal plans anticipate hitting that run rate some time in 2010. Can you confirm that?

Yes.

Do you anticipate more than one quarter at $5 million plus?

Putting me on the spot, Jay.

Yes, I am putting you on the spot.

We haven't been giving that kind of detailed guidance. That's our internal plan and certainly with a significant rollout, that could happen in one quarter and then drop back for a quarter and then go back to another one in the following quarter. And so as the industry grows, we would feel like we could respond to it. But our internal plan and what we have focused on is having that happen during this year.

Okay, thanks.

We'll go ahead and take another follow-up from Jim Goss with Barrington Research.

Thanks. As I look at the revenue mix between hardware, software and services and other, and I know, Jim, you were just talking about the recurring revenue, but there was a little bit bigger skew toward hardware than I was expecting. Could you talk about that?

We received the one order I highlighted in my comments, Jim, from that major foodservice provider, where it was just a significant hardware component, but overall, it was a very favorable margin deal for us. You can see our hardware margins were pretty favorable and that was really driven by that large deal we received in the fourth quarter.

Okay, and you probably did not mean to imply this but if, to the extent there was an 80/20 mix of franchise versus Company owned stores in KFC and other fast food chains, if you're doing a city by city rollout and you're expecting to get the 800 Company owned stores online by early next year, that would imply 4,000 scores in total if all of the franchise stores came along. You didn't really mean to suggest that that would take place, did you?

No, I did not mean to make that suggestion but I can tell you that KFC likes to see it go city by city. All they can, of course, speak to directly is their corporate stores.

And when you go through that process, and just following one of the fast food chains in the past, I know there's certain things corporate can tell the franchisees to do and certain things they can't. And I'm just wondering how much say the headquarters has over the franchisees in this regard. How does that relationship tend to work now that you've had a lot of experience with this particular one?

Scott, do you want to talk about it because they've been very successful with the city by city approach.

Jim, it really depends on the restaurant chain you're dealing with. Some restaurant chains absolutely have much more authority over what the franchises do or not do. I can tell you the supporting two systems, rolling out digital signage with corporate and maintaining the digital signage program with the web portal, and then maintaining a program among franchisees isn't an advantageous position for our clients. So ideally they would like to see it mandated which is a process they go through to get it mandated to go out. An example of that would be grilled chicken with KFC. They really really had a desire to have grilled chicken items in each of those restaurants. They had committed to corporate and then they put together financing packages which made sense for the franchisees to make that a mandate. So it really depends by restaurant chain and it really depends on where it stands in its list and where it stands in priority. I will tell you that calorie information is a major priority for each of these restaurant chains and a very complicated task to do without digital so I would think it would rank high on the priority list. So depending on the restaurant chain there is either a lot of influence on what they do in the franchisee or there's less, but I will tell you that it is really a burden on the Company to maintain a print and a digital signage program simultaneously so if they continue to roll out corporate I believe their goal would be to get the franchisees to participate.

Was grilled chick a bit of your undoing last year, in effect, in KFC?

I don't want to say it was our undoing because it was successful for my client. They had to set a priority for getting a new food product out there. It was a very big priority for them and we supported that. But yes, dollars were spent in one area and not another. I think I'll leave it at that.

And just a couple of other things. The $1 million plus with Chrysler is expected to flow through your financials this year I assume? And over what period?

Yes, right now, the plan, we carried over a $500,000 contract in 2009 although we've continued to receive orders in 2010. But specific to that $500,000 contract we received, our plans are to deliver and recognize the revenue in the first half of 2010 as those services are delivered.

Okay, and the last thing you provided a four quarter restatement for '09 with revenues and earnings in your supplementary data. And the one modification seemed to be third quarter revenues were notched down by a couple hundred thousand plus and I think a little bit on the net loss, as well. What was that related to?

I'd have to look at that. We have an adjusted, so I'd have to look at that, Jim. I don't know if you had final numbers or not but I'll go back and look at that.

We can handle it off line then.

Okay.

Okay thanks.

(Operator Instructions). It appears there are no further questions at this time. I'd like to turn the call back over to today's speakers for any additional or closing remarks.

Great. Thank you, Anthony. 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. Again the dial in information from domestic and international locations can be found on our website. Thank you and goodbye.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation.