Socket Mobile, Inc. (SCKT), a leading innovator of data capture and delivery solutions for enhanced productivity, reported its financial results for the third quarter of 2024. The company announced a revenue increase of 21% to $3.9 million compared to the same quarter in the previous year. Despite this growth, the quarter was marked by an operating loss of $1 million and an EBITDA-negative of approximately $500,000.
The uneven distribution of bookings throughout the quarter, with weak bookings in July followed by stronger performance in August and September, led to lower revenue and a significant backlog entering Q4. The company also highlighted the positive feedback and potential of its industrial products, which are currently being evaluated by large organizations.
Key Takeaways
- Q3 revenue increased by 21% year-over-year to $3.9 million.
- Operating loss reported at $1 million, an improvement from the $1.4 million loss in Q3 2023.
- EBITDA-negative at approximately $500,000.
- Uneven bookings distribution resulted in a $2.2 million backlog entering Q4.
- Positive feedback received for industrial products from large organizations.
- Updated version of CaptureSDK released with full support for iOS 18.
- Raised $1 million from insiders to ensure working capital for larger customer projects.
Company Outlook
- Socket Mobile anticipates profitability in 2025 due to investments in industrial and camera spaces.
- The company is transitioning into a more comprehensive hardware and software data capture company.
- New products and strategic initiatives expected to diversify and stabilize the company's revenue sources.
Bearish Highlights
- Q3 faced very weak bookings initially, impacting revenue.
- The company experienced an operating loss and negative EBITDA.
Bullish Highlights
- Strong bookings towards the end of Q3 improved the outlook.
- Large organizations are evaluating and showing interest in the company's industrial products.
- The introduction of new products such as XtremeScan and SocketCam is expected to extend market reach.
Misses
- Revenue decreased by 24% sequentially compared to the preceding quarter.
- Gross margin declined to 49% from 51% in the preceding quarter.
Q&A Highlights
- CEO Kevin Mills expressed confidence in the company's path to profitability by 2025.
- Investments in new product areas are anticipated to pay off in the coming years.
Socket Mobile's Q3 2024 earnings call revealed a mixed performance, with increased revenue year-over-year but continued operational losses. The company's strategic focus on innovation and expansion into the industrial market is expected to drive future growth and profitability.
The introduction of new products, such as XtremeScan for rugged environments and SocketCam for camera-based scanning, reflects Socket Mobile's commitment to diversifying its customer base and revenue streams. With an eye on achieving profitability by 2025, the company is navigating through the current market challenges with a clear strategy and optimism for its new initiatives.
InvestingPro Insights
Socket Mobile's recent financial results and strategic initiatives can be further contextualized with insights from InvestingPro. As of the latest data, the company's market capitalization stands at a modest $9.5 million, reflecting its current position as a small-cap player in the data capture solutions market.
InvestingPro data shows that Socket Mobile's revenue for the last twelve months as of Q2 2024 was $17.66 million, with a slight decline of 3.63% over this period. This aligns with the company's reported challenges in bookings distribution and the resulting impact on revenue. The gross profit margin for the same period was 49.98%, which is consistent with the 49% reported in the latest quarter, indicating stability in this aspect of the company's operations.
Two key InvestingPro Tips are particularly relevant to Socket Mobile's current situation:
1. The company is not profitable over the last twelve months, which is reflected in the reported operating loss and negative EBITDA for Q3 2024.
2. Socket Mobile is trading at a low Price / Book multiple of 0.5, suggesting that the stock may be undervalued relative to its book value.
These tips provide additional context to the company's financial health and market valuation, which could be of interest to investors considering Socket Mobile's potential for future growth and profitability.
It's worth noting that InvestingPro offers 4 additional tips for Socket Mobile, providing a more comprehensive analysis for those seeking deeper insights into the company's financial position and market performance.
Full transcript - Socket Mobile Inc (SCKT) Q3 2024:
Operator: Welcome to the Socket Mobile, Inc. Q3 2024 Earnings Call. My name is Jen and I will be your operator for today's call. Before we begin, I'd 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 and Exchange Act of 1934 as amended. Such forward-looking statements include, but are not limited to, statements regarding mobile data collection and mobile data collection products, including details on timing, distribution, and market acceptance of products and statements predicting the trends, sales, and market conditions, and opportunities in the markets in which Socket Mobile sells its products. Such statements involve risks and uncertainties and actual results could differ materially from the results anticipated in such forward-looking statements because of a number of factors, including but not limited to, the risk that manufacture of Socket's products may be delayed or 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; the risk that acceptance of Socket's products in 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. On the call with me today are Kevin Mills, Chief Executive Officer; Dave Holmes, Chief Business Officer; and Lynn Zhao, Chief Financial Officer. I will now turn the call over to Kevin Mills. Mr. Mills, you may begin.
Kevin Mills: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. Our Q3 revenue was $3.9 million, a 21% increase compared to $3.2 million for Q3 2023. We had an operating loss of $1 million in Q3, compared to an operating loss of $1.4 million in Q3 2023. In Q3, we were EBITDA-negative by approximately $500,000. Overall, Q3 was a very difficult quarter. We experienced very weak bookings in July, followed by much stronger bookings in August and September. Our uneven bookings distribution resulted in lower revenue, and also resulted in a $2.2 million backlog entering Q4. We're very pleased with the feedback and potential from our industrial products, which have been evaluated by some large organizations, who reported that they met their expectations, and we are moving forward with a number of solid projects. Dave will provide more color and details on our experience in a few minutes. In Q3, we also completed and delivered an updated version of CaptureSDK with full support for iOS 18. We also completed our React Native version of our CaptureSDK, so we can fully support these important developers. As the industrial projects are moving more slowly than originally anticipated, in Q3, we raised $1 million from insiders to ensure we have the working capital to deliver to these larger customers as they move from field trials to deployment. I would now like to turn the call over to Dave Holmes, who will provide more detail and updates on our progress. Dave?
Dave Holmes: Thank you, Kevin, and good afternoon, everyone. As Kevin said, today I'd like to talk about the progress we are making with our newer products and strategic initiatives and highlight a few of the milestones that we achieved in Q3. Our investments in innovation are helping transform Socket Mobile into a more comprehensive data capture company. We are seeing good traction with XtremeScan, our military-grade industrial scanners. These products were built for the industrial barcode scanning market, facilitating the use of iPhones and iOS applications in rugged work environments. We also introduced a new member to the XtremeScan family, the XG640, specifically designed for the transportation in logistics market. Our unique design was built for BYOD, or Bring Your Own Device. It can be used with any mobile device, opening up the market for XtremeScan to larger iPhones and iPads, as well as Android phones and tablets. Delivery drivers can use their own mobile devices for communication, navigation, photos, and then connect to XtremeScan to enable high-performance barcode scanning. We think it's perfect for small and medium-sized delivery operations, which often use independent drivers. It has been very well-received by the first companies evaluating the device. Workers love it, because they no longer have to carry multiple devices. XtremeScan represents a significant milestone in our commitment to delivering high-quality data capture solutions for our customers in industrial, manufacturing, warehousing, transportation, energy, and airports. XtremeScan is designed to enable mobile phones to withstand harsh environments and offer robust scanning capabilities with the ultimate durability. We are getting the opportunity to showcase these products to dozens of airlines at a private event this quarter, which we're excited about as well. XtremeScan is opening the door into new customer segments in the massive, ruggedized computing space. These customers demand the ultimate performance in the most difficult environments. In Q3, several customers, including Marquee Fortune 50 customers, continued putting these new products through vigorous testing. We've passed some of the most intense testing with flying colors. Some of those customers are now moving into proof of concept and pilot projects to put these devices into the hands of their frontline workers. Wider deployments are planned to start before the end of this year, and they will begin to contribute to our revenue in 2025. We've also made progress in promoting our camera-based scanning technology. Our early adopter app partners have integrated SocketCam into their platforms, enabling their customers to scan barcodes directly into their apps using the mobile device camera. The free and subscription versions of SocketCam enable our app partners to serve their diverse end-user needs, from the most cost-sensitive with our free SocketCam C820, to the more feature-rich data capture requirements with our subscription-based SocketCam C860. And the most intense users can still access our array of handheld hardware scanners. All of these are made available to our app partners' ecosystem with a single, simple, and free integration of our CaptureSDK. As adoption builds and end users upgrade to SocketCam C860, this will generate a recurring revenue stream for us each month. Our new Xtreme products will extend our reach and diversify our customer base and allow us to enter the large, ruggedized mobile computing market. SocketCam opens the door for Socket Mobile to have a recurring revenue stream each month for software subscriptions. Ultimately, these initiatives will also make us a more diversified and sustainable and less dependent on retail. We are evolving into a more complete hardware and software data capture company. With that, I'll turn it over to Lynn for more details on our finance results. Lynn?
Lynn Zhao: Thanks, Dave. Thank you, everyone, for joining today's call. During Q3, our revenue increased by 21% to $3.9 million from $3.2 million in the prior year's quarter, but decreased by 24% sequentially compared to $5.1 million in the preceding quarter. In Q3, our gross margin was 49% compared to 44% in the prior year's quarter and 51% in the preceding quarter. Operating expenses for Q3 totaled $2.9 million, reflecting a 4% increase compared to the prior year's quarter and a decrease of 6% compared to $3.1 million in the preceding quarter. During Q3, we recorded a net loss of $1 million or $0.15 per share compared to a net loss of $1.3 million or $0.16 per share in Q3 2023 and a net loss of $600,000 or $0.08 per share in the previous quarter. Q3 EBITDA is a negative $500,000, compared to a negative [$870,000] (ph) in Q3 2023 and a positive [$870,000] (ph) in the previous quarter. Total non-cash expenses, including depreciation, amortization and other related expenses are $530,000 in Q3 2024. Our cash balance at the end of Q3 was $2.9 million compared to $2.8 million at the end of 2023 and the $2.1 million at the end of the prior quarter. We completed a $1 million convertible note financing in August, which provides additional working capital to expand our market reach in the new industrial market. In Q3, the CapEx spending was $400,000. This wraps up our prepared remarks. Now, I will hand the call over to the operator for questions.
Operator: Thank you. [Operator Instructions] And our first question will come from William Carroll. Please go ahead.
William Carroll: Yes. I've been a shareholder now for about five years. When does the company expect to at least start to breakeven or potentially make a profit?
Kevin Mills: I think that we expect to make a profit in 2025. And yes, we have invested a lot in the industrial and the camera space over the last two years, but we feel these investments will pay off in '25 and beyond.
William Carroll: That's really good news, Kevin. Thank you. Okay.
Kevin Mills: You're welcome.
Operator: [Operator Instructions] And it appears there are no further questions at this time. Mr. Mills, I'll turn the conference back to you for any additional or closing remarks.
Kevin Mills: Thank you, Operator. We would just like to wish everyone a good afternoon and thank you for participating in today's call. Goodbye.
Operator: And this concludes today's conference call. Thank you for attending.
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