Wireless Ronin (RNIN) takes a beating. Will they survive?

With $20M in the bank, it's hard to imagine a company in our industry going out of business, but Wireless Ronin seems to be trying hard to do just that.  They announced their 3rd quarter numbers last night, which look roughly like this:

• 3rd quarter revenue of $1.9 million for the third quarter of 2008, up 73% from $1.1 million in Q3 2007.
• 3rd quarter net loss of $4.6 million compared to a net loss of $2.4 million in Q3 2007.
• Basic and diluted loss per share of $0.31 compared to a basic and diluted loss per share of $0.17 last year.

That's bad. They still lose more than $2 for every $1 they take in. The firm's stock price has been hammered down to about $1M more than the cash they have in the bank.  That's certainly harsh, though more fair than the preposterous $100M+ valuation they were trading at last year.

Even worse than the revenue numbers, though,  are the margin numbers. From the press release:

For the third quarter of 2008, gross margin averaged 5.2 percent, compared to a gross margin of 36.8 percent in the third quarter of 2007. The 2008 gross margin was impacted by investments in the company's NOC and costs to support customer pilots and program tests. Excluding these investments, gross margin would have averaged 20.7 percent through the first three quarters of 2008.

So for every dollar of gross margins they earn, they lose about $46. RNIN, I have news for you: pilots will continue to happen, so I doubt you'll ever be able to simply eliminate those costs.  In our industry, it's a big part of the cost of doing business.  I can't speak to what the company has been spending on their NOC, but I can practically guarantee it was way more than necessary.  In fact, a digital signage company that builds their own NOC is almost certainly doing something inherently wrong. Use a company like NTT/Verio for colocation, or even better, Rackspace for managed hosting.

So, will they survive?

Like I said in the beginning, $20M is a lot of cash to have in the bank, and at the present burn rate still gives the company almost a year to get their act together.  With a head count of 125 employees, you can be sure there's also plenty of room for further layoffs, and my advice would be the sooner the better. RNIN needs to slim down to a svelte 25 or 30, close their NOC, outsource everything that isn't related to selling high-margin products and services, and stick it out until some of their bigger prospects decide to open their wallets.  It'd also help to find a CEO who knows something about this business and its cycles.

Tags: digital signage, wireless ronin