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RNIN > SEC Filings for RNIN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for WIRELESS RONIN TECHNOLOGIES INC

Form 10-Q for WIRELESS RONIN TECHNOLOGIES INC


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words "anticipates," "believes," "expects," "intends," "plans," "estimates" and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth in Item 1A under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.

Overview

We provide marketing technology solutions, which include digital signage, interactive kiosks, mobile messaging, social networking and web development solutions, to customers who use our products and services in certain retail and service markets. Through our proprietary RoninCast®X software, we provide enterprise, web-based and hosted content delivery systems that manage, schedule and deliver digital content over wireless and wired networks. We also provide custom interactive software solutions, content engineering and creative services to our customers.

While our marketing technology solutions have application in a wide variety of industries, we focus on three primary markets: (1) automotive, (2) food service (including quick serve restaurants (QSR), fast casual and managed food services markets), and (3) retail. The industries in which we sell goods and services are not new but their application of marketing technology solutions is relatively new (within the last five years) and these industries have not widely accepted or adopted these types of technologies as part of their marketing strategies. As a result, we remain an early stage company without an established history of profitability, or substantial or steady revenue. We believe this characterization applies to our competitors as well, which are working to promote broader adoption of marketing technology solutions and to develop profitable, substantial and steady sources of revenue.

We believe that the adoption of marketing technology solutions will increase substantially in years to come both in industries on which we currently focus and in other industries. We also believe that adoption of our marketing technology solutions, which includes digital signage, depends not only upon the software and services that we provide but upon the cost of hardware used to process and display content in digital signage systems. Digital media players and flat panel displays constitute a large portion of the expenditure customers make relative to the entire cost of digital signage systems. Costs of these digital media players and flat panel displays have historically decreased and we believe will continue to do so, though we do not manufacture either product and do not substantially affect the overall markets for these products. If prices continue to decline for this hardware, we believe that adoption of digital signage and other marketing technology solutions are likely to increase, though we cannot predict a precise rate at which adoption will occur.

Management focuses on a wide variety of financial measurements to assess our financial health and prospects but principally upon (1) sales, to measure the adoption of our marketing technology solutions by our customers, (2) cost of sales and gross profit, particularly expressed as gross profit percentage, to determine if sales have been made at levels of profit necessary to cover operating expenses on a long-term basis (based upon assumptions regarding adoption), (3) sales of hardware relative to software and services, understanding that hardware typically provides a lower gross profit margin than do software license fees and services, (4) operating expenses so that management can appropriately match those expenses with sales, and (5) current assets, especially cash and cash equivalents used to fund operating losses thus far incurred.


Table of Contents

Our wholly-owned subsidiary, Wireless Ronin Technologies (Canada), Inc. ("RNIN Canada"), an Ontario, Canada provincial corporation located in Windsor, Ontario, maintains a vertical-specific focus in the automotive industry and houses our content engineering operation. RNIN Canada develops digital content and sales support systems to help retailers train their sales staff and educate their customers at the point of sale. Today, the capabilities of this operation are integrated with our historical business to provide content solutions to all of our clients.

Our company and our subsidiary sell products and services primarily throughout North America.

Our Sources of Revenue

We generate revenue through system sales, license fees and separate service fees, including consulting, content development and implementation services, as well as ongoing customer support and maintenance, including product upgrades. We currently market and sell our software and service solutions primarily through our direct sales force, but we also utilize strategic partnerships and business alliances.

Our Expenses

Our expenses are primarily comprised of three categories: sales and marketing, research and development and general and administrative. Sales and marketing expenses include salaries and benefits for our sales associates and commissions paid on sales. This category also includes amounts spent on the hardware and software we use to prospect new customers, including those expenses incurred in trade shows and product demonstrations. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our software products including RoninCast ® and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies was provided in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011. There were no significant changes to these accounting policies during the nine month period ended September 30, 2012.


Table of Contents

Results of Operations

All dollar amounts reported in Item 2 are in thousands, except per share information.

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months
Ended September 30, 2011

The following table sets forth, for the periods indicated, certain unaudited
consolidated statements of operations information:



                                                                                           Three Months Ended
                                          September 30,          % of total           September 30,          % of total          $ Increase          % Increase
                                              2012                 sales                  2011                 sales             (Decrease)          (Decrease)
Sales                                    $         1,769               100.0 %       $         2,301               100.0 %       $      (532 )             (23.1 %)
Cost of sales                                        873                49.3 %                 1,166                50.7 %              (293 )             (25.1 %)

Gross profit (exclusive of
depreciation and amortization shown
separately below)                                    896                50.7 %                 1,135                49.3 %              (239 )             (21.1 %)
Sales and marketing expenses                         339                19.2 %                   431                18.7 %               (92 )             (21.3 %)
Research and development expenses                    462                26.1 %                   555                24.1 %               (93 )             (16.8 %)
General and administrative expenses                1,206                68.2 %                 1,412                61.4 %              (206 )             (14.6 %)
Depreciation and amortization
expense                                               68                 3.8 %                   111                 4.8 %               (43 )             (38.7 %)

Total operating expenses                           2,075               117.3 %                 2,509               109.0 %              (434 )             (17.3 %)

Operating loss                                    (1,179 )             (66.6 %)               (1,374 )             (59.7 %)              195               (14.2 %)
Other income (expenses):
Interest expense                                      (1 )              (0.1 %)                   (6 )              (0.3 %)               (5 )              83.3 %
Interest income                                       -                   -                       -                   -                   -                   -

Total other expense                                   (1 )              (0.1 %)                   (6 )              (0.3 %)                5               (83.3 %)

Net loss                                 $        (1,180 )             (66.7 %)      $        (1,380 )             (60.0 %)      $       200               (14.5 %)


                                                                                           Three Months Ended
                                          September 30,          % of total           September 30,          % of total          $ Increase          % Increase
                                              2012                 sales                  2011                 sales             (Decrease)          (Decrease)
United States                            $         1,687                95.4 %       $         2,144                93.2 %       $      (457 )             (21.3 %)
Canada                                                65                 3.7 %                   145                 6.3 %               (80 )             (55.2 %)
Other International                                   17                 1.0 %                    12                 0.5 %                 5                41.7 %

Total Sales                              $         1,769               100.0 %       $         2,301               100.0 %       $      (532 )             (23.1 %)


Table of Contents
                                                                                           Nine Months Ended
                                         September 30,          % of total           September 30,          % of total           $ Increase          % Increase
                                             2012                 sales                  2011                 sales              (Decrease)          (Decrease)
Sales                                   $         5,099               100.0 %       $         7,752               100.0 %       $     (2,653 )             (34.2 %)
Cost of sales                                     2,309                45.3 %                 4,132                53.3 %             (1,823 )             (44.1 %)

Gross profit (exclusive of
depreciation and amortization shown
separately below)                                 2,790                54.7 %                 3,620                46.7 %               (830 )             (22.9 %)
Sales and marketing expenses                      1,197                23.5 %                 1,708                22.0 %               (511 )             (29.9 %)
Research and development expenses                 1,417                27.8 %                 1,748                22.5 %               (331 )             (18.9 %)
General and administrative expenses               4,162                81.6 %                 4,850                62.6 %               (688 )             (14.2 %)
Depreciation and amortization
expense                                             223                 4.4 %                   377                 4.9 %               (154 )             (40.8 %)

Total operating expenses                          6,999               137.3 %                 8,683               112.0 %             (1,684 )             (19.4 %)

Operating loss                                   (4,209 )             (82.5 %)               (5,063 )             (65.3 %)               854               (16.9 %)
Other income (expenses):
Interest expense                                     (7 )              (0.1 %)                  (24 )              (0.3 %)               (17 )              70.8 %
Interest income                                       1                  -                        3                  -                    (2 )             (66.7 %)

Total other expense                                  (6 )              (0.1 %)                  (21 )              (0.3 %)                15               (71.4 %)

Net loss                                $        (4,215 )             (82.7 %)      $        (5,084 )             (65.6 %)      $        869               (17.1 %)


                                                                                           Nine Months Ended
                                         September 30,          % of total           September 30,          % of total           $ Increase          % Increase
                                             2012                 sales                  2011                 sales              (Decrease)          (Decrease)
United States                           $         4,770                93.5 %       $         7,029                90.7 %       $     (2,259 )             (32.1 %)
Canada                                              287                 5.7 %                   670                 8.6 %               (383 )             (57.2 %)
Other International                                  42                 0.8 %                    53                 0.7 %                (11 )             (20.8 %)

Total Sales                             $         5,099               100.0 %       $         7,752               100.0 %       $     (2,653 )             (34.2 %)

Sales

Our sales during the three months ended September 30, 2012 decreased 23% or $532 to $1,769, compared to the same period in the prior year. The majority of this decrease was attributable to lower orders received for our marketing technology solutions in the food services and retail industries. During the third quarter of 2011, we received an order for approximately $200 from The Mall of America to provide a digital signage solution. In addition, we also received an order for approximately $150 during the third quarter of 2011 from a food service provider for a marketing technology solution we deployed at a store located in Times Square in New York City. Lastly, our overall sales to ARAMARK were also lower when comparing the third quarter of 2012 to the same period in the prior year by approximately $170. This was the result of fewer deployments of our digital menu board solutions within ARAMARK's food service locations. The total number of locations we manage for ARAMARK through our network operations center was 273 as of September 30, 2012.

Chrysler LLC continues to be a significant customer for us and accounted for 30% of our revenue for the third quarter of 2012. We continue to receive orders for supporting Chrysler's iShowroom interactive application, which include content creation services and software development related projects to further enhance the platform. Additionally, we received a purchase order in October 2012 totaling $648 from Chrysler to renew its annual hosting and support services arrangement for the web version of iShowroom for the period of October 1, 2012 to December 31, 2013. We believe this order shows Chrysler's continued commitment to the iShowroom program. Although we have not received any additional iShowroom branded towers orders since the second quarter of 2011, we believe Chrysler will further expand the program with further dealership adoption once the inventory we've already delivered and recognized as revenue is deployed from the purchase made in May 2011. In addition, during the third quarter of 2012, we received a total of 17 individual Fiat dealership orders compared to 26 for the same period in the prior year. Chrysler has required that all Fiat Dealerships adopt the iShowroom interactive application, which is being featured in the Fiat Style Center of 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 the purchase of the iShowroom branded towers remains within the discretion of the individual dealerships, we are unable to predict or forecast the timing or value of any future orders. As of September 30, 2012, we had received purchase orders for 400 dealers from Chrysler for the Branded Tower Salons and 242 Fiat orders from individual dealerships and we had recognized all of such purchases as revenue.


Table of Contents

Our revenue for the nine month period ended September 30, 2012 totaled $5,099 compared to $7,752 for the same period in the prior year, a decrease of $2,653 or 34%. The decrease in revenue when comparing the nine month period ended September 30, 2012 to the same period in 2011 was due primarily to the approximately $1,800 purchase order we received in May 2011 from Chrysler for the iShowroom branded towers representing 400 dealerships. During the nine months ended September 30, 2012, we generated $2,012 from this customer, compared to $3,146 for the same period in the prior year. Additionally, revenue decreased $789 due to fewer orders from individual Fiat dealerships for the interactive kiosks featuring iShowroom when comparing the nine month period ended September 30, 2012 to the same period in the prior. Our revenue from ARAMARK for the nine months ended September 30, 2012 was also lower by $526 when compared to the same period in the prior year with fewer deployments of digital menu boards and interactive ordering kiosks to colleges and universities located throughout the U.S. Partially offsetting these decreases was an increase in revenue generated during the nine month period ended September 30, 2012 with a new customer, Buffalo Wild Wings, for an initial five store deployment of our marketing technology solutions. This particular solution has an emphasis on creating a new guest experience through the interaction of a touchscreen photo booth application, which displays both consumer generated and client branded content. Additionally, the solution uses unique QR codes and email to allow customers to share their photos with their social networks, extending the content beyond the restaurant's locations to further promote its brand. In September 2012, we received new orders from Buffalo Wild Wings totaling $246, which include the development of customer engagement applications and the deployment of our RoninCast software to 50 stores. We anticipate we will recognize the revenue associated with these orders during the fourth quarter of 2012. We believe this implementation validates our capabilities beyond traditional digital menu boards and has the ability to generate additional revenue for us in the future.

We also generated additional revenue related to our recurring hosting revenue, which totaled approximately $1,478 during the nine month period ended September 30, 2012, a 24% increase from $1,191 recognized during the same period in the prior year, as our installation base continues to grow. In September 2012, ARAMARK renewed its annual hosting and support services arrangement totaling, $270, which covers the period from October 1, 2012 to September 30, 2013. Also, as mentioned above Chrysler renewed its annual hosting and maintenance services agreement with us for a total of $648, including support for the web version of iShowroom from October 1, 2012 through December 31, 2013, which is part of our recurring hosting revenue. Due to the current economic environment and the lengthy sales cycle associated with deploying large scale marketing technology solutions, we are not able to predict or forecast our future revenue with any degree of precision at this time.

Cost of Sales

Our cost of sales declined 25% or $293 to $873 for the third quarter of 2012 compared to the same period in the prior year. For the nine months ended September 30, 2012, our cost of sales declined 44% or $1,823 to $2,309 when compared to the nine months ended September 30, 2011. Both decreases were due primarily to the decline in hardware sales to Chrysler and fewer orders received from individual Fiat dealerships for the interactive kiosks featuring iShowroom. On a percentage basis, our overall gross margin improved to 51% for the third quarter of 2012, compared to 49% for the same period in 2011. Our gross margin on a percentage basis for the nine months ended September 30, 2012 was 55% compared to 47% for the same period in the prior year. The year-over-year improvements in our gross margin on a percentage basis for the periods presented were primarily due to a higher percentage of our revenue coming from development and professional service fees related to the sale of our new marketing technology offerings, compared to the higher level of hardware sales in 2011. Also, we continue to see an improvement to our gross margin on a dollar and percentage basis related to our recurring hosting revenue as our installed base continues to grow. Our ability to maintain these levels of gross margin on a percentage basis can be impacted in any given quarter by shifts in our sales
mix. However, we believe that, over the long-term, our gross margin on a percentage basis will continue to increase as our recurring revenue grows.

Operating Expenses

Our operating expenses decreased 17% or $434 to $2,075 for the three months ended September 30, 2012 compared to the same period in the prior year. Total operating costs for the nine months ended September 30, 2012 totaled $6,999 compared to $8,683 for the same period in the prior year.


Table of Contents

Sales and marketing expenses include the salaries, employee benefits, commissions, stock-based compensation expense, travel and overhead costs of our sales and marketing personnel, as well as tradeshow activities and other marketing costs. Total sales and marketing expenses decreased 21% or $92 to $339 for the three months ended September 30, 2012 compared to the same period in the prior year. Total sales and marketing costs for the nine month period ended September 30, 2012 totaled $1,197 compared to $1,708 for the same period in the prior year. The decrease in sales and marketing expense when comparing the third quarter of 2012 to 2011 was primarily due to a decrease in tradeshow expenses. The decrease for the nine months ended September 30, 2012 when compared to the same period in 2011 was due to lower levels of compensation and employee-related expenses of $229 attributable to the lower level of sales and personnel changes made during first quarter of 2012. We also reduced our tradeshow costs and related advertising expenses by $194 during the nine month period ended September 30, 2012 compared to the same period in 2011 as a result of concentrating our marketing dollars on more forums and user groups instead of the larger national tradeshows such as Digital Signage Expo. Lastly, our stock-based compensation expense was lower by $36 when comparing the nine month period ended September 30, 2012, to the same period in 2011. Total stock-based compensation expense included in sales and marketing was $20 and $61 during the third quarter and nine months ended September 30, 2012, compared to $19 and $97 for the same periods in the prior year, respectively. We continue to focus our efforts to maximize the return on investment by attending select industry digital signage tradeshows, as we believe our presence is necessary to attract and retain new customers. We traditionally incur higher levels of tradeshow expenditures in the first quarter of our fiscal year compared to the remaining three quarters. Any significant increase in our sales and marketing expenses for the full year 2012 relative to 2011 would be the result of higher levels of commission expense resulting from an increase in our revenue, as we do not anticipate higher costs associated with tradeshows or marketing initiatives.

Research and development expenses include salaries, employee benefits, stock-based compensation expense, related overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation. Total research and development expenses for the third quarter of 2012 decreased 17% or approximately $93 to $462 when compared to the same period in the prior year. Total research and development expense during the nine month period ended September 30, 2012 totaled $1,417 compared to $1,748 for the same period in the prior year. The decrease when comparing the third quarter of 2012 to the same period in 2011 was primarily related to lower employee compensation costs due to personnel changes made during the first quarter of 2012. Although we experienced lower employee-related expenses for the nine month period ended September 30, 2012 compared to the same period in 2011, the decrease was primarily attributable to a higher level of research and development costs being allocated to cost of goods sold related to billable development work performed for our customers and lower outside consultant expense. We currently believe the level of expenditure in research and development for the fourth quarter of 2012 will be at a similar level to that experienced during the third quarter of 2012. It continues to be critical for our success that we are able to further enhance our RoninCast®X software as the need for a more sophisticated dynamic digital signage platform continues to evolve. Included in research and development expense was stock-based compensation expense of $7 and $46 during the third quarter and nine month period ended September 30, 2012 compared to $12 and $36 for the same periods in the prior year, respectively.

General and administrative expenses include the salaries, employee benefits, stock-based compensation expense and related overhead cost of our finance, information technology, human resources and administrative employees, as well as legal and accounting expenses, consulting and contractor fees and bad debt expense. Total general and administrative expenses decreased 15% or $206 and 14% or $688 for the third quarter and nine months ended September 30, 2012, . . .

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