image
Technology - Computer Hardware - NASDAQ - US
$ 1.2085
-2.46 %
$ 9.57 M
Market Cap
-3.31
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2021 - Q4
image
Operator

Welcome to the Q4 2021 Annual Financial Results Management Conference Call. My name is Adrian and I'll 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 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 products.

Such statements involve risks and uncertainties and actual results could differ materially from the results anticipated in such forward-looking statements because the number of factors including, but not limited to, the risk, the manufacture of Socket 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, and the risks 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 of acceptance of Socket's products and 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 doesn't take any obligation to update any forward-looking statements. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. [Operator Instructions] On the phone with me, I have Kevin Mills, President and CEO, David Holmes, Chief Business Officer, and Lynn Zhao, Chief Financial Officer.

I'll now turn the call over to Kevin Mills. Kevin, you may begin..

Kevin Mills President, Chief Executive Officer & Director

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. I want to start with a quick review of 2021 and our Q4 results, and I will hand the call over to Dave Holmes, who will outline the product adjustments and improvements in our go-to-market strategy.

We believe these improvements will enable Socket Mobile to maintain its track record of growth for the next few years. 2021 was a very good year for Socket Mobile. We grew our revenue by 48% to $23.1 million. We maintained our gross margin in the 53% range and reported operating income of $2.7 million.

Lynn Zhao will provide a more detailed breakdown of our financial results in a few minutes. Our 2021 results show the progress we have made as a company over the past 12 months.

We achieved these results in a very difficult environment by maintaining our focus on the data capture markets, and a great deal of hard work by our amazing team here at Socket Mobile.

The improvements also highlight the benefit of our application driven business model and the leverage it brings over time, as we continue to benefit from the success of our application partners. Switching to our Q4 results. In Q4, we grew our revenue by 31% to $6.1 million.

Our gross margins were slightly lower at 52.1% primarily due to increased costs associated with supply chain difficulties, resulting in an operating income up $700,000 for the quarter. These are very good results for Q4, which is a seasonally weak quarter for retail-related deployments.

So, we enter 2022, a significantly stronger and better company than we entered 2021. In addition to the financial progress, we made in 2021. We also learned a great deal from our application partners and feel we are much better positioned to serve their going forward data capture needs.

I'd now like to turn the call over to Dave Holmes, who will outline how we will better serve this market moving forward. Dave..

David Holmes Chief Business Officer

Thank you, Kevin. And good afternoon, everyone. When I joined Socket in the middle of last year, we embarked on a mission to strengthen our strategy to become a more comprehensive data capture company.

We made great strides in NFC market, which you may have heard about in our previous calls, and today I'd like to highlight another key element of that strategy. The announcement we made earlier this week, introducing the SocketCam C820.

This is the first member of the new Socket Cam software product family that turns any mobile device into a high-performance barcode scanner. We think this is a critical piece in the data capture journey.

Today's Socket Mobile scanners are primarily used in the performance sensitive portion of the data capture market, which we have a commanding market share in. However, our application partners have end-users with different data capture needs and are often not data capture experts.

They typically only add our Capture SDK to support Socket scanners when their customers run into performance issues. Our research and experience tell us the data capture is a journey, and our end customers requirements evolve over time.

Through our customer feedback, we know that roughly 70% of our end-users started out using a keyboard or camera-based scanning before they came to a Socket scanner. While free scanning works very well in low volume, well-lit environments, it can struggle as volumes increase or conditions become more difficult.

The addition of the C820 will allow our development partners to bring Socket's scanning expertise and capabilities to a much wider audience. Allowing our app partners to serve all their end-users from the price sensitive to the performance sensitive with one integration.

Enabling the app for the entire journey allows the developers to service a much bigger audience, eliminates the burden of lengthy and technical onboarding processes and allows the end customers to select the best tool for their particular situation.

We will continue investing in the SocketCam family, to offer data capture solutions that benefit our developer community and end-users.

We have an advanced version available -- we will have an advanced version available on a subscription basis later this year and we think this is a critical evolution and how Socket serves the entire data capture journey. With that, I will turn it over to Lynn for more details on our financial results.

Lynn?.

Lynn Zhao Chief Financial Officer, Vice President of Finance & Administration, Secretary and Management Director

Thank you, Dave. And good afternoon to everyone. We are very pleased with our 2021 results, as we continue to grow our business and strengthen our financial position. We drove strong double-digit year-over-year revenue growth, gross margin improvement, and a record of operating profitability, while continuing to invest in product roadmap.

Year-over-year, Q4 revenue was up 31% to $6.1 million and annual revenue was up 48% to $23.2 million, driven by strong demand for our products as we benefited from the economic recovery and their flywheel effects of our application driven business model. Q4 gross margin was 1% lower than a year ago due to the rising component costs.

For the year, however, our gross margin is 1.5% higher, which is a benefit of the increase in revenue. Although we are confident that our focus on navigating the supply constraints will enable us to continue to meet our customers needs, the ongoing industry-wide electronic component shortages could result in future higher component production costs.

Operating expenses in Q4 were $2.5 million, increased 28% over the prior year quarter. Spend on engineering and product investments as a way as our [Indiscernible] investment area increased 46%. Increases in general and administrative, and the sales marketing, and customer support are 28% and 19% respectively.

Our full-year operating expenses increased 18% compared with the prior year, if excluding the non-cash goodwill impairment charge of $4.4 million in 2020.

The increase in 2021 reflects the cost associated with a higher headcount investment in technology, consulting in the external professional services, and the increase in compensation related to improve the company performance.

We believe a continued commitment to invest in talent and in technology is essential to provide a new product offering and to better service our development partners.

In Q4, we had a net income of $1.1 million, including a deferred tax benefit of $20,099 compared to $1.9 million in the comparable prior year quarter, which included a gain of $1 million on their forgiveness of PPP loan.

Net income for the year was at $4.5 million, including a deferred tax benefit of $1.9 million, compared to a loss of $3.3 million in 2020, which included $3.3 million of goodwill impairment charge, netting off their gain on PPP loan forgiveness.

The deferred tax benefits recorded in 2021 are due to the recognition of tax deductions resulting from disqualified disposition of incentive stock options, disposition of non-qualified stock options, and the vest of employee's restricted stock awards. Adjusted EBITDA in 2021 increased to $4.2 million compared to $1.2 million in 2020.

Adjusted EBITDA margin in 2021 was the 18% compared to 8% in 2020. Q4 adjusted EBITDA was $1.1 million versus $0.8 million a year ago. Turning to our balance sheet, we continue to focus on driving strong cash flow. In 2021, we generated a record of $2.1 million in cash from operations, compared to $2.8 million generated in 2020.

We ended the year with a cash balance of $6.1 million compared to $2.1 million a year ago. As of December 31st, 2021, our inventory level net of reserve was at $5.2 million compared to $3.2 million a year ago. Their increased inventory enables us to service our customers ' full demand, while navigating this supply constraints.

Our balance sheet has further strengthened with a current ratio of 2.7 to 1, as of December 31st, compared to 1.9 to 1, a year ago. Now, I will talk about their share buyback program approved by our Board of Directors.

After evaluating the company's financial statements for the year, as well as the recent developments of the company, the board determined that the company has sufficient supply as concluded in accordance with Section 154 of the General Corporation Law of the State of Delaware for the stock repurchase program.

The use of the funds that will not impair the company's capital, but rather, the company will continue to have sufficient resources to operate for their foreseeable future.

And currently and the following repurchase program, the company's to existing debt will not exceed the present value of the company's assets, even if the stock repurchase program is completed in full.

The Board hereby determine that the stock repurchase program is in the best interest of the company and its shareholders, and the Board approved the program. Our repurchases will be conducted in accordance with SEC rule 10b18 will enter 10b5-1 plan during the open window, and our broker will execute the trades. This wraps up our prepared remarks.

Now, I will hand the call over to the operator for questions..

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Frank Petronas from Wells Fargo. Your line is open..

Frank Petronas

Congratulations on your rate of growth considering the COVID situation and again, the other variant that came about. I think you've done a great job in stock repurchase program. I have a question as far as in 2016, you entered the NASDAQ.

Now, I posed a question to you, I guess about six months ago and as far as you're going different path with the Board, possibility of getting more eye and more funds or institutional type of investors to again build from the New York Stock Exchange where again I think that these up and down gyrations have been horrible.

I mean, the average investor, I'm a former retail broker. So, what I'm saying is people that I did speak with and have bought the company, it's been like a nightmare, when they see what your account is next day, it flops right back down.

I think you can get a lot more stability if you can again get listed on the New York Stock Exchange and stop all this flipping. I think the flipping, with the interest rate rise and so forth, it should soon be over.

So, my question is, have you guys considered a listing on the New York Stock Exchange?.

Kevin Mills President, Chief Executive Officer & Director

There's a lot of no-tech questions, Frank. So let me just address a few of them. I think there is a lot of instability in the markets. And certainly, with our lower price and the availability of programs like Robin Hood, there tends to be a lot of emotion driving the stock as opposed to fundamentals.

I think as we look to 2022, we will make a more concerted effort to get to conferences to explain our story, which we now feel it's sufficiently strong. We are doing a Singular Research Conference as well as [Indiscernible] Capital Research Conference in the near future. We will reach out more on -- I think you are right.

The more institutional investors we can get, the more stability it will bring to the markets -- to the soft prices should think. And I think this is one of the reasons why we're doing the buyback program is because the market price off doesn't reflect the value of the company.

And we feel less, as we have surplus cash, it would be good to show our commitments to the long-term future by doing the repurchase program. So, we have no plans in the short-term to get on a second exchange. We've been on that for many years. And as you point out, we basically re-entered the NASDAQ market.

In fact, we were on the NASDAQ market for many years and we were other compliance and got back in compliance in 2016. So, we hope to see some more stability in the stock price this year, especially as we get more institutional investors. I don't think we can do a lot about the Reddit s or the Robin Hoods in the short-term.

So, I hope that answers your question..

Frank Petronas

Yes, part -- in part, yes. The only other thing is, just say the Robin Hood people, I think they have been slapped on a hand and just evidenced by their own stock that's been trading again, everything they've done, I think is wrong. But I think you more than qualify for the exchange.

When I was with Prudential, and then another major firm, we always had a problem with the smaller companies that we always have to write unsolicited and so forth. But I'm saying the -- it's just in between the quarters, I mean, if you're going to have more transparency, that's wonderful.

A buyback could help to some extent, but it can't -- like the stock jump is just pretty -- we'll aftermarket, I should say, jumped to like 568 and think it's back to $5 again. But it's that thing that I think the company should look for more stability. Your growth is fantastic, you're on a 45-degree curve. That's more than average in this climate.

It's amazing and I congratulate you guys. And I thank you again for answering the question..

Kevin Mills President, Chief Executive Officer & Director

You presented the question right. Thank you very much..

Operator

[Operator Instructions] We have Frank Petronas from Wells Fargo. Line is open..

Frank Petronas

I do have one more. I have about 15 maybe 20 of my former clients that come to me and look for various recommendations. Now, the other problem is the understanding of the -- I'm not a computer guy myself. I mean, but these people are much more advanced than I am.

But I think if you can kind of laid out in layman's terms and explain from that point where we can get a little more transparency as far as these products are coming online, and exactly what they mean down the road for -- I think you had great explanations for the previous products and the new one, I've gotten two calls, and then nobody really understands.

Maybe the computer geniuses and the kids today, they can probably understand it much better than an old war horse like me, so --.

Kevin Mills President, Chief Executive Officer & Director

So let me try and explain a little bit. We are dependent on our developers to enable our software so that people can use our scanners. Our research has shown that many of the people who buy our scanners have gone from keyboard, our camera-based keyboards, camera-based scanners, to our scanners.

And what we're trying to do to ensure that we service those customers earlier to smooth out the on-boarding process. So that as they need more functionality out of their scanner, they can use the current application they have.

Today it often takes us an extra year, to even two years, when customers need to use the more performance - centric scanners, but their application doesn't support it. So, there's a development cycle, and we're trying to minimize that development cycle, to make it easier for people who need performance-based scanners.

It's a little bit complicated, I would agree. Our business model is a little bit complicated because we sell through our application partners and where we enabled -- they enable their customers buy our products. So, this is why we referred to it as a business -- an application-driven business model, because the application comes first.

We're trying to improve and will likely have improved the [Indiscernible] on our web page, how we inform people about our story. And I think as we go out to investors, that scenario will continue to work on to simplify the story, even though it is a [Indiscernible] with little bit complications..

Frank Petronas

Okay. Great. The thing I do want to reemphasize again, you guys have not stumbled in the last two years that I've really been invested in the company, I have not seen any step backwards. A lot of companies have been really fallen back and then trying to recover, it's been a tough road. You guys are not there and that's what I commend you again on that.

I think I will [Indiscernible] jump on anybody else's questions, but thank you again..

Kevin Mills President, Chief Executive Officer & Director

Thank you, Frank..

Operator

[Operator Instructions] And our next question comes from William Carroll, from EMPOWER, your line is open..

William Carroll

Just a question about the share repurchase program.

Will that just be at the company's discretion from time-to-time or do you have a planned purchase activity?.

Lynn Zhao Chief Financial Officer, Vice President of Finance & Administration, Secretary and Management Director

We're going to enter 10b5 plan next week. We'll be including a 45-day waiting period, as [Indiscernible] this is following the SEC rules. And after that, the plan will be in our brokers hands to execute..

William Carroll

Great. Thank you..

Lynn Zhao Chief Financial Officer, Vice President of Finance & Administration, Secretary and Management Director

You're welcome..

Operator

[Operator Instructions] And currently we have no further questions..

Kevin Mills President, Chief Executive Officer & Director

Okay. So let me just finish by saying, we clearly have made significant progress in 2021 and feel we've established a solid foundation that will enable us to grow our revenue and importance in the data capture market in the next few years. And I'd like to thank everyone for your time and interest in Socket Mobile, and wish you all a good afternoon.

Thank you..

Operator

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating, and you may now disconnect..

ALL TRANSCRIPTS
2025 Q-1
2024 Q-4 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-3 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-2 Q-1