Q1 2022 Socket Mobile Inc Earnings Call
Welcome to the 2022 first quarter financial results for socket mobile my name is Daryl and I will be your operator for today's call before we begin I'd like to remind everybody that this call may contain forward looking statements within the meaning of section 27, a M for security.
Fact of 1933 as amended and section 21 E of the 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 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.
Such statements involve risks and uncertainties and actual results could differ material from the results anticipated in such forward looking statements because of a number of factors, including but not limited to the risk that manufacture of sockets products may be delayed or not rolled out as predicted due to <unk>.
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 sockets application partners and current distribution channels may choose.
Not to distribute the products or may not be successful doing so the risk that acceptance of.
Sockets products in vertical application markets may not happen as anticipated as well as 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 a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on your Touchtone phone. Please note that this conference is being recorded.
On the call we have Kevin Mills, Chief Executive Officer, Dave Holmes, Chief Business Officer, and Lynn Zhao Chief Financial Officer, I will now turn the call over to Kevin Mills, Kevin You may begin.
Thank you operator.
Good afternoon, everyone and thank you for joining us today.
In Q1, our revenue increased by 31% to $6 3 million.
Over our revenue of $4 8 million in Q1, 2021 .
Our gross margins were 49, 7% compared to 52, 1% in Q1 2021.
Our margins were lower as we paid more for components and freight costs were much higher due to ongoing global supply issues.
Our earnings per share were four sets compared three cents in Q1 2021.
Our Q1 results demonstrate we are off to a solid start in 2022.
Our results were achieved in a very difficult supply environment.
Our operations team deserve a great deal of credits.
We expect the supply situation to remain difficult for most of 2022, and we will have to continue to work hard to overcome many challenges and issues. So we can continue to support our many customers.
In addition to our own supply constraints, we are also being impacted by supply issues outside our control like the availability of printers and cash flows which are required for a mobile point of sale deployment.
However, we do feel the supply issues are stabilizing.
And we hope they are less impactful in the second half of the year.
In Q1, we made good progress on the building blocks, we are putting in place to enable socket mobile to better service the growing data capture opportunity we see ahead.
As a hardware and software solutions.
To be available before they can be incorporated into third party applications. Much of the work. We are doing today will strengthen our revenue in 2023 and beyond.
And will enable us to continue to grow our business long term.
I'll now hand, the call over to Dave Holmes, who will explain the opportunity and activities. We see ahead, how we plan to service and support them.
Thank you, Kevin and good afternoon, everyone.
Today I'd like to highlight a couple of the key milestones that we achieved in Q1 as we continue our journey of becoming a more comprehensive data capture company.
Made significant strides with our capture SDK software tools.
We continue to provide the best in class development tools for our application partners and we support all major development environments in the market today.
In Q1, we announced capture SDK for flutter flutter.
Flutter is used by over 2 million developers and has quickly become one of the most popular cross platform frameworks in the world with over 40% of all software developers having used it.
In Q1, we also launched the socket can see a 20.
This is the first member of our new socket Cam software product family that turns any mobile device into a high performance barcode scanner.
We think this is a critical piece of the data capture journey.
Today.
Socket mobile scanners are primarily used in the performance sensitive portion of the data capture market, where we have a commanding market share.
That said, our application partners and end users with different data capture needs.
We typically only add our capture SDK.
To support socket scanners, when their customers run into performance issues.
The mission of the seat.
Will allow our development partners to bring sockets scanning expertise and capabilities to a much wider audience, allowing our partners to serve all of their end users from the price sensitive to the performance sensitive with one integration.
One integration with capture SDK.
Our App partners the ability to support all of socket Mobile's products from the high end dedicated hardware barcode scanners and NFC readers to free software based scanning on your mobile device.
Enabling the app for the entire journey allows developers to service a much wider audience eliminates the burden of lengthy and technical onboarding processes.
It allows the end customers to select the best data capture tools.
For their particular situation.
We will continue investing in socket in the socket camm family to offer data capture solutions that benefit our developer community and end users.
We will have an advanced version available on a subscription basis later this year.
We think this is a critical evolution and how socket mobile serves the entire data capture journey.
Finally, we continue to invest in the digital I D and mobile drivers license space in.
In Q1, we held a joint webinar with our partner UL outlining how M D L.
Poised to enter the retail mobile point of sale space in the coming months for things like electronic age verification for restricted goods and the like.
We feel this is a big opportunity in that socket mobile is well positioned to become a significant player in the M. D L reader space.
Our products.
Already conformed to the predominant ISO standards being adopted in most jurisdictions, where in deals are being deployed and tested.
This will mark another evolution in our data capture journey.
We will go from reading Barcodes to capture data about products to reading Barcodes and NFC credentials about people and identities.
With that I'll turn it over to Lynn for more details on our financial results.
<unk>.
Thanks, Dave Hi, everyone I'm pleased to be with you today to share our Q1 results year over year Q1 revenue was up 31% to $6 3 million compared to $4 eight many in the comparable prior year quarter, driven by strong demand for our products.
First quarter gross margin however decreased by.
80 basis points compared to Q1.
'twenty one.
And then turning to 40 basis points compared to Q4, 2021 driven by significant inflation to recover the margin loss, we will reduce some of the discounts. We currently offer and increases the astellas in our knowledge the discount channels.
Operating expenses in Q1 were $2 six $6 million increased 14% over the prior year quarter.
Spend on engineering increased 13%, mainly driven by hiring as a continued commitment to research and development activities.
It is essential to provide innovative new product offerings to provide engineering support for our key customers and to maintain our existing products.
Increases in the sales marketing and customer support or 36%.
Which are reflected as a cost associated with the higher head count and the consulting in the external professional services.
General and administrative expenses decreased 4% related to the temporary headcount reduction.
First quarter operating income was $464000 representing 7% to operate.
Our tax rate was 18%.
Earnings were $342000 or <unk>.
Per fully diluted share compared to two three cents per share for their prior year quarter.
Adjusted EBITDA in the first quarter was $29 million up 57% from prior quarter of $6 million tops.
Topline growth contributed to the period over period.
EBITDA growth.
Turning to our balance sheet in Q1 changes in operating assets and the liabilities and resulted in net cash used in operating activities of $1 3 million, which was primarily from increased accounts receivable driven by higher shipments, Netherlands, and as a security deposit for our new office building.
The visa agreement.
Ended Q1, with a cash balance of $5 formats.
As of March 31, 2022, our inventory level and now Sir with added $5 2 million.
Compared to $2 million to $3.7 million a year ago. The increase the inventory enables us to service our customers have for demand, which while navigating this is supply constrained.
Our balance sheet has further strengthened with a current ratio of two eight to one as of March 31, compared to $2 one to one a year ago.
Now I will pass a lot of the share buyback program approved by our board of directors.
The target is to repurchase 91000 shares in Q2.
Today, we have repurchased 71000 shares of our common stock as of yet.
Average price of $4 15.
This is Brad Stefan.
Prepared remarks, now I will hand, the call over to the operator for questions.
Okay.
Thank you we will now begin the question and answer session. If you have a question. Please press zero one on your Touchtone phone if you wish to be removed from the queue. Please press zero two there will be a delay before the first question is announced if you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press.
011 on your Touchtone phone and I'm standing by for questions.
And we have a question from Steve Swanson go ahead with your question.
Okay.
First one can you explain again, how giving away the or developing this free C. H 'twenty product is going to help the company to increase revenue and earnings over time, not quite getting that.
Sure.
Basically Steve what we're doing is we see that a lot of our customers only come to us after they have.
Initially put in camera based scanning and their customers have complained that the camera based scanning doesn't meet the requirements in many situations.
Therefore, as I go back to the application provider and request.
As they upgrade the application.
<unk> includes.
<unk> scanners.
What we're trying to do is remove that.
We will rise.
By providing.
Software.
Opposite to September .
And the Scott.
Scott.
Past a application developer could develop one time.
And for customers who.
We are able to use.
With the free camera based scanning.
It's all there for them.
A customer that has a situation that they need a dedicated scanner, there's no rework required.
They just simply gone by the scanner and the application is already.
So it does it.
Does this get us more developers using our product or is that is that the angle.
Correct. So today a lot of developers are not Barry.
I wouldn't call it data capture.
And they believe that the camera based scanning will more that meets the needs.
Then once they launch their product they find out that the camera based scanning doesn't work in all situations and customers that complain to them.
And.
When they get adult complain they do something about it too often say I need to bake in the socket stuff to really service my higher ends and more.
Performance sensitive customers, we're basically eliminating that.
Requirement I'd say.
Look you can do this one installation.
Software it'll support all of your price sensitive customers, who believe they can get by with camera based scanning and when performance with our customers come to you you will already just say goodbye the scanner and it will work.
We've seen that only 28% of our customers put in the sockets capture SDK in revision one of their software.
We have two ways, obviously, a revision to our higher revision for 72% and that takes a long time.
Basically with this approach we think we can get about 90% of developers.
Two <unk>.
<unk>, our capture SDK that first time around.
Sure.
They never buy a scanner.
And they never buy a scanner they don't need us, but we'll be able to service a bigger development community and a bigger.
Yeah and user community with this approach.
Okay is it too early days to understand if this is if we're getting traction with this.
Yeah, I mean, these things take a little bit of time, we currently have the capture SDK with that built their scanning and preview.
We are basically keep it and preview and work with some of the more advanced or more aggressive.
Nebraska developers.
We will make it generally available I would say in the next 60 days and then when people start using it.
It will take another 90 days before we see it is working but there really is no downside.
For us in this we've made the investments.
The camera based scanning.
And.
Now it's there right.
But it does create a foundation that we can build on going forward.
Okay.
That helps me I appreciate that.
Second question I had was what was the total units that we sold during the first quarter.
Barbara.
And looking back to your history, and what we said for the fourth quarter of 2021 was we sold a little over or a little under 27000 units. So I was wondering what the run rate was for the first quarter for the barcode scanning units sold.
I don't have the numbers.
Steve when we sell it at 27 700.
Yeah.
So we're about flat then from the last quarter Okay.
And then.
I appreciate you talking about the going forward land on the repurchase program, but I was kind of interested just through the end of March 31st what was the total shares repurchased in what was our average price.
We entered that there can be five one plan during their open window. After we released its annual results and then their service.
45 weighting.
Period, so they're there.
Didn't kicked off in Q.
Around that.
Two weeks ago roughly.
Okay. So basically.
And if you didn't buy anything in the first quarter, though.
That's correct yeah.
For any shares okay. So then could you repeat what you said about the what youre, hoping to do in the second quarter or whatever you said earlier could you repeat that.
Okay.
So one one has been approved by our board of directors and we purchased 152, 5%.
Prior quarters outstanding shares so that's part of it.
It's harder to number of shares to repurchase the first the back would be 91000 shares.
So and I felt today, we had bought 71000 shares at an average price of $4 15.
Okay.
That's helpful. All right. Thanks, guys I appreciate it.
Thank you.
Okay.
Yeah.
Our next question comes from Frank Pit trains go ahead Frank.
Yeah.
I think it's very commendable that you guys have.
$5.
Our cash balance.
You know what.
Our precious money.
And buying back your stock.
Wow.
Two things.
Or is this sorry, yes.
And.
But the principles and have you thought or has your accountant come up with may be a preferred where like the 100 shares for one preferred.
The same thing and you could save your cash.
Well the question is got it got it.
Could you repeat the question. Please Frank maybe you can speak a little louder.
Yes.
Okay I'll do it again, let me, let me get off the speaker, because I I guess, what we're hearing right. So I think that okay.
My question was.
It's commendable that you have $5 $4 million in cash my question is why buy.
Shares in the open market.
If the purpose is to reduce the float and it.
Eventually it would increase the earnings versus the sales, but in the meantime, my question is why buy it when cash at this point in time, but most company. It is very important and it's nice to have a good cash balance.
And then there's also like.
Right now.
I'm familiar with a Gabelli fund, it's called the Gabelli equity Trust.
It pays and it's been paying since 1985, it's been paying a 10% distribution. They have another fund that pays five cents a month and one fund that pays 15 cents.
Every quarter and what I'm, saying is the idle cash could be earning some very important monies and it's also very liquid.
And you can check with the company from that standpoint from my other.
Observation of buying back stock at this point in time.
Is not.
I don't see the purpose other than if you can look at maybe a preferred like one confer to equal 100 shares and you could do the same kind of ratio versus what kind of shares you're looking to buy but my big question was.
Are they for the insight.
Insiders the print principles is it for your 401, K type monies or what is the ultimate purpose for buying back the shares.
That's about right.
Yeah. Okay. So we're buying back the shares for one main reason is we believe that they are undervalued and that we are generating a lot of cash.
We don't necessarily have immediate need in the business fast and we would like to show our support for our stock as well.
Basically recruit.
The number of shares because there's not a lot of interest in the stock and it's pretty simple right.
You know.
Well, we talked to investors. They basically appreciate the fact that we have confidence in our stocking or buying it back I think we generated close to a million dollars in EBITDA and will continue to generate a million dollars of EBITDA.
Per quarter is the expectation so we're using our surplus cash to.
Basically invested in ourselves, it's as simple as that.
Okay, I understand that but.
The other.
Again, I worked for and with a New York stock exchange for them.
And Mike My Big.
Fangled, if that's your ultimate purpose.
Would probably.
Be better to look at our financial PR firm that you can do dog and Pony shows I think he has some very interesting products and the the way I see you're flowing and yes. I also believe you your stock is under price, but you don't have various.
Oregon Pony shows going on every quarter you can achieve the same purpose because at this point with the market it with.
Interest rates now as they're going to rise, it's almost a sure thing.
Let's.
Let's see.
Correct in my eyes to.
To use the cash to buy the stock where it just.
For the purpose of bolstering up the stock I think we have a problem.
So let me start with products and your ratio of earnings versus your cashes is tremendous and Florida.
That's all from myself.
Yes, So let me answer.
We have increased the number of financial conferences, we did and are doing and in Q1 alone we did.
I think four different conferences, maybe even five who did Maxim we did a juice with singular research we did a.
A few others.
We did a day of Investor calls et cetera. So we have picked up on the IR site.
So, but it's a process and we basically are out there telling our story.
And we hope that people will see the value as you see the value.
Weekend.
Yes, more recognition for the work we've done them, but it's a process, it's not going to happen overnight, but we have picked up the pace of.
So the outreach to investors.
To be honest, our investors do appreciate that.
In fact that we are buying back our shares so they go hand in hand here Frank So we keep Atlas and we appreciate your input on this.
Okay and well the other point is there are many many institutions and funds that cannot by your kind of.
Stock or your type of company. Since you are on NASDAQ, which is fine, but you've also qualify for the New York stock exchange and I think with a specialist handling the stock you could do.
Probably accomplish the same thing so it's just another thought as far as becoming in the stock exchange member.
Yes, that's right at the time.
Right.
Yeah.
And if anyone else has a question it's 019 your touchtone phone.
And we have no more questions at this time I'll turn it back to the speakers for closing comments.
Thank you operator.
In summary in Q1 two.
2022, we delivered solid results and made significant progress and have already challenging environment. We feel we're continuing to build a solid foundation that will help us grow our revenue and importance over the next few years.
I'd like to thank everyone for your time and interest in socket mobile today and wish you all the good afternoon. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
Yeah.
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Yes.
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