Socket Mobile, Inc. (SCKT)

Q1 2010 Earnings Call Transcript

April 27, 2010 5:00 pm ET

Executives

Jim Byers – IR, MKR Group

Kevin Mills – President & CEO

Dave Dunlap – CFO and Secretary

Analysts

Brian Swift – Security Research Associates

Bernard Fidel [ph]

Presentation

Operator

Greetings and welcome to the Socket Mobile first quarter 2010 management conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Byers, with MKR Group. Thank you. You may begin.

Jim Byers

Thank you, operator. Good afternoon and welcome to Socket's conference call to review the financial results for its 2010 first quarter ended March 31, 2010. Online today are Kevin Mills, President and CEO of Socket, and Dave Dunlap, CFO of Socket.

Socket Mobile distributed its earnings release over the wire service at the close of the market today. The release has also been posted on Socket’s website at www.socketmobile.com. In addition, a replay of today's call will be available at vcall.com shortly after the call's completion, and a transcript of this call will be posted on Socket’s website within a few days. We have also posted replay numbers in today's press release for those wishing to replay this call by phone. The phone replays will be available for one week.

Before we begin, I would 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 Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements regarding mobile computer, data collection and OEM products, including details on the timing, distribution and market acceptance of the products, and statements predicting trends, sales and market conditions and opportunities in the markets in which we sells our products.

Such statements involve risks and uncertainties, and actual results could differ materially from the results anticipated in such forward-looking statements as a result of a number of factors, including, but not limited to, the risk that our products may be delayed or not rollout as predicted, if ever, due to technological, market, or financial factors, including the availability of necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risk that our 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 our products in vertical application markets may not happen as anticipated, and other risks described in our 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 forward-looking statements.

With that said, I would now like to turn the call over to Socket's CEO, Kevin Mills.

Kevin Mills

Thanks, Jim. And thank you for joining us today. I will first provide an overview of our first quarter of 2010, followed by our current outlook for the markets and business for the rest of 2010. We generated a sequential improvement in revenue in the first quarter and saw continued progress in other key areas. This includes increases in activity in our sales pipeline, recent introduction of additional new products and enhancements that further expand our overall market, and continued progress in maintaining tight controls on our expenses with a focus on achieving profitable operating results.

Our sequential increase in Q1 revenue reverses the trend we have seen over the past two years where Q1 has typically declined from Q4. Overall, while the general pace of business purchasing remains slow, we are seeing a slight uptick in strategic investments by businesses for deployment and expansion of systems for their mobile workers as a cost-effective means to enhance productivity during a period of economic slowdown.

We remain very focused on converting opportunities in our growing sales pipeline into revenue growth. Yesterday we announced a two-year $3 million OEM agreement with Epocal, a leading provider of point of care blood diagnostic products, to supply unique version of our SoMo 650 handheld computer as a natural component of their blood analysis system.

We have been working with Epocal for some time. And over the past 12 months, they have purchased approximately 1,000 of our standard SoMo units to serve their North American requirement. We believe this new agreement reflects the proven success of their blood analysis system, which is in daily operation in many hospitals. To give further color, Epocal has recently partnered with Inverness Medical, whereby Inverness has agreed to distribute the product via its worldwide distribution network, provide fund, and agree to purchase Epocal subject to some performance metric.

The agreement with Inverness changes the size and scope of the opportunity based on their size and market reach. Our ODM agreement with Epocal puts the mechanisms in place to realize the opportunity. Socket will provide customized versions of SoMo and scanner to Epocal under the Epocal name that needs the terms of the worldwide distribution agreement with Inverness and enable Epocal to ship their products worldwide.

The agreement is for 5,000 units over a two-year period and is targeted to generate over $3 million of revenue to Socket. We expect revenue under this agreement to begin in Q2 and be a solid contributor to revenue going forward. Our agreement with Epocal represents the ideal type of opportunity and partnership for Socket.

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