Q4 2022 Socket Mobile Inc Earnings Call
Okay.
Welcome to the fourth quarter and full year 2020 to 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 everyone that this conference call may contain forward looking statements within the meaning of section 27, a of the Securities Act of.
1933, as amended and section 21 E of the Securities and 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.
Details on timing distribution and.
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.
Statements involve 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 to the risk of beds manufacture of sockets products may be delayed or not rolled out as predicted due to technological.
Coal 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 in 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.
<unk> 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. If you have a question. Please press zero with that one out and you touched on the phone.
Please note that this conference is being recorded and the call with me today are 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.
Operator.
Good afternoon, everyone and thank you for joining us today.
I'll begin with a review of both 2022 and Q4, starting with Q4.
Our Q4 revenue was $5 2 million, a 15% decrease compared to the $6 1 million in Q4, 2021.
And a 39% increase compared to the $3 7 million reported in Q3 2022.
Our gross margins in Q4 were 49, 3% compared to 52, 1% in Q4, 2021 and 44 point.
4% in Q3 2022.
In Q4, we recorded an operating loss of $152000.
Paired to an operating income of $693000 in Q4 2021.
And an operating loss of $947000 in Q3.
2022.
Q4, EBITDA was $3000 compared to what quite $1 billion in Q4, 2021, and a loss of $506000 in Q3 2022.
Looking at our full year results for 2022.
Excuse me our revenue was 20 or our revenue for 2022 was 21.2 million compared to 23 points to in 2021, a decrease of 8%.
Gross margins were 48 eight.
<unk>, 8% compared to 53, 6% in 2021 with adoption being driven by supply difficulties.
Our operating loss was $446000 compared to an operating income of $2 7 million in 2021.
EBITDA for 2022 was $1 3 million compared to $4 2 million in 2021.
In 2022, our diluted earnings per share was one cents compared to diluted earnings per share of 48 in 2021 and both years benefited from income tax credits.
Overall, 2022 was a strange and challenging year.
Very strong demand during the first six months of 2022.
<unk> and resellers over purchased due to supply and availability concerns in the second half of 2022, we saw distributors and retailers reduced their purchases as they rebalance their inventories.
Socket mobile report sales into distribution is revenue, which made our 2022 revenue very lumpy.
We also measure sales out of distribution to gauge the actual demand.
In the first half of 2022 sales out of distribution were a little over $10 million.
The second half there were a little under $10 million. So demand remains solid throughout the year with the first half being slightly stronger in the second half.
Our application driven business model will enable us to impact near term sales as demand is generated by application sales from our application partners.
And tonnage by two we saw demand remained reasonable even in these difficult and uncertain times.
During 2022, our focus was on developing new products and solutions that will enable socket mobile to achieve long term growth.
I feel against this metric.
2022 was a very positive year for socket mobile is we've made significant progress in several areas, which Dave will discuss in a few minutes.
As regards to the outlook for 2023, I think the market conditions will remain challenging, especially in the first half of the year as inflation and uncertainty remain key concerns.
So we expect May continue to face some headwinds in the short term.
However, we do see a trend of people wanting to return to physical stores, which would be good for socket mobile is there are more scanners Nathan in physical stores that are required with online shopping.
Especially as many of the physical stores are now using ipads as the primary point of sale device.
With that said I'll turn the call over to Dave Holmes for his comments Dave.
Thank you, Kevin and good afternoon, everyone.
Today I'd like to highlight a couple of the key milestones that we achieved in 2022.
As we continue our journey of becoming a more comprehensive data capture company.
We significantly improved capture SDK, our unified software development tools.
Towards our entire data capture portfolio.
One integration with capture SDK gives our app provider partners access to all socket mobile data capture solutions.
We also expanded our development environment support.
We now support flutter and open source framework created by Google Swift package manager.
S as native package managing solution for.
For developers and Dot net Maui replacement for Zimbra and to create multi platform apps using a single project.
One of the most important achievements we made.
Last year is that capture SDK now includes camera based scanning software.
At providers typically had to integrate with multiple parties to support all of their end users.
Now with one integration with socket mobile we can support all of their needs.
For the ultimate data capture experience our hardware scanners continue to deliver best in class performance and.
And in 2022, we added socket can CA 20 camera based scanning software.
To our product portfolio.
'twenty is included in the latest version of capture SDK.
And it enables our app providers.
To provide their end users with free scanning support.
Happy end users have a variety of profiles and requirements.
Socket mobile is traditionally address only the high end users who need the ultimate performance.
Cordless barcode scanners that serve this segment well.
We have a commanding market share in this space.
The 2022, we have opened the door for other tiers of end users to also leverage socket mobile's data capture expertise.
The socket <unk> 'twenty.
Enables app and users with free user friendly barcode and QR code scanning capabilities without having to purchase any additional hardware.
This allows end users to experience the capabilities and benefits of barcode scanning without requiring a large initial investment into physical barcode scanners.
This is an ideal option for users who are new scanning.
Most gaining volume or simply need to test out their daily scanning needs.
At providers to integrate the latest version of capture SDK can support hardware scanners free camera scanning.
And in 2023. This will also enable enhanced camera scanning.
Our C. H 60 advanced technology will be available on a subscription basis in it.
It will establish a recurring revenue stream for socket mobile for software sales.
Providers will not have to change their code as their end users' needs change.
Users can upgrade from free to subscription to a hardware scanners seamlessly since all of our supported with the same unified capture SDK.
Our SDK team has done an excellent job in delivering these new capabilities and we believe this is a critical step.
In the data capture journey will make us a more complete hardware and software data capture company in 2023.
Outside of camera scanning we are seeing positive signs with our NFC business as more developers begin embracing contactless technology.
Initial commercial deployments of our S 550, NFC reader writer for mobile ticketing E money and loyalty applications are resulting in exceptional consumer experiences.
Follow on projects.
Yes, 550 was chosen as a finalist for the NFC form Innovation award and is outperforming competitive solutions in head to head competitions.
We continue to be excited about the opportunity that digital ideas presenting.
And we spent time in 2022, ensuring that we are prepared to meet the opportunity.
In addition to launching the S Fi 50.
We also launched S $3 70, a universal NFC and QR code mobile wallet reader to enable app for Barton.
Partners to support E wallet centric opportunities like mobile drivers license and digital health care cards.
Our App development partners loved the technology flexibility to accept multiple formats with one device that the S 370 provides.
With the myriad of credential types out there at 370 provides.
<unk> provides our partners with the peace of mind that they can implement one device and not have to worry about choosing the wrong technology.
Yes, 370 can also re credentials following ISO 18 O one three dash five.
This is a standard being adopted for multiple drivers license or M. D. L. In most states and countries.
We're seeing positive signs all around and.
And we continue to invest in digital I E and M D L a space.
Space.
We feel our camera scanning and digital IV products create new opportunities for socket mobile.
We can reach a large and more diverse set of application providers and their end users.
With that I'll turn it over to Lynn for more details on our financial results.
Yeah.
Thank you Dave Good afternoon, everyone. Thank you for joining today's call.
Turning to you has been a challenging year with macro economic headwinds affecting our financial results revenue for the full year of 2022 decreased by 8% year over year to $21 $2 million versus $23 $2 million in 2021 gross margin was 48, 8% compared with two.
There are 53, 6% in 2020 one.
<unk> expenses were $10 $8 million increased 11% compared to two $9.7 million in 2021 as we continue to invest it in business to see long term growth.
Turning to turning to diluted earnings per share.
One included nine cents per share income tax benefit primarily related to the adoption of section 174 of the tax cuts and the jobs Act of 2017.
Per the two diluted earnings per share.
<unk> in the prior year, which included a 21 cents per share income tax benefit.
117 for eliminates the expensing of R&D.
Costa beginning in 2022 is that it has required the company to capitalize and amortize R&D expenditures, resulting in an income tax benefit and a net increase or off of our deferred tax assets in 2022.
Adjusted EBITDA for 2022, with one $3 million.
Per the tier $4 $2 million in 2021 I guess.
The EBITDA margin for 2022 was six 2% compared to 18, 2% in 2021.
Our Q4 revenue decreased 15% to <unk>.
That's nine to $5 $2 million compared to $6 $1 million in the prior year's quarter.
An increase of 39% sequentially compared to Q3 $27 million in Q3.
Sure.
Q4, gross margin was 49, 3% compared to $2 52, 1% in the prior year's quarter.
The decrease in gross margin was driven by significant inflation and the persistent higher component costs.
Compared to Q3, however, our gross margin improved 490 basis points, primarily due to the allocation of manufacturing overhead costs across the across improve their production volumes in Q4.
Q4, operating expenses were $2 $7 million increased to eight 4% over the prior year's quarter and a three.
Three 8% sequentially over the preceding quarter.
Compared to the diluted earnings per share of <unk> 11, a year ago, our net loss per share of 11 cents in the prior year in the prior quarter Q4 diluted earnings per share of six cents included eight cents per share income tax benefit related to the adoption of sections at 174.
The tax cuts and jobs act of 2000.
17.
Turning to our balance sheet.
Ended the year with a cash balance of $3 $6 million.
In Q4, we invested at $270000 in capital expenditure repurchased 85000 shares of <unk>.
For $176000 and to repay the $125000 of loan balance.
For the full year of 2022 we invested a $1.2 million in capital expenditure.
Purchased 266000 shares for $830000.
And they repay the $500000 loan balance.
On balance of $125000 was paid off at the end of January 'twenty 'twenty sorry.
As of December 31st 2022.
Our inventory level net of the reserve was $5 $6 million compared to two $5 $2 million a year ago.
We managed our inventory levels, while maintaining our on time delivery commitment to our partners.
This wraps up our prepaid remarks, now I will hand, the call over to the operator for questions.
Thank you Luke.
We'll now begin the question and answer session. If you have a question. Please press zero one on your Touchtone phone.
Once again, if you have a question is zero one on your Touchtone phone and we have a question from Chris Sakai from singular Research go ahead, Chris.
Yes, hi, good afternoon.
Hi, Chris.
Can you talk about the.
The jump of 5% and gross margin is this sustainable and and how do you see this playing out in 2023.
Yeah, so on the gross margin.
We improved gross margin because.
We had more volume to cover the fixed overhead expenses.
So obviously in Q3, we shipped less weight.
We also had a gross margin had been impacted by it.
The cost of components are we bought a number of components of the I.
I would say pay the premium for a number of components.
2022 ju test shortages.
Turns over availability.
So we feel that that gross margin and around 50 points, maybe a slightly above 50 points is sustainable going forward and the business model is really based on that.
Obviously.
If we have a a shaw.
A small shipping quarter that we have more overhead to absorb on that small number foster.
Long term, we feel 50 15 plus points is a sustainable and that Q3 was really.
Novelists due to the low shipping volume.
Okay.
Thanks for that and then can you comment on how is your supply chain looking at.
Is it improving.
Well first of all we didn't really have a great deal of supply problems I think that we probably panicked a little bit sooner than most.
We took an inventory position.
She will make sure that the <unk>.
Apply issues didn't impact our partners so throw out 2022 we were able to maintain and deliver against the six week lead time.
Which.
Many of our partners appreciate it.
You'll see if you look at our balance sheet, our inventory did rise substantially from 2019, so in 2020. One we increased our inventory by several million dollars to make sure that there was no impact today, our inventory is around the 6 million dollar level our plan.
For us to start to reduce that the supply situation has improved at least stabilized.
There is now.
Good availability on certain components, but as you need all components before you really solves the problem.
It's completely completely out of the woods, yet, but I would say that the situation is significantly better.
Okay. Thanks for that and then.
Talking about inventory.
You say you plan to reduce it.
From $6 million level.
About where would you say we could expect in 2023.
Well I would hope that we would get us down to more like $5 million.
By the end of the year certainly.
Higher availability of supply you don't need to carry as much inventory.
So as lead times start to fall, we will reduce our inventory.
Two basically.
Be more in line with that so I would say.
$5 million towards the end of this year is reasonable if the supply situation.
<unk> continues to improve as we expect.
Okay. Thanks, and then last for me.
How do you how do you see operating expenses in 2023.
Is it would it be growth mainly from inflation.
Yeah, I mean, obviously theres more pressure to increase salaries, which we have done in 2021.
So we will see some pressure.
Pressure to increase operating costs.
Also continued to hire in select areas, where we feel we need to add more resources.
So I think moderate growth in expenses this year, primarily driven by inflation.
Inflation related salary increases, yes, I think that's reasonable.
Okay. Thanks for that.
Thank you Chris.
And if anyone else has a question.
Zero one on your Touchtone phone once again, if you have a question it's zero one on your Touchtone phone.
And we have a question from Frank could trainees from Prudential go ahead Frank.
Hi, Kevin Lind.
I had probably.
It doubled.
Uh huh.
Double edged question.
On the buyback.
How many shares have you bought to date I think he came out with a number of 266000 I could've been writing too fast but.
My question is I know the buyback ends in May.
And you had.
The other side of $1 8 million.
How much of the 1.8 million has been.
Used up.
And if not will there be an extended buyback period.
And the second part is.
Is there any company.
It seems like many companies are suffering them one or two.
Companies.
Why the bulk of their components.
Is there any company that is.
Small amount.
You can.
Anthony you know.
Either by Goliath up there.
By a company that's applying your key component.
Where you can reduce the cost.
Build.
Better.
The base for your cost of your inventory.
Alright, so that's it.
Yeah to answer those questions. So that you can add some more so maybe len will provide that detail what we've bought back so far what's remaining.
Could you.
Answer that question. Please yeah.
So as of today.
We have purchased 320000 shares at a cost of it.
Yes.
19 $16000.
So.
Their current.
Purchase.
Our repurchase plan will expire at the end of March.
So and then we have about there.
<unk> 8000 shares to go.
After.
They're off to a week.
We reported Q1 results our board will make a decision to see if we are then Q, we start a new repurchase plan.
Okay.
I hope that answers that part of the question for you Frank on key components first of all.
Very few cases are we singularly sourced.
So.
We make sure that we have more than one supplier.
The issue with the lead times it was really.
Combination of supply related concerns.
People were unable to manufacture because factories were closed people.
Unable to.
Go to work, particularly in China et cetera. So there was some key components that warrants made.
There's.
Many people who want those components.
It's like any situation in life.
What there's a shortage and theres a lot of people want us.
You have to kind of hoard the components, which we did which is why our inventory went up.
Now that the situation is resolving itself, we don't needs to purchase any companies to guarantee supply.
We need to have multiple sources for each component, which we work hard to do.
The supply costs will come down because.
The demand is more in line with production.
So to me this is no different than our personal situation people had when COVID-19 started whether it was far household items or anything else. There was a shortage and people bunch crazy to buy and hold that shortage at drove prices up another comes out and again.
And I think we've done a good job managing this.
That's a little bit of money and put it on our inventory.
Now as situation resolves, we will reduce our inventory get back tomorrow.
To better and more competitive pricing, but one thing we did which I think we've received a lot of credit from our.
Partner's problem is that at no time during 2021 or 2022 what are we unable to deliver nor did we have to extend our lead times play out in our standard six weeks. So a lot of credit is due to our operations team to manage and to make that happen. So that's the current situation as regard.
Key components.
Okay and one final question.
When your supply chain.
Is the capacity of your I'm showing your original business plan.
Changed considerably but.
We're proud of the coming months room opened the wound.
So everything goes back Homeward near normal I don't think we're gonna happened before.
Hum.
Our.
First home.
You forecast it will hold.
Oh.
Inventory for all your products.
We're selling increasing.
What could the shareholders expect as far as.
The forecast for the next two to three years.
Because the bedroom.
See your company is staying alive and functioning well with the product for the next three to five years and my question is.
How do you see that where.
Going yet maybe only 70% of the <unk>.
Product components coming in as quickly as you can sell them.
Alright so.
I'm going to give you maybe a slightly different answer than you're expecting okay.
First of all we didn't have any supply issues I think what impacts our sales more than anything else was the availability of other components required to deploy our solutions.
So for a.
Person deploying a mobile point of sale solution they need about five components they need an iPad they need.
They need the cash drawer, a printer a scanner.
The availability of printers in test stores, and even ipads, what severely impacted in 2022, so that.
Customers, who wanted to deploy.
And our standards were available for them to deploy we're unable to deploy because they were waiting on printers have cash drawers and without those two key elements you can't really set up a cash register.
The supply of printers Castro's has improved it's not where it needs to be but I think that has retarded our sales in the short term not because we couldn't supply it because other people who are key components of the solution couldn't supply.
We're monitoring that situation and we feel it will be better certainly in the second half of 2023.
And that will help us to be able to have more sales.
But our products are not standalone products. They just don't work on their own they are part of our system.
And the the.
The unavailability of other elements of the system does retard, our sales and we pointed that out on the last call as well.
Okay, well the only problem I see is with the buybacks.
You're struggling through and I, I think succeeding very well as far as all the problems that the.
Makes it entire world isn't the only lender at this point in time.
But the problem still remains.
The price of parking so way undervalued.
And it's just so disappointing.
Sitting here for three years and you know the company is.
Growing even though it flatlined at in some cases.
Colgate product and so forth.
But again my.
My question is the buyback I mean is there and we're doing it it's just amazing to me.
As a form of broker and shareholder of many of the companies that do buybacks.
Different related.
And so forth.
Yes.
The funnels they can see the price yes.
Ill, let lined it at $2 this year.
I'd say no.
We share your frustration when you see what we can do to improve the share price as we have better results. This year, but I think that overall, it's been a tough two years for everybody and we got through it reasonably well and the long term, we still have a lot of upsides. So yeah.
We can't do anything about it in the short term we are buying the shares back as you know.
We'll see how things progress as the year rolls out.
Okay. Thank you and great job guys. Thank you very much.
And if anyone else has a question. It's zero then one on your Touchtone phone once again, if anyone asked a question the zero one on your Touchtone phone.
And we have no more questions at this time I will turn it back to the speakers for closing comments.
Okay I'd just like to thank everyone for participating in today's call and wish you all a good afternoon. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Yeah.
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