Creative Realities Inc (CREX) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Wireless Ronin Technologies first-quarter 2012 earnings call. My name is Alicia and I will be your conference operator this afternoon.

Before we begin today's call I would like to remind everyone that this call will be available for replay through June 10, 2012, starting later this evening. A webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website at WirelessRonin.com.

I would now like to turn the conference over to Erin Haugerud, Wireless Ronin's Manager of Communications and Investor Relations. Please go ahead.

Thank you and welcome to Wireless Ronin's first-quarter 2012 earnings call. With me today are Scott Koller, President and CEO, and Darin McAreavey, Senior Vice President and CFO.

Following Scott's opening remarks Darin will review our financial performance for the quarter and turn the call back over to Scott for an operational update. Then we will open up the call to your questions. To access today's webcast, please go to the Investors section of our corporate website at WirelessRonin.com.

Please note that the information presented and discussed today include forward-looking statements 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. Risk and uncertainties that could cause our actual results to differ from those expressed or implied by forward-looking statements, including those set forth in the Risk Factors section of our annual report on Form 10-K we filed on March 21, 2012.

In addition, our comments may contain certain non-GAAP financial measures including non-GAAP operating loss per share. For additional information, including reconciliation from GAAP results to non-GAAP measures, why 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 corporate website.

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

Thank you, Erin. Good afternoon, everyone, and thank you for joining us on today's call to discuss our first-quarter 2012 results.

Our performance in Q1 reflects our continued focus on driving recurring revenue growth, margin expansion, and expense reduction. The first quarter marked the highest quarterly recurring revenue in our company's history and second-highest gross margin quarter driven by higher-margin software, services, and hosting fees.

I will talk more about our operational highlights and business outlook in a few minutes, but now I would like to turn it over to our CFO, Darin McAreavey, to walk you through the financial results for the period. Darin?

Thanks, Scott. Good afternoon, everyone. Revenue in the first quarter of 2012 increased 16% sequentially to $1.8 million from the prior quarter and decreased 26% from the same year-ago period. The year-over-year decrease resulted primarily from lower orders for the iShowroom-branded tower application received from individual Fiat dealerships, partially offset by increased development of content orders from Chrysler. We believe Chrysler will continue to roll out iShowroom-branded tower applications for further dealership adoption.

Additionally, Chrysler has required all Fiat dealership's to adopt the iShowroom interactive application, which is being featured in the Fiat Style Center at the new Fiat studio facilities. However, since we do not have a contract with Chrysler requiring it to source all the various components of these solutions through us and iShowroom-branded tower purchases still remain within the discretion of the individual dealerships, we cannot predict or forecast the timing or value of future iShowroom orders.

To date we have received purchase orders from 400 Chrysler and 200 Fiat dealerships. Chrysler continues to invest in new ways to extend the iShowroom interactive application. Most recently, engaging Wireless Ronin to develop iShowroom Web 2.0 program, which we delivered during the first quarter, a project that we will discuss further in a few moments.

At the end of the first quarter we had recognized a total of $1 million of purchase orders for which revenue will be recognized in future quarters. Recurring revenue in the first quarter of 2012 increased 10% from the previous quarter to a record $466,000, or 26% of total revenue. Recurring revenue increased 18% from the same year-ago period.

Gross profit increased to $949,000, or a record 54% of total revenue, compared to $446,000, or 29% of total revenue, in the previous quarter and $1.1 million, or 46% of total revenue, in the same year-ago period. The sequential and year-over-year improvements in recurring revenue and gross margins on a percentage basis that demonstrate our focus on increasing our higher-margin software and hosting services. It also reflects our continuing shift from a digital signage company to a marketing technology company.

Net loss totaled $1.8 million, or $0.08 per basic and diluted share, compared to a net loss of $1.7 million, or $0.08 per basic and diluted share, in the previous quarter and a net loss of $2.3 million, or $0.12 per basic and diluted share, in the same year-ago period. Our Q1 2012 net loss included $161,000 of non-cash stock compensation expense versus $48,000 in the previous quarter and $345,000 Q1 of 2011.

Our non-GAAP operating loss totaled $1.5 million, or $0.06 per basic and diluted share, compared to a loss of $1.5 million, or $0.07 per basic and diluted share, in the previous quarter. This is an improvement from a non-GAAP operating loss of $1.8 million, or $0.09 per basic and diluted share, in the same year-ago period. We continue to diligently manage our expenses focusing on achieving a breakeven non-GAAP quarter.

Turning to the balance sheet, our net working capital position was $3.6 million at the end of the first quarter of 2012 compared to $5 million at the end of the prior quarter.

This completes my financial summary. For a more detailed and complete analysis of our financial results, I would like to direct everyone to our Form 10-Q which we expect to file by May 15, 2012, and will be available at www.SEC.gov as well as our website.

Now I would like to turn the call back over to Scott to provide an overview of our operational activities and development. Scott?

Thanks, Darin. Our results demonstrate our transition to a marketing technology solutions company and continued strategic shift from hardware-centric offerings to a higher-margin software and services business model. As Darin mentioned, the iShowroom program for Chrysler serves as a prime example of our integrated marketing technologies platform.

iShowroom as evolved to meet the needs of Chrysler and its dealers for more than 10 years, which is why Chrysler continues to invest in the future of this valuable sales tool. Considering the dominant role mobile technologies now play in commerce, Wireless Ronin and Chrysler developed iShowroom 2.0 which includes complete integration with today's most popular mobile devices.

With iShowroom 2.0 sales consultants have full access to vehicle feature presentations, specifications, competitive comparisons, and local dealer inventory on both tablets and smartphones. The platform automatically detects device type and screen resolution as delivers a user experience best suited for the user's device.

While the mobile version of iShowroom is expected to have a significant impact on overall usage, the kiosk version remains a priority for Chrysler and we are seeing increased activity in marketing of the branded tower program. We believe this demonstrates Chrysler's continued commitment to the iShowroom program and we expect to receive additional orders for further enhancements to the platform.

Along these lines, our strategic shifts continue to yield new wins in Q1, spurred by expanding opportunities outside our historical core offerings and verticals. A prime example of this was our deployment with ECOtality, a leader in clean electric transportation and storage technologies. We deployed digital marketing solutions to support ECOtality's media and advertising capabilities for its fleet network of electric vehicle charging stations.

ECOtality selected Wireless Ronin based on our proven experience deploying complex integrated solutions and demonstrated ability to deliver ROI to customers through our digital content platforms. This deployment reflects our ability to offer flexible digital marketing solutions that can easily integrate with existing networks. We believe our experience providing marketing technology solutions in the automotive industry made us the ideal partner for ECOtality, and we look forward to working with them as they expands their Blink network.

We also succeeded in securing and deploying a five-store pilot with Buffalo Wild Wings, a national fast casual dining restaurant chain with more than 800 restaurants in North America. Buffalo Wild Wings selected Wireless Ronin to enhance the award-winning restaurant and bar's neighborhood atmosphere and guest experience focus, based on our proven ability to provide customized restaurant experiences and key in-store promotions.

Our solution created a new experience to guest's interaction with a touchscreen photo cashier application which displays both guest-generated and Buffalo Wild Wings branded content. This solution allows guests to share photos with their social networks via QR codes or e-mail, extending the content beyond the restaurant's location as a way to further promote the Buffalo Wild Wings brand. These photos, social media content, and other third-party information will also be displayed on messaging TVs through the restaurant.

We believe this implementation validates our capabilities beyond traditional digital menu boards.

Our innovative and highly engaging solutions turn regular store environments into powerful consumer experiences that can take a brand to new levels. This deployment is a great example of our marketing technologies capability and provides confirmation that the market is adopting these types of multiplatform digital solutions. We believe our product offerings have uniquely positioned Wireless Ronin to capitalize on our clients' requirement to render content anytime and anywhere from a common platform.

Additionally, these new technologies expand the solutions we provide and represent a significant opportunity to increase our revenue beyond traditional digital signage.

Our sales opportunities and pipeline in the QSR market are expanding. We continue to receive orders from QSR customers as they recognize the ROI from our technologies. We also continue to execute on our pilot work in this important vertical.

In fact, we are currently in four of the top 10 QSRs and, along with our strategic partner, Keyser, we are also seeing increased RFI RFP activity among several other top QSR chains, representing a significant opportunity for our business. We believe we are well-positioned in these pending RFPs. We are also confident that our solutions will create operating efficiencies and promote higher compliance for QSRs under the pending FDA nutritional labeling regulations.

We are set to capitalize on the industry's increasing demand for cutting-edge digital signage and marketing technology.

Also in Q1, we attended four industry events including the National Retail Federation's big show, the KSC convention, the next-generation customer experience, and the Multi-Unit Restaurant Technology Conference. We also participated in the largest event for the restaurant industry, the National Restaurant Association Show earlier this week.

Wireless Ronin is considered a thought leader in the marketing technology space, particularly in the automotive vertical. As an example, our Senior VP of Content Engineering, Alan Buterbaugh, was asked to moderate a panel titled Where the Rubber Meets the Road Maintaining Momentum in the Showroom at the Automotive Customer Centricity Summit in June. The panel will feature representatives from Chrysler Academy, Ford Direct, and Volvo Trucks. They will discuss strategies and tactics for satisfying the in-dealership demands of today's highly informed and typically inpatient customers who are searching for a radically different shopping and ownership experience.

As Darin outlined, our financial results reflect our commitment to controlling costs and achieving profitability. We continuously push to optimize our organization, improve our processes, and reduce expenses. We are focused on balancing revenue growth with operating expenses and client commitments. As the demand of our new marketing technologies continues to accelerate, we believe we are strategically positioned to drive market share expansion and further penetration of our key verticals.

Before we open the call to your questions I would like to express on behalf of the entire leadership team our appreciation for the continued support from our partners, clients, employees, and shareholders.

Now with that we are ready to open the call for your questions. Operator, please provide the appropriate instruction.

(Operator Instructions) Ty Lilja, Feltl and Company.

Thanks for taking my questions. First, just wondering if you could give us an update on where things stand with Thomson Reuters?

Yes, as we have talked about in past conversations on past earnings calls, historically we have been working with the Marketing Communications Group within Thomson Reuters and we are a cost center. Actually part of doing business is they would sign contracts with banks to provide information and data to them is what they sell; they would get the technology as an add-on to that.

We are in the process of transferring from that division to another division where Thomson Reuters is looking to take the product line to financial institutions as actually a profit center. We are in the middle of working on the exact details of what that would look like and that is really the best update I can give you today.

Sure. Also, I was just wondering if you could provide a little more color on the QSR space and those pending RFPs you gave reference to. Is this a handful of specific ones or is it just more general interest?

No, no. It's a handful of specific ones and the shift we have seen and the shift we continue to see it three, four, five years ago when we would go into a pilot in a QSR it was really to take a look at digital and how digital may fit into the environment.

The difference with today's RFPs and RFIs is they are actually saying we are going to do digital; we need to go in and see how we are going to do digital instead of just if it will work in our environment. On the backend of these are, in some cases, definite roll out potential and rollout plans on what they want to do to migrate from static to digital. And the activity has been pretty fierce.

So we have gone in. We have gone in by ourselves, we have gone in with Keyser on several of these, and we feel like we have been well-positioned to capitalize on that.

Sure. At this point do you have any sense of -- I assume they start out with a pilot and a trial. Do you have any sense of what they are looking for in terms of metrics or lift that would really (inaudible) sense of urgency about doing a rollout?

Actually, it hasn't been tied to a lot of metrics in lift. It comes down to operational -- how would it fit in the decor, how would they daypart it, how would the content get done? What assets do they have; what additional assets would they need; how would they daypart? So most of it has been pure operational.

Now what they hope to find is that effective dayparting will create lift because that is the opportunity for it. But it really comes to the standpoint of how would it look in our environment, how would we develop the content, how would we daypart? And then, hopefully, if we do that effectively, we will get the lift we are looking for.

Thanks. I will get back in queue.

Thanks, Ty.

[DeWayne Migg], private investor.

Scott, Darin, how are you? This is more of a comment or a thank you for you guys. I want to thank you guys Scott, Darin, your Board of Directors and Ronin employees for aligning Ronin with such mega billion-dollar companies, such as Aramark, Chrysler, Rembrandt, Keyser, Florida Plastics, Thomson Reuters, and many more.

The press release of Keyser Florida Plastics Ronin partnership to me was a little disappointing in that shareholders didn't get that 50-year relationship with McDonald's. To me, common sense should tell you that Keyser is not going to lose digital signage to another competitor after a 50-year relationship and, get this, Ronin is their digital partner. Keyser knows where all the McDonald's are and can install, service, maintain after a 50-year trusted relationship.

My bottom-line point is this, you know how hard it is to open and get your foot in the door with these billion-dollar companies. In my 40 years of investing I have never seen anything like this opportunity and it's right in front of us. The opportunity is summoned, to the believers the stars are aligning; this is our year. Thanks.

Thank you.

We believe the same, so thank you.

Thank you. We appreciate the kind words.

Jack Frid, Discovery Investments.

Darin and Scott, good afternoon. Just a couple things. Just to follow up, going back to the Thomson Reuters and I just want to put it to bed, [The Daily Dew] had an article out there that you guys may be losing that contract. It sounds, based on what you are saying today, that is just [EF].

I would say I don't read The Daily Dew. I don't put much credibility into it.

Okay. Second question related to that, I know a couple quarters ago you talked about a financial institution that I think you had some pilots going on, about 3,000 branches. Where do we stand on that and how does that work with Thomson Reuters initiative; you are involved with that?

That pilot is through Thomson Reuters. That is really the first step we took from going from a nonprofit center or a marketing communications part of their offering into their Wealth Management Group. So Thomson Reuters is managing that relationship, although we have a direct relationship with that client as well, and it's going well.

I think that as you seem more clarity in how our relationship with Thomson Reuters will look, hopefully we can get more transparency on that in the near future; You will understand how they will be going to market with us. But they are handling that relationship and the relationship is sound.

Okay. Just going back to the auto side, I know you have had Chrysler and Fiat. Can you just go a little bit -- how are we doing with some of these other manufacturers, like GM, or you mentioned Volvo here in the call and Ford. How are we doing with some of these? Maybe you can just give us a little more outlook.

That is a good question, Jack, because obviously we have a lot of experience in automotive and have been quite successful at Chrysler and with the Fiat initiative. We do have activity in automotive with people outside, the manufacturers outside those two brands. However, at this point in time I can't give a lot of transparency to it, but we do have activity. Hopefully, in the near future we are going to be able to let our investors know exactly what that activity is.

Okay. Is it still the infancy -- is it the price of setting up a show room, is that still -- is that part of it?

It's sort of like QSR; there is a lot of moving parts. Dealerships are just like the franchisee network so the dealerships have incentives from the manufacturers to sell cars. They get a lot of the marketing from them; they get co-op dollars. So it really comes down to who is going to pay for the initiative and is the manufacturer going to mandate it in some cases or not mandate it. It really comes down to that.

But as you see the big three getting healthier, as you have watched Chrysler get healthier I think that becomes an easier decision. But it's very much like handling QSR. We have a relationship with corporate and then they have a dealership network and it comes down to the politics of who will be paying for what.

Okay, that is all. Thank you.

Russell Wagner, (inaudible).

In January you guys had an announcement about a marketing platform for Dell support. I think you had like 40 sites using the iPad. I wanted to see what the status was with that deal and what the future might hold with that program.

Yes, that was in retail. We still have a relationship with that client. At this point in time there is nothing to update as far as implementing further technology or growing that. However, we continue to test and work with them on that particular initiative.

It's just it's difficult to talk about because they have not wanted to talk about it publicly, so I can't put a whole lot of transparency on it, but we continue to have a relationship with the client.

Can you give me an example of how that works, in general terms? Is it something that someone uses on a retail category level directly with the customer and they (multiple speakers)?

Absolutely, it's a sales assist tool very similar to iShowroom but in an iPad format. So if you have a complex product line and you want to have details on hand or do comparisons between different models of a certain retail product, the salesman has this tool now in their hand, like any other salesman in any other industry, that they can refer to and walk the client through an experience.

So, yes, you have hit the nail on the head. It's very similar to iShowroom where it should be either self-navigated by the customer itself or through -- navigated with the salesperson.

Right. And it works well with chains and large number retailers where they have common inventory?

Absolutely. The other thing that is important, as you know, most those industries have quite a bit of turnover so training new retail associates or training new salesman and dealer associates is complex and it's time-consuming. If you can get a tool in their hand that helps them and helps them become more effective, it's a pretty powerful tool.

Right. Also, environmentally you are part of paper reduction on a lot of retail services from signage to marketing material and the cost of printing by having these kind of things. Is that one of your strategies?

That is a hard one to go about with lot of our clients. I have heard discussion that digital signage is a green initiative, but then I look at the amount of hardware that is going into the environment and how much electricity we are using. So, yes, it is. It becomes paperless, it becomes -- the more key important factor of it being paperless is the ability to update it dynamically every night with new content and not print out and ship new paper materials.

All right, thank you very much. Cheering you guys on.

Thank you, Russell. Appreciate it.

[Barry Fritz], (inaudible).

Hello, gentlemen. Could you give us an update on what is going on with McDonald's?

Barry, I can't give you an awful lot. What I will tell you is exactly what DeWayne said is that Keyser has a very strong relationship with McDonald's and McDonald's has a high interest and has demonstrated before a high interest in digital.

So you know for every reason we went into a relationship with Keyser and every reason they went into a relationship with us still stands to be very solid, and we believe that we can leverage each of our strengths to take advantage of our joint offering. But I can't give a whole lot of transparency on what McDonald's will be doing digital in the near term.

Have you started any pilots with them at all or do you have still plans on that?

Barry, I am just not in a position to be able to discuss that at this point.

Okay, thank you.

(Operator Instructions) Russell Wagner.

Just curious, you guys expect to turn a profit in the next year?

I will take that one. Our goal has always been to get this company to a non-GAAP breakeven and it's between revenue growth and continued cost optimization that we are going to try to achieve that this year.

I think what is important to note is we continue to optimize our expense structure in Q1. That wasn't reflected in Q1; it will be reflected in Q2.

But we continue to look at ways to optimize this company and make us as efficient as possible, so profitability in the near term is our goal. We need revenue growth, we need to continue to maintain our expenses, and we need to continue to grow our margins.

So you think is a year out of the question?

It's not out of the question; it's certainly our goal.

Okay. And if you could comment on competition and how you guys are faring, I would be interested in that also.

Yes, I will answer it in two different ways. One is I really do believe that the strategy shift we had last year from pure digital signage into marketing technologies; breaking down the silos between Web, social, mobile, digital signage itself has paid dividends for us. It truly is a differentiator and it has gone beyond selling apples to apples to really differentiating Ronin.

At the same time, we are starting to see the same competitors over and over again depending on the vertical. It's different in automotive as it's different to QSR and it's different to retail. However, I would say there are fewer competitors than there were four to five years ago.

It's still a very fragmented market but there are a couple that are stronger than a lot of them. But at the same time, we are starting to see the same ones more frequently depending on the vertical.

Okay, thanks.

Russell, did I answer the question?

Yes. I was curious if you wanted to name any that you were having issues with. Is it Cisco or is it -- who it might be and how you actually specifically stand up against any individual competitors?

Russell, that is a conversation I would love to have with you. However, I don't want to name my competitors and tell where I have problems with them on our earnings call. I would rather have -- and I don't mean to be crass on there. That is a conversation you and I can have in a heartbeat; I just don't want them listening to it and figuring out how we attack and how we approach that.

I certainly understand.

Okay.

Okay.

But I would certainly have that conversation with you.

It sounds like -- thank you.

Thank you, Russell.

There are no further questions at this time. That does conclude the question-and-answer session.

Thank you for joining us today for our presentation. This concludes today's call. You may now disconnect.