Socket Mobile, Inc. (NASDAQ:SCKT) Q3 2024 Earnings Call Transcript

Socket Mobile, Inc. (NASDAQ:SCKT) Q3 2024 Earnings Call Transcript October 24, 2024

Operator: Welcome to the Socket Mobile, Inc. Q3 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 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 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. Mr. Mills, you may begin.

Kevin Mills: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. Our Q3 revenue was $3.9 million, a 21% increase compared to $3.2 million for Q3 2023. We had an operating loss of $1 million in Q3, compared to an operating loss of $1.4 million in Q3 2023. In Q3, we were EBITDA-negative by approximately $500,000. Overall, Q3 was a very difficult quarter. We experienced very weak bookings in July, followed by much stronger bookings in August and September. Our uneven bookings distribution resulted in lower revenue, and also resulted in a $2.2 million backlog entering Q4. We’re very pleased with the feedback and potential from our industrial products, which have been evaluated by some large organizations, who reported that they met their expectations, and we are moving forward with a number of solid projects.

Dave will provide more color and details on our experience in a few minutes. In Q3, we also completed and delivered an updated version of CaptureSDK with full support for iOS 18. We also completed our React Native version of our CaptureSDK, so we can fully support these important developers. As the industrial projects are moving more slowly than originally anticipated, in Q3, we raised $1 million from insiders to ensure we have the working capital to deliver to these larger customers as they move from field trials to deployment. I would now like to turn the call over to Dave Holmes, who will provide more detail and updates 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 milestones that we achieved in Q3. Our investments in innovation are helping transform Socket Mobile into a more comprehensive data capture company. We are seeing good traction with XtremeScan, our military-grade industrial scanners. These products were built for the industrial barcode scanning market, facilitating the use of iPhones and iOS applications in rugged work environments. We also introduced a new member to the XtremeScan family, the XG640, specifically designed for the transportation in logistics market. Our unique design was built for BYOD, or Bring Your Own Device.

It can be used with any mobile device, opening up the market for XtremeScan to larger iPhones and iPads, as well as Android phones and tablets. Delivery drivers can use their own mobile devices for communication, navigation, photos, and then 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. It has been very well-received by the first companies evaluating the device. Workers love it, because they no longer have to carry multiple devices. XtremeScan represents 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 mobile phones to withstand harsh environments and offer robust scanning capabilities with the ultimate durability. We are getting the opportunity to showcase these products to dozens of airlines at a private event this quarter, which we’re excited about as well. XtremeScan is opening the door into new customer segments in the massive, ruggedized computing space. These customers demand the ultimate performance in the most difficult environments. In Q3, several customers, including Marquee Fortune 50 customers, continued putting these new products through vigorous testing. We’ve passed some of the most intense testing with flying colors. Some of those customers are now moving into proof of concept and pilot projects to put these devices into the hands of their frontline workers.

Wider deployments are planned to start before the end of this year, and they will begin to contribute to our revenue in 2025. We’ve also made 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 and subscription versions of SocketCam enable our app partners to serve their diverse end-user needs, from the most cost-sensitive with our free SocketCam C820, to the more feature-rich data capture requirements with our subscription-based SocketCam C860. And the most intense users can still access our array of handheld hardware 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 Xtreme 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 also make us a more diversified and sustainable and less 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 finance results. Lynn?

Lynn Zhao: Thanks, Dave. Thank you, everyone, for joining today’s call. During Q3, our revenue increased by 21% to $3.9 million from $3.2 million in the prior year’s quarter, but decreased by 24% sequentially compared to $5.1 million in the preceding quarter. In Q3, our gross margin was 49% compared to 44% in the prior year’s quarter and 51% in the preceding quarter. Operating expenses for Q3 totaled $2.9 million, reflecting a 4% increase compared to the prior year’s quarter and a decrease of 6% compared to $3.1 million in the preceding quarter. During Q3, we recorded a net loss of $1 million or $0.15 per share compared to a net loss of $1.3 million or $0.16 per share in Q3 2023 and a net loss of $600,000 or $0.08 per share in the previous quarter.

Q3 EBITDA is a negative $500,000, compared to a negative [$870,000] (ph) in Q3 2023 and a positive [$870,000] (ph) in the previous quarter. Total non-cash expenses, including depreciation, amortization and other related expenses are $530,000 in Q3 2024. Our cash balance at the end of Q3 was $2.9 million compared to $2.8 million at the end of 2023 and the $2.1 million at the end of the prior quarter. We completed a $1 million convertible note financing in August, which provides additional working capital to expand our market reach in the new industrial market. In Q3, the CapEx spending was $400,000. This wraps up our prepared remarks. Now, I will hand the call over to the operator for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question will come from William Carroll. Please go ahead.

William Carroll: Yes. I’ve been a shareholder now for about five years. When does the company expect to at least start to breakeven or potentially make a profit?

Kevin Mills: I think that we expect to make a profit in 2025. And yes, we have invested a lot in the industrial and the camera space over the last two years, but we feel these investments will pay off in ’25 and beyond.

William Carroll: That’s really good news, Kevin. Thank you. Okay.

Kevin Mills: You’re welcome.

Operator: [Operator Instructions] And it appears there are no further questions at this time. Mr. Mills, I’ll turn the conference back to you for any additional or closing remarks.

Kevin Mills: Thank you, Operator. We would just like to wish everyone a good afternoon and thank you for participating in today’s call. Goodbye.

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