Sonim Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The filing is for Sonim Technologies, Inc. (ticker SONM), notwithstanding the request metadata naming DNA X, Inc. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and financial results
Sonim sells ultra-rugged phones, accessories and, beginning in 2021, barcode scanners and rugged handheld devices, primarily through wireless carriers and distributors. It operates as one reportable segment.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $11.954 | $21.058 | $24.194 | $33.764 |
| Gross profit | $2.654 | $4.918 | $5.117 | $7.083 |
| Gross margin | 22.2% | 23.4% | 21.1% | 21.0% |
| Operating loss | $(6.486) | $(6.620) | $(15.536) | $(15.681) |
| Net loss | $(6.686) | $(7.096) | $(15.966) | $(17.060) |
| Basic and diluted loss per share | $(0.10) | $(0.22) | $(0.24) | $(0.65) |
Q2 revenue fell 43% year over year; first-half revenue declined 28%. Management attributed the declines mainly to lower handset unit sales as legacy products aged. First-half handset units fell 44%; scanner sales partly offset the drop. Q2 top four customers represented 83% of revenue. Feature phones generated $7.780 million and smartphones $3.946 million in Q2.
Financial position, cash flow and liquidity
- At June 30, cash and cash equivalents were $6.896 million, down from $22.141 million at year-end 2020. Current assets were $36.968 million and current liabilities $26.531 million; working capital was approximately $10.437 million.
- Total debt was $0.288 million ($0.177 million current and $0.111 million long-term). Accounts payable rose to $16.268 million from $8.856 million at year-end.
- First-half operating cash flow was negative $15.214 million, versus positive $5.662 million a year earlier. Investing cash flow was zero; financing cash flow was negative $0.031 million. Cash declined $15.245 million during the half.
- Management stated that available cash was insufficient to fund commercial-scale production and sales and disclosed substantial doubt about the company’s ability to continue as a going concern for at least one year after issuance of the statements.
- After quarter-end, the company sold 18,207,800 shares through its ATM program for approximately $8.4 million net proceeds through July 30, 2021. It reported approximately $10.4 million cash at July 31 and about $1.4 million remaining ATM capacity. This financing materially increased the share count; 85,161,187 shares were outstanding July 30.
Material changes, outlook and risks
- R&D expense increased 13% in Q2 and 16% in the first half, reflecting development of SmartScanner devices and next-generation phones. Management anticipated launching an initial next-generation feature phone in Q3 2021; the filing provides no quantified revenue or earnings guidance.
- The company reported $10 million of first-quarter purchase orders from a new major U.S. carrier for an anticipated feature phone launch, but said the orders are nonbinding and terminable. Carrier design-win awards for products expected from the second half of 2021 through Q3 2022 likewise do not require purchases and may be terminated.
- Software development and manufacturing were outsourced. A software-development agreement provides for $7.1 million of business volume over three years, with a $3.1 million minimum in the first year; $1.8 million had been paid in the first half. Headcount was 85 at June 30, down from 317 at year-end 2020.
- CEO Tom Wilkinson departed May 31; Robert Tirva became president and COO in addition to CFO. The company had no CEO as of the filing’s risk-factor disclosure. Wilkinson’s separation agreement provides 12 months of base salary at an annual rate of $400,000.
- Risks include ongoing losses and financing needs, customer and channel concentration, dependence on third-party manufacturers and suppliers, product-development and launch execution, and the ongoing SEC investigation. The company said SEC-related legal expense was $3.3 million in the first half.
- Nasdaq notified the company of a minimum-bid-price deficiency; it had until October 25, 2021 to regain compliance and was considering options including a reverse stock split. The filing also describes an ongoing derivative action and an SEC investigation; the IPO securities class-action settlement for $2.0 million had been paid and received final approval.
- Management concluded disclosure controls and procedures were not effective, citing a material weakness involving IT general controls and elevated system access. Remediation was underway. The company also disclosed that it was reviewing strategic and capital-market alternatives, with no assurance of a transaction or financing.
Key facts for investors to verify
- Whether the post-quarter ATM proceeds and any further financing are sufficient to address the stated going-concern risk, and the resulting dilution.
- Whether anticipated product launches occur on schedule and whether nonbinding purchase orders and design wins convert to firm sales.
- Customer concentration, demand for legacy and new products, and gross-margin performance as revenue changes.
- Developments in the SEC investigation, derivative litigation, Nasdaq listing compliance, and the disclosed control weakness.
- Progress and terms, if any, from the strategic-alternatives review and the company’s ability to retain key leadership and execute outsourced development and manufacturing.