Socket Mobile, Inc. (NASDAQ:SCKT) Q2 2024 Earnings Call Transcript

Socket Mobile, Inc. (NASDAQ:SCKT) Q2 2024 Earnings Call Transcript July 31, 2024

Operator: Welcome to the Socket Mobile Inc. Q2 2024 Earnings Call. My name is Jen 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 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 collections 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 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 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; 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. On 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 Mills, you may begin.

Kevin Mills: Thank you, operator. Good afternoon everyone and thank you for joining us today. Our Q2 revenue was $5.1 million, a 0.7% decrease compared to $5.12 million from Q2 2023. [Technical Difficulty] in Q2 2023. In Q2 2024, we were EBITDA positive. Overall, Q2 was a difficult quarter in a challenging economic climate, while we were pleased with our operational performance during the quarter as we maintained our focus on promoting and demonstrating our newer products. We launched our newer products in late 2023 and early 2024 and initial deliveries have been made. Feedback has been very positive. [Technical Difficulty] 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?

Dave 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 Q2. Our investments in innovation are helping transform Socket Mobile into a more comprehensive data capture company. We’re seeing good traction with our XtremeScan military-grade industrial scanners as well as our wearable products. These products were built for the industrial barcode scanning market, facilitating the use of iPhones and iOS applications in rugged work environments. We recently announced our latest addition to the family, the XG640, specifically designed for the transportation and logistics markets.

Q&A Session

Our unique design was built for BYOD or bring your own device. Delivery drivers can use their own mobile device for communication, navigation or photos and instantly connect to XtremeScan to enable high-performance barcode scanning. We think it’s perfect for small and medium-sized delivery operations, which often use independent drivers. Workers love it because they no longer have to carry multiple devices. These product families represent a significant milestone in our commitment to delivering high-quality data capture solutions for our customers in industrial, manufacturing, warehousing, transportation, energy and airports. XtremeScan is designed to enable iPhones to withstand harsh industrial conditions and offer robust scanning capabilities with the ultimate durability.

Opens the door into new customer segments in the massive ruggedized computing space that demand the ultimate performance in the most difficult environments. In Q2, we saw several marquee customers putting these new products through rigorous testing. We passed some of the most intense testing with flying colors. Many of these customers are now moving into proof-of-concept and pilot projects to put the devices into the hands of their frontline workers. We expect to move into deployments later this year, and we expect these products to begin to contribute to our revenue in Q4 and into 2025. We’ve also 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.

The free subscription version of SocketCam enable our app partners to serve all their diverse end user needs from the most cost conscious with our free SocketCam C820, to a more feature-rich capture requirements with our subscription-based SocketCam C860. And the most intense users can still access our array of hardware handheld scanners. All of these are made available to our app partners’ ecosystem with a single, simple and free integration of our CaptureSDK. As adoption builds and end users upgrade to SocketCam C860, this will generate a recurring revenue stream for us each month. Our new XtremeScan products will extend our reach and diversify our customer base and allow us to enter the large ruggedized mobile computing market. SocketCam opens the door for Socket Mobile to have a recurring revenue stream each month for software subscriptions.

Ultimately, these initiatives will allow us to make, to become a more diversified, sustainable most dependent on retail. We are evolving into a more complete hardware and software data capture company. With that, I’ll turn it over to Lynn for more details on our financial results. Lynn?

Lynn Zhao: Okay. Thanks, Dave. Thank you, everyone, for joining today’s call. Our Q2 revenue was approximately $5.1 million, similar to the prior year quarter and the previous quarter. Our channel inventory level was at $2.65 million, increased from $2.1 million on March 31. The reserve rate for returns, however, decreased from 44% to 22.3%, resulting in an increase of $320,000 revenue during Q2. We have maintained our gross margin of over 50 points — 50 points, yes. In Q2, our gross margin was 50.9% compared to 51.8% in the prior year’s quarter and 50.3% in the preceding quarter. Operating expenses for Q2 totaled $3.1 million, a 6% increase compared to the same period last year and a 4% increase over the previous quarter. This rise is primarily attributed to cost of living salary adjustments implemented at the start of Q2.

During Q2, we recorded a net loss of $608,000 or $0.08 per share compared to a net loss of $513,000 or $0.06 per share in Q2 2023 and a loss of $557,000 or $0.07 per share in Q1 2024. Similar to Q1, Q2 EBITDA was breakeven at $8000 compared to $234,000 in Q2 2023. Total non-cash expenses including depreciation, amortization and equity expenses are $543,000 in Q2 2024. Our cash balance decreased to $2.1 million at the end of Q2 from $2.8 million at the end of both 2023 and in Q1. Q2 spending includes $540,000 in operating activities and $110,000 in capital expenditures. We reduced our inventory from $5.4 million at the end of both 2023 and the Q1 to $5.2 million. This wraps up our prepared remarks. Now I will hand the call over to the operator for questions.

Operator?

Operator:

Kevin Mills: Thank you, operator and thank you everyone for joining us today and wish you all a good afternoon. Goodbye.

Operator: And this concludes today’s conference call. Thank you for attending.