Q3 2021 Socket Mobile Inc Earnings Call
Welcome to the.
Socket mobile Q3, 2021 management conference call.
We have Kevin Mills, President and CEO and Linzess CFO My name is Adrian and I'll be your operator for today's call.
Before we begin I'd like to remind everyone that this kind of Oh.
Contain forward looking statements within the meaning of section 27.
The 19th 33 as amended and section 20.
<unk> of Securities Exchange Act of 1934 as amended such forward looking statements include but are not limited to statements regarding mobile data collection and mobile data collection products, including.
Any details on timing distribution and market acceptance.
Of products and statements predicting the trends sales and market conditions and opportunities in the markets its app.
Second mobile so its products such statements include risks and uncertainties and actual results could differ materially from the results anticipated in such forward looking statements because of a number of factors, including but not limited.
Limited to the risks and manufacture of sockets products may be delayed or not rolled out as <unk>.
Predicted due to technological market or financial factors, including the.
The availability of product components and necessary working capital the risk the market acceptance and sales opportunities may not happen as anticipated and the risk that sockets application partners.
Partners right now.
Yeah.
She was not to distribute.
The product.
When doing so the risk.
Is that acceptance of sockets products and vertical application markets may not happen. He hasnt paid it as well as other risks described in sockets. Most recent Form 10-K and.
He reports filed with Securities and Exchange Commission.
<unk> does not undertake any obligation to update any forward looking statements. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone. Please.
Please note. This conference is being recorded and I will turn the call over to Kevin Mills, President and CEO, Kevin Mills, you may begin.
Thank you operator.
Good afternoon, everyone and thank you for joining us today.
Our third quarter revenue was $6 3 million, an increase of 54% compared to $4 1 million.
And kind of the same period in 2020.
The growth was driven by the deployment of business applications and the retail industry.
Operating income for the third quarter of 2021 was $954000 compared to an operating loss of $4 million in the prior year.
<unk> will provide a more detailed breakdown of our results in a few minutes.
In Q3, our revenue was driven by our retail centric customers led by Shopify.
Our retail centric business continues to benefit from both the reopening of the economy the ongoing retail changes.
Yeah.
That required customers to be serviced in a more mobile friendly way.
Also benefited from the deployment of an assisted selling up in Q3.
The solid retail demand we saw in Q3 continues as we enter Q4, so we expect it to taper as we enter the second.
Jeff of Q4 as is traditional for a retail centric businesses.
Sales to the commercial services applications segment were more robust than Q3.
We expect to see further increases in Q4.
We believe the gains in this segment will offset the traditional Q.
For retail seasonal slowdowns.
And allow us to deliver another solid revenue performance in Q4.
On the supply situation.
It is a very challenging environment, and we continue to navigate industry wide electronic component shortages and delays.
Hello.
Second we took various strategic actions to increase our inventory in 2020 and throughout the past nine months. So we would be able to continue to supply to our application partners under many consumers.
We remain focused on navigating the money delivery and supply issues.
Issues. So we can continue to support our customers in 2022.
We anticipate the component shortages lengthening lead times and inflationary costs will persist well into 2022.
We continue to invest in our NFC centric products, which we expect to be.
However, if we get revenue driver in 2022 and beyond.
<unk> continues to increase the emerging market for NFC readers as they expand the mobile wallet capabilities and functionalities.
And iOS 15 App.
<unk> made it possible to carrier digital identification such as a mobile.
Signet driver's license as a mobile Pos and your digital wallets.
Making it possible to integrate this functionality into many applications.
As outlined in our recent press release, we also see new opportunities in the emerging secure supply chain segments, which is possible.
Possible by combining NFC blockchain technologies.
We believe that our S $5 50, and D 600, NFC products are ideal for these emerging markets.
So in summary.
Q3 was another very good quarter, and we expect to maintain our momentum into Q.
Even though it's a seasonally weak quarter for us and we look forward to further growth in 2022.
With that said I'd now lets turn the call over to Lynn Zhao our CFO Lynn.
Okay. Thanks, Kevin.
So now everyone and please.
Q4, with you today to share our Q3 results and that's why they're in which we can never.
Financial and operating performance.
Nine months revenue was $17 1 million, representing 55% increase from the same period last year.
The revenue growth rate.
Nine month, 2019, and the 2021 with a 17%.
In Q3.
We experienced the component costs in the freight increases we can reduce our gross margin slightly by 1%.
Paired with a bullet the prior year quarter.
Although we currently are.
But given the challenges in a world with supplier diversification and inventory management, the ongoing industry wide electronic component shortages could result in future supply disruptions and the higher production costs.
Our Q3 operating expenses increased.
Our net 5% comparator with the prior year quarter, excluding the noncash goodwill impairment charge of $4 4 million in Q3, 2020, and the increase of 1% comparable with the last quarter.
The increase compared to the prior year.
Proactive cost associated.
The third of the higher head count investment in technology consulting and external professional services and the increased compensation related to improved company performance.
Moving to our capital position, we ended the quarter with a cash balance of $5 4 million compared.
With a with a 2.19 at the end of 'twenty 'twenty.
Even with an increase in strategic investments in our inventory position as well as an increase in receivables due to strong sales growth.
Our cash flow from operations increased in the third quarter.
Paradise, two the increase in net profit.
Our balance sheet has further strengthened with a current ratio of 354 as of September 30th.
Through the first nine months of the year, they've been very happy with our performance.
Strong demand for our.
That's it's a testament to the underlying strength of our business.
And all of our application driven business model, which we believe will drive long term profitable growth.
With that I'll turn things back to the operator for your questions.
Operator.
Product begin the question and answer session.
Do you have a question. Please press Star then one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign or are they asking.
There'll be a delay for the first question is announced you are using speaker phone you may need to pick up the handset first before pressing.
Now the numbers.
Once again to ask a question. Please press Star then one on your Touchtone phone.
And our first question comes there Frank with journeys from Prudential. Your line is open.
Hello.
Really hard of hearing.
Speaker phone can you guys hear me, Okay, yes, good Frank yes.
Okay I haven't been investing in your company for well over two and a half years and it is very very nervous.
Rent change when one can see one maybe you could get a quote all of a sudden the factories.
Next Monday.
It's.
Yes.
Is the problem today.
Up to now.
Something.
Two seven something.
No.
Thanks.
The Street basically done on this.
Stan.
Yes.
<unk> is not doing its job to get the word out.
Fantastic.
Thank you all.
For the size of your company is really great.
Worked for five years.
Sure.
That's fair.
And so so.
Dan.
Thank you.
Yes.
Yeah.
It seems like it.
Is there any reason why.
Why.
This is a horrible.
Thank you.
Uh huh.
Yeah Okay.
Oh I can.
Give you some color on why this is possibly happening.
Bus.
This is just a theory and so far as well.
When we do our shareholder mailing, we do notice that we have a very large audience.
What would be the Robin Hood our.
Day trading.
Application driven trading situation.
And it has become exceedingly easy for people to buy and sell stocks.
And to let it run on emotions.
I think from our point of view, we focus on the fundamentals of the business.
<unk>.
We don't really control.
Stock price.
Sure.
I don't think we should spend a lot of energy trying to do that we continue to tell our story.
Two institutions.
Investors and others.
I think the story continues to get better, but I think the biggest issue in today.
There is high volatility because of the availability update trading apps like.
Robinhood, and others, which make it exceedingly easy.
People to trade smaller.
<unk> stock.
Unemotional.
Well, Okay I agree with some of the.
Reasoning behind Robinhood, but.
In the security long before Robin Hood started playing the games.
Multitude of stocks.
<unk>.
Marshall.
Agree with the other side.
Number one.
A large driver.
I mean, the market 60 years I have that.
The broker dealer ship by 'twenty one.
And traders.
I understand the day trading aspect.
What.
Trading is in investing.
With their shareholders.
It's going to bet.
While it is hurting a lot of companies and I'm sure. He says I'll take.
I do not think that.
The gyrations.
And then all of sudden that is $35. The next day.
For six months at three or four hours, maybe that kind of training can be halted because at the FCC is taking some steps, but I really don't think that the Robin Hood people.
People that are effective in a company like this.
But well I guess, yes.
Yes.
I think there's many theories here and we certainly don't have the answer I think from our point of view. The main thing we're focused on is too.
Sales of long.
What value of the company, which I think we continue to do.
I think thats.
For the long term shareholder.
Still represent a good opportunity.
Well I have nothing but long term shareholders.
On the bench.
<unk> hundred shareholders.
And when I left a branch a few of them followed me.
We expect some very good companies with growth probably not as good as yours and my long term investors are just discouraged because they would love to add more to their positions, but theyre right because every time.
Long term data.
Every time they buy on good news.
Like I say.
It falls on deaf ears look okay.
No.
But I just wanted to make mention that maybe if it is robin Hood people.
The investigators once again because.
I know they've damage quite a few stocks game.
James Yes, I'll follow on.
$500 down to $10, it's ridiculous so I. Thank you again.
Alright.
There's other people that want to talk in thank.
Thank you.
Thank you.
And our <unk>.
I often comes from Chris <unk> from singular research your line is open.
Alright, Alright, Kevin.
Alright. Thanks.
Okay.
You're hard to hear I'm in the car but.
I just had a question I guess on your head Count you mentioned generic as an increase in your head count.
Quint.
Okay.
Or does that currently stand.
What's going to backend of look like in 2022.
Okay. So I think we have increased our engineering headcount primarily under marketing.
<unk> head count.
<unk>.
<unk> sales were a little understaffed in key areas.
We're addressing that I don't think it substantially changes the model.
And.
We need to add a few more people box.
Talent directly tied to revenue growth in the short term.
It's more long term.
We have.
To cover more platforms and stuff like that.
So from a model point of view I think the model we have is still pretty good.
Okay, Alright, great and.
Not.
How is your inventory management going.
See a lot are you seeing a lot of extra costs in your supply chain because of the disruption.
Are you passing that along to you.
Your customer.
We are seeing increased costs in our supply.
And then primed.
Primarily on the cost associated with growth.
We have made the decision not to pass it on in the short term.
And do we believe is a reasonable we won't pass it on.
Because it will be very disruptive to our business model.
Right so.
As I said, we took actions starting in November or.
October November 2020.
So we increased our inventory so we're not in the panic situation.
We were able to.
Neil with some delays in the markets.
And not have to change everything from.
Freight to airfreight, which is terribly expensive. So it's a very difficult environment right now we continue to work on those on a daily basis.
At the moment the cost increases.
It cost us one.
1% to gross margin and it's not worth disrupting what we have going for that.
Small margin.
Okay.
And then I know you guys don't give any guidance right.
You say corner far as their worst quarter. So.
How.
Marcus can you give us any color there on parts revenue growth goal.
Well, yeah, I think revenue growth compared to 2020 will still be solid.
The retail business basically you don't have any.
Strong revenue in December and January so those two months training.
Sure.
But thats by design people don't deploy new systems in December or January.
We would expect it may be.
<unk> being slightly less in Q3, but not substantial.
Alright.
Can you remember what we did last year maybe for.
So I think that will growth over that.
Strong.
Lastly in Q4.
Seven Kevin.
Okay four seven so it's still be a strong growth over that.
Okay.
Alright, great well thanks, thanks for the answer.
Okay.
Okay very good to grow safely.
Yes.
And our next question comes from Robert Maltbie Singular Research your line is open.
Hello, Kevin and win congratulations on the quarter.
Got it and my comment a comment.
Question to share with the first caller.
Frustration, which a 100% empathize with and also a question regarding.
The look ahead and some of the recent dip.
Demand.
In the way of digital I'd.
So.
I entirely understand having been in the industry for over 30 years.
One key effect as the.
Point of distribution has gone from let's say analog.
Brokers, calling up their clients and that takes time and then they decide to immediate binary digital we're in.
EMEA have rented traders on wall Street that see the idea all at the same time, we can act in real time on so for a company with 7 million shares that can have quite an impact it doesn't take a lot of capital so.
I do want to mention that we recently picked up coverage on socket media.
And for the gentlemen that called in if he'd like to visit US we have.
Redacted version and this is what helps us is to try to understand the fundamental valuation.
In between these wild gyrations as kind of your anchor your target, but for the gentlemen, and possibly any of his associates if.
If they want to visit us.
On seeking alpha for singular research seeking alpha we can offer them a complimentary report and we will have an update very soon on an.
Socket media based on the recent quarter, so that wanted to offer that out there.
Helpful. The question I have is regarding.
You mentioned driver licenses and the digital wallet is there a plan or an integration with our backs Ids involved here or two possibly.
Yeah.
So this is a very fast changing space.
So.
Apple.
Yeah.
<unk>.
For quite some time, but more recently have allowed people to carry digital wallets. They also have introduced the idea of a secure enclave for are things like medical information on your phone.
That's the first step in the process once you have.
Our vaccination status or any other secure information verified secure information on your phone.
And then they can allow applications to use that information under certain conditions, including <unk>.
Clarifying yourself with your finger printing face print et cetera.
So.
So this is a process that is taking some time and.
The digital wallets is the ideal place for this type of information.
And App and the World is pretty trained on using Apple pay to tap to do a payment.
You can transfer you could.
Use that same mechanism to tapped fart app.
Excess of for identification of our health status et cetera. So.
It takes a while but I think we're part of this journey.
And as part of deploying it you need readers.
So.
There's a few elements you need and more and more of them are coming into place, but ultimately.
The core elements have to be in place before someone can write an application to use all the capabilities and I think we're coming up on that point and we would expect to be.
These types of applications I would say beginning middle of 2022.
So.
We've always been early in these months.
That takes some time, but the time they take is actually getting shorter.
Terrific. Thank you very much.
Thanks Robert.
And your next question comes from William Carole Hochman empower sales your line is open.
Yeah, Kevin Congratulations on a good quarter.
On primary I'm, an investor shareholder long term.
What revenue catalyst the company have beyond 2022.
In terms of maybe new products or anything you can share with us in that regard.
Yes, so as I was just mentioned previous caller Robert.
We need to do the hardware that enables future applications.
So we currently are doing a lot of work.
NFC related.
Products.
And we have a growing developer community is products. So.
And as those applications become available they will drive the requirement for those readers and for reader risers.
I know that it's not an instant.
<unk> laser sales over nice bus, we continue to have more and more products.
We've updated our products as well and we recently introduced a version of our 740 that resolved barcodes, but also reads.
<unk> <unk> other.
What's called MRC machinery.
Add symbols zones on international licenses et cetera, and by doing that.
You open up the market for people to check using a scanner somebody's I'd.
If there and airports are.
Using <unk>.
And international driving license or something.
Right.
So we do actually believe that we have a lot of new hardware. The other thing that we benefit from is that many of the applications continue to add more functionality and therefore, there is a greater audience for people who needs the data capture elements. So.
Like <unk>.
Because we don't have the complete solution more of the ingredients, it's not always easy to explain that in the short term but.
There is plenty of new hardware coming that will drive sales in 2022 and beyond.
Alright, very good and then the first gentleman commented.
With some frustration about the stock price I think the stock will take care of itself as you guys continue to deliver alright. So thank you.
Thank you very much.
And just as a reminder to enter the queue. Please press Star then one.
Can you touch on Hong against its star one to enter the queue.
Good.
And we have Frankfurt Tony's from Prudential and the Q Amit Your line is open.
Okay, I'm, sorry to jump in again.
Question on your supply chain.
Sure.
Or how much of your supply.
Your.
So called ingredients.
Our components are.
Links to China, and Taiwan, because the CEO.
Nucor was on CNBC today, and he say he is saying.
19%.
Sure.
All policies.
The company.
How much.
Components.
Paul.
<unk>.
China.
Yeah.
Thank you.
Of all of that.
Paul.
Okay. So it's.
It's a complicated question and I'll try and give you a reasonably simple answer in terms of direct dealings with China or Taiwan. We currently have no direct dealings in terms of supply with either of those countries in terms of direct.
Our offline.
However, many of the components used by our subcontractors, who are currently in Mexico and Malaysia.
Get components from China, because they are the only place that's available.
Whether it's good or bad we didn't have enough volume to deal direct with many of the suppliers in.
Correct.
And we've avoided China for the last number of years.
All of us so.
But there are many components at the lower level resistors capacitors and other basic components that are only available through China.
So I would say we don't have a.
A huge exposure.
Well, we do have an exposure and I think the hardest part with the supply chain.
<unk> at the moment is that the shipping.
Predicting it doesn't work well.
And when you're shipping things like batteries.
We were.
China Gen.
Generally getting batteries 20 days after they shipped from China.
Now those same batteries can be stuck in about four to five months.
And we've had that situation now.
Because.
This is <unk>.
And that was asked previously.
We can make the decision to.
So are those components or other places and then pay additional credit costs to make sure there's no supply interruptions.
But today, it's it's an everyday battle to make sure you have moments.
The question.
Where.
I'm very confident that we have components through the beginning of 2022.
But we're working hard everyday to make sure that that's.
Ongoing situation so.
There is no simple answer to your question Frank.
Well I did see a segment on 60 minutes and I did see the shipping.
Problem, where these tankers sitting out there for months and they just can't.
Mark.
Our upload and download the app to be.
It's hard.
Thank you for the answer.
Youre very welcome Frank.
And our next question comes from Jamie Your.
Your line is open.
The CRD queued up for a question and answer to the.
<unk> got the name on the record.
Yes.
Your line is open.
If you're on mute could you please enter your heart.
Yeah.
Speakers can you hear me.
We can hear you.
Thank you <unk>.
As a reminder to enter the queue. Please press star one.
Just wanted to ask you.
Okay.
Crestar one please reenter the queue.
Yes, and we have nobody else. Thank you right now.
Alright, Okay. So I'd just like to thank everyone for participating in today's call and wish you all a good afternoon. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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Yes.
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Okay.
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