Sonim Technologies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 18, 2021. The filing identifies the registrant as Sonim Technologies, Inc. (Nasdaq: SONM), notwithstanding the supplied company label “DNA X, Inc.”
Business context
Sonim sells rugged mobile phones, barcode scanners and accessories for industrial and public-sector task workers. Sales depend heavily on wireless-carrier channels, including major U.S. and Canadian carriers. The company reported one operating segment. Phones and accessories accounted for most revenue; feature phones represented about 55% and smartphones about 41% of FY2020 revenue.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $64.0 million | $116.3 million |
| Gross profit | $15.2 million | $34.5 million |
| Gross margin | 23.8% | 29.7% |
| Operating loss | $29.3 million | $22.4 million |
| Net loss | $29.9 million | $25.8 million |
| Adjusted EBITDA loss | $24.3 million | $12.4 million |
| Cash used in operating activities | $10.6 million | $33.5 million |
| Cash and cash equivalents at year-end | $22.1 million | $11.3 million |
Revenue fell 45.0%, driven primarily by lower unit sales ($33.3 million impact) and lower average selling prices/product mix ($16.1 million impact). Total units sold declined 29%, to 255,000 from 359,000. Gross margin contracted 5.9 percentage points, reflecting product mix, manufacturing shutdown costs in Shenzhen during Q1, and lower manufacturing productivity.
Operating expenses declined 21.8% to $44.5 million, including lower R&D, sales and marketing, and general and administrative costs. Legal expense rose to $6.5 million from $1.1 million, including costs related to the SEC investigation and securities litigation. A $2.0 million class-action settlement was paid in 2020.
Financing cash flow was $21.4 million, mainly reflecting $25.1 million net proceeds from a June 2020 stock offering, partly offset by $4.1 million of debt repayments. The offering issued 36.8 million shares at $0.75 per share; additional shares were issued to settle debt. Year-end common shares outstanding were 66.3 million, versus 20.4 million a year earlier.
Sonim had no B. Riley convertible debt outstanding at year-end. The balance sheet nevertheless reported $0.36 million of remaining long-term debt, principally supplier royalty-related notes. Current assets were $45.6 million and current liabilities $20.5 million. Accumulated deficit was $196.2 million. The company used $10.6 million of cash in operations during the year.
Material changes and outlook
- Management reduced headcount from about 500 at year-end 2019 to 317 at year-end 2020, relocated headquarters to Austin, and outsourced manufacturing, software development and quality-control functions. It estimated a 29% ($15 million) run-rate operating-expense saving versus 2019, excluding specified one-time costs.
- Management expected updated XP3 and XP5 feature phones and new barcode-scanner products to launch in 2021; it anticipated new-generation feature-phone and scanner products would generate the majority of revenue by year-end 2021. The filing provides no numerical revenue or earnings guidance.
- The company reported cash resources and forecast billings were expected to fund operations for at least 12 months from the filing’s financial-statement date, but warned that estimates rely on assumptions and additional capital might be needed. Further equity financing could dilute shareholders.
Risks, contingencies and unusual items
- Demand and concentration: Major carriers generated over 90% of revenue; the filing reports roughly 76% of revenue from its four largest customers in the customer table, while other narrative disclosures cite approximately 77%. Purchase arrangements generally lack minimum-volume commitments.
- COVID-19 and supply chain: Manufacturing in China was shut for four weeks in Q1 2020. The pandemic affected demand and operations and could continue to disrupt supply, costs and customer payments. Sonim also relies on third parties and has single-source components for some products.
- Profitability and funding: Sonim has a long history of losses and may not achieve profitability. Its liquidity outlook depends on sales, forecasts and execution of cost reductions.
- Legal matters: The SEC formal investigation remained ongoing, with outcome and potential impact not estimable. A related IPO securities class action settlement of $2.0 million received final court approval in March 2021. A derivative action filed in February 2021 remained unresolved.
- Controls and listing: The company disclosed a material weakness involving IT general controls and elevated administrator access to financial-reporting systems. Management said remediation was in progress. Sonim transferred from Nasdaq Global Market to Nasdaq Capital Market in January 2021 after a bid-price deficiency; it reported regaining bid-price compliance in February 2021.
- Tax and dilution: A 2020 ownership change led to derecognition of $37.2 million of federal and $7.3 million of state NOLs under Section 382. The June offering and debt conversion substantially increased shares outstanding.
Most important facts for investors to verify
- Whether carrier orders and end-market demand recover after the sharp 2020 revenue decline, and whether customer concentration decreases.
- Whether the 2021 product launches and outsourcing transition occur on schedule and deliver the projected cost savings and sales mix.
- Cash burn, working-capital needs and the assumptions supporting management’s at-least-12-month liquidity assessment.
- Progress on the IT-controls material weakness, and any developments or financial exposure from the SEC investigation and derivative litigation.
- Actual remaining debt and commitments, including $5.1 million of noncancelable component purchase orders at year-end, as well as potential further dilution or Nasdaq compliance risks.