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Executives

Jim Byers – IR

Kevin Mills – President and CEO

Dave Dunlap – CFO and Secretary

Analysts

Steve Swanson – Private Investor

Bernard Fidel – Private Investor

David Henri – Private Investor

Socket Mobile, Inc. (OTCQB:SCKT) Q4 2012 Earnings Call February 12, 2013 5:00 PM ET

Operator

Greetings and welcome to the Socket Mobile 2012 Fourth Quarter and Full-Year Management Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Byers of MKR Group. Thank you, sir. You may begin.

Jim Byers

Thank you, Operator. Good afternoon and welcome to Socket’s conference call today to review financial results for its 2012 fourth quarter and year ended December 31, 2012. On the call today from Socket are Kevin Mills, President and CEO and Dave Dunlap, Chief Financial Officer.

Socket Mobile distributed its earnings release over the wire service at the close of the market today. The release has also been posted on Socket’s website at www.socketmobile.com. And in addition a replay of today’s call will be available at Vcall.com shortly after the call’s completion.

And a transcript of this call will be posted on the Socket website within a few days. We’ve also posted replay numbers in today’s press release for those wishing to replay this call by phone. The phone replays will be available for one week.

Now before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of section 27-A of the Securities Act of 1933 as amended and section 21-E of the Securities and Exchange Act of 1934 as amended.

Such forward-looking statements include, but are not limited to, statements regarding mobile computer data collection and OEM products including details on timing, distribution and market acceptance of products and statements predicting trends of sales and market conditions and opportunities in the markets in which Socket sells its products.

Such statements involve risks and uncertainties and actual results could differ materially from the results anticipated in such forward-looking statements as a result 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 risks that acceptance of Socket’s products and 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. Now with that said, I would like to turn the call over to Socket’s President and CEO, Kevin Mills.

Kevin Mills

Thank you, Jim. Good afternoon everyone and thank you for joining us today.

In today’s call, I’ll begin with a brief review of 2012 results and then discuss the business opportunities we see ahead in 2013.

Our revenue for 2012 began well. What was impacted in the second half of the year by markets and product transitions we’ve mentioned previously which lowered our revenue growth in the second half of the year.

These transitions are now behind us. We enter this year with new products in the market, a growing number of software developer relationships and a significantly reduced cost structure. All of which position us to grow to profitable operating levels in 2013.

Our revenues for 2012 was $13.6 million consisting of $6.1 million of SoMo related sales, $5.5 million of cordless scanning related sales and about $2 million from service, OEM and legacy related products.

As I noted, our 2012 revenue distribution was run and loaded. In that we generated about 60% of our revenue in the first six months of the year and then 40% in the last six months reflecting the market and product transition.

Specifically this relates to Apple’s product and OS transition as well as our transition to our new and upgraded SoMo 655 from the 650. With these now completed, we see significant progress and growth opportunities ahead of us.

I’d now like to provide our outlook for both our cordless scanning and our SoMo businesses for 2013 starting with our cordless scanning business.

We expect our cordless scanning business to have strong growth in 2013 starting in the current first quarter. As of today, and we are not yet half way through the first quarter, we already have shippable orders to achieve record cordless scanning quarterly revenue levels in Q1. And we expect this trend to continue throughout the remainder of 2013.

This increase demand is directly suitable for our new and improve developer program. As we’ve highlighted before, sales of our cordless scanners, which we believe are the absolute best scanners for mobile deployments in the market today are being driven by applications both mobile phone and tablet application, and with more and more companies developing and deploying mobile solutions for their employees; this is driving our cord scanning sales.

Today, Socket has over 300 registered developers all from approximately 50 when we launched our new program in August 2012. We are now just beginning to see the impact of these of the developer program on our revenue as it takes six to nine months to go from development stage to deployment stage. And it is in the deployment stage that sales of scanners begin.

As we highlighted in our recent press announcement, we now have approximately 100 developers who are focused on the Mobile Point of Sale environment, which is a relatively new category. And we have some large companies such as NCR deploying our scanners with their solution.

The exciting [inaudible] is most of the sales are ahead of us as only a handful of these developers have actually started to deploy to customers and resellers. Additionally, another positive item to note is that almost no retailers purchase new cash register solutions during the fourth quarter which is their busy selling season. Most retailers would typically begin their fiscal year in February; tend to purchase relative equipment in the first six months of their year, which is between February and August.

So much of the scanning sales opportunity associated with these applications are just ahead of us. We have already seen some positive sales impact as reported with the 3,200 unit order received from a Japanese company. They are conducting an initial field trial for a new Mobile Point of Sales system. And should the field trial be successful, we believe the following orders would be substantial.

Mobile Point of Sale is just one category where we’re seeing substantial interest. We are also seeing strong interest in commercial services, which includes applications like field service, asset tracking, orders and quality assurance. And this category has been our strongest segments for years where we have established a strong and loyal customer base including servicing many pharmaceutical companies such as Johnson & Johnson and Medtronic to name a few.

In these types of applications, a combination of mobile phone or tablet is use in conjunction with Sockets cordless scanner to scan data into the application for control of process improvement reason.

Many of our customers are using Apple iPhones and iPad tablets in this category so then increasing number using the iPad mini [inaudible]. We are also seeing traditional manufactures of notebook computers like Panasonic, Casio, and Fujitsu entering the tablet market. All of whom are recently qualified and are now recommending our cordless scanning solution.

We expect the tablet category to continue to grow. And we anticipate Windows 8 to have a positive impact on growth once it becomes generally available. Socket scan is supported on Windows 8 with their existing scanners. So there are some exciting times ahead in our scanning business.

Turning to our SoMo Handheld related business, with the completion of our transition to our new SoMo 655 from the 650, our outlook for SoMo is positive. The transition took longer than expected. In part due to the general uncertainty regarding the future, a Windows Embedded Handheld 6.5 operating system that we use on the SoMo.

Microsoft announced Windows Embedded Handheld 8.0 lays in the third quarter last year, who provided very little detail on the migration path between the two operating systems, which created a great deal of uncertainty in the market.

Early last month, we met with Microsoft and they provided us with a clear roadmap of our Windows Embedded Handheld 6.5 and also outlined their windows Embedded Handheld 8.0 strategy, all of which is now in the public domain.

The quick summary is as follows; Windows Embedded 6.5 would be supported by Microsoft until 2022, which is nine more years. And this remains the ideal OS for our customers who value long, stable product cycle as many of our customers do. It remains the ideal operating system for the SoMo. And we are delighted that the uncertainty about the future has been clearly addressed so our customers can be assure their software investments and subsequent deployment will have sufficient time for reasonable ROI or return on investment.

Microsoft also outlined its Windows Embedded Handheld 8.0 strategy. Windows Embedded 8.0 is a superset of the phone A [ph] operating system and there is no software compatibility between Windows Embedded 6.5 and Windows Embedded 8.0.

All devices running Windows Embedded 8.0 must have full phone features plus a data collection [inaudible]. Windows Embedded 8.0 is only being made available to five companies and Socket Mobile is not one of them. However, even if Socket was selected as one of the five companies, we wouldn’t have switched because as we’ve noted before the majority of our customers do not want a phone-based device as they are working inside the four walls.

Microsoft did indicate that they will open the operating system up to other companies in the future but not before 2015. Certainly, with the interest to revisit the situation at that time especially if there are non-phone-based option. So the SoMo is complete and the operating system situation power flies [ph] and we expect to generate steady growth ahead.

In Q4, with those 1,200 SoMo 655 up from 300 in Q3, we expect the customers to migrate over to 655 at a faster pace this year and also the platform has been tested and approved and the operating system’s future verified.

Our key targets remain the health care and cosmetology market, and we continue to see solid interest in the SoMo 655 for many parts of the world. The trend is positive when we expect to see moderate but steady growth as we guide the SoMo business into profitability.

In summary, the challenges we experience in 2012 are now behind us. We begin 2013 as a much leaner organization and they’re all [ph] to a solid start with sufficient orders on hand to show significant sequential growth over Q4 and be well on our way to being profitable in Q1. We also have a significant and growing developer community, which is building a solid foundation for future growth that would broadly support our goal of returning to profitability and achieving significant, sustainable growth.

Lastly, I want to thank our great, hardworking employees and also thank our vendors for their support through some lean times in 2012. We are finally turning the corner and we are looking forward to a profitable year ahead.

With that said, I’d now like to turn the call over to Dave for his comments.

Dave Dunlap

Thank you, Kevin. 2012 was a transition year for Socket. We reduced our revenue in the second half of the year but sufficient company for growth that began December and has continued today.

In the first half of the year, we reported $8 million in revenue including $4 million in sales of handheld computers consisting of last buying purchases of our SoMo 650 Handheld computers that we announced last February would be replaced midyear. We also introduced in the second quarter our model 7ci world class, Apple certified, Bluetooth linear barcode scanner, which address the needs of Apple, tablets and smartphone users for a low-cost linear barcode scanner.

The second half revenues dropped to $5.6 million. Our customers needed time to evaluate the replacement of SoMo 655 handheld computer and began to work down their SoMo 650 last volume [inaudible]. Handheld computer revenues in the second half of 2012 were only $2.1 million. The cap total has been steadily growing. At the same time, the Apple announces this December announcing their iPhone 5 and mini-tablet slowed barcode scanner purchases from Apple customers while Apple customers devaluated the new product leaving second half barcode scanning revenue flat in the first half levels.

By December, barcode scanning orders were coming back strongly. Our shippable order backlog going into the fourth quarter was only $600,000 well-below normal levels due to the order slowdowns resulting from the timing of the Apple announcements. But entering January, our backlog returns to a more than normal level of $1.2 million reflecting strong order growth in December.

January new orders exceeded $2 million and total orders on hand today shippable during the quarter are above $3.5 million, a very fast start into the first quarter. Our Model 7Ci barcode scanner is driving that growth and we are experiencing growth in our handheld computer sales as well.

We estimate our breakeven point in the first quarter, it’d be around $4.3 million in revenue and with our shippable orders to-date at $3.5 million, we are well on our way to achieving profitable operating levels.

As Kevin noted, a strong revenue growth driver is our developer program with over 300 developers registered to use our barcode scanning and handheld computer software developer kits. Our SocketScan software supports all of our barcode scanners on Apple, Android, BlackBerry and Window’s Windows Mobile devices.

The meeting [ph] with developers only need to integrate our SocketScan software once and the customer can choose what type of socket barcode scanners they prefer. We’re even particularly pleased of a widespread adoption of our barcode scanners in retail point of sale applications and we are just now entering the post holiday selling season where retail customers typically consider upgrading their point of sale system.

Our growth margin in the fourth quarter was 38.5%, up from 35.1% in the previous quarter and 43% in the fourth quarter a year ago. With growth, we expect our margins to improve. The total [ph] sales volumes, our fixed manufacturing costs become a smaller percentage of our total cost of sales. We’ve also reduced our operating expenses. Operating expenses in the fourth quarter were $1,641,000 compared to $1,878,000 in the third quarter and $2,254,000 in the fourth quarter a year ago.

Barcode systems model is highly leveraged. We sell our products for general distribution channels where the channel handles the cost of distribution. As our products are integrated in the applications by software application developers, they also promote our products as part of the systems that they are selling.

We can accelerate product manufacturing quickly and responds to higher order level. As we have our key product components manufactured by contract manufactures, we have plenty of capacity to increase our production levels. And because we have maintained the essential human resources needed for new product development and key sales, marketing and operating activities, we are not dependent upon growth and expenses to achieve growth and revenue and can grow our resources moderately as our order volumes increase.

As our revenue and shipments grow, our focus on cash has been shifting for financing our operating losses to financing our growth. Our revolving bank line is a key element. As we can draw against our receivable at time of product shipment which accelerates the availability of cash and helps with the financing the purchase [inaudible] components.

Our bank line draw capacity grows as our shipment volumes increase. We continue to receive strong support from our suppliers and operating vendors and have been able to augment our working capital with the financial support of Socket officers and directors primarily with the two-year invertible notes which totals $845,000 at the end of the year.

Our stockholder meeting this year will likely be scheduled in June and we will announce the date and record date when they have been set. The proxy will include two advisory votes, one generally referred to as stay-on-pay which allows our stockholders to approve or disapprove the compensation policies and practices of the company and the other generally referred to as stay one on pay which allows stockholders to determine the frequency of future stay on payables.

In summary, although 2012 results were disappointing, we are now enjoying the momentum created by our barcode scanning products designed for the smartphone and tablet markets and by our new handheld computer SoMo 655 which expands the availability of our classic PDAs or at least position [ph] five years for SoMo 650 customers embraced PDA users have now continued HP200 series PDA.

Businesses are adopting smartphones and tablets for business activities, a trend which is particularly strong in the retail point of sale market and Socket is well-positioned to benefit from this trend.

Our new SoMo 655 handheld computer addresses the replacement needs of existing classic PDA users who have for developing mobile application in Windows mobile operating system environment which is particularly the case in healthcare and hospitality. The growing strength of the developer program is enabling the use of our products in a wide range of applications. With the continued support of our vendors, our employees and our investors, we look forward to providing mobile barcode scanning and mobile computing products to a growing base of mobile customers.

We are excited by the opportunities immediately before us to increase revenues and to operate profitably. We thank you for your continue support.

Now, let me turn the call back to the operator for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the lines of Steve Swanson of Private Investor. Please proceed with your question.

Steve Swanson – Private Investor

Okay. What’s the monthly cash burn rate that we’re going through now for January in the first quarter? We have not cash the people’s business growth while we’re trying to gain business growth.

Dave Dunlap

All right. And the answer is yes but we are managing cash very closely and where we are today, of course, is we’ve been operating successfully with the support of our vendors who we do have in some cases extended the terms and – but we are, as I said, very closely monitoring cash flow. We’re starting to move forward now where we’re no longer using cash for burning – for expenses, we’re now expanding cash app [ph] to cover growth.

Our focus is more now on having the cash needed to ensure that our vendors are being paid for the higher inventory levels that we’re bringing in. And we are continuing to see the support of the officers and directors of the company, so we are continuing to be very tightly managing our cash but we believe the cash at this point has been adequate and will continue to be so. And as we move through the quarter, the working capital cycle begins to generate more and more cash in terms from the higher levels of shipments that we’ve been making.

Steve Swanson – Private Investor

Dave, I thought I heard that year-end, the directors and the officers and the employees have – was is $800,000 that they’ve loaned to the company?

Dave Dunlap

Yes. I think at the end of the year we have $750,000 and there was also some remaining amounts on merchant cash advance that we have [inaudible] in the year which has been fully paid off. We are continuing to see the support from the officers and directors of the company. So that number has grown at small amount but up-to-date, we’re about $1 million.

Steve Swanson – Private Investor

About $1 million. And do we see the need to have that as we move forward in the first quarter or are we generating enough cash that we’re not going to need to be that anymore?

Dave Dunlap

We’re anticipating phasing out that program during the quarter.

Steve Swanson – Private Investor

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Bernard Fidel of Private Investor. Please proceed with your question.

Bernard Fidel – Private Investor

Hello, good fellow.

Kevin Mills

Hi, Dr. Fidel. How are you?

Bernard Fidel – Private Investor

How you doing?

Kevin Mills

Good.

Bernard Fidel – Private Investor

Okay. Well, I’m glad to see, in other words, we anticipate for the first quarter be profitable. Was that a fair statement?

Kevin Mills

Yes, that’s a fair statement.

Bernard Fidel – Private Investor

Okay. Now, you came out with this thing up-to-date on the scanners of $3.5 million to-date in sales?

Kevin Mills

No, not in sales. In bookings.

Bernard Fidel – Private Investor

Oh in bookings, okay.

Kevin Mills

And that is available to ship in the quarter.

Bernard Fidel – Private Investor

All right, okay. In other words that $3.5 million will be available to be shipped in the quarter?

Kevin Mills

Yes. And we anticipate that that it is a recognizable revenue in the quarter.

Bernard Fidel – Private Investor

Right, okay. Now, $3.5 million and it’s only half the quarter at this point. And does that include the SoMo or the SoMo addition?

Dave Dunlap

It does include all of our products, Dr. Fidel.

Bernard Fidel – Private Investor

Okay. So theoretically if we take $3.5 million and you’re supposed to get more sales for the second half of this quarter, is that true?

Dave Dunlap

Yes.

Kevin Mills

Yes. But bear in mind that bookings is a reflection of what’s going to happen in the future. So we have to buy the materials and manufacture it and ship it also, okay?

Bernard Fidel – Private Investor

Right.

Kevin Mills

So you just can’t take a number and double it.

Bernard Fidel – Private Investor

Right, right.

Dave Dunlap

And we got a two- to four-week lead time typically from our customers. We’re working to restock the inventories that they’re carrying in the distribution channel. So what we came in to the quarter was about $1.2 million in orders on hand.

We expect it was a lot of the quarter with a similar backlog around [inaudible] growing a bit as our volumes are growing. So we’ll get those orders during the quarter too, but you do have a backlog coming in and we’ll expect the backlog going out.

So when we get the orders that we see in March a portion of those will be shippable in March, a portion of those will be carried over as backlog.

Bernard Fidel – Private Investor

Okay. So $3.5 million is actually a respectable amount that we say at this point, is that fair?

Kevin Mills

That’s a fair statement, yes.

Dave Dunlap

We’re about $800,000 away from the possibility threshold.

Bernard Fidel – Private Investor

Okay.

Dave Dunlap

Yes. So we indicated that we have profitability somewhere around $4.3 million.

Bernard Fidel – Private Investor

So that should be easy enough to get. Okay now, I noticed you have a big deal of 3,200 scanners for Japan through this issue okay. And what is the process issue [ph] with this [inaudible]? Was this–

Kevin Mills

This is a trial order. This is a trial order. So the company is quite large and they have gone through the process of evaluating the scanners, designing an application that’s built based on the scanners. And they have many stores and they are putting 3,200 into other stores.

And if they are successful as in, then they would come back and do a company-wide rollout and the numbers would be substantially big.

Bernard Fidel – Private Investor

Okay. Are there any other scanner big deals pending or anything to that effect?

Kevin Mills

There are many actually, but I think we have to be reasonable. We have a number of large deals pending, okay? And we do expect it to see more momentum strictly in point of sales between now and August.

And the larger deals generally, you get more lead time. So if you land a larger deal, customers don’t want this tomorrow. They want it in April or May when they will get all the other components.

But although yes, we would expect that more deals will land this quarter, but the bigger ones tend to be staged because there’s a lot of other components required. If you go back to the deal with the 3,200 units, we were working on this since October last year when they started the trial. And they would like to deploy these 3,200 in the first week of April. So we received the order in, I think, mid January and they gave us, let’s say, two months lead time because there are other components to be purchased and training to be done et cetera.

Bernard Fidel – Private Investor

Right.

Kevin Mills

And we will expect that trend to continue and we would expect to shore off our orders for Q2 through the remainder of Q1.

Bernard Fidel – Private Investor

Okay. What about the SoMo, like the Canadian company or HP in England?

Kevin Mills

Well I think the SoMo, first of all we have to say that the transition has taken longer and was more difficult than we expected. One of the things that I think that wasn’t in the market was that there was a lot of uncertainty with the Operating System, Windows 6.5. And Microsoft did announced a newer version 8.0.

And most of the time when they announced a newer version there is a transition of a task that allows you to develop on one and then do upgrade so that the application you developed in 6.5 will run on 7. As was the case when people developed applications on 4, they run on 5 and when they have 5, they run on 6.

Microsoft was very silent on what exactly was the migration path from 6.5 to 8. But we have a great deal of uncertainty and we have a lot of people who didn’t do anything until Microsoft clarified the situation.

As I mentioned in my remarks, Microsoft have now clarified the situation, 6.5 will be the last Operating System, okay, in the current period if you will and 8.0 will be a new Operating System. Microsoft have made a very long commitment for 6.5 of another nine years. So even though you could say we’re down a dead-end street or it is a very long dead-end street and 8.0 will not be compatible, but there only be phone-based [ph] version available.

So customers now can make a meaningful decision about where they want to stay with 6.5 which we believe many of our customers will want to do because of the longevity of the OS and the fact that if you’re doing a medical type of device, you want that long product cycle.

So I think that we lost two or three months as a result of this uncertainty, but now we’re seeing the SoMo business pick back up again.

Bernard Fidel – Private Investor

Okay. Has it picked up in January [inaudible], January, February?

Kevin Mills

Yes. But again, I think that this is a slow growth, but steady growth type of business. But we have seen January being stronger and we do expect Q1 revenue to be above Q4. So we believe head back north with the SoMo as we get more and more customers.

Bernard Fidel – Private Investor

Okay. I want the idea about those expenses because hopefully in the future we expect this to be kept laid down because that is what the – I was just thinking if we have these expenses throughout this couple of years, we would be profitable on many of our sales.

Kevin Mills

That’s true.

Bernard Fidel – Private Investor

But I still wanted to tell you.

Kevin Mills

It is true. I mean there’s a balance and I would say we do a very good job of adjusting our expenses to what we can afford. However you can also overdo this. And on one side, people love the fact that we’re first to market with the 7Ci and new and innovative products. And you can’t get people to do this and not also incur some expense in the process.

So there’s a balance there and I think that we have done a good job at maintaining the balance, but we still want to have new and exciting product. So you can’t do that and not have some expense also.

Bernard Fidel – Private Investor

Right. Okay now with the profitability in the first quarter, that should create cash, improve our cash position, am I correct?

Kevin Mills

Yes. I mean we’re leveraged. So cash will improve, but depending on your way of approach [ph] then you will use cash. But these are good problems to have and problems that we’re well able to manage.

Believe me managing a business without cash is way more difficult than managing business that’s growing rapidly that needs cash. So we’ve done the hard part first. It’s been difficult certainly in 2012 to manage through having no cash and we’d be delighted to have the problem of growth so great that we need more cash and we look forward to it.

Bernard Fidel – Private Investor

Right. Well I’m not an accountant, but the $3.5 million that we have for the first half of this quarter, would that be considered good growth or a rapid growth or anything for that manner?

Kevin Mills

Well, we did $2.8 million in Q4. So if you did nothing else, you got no more orders and you just stopped a quarter right now–

Bernard Fidel – Private Investor

But way ahead of the deal [ph].

Kevin Mills

You’re ahead. So again, we don’t know the final number. We can tell you what has transpired today, which is what we’re doing. And I think we’re in a very good position to be profitable this quarter and that basically what we’re communicating.

Bernard Fidel – Private Investor

Okay. One thing, it seems to be a lack of announcement of – so does she held of most of what’s going on and with almost two months. So you want to even comment on this but it would be nice if we have more frequent announces so we know what’s happening.

Kevin Mills

Yes, I would just comment this. Everything cost money.

Bernard Fidel – Private Investor

Oh, I didn’t say it. It’s strong enough for what it’s worth.

Kevin Mills

That’s fine. The reason our expenses are down like $600,000 over last year is not because – I mean, it’s because we stopped doing certain things, and certainly we have not done a loss on the PR side or the IR side and we would love to do more. And to better be able to tell our story as our story gets stronger, but all of that increases our expenses and we’re trying to maintain the time bound [ph].

Dave Dunlap

Also I like your fidelity, we are making substantial use and more use of the social media so Socket has its accounts with YouTube and Twitter and some would be Facebook. So those folks that are able to sign up for access, we send out a lot of blogs and information about the company that is probably below the threshold of a major news announcement but keeps everybody reasonably well address.

So you may want to link into those types of blogs, too, and make sure that you’re seeing that as you go. Any material announcements we clearly will make whether its earnings release or the momentum release we have a week to go on our quite a fail activity. So we’ll continue to make those releases as break of the releases, but we do find the use of social media. It’s very helpful because we can do it more frequently at an affordable less cost.

Kevin Mills

Let me just add on that, I mean, if you go to, we have a YouTube.

Bernard Fidel – Private Investor

Okay. That’s all right. I know two or three would think and that’s it. How many employees do we have now?

Kevin Mills

Approximately 50.

Bernard Fidel – Private Investor

50?

Kevin Mills

Yes.

Dave Dunlap

Yes.

Bernard Fidel – Private Investor

And how many do we have last year at this time?

Kevin Mills

Oh, I would say probably 75.

Bernard Fidel – Private Investor

Oh, very good, quite a few stats then.

Dave Dunlap

Yes, I see, slightly below that number. I think our number was 66.

Kevin Mills

66, yes. We basically have lost 16 employees.

Bernard Fidel – Private Investor

Okay. How was flow [ph] on sales doing? Let’s say, in Germany or in England [ph].

Kevin Mills

Quite well. I mean, I think our distribution of sales hasn’t changed all that much. I think Europe having a good Q4 and we expect them to have a solid Q1. We’re still doing 60% of our sales [inaudible] and 40% internationally. Asia has done better [inaudible] and certainly the deal in Japan will add to our percent in Asia in Q1.

Bernard Fidel – Private Investor

Okay, one way of thinking then I would say how’s the scanners versus the SoMo presented to our towards – –

Kevin Mills

It’s getting close to 50-50. And I expect in the 1st quarter that scanning will be ahead of SoMo. I mean, if you don’t get last year, we essentially did 6.5 or 6.1 million in SoMo and we did 5.5 in scanner. The scanner as an accessory business tends to grow more quickly. So I would expect maybe on the first half of this year scanning to be our primary product category. But I think the SoMo will – it’s a bit of a charges [ph] inheriting. I think the charges [ph] will eventually catch up but it won’t be as rapid growth as the scanning, and we certainly have a lot of scanning deals right now.

Bernard Fidel – Private Investor

Yes, we have no estimate what you expect sales in the first quarter to be at this point.

Kevin Mills

Say it again?

Bernard Fidel – Private Investor

You don’t have an estimate of what the sales would be for the first quarter.

Kevin Mills

We always have an estimate. We just don’t know if it’s right jest [ph].

Bernard Fidel – Private Investor

And do you expect the year to be profitable [inaudible]?

Kevin Mills

Yes, that is correct.

Bernard Fidel – Private Investor

Okay. I bet you’re happy now you got rid of me. I’ll go now.

Kevin Mills

Thank you very much, Mr. Fidel. We appreciate your approach.

Operator

Thank you. (Operator Instructions) Thank you. Our next question comes from the line of David Henri [ph] with Private Investor. Please proceed with your question.

David Henri – Private Investor

Good afternoon, gentlemen.

Dave Dunlap

Hello, Dave.

David Henri – Private Investor

I have a question. You did 1,200 at the SoMo 655 in the fourth quarter. What did that turn out to be revenue wise?

Kevin Mills

Approximately I think 700,000.

Dave Dunlap

It was, yeah, 900,000 with a SoMo 456.

David Henri – Private Investor

And what was the break down between scanners and SoMos in general for the fourth quarter, how about that?

Dave Dunlap

Well, your total would be – the Kronos barcode scanner is a little under $1.5 million and your computers were a little over $900,000; and then the balance with service, a very small amount of what we have, a legacy product so that was a little more than $400,000.

David Henri – Private Investor

Okay. And I have just one question on the $3.5 million has been bookable so far for the first quarter.

Kevin Mills

Yes.

David Henri – Private Investor

Did that including like the large order would be bookable when you deliver it. Also is it bookable to the distributor or it is to final customers?

Kevin Mills

Well, we always have to make an estimate on this. And we recognize revenue based on sales. So we make the assumption that the inventory in the channel is kept relatively flat. And therefore, and we assume, and we monitor this in a weekly basis that sales in and sales out match, okay? And then we would adjust if we’re seeing those off of inventory over adoption [ph] of inventory.

So we do that. The 3.5 is our estimates of if we do receive no more orders as of today and just deliver what we have, what our sales out would be for the quarter. That’s [inaudible].

David Henri – Private Investor

Okay.

Dave Dunlap

The 3.5 million, David, does include the order from the Japanese company but it’s scheduled for shipment within plenty of time for it to clear the distributor and the customer wants to take it prior to the end of March. So we’ll see that flow through as revenue as long as everything is delivered on schedule.

David Henri – Private Investor

Okay. Most of the point of sale partners like I said as far as I know have not really initiated anything too much, is that what you’re saying? And then going forward like in February toward the industry [inaudible] you start to see them pushing the product more?

Kevin Mills

Yes, I mean, obviously we already talked to people who have been on the point of sale business before and [inaudible] NRF, and we have been told repeatedly that nobody, well, that they buy between February and August [Inaudible] our discussions with NCR [ph] and they launched in December and into the stores like Snapple and, et cetera.

And in our discussions with them we asked what was their expectation, and their expectation was that the reason you do in December and January is more for product awareness but sales happen in February through August when they’ve seen their year up, they’ve decided what to do going forward and depending on how organize they are, the more organize guys may be start in, in late February and the more average guys like the rest of us may be start in March, April. But that’s the traditional buying season and that’s something that has been repeated to us and by almost everybody.

David Henri – Private Investor

I mean, I commend you guys because you literally have gotten the scanner connect with so many partners and, I mean, large partners especially they will play out in the future. In general, you have about 300 registered developers total and about 100 of them are point of sales. Do you know how many of them in general have a final product versus how many will still be coming online going forward?

Kevin Mills

Yes, we do. I think almost 80% of our developers, 70 something percent are what do we call corporate developers, which means that they are hired by someone to do a specific development.

Now, within that, you can see people who are hired for – let’s just take an example of a company like Medtronic, because the maximum that you could sell for that application would be one to every employee of Medtronic, right, so there’s a limited market. Then we probably collect NCR who are selling into markets and depending on their success in the markets, you don’t know. So we try to categorize our developers.

Today, it’s still a log-off [ph], I would say mainly corporate developers and now that we have a community, we have – we’re looking to service this community so we’re asking a lot of questions, getting a lot of feedback, what can we do venture, et cetera, so all of that will help us to better drive the company going forward because ultimately, the developers are working for people who are trying to solve problems and we’re trying to help them.

David Henri – Private Investor

Yes. Like I said, I’m excited with the scanner, little worried about the SoMo, so SoMos ran about $900,000. Can you give me an idea where you’re looking at for first quarter?

Kevin Mills

Well, let me just first say – [multiple speakers]

David Henri – Private Investor

Because if we go back to the first half of 2012, you guys were in the $2 million plus range and how –

Kevin Mills

Yes. But before we even go there, David, let me just explain the following.

David Henri – Private Investor

Yes.

Kevin Mills

We launched our SDK for the SoMo in October.

David Henri – Private Investor

Okay.

Kevin Mills

So we were approximately three to four months behind the scanning.

David Henri – Private Investor

Yes.

Kevin Mills

Today, we have somewhere north of 40 people who have downloaded the SDK and working on SoMo-related applications. Okay? So, again, it will take a little bit of time and we started a little bit late, but, again, it’s going to be driven by the developers, right, and we do have developers now that are downloading the SDK and writing applications. So, I think you need to look beyond Q1, right?

David Henri – Private Investor

Yes.

Kevin Mills

Q1 will be up from Q4 –

David Henri – Private Investor

Okay.

Kevin Mills

But the momentum in the business will come from people using it as a development platform and, again, we are down – we’re a little bit behind the scanning itself a few month but that’s a better indication of the health of business to [ph] what’s going to happen in the next 30 days.

David Henri – Private Investor

I’d like to say – I look at it as ignite [ph] through first quarter to be profitable, but the key is as you increase the number of developers, does Q1 the – have continuing reoccurring income first quarter, like a point of sale system, the more NCR growth, you just had to grow with them.

Kevin Mills

Yes. And what’s really nice about our business model is that somebody like NCR comes with their own sales force, so not only –

David Henri – Private Investor

Yes.

Kevin Mills

– did they buy your product but they actually sell this and certainly, that gives us a lot of leverage and allow this people our cost flow and continued to invest in new products and better software.

David Henri – Private Investor

Okay. Well, like you said, is just keep up the hard work, keep up those new [ph] developers and hopefully, like you said, the first quarter I guess is to sober [ph] the hump and we can curtain in the positive.

Kevin Mills

All right. Well, we appreciate your support and your concerns.

David Henri – Private Investor

Okay. Thank you very much.

Kevin Mills

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the call over to management for closing comments.

Kevin Mills

Okay. Thank you, operator. So I just like to thank everyone for participating today and to say, we look forward to reporting to you in April and to wish you all a good day. Thank you.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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