Earnings Call: Q1 2021

Jul 1, 2021

Earnings release

Good day, and welcome to the Syata Mobile Annual 2020 and First Quarter 2021 Financial Results and Corporate Update Conference Call. All participants will be in a listen only mode. Results. Please note this event is being recorded. I would now like to turn the conference over to Mr. Daniel Kim, Vice President, Corporate Development of Syada. Please go ahead. Results. Good morning, everyone. Thank you for joining the Syada Mobile 4th quarter year end 2020 and Q1 2021 conference call. Results. Today, I'm joined by our CEO, Mark Ciellen Freund our CFO, Gerald Bernstein and our VP of International Sales, Glen Kennedy. Results. During the course of this call, management will make expressed and implied 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, statements regarding future product offerings that the capital raised in 2020 is sufficient to both grow our business and address potential M and A opportunities and results and the belief that our Q1 results put us on the path for strong organic growth coupled with higher gross margins, 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 that we will continue to see strong sales in all of our product lines and across our various markets. Results, our expectations relating to our Clear RF acquisition, our future acquisition strategy and the timing of the sale of our rugged handsets to North American carriers results and the belief that we are better positioned today than we have ever been to be able to monetize the trends driving our industry. Results. Such forward looking statements and their implications involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to results 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 results for the company's annual report on Form 20 F for the year ended December 31, 2020, filed with the Securities and Exchange Commission. Results. I would now like to turn the call over to Mark. Thank you, Daniel. In many respects, 2020 was a turning point for Syada Mobile. Results. After having completed major Tier 1 North American carrier qualifications in 2019, 2020 was marked with significant new sales hires to manage these key accounts. Agreements with numerous new distribution partners and resellers and launched multiple new products. We also successfully listed on the NASDAQ Capital Market in September 2020 and raised $13,000,000 in gross proceeds in the process. A subsequent private placement financing for an additional $13,000,000 was completed at the end of 2020. We results to both grow our business and address potential M and A opportunities. Now in 2021, we are focused on driving our company to profitability. Results. And as we witnessed in our Q1 results, we believe that we are on the path for strong organic growth coupled with higher gross margins. Results. Our goal is to deliver to our shareholders strong year over year revenue growth and to reach profitability in the coming quarters. Results. Ultimately, our strategy is to augment our organic growth with complementary and accretive acquisitions. By the same token, like many companies, 2020 was also challenging for the Siata due to the COVID-nineteen pandemic. In our commercial vehicle vertical, significantly fewer commercial vehicles were on the road, year. Yellow school buses remained in their parking lots and enterprise customers were not spending in our space. Our biggest sales decline results in the Israeli market where sales dropped significantly as this market suffered both from COVID shutdowns as well as the lack of government contracts and budget cuts due to the political situation there. However, as demonstrated by our Q1 2021 financials, results. We have a reason to believe the worst is now behind us and that we will continue to see strong sales in all of our product lines and across our various markets. Results. To this point, we saw a 30% rise in sales of our Booster portfolio in fiscal 2020 over fiscal 2019 results as customers look for better cellular coverage in their workplace, home offices and vehicles, and we expect this strong sales trend to continue going forward. Revenue for the year ended December 31, 2020 was $6,000,000 compared to $9,800,000 for the same period in the previous year. Results. This decrease of $3,800,000 was due mainly to a $4,700,000 decrease in sales year over year in Israel and EMEA, results offset by an $800,000 increase in North American revenue. This sales decline was also due to product returns from a few customers as well as delayed payments that caused us to take back products from some customers and write down bad debt from other customers. Results. Gross margin for the year ended December 31, 2020 was 26.4% compared to 27.4% last year. Results. Net loss for the year ended December 31, 2020 was $13,600,000 compared to $7,700,000 for the same period the previous year, results, an increase of $5,900,000 This increase includes non cash adjustments and one time transaction costs totaling $4,900,000 results, which includes bad debt provisions of $1,500,000 an inventory impairment increase of $1,400,000 a $600,000 increase in non cash finance charges and a one time transaction cost related to our initial public offering of $1,400,000 adjusted EBITDA for the year ended December 31, 2020 was negative $7,100,000 versus negative $4,200,000 for the same period in the previous year, results, an increase of $2,900,000 For the Q1 of 2021, we witnessed a robust return in broad based demand punctuated by record sales, record organic growth, record margins and lower adjusted EBITDA loss. Revenue increased 77% year over year results to $4,000,000 as compared to $2,300,000 in 20.19. Gross margin increased to 43.2% versus 25.2 results in the same period last year. And adjusted EBITDA loss decreased to $291,000 versus a loss of $460,000 in the same period last year. Results. We closed the Q1 of 2021 with $9,700,000 in cash and $11,400,000 in working capital. Results. Lastly, I will provide commentary on our M and A efforts. In the Q1 of 2021, we closed the acquisition of Clear RF. PRF produces M2M or machine to machine cellular amplifiers for commercial and industrial applications. While this 700 dollars acquisition was relatively small in size, among all of our key acquisition criteria. It was accretive to our top and bottom line. It was highly complementary to our existing product portfolio, offered synergistic sales through our same carrier channels, opened up new military and government verticals, provided a U. S. Manufacturing footprint and delivered critical and unique intellectual property, which we are in the process of implementing across all of our cellular and amplifier lines. Results. Not only do we expect this acquisition to help increase interest in our cellular boosters with our existing customers, but we are also applying our sales force results to more aggressively penetrate Clear RF's core end to end markets. As mentioned earlier, our goal is to undertake additional similar types of acquisitions in the future. Now, I would like to Thank you, Mark. Over the last year and a half, we have experienced numerous positive trends in each of our end markets. In 2021, FirstNet, a dedicated cellular network for American first responders, announced it supports over 2,200,000 connections with more than 16,000 subscribing agencies. This marked the 5th consecutive quarter FirstNet had reported at least 200,000 new connections and gained at least 1,000 subscribing agencies. Results. Over the last year, FirstNet has grown its subscriber base by 69% and subscribing agencies by 33%. Results. As the market continues to appreciate the advantage of push to talk over cellular compared to land mobile radio, we believe we are well positioned to capitalize on this trend with our innovative solutions. Results. We note that over this forecast period, push to talk over cellular growth is expected to outstrip land mobile radio growth by a factor of 2. Results. Industry forecasts, most recently from Market Insights, forecast the push to talk over cellular industry will grow at a 10% compound annual growth rate to $9,100,000,000 by 2027. We believe these trends play right into our innovative and market leading product offerings. Results. As previously mentioned, our cellular booster business enjoyed increased demand in 2020. This demand shift has been driven by enterprise and other Fortune 500 companies who wish to complement connectivity with strong consistent cellular signals. Cellular communication provides a robust secure environment results not just for remote workers in home and in vehicles, but also for restaurant patrons who wish to download menus, for patients at pharmacies who need to verify identity and download scripts for remote workers who require strong clear cellular signals and for first responders where connectivity literally means the difference between life and death, just to name a few. With that, I'd like to pass the line to Glenn, who will discuss the success of the recent sales trends we have been enjoying. Results. Thank you, Daniel. Looking at our sales funnel, we have enjoyed both an increased cadence and size of recently announced contracts results and we see strong sales potential in each of our 3 product categories. First, in our in vehicle devices category, results. We are seeing projects that had been put on hold in 2020 due to COVID-nineteen now start to become active opportunities again. Results. We have initiated new proof of concept trials with several state and local government agencies in the U. S. Results. And in addition, we are seeing growing international demand for the UV350, which remains the market's flagship in vehicle device and the only one that is approved for sale on North American wireless carriers networks. Secondly, in our rugged handset product category, results. We historically sold these devices in international markets. Currently, we have just presented a new innovative rugged handset that supports mission critical push to talk or MCPTT to North American wireless carriers results and the feedback from them has been strong. Our objective is to have multiple wireless carriers in North America and internationally to begin selling our new rugged handsets with the goal of launching in the second half of twenty twenty one. Results. And thirdly, in our cellular booster product category, we saw consistent demand for cellular boosters throughout 2020 results as people who work from home offices recognize the importance of having strong cellular signals in their homes to do their work. Encouragingly, results. We are also now seeing sales opportunities with the wireless operators as they sell to large enterprise and government customers, results, some of whom need innovative solutions like our cellular boosters. Having launched the results. We have a strong Q1 of 2019, which is the 1st cellular boosters to support band 14 for FirstNet and having completed our acquisition of Clear RF, a small cellular booster company in Q1 of 2021, results. We believe that Syada is now well positioned to capture large cellular booster opportunities for government agencies and for Fortune 500 companies who require strong cellular signal throughout their brick and mortar locations and within their fleet vehicles. Results, we have some very large cellular booster opportunities that we hope to close in 2021. Results. Overall, we're very pleased with the growing acceptance by customers of our truly unique disruptive solutions. And we expect, based on what we're seeing today, continued rapid adoption in all of our product categories. I will now hand the line back to Mark for closing remarks. Thanks, Glenn. We believe that Cyano Mobile is better positioned today than it has ever been to be able to monetize on the strong trends driving our industry. While COVID had a negative impact on our business in 2020, many of our end markets are now rebounding due to pent up demand, results coupled with a long term fundamental shift to next generation cellular solutions for enterprise customers and first responders. Results. In summary, we have the right sales team, the right product portfolio and the right customer relationships in place in North America and internationally results to drive sales throughout the balance of 2021, and we are very excited about how we will grow our sales with a clear focus on reaching profitability in the coming quarters. Results. That concludes our formal remarks. With that, operator, kindly open the call to questions. Thank you. And you would like to withdraw your question. Results. And the first question comes from Jack Vander Aarde with Maxim Group. Please go ahead. Okay, great. Good morning, guys. Thanks for taking my questions. I'll start with a question for Mark. So obviously, the Q4 of 2020 was a challenging time. And I also understand that the Israel sales results somewhat collapsed, but then you followed up with Q1 results, which were exceptionally strong. Results. So it's really good to see that rebound there, at least in the data. So maybe just a couple of things. How are Israel sales Tracking this year, now that we're in 2021. And then looking at the remainder of 2021, do you expect this Q1 kind of $4,000,000 plus revenue number, do you expect the remainder quarters to kind of work off this as a base level? Just how do you expect the rest of 2021 to play out from a revenue stance? And then how are Israel sales tracking to summarize that? Thanks. Good morning, Jack. Thank you for the questions. So the Israeli market has definitely come back. Israel went through a difficult COVID period like many other countries, but they've actually because of the vaccinations, The market has opened up not fully, but relatively it's opened up relative to the rest of the world very nicely. And we definitely see that in our sales. We've won some very large contracts both in Q1 and in Q2 and we expect that to continue going forward in 2021. As I mentioned on the call earlier, we expect to be able to reach profitability in the coming quarters and I think that that's very realistic. And that's going to be based, of course, not just on Israel, but the fact that Israel is part of the mix is very helpful for us. And we Very large scale opportunities that we're coming into also in the United States and in Canada and internationally. And I think that you're going to be very pleased with 2021, my goal is to out beat your estimations or projections and I think that that's very achievable. Maybe one more thing, Jack. I think that one more thing I just wanted to mention that also the gross margins that we're seeing now results are we discussed this sort of at the end of last year that we wanted to be around 40% gross margin. And I think that that is achievable and sustainable. I think that as we have more and more sales in North America, we're seeing much better gross margin than that market. And therefore, I think that gross margin is also sustainable and that's really what a mix between the revenue growth and the higher gross margin will allow us to reach profitability. Got you. Fantastic. I appreciate the added color there. And then maybe zeroing in more on a segment perspective. So cellular booster seems like you guys are really getting momentum there. It seems like it has a bright future. But I would like to understand kind of what's going on behind the scenes a little more. So you made this acquisition of Clear RF. Just what are you providing out there with your cellular boosters? Like we had COVID that had is it a one off event where consumers maybe are having increased demand because they're at home? What happens beyond COVID with boosters from a consumer perspective? What's the commercial opportunity? Just anything you can share on cellular boosters because it seems like Big opportunity. Yes. So, I would say that historically, the company was more focused on consumers and sort of selling over the Internet and less to enterprise customers. Last year was the first time that we really started focusing on enterprise customers. And with our band 14 portfolio, that's almost 100% enterprise customers because that's really for first responders. So In general, we see that this is going to be a very large scale market for us. I can tell you that our largest competitor results anywhere between $150,000,000 to $200,000,000 a year just boosters. That's all they sell. And we think that it's a large scale market. Results. And certainly the band 14 part of the market is also a very large scale market for us because think about it, if AT and T wants to give coverage, this is the most cost effective way for them to be able to give a vehicle or a building coverage without having to put out a base station. So in that sense, we think that this is a very big market for us and it's not just a one off COVID issue as people are working more and more from their home offices And as offices in general and first responders need to have better cellular coverage, whether it's in their vehicles or in their buildings, This is just this is the cheapest way to be able to get into to allow you to have that kind of cellular coverage. So, we think that this is Very large scale market for us. It's a growing market and it's definitely not a one off just due to COVID. Jack, this is Dan. I would add to that, that cellular is a very unique broadband medium whereby Wi Fi we are all experiencing that has its own volatility issues. And the other big issue with Wi Fi is it's not a secure environment. It's an open network by design. So results. Enterprises are recognizing that not only does cellular provide the boosters provide good cellular connection, but also much better bandwidth. Results. So with consumers moving more and more towards doing things online on their phone or working at home, there's a growing need for that kind of environment where you have constant connectivity, much better bandwidth and a much more secure environment. So that's the dynamic that's really benefiting us. Got you. Dan, I appreciate the added one of the 2. One more thing, Jack. We're working now with multiple government offices and states on large scale opportunities specifically for vehicles that need to have better coverage for Band 14. So again, if you're a vehicle and you don't want to have to put out additional base stations because that's far more expensive and you want to be able to give good coverage on band 14, which of course band 14 is becoming popular, but the coverage is never going to be as good as the regular cellular network, right? You'll give them a booster and that will allow them to have better coverage, okay? So those types of opportunities we never had in the past and that's why we're very bullish on this segment in our business. Another thing is that as 5 gs comes into the market, right, 5 gs, as you know, works in higher frequencies, right? That higher frequency has a hard time getting into a building, right? So again, if you want to put up less base stations and you want to be able to get into buildings, you're going to need more repeaters. So really the market is playing into this segment of ours and we think that it's going to be going forward for many years a very good part of our business. Excellent. And then maybe I'll just ask one more and I can hop back in the queue. I wanted to question on the UV 350 or maybe just in vehicle device sales in general. I think you mentioned in the prepared remarks that results. That segment was obviously like most products were under pressure because of COVID during the year, during 2020. But now that business that was maybe delayed or pushed out is coming back, as you mentioned. I recall results. Months ago that there's, I believe, a case study you guys provided on yellow school buses. And obviously, with vaccines rolling out in the U. S. And schools coming back online, and your target customer opportunity for you guys is Yellows School Buses. Can you just maybe talk about what this business that's coming back online is related to in vehicle devices and particularly maybe with school systems? Sure. Glenn, you want to take that? Yes, sure. Sure. So Jack, yes, one of the key things, one of the key vertical markets that we've looked at it with the UV350 device is the yellow school bus market, not the only one, but certainly one of the primary ones. And for sure, Mark mentioned earlier in his prepared comments that, that particular vertical market during COVID, many of the buses were not active. Now certainly planning ahead for the September August September timeframe, these school districts are reengaging with their buses, reengaging with spending. So we're actually seeing that vertical segment, but also other vertical segments as well begin to reengage with us and begin to start to do trials again and those things. We're doing a variety of trials on the state and government side of things with various DOT, Department of Transportation Agencies throughout the U. S. As well. So we're very bullish on that market results are rebounding this year in 2021. We're already seeing some real positive signs reengaging with customer trials, both in the yellow school bus market as well as Markets. Excellent. I appreciate the added color and nice to hear from everyone today. Results. The next question comes from Bruce Krogl with KRC Insights. Please go ahead. Yes, thanks. It seems that these two questions are related, so I'll ask them together. It's about the inventories and receivables. Results. So in Q4, both on inventories and receivables, you took write offs and then in Q1, both came back quite strongly. Can you just provide some color, some context what happened in Q4 and then obviously what happened in the increase in Q1? Dan, you want to take that? Good morning, Bruce. Thank you. Good question. So with regards to what happened in Q4, We went through an unusual period with COVID where we gave some extended payment terms to some key customers. Given the pandemic, obviously, fee things were slowing down for everybody. As a result, we decided as that inventory started to age, we took that back. So we had to write that off. Results. With regards to how things are shaping up for the Q1, yes, inventory did increase sequentially, roughly just over $1,000,000 from $3,700,000 in Q4. But if you look at our inventory days, they're at 149 days, which gives us roughly 2.5 times turns, which is very normal given the revenue that we saw in Q1. Okay. I know that Pardon me. And likewise on the receivable side as well. So receivables likewise had a similar dollar value increase, up roughly $1,300,000 sequentially. But again, that's at 91 days sales outstanding. So a very normal number and we're quite comfortable with where they sit today. Yes. Okay, tough. Do you have anything specific in terms of near term catalyst that investors might expect? Can you say the question again? Near term, what can I do that? Revenue catalysts. Results. So one thing that we just want to bring to your attention is that and we mentioned this also on the call is that we are sort of at the end of developing a very unique mission critical push to talk device and we put out an announcement about that about 2 months ago. That device we think is going to be very innovative in the industry. It's going to be probably the lowest cost mission critical push to talk device. And it's going to be a very high volume product in our opinion. We're going to be selling it in North America as well as in international markets, and we plan to launch that product in the second half of this year. Results. So we think that that could be a major, major catalyst for the company simply because it's a very high volume type of a product. And companies that sell these types of products are able to sell literally hundreds of thousands of units. And we think that there is a very, very strong market for this specific product. And as I said, it's very unique in its design and its functionality. We haven't actually announced exactly what the product looks like that we plan to do probably in the next 30 to 60 days, something like that. And when you hear about it, we think that that's going to be very interesting for the company and it will be just Right. So now we'll actually have all three of our product categories in North America, vehicle devices, cellular boosters and handheld devices. And obviously, the American market and the North American market is a very large scale market. And as I mentioned before, we've been in discussions with leading carriers in the United States. We think that we're going to be able to launch with them and we think that this can be a very big catalyst for the company going forward. And just as a reminder, Bruce, if you recall, as we continue to transition our portfolio towards North America, that is all 4 gs related. Results. And as a result, our margin profile on these products are significantly higher than our legacy 3 gs products. So you saw that benefit happen in Q1. Results. And we would hope as we continue to launch these new products into North America, as Marcus suggested with the new product category, results that, that will continue to benefit our both our top line and our margin profile for the balance of the year. The next question comes from Daniel Cherubani with Fard Investments. Please go ahead. Good morning, guys. Really nice to hear you and thank you for the updates. I just want to ask you 2 questions. One is My typical dream questions and I always speak to Mark about is that with the growing, I would say exponential growth of electric vehicles and charging stations, For example, here in Quebec, Lion Electric with the school buses is coming up with its own system to help computerize the school buses Whenever they get need to get charged again. So does is Syata even dreaming to be in that space where you can Closest charging station, I don't know if that even coincides with your space. And the second question is more of a capital raising question. Do you foresee that in the next, let's say, 1 year, we would have to go out again to the capital markets to get more funds if we're having this expansion? Or Or if you can just give us an idea of what you think the next capital raising event would be? So Glenn, maybe you want to take the first question? Yes, for sure. So yes, on that first question, definitely because our in vehicle device, the UV350 is an Android based device. It can support various Android apps running on the product and therefore, If there is an app developed that will help either commercial vehicles or whomever, buses you mentioned, whomever is in need of Finding the local charging station, if an app is developed to do exactly that, that can run on our products. And therefore, yes, we can help drivers to find their closest charging station. That's why that's the beauty of the Android system. While call. Often people are interested in push to talk over cellular, that particular app, we can also support many other kinds of apps like the one you mentioned as well. And then on the raising of capital, Mark, do you or Dan want to address that question? Yes, I'll take that. So I wouldn't say on a conference call that we're never going to raise money or that we're not going to raise money in the next year because obviously we would raise money if we had to results for advantageous reasons, if we wanted to do a large scale M and A or if we had some reason that we wanted to do that. Right now, our cash position is strong and we don't have to. So I don't foresee it happening specifically in the near future. But again, if we feel that It's important for the company and the price is correct and it's advantageous for the company, then we would do that. But the idea is to do as little dilution as possible for shareholders only if we have to, then otherwise then we would do it. Results. The next question comes from Tim Moore with Zacks. Research. Please go ahead. Hi, thanks for taking my call. Most of my questions have already been addressed, but I was wondering regarding you're reaching profitability in the coming quarters. If you can maybe elaborate or share some thoughts on Maybe what revenue milestone you have to achieve in North America, given its higher margin accretion to really get to breakeven or profitability. Results. And along those lines, if you can maybe mention some details or actions taken Recently or the year to date regarding maybe sales force improvements and additions? Great question. So we have to do about $5,000,000 a quarter to reach profitability. That's sort of the number or $20,000,000 on an annual basis. And I think that based on the various opportunities that we're going after, I think that it's I wouldn't say that I think that we can achieve in the coming quarters If I didn't think that we could, we're working on opportunities that are far greater than that would allow us to have far greater sales than just $5,000,000 a quarter. And therefore, we think that we can reach those numbers. And I think that it's going to happen in the coming quarters. I think it's very realistic. And again, We're not dependent on one product or on one customer. We sell to multiple customers. We have a large product portfolio. We have various verticals that we're going after. We're not going after just yellow school buses or just first responders. We're also going after utilities and waste management and government contracts and whatnot. So in results. In that sense, we're really not limited. We have North American markets. We have international markets. We think that we're going to be able to launch with a large scale carrier this year results outside of the United States also. So between all of those opportunities, we think that it's very probable for us to be able to get to at least $5,000,000 quarters and then revenue has higher and higher margins and higher and higher revenue going forward, okay. We have hired over the past, I want to say year, specifically people, salespeople in the United States. We have a very good team that now manages plan. We have a very strong team that manages our booster sales. We hired additional 2 booster salespeople just in the past couple of months, literally since the beginning of this year, just because we see that that market is a growing market for us. We have a fantastic VP of sales for our Booster portfolio. So just in general, the main hires that we are doing are specifically for sales and specifically for reporting. Glenn is in charge of our international markets and he's done an excellent job for us. So we think that we have a very strong team in place. And again, we don't have to hire a lot of people. We're able to leverage a relatively small team to be able to get to very high sales. Okay. And that's very important for you to understand. The whole company today is 25 people. I don't envision the company even in a year from now being more than 30 or 32 people, that's the whole company, simply because we're able to leverage the sales channels, the cellular carriers that we're working with to get very high volume sales. Results. And my goal is to keep the company as small and as lean and as lean as possible and leverage the sales forces of the channels that we work with. So in that sense, we won't have to grow our burn rate. We just want to grow our sales. Great. That's very helpful. I appreciate that. Results. As we have no further questions, this concludes our question and answer session. Conference Call. I would now like to turn the conference back over to Mark Ciellenfreund for any closing remarks. So I just want to thank our shareholders for bearing with us results. Through this period of the delayed financials, we didn't realize it was going to take as long as it did, and I'm glad that it's now behind us. Anybody that has additional questions is always welcome to reach out to the company or to myself and I would be happy to be in touch with all of our investors. Thank you very much. Results. Thank you for attending today's presentation. You may now disconnect.