Sonim Technologies, Inc.
Q1 2020 Earnings Call Transcript
Published:
- Operator:
- Good afternoon. Welcome to Sonim Technologies First Quarter 2020 Results Conference Call. My name is Denial, and I will be your operator today. Joining us for today’s call are Sonim’s CEO, Tom Wilkinson; CFO, Bob Tirva; and Investor Relations Adviser, Matt Kreps. Following their remarks, we will open the call for questions. I would like to remind everyone that, this call will be recorded and made available for replay via link available in the Investor Relations section of the Company’s website at www.sonimtech.com. Now, I would like to turn the call over to Matt Kreps. Please sir, proceed.
- Matt Kreps:
- Thank you, Denial, and welcome everyone to today's Sonim results call for the first quarter ended March 31, 2020. Sonim has distributed a press release and filed the Form 8-K with Securities and Exchange Commission. Those documents are available on the sonimtech.com website under Investors.
- Tom Wilkinson:
- Thank you, Matt, and hello to everyone joining from the call and online. It's been an interesting two months and three weeks. Part of that as what Bob and I expected joining Sonim team last fall related turnaround, a process that always has a lot of moving parts, but clearly an unanticipated part of our work has been responding to the global COVID-19 pandemic. For Sonim, the COVID pandemic has been disruptive, but not to the extent and not in the same way it has been for many other companies. In fact, the wide ranging and immediately changes and first responder, healthcare, education, government and commercial industries that have decided remote work, connectivity and mobile data have put a spotlight on mobile devices and in particular rugged devices such as ours. These industries are having too quickly deploy people and resources in new and often critical situations, where the ability to instantly communicate is essential, as this the need to aggressively clean and disinfected mobile devices. The last thing a first responder wants to do is bring the virus back to their station or their home. In these conditions, there's an advantage to our ultra rugged design, our integrated push-to-turn function and configurability and deployment and management provided by our Sonim SCOUT applications. As we previously disclosed, we use November and December to complete a thorough review of the Company. It was clear that we are on a declining revenue trajectory through the first quarter of this year due to an inventory buildup with a major carrier as well as delays in ramping other customers.
- Bob Tirva:
- Thanks Tom. This afternoon we issued a press release announcing our results for the first quarter ended March 31, 2020, a copy of which is available on the Investor Relations section of our website. Our first quarter 10-Q will also be filed with the SEC shortly. Net revenues for the first quarter of 2020, decreased to $12.7 million, the decrease in net revenues was primarily attributable to the absence of activity on the road minimum volume boarder contract, which ended in Q4 of 2019 and a slower than expected ramp of our products at additional carriers. As we've discussed previously, these product ramps can be unpredictable from quarter-to-quarter as carriers try to anticipate end customer demand, while keeping their inventory low.
- Tom Wilkinson:
- Thanks Bob. We've not had a call with him with investors since our presentation of the third quarter results, but we'll have them doing more than simply cost cutting. During this time, we have resolved a number of technical issues that were plaguing our products in the last half of 2019. These had a particular impact to the key carrier customer and delayed adoption of our products.
- Operator:
- We will now begin the question-and-answer session. First question comes from Zack Silver of B. Riley FBR. Please go ahead.
- Zack Silver:
- Okay, great. Thank you for taking the question. The first one is just around, just on the cost of goods impacting the first quarter. Can you help to quantify how much the COVID driven factory shutdown impacted that? And then how we should expect the gross margins to trend over the balance of the year?
- Bob Tirva:
- Hey, Zach, it's Bob. So I think, traditionally our margins have been around 30% over the last 2 quarters. I think that's a good indicator of where we were historically. And, the drop was primarily due to the shutdown of the factory in Shenzhen. So, I think that you'd see, our margins going back to that general range, maybe a little bit lower, but the majority was the shutdown.
- Zack Silver:
- Okay. That's helpful. And then just on the Sprint T-Mobile to just to kind of clarify that. You are working towards for the -- for the next round of devices, you're going to work towards getting those T-Mobile certified. So, we have that right, and then on the Sprint impact, I mean, I know that you don't give individual customer breakouts, but how much impact should that the Sprint T-Mobile merger produce over the balance of the year?
- Bob Tirva:
- Yes, our next round of products is definitely going to be functional on the T-Mobile networks and mostly in the communication as such. Like you said, we don't give specific breakouts, but I would say that, the changes going on there will have a modest impact on this year, not dramatic.
- Zack Silver:
- Okay. Sorry, go ahead.
- Bob Tirva:
- Sorry, Zach. It's kind of a change. Sprint and T-Mobile are merging as rapidly as they can. We have customers who depend on our products and there's no slow down at all. As you're a Sprint customer and you've deployed our XP8, then you have a new addition to your team and you want an XP8, you absolutely can get one through Sprint, not an issue. I think over half our sales to Sprint are either upgrades or line additions to current customers that use our products. And so, that's not going to be impacted in the near future. Eventually, the focus on new devices will be led by T-Mobile. So, it's kind of a later in the year thing.
- Zack Silver:
- Okay, that's helpful. And then the last one more broadly, just around the competitive environment for the rugged solutions that you provide and then expanding into different markets was intriguing. So, if you could maybe talk through the competitive environment for some of the examples you referenced like barcode scanners that would be helpful.
- Bob Tirva:
- Sure. I mean, clearly, we're not describing products that don't exist, but what we've observed is that, as other rugged mobile optionality has arisen, the traditional barcode scanners for example, haven't changed that much. They tend to have small screens, and they tend to be built on architecture that's been around for several years. So, we think that by bringing out newer devices, by providing an alternative to the form and fit for the customers that will have attractive devices.
- Zack Silver:
- Got it. And then just for the competitive environment in rugged mobile devices, any changes from last year on that front?
- Tom Wilkinson:
- Not really. We don't really see anyone else coming into the market except for one device from one of the larger producers. I guess dabbling and rugged. But we really don't see any new players. I think everyone is going to be figuring out what their timeline is going to be to 5G just like we are embarking on that and that will be important for the future.
- Zack Silver:
- Great, thank you both.
- Operator:
- The next question comes from Jason Smith of Lake Street. Please go ahead.
- Jason Smith:
- Hey guys. Thanks for taking my questions. Just curious, if you comment on what you saw from an order pattern standpoint in April and now here through May? And any sort of comments on linearity would be helpful.
- Tom Wilkinson:
- Well, I got to be very careful because since Bob told me and told everyone else we're not providing guidance we've got to be careful. But I would say, when you think about these products as being enterprise products, there's actually rarely any linearity. Everything is -- there's so many opportunities and so many deliveries of projects delivered. They're large -- you'll have the large deployment. So, when you think about products that have, let's say, kind of observable differences that are like a repeatable pattern over a quarter, between the 3 months, our devices don't really operate that way. We don't see that kind of patterning. So, the works are a little bit different. We work with our carrier partners. We get solid projections. We help them figure out those all projections. Those move through the quarter. We bring them upside as well. So, it's not something I can really express in those terms. That's why when we think about it, we're thinking of Q1 versus Q2 in total, not really month-to-month or any particular quarter.
- Jason Smith:
- Okay, understood. And then obviously your products are critical, but have you seen any sort of trickle down impact from project constraints or concerns on future budgets?
- Tom Wilkinson:
- Not really. I mean, in the beginning for the non-governmental uses, we saw some pauses, but that seems to have -- we've seemed to have moved past that.
- Jason Smith:
- Okay. And then just the last one for me, and I'll jump back into queue. On the OpEx just to clarify. So Q2 will sort of be the first quarter reflective of all the cost cutting measures or some of that still bleed into Q3.
- Bob Tirva:
- So, that was our intent and we're moving towards that as quickly as possible, but there are certain things that will probably drift into Q3, just because we face the pandemic shutdown as everyone else does. So for example, we intended on June 1st to start subleasing our former headquarters space in San Mateo, California, that is on hold because we basically can't move anybody in here, while the offices is shut down. And so, the lease costs will continue on until, we can succeed in completing the sublease. So certain things like that will not be fully reflected in Q2, but will eventually take shape overtime.
- Jason Smith:
- Okay, that's helpful. Thanks a lot guys.
- Tom Wilkinson:
- Yes.
- Operator:
- This concludes the question-and-answer session. I would now like to turn the call back over to Mr. Wilkinson for closing remarks.
- Tom Wilkinson:
- Thank you for joining us on today's call. We want to thank our employees, our customers, our partners and our investors for supporting us through this transition. If any of you would like to arrange a call with management, please reach out to Matt Krebs and their associates. His contact information is listed on our press release. We'd be happy to arrange a follow-up call, if needed.
- Operator:
- Thank you for joining us today for Sonim Technologies' first quarter 2020 earnings conference call. You may now disconnect.