Sonim Technologies, Inc. (SONM) — Q1 2020 Form 10-Q
Issuer note: The supplied filing is for Sonim Technologies, Inc., not DNA X, Inc. Verify the issuer and security before relying on this summary. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context and reporting period
For the three months ended March 31, 2020, Sonim sold ultra-rugged phones and accessories primarily through wireless carriers to industrial enterprise and public-sector customers. Approximately 90% of revenue came from carrier customers, and 82% from its top five customers. The filing was signed May 14, 2020.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $12.706 million | $26.484 million; down 52% |
| Gross profit and margin | $2.165 million; 17.0% | $9.021 million; 34.1% |
| Operating expenses | $11.226 million | $13.163 million |
| Operating loss | $9.061 million | $4.142 million |
| Net loss / diluted loss per share | $9.964 million / $0.48 | $5.124 million / $0.32 |
| Adjusted EBITDA (non-GAAP) | Loss of $7.265 million | Loss of $3.468 million |
| Operating cash flow | Provided $1.075 million | Used $4.528 million |
Revenue fell primarily because of a slower-than-expected sales ramp at a major customer, excess inventory at another customer, fewer units shipped and lower average selling prices. Smartphone unit sales declined 44% and feature-phone unit sales 30%. Management attributed pressure on gross profit in part to costs from the temporary Shenzhen factory shutdown. R&D expense declined 43%; restructuring expense was $1.087 million.
Cash and cash equivalents were $12.362 million at March 31, 2020, up $1.064 million from year-end. Operating cash generation benefited substantially from reductions in accounts receivable and inventory; it does not indicate the company was profitable. Current assets were $38.560 million and current liabilities $27.639 million. Total liabilities were $30.015 million, including $10.107 million current debt and $0.325 million long-term debt. Stockholders’ equity was $15.994 million.
Material changes, outlook and risks
- Liquidity and going concern: Management stated that cash and expected proceeds from forecast billings were expected to fund planned operations through year-end 2020, but substantial doubt remained about the company’s ability to continue as a going concern for twelve months from filing. Additional financing may be unavailable or dilutive; further cost reductions may be required.
- Debt and credit facilities: The company reported a default under its East West Bank facility, including a material adverse change and failure to provide notice of certain events. The $8 million line had no balance outstanding, but borrowing was conditional on compliance and other terms. The B. Riley loan had approximately $10.3 million of principal and accrued interest outstanding, bears 10% interest and was classified as current following a material adverse change. Defaults could permit acceleration or foreclosure on collateral and restrict access to the EWB facility.
- Sprint exposure: Following the Sprint–T-Mobile merger, Sonim said Sprint products XP5s, XP8 and XP3 were expected to reach end of life in Q4 2020, with discussions to extend timing. Beginning in August, sales were expected to be limited to upgrades and line additions; those purchases represented approximately half of Sonim’s Sprint sales.
- COVID-19: Shenzhen manufacturing closed for about three weeks and returned to full operation March 2. The company reported shortages of camera modules and batteries and warned of uncertain effects on demand, supply, costs and operations. Management provided no quantified COVID-19 outlook.
- Restructuring: The company reduced staffing, including an approximately 10% U.S. workforce reduction in February, and moved headquarters to Austin. It recorded about $1.2 million of restructuring costs in the quarter.
- Contingencies and governance: Four putative securities class actions related to the IPO alleged misleading statements concerning phone software defects and performance; no accrual was recorded because the outcome was uncertain. The SEC also made a voluntary document request in March 2020; the company said it was cooperating and the outcome could not be predicted. Two material weaknesses in internal control over financial reporting had been identified for 2019, although management concluded disclosure controls were effective at a reasonable-assurance level.
No quantified revenue, earnings or cash-flow guidance was provided. The filing describes expected Sprint product end-of-life timing and management’s liquidity expectations, both subject to substantial uncertainty.
Key facts for investors to verify
- Confirm the filing belongs to the intended issuer: the document names Sonim Technologies, Inc. and ticker SONM, not DNA X, Inc.
- Check subsequent filings for liquidity, going-concern developments, financing, and the status of the EWB default and B. Riley debt.
- Track Sprint product end-of-life and restrictions on sales, as well as customer concentration and order trends.
- Assess whether COVID-related component shortages, manufacturing costs and demand disruptions persisted or worsened.
- Follow the IPO-related litigation, SEC document request and remediation of the reported internal-control weaknesses.