Sonim Technologies, Inc. (SONM) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon. Welcome to the Sonim Technologies First Quarter 2021 Results Conference Call. My name is Gary and I will be your operator today. Joining us for today's call are Sonim CEO, Tom Wilkinson; CFO, Bob Tirva; and Investor Relations Advisor, Matt Kreps. Following the remarks we'll open the call for questions. I'd like to remind everyone that this call is being recorded and will be made available for replay via link available in the Investor Relations section of the Company's website at www.sonimtech.com Now, I would now like to turn the call over to Matt Kreps. Sir, please proceed.
Matt Kreps: Thank you, and welcome everyone to Sonim Technologies' results call for the first quarter ended March 31, 2021. Sonim has just distributed a press release and filed the Form 8-K with the Securities and Exchange Commission. Those documents are available on the sonimtech.com website under the Investors link. Information from that press release includes historical financial results, some of which will also be discussed in the company's remarks on this call.
Tom Wilkinson: Thanks, Matt, and hello to everyone joining us on the call and online. We're off to a good start on our transformed gear in 2021 as Sonim entered the rugged handhelds and tablet market with our platform in smart scanner products including the RS80 and newly available RS60. We expect to release our tablet the RS80 at the end of the second quarter. We're also pleased to report that we're on track for the launch of our next generation feature phones in Q3 of this year with major carriers in North America. In addition, we are poised to expand our presence in the large and attractive international market with our phones, scanner and tablet products. We are prioritizing our spending on R&D to focus on developing products that we believe will enable future revenue growth including a number of projects that will show their benefit in 2021 to both revenue upside and better overall margins. We commit sales of our RS80 smart scanner rugged tablets in mid-February. And so all of our initial quantities into distribution resulting in average $1 million of revenue for the first quarter. Customer feedback has been very good and we've seen meaningful future opportunities for this product with our channel partners. We continue to take orders as we scale up production of these devices. The RS80 is an 8-inch fully rugged android tablet with an integrated barcode scanner that features glove-friendly touch screen, high-capacity and multi-shift battery, resistance to water and dust and many other features specifically tailored to maximize this functionality on the job. These features truly matter as many customers have found in prior trials of consumer devices, cases and other solutions that simply do not work ending up costing more both in dollars and productivity to just buying well-designed rugged devices in the first place. The RS80 is specifically built to last and can lower the total cost of ownership compared to consumer tablets as a result of its proven durability while also improving the barcode scanning experience for frontline workers who must rapidly capture large amounts of data.
Bob Tirva: Thank, Tom. Our press release issued earlier today announced the results for the first quarter ended March 31, 2021. A copy of the release is available in the Investor Relation section of our website. Net revenues for the first quarter of 2021 were $12.2 million compared with $12.7 million in the first quarter of 2020. The change in net revenue reflected the expected decline in sales of our legacy products partially offset by the introduction of the RS80 late in Q1 and a shipment of over $1 million of that product during the period.
Tom Wilkinson: Thanks, Bob. In conjunction with the work we're doing to bridge our capital needs, we are pleased to announce that we've retained B. Riley as our investment bank to explore capital market financing ideas as well as strategic alternatives for our company including those buy and sale side opportunities. Our management team and board expects to work closely with the bankers to chart a path forward. With that, I will now turn it back to the operator for our Q&A session.
Operator: Our first question comes from Martin Yang with Oppenheimer. Please go ahead.
Martin Yang: Hi, thank you for taking my question on. So first question I wanted to get a sense of when you see the good feedbacks on your tablet products, does that change your view on the long-term road map for you or at the overall company when you look at the reasons to your product portfolio in the next two years. And then, the follow-up question regarding tablet is, what can you share with us what art the typical life cycle are for those rugged tablets?
Tom Wilkinson: Good question. So I think that the good feedback and demand will add for these phones reinforces the plan that we already had it to some of our expectations for the future. It certainly becomes more when we actually starts selling products like we have, it becomes more a reality instead of projection at that point. It is going to help us focus on expanding our products yes sort of in the same way in the future by bringing out more rugged mobility products down the line. And this is a -- what was the second part of your question?
Martin Yang: The life cycle on those rugged products.
Tom Wilkinson: Well, I think these are rugged products. So I think that we should expect our customers and new customers to use them for two to three years before recycling them -- before cycling them.
Martin Yang: And do you have like a training program to facilitate the upgrade?
Tom Wilkinson: So in our case, this would be the first time they're using our first barcode scanner products. So we do have training materials and marketing materials to help our distribution partners get the products out and get them in the hands and being used. Really gets to the point of next generation in these type of products. We would certainly put in some other kind of materials at that time.
Martin Yang: And my next question is on the coming feature phones. It looks like feature phones, rugged feature phones is plays really well in the particular market. And do you think there will be more similar preorders coming from other carriers and what are the typical rationales for large pre-orders like that?
Tom Wilkinson: Well, every carrier works differently. In this case we've got RPO's deliver to us on a large amount and upfront. I think that -- I think it's logical for each share to resist it or pursue businesses they see if that's their risks and their needs. We don’t typically get as far out of RPO as we've been able to get in this one. The motivation though should be to make sure that they flock into the supply that they would like to have on new products. And in particularly for this customer, they're working with us and these PO's are going to make them first-to-market for our product.
Martin Yang: Yes, makes sense. Can you give us a sense of how much time will it take for that pre-order to be fully executed?
Tom Wilkinson: Those -- the PO's that we received are for Q3 and Q4.
Martin Yang: Got it, thanks. I'll jump back in the queue.
Operator: Next question is from Mike Crawford with B. Riley Securities. Please go ahead.
Mike Crawford: Tom, Bob, what level of capital be desired to get across ODM transition finish line?
Tom Wilkinson: We don’t. We're not really expressing it quite at the moment. I think that we'll be able to communicate that in a short period of time. And but for the most part, what we're really focused on here is showing up our balance sheet to cover for the unexpected but not unlimited legal cost that we've been having to incur lately. There's a point-in-time in the near future where a large amount of admitting legal cost that we would be continuing to spend would be covered by insurance. We're just not there yet. Bob's got a few thoughts on this as well.
Bob Tirva: Yes. I think as Tom mentioned, definitely the legal expenses for an unforeseen at least at the level that we've experienced unforeseen in the past quarter. But at the end of the day the way to look at this is that we have the profit generation products, the legacy products which are coming to an end, the next generation products which are ramping and those don’t align perfectly and there is risk there in terms of making sure we get the new products off the ground and there is a little bit of risk in terms of what the tail is on the legacy products. And so, we just want to make sure that we are covered our eventualities that might impact our cash balances. It's still pretty healthy and this is more of a precautionary measure in our view with the short-term.
Mike Crawford: And your 10-K, that was really only mentioned of one new derivate suite in Delaware and but are you talking about D&O insurance and what are the deductibles and how much more do you have until you get there?
Tom Wilkinson: That is what we're talking about D&O insurance but specifically it's the SEC matter and not the law suites, the shareholder law suites have been settled. So in that sense those are behind us. It's more of the SEC work that goes on. And the SEC doesn’t give estimates as to when they will conclude their work. And so we really are just waiting to see their feedback.
Mike Crawford: And D&O did that deductible or limit everyone until you get there?
Tom Wilkinson: Yes. We had a -- I mean, on deductible $7.5 million. I don’t have at my finger tips exactly where we cross the threshold on that. But we've incurred significant amounts to-date towards that number.
Mike Crawford: Okay. And then just switching gears, one last one. Just on your new channel distribution strategy. Is this the case where with partners like SYNNEX were, will you be recognizing revenue upon shipment into the channel as opposed to when they sell it through and where are we in that process?
Bob Tirva: So under the new accounting guidance we would recognize revenue based on shipping to the distributor and developing a reserve for returns. And we're just getting started that obviously we've shipped a $1 million plus, we don’t really have experience with returns yet but we've estimated an amount -- a modest amount and booked that. But that would be the process going forward.
Mike Crawford: And okay, thank you very much.
Bob Tirva: Okay.
Operator: The last question is from Jaeson Schmidt with Lake Street. Please go ahead.
Jaeson Schmidt: Hi guys, thanks for taking my questions. Just curious if you've seen any supply constraints or supply chain challenges?
Bob Tirva: So our only challenges have been really with the legacy products that we have, some of the components are older and they're reaching end-of-life. So our suppliers are certain components that go into our products. Those have become a little bit more expensive as the quantities drop and those have phased out for next generation type of products that we're using on new devices. So that's really all we've seen. I mean, if you're talking about COVID related, we had that a year ago but that is not seen to be an issue today.
Jaeson Schmidt: Thanks.
Tom Wilkinson: Yes. We'll be able to build to all of the demand that we have and have a very good on what our total life cycle is. But as Bob mentioned, cost start to shift over time, not available.
Jaeson Schmidt: Okay. Then I mean based on the new order for these next gen feature phones. I assume sort of we're on the cusp of a replenishment cycle but do you have a sense of inventory levels over all like carriers in regards to your legacy products?
Bob Tirva: Yes. There are still little bit inventory on the smartphone and AT&T. But by-and-large, our carrier partners don’t carry large amounts of inventory other than that with smart phone agency.
Jaeson Schmidt: Okay. And then, just last one from me and I'll jump back into queue. Just to clarify on that $10 million order. Is that for multiple skews or a single skew?
Bob Tirva: It's actually two skews; there is a camera and a non-camera version of that feature phone. But it's all for one carrier.
Jaeson Schmidt: Okay. Thanks a lot guys.
Bob Tirva: Okay.
Operator: Thank you. At this time, this concludes the question and answer session. I would now like to turn the call back over to Mr. Wilkinson for his closing remarks.
Tom Wilkinson: Thank you for joining us on today's call. We'll be participating in Oppenheimer conference call tomorrow. If any of you would like to arrange a call with management, please reach out to Matt Kreps and Darrow Associates, his contact information is listed on our press releases. We would be happy to arrange a phone call if needed. Thank you.
Operator: Thank you for joining us today for Sonim Technologies first quarter 2021 earnings conference call. You may now disconnect.
