Q3 2020 Socket Mobile Inc Earnings Call

Before we begin I like to remind everyone that this conference call may contain forward looking statements within the meaning of section 27 eight of the Securities Act of 933 as amended and such.

Section 20, Onee other securities and Exchange Act of Nike.

<unk>.

Such forward looking statements include but are not limited to statements regarding mobile data collection and mobile data collection products, including details on timing distribution and market acceptance of products and statements predicting the trends sales and market conditions and opportunities in the markets in which socket mobile sells its products.

Yes actually.

Such statements involve risks and uncertainties and actual results could differ materially I got myself anticipated in such forward looking statements because of a number of factors, including but not limited to the risk that manufacture of socket products may be delayed or not rolled out as predicted due to technological market or financial.

Factors, including the availability of product components and necessary working capital the risk that market acceptance and sales opportunities may not happen as anticipated the risk that socket application partners and current distribution channels may choose not to distribute the products or may not be successful in doing so.

There is that a substance of socket products and vertical application markets may not happen as anticipated as well other risks described in sockets. Most recent form 10-K, and 10-Q reports filed with the Securities and Exchange Commission.

Socket does not undertake any obligation to update any such forward looking statements.

At this time, all participants are in listen only mode.

Later, we will conduct a question and answer session. During the question and answer session. We do have a question. Please press Star then one on the Touchtone phone.

Please note that this conference is being recorded I would watch the call over to Kevin Mills, Kevin you may begin.

Thank you operator.

Good afternoon, everyone. Thank you for joining us today.

Revenue for the third quarter of 2020 was 4.1 million decreased 17% over revenue of 5 million for the same quarter a year ago.

And an increase of 51% over our revenue of 2.7 million in Q2.

Net income for the third quarter of 2020 is expected to be $424000 or seven cents per share.

Compared to net income of $94000 in the third quarter of 2019.

Had a net loss of 760000 in Q2.

I need to point out Q threes that no.

Maybe impacted by adjustments to our goodwill which is.

Which is under review as part of our normal annual process.

You know all of your adjust our goodwill valuation not these adjustments have to run through the income statement, which would impact our net income numbers.

In a more perfect world. The goodwill review would have been completed before today's announcement today.

Unfortunately.

This annual review has not started in time, and therefore could not be complacent.

We thought it was important to proceed with the earnings call today X.

Explain the situation.

Strikes are.

A couple numbers wrong about postpone or coal and cause confusion and uncertainty.

Alex This is expected to be completed the coming week.

It is expected to be fully updated hit our 10-Q.

We were pleased with our revenue growth in Q3.

Retail related sales, primarily drove Q threes revenue.

Product demand decreased as economic restrictions were relaxed and retail activities are reserved.

In Q3, we also benefited from lower expenses.

The actions, we took to reduce our call starting in late Q1.

The scale of the pad that makes economic impact came into focus were realized in Q3.

Like many cost reduction efforts sometime as required between the action and it being realized.

Most of our cost savings are related to our loans in July reduced executive salaries and delaying non critical discretionary spending.

However, we continue to invest in critical projects.

Brought to market, our new jurors last for the next couple of pro our new.

Our new medical grade scanners, and we continue to invest in our contactless reader vs 550.

We also strengthened our balance sheet in Q3 by 1.5 billion through convertible debt financing.

Our positive results the cost reduction actions allowed us to navigate the last two quarters, well I put us in a much stronger financial position.

Stressing our financial position during Q3 was very important as we feel the pandemic the associated economic impact operable.

We're entering Q4, the winter in much better shape from a financial perspective.

But still believe Theres, a significant economic impact of it.

We have operated for six months under these trading conditions, we better understand how it impacts demand.

We have taken cost reduction actions.

Put ourselves in good shape to survive and emerge as stronger company as we continue to make progress on our new products.

We expect the winter to be tough, but feel we are putting ourselves in a position to benefit from the economic rebound we expect in 2021.

With that said I'd now.

Now, let's turn the call over to Linda sockets, Chief Financial Officer.

Thanks, Kevin as Kevin mentioned as well as disclosed in our earnings release, we ran out of time to complete the annual review of goodwill impairment before today. So here we are.

Yes, Hi, guys right now that this analysis, so with not completed earlier and the way I like to remind everyone to keep in mind when reading uninsured.

Our gross margin our revenue for the three and nine month period ended September 32000 money was 55% and the 53% respectively compared to gross margin on revenue of 53% and 52%, respectively, right, but that corresponding period in 2009.

The increase in Arkansas is partially attributed to the reduction of.

Manufacturing overhead, which is part of the cost savings that was the impairment.

The cost saving plan also contributed to the operating expense reduction.

Q3, operating expenses or or 1.8, netting a decrease of 27%.

Parity to the Sane, yet then call it a year ago, and a decrease of 16% sequentially from Q2.

Operating expenses for the nine month or 6.3 million a decrease of 13% compared to 7.3 million for the same period a year ago.

It is now wants to be $25000 in Q3.

Canada to 378000 in the same quarter, a year ago, and then negative 488 days in Q2.

In April we received a number of fee of 1.6 money and get the SP a paycheck protection.

Now along with the prime and they use it to cover costs rent and utility costs. During the eight week period from April Twentyth During June 12.

We believe we quantify for debt forgiveness, and then data more than 80% of that is likely to be forgiven.

And that's net them to apply for that long, but given its more non amenable to us until October ended. Therefore, we included the entire handle amount that in Q3, we.

We applied for the loan forgiveness last week, whatever amount is forgiven well be treated as other income in that period hopefully in Q4.

The remaining portion of that all will carry a two year term at a fixed annual rate.

[laughter].

At the end of September the balance of our cash was 1.8 million and our total debt was two point fived, many consisting of that PDP loan and convertible note financing that was completed on August 31st.

Now I would turn the call over to the operator for your questions operator.

Operator.

Operator.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on the Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key they will be at the labor for the first question is announced if you are seeing a speakerphone you make to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press Star then one on your Touchtone phone.

Uh-huh Star one on your Touchtone phone.

And we do have our first question from.

Alan Ryan.

Private investor.

Okay. Thank you operator.

Hi, Kevin.

I thought you did a really great drop controlling costs and.

And generating a proper circumstances can.

Two things can you talk about what.

Well right during the quarter and what's still isn't right customers and.

Business you seem to be.

Making most credible you know where do you have a lot of progress.

Get back to levels, you're looking to do.

Thanks Al so.

So I think as the quarter, we saw two things.

Two things happening, we saw better demonstrably Dell.

And we also saw some of our distributors, bringing their stocking levels back up to a more normal level in Q2.

We had actually rolled out $3.2 million products, what we have already sold to around 2.7, which we reported.

During Q3, we sold out $3.7 million up about 100000 loss.

Our distributors we stopped building.

So that's kind of balance the two quarters out.

The other thing we saw is demanded the retail was still 75% range.

I think.

As people are forced to deal with the covert situation.

The requirement our portable are highly mobile cash registers.

Our.

Apple iPad.

I pod that trick is actually greater.

I still think the overall were suffering quite a bit and talked about segment.

We've been working hard to get over more to transportation and logistics and we've done a number of things that we believe will help us long term in that category, but that work is still ahead of us and we would expect to see improvements in non retail related categories.

Starting in Q4, but generally going to 2021.

I think we've done a lot of work all of the EPS by 50, we will be making some announcements about the us in the near future and I think that will also generate a lot of interest as well as strengthen our prospects for 20 to 21.

Mhm.

Great.

Uh huh.

Well, if you fight, where you're generating business pretty comparable.

Like you had before.

Whether it's the Ingram.

Yes, maybe rubbery.

Yes, I think the demand was driven by the usual suspects Shopify square Shopkeep.

The point of sale people, we did see a little bit more for all commercial services et cetera Bosch.

Yes, Nick.

All our product flows through the in terms of the world. So they appear as our customers before they buy the product, let's say not really driving the demand of the dramatic change was very much in line with what Weve seen pre coalition.

Slightly lower levels, obviously costs as generally in the same trend and direction.

Yes on the question of goodwill I mean.

The final.

No. They haven't got started late but frankly looking at the criteria you used to.

Make any impairment adjustment.

What was done in September and looked at an NGL and December.

And looking at your outlook, you're talking seem like.

This would be a minor impairment that affects any other than you know it was a non cash item, but what is that we're that good will come from it's been forever how does that.

Yes, Greg acquisition, we did in 2000.

A lot of us and it has been adjusted over the years I think the situation. We had this year is the analysis was complete and we're.

We're not trying to preempt our you are.

Danger, our interfere with the analysis, it's just that it wasn't complete and therefore, we wanted to point out that it's not please obviously.

It is if theres adjustments, we will have to deal with as it goes through the income statement. Therefore, it would impact the numbers, we reported but I think as you correctly point out right. This is a non cash and really doesn't impact the date they run they will produce.

I presume they probably want to see how this quarter was because that would give them some heavy.

Ammunition.

If they werent going to require ready.

Amortization.

Yes were not.

I think we're in a good position to have.

You know the auditors need to be independent as much as possible as therefore, we have to live by their results.

As opposed to interfere with their judgment, so we're happy with what at what they do.

It wasn't done so we couldn't actually.

Put it has in the past tense, if you will prior to the call today.

All right understood.

Okay. Thank you good luck.

All right. Thanks Hal.

As a reminder, we do have a question. Please press Star then one touchtone phone.

Okay.

And im showing that there are no questions in queue.

Okay. Thank you operator, so I'd like to thank everyone for participating are participating in todays call and I'd also like to take the opportunity to bank our employees for their continued commitment and hard work and our business partners for their support and we look forward to a healthier 2020 one thank you.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect speakers. Please standby for your post conference.

[music].