Business context and reporting period
The supplied filing identifies the registrant as Insignia Systems, Inc. (Nasdaq: ISIG), not BLOOMIA HOLDINGS, INC. It is a Form 10-Q for the quarter ended September 30, 2019, with comparative results for 2018. Insignia provides in-store advertising, promotional services and signage products, primarily to consumer-packaged-goods companies and retailers.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $4.654 million | $9.455 million | $15.636 million | $25.119 million |
| Gross profit | $0.926 million | $3.563 million | $3.165 million | $9.314 million |
| Gross margin | 19.9% | 37.7% | 20.2% | 37.0% |
| Operating income (loss) | ($1.071 million) | $0.846 million | ($3.091 million) | $1.331 million |
| Net income (loss) | ($0.978 million) | $0.645 million | ($2.562 million) | $0.993 million |
| Operating cash flow | Not provided quarterly | Not provided quarterly | ($2.078 million) | $4.080 million |
Q3 diluted loss per share was $0.08; nine-month diluted loss per share was $0.22. Nine-month cash used for property and equipment was $0.361 million. Cash and equivalents were $7.780 million at September 30, down from $10.160 million at December 31, 2018. Working capital was $11.453 million, compared with $13.351 million at year-end. The company reported no long-term debt other than lease obligations; lease liabilities totaled $0.317 million.
Material changes versus the prior comparable period
- Sales fell 50.8% in Q3 and 37.8% for the first nine months. Service revenue declined 51.5% and 39.6%, respectively; nine-month product revenue was nearly flat.
- Management attributed the service decline principally to lower POPS revenue, following the loss of a significant retailer and a significant CPG manufacturer amid competitive pressure, and the completion of a favorable non-recurring CPG contract. Innovation-solutions revenue increased, partly offsetting the decline.
- Gross margin contracted sharply, reflecting lower POPS volumes and average price per sign, while a portion of retailer payments is relatively fixed. Despite lower operating expenses in dollars, expenses consumed a larger share of sales and the company shifted from profit to loss.
- Nine-month operating cash flow moved from $4.080 million provided in 2018 to $2.078 million used in 2019. Cash declined $2.380 million during the 2019 period.
Outlook, risks and unusual items
- Management said competitive pressure was expected to continue challenging results for the remainder of 2019. It was pursuing innovation, client acquisition and retailer expansion, but provided no quantified financial guidance.
- Management believed existing cash and future operating cash generation would meet requirements for at least the next 12 months. This outlook depends on business conditions and operating performance.
- The company increased its deferred-tax valuation allowance to $287,000 from $79,000 at year-end, concluding it was more likely than not it would not realize the full amount of net deferred tax assets.
- Amortization of a 10-year selling arrangement was accelerated after a significant retailer exited the network; management expected $600,000 of amortization expense in 2019. The company also reported the completion of a new IT operating infrastructure system in Q2 and said further technology investment may be needed.
- Insignia sued News America in July 2019, alleging antitrust violations and tortious interference and seeking injunctive relief and treble damages. News America counterclaimed, alleging breach of a settlement agreement, and sought dismissal of Insignia’s complaint. Discovery had begun; management could not assess the likelihood of an unfavorable outcome or estimate potential liability. Litigation could be costly and adversely affect operations.
- Customer concentration remains a risk: two customers represented 27% of nine-month sales, and one customer accounted for 20% of accounts receivable at September 30.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is for Insignia Systems, Inc. (ISIG), not BLOOMIA HOLDINGS, INC.
- Track retailer and CPG customer retention, POPS volumes and pricing, and whether innovation revenue can offset continuing competitive pressure.
- Assess cash burn against management’s 12-month liquidity assertion and monitor working capital and receivables.
- Follow the News America litigation, including motions, potential legal costs and any effect on customer or retailer relationships.
- Check the share-repurchase authorization deadline: the filing gives March 31, 2020 in one section and June 30, 2020 in another.