Sonim(SONM) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended June 30, 2023 Item 1. Financial Statements (Unaudited) The unaudited financial statements for Q2 2023 reveal significant revenue growth and a shift to net income, driven by new tablet sales, alongside changes in cash and receivables Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows total assets of $53.7 million, with decreased cash and increased accounts receivable, alongside a rise in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,720 | $13,213 | | Accounts receivable, net | $26,576 | $22,433 | | Inventory | $4,736 | $3,910 | | Total current assets | $43,468 | $43,632 | | Total assets | $53,740 | $53,686 | | Liabilities & Equity | | | | Accounts payable | $20,913 | $21,126 | | Total current liabilities | $30,645 | $32,062 | | Total liabilities | $32,091 | $33,641 | | Total stockholders' equity | $21,649 | $20,045 | Condensed Consolidated Statements of Operations The statements of operations show a significant turnaround to a net income of $0.5 million in Q2 2023, driven by a 124% increase in net revenues and reduced operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $26,835 | $11,955 | $52,636 | $25,213 | | Gross profit | $4,426 | $2,847 | $8,601 | $4,375 | | Total operating expenses | $3,679 | $7,067 | $7,521 | $15,677 | | Net income (loss) from operations | $747 | $(4,220) | $1,080 | $(11,302) | | Net income (loss) | $509 | $(4,225) | $736 | $(11,437) | | Diluted EPS | $0.01 | $(0.22) | $0.02 | $(0.60) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for the six months ended June 30, 2023, totaled $3.4 million, primarily due to increased accounts receivable, resulting in a $3.5 million decrease in overall cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(3,397) | $156 | | Net cash used in investing activities | $(23) | $(6) | | Net cash provided by (used in) financing activities | $(73) | $6,772 | | Net (decrease) increase in cash | $(3,493) | $6,922 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, and balance sheet components, highlighting significant tablet revenue, customer concentration, reduced R&D, and management's going concern assessment - The company believes it has the ability to continue as a going concern for at least one year, based on its cash position of $9.7 million and expected positive cash flow from product sales[18] Net Revenue by Product Category (in thousands) | Product Category | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Smartphones | $8,869 | $5,862 | $15,296 | $9,449 | | Feature Phones | $3,012 | $6,001 | $6,853 | $14,838 | | Tablets | $14,737 | $— | $29,994 | $— | | Accessories / Other | $217 | $92 | $493 | $926 | | Total | $26,835 | $11,955 | $52,636 | $25,213 | - A single customer that purchases tablets accounted for 78% of total accounts receivable as of June 30, 2023, indicating significant customer concentration risk[39] - For the second quarter of 2023, two customers accounted for 55% (Customer A) and 35% (Customer B) of total revenues, respectively[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2023's 124% revenue growth and improved operating income to new tablet sales and reduced R&D, while expanding into 'Connected Solutions' despite negative operating cash flow from increased receivables - The company is expanding its product portfolio with a new 'Connected Solutions' division (mobile hotspots, fixed wireless) and a line of consumer durable products, with launches planned for 2024[70][73] - Customer concentration is high, with the tablet customer representing 57% of revenue for the six months ended June 30, 2023[72] Results of Operations Comparison (in thousands) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $26,835 | $11,955 | 124% | | Gross profit | $4,426 | $2,847 | 55% | | Operating expenses | $3,679 | $7,067 | (48%) | | Net income (loss) | $509 | $(4,225) | 112% | - Research and development expenses were zero for Q2 2023, compared to $2.7 million in Q2 2022, with future R&D costs expected to be borne by third-party manufacturers and passed on through higher product costs[82][86] - Cash used in operations for the first six months of 2023 was $3.4 million, primarily due to a $4.1 million increase in accounts receivable related to tablet sales with longer payment cycles[94][96] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Sonim Technologies, Inc. is not required to provide information for this item - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[107] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness in IT general controls, with remediation expected by year-end - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[108] - A material weakness in internal controls related to IT general controls (specifically, documenting reviews of user role changes in financial systems) persists, with remediation in progress and expected to be complete by the end of 2023[109][111] PART II. OTHER INFORMATION This section addresses legal proceedings, updated risk factors, and other miscellaneous disclosures for the reporting period Item 1. Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business but does not believe their resolution will have a material adverse effect on its financial position - The company states it is involved in various legal proceedings in the normal course of business, which are not expected to have a material adverse effect[57][116] Item 1A. Risk Factors No material changes from the 10-K are noted, but an amended risk factor addresses Nasdaq listing compliance, and a new one highlights challenges in expanding into the data device sector - A risk factor regarding the ability to comply with Nasdaq's continued listing standards has been amended and restated[117][118] - A new risk factor was added concerning the company's entry into the data device sector with its 'Connected Solutions' division, highlighting risks such as diverting management attention and execution challenges for the new product line[120][121] Other Items (2, 3, 4, 5) There were no unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, or other information to report for the period - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information) were all reported as 'None' or 'Not applicable'[123][124][125][126] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer Signatures The report is duly signed by the Chief Executive Officer and the Chief Financial Officer on August 14, 2023