Sonim Technologies, Inc. — Q1 2021 Form 10-Q
Entity note: The filing identifies the registrant as Sonim Technologies, Inc., not DNA X, Inc. The quarter ended March 31, 2021; financial amounts below are in U.S. dollars, generally in millions unless stated otherwise.
Business context and reporting period
Sonim sells ultra-rugged mobile phones, accessories and, beginning in March 2021, barcode scanners and other rugged handheld devices. Its customers include major U.S. and Canadian wireless carriers, and it sells through distributors. The company reports one operating segment.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $12.24 | $12.71 |
| Gross profit / margin | $2.46 / 20.1% | $2.17 / 17.0% |
| Operating expenses | $11.51 | $11.23 |
| Operating loss | $(9.05) | $(9.06) |
| Net loss | $(9.28) | $(9.96) |
| Net loss per share, basic and diluted | $(0.14) | $(0.48) |
| Cash from (used in) operations | $(8.20) | $1.08 |
| Cash and cash equivalents | $13.91 | $22.14 at Dec. 31, 2020 |
| Total debt | $0.33 | $0.36 at Dec. 31, 2020 |
| Current assets / current liabilities | $36.26 / $19.91 | $45.57 / $20.47 at Dec. 31, 2020 |
Revenue by product was $6.56 million from feature phones, $4.37 million from smartphones, $1.06 million from scanners and $0.26 million from accessories and other. Total assets were $40.75 million and stockholders’ equity was $19.43 million at quarter-end. The company had an accumulated deficit of $205.46 million.
Material changes versus the prior comparable period
- Revenue declined 4%, primarily as handset unit sales fell by 7,646; 1,445 scanner units partly offset the decline. Smartphone revenue decreased while feature phone and scanner revenue increased.
- Gross profit rose 14% and gross margin improved to 20.1%, reflecting scanner sales and recovery from prior-year factory and supply-chain disruption; rising component costs for legacy products partly offset the improvement.
- Operating expenses increased 3%. Research and development rose 18%, and legal expense increased from $0.51 million to $2.41 million, primarily attributed by management to the ongoing SEC investigation. Lower sales and marketing and general and administrative costs, and no current-quarter restructuring charge, partly offset the increases.
- Net loss narrowed by $0.68 million. The 2020 comparison included interest expense on debt repaid in June 2020; Q1 2021 reported no interest expense.
- Cash fell $8.23 million during the quarter, and operating cash flow shifted from $1.08 million provided in Q1 2020 to $8.20 million used in Q1 2021.
Outlook, risks and unusual items
- Going concern and funding: Management disclosed substantial doubt about the company’s ability to continue as a going concern over the following 12 months, citing ongoing losses and liquidity needs. It is exploring equity or debt financing and strategic alternatives with B. Riley; no assurance is given that financing or improved liquidity will be achieved. Further cost reductions, business restructuring or discontinuation are possible if funds cannot be raised.
- Products and orders: The RS80 tablet shipped in Q1, with available inventory shipped by quarter-end. The RS60 handheld was expected to become available at the end of May 2021. Next-generation feature phones were anticipated in Q3 2021. Management cited $10 million in purchase orders from a new major U.S. carrier for those phones, but stated the orders are nonbinding and may be terminated.
- Outsourcing: Sonim outsourced substantially all software development, transferring 105 employees, and outsourced manufacturing. The software-development agreement covers $7.1 million of future business over three years, including a $3.1 million minimum in the first year; $1.0 million was paid in Q1. The company expected to transfer or eliminate 22 manufacturing-related positions.
- Concentration and execution: Channel partners generally have no firm minimum purchase commitments, and a small number of customers account for a significant portion of revenue. COVID-19, supply-chain interruptions, product defects, carrier certification requirements and dependence on third parties remain risks.
- Legal and regulatory: The SEC formal investigation remains ongoing; the company says it cannot predict the outcome or potential impact. A $2.0 million securities class-action settlement received final court approval in March 2021 and had been paid by December 31, 2020. A new derivative action is pending; its outcome and impact are uncertain.
- Nasdaq listing: The filing reports a minimum-bid-price deficiency and says Sonim was considering options, including a reverse stock split. The text gives differing dates for the deficiency notice (April 28 in one section and April 29 in another); the stated compliance deadline is October 25, 2021.
- Controls: Management concluded disclosure controls were effective at a reasonable-assurance level, but the filing notes an identified material weakness in IT general controls related to elevated access to financial reporting systems. Remediation efforts were ongoing.
No formal revenue, earnings or cash-flow guidance is provided in the filing.
Important facts for investors to verify
- Whether Sonim can secure additional financing or otherwise address the disclosed going-concern uncertainty, and its expected cash runway.
- Whether the anticipated RS60 and next-generation feature-phone launches occur on schedule, and whether the $10 million of nonbinding orders convert to shipments and revenue.
- Customer concentration: MD&A says the top five customers represented 84% of Q1 revenue, while the customer table in the notes lists named customer shares totaling 80%; confirm the appropriate disclosure.
- The status and possible financial or operational consequences of the SEC investigation and derivative litigation.
- Nasdaq compliance status and the date and terms of any corrective action; the filing gives inconsistent dates for the deficiency notice.
- Progress remediating the internal-control material weakness and any effect of outsourcing on product development, costs and supply-chain execution.