Q1 2024 Socket Mobile Inc Earnings Call
Yeah.
Paul: Welcome to the socket Mobile Inc. Q1, 2024 earnings call. My name is Paul 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.
Operator: Welcome to Socket Mobile Inc.'s Q1 2024 earnings call. My name is Paul, and I will be your operator for today's call.
Operator: Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E 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, including details on timing, distribution, and market acceptance of products and statements predicting the trends, sales, and market conditions and opportunities in the market in which Socket Mobile sells its products.
Operator: Such 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 that the manufacture of Socket's 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.
Paul: <unk> of the Securities Act of $19 33, as amended and section 21 E of the Securities and Exchange Act of $19 34 as amended such forward. Looking statements include but are not limited to statements regarding mobile data collection and mobile data collection.
Operator: The risk that Socket's 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 Socket's products in vertical application markets may not happen as anticipated, as well as other risks described in Socket's 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.
Paul: <unk>, 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.
Paul: <unk> 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 that manufacture of sockets products may be delayed or not rolled out as predicted due to technological market or.
Paul: Our financial factors, including the availability of product components and necessary working capital.
Paul: The risk that market acceptance and sales opportunities may not happen as anticipated.
Paul: The risk that sockets application partners and current distribution channels may.
Paul: May choose not to distribute the products or may not be successful in doing so the.
Paul: The risk that acceptance of sockets products and vertical application markets may not happen as anticipated.
Paul: As well as other risks described in sockets. Most recent Form 10-K, and 10-Q reports filed with the Securities and Exchange Commission.
Paul: Socket does not undertake any obligation to update any such forward looking statements on this 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.
Operator: On this 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. Mr. Mills, you may begin, sir.
Kevin J. Mills: Mr Mills, you may begin sir.
Kevin J. Mills: Thank you Paul.
Kevin J. Mills: Good afternoon, everyone, and thank you for joining us. Our Q1 revenue was $5 million, a 15% increase compared to $4.3 million in Q1. We had an operating loss of half a million dollars in Q1, an improvement compared to the one million dollar operating loss we reported in Q1 2020. In Q1 2024, we were able to pause.
Kevin J. Mills: Good afternoon, everyone and thank you for joining us today.
Kevin J. Mills: Our Q1 revenue was $5 million.
Kevin J. Mills: A 15% increase compared to $4 3 million from Q1 2023.
Kevin J. Mills: We had an operating loss half a million dollars in Q1, an improvement compared to the $1 million operating loss, we reported in Q1 2023.
Kevin J. Mills: In Q1, 2024, we were EBITDA positive.
Kevin J. Mills: Overall Q1 was in line with our expectations.
Kevin J. Mills: Overall, Q1 was in line with our expectations, and we were pleased with our operational performance during the quarter as we maintained our focus on promoting and demonstrating our newer products. Most of these newer products were launched in late 2023 and early 2024, and initial deliveries were made in Q1. As you know, after we make initial deliveries, our products are then subjected to a series of end user evaluations before a deployment decision is reached.
Speaker Change: And we were pleased with our operational performance during the quarter as we maintained our focus on promoting and demonstrating our newer products.
Kevin J. Mills: Most of these newer products were launched in late <unk>.
Kevin J. Mills: 2023, and early 2024.
Kevin J. Mills: Sure deliveries were made in Q1.
Kevin J. Mills: As you know actually make initial deliveries of products are then subject to a series of Andrew and user evaluations.
Kevin J. Mills: For a deployment decision is reached.
Kevin J. Mills: Initial feedback has been positive, and we expect to see the first deployment in the second half of the year and expect these deployments to make a meaningful contribution to our revenue. I would now like to turn the call over to Dave Holmes, who will provide a more detailed update on our progress. Dave
Kevin J. Mills: Initial feedback has been positive.
Kevin J. Mills: We expect to see the first deployment in the second half of the year and expect these departments to make a meaningful contribution to our revenue.
Kevin J. Mills: I would now like to turn the call over to Dave Holmes, who will provide a more detailed update on our progress.
David A. Holmes: Thank you, Kevin and good afternoon, everyone.
David A. Holmes: Thank you, Kevin, and good afternoon, everyone. As Kevin said, today, I'd like to talk about the progress we are making with our newer products and strategic initiatives and highlight a few of the significant milestones that we achieved in Q1. Our investments in innovation are helping transform Socket Mobile into a more comprehensive data capture company. We've made significant progress in promoting our camera-based scanning technology. Our early adopter app partners have integrated SocketCam into their platforms, enabling their customers to scan barcodes directly into their apps using the mobile device camera.
David A. Holmes: As Kevin said today I'd like to talk about the progress we are making with our newer products and strategic initiatives and highlight a few of the significant milestones that we achieved in Q1.
David A. Holmes: Our investments in innovation are helping transform socket mobile into a more comprehensive data capture company.
David A. Holmes: We've made significant progress in promoting our camera based scanning technology.
David A. Holmes: Our early adopter App partners have integrated socket cam into their platforms, enabling their customers to scan barcodes directly into their apps using the mobile device camera.
David A. Holmes: Now that we are fully released the pro version of socket can on all development platforms.
David A. Holmes: Now that we have fully released the pro version of SocketCAM on all development platforms, we are advocating for the adoption of the Advanced Socket Cam CH-60. The free and subscription versions of SocketCAM enable our app partners to serve all of their diverse end-users' needs, from the most cost-conscious, with our free SocketCAM C820, to a more feature-rich data capture requirement, with our subscription-based Socket
David A. Holmes: We're advocating for the adoption of the advance socket <unk> 60.
David A. Holmes: And the most intense users can still use our array of hand-held hardware scanners. All of these are made available to our app partners ecosystem with a simple, single, free integration of our Capture SDK. As adoption builds and end users upgrade to our Socket Cam C860, this will generate recurring revenue streams for us each month. We also see traction with our XtremeScan military-grade industrial scanners, as well as our DuraScan wearable products. These products were built for the industrial barcode scanning market, facilitating the use of iPhones and iOS applications in rugged work environments.
David A. Holmes: The free and subscription versions of socket can enable our partners to serve all of their diverse end users' needs from the most cost conscious with our free <unk> 22, a more feature rich data capture requirements.
David A. Holmes: Our subscription based <unk> hundred 60, and the most intense users can still use.
David A. Holmes: Use our array of handholding.
David A. Holmes: <unk> scanners.
David A. Holmes: All of these are made available to our App partners ecosystem.
David A. Holmes: With a Sim simple single free integration of our capture SDK.
David A. Holmes: As adoption builds and end users upgrade to our socket <unk> 60, this will generate recurring revenue streams for us each month.
David A. Holmes: We also see traction with our extreme scan military grade industrial scanners, as well as our dairy scan wearable products.
David A. Holmes: These products were built for the industrial barcode scanning market facilitating the use of iphones.
David A. Holmes: O S applications and rug rugged work environments.
David A. Holmes: These product families represent a significant milestone in our commitment to delivering high quality data capture solutions for our customers and industrial manufacturing warehousing energy in airports.
David A. Holmes: These product families represent a significant milestone in our commitment to delivering high-quality data capture solutions for our customers in industrial, manufacturing, warehousing, energy, and airports. ExtremeScan is designed to enable iPhones to withstand harsh industrial conditions and offer robust scanning capabilities with ultimate durability.
David A. Holmes: Stream scan is designed to enable iphones to withstand harsh industrial conditions and offer robust scanning capabilities with the ultimate durability.
David A. Holmes: It opens the door to new customer segments in the massive, ruggedized computing space that demand the ultimate performance in the most difficult environments. In Q1, our initial customers were putting these products through rigorous testing, and reports back have been extremely encouraging. We've passed some of the most intense testing with flying colors and expect to move into deployments, which will begin to contribute to our revenue in Q3 and beyond. Our new Xtreme products will extend our reach and diversify our customer base.
David A. Holmes: It opens the door into new customer segments in the massive ruggedized computing space the demand the ultimate performance and the most difficult environments.
David A. Holmes: In Q1, our initial customers, we're putting these products through rigorous testing and reports back had been extremely encouraging.
David A. Holmes: We passed some of the most intense testing with flying colors and expect to move into deployments, which will begin to contribute to our revenue in Q3 and beyond.
David A. Holmes: Our new extreme products will extend our reach and diversify our customer base.
David A. Holmes: SocketCam will provide SocketMobile with a recurring revenue stream each month, and ultimately, these initiatives will make us more diversified, sustainable, and less dependent on retail. We're becoming a more complete hardware and software data capture company. And with that, I'll turn it over to Lynn for more details on our financial results.
David A. Holmes: Socket came will provide socket mobile with a recurring revenue stream each month and ultimately these initiatives will make us a more diversified sustainable and less dependent on retail.
David A. Holmes: We're becoming a more complete hardware and software data capture company.
David A. Holmes: With that I'll turn it turn it over to Lynn for more details on our financial result Lynn.
Lynn Zhao: Thank you Dave.
Lynn Zhao: Thank you, Dave, and thank you everyone for joining today's call. During Q1, our revenue increased by 15% to $5 million from $4.3 million in the prior year's quarter, and it also increased by 13% sequentially from $4.4 million for the preceding quarter. Alongside the growth in our run rate business, we also observed an increase in our deployment business. In Q1, our growth margin reached 50.3%, up from 48.1% in the prior year's quarter, but down from 52.8% in the preceding quarter. Their increase was primarily due to the allocation of manufacturing overhead costs across higher production volumes.
Lynn Zhao: And then one for Gary.
Lynn Zhao: Today's call during Q1, our revenue increase.
Lynn Zhao: 1% to $5 million from $4 $3 million in there.
Lynn Zhao: Yes.
Gary: And it also increased by 13% sequentially from $4 $4 million for the preceding quarter alongside that growth.
Gary: We also observed an increase in deployment.
Gary: In Q1, our gross margin reached 53%.
Lynn Zhao: 48, 1% in the prior year's quarter.
Lynn Zhao: They're down from 52, 8% in the preceding quarter.
Lynn Zhao: The increase was primarily due to the allocation of manufacturing overhead costs across higher production volumes.
Lynn Zhao: While the decrease was attributed to fewer direct sales from our socket store compared to Q4 2023, which yielded a higher gross margin. Operating expenses for Q1 totaled $3 million and changed from the prior year's quarter but increased from $2.8 million in the preceding quarter. Our annual financial audit expenses typically occur in the first half of the year.
Lynn Zhao: The decrease in with activity as it is here.
Lynn Zhao: From Howard how these stores compared to Q4 of 2023.
Lynn Zhao: Higher gross margin.
Lynn Zhao: Operating expenses for Q1 totaled $3 million.
Lynn Zhao: <unk> <unk> from prior year's quarter.
Lynn Zhao: Therefore from $2 $8 million during the preceding quarter.
Lynn Zhao: Our annual financial audit expenses typically occur in the first half of the year.
Lynn Zhao: During Q1, we recorded a net loss of $72,000, or $0.07 per share, compared to a net loss of $993,000, or $0.12 per share, in Q1 2023. Q1 EBITDA is $40,000, an improvement from the negative $459,000 in Q1 2023. Total non-cash expenses, including depreciation, amortization, and equity expenses, were $525,000 in Q1 2024. Our cash balance at the end of Q1 was similar to the balance on December 31, 2023 at around $2.8 million. We have maintained our inventory at a similar level at the end of the year, at $5.4 million.
Lynn Zhao: During Q1, we recorded a net loss of $72000 or seven cents per share compared to a net loss of $993000.
Lynn Zhao: We're 12 cents per share in Q1, 'twenty kind of theory.
Lynn Zhao: Q1, EBITDA is at $45.
Lynn Zhao: An improvement from the negative $499000 in Q1 2023.
Lynn Zhao: Total noncash expenses, including depreciation and amortization and aggregate expenses are $525000 in Q1 2024.
Lynn Zhao: Our cash balance at the end of Q1 was similar to the balance.
Lynn Zhao: 31, 2023 at around $2 $8 million.
Lynn Zhao: We have maintained our inventory at a similar level at the end of year added $5 $4 million.
Lynn Zhao: Our board has approved extending the maturity date of the secured subordinated convertible note initially issued in 2020 from August 30, 2024, to August 30, 2025. Our annual shareholder meeting will take place on May 15, 2024, in a virtual format. We encourage all eligible shareholders to cast their votes and to participate in the meeting. That wraps up our prepared remarks. Now I will hand the call over to the operator for questions. Paul. Thank you.
Lynn Zhao: Our board has approved extending the maturity date of the secured.
Lynn Zhao: Subordinated convertible note initially issued in 2020.
Lynn Zhao: From August 32024 to August 32805.
Lynn Zhao: Our annual shareholder meeting will take place on May 15, 2020, a floor in a virtual format. We encourage all eligible shareholders to cast their vote and to participate in the meeting.
Speaker Change: This wraps up our prepared remarks, now I will hand, the call over to the operator for questions Paul.
Speaker Change: Paul.
Paul: Thank you.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad now. You'll be placed in the queue and the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star one on your phone now. Our first question comes from William Carroll, a private investor. Your line is open. Yeah, thank you.
Paul: I would like to ask a question. Please press star one on your telephone keypad now.
Paul: You'll be placed into the queue in the order received please be prepare to ask your question when prompted.
Paul: Once again, if you have a question. Please press star one on your phone now.
Paul: And our first question comes from William Carol a private investor.
William Carol: Your line is open.
William Carol: Yes. Thank you.
William Carroll: Yeah, thank you. Hey, so I'm just trying to understand the business.
William Carol: Try that understands the business.
William Carol: Sorry, you just wanted to understand.
Operator: Sorry, you just want to understand.
Paul: Yes.
William Carroll: I want to understand these new products. How does that displace previous revenue? So I'm trying to get what's coming to you. So with these new products, how does that help grow your business?
Paul: Yeah.
Paul: <unk>.
Paul: How does that place previous Robyn.
Paul: So Brian again.
Brian: Thank you.
Paul: Some of these new products.
Paul: How does that help grow your business.
David A. Holmes: All right, so none of the new products, or the newer products, displace any of our current products. So our current business is primarily, we provide scanning solutions for iPad-based retail point-of-sale systems, and you'll see a lot of our scanners in higher-end specialty retail stores using Shopify, Square, etc. And what we have done over the last two years is using the same technology to expand into newer markets by supporting people who want to use camera-based scanning, which we believe will primarily be in the commercial services area, and making the products more ruggedized and suitable for the industrial market. And so the newer products are complementary to the existing products, and we don't see a lot of cannibalization or downside. It's more an expansion of their capabilities into parallel markets.
Paul: Alright, So then.
Paul: None of the new products. So the newer products displace any of our current business. So our current business is primarily.
William Carroll: Okay. Another question is your market cap right now is about $8 million. What are your, and are you able to share your projected 12-month revenue?
Paul: We provide scanning solutions to iPad based retail point of sale systems, and Youll see a lot of our scanners.
Paul: In the higher end.
Paul: Specialty retail stores, using shopify square et cetera.
Paul: What we have done over the last two years is using the same technology to expand into newer markets.
Paul: By a.
Paul: Supporting people, who want to use the camera based scanning.
Paul: Which we believe will primarily be in the commercial services area.
Paul: And making.
Paul: Making the products more ruggedized and suitable for the industrial markets.
Paul: So the newer products are complementary to the existing products and we don't see a lot of cannibalization are.
Paul: <unk> side, it's more of an expansion of the capabilities into parallel mark.
Speaker Change: Okay. Other question is on your market cap right now is about $8 million.
Speaker Change: What are your renewables.
Speaker Change: Jack 12 month revenue.
Speaker Change: Yes, we don't.
David A. Holmes: But we don't, yeah, we don't provide forecasts, because small differences in whether you receive an order or not don't change it greatly. As you know, last year, we did around 19 million dollars, and we would expect to be north of 20 million dollars this year. So that's the current plan.
Speaker Change: Yes, we don't provide we don't provide forecast because small differences.
Speaker Change: And whether you receive an order or change it greatly as you know last year, we did around $19 million and we would expect to be north of $20 million. This year.
Speaker Change: Okay.
Speaker Change: That's the current plan.
William Carroll: Does the board of directors already have a repurchase program in place right now?
Speaker Change: The board of directors.
Speaker Change: Are there any share repurchase program in place right now.
David A. Holmes: There is no repurchase plan in place right now, and we did have one in 2021-2022, and our cash position isn't strong enough to have a repurchase plan. So at the moment, there isn't one.
Speaker Change: There is no repurchase plan in place right now.
Speaker Change: We did have one in.
Speaker Change: 2000 and.
Speaker Change: 'twenty one 'twenty two.
Speaker Change: And our cash position is strong enough to have a repurchase plan.
Speaker Change: So at the moment there is not.
William Carroll: And then, if for some reason, you need to raise more cash, would you do debt, or would you do equity?
Speaker Change: For some reason.
Speaker Change: Cash.
Speaker Change: What would you do.
Speaker Change: Okay.
David A. Holmes: And we have available bank lines that we're currently not using. So, as the business grows, we believe we can self-fund our fund with debt or short-term debt. And we have a two and a half million dollar, revolving credit line that we currently don't use. So we feel we have enough avenues to continue to grow without any more
Speaker Change: Have available bank lines that we're currently not using so.
Speaker Change: As the business grows we believe we can self fund our fund with des our short term debt.
William Carroll: that are able to share any possible quarter in the future where your cash flow is even
Speaker Change: We have a $2 $5 million.
Speaker Change: Revolving credit line that we currently don't use so we feel we have enough avenues to continue to grow.
Speaker Change: Without any.
Speaker Change: Any more equity.
Speaker Change: And are you able to share.
Speaker Change: Possible quarter.
Speaker Change: Where your cash flow.
Speaker Change: Well, we were cash positive we were EBITDA positive in Q1.
David A. Holmes: Well, we were cash positive, or EBITDA positive, in Q1. And we would expect to basically stay around that level in Q2. And then we would expect in the second half of the year to move towards profitable operating levels, which would generate, you know, something in the region of 700 million dollars of cash each quarter. Okay, very good.
Speaker Change: We would expect.
Speaker Change: To basically stay at around that level in Q2.
Speaker Change: And then we would expect in the second half of the year to move towards profitable operating levels, which would generate.
Speaker Change: Something in the region of $700 million of cash each quarter.
Speaker Change: Okay very good thanks for answering my questions. Thank you.
William Carroll: Okay, very good. Thanks for answering my question. Thank you.
Speaker Change: Youre very welcome.
Speaker Change: Okay.
Operator: Our next question comes from Richard Greulich of REG Capital Advisors. Your line is open.
Speaker Change: Our next question comes from Richard <unk> of <unk> capital Advisors.
Richard: Your line is open thank you.
Richard E. Greulich: Thank you for taking my question. What was the percent of revenue derived from the online store in Q1? (inaudible)
Richard: Thank you for taking my questions.
Richard: What was the percent of revenue derived from the online store in Q1.
David A. Holmes: Approximately, in the US, I would say 17%, one-seventh.
Richard: Approximately.
Richard: In the U S. Approximately I would say, 17% one seven.
Speaker Change: Okay. Thank you.
Richard: <unk>.
Richard: Hi.
Richard E. Greulich: I'm still learning about the company, so this is kind of a basic question. Where do you provide the added value? Is it in the actual physical scanning device itself, or is the scanning capability inherent in that device?
Speaker Change: I'm still learning about the company. So this is kind of a basic question.
Richard: Where do you provide the added value is it in the actual physical scanning device.
Richard: Or is the scanning capability inherent in that device.
Speaker Change: No where we provide the core value. If you if you boil this down to our essence, if you will.
David A. Holmes: No, where we provide the core value, if you boil us down to our essence, if you will, what we do better than anyone else is we capture data in the physical world and transport it to the application. Right, so we provide a lot of software that allows an app developer to, I would say, have automated data collection without caring a great deal about it. So, from an application development point of view, they just get the data delivered, and we look after all of the software required to get it through the various layers that you have to do.
Speaker Change: We do better than anyone else is we capture data in the physical world and transported to the application marked.
Speaker Change: Right. So we provide a lot of software that allows an app developer to I would say have automated data collection without carrying a great deal of buses. So from an application development point of view they just.
Speaker Change: Get the data delivered and we look after.
Speaker Change: All of the software required to get it through the various layers that you have to do we talk to the physical device and then our scanner actually then collects the data so really really focus on data capture from the physical to the application layer so somebody else.
David A. Holmes: We talk to the physical device, and then our scanner actually collects the data. So we really, really focus on data capture from the physical to the application layer. So somebody like Square or Shopify doesn't have to worry about pairing the scanner. They don't have to worry about formatting the data or any of those things; they just get a delivery service that basically the end result arrives at their doorstep, if you will, and they're able to focus on using the data. So, you know, we collect our revenue because we deliver a physical scanner, but most of our value add is actually the software.
Speaker Change: Square, our shopify don't have to worry about pairing the scanner they don't have to worry about.
Speaker Change: Formatting, the data or any of those things they just get a delivery service.
Speaker Change: That's basically the end result arrives at their doorstep, if you will and they're able to focus on using the data.
Speaker Change: So okay.
Speaker Change: We collect our revenue because we deliver a physical scanner, but most of our value add is actually on the software side.
Speaker Change: Okay.
Speaker Change: So when you provide with.
Richard E. Greulich: So when you provide some of your newer camera, Scan Products, how do you earn revenue from that? So if you're providing this for free to the app developer?
Speaker Change: Some of your newer camera.
Speaker Change: Scan products.
Speaker Change: How do you how do you earn revenue from that.
Speaker Change: So.
Speaker Change: In the spring to the App developer.
David A. Holmes: Yeah, what we found over the years of selling hardware scanners is that many of our app developer partners and their end users try out free camera scanning first. And when they try that out, oftentimes, there's a fairly large percentage of them that find out that the capabilities of the free camera scanning aren't good enough for at least some percentage of their end users' needs. Those end users end up upgrading to an enhanced camera scanner, which provides more in-depth data decoding, or they end up buying a hardware scanner.
Speaker Change: Yes, what we found over the over the years of selling hardware scanners as.
Speaker Change: Many of our App developer partners and their end users try out free camera scanning first.
Speaker Change: And when they try it when they try that out oftentimes, there's a fairly large percentage of them.
Speaker Change: They'd find out that that the capabilities and the free camera scanning arent good enough for at least some percentage of their end users' needs. Those end users end up upgrading to an enhanced camera scanner, which provides more in depth data the coating.
Speaker Change: Or they end up buying a hardware scanner thats, where most of our customers have come to us ultimately to buy our hardware and so the way that we would make money and this is inserting ourselves further up the value chain. So we provide the free scanners and we're willing to we're willing to provide those for free because we know that there's going to be some <unk>.
David A. Holmes: That's where most of our customers have come to us, ultimately, to buy our hardware. And so the way that we would make money on this is by inserting ourselves further up the value chain. So we provide the free scanners, and we're willing to provide those for free, because we know that there's going to be some percentage of those that need to upgrade to the subscription-based version, and then, ultimately, some of those customers will upgrade to a hardware scanner. So we make money when people do those upgrades to either the subscription-based version or to a hardware scanner.
Speaker Change: <unk> of those that need to upgrade to the subscription based version.
Speaker Change: And then ultimately some of those customers will upgrade to hardware scanner. So we make money when people do those upgrades to either as a subscription based or to a hardware scanner.
Speaker Change: And the process by which you.
Richard E. Greulich: In the process by which you bill, invoice, or whatever you want to call it, with the subscription upgrade, is that directly to Socket, or how does that work?
Speaker Change: Bill invoice or however, you want to call.
Speaker Change: With the subscription upgrade.
Speaker Change: Is that directly to socket or how does that work.
David A. Holmes: Yeah, we use the mechanisms that are already in place in the market, which are basically through the app stores, the App Store, and the Play Store, but the revenue does come directly to Socket.
Speaker Change: Yes, it's we use the mechanisms that are already in place in the market, which are basically through the.
Speaker Change: App stores, the App store and the play store, but the revenue does come directly to socket.
Richard E. Greulich: Okay, and that's very small, I'm assuming, right now. Is there any timeframe within which you might think it could become, you know, at least moderately significant? Yeah.
Speaker Change: Okay.
Speaker Change: That's very small I'm, assuming right now.
Speaker Change: Is there any timeframe in which you might think it could become at least moderately significant.
David A. Holmes: Yeah, we're just getting started with it now. We are seeing pretty positive signs, and we expect it to start contributing to our revenue in the second half of this year.
Speaker Change: Yes.
Speaker Change: Just getting started with it now we are seeing pretty positive signs.
Speaker Change: And we expect it to start contributing to our revenue in the second half of this year.
Speaker Change: Okay.
Richard E. Greulich: Expanding into the industrial world. How are you making the market participants there aware of what you're doing and offering?
Speaker Change: Expanding into the industrial world.
Speaker Change:
Speaker Change: How are you, making the market participants and they're aware of what youre doing an offering.
Speaker Change: Yes, so we're spending we're spending a lot of time marketing directly to the to the customer segments that we're going after in the target market that we mentioned during the call.
David A. Holmes: Yeah, so we're spending a lot of time marketing directly to the customer segments that we're going after in the target market that we mentioned during the call. So those are market segments that we traditionally haven't dealt with in the past. So we're having to do a lot of new marketing efforts to reach those new audiences, and we're essentially trying to communicate with them in the pools where they play today.
Speaker Change: No.
Speaker Change: Those are market segments that we traditionally haven't dealt within the past so we're having to do.
Speaker Change: Lot of new marketing efforts to reach those new audiences.
Speaker Change: Yes.
Speaker Change: And we're essentially trying to train and communicate with them in day in the pools, where they play today.
David A. Holmes: And so we're making ourselves known in those industries. They might know us as more of a retail player today, but we're making it known that we're now entering this industrial segment. And we have some exciting new products to show. And we've been out showcasing them with a lot of marquee customers.
Speaker Change: And so we're making.
Speaker Change: We're making ourselves.
Speaker Change: No.
Speaker Change: We are making ourselves known in those industries, they might notice as more of a retail player today.
Speaker Change: But we're making it known that we are now entering this industrial segment and we have some exciting new products to show and we've been out showcasing them with a lot of marquee marquee customers.
Richard E. Greulich: So these are individual end-user customers, companies, so you're not really, but you're distributing through distributors, are you not?
Speaker Change: So these are individual end user customers companies, so youre not really.
Speaker Change: But you are distributing to distributors or you're not.
Speaker Change: We have channel, we have channel partners, and we sell direct as well.
David A. Holmes: We have channel partners, and we sell direct as well through our Socket Stores.
Speaker Change: Through our socket stores.
Richard E. Greulich: So the people you're actually marketing to, are these fairly large companies or large opportunities for you as opposed to, you know, just one or two little orders?
Speaker Change: So the people Youre actually marketing to are these fairly large companies or large opportunities for you as opposed to just one.
Speaker Change: One or two little orders.
Speaker Change: Yes.
David A. Holmes: Yeah, that's, that's correct. I mean, a lot of the folks that use these types of devices are large enterprise customers. But I would say, you know, there's everywhere from tier one all the way down to tier four, five, and six that we're addressing with these things.
Speaker Change: That's correct I mean, a lot of the a lot of the folks that use these types of devices are large enterprise customers.
Speaker Change: But I would say.
Speaker Change: As there is everywhere from tier one all the way down to tier four five and six that were.
Speaker Change: We're addressing with these things.
David A. Holmes: Maybe I could just add one of the things that we see happening is that people are more willing to use apps on smartphones than they were in the past, and we're particularly strong if you're using an app and you need data capture. And most of our business comes from lower small and medium businesses because they were the first to embrace iPads and, I will say, iPhones for business because, in many ways, they didn't have a choice.
Speaker Change: Maybe I can add.
Speaker Change: Maybe I could just add one of the things that.
Speaker Change: We see happening is that people are more willing to use apps on smartphones than they were in the past.
Speaker Change: And we're particularly strong if you're using an app and you need data capture.
Speaker Change: Most of our business comes from the lower small medium businesses because they are they were the first to embrace ipads and.
Speaker Change: We'll say iphones far business because in many ways they didn't have a choice.
David A. Holmes: Now that it's been successful with the smaller companies, the larger companies are saying, well, what about us? And again, we understand it'll take time, but we have the data capture accessories that they need, so they could use an application on an iPad or iPhone and have the same type of experience they would get with the more ruggedized dedicated devices from Zebra or Honeywell at a lower price and also avoid the training that's associated with those more dedicated.
Speaker Change: Now that it's been successful, but the smaller companies.
Speaker Change: The larger companies are saying well what about us.
Speaker Change: And again, we understand it will take time, but we have the data capture accessories that they need so they could use an application on an iPad or.
Speaker Change: IPhone and have the same type of experience they would guess with the more ruggedized dedicated device from Zebra Honeywell.
Speaker Change: At a lower price and also avoid.
Speaker Change: The training that's associated with those more dedicated devices. So that's kind of what where we're seeing and we're servicing obviously before anyone can make that decision too.
David A. Holmes: So that's kind of what we're seeing and doing. Obviously, before anyone can make that decision to go with the iPads, they need to test this, and they need to know it's robust enough. And those are the things we've been making sure are in place. So those trials will be
Speaker Change: Go with ipads, they need to test this and they need to know it's robust enough.
Speaker Change: And those are the things we have been making sure our in place. So those trials will be successful.
Speaker Change: Okay.
Speaker Change: I would think that growing and expanding into the industrial market. It would be tempting to spend a lot more on sales and marketing.
Richard E. Greulich: I would think that expanding into the industrial market would be tempting to spend a lot more on sales and marketing. But how do you draw the line between the fact you're unprofitable now and the controlling costs while you continue to try to expand your sales and marketing in that area?
Speaker Change: But how do you draw the line between in the fact Youre unprofitable now controlling cost while you continue to try to expand your sales and marketing in that area.
Speaker Change: So our business model doesn't require sales.
David A. Holmes: So our business model doesn't require sales in a traditional sense. We provide an SDK, and we work with the application provider. And the application provider, by integrating our SDK into their application, enables all of the users of that application to try and use our product. If we don't have the application or the SDK in the application, it's a zero. If we do, then they basically get a choice.
Speaker Change: Traditional sense, we provide.
Speaker Change: TK and we work with the application provider.
Speaker Change: And the application provider by integrating our SDK enables all of the users of that application to try and use our products.
Speaker Change: If we don't have the application the SDK in the application it's a zero.
David A. Holmes: And that really is what happened with Shopify, Square, Lightspeed, etc., is that Square integrated our devices, our SDK, into their application. And then every Square end user, if they buy our product, it automatically works because it's already enabled, if you will. And so the business model hasn't changed. It takes a little bit longer.
Speaker Change: If we do then they basically get a choice and that really is what happened with Shopify square Lightspeed et cetera is that.
Speaker Change: Yes.
Speaker Change: Square.
Speaker Change: Integrated our devices.
Speaker Change: Our SDK into their application.
Speaker Change: And then every square end user if they buy our product it automatically works because its already.
Speaker Change: Pat enabled if you will.
David A. Holmes: But at the end of the day, we are an accessory to the application. People don't buy our scanners; they buy Square and decide they need a scanner, and ours is the one that works.
Speaker Change: So the business model Hasnt changed it takes a little bit longer.
Speaker Change: But at the end of the day, we are a.
Speaker Change: Accessory to the application.
Speaker Change: People don't buy our scanners, they buy square and decide they need a scanner.
Speaker Change: And ours is the one that works. This is the same is true of shopify.
Speaker Change: We're following the same I would say methodology it will take a little bit of time, but we are seeing interest from app providers to integrate our.
David A. Holmes: This is the same is true with Shopify; we're following the same, I would say methodology; it'll take a little bit of time, but we are seeing interest from app providers to integrate our SDK because they're getting pressure from their end users to be allowed to use off-the-shelf iPhones and iPads. But we won't have a lot of traditional marketing, our traditional sales expense. As you can see, we control our expenses quite tightly. We will spend a little bit more money on our SDK development and our marketing development, but we feel there's a lot of leverage in that spend.
Speaker Change: To integrate our SDK, because they're getting pressure from their end users to be allowed to us.
Speaker Change: Off the shelf iphones.
Speaker Change: Ipads.
Speaker Change: But we won't have a lot of.
Speaker Change: Traditional marketing our traditional sales expense.
Speaker Change: As you can see we controlled our expenses quite tightly.
Speaker Change: We will spend a little bit more money on our SDK development and our marketing development.
Speaker Change: But we feel there is a lot of leverage in that spend.
Speaker Change: So just so I understand so square incorporated your.
Richard E. Greulich: So just so I understand it, Square incorporated your capabilities, and did they do that with other people as well, or no?
Speaker Change: Capabilities and.
Speaker Change: They do they do that with other people as well or no.
David A. Holmes: In the case of Square, you have two choices. If you want a cordless scanner, we are the only choice on Square iOS; if you want a wired scanner, Rice, in the case of Shopify, we are the only scanner that Shopify supports. So if you're using Shopify and you want to scan, [inaudible] Basically, you'll end up with a socket.
Speaker Change: In the case of square if you have two choices if you want a cordless scanner.
Speaker Change: We are the only choice on square iOS.
Speaker Change: If you want a.
Speaker Change: You can have a wired scanner right.
Speaker Change: In the case of Shopify, we are the only scanner that shopify.
Speaker Change: Support.
Speaker Change: If youre using shopify and you want to scan.
Speaker Change: Then.
Speaker Change: Basically you will end up with the sockets scanner.
Speaker Change: And forgive me.
Richard E. Greulich: And forgive me, again, I'm new to the company, just trying to understand. So the fact that you're basically the only provider of that service, for example, those two companies, and again, then you earn revenues based on people buying your accessory device, in a sense? Correct. Correct. OK, so Square doesn't pay you anything.
Speaker Change: I'm new to the company just trying to understand so the fact that you are basically the only provider of that service. For example, those two companies and again then you earn revenues based on people buying your accessory device in a sense Chris correct.
Speaker Change: Okay.
Speaker Change: Square doesn't pay you anything.
David A. Holmes: No, actually, Square is actually a reseller for us. So if you go to the Square website, you can buy the Socket Mobile scanner direct from Square. If you go to the Shopify website, you can buy it, and they buy it through distribution. Right.
Speaker Change: No actually square acts as a reseller for us. So if you go to the square website, you can buy the socket mobile scanner direct from square if you go to the Shopify website, you can buy and they buy.
Speaker Change: Through distribution rice.
Speaker Change: And then some customers decide to buy directly from us or from Amazon or some other mechanism.
David A. Holmes: And then some customers decide to buy directly from us or from Amazon or some other mechanism. But the key to all of this is that when the scanner arrives, regardless of the avenue you use to purchase it, when you take it out of the box, it works for a shopkeeper who has little interest in technology. And they're often running.
Speaker Change: But the key to all of this is that when the scanner arrives regardless of the Avenue you used to purchases when you take it out of the box.
Speaker Change: It works for a shopkeeper, who has little interest in technology, and they're often running and most of these people have no. It supports.
David A. Holmes: And most of these people have no IT support. So it needs to be pretty user-friendly, robust, and bulletproof. And we've achieved all of that in the retail space.
Speaker Change: It needs to be pretty user friendly robust bulletproof and we've achieved all of that in the retail space and now what we're trying to do is expand that into other areas.
David A. Holmes: And now, what we're trying to do is expand that into other areas, particularly commercial services where people are asset tracking or, you know, doing kind of remote work, whether it be in nursing or things like fumigation, delivery services, those type of areas, where they can use the barcode to augment and improve their processes. A lot of them start with camera-based scanning. And to the earlier question, we believe that, you know, the free camera-based scanning covers 80% of the crowd; we're willing to provide free camera-based scanning to the 80% to have a good position on the remaining 20%.
Speaker Change: Particularly we would describe commercial services, where people are asset tracking are.
Speaker Change: Doing.
Speaker Change: Kind of.
Speaker Change: Remote work, whether it be in nursing or.
Speaker Change: No.
Speaker Change: Things like fumigation.
Speaker Change: Delivery services those type of areas.
Speaker Change: Where they can use the barcode too.
Speaker Change: Augment and improve that process.
Speaker Change: A lot of them stocked with the camera based scanning and to the earlier question, we believe that.
Speaker Change: The free camera based scanning covers 80% of the requirement.
Speaker Change: Okay.
Speaker Change: We are willing to provide the free camera based scanning to the 80% to have a good position on the remaining 20%.
David A. Holmes: And it becomes a very simple upgrade process, whether it is to an enhanced camera or a physical scanner at the end user level, and the application guide doesn't need to get involved. Because their business model is about selling subscriptions.
Speaker Change: And.
Speaker Change: It becomes a very simple upgrade process, whether it is to an enhanced camera or a physical scanner.
Speaker Change: At the end user level and the application guide doesn't need to get involved.
Speaker Change: Ross.
Speaker Change: Their business model is about selling subscriptions.
Speaker Change: Mhm.
Richard E. Greulich: So what is the monthly subscription fee for the upgrade?
Speaker Change: So what is the what is the monthly subscription fees for the upgrade then.
Speaker Change: At $5 99, a month.
David A. Holmes: $5.99 a month.
Speaker Change: So that's a pretty hefty fee for somebody who.
Richard E. Greulich: That's a pretty hefty fee. I mean, for somebody who, unless somebody is actually using it in a fairly robust manner, well, it's not.
Speaker Change: Somebody is actually using it in a fairly robust manner.
Speaker Change: Okay.
David A. Holmes: Well, it's not. Well, think of it this way.
Speaker Change: Well think of it this way.
Speaker Change: If you've ever tried to use a free camera based scanner, but even if you go to a restaurant there'll be a day when because of the light in the clouds in the shadow Youre sitting there trying to read the menu and your phone one dose right.
Richard E. Greulich: I don't know if you've ever tried to use a free camera-based scanner, but even if you go to a restaurant, there'll be a day when, because of the light and the clouds and the shadows, you're sitting there trying to read the menu, and your phone won't do it. Right, and it takes an extra, you know, 30 seconds. Well, if you're doing hundreds of scans a month, and 10% take an extra 30 seconds, and basically, it's a no-brainer to upgrade because it saves you time.
Speaker Change: And it takes an extra 30 seconds, well, if youre doing hundreds of scans a month.
Speaker Change: And what 10%.
Speaker Change: <unk> take an extra 30 seconds.
Speaker Change: Basically it's a no brainer to upgrades because it saves you time.
Speaker Change: So.
David A. Holmes: [inaudible] So, and again, you have to remember We've been servicing the people who have given up with camera-based scanning. It's not like we believe anyone is using our physical scanners that hasn't already given up on camera-based scanning, right? And whereas the subscription is $6 a month, to buy a physical scanner is $200 a month or $200. So, It's, you know, we sell 100,000 scanners to people who essentially have given up on camera-based scanning because it doesn't meet their needs. We're trying to have an interim step that gives them the ability to have a better camera-based scanning. And they will also have the opportunity to have a physical scanner, depending on their, [inaudible]
Speaker Change: And again you have to remember.
Speaker Change: We've been servicing the people who have given up with camera based scanning it's not like we believe anyone is using our our physical scanners that hasnt already.
Speaker Change: Given up on the camera based scanning.
Speaker Change: Alright.
Richard E. Greulich: Maybe I misunderstood you. When you said $5.99, was that $5.99 a month or $599 a month? Sorry. No, no, no. $5.99. That's why I said what I did. We said $5.99. I thought, wow, $600 a month is a lot. No, no, no. $5.99.
Speaker Change: Whereas the subscription is $6 a month to biophysical scanner.
Speaker Change: Is $200 a month or $200. So.
Speaker Change: It's.
Speaker Change: We sell 100000 scanners to people, who essentially have given up on camera based scanning because it doesn't meet their needs.
Speaker Change: And.
Speaker Change: We're trying to have an interim step that gives them the ability to have a better camera based scanning and then it also will have the opportunity to have a physical scanner depending on their needs.
Speaker Change: So.
Speaker Change: Maybe I misunderstood you when you say $5 99, that's $5 99, a month or five.
Speaker Change: Sorry, no no no no $5 99.
Speaker Change: That's why I said, what I did we set five.
Speaker Change: While our $600 a month.
Speaker Change: Five $5 and 99, if you can find is customers are looking for that.
Speaker Change: Take them.
Speaker Change: Thank you.
Speaker Change: I appreciate you bearing with me I just have two more questions.
Speaker Change: So.
Speaker Change: FERC tax asset on your balance sheet, you have taken no reserves against that.
Speaker Change: And yet you've been unprofitable for the last year to two.
Speaker Change: Yes go ahead.
David A. Holmes: Yeah. Yeah.
Speaker Change: And yes, they're actually at the end of year.
Speaker Change: We had.
Speaker Change: Professional.
Speaker Change: We did that analysis of our.
Speaker Change: Our position of course are based on management's forecast isn't there.
Speaker Change: Next five years.
Speaker Change: Hi.
Speaker Change: Jim.
Speaker Change: Our auditors.
Speaker Change: Haven't reviewed.
Speaker Change: Their analysis.
Speaker Change: All three sites.
Jim: Thanks, Hey, concurred that we currently don't mean any immunotherapy for there.
Jim: So the data.
Jim: If our tax assets.
Speaker Change: Okay, well, thank you very much I appreciate it.
Richard E. Greulich: Okay. Well, thank you very much. I appreciate it. Yeah. So good. Yeah.
David A. Holmes: Yeah, just a quick comment. We take that practice there, on an ongoing basis as needed, as well as annually. We'll do the analysis. Thank you.
Speaker Change: Yes, just a quick comment we'd take that practice.
Speaker Change: On the ongoing basis as needed as well as the <unk>.
Speaker Change: Annually.
Jim: Where do the analysis.
Richard E. Greulich: Thank you for taking my many questions, I appreciate it.
Speaker Change: Thank you for taking my many questions I appreciate it.
Speaker Change: Sure you're welcome thank you.
Speaker Change: As a reminder, if you do have a question. Please press star one on your phone now.
Operator: As a reminder, if you do have a question, please press star 1 on your phone now. And we have a question from William. Carroll, a private investor. Your line is open.
Speaker Change: And we have a question from William <unk>.
William Carol: Daryl a private investor.
William Carol: Your line is open.
William Carol: Yes.
William Carol: <unk>.
William Carroll: So wait a little bit, so as you're getting into the industrial part. What would that Hunt customer look like? Would that be a Graybar, Jack Sparrow, or Rexel? What would your path to market for the industry be? distribution, where you have manufacturers' reps selling the product?
Daryl: It's always a little bit about so as youre getting.
William Carol: <unk> markets.
William Carol: What was that customer look like that'd be a great bar Jack straw Rockville.
William Carol: What would be your path to market.
William Carol: Okay.
William Carol: Yes distribution.
William Carol: Manufacturers reps selling the product.
William Carol: Okay.
David A. Holmes: In the case of the industrial, where we're primarily targeting Apple premium resellers, so that would be where we think it would go. In most of the solutions we're proposing, we are a scanning element that works very well with an iPad or iPhone-based solution. And therefore, those customers would already have a preferred Apple reseller, and that Apple reseller, we would hope, would also sell our products to those customers.
William Carol: In the case of the industrial.
William Carol: Sure.
William Carol: Primarily targeting Apple premium resellers, so that would be but we think it would go.
William Carol: And most of the solutions that we're proposing.
William Carol: We are.
William Carol: Scanning.
William Carol: Scanning element that works very well with an I pad iPhone based solution.
William Carol: And therefore, those customers would already have a preferred apple reseller.
William Carol: And that Apple reseller.
William Carol: Hope, but also sell our products to those customers.
William Carol: Okay.
William Carroll: Okay, that answers the question. Thank you.
Speaker Change: Thank you.
Operator: And seeing no more questions, I'll turn the call back over to our moderators.
Speaker Change: Seeing no more questions I'll turn the call back over to our moderators.
Speaker Change: Okay, if we have no more questions.
Operator: Okay, if we have no more questions, then we'd just like to thank everyone for participating in today's call and wish you all a good afternoon. Goodbye.
Speaker Change: Then we just like to thank everyone for participating in today's call.
Speaker Change: And wish you all a good afternoon.
William Carol: Goodbye.
Speaker Change: That concludes today's conference call. Thank you for attending.
Operator: That concludes today's conference call. Thank you for attending.
Speaker Change: Hey, Thank you Paul.
Operator: The host has ended this call.
Speaker Change: The host has ended this call goodbye.