Socket Mobile CEO Discusses Q2 2011 Results - Earnings Call Transcript

Socket Mobile, Inc. ( SCKT)

Q2 2011 Earnings Call

July 26, 2011 5:00 p.m. ET

Executives

Jim Byers – SVP, MKR Group

Kevin Mills – President and CEO

Dave Dunlap – CFO, VP - Finance and Administration and Secretary

Analysts

Marco Rodriguez – Stonegate Securities

Bernard Fidel – Private Investor

Presentation

Operator

Greetings, and welcome to the Socket Mobile’s second quarter 2011 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer 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 of MKR Group. Thank you Mr. Byers. You may begin.

Jim Byers

Thank you, operator. Good afternoon, and welcome to Socket’s conference Call to review financial results for its 2011 second quarter. On the call today from Socket Mobile are Kevin Mills, President and CEO, and Dave Dunlap, CFO.

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 www.Vcall.com shortly after the call’s completion. And a transcript of this call will be posted on the Socket website within a few days.

We’ve 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 27-A of the Securities Act of 1933, as amended in section 21-E of the Securities and Exchange Act 1934 is amended. Such forward looking statements include, but are not limited to, statements regarding mobile computer, data collection and OEM products including details on timing, distribution and market acceptance of products and statements predicting trends of sales and market conditions and opportunities in the markets in which Socket sells its 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 factors including, but not limited to, the risk that manufacture of Socket’s products may be delayed or not rolled out as projected due to technological, market or financial factors, including the availability of product components and necessary working capital. The risk of 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 risks that acceptance of the company’s products and vertical application markets may not happen as anticipated and other risks described in Socket’s most recent form 10-K and 10-Q reports with the Securities and Exchange Commission. Socket does not undertake any obligation to update any such forward-looking statements.

Now with that said, I would like to turn the call over to Socket’s President and CEO, Kevin Mills.

Kevin Mills

Thanks, Jim. Thank you for joining us today. Today’s call will begin with a short review of Q2, and then I’ll outline the business opportunities we see for the rest of this year.

We are very pleased to be reporting a positive EBITDA result for Q2. This was achieved through a combination of increased revenue, increased margins and reduced expenses. Reaching positive EBITDA is an important milestone on the road to profitability, and is an important step forward for Socket.

Pause again with a review of our current handheld computing business, then provide a going forward outlook.

Our handheld computing related sales, which include our hand held computers and plug-in barcode scanners, grew to 2.6 million for the second quarter, a 24% sequential increase over the preceding quarter. While this is a significant increase, it was primarily driven by improved supply.

As we entered Q2, we reported significant backorders due to an industry-wide lack of LCD screens. During the second quarter, we improved our supply and shipped an additional 1,000 units of our handheld computers.

We believe that the supply situation will continue improve this quarter. At the same time, our backlog has continued to grow, reflecting the strong demand we continue to see for the SoMo.

Demand continues to be driven by several factors. The improving economy is helping. We are definitely seeing a return of deals that went dormant over the past two years and lead us to reengage with numerous customers, always a good and positive event.

We are also seeing increasing benefit from HP’s exit with classic PDA market. We are experiencing a significant increase in calls from current HP, iPAQ customers and resellers looking for an alternative as supplies of the HP iPAQ diminish. We believe we have not yet seen the full positive impact of HP’s departure.

We have established the SoMo as the default replacement in some markets, like Japan, where HP exited late last year. In many other markets, including in the U.S. we are currently in the evaluation phase, and hope to see these inquires convert into orders in the coming quarters.

So to summarize on our SoMo, demand remains strong. And while supply continues to be somewhat constraint, we can expect to make further significant dents in our backlog during Q3.

We expect to enter the fourth quarter with a manageable backlog and an improved supply situation, and be well positioned to take advantage of the HP iPAQ opportunity as it materializes.

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