Earnings Call: Q2 2021

Oct 15, 2021

Earnings release

Good day, and welcome to the Syeda Mobile Second Quarter 20 21 Financial Results and Corporate Update Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Daniel Kim. Good morning, everyone. Thank you for joining the Syada Mobile Second Quarter 2021 Conference Call. Today, I'm joined by our CEO, Mark Sielenfreund and our CFO, Gerald Bernstein and our VP of International Sales, Glen Kennedy. We will all be available for questions at the end of the presentation. During the course of this call, management will make, express and imply forward looking statements within the Private Securities Litigation Reform Act of 1995 and other U. S. Federal Securities Laws. These forward looking statements include, but are not limited to, those statements regarding future Product offerings, the goal to deliver strong year over year revenue growth and reach profitability in the coming quarters, the belief that the worst of the pandemic is behind us and We will continue to see strong sales in all of our product lines and across our various markets. Our future acquisition strategy, the timing of the sale of our rugged handsets to North American and European carriers and the belief that we are better positioned today than Uncertainties and other factors that may cause actual results or performance to differ materially from those projected. The forward looking statements contained in this presentation are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company's annual report on the Form 20 F for the year ended December 31, 2020, filed with the Securities and Exchange Commission and Saeta Mobile's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time sensitive information that is factored only as of today. Except as required by law, Cieta Mobile disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. I would now like to turn the call over to Mark. Thank you, Daniel. The challenges we faced due to COVID in 2020 As spilled over into 2021, with fewer of our customers with commercial vehicles upgrading their communication systems, many yellow school buses remained in their parking lots and enterprise customers were not spending in our space due to budget constraints. Unfortunately, COVID-nineteen is still impacting our business and has created a volatility in orders with some of our key customers as we witnessed in our second quarter results, our revenues declined both sequentially and year over year. While we are disappointed with our financial performance for the quarter, we continue to believe that we are on path for strong organic growth in the coming quarters, coupled with higher gross margins. I reiterate, our goal remains to deliver to our shareholders strong year over year revenue growth and to reach profitability in the coming quarters. Now, I will discuss our financial results. Revenues for the 6 months of this year was $4,390,000 compared to $4,410,000 in the 6 months ended June 30, 2020. The similar sales compared to prior year to date is due mainly to a one time merchandise return from a customer in Q2 2021 in the amount of $1,100,000 Without this return, Year over year sales would have increased by 25 percent to $5,500,000 This increase relates to the increase in booster sales in the United States, specifically in the industrial marketplace, offset by the decrease of sales of rugged handsets in EMEA. For the Q2, adjusted EBITDA was negative $4,600,000 versus negative $500,000 in the prior year, a negative variance of $4,100,000 Net loss for the 2nd quarter was $10,900,000 compared to net loss of $1,000,000 in the prior year. However, and goodwill impairment of $800,000 If we exclude these non cash items, then adjusted net loss would have been $3,900,000 Subsequent to the Q2, Saeta unveiled its next generation rugged device, the SD7. This device is Saeta's first mission critical push to talk device or MCPTT. It is an easy to use PTT only rugged device that is IP67 rated and as such is designed to work in harsh environments. The SD7 is also Siata's 1st rugged handset that we will offer in North America. As we are dealing with multiple cellular carriers to launch the SD7 on their networks, We expect to launch this unique device in North America during this quarter and then in Europe in 2022. With this new and innovative SD7 device, RUBUSA market has been stable and growing with sales in the U. S. Market up 152% in the 1st 6 months of 2021 over the same period last year. We have multiple large scale opportunities with first responders, federal government and state customers, which we expect will be closing both in Q4 as well as in the following quarters, and we believe that this market will continue to grow rapidly in the coming quarters. Now, I would like to pass the line back to Daniel, who will discuss some of the industry trends and market dynamics that are benefiting our business and then to our VP Sales, Glen Kennedy, who will discuss our various sales opportunities. Thank you, Mark. Over the last 1 to 2 years, we have experienced numerous positive trends in each of our end markets. In July 2021, FirstNet, a dedicated cellular network for American first responders, announced it supports over 2,500,000 With more than 17,000 subscribing agencies. This marked the 6th consecutive quarter FirstNet had reported at least 200,000 new connections and gained at least 1,000 subscribing agencies. Over the last year, FirstNet has grown its subscriber base by 1,000,000 connections and 4,000 subscribing agencies. As the market continues to appreciate the advantage of push to talk over cellular or POC compared to land mobile radio or LMR, We believe we are well positioned to capitalize on this trend with our innovative solutions. As Mark discussed, the SD7 offers the benefits of POC without any of the difficulties managing the current generation of rugged smart or feature phones and is ideally suited as a perfect upgrade from LMR. Saeta's innovative product line, including the ST7, is helping to service the generational shift from LMR to POC. According to VDC Research, the LMR And annual POC shipments are expected to grow 42 percent from $1,900,000 in 2,008 to $2,700,000 in 2023. As previously mentioned, our Booster business is enjoying increased demand. This demand shift has been driven by enterprise and other The reason for this growth is cellular communication provides a robust secure environment, not just for remote workers in home and in vehicles, but also for warehouse workers, the security industry, Utilities and government, virtually any enterprise can benefit from more robust cellular connectivity. With that, I'd like to pass the line to Glenn, who will discuss the Thank you, Dan. Looking at our sales funnel, we continue to see strong sales potential in each of our 3 product categories. 1st, in our in vehicle devices category, we are continuing to conduct trials with projects that have been put on hold in 2020 due to COVID-nineteen. We have initiated new proof of concept trials with several state and local government And in addition, we are seeing growing international demand for the UV350, including a 4th Purchase order after the quarter ended from a large wireless carrier who has previously ordered from us in 2020 and is equipping additional ambulances in their Middle East country with our UV 350 device. Just after Q2, we also released 3 press releases demonstrating 3 larger POs of our in vehicle and rugged handsets totaling more than $2,500,000 across first responders, a defense contractor and a cellular distributor. This shows continued demand for our unique solutions. Secondly, in our rugged handset We have announced the SD7 device, a new innovative, cost effective rugged handset that supports mission critical push to North American wireless carriers, and we displayed them recently at 2 key industry trade shows called APTCO and IWCE. The pre launch feedback from the wireless carriers has been strong because the SD7 device is unique and exactly the kind of device that wireless carriers have been asking for to capture new customers who have been using traditional LMR or two way radios. Our objective is to launch with a major quarter following the quarter. Just after the quarter, we signed a new leading U. S.-based online booster distributor called Silk Worldwide Inc. And they have already placed their first of what we expect will be many recurring purchase orders. We're also pursuing some very large Overall, we're very pleased with the growing acceptance by customers of our truly unique disruptive solutions and expect, based on what we're seeing today, continued rapid adoption of all of our product categories. I will now hand the line back to Mark for closing remarks. Thank you, Glenn. After having laid the foundation for growth, Management is confident that Saeta will deliver strong growth in 2021. While the pandemic may continue to create quarter on quarter volatility, Especially for a small company like ours, the type of business is growing and is very robust in all three of our product categories. Management is hopeful that this momentum will continue in particular as we leverage our expanded and refreshed product offerings, which we believe provide our customers with In summary, we are very proud of our exceptional seasoned sales team who have created a strong customer base for the which we believe will be a game changer for Saeta and hope to continue to capture significant new opportunities and customers, which we believe will drive sales throughout the balance of 20 21 and beyond. We stand by our goal of growing our sales with a focus on reaching profitability in the coming quarters. That concludes our formal remarks. With that, operator, kindly open the call to questions. Thank you. Our first question comes from Tim Moore from CFA. Please go ahead. Tim Moore from Zacks. The Telstra news this week was really nice to see. Congratulations on that. And have been to Australia 4 times and know how important that company is down there to get inroads with their dominant market share. But I was just wondering maybe if we take a step back, If you can give us maybe some color on how the 3rd quarter sales magnitude might have been? Was it similar to the 1st quarter Sales level or any other kind of granularity you can maybe speak to, given that September is finished? Okay. So thanks for the call. First of all, Telstra is very important to us because it also Shows that even today, operators are continuing to launch and adopt UV350. And this product can we can run with it for at least another, I want to say at least 1 or 2 years. It's not something that we think is going to be end of life anytime soon. We actually did An upgrade on the device so that it's now Android 10. It was Android 7 for since we launched it. And with that, it allows us to go and offer it to customers. And we think that it will be a relevant device for a long period, and we're very happy to be working with Telstra because like you said, it's a big carrier and it's a good thing for us. Regarding Q2, Q3 and Q4 sales, of course, could be better than Q2, right? We do see a very good adoption of our products, and we said this on the call, in all three categories. Our booster business is very strong and that's Since COVID kicked in, people are using more and more boosters because they're working from home, so they need to have their warehouses connected, and we see that that's a very strong part of our business. Our UV350, we are getting orders, but we have very, very large scale orders that we've either in the middle of the trials or we finished the trials, And we're just waiting to get the orders or to get budgets or to make sure that the customers actually decide to adopt the product. But we have, again, multiple trials that we've done, Some sales that we got in Q3, some sales that we're getting in Q4, but that product, like I said, it's still very relevant and we still have A very large pipeline for that product. And in our rugged handsets though, until now, our rugged handsets were mainly sold in Europe and in Israel. That was the main market that we were going after. Those markets were totally dead for us last year. During COVID, they were not relevant at all. But I can tell you that we did see a very significant return of customers buying those products or rugged phones in those markets. And you're going to see that the same way that you saw it in Q1, you're going to see it in Q3 and in Q4 and going forward because the SB7, as we mentioned before, is going to be specifically for the North American market. That's a totally new opportunity for us. So as I said, in all three categories, you're going to see that we're getting traction. And I can't say if it's like Q1, it's definitely better than Q2. And as I had mentioned a few times on the call, our goal is to reach profitability in the coming quarters, and we think that that's very Possible. It's not a pine of the sky dream. It's something that we think that we can get to. To be able to reach profitability, we have to get to around $5,500,000 in revenue on a quarterly basis, and we think that, that is achievable in the coming quarters. Basis and we think that that is achievable in the coming quarters. Good. That's helpful color to hear. I had a chance to catch the SD-seven on the urgent communications webinar in August and was pretty impressed by it. And I'm just wondering if you can maybe Speak to either maybe what sales potential you're expecting in North American in 2022 and if There are ready pilots and trials underway for Europe to kind of give you confidence on that being rolled out successfully in Europe next year. Yes. So we have trials going on both with multiple carriers in the United States, leading carriers in the United States. We are now starting trials also in Europe. So I think that Europe is definitely going to follow the United States. It will be probably 2nd tier. Sometime in the first half of next year, we're hopeful that we'll be able to also launch and look in Europe. But to your question about the size of the market, We believe that this market is very, very large scale, anywhere from tens of thousands of units a year to well over 100,000 units a year. That would not even be scratching the size of or the potential of the market. That being because this is going to be The lowest cost mission critical push to talk device on the market. There is nothing that is going to be in this price level. The price level is around $300 I can tell you. So just to give you color, so every 10,000 units is about $3,000,000 100,000 units would be about $30,000,000 All of the carriers are very, very interested in what is called first responders, but not only first responders, also 2nd tier first responders, and the 2nd tier first responder could be waste management, it could be yellow school buses drivers, it could be utilities, right? Those are all also considered first responders and both AT and T FirstNet and Verizon and also T Mobile, They're very, very interested in getting into that market. The best way to do it is with a mission critical push to talk device. Because the device is very unique, because you don't have to it's a perfect upgrade from the LMR. And if you saw on the webinar, Anybody that's used a radio for the past 20 years, for them taking this new device, it's a very easy upgrade, Right. You don't have to really learn anything. You push the button, you choose the channel and that's it. So in that sense, we think that it has Very, very large scale potential. And even in the markets that we're selling right now in Israel and in other markets in Europe, they are Interested in this product. We're going to be starting trial soon, and we think that it has a global appeal. So we think that that's going to be a very good product for us. And that's very helpful to hear and it's really good to go into the color on that. And my last question is actually just a quick housekeeping question. I noticed the inventory impairment taken this quarter and a similar size one taken in the Q4 of last year for slow moving product. Can you maybe just shed a little light on maybe what the inventory impairment was this quarter and if you're pretty comfortable that You're done with all these now going forward, the impairments of inventory? The impairment was mainly done by our accountants because they saw that we didn't have Substantial sales of those devices in the quarter and some of them also not in Q1 and they automatically impair it if they feel that it's not being sold aggressively enough, okay, because we had amortized it over a few years and they felt that it was not conservative Just to leave it out there and not impair it. To your question, we don't see this happening again, not nearly This size going forward, a lot of that inventory we believe is still sellable. And we think that the fact that it was impaired doesn't mean that We're not throwing it out and it's still sellable inventory. And also on the intangibles, like I said, the UB350, we're going to be selling that going forward. And even if we lower the intangible rate on that, we still think that we have at least another 1 or 2 years to be able to sell that product. So to your question, I think that you're not going to be seeing any kind of write offs like that in the coming quarters. Thank you. That's it for my questions. I appreciate it. Our next question will come from Jack Vander Ael from Maxim Group. Go ahead. Great. Good morning, guys. Thanks for taking my questions. I'll start with a couple of questions on the quarter and then ask about some of your new product and growth opportunities, which you've kind of dug into quite a bit now. But So I'm not sure who wants to answer this and it's kind of already discussed, but I just want to better understand that the customer return order in greater detail. Just any more details on that customer, where they're located maybe and what product category was returned? I didn't catch that. Thanks. Yes. So it's a U. S. Customer that had taken devices because they thought they were going to win a large scale tender in the United States. They took it last year and they thought that they were going to win the tender and in the end they ended up not winning that tender. And they were not able to sell that product and then they asked you're going to see going forward, and it's not common at all in our business. So it's again, it's a onetime thing, and It's a customer that we're actually still working with and we think that we can sell a lot of devices through and that's the reason that we agreed to take it back. Okay. That makes sense. I appreciate the color there. Let me switch gears then to kind of where we're at today and Maybe where you're heading in terms of the overall headcount and the sales team. Maybe this is for you, Mark, again. So I think last time we spoke, the last earnings call was around, you guys were around 25 people, something like that for overall headcount. Where's headcount today? And Particularly where is the sales force at in headcount? So we have in our sales force, I want to say 8 people altogether, and that's both sales and technical support for those sales. And then we have another 2 people that all they do is online sales. So a big part of our Booster business is online sales directly to consumers. And we actually let go of 2 salespeople during the past 6 months because we felt that they were not performing. But we feel very good right now with our headcount. We don't think that it's too big. We don't think that it's too small. You have to understand that If a person is working with AT and T, he can't be working also with Verizon. Just AT and T We'll not accept somebody who's speaking both to Verizon and AT and T. We have a salesperson for AT and T. We have a salesperson for Verizon. Salesperson specifically for T Mobile, which is a customer that we've been working very hard to get into. We have Glenn, who's on the call, who does international sales And also Canada, right? We have 2 people that work in Israel and in Europe for those sales. So in general, just to give a little bit of color, we're very lean in the sense that we don't have a lot of people working on the accounts. We have one person for each account, which is the way that it has to be set up if you want to work with these large carriers. And then we have another 2 people that are doing the booster business for us. So we have 2 salespeople that are working on the booster accounts. So that's sort of the breakdown in the sales force. And again, I think that we can ramp up sales dramatically with the current team that we have in place, both on the sales side And on the R and D side and on the logistics side and on the support side, but we'll be able to ramp up sales and not have to ramp up our headcount. Okay, fantastic. I appreciate the color there as well. That's helpful. And then I'll switch Maybe, Gary, just for a question for Glenn, because he mentioned this in the prepared remarks. Glenn, I think you mentioned you received your 4th purchase order Since the quarter ended after the Q2 ended for the UV350, just want to get clarity on that. Was that is that for purchase orders after that's not included in the Q2 revenue? Yes. Thanks, Jack. That customer actually is a Mideast customer, Middle East customer, and they have placed now 4 Purchase orders at different stages beginning in 2020. So those are a variety of different phases as they've been deploying products in ambulances throughout their country. So it's encouraging from our perspective because we understand and they're ordering 100 at a time. It's not just small quantities. It's encouraging to us because we see that customers are adopting them and rolling them out throughout their entire organization. It's not just a one time order, it's multiple repeat orders, and that's what we'd love to see. Great. Okay. No, that is a good sign. That makes I appreciate the clarification there too. And then maybe just one more final question. You've touched upon this Quite a bit already, Mark. But on the SB7, it seems like it's a it could be a pretty big game changer in terms of what Siata in terms of your penetration of America and also just your revenue growth catalyst. So it sounds like the SC7 or your recognized hand devices haven't been sold in the U. S. At all until this point or at least later on in this year. So will this actually represent in your mind a catalyst just to overall Jumpstart your U. S. Sales as a whole because now you'll have the full portfolio of products in the U. S. Just any color there? It just seems like Synergy, I think, could really help drive the momentum. Absolutely. The answer to that is absolutely. It takes us from being a small Mitch player with a vehicle device to being a handset provider and again, I'm not saying that we're selling a cheap device. This is a great device and it's rugged and it's milspec and whatever. It's a very good device, okay? But it's the least expensive device in the category, okay. So it's going to cost customers around $25 a month, including the push to talk, including the device and including the SIM card, Okay. That's the pricing that we're that the operators are telling us that that's what it's going to come out of. So think about a construction company. They don't want to give Their work is necessarily an $800 Samsung device. All they want to do is be able to connect to them and speak to 50 people at the same time or 500 people at the same time. So if you can give them a $300 device instead of an $800 device, AT and T saves on what they have to subsidize. The customer doesn't have to pay as much. It's going to be very cost effective and we think that we can sell a lot of them. And again, it's not it's construction companies, it's hospitality, it's first responders, it's utilities, It's amusement parks, there's literally security companies, it's literally an endless market and for the cellular carriers, It's basically a tool to be able to take away the radios that customers are right now walking around with and put in their hands a device that's got to sell A SIM card inside, right? In other words, that's their interest. They want to get the SIM card in the hand of these people that are right now using radios. So this is going to be the least the most least expensive way to do it. So for us, we've been putting a lot of focus on it and we've been spending a lot of time on it and we think that it's going to be a major game changer for us and we're obviously Great. And just one more follow-up to that. And it kind of relates to my the first question I asked you on the sales front The sales team front, so how are you actually going about this from a sales organization perspective? Do you have a dedicated rugged handset Sales team or do you have does this kind of fall under this a sales leader for Verizon or for each wireless carrier that you're selling multiple product That's a great question. So the person who's in charge, if you saw the webinar on the SD7, We have a guy named Jason DePue. He is in charge of the AT and T accounts, okay? He sells UV350 And now he's going to be selling SC7, okay? And his job is to train the AT and T salespeople to be able to sell it to their customers. So we leverage the AT and T sales force to be able to get to their end customers so that we don't have to go to each and every customer, right? And if there's a large customer that wants to do a sit down and they're going to buy a few 1,000 units, then obviously he'll go with the AT and T And sit down with that customer to try to close them to take our device. Until now, he's been doing it with UV350. Now he's going to add Two products in his portfolio, okay? We have the same thing in Verizon, we have the same thing in T Mobile and the Booster guys are independent. So the Booster guys sell Across the market, they're not necessarily selling to carriers, they're selling to dealers and they're selling also to carriers, but that's a different model. All they do, those Guys, all they do is they sell boosters. That's it. And if an opportunity comes across that Jason hears that somebody in AT and T needs boosters, I'll pass it over to our Booster team, which is their area of expertise. Got it. Okay. That's very helpful. Well, I appreciate the quarterly update, and This concludes our question and answer session. I'd like to turn the conference back over to Mark Steubenfront for any closing remarks. Thank you, Scott. So obviously, this is a disappointing quarter for us, but we think that we're going to do much better in the coming quarters. We have an exciting product portfolio. Our product portfolio will allow us to grow the company dramatically in the coming quarters. And as I said, our main goal is to reach profitability, and we are laser focused to get to that point. So we view this as growing pains of a small company, but we do believe that it's going to change and turn around very soon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.