Socket Mobile's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Socket Mobile, Inc. (SCKT)

Q2 2012 Earnings Call

July 26, 2012, 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

Brian Swift – Security Research Associates

Paul Bornstein– Black Diamond Advisers, LLC

Bernard Fidel – Private Investor

Roy Rogers – Private Investor

Presentation

Operator

Greetings, and welcome to the Socket Mobile Second Quarter 2012 Management Conference Call. (Operator Instructions)

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 today to review financial results for its 2012 second quarter ended June 30 th, 2012. On the call today from Socket are Kevin Mills, President and CEO, and Dave Dunlap, Chief Financial Officer. 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, the 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’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, and section 21-E 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 timing, distribution and market acceptance of products, and statements predicting trends, 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 of factors, but not limited to, the risk that the manufacture of Socket’s products may be delayed and 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 and the risk that 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 does not undertake any obligation to update any such forward-looking statements.

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

Kevin Mills

Thanks, Jim. Good afternoon everyone and thank you for joining us today. In today’s call, I’ll begin with a brief review of our Q2 results, then discuss the business opportunities we see ahead and our outlook for 2012.

Our revenue for the second quarter was 4 million, consisting of 2.1 million of SoMo related sales, 1.6 of cordless scanning related sales and 300,000 from service and other legacy-related products.

Q2 revenue was essentially flat compared to Q1, reflecting the impact of the transition we have been going through with both our product families. Both our next generation handheld computer and new cordless scanning products are now shipping, and we expect to be well-positioned to see growth in both categories in the third quarter and going forward.

Revenue from our SoMo product line was impacted by customers waiting for our next generation handheld, the SoMo655. We started shipping the new 655s in late Q2, a few weeks later than originally expected. Based on our late quarter shipments and the fact that we only recognize revenue based on sales out of distribution, we only recognized about $10,000 of revenue within our stated second quarter results. The positive side of this minor delay is that sales of our previous version, the SoMo 650, remained strong in Q2, and we began the process of transitioning our existing and new customers over to the 655.

We also completed a transition in our cordless scanning business during Q2, for the phasing in of our Apple-certified version, the 7ci, which utilizes a cost-reduced 1D scanning engine that positions the scanner nicely within our Apple-certified product family. This introduction allows us to consolidate our lower-priced 1D scanning offerings into a single product.

I’d now like to provide more detail on each product family, starting with the SoMo handheld product business. We expect the transition to our new and enhanced SoMo655 to be completed during Q3. In Q2, we sold 3,776 standard SoMo650s, an increase of 70% over the same period last year and 8% more than in Q1. So overall demand for the product remains solid. We have approximately 1,000 SoMo650 units in distribution, which is about three to four weeks’ supply, and once the supply is exhausted, we expect our customers to move rapidly to the newer 655 model. We are currently stocking our distribution channels and these units are being purchased by existing and new customers for compatibility and validation testing for their applications and usage scenarios, prior to final deployment. Several of these customers were members of our beta testing team, and we’ve already seen these customers completing their qualification tests without any issues. However, as with most corporate deployments, we typically don’t see or expect transition to new devices to start in earnest until the last of the existing supply of qualified units are depleted.

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