Sonim(SONM) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements for September 30, 2023, indicate a significant increase in total assets and a shift to profitability, driven by substantial revenue growth, despite a decrease in cash and cash equivalents Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $58.6 million, primarily due to higher accounts receivable, while cash decreased and stockholders' equity improved Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,797 | $13,213 | | Accounts receivable, net | $30,348 | $22,433 | | Inventory | $4,219 | $3,910 | | Total current assets | $47,537 | $43,632 | | Total assets | $58,610 | $53,686 | | Liabilities & Equity | | | | Accounts payable | $23,256 | $21,126 | | Total current liabilities | $34,038 | $32,062 | | Total liabilities | $35,500 | $33,641 | | Total stockholders' equity | $23,110 | $20,045 | Condensed Consolidated Statements of Operations The company achieved profitability in Q3 2023 and for the nine-month period, reporting $1.3 million net income on $80.2 million revenues, driven by 75% revenue growth and 85% gross profit increase Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $27,566 | $20,497 | $80,202 | $45,710 | | Gross profit | $5,603 | $3,316 | $14,204 | $7,691 | | Net income (loss) from operations | $688 | $(1,929) | $1,768 | $(13,231) | | Net income (loss) | $527 | $(1,608) | $1,263 | $(13,045) | | Diluted EPS | $0.01 | $(0.04) | $0.03 | $(0.52) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $3.7 million for the nine months ended September 30, 2023, primarily due to increased accounts receivable, resulting in a $3.4 million decrease in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(3,701) | $(10,137) | | Net cash used in investing activities | $(24) | $(6) | | Net cash provided by financing activities | $309 | $14,384 | | Net decrease in cash and cash equivalents | $(3,416) | $4,241 | | Cash and cash equivalents at end of period | $9,797 | $15,474 | Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail the company's diversification into new product lines, significant customer concentration, and substantial purchase commitments of $20.8 million - The company is diversifying from rugged devices into consumer durable and data devices, with a new tablet line introduced in 2022 generating a significant portion of revenue[24] Revenue by Product Category (Nine Months Ended Sep 30, in thousands) | Product Category | 2023 | 2022 | | :--- | :--- | :--- | | Smartphones | $23,683 | $10,956 | | Feature Phones | $11,737 | $19,618 | | Tablets | $43,864 | $13,870 | | Accessories / Other | $918 | $1,266 | | Total | $80,202 | $45,710 | - Customer concentration is high, with Customer A and Customer B representing 55% and 26% of revenue, respectively, for the nine months ended September 30, 2023[71] - The company has noncancelable purchase commitments of approximately $20.8 million as of September 30, 2023, primarily for inventory and device components[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth and profitability to new product sales and reduced operating expenses, while expanding its product portfolio, but faces a Nasdaq delisting notice due to its stock price - The company is expanding its product portfolio with a new 'Connected Solutions' division, launching mobile hotspots, fixed wireless, and USB dongles in 2024, and is also launching a line of consumer durable phones[75][78] - In Q3 2023, the company received six product awards for new hotspot devices from tier-one carriers in the U.S., Canada, and Australia, with launches expected throughout 2024[83] - On September 14, 2023, the company received a delinquency notice from Nasdaq for failing to maintain a minimum bid price of $1.00 per share, with a compliance deadline of March 12, 2024, and is considering a reverse stock split[86] Operating Expense Changes (Nine Months Ended Sep 30, in thousands) | Expense Category | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $846 | $6,754 | $(5,908) | (87)% | | Sales and marketing | $5,717 | $5,754 | $(37) | (1)% | | General and administrative | $5,873 | $8,414 | $(2,541) | (30)% | | Total Operating Expenses | $12,436 | $20,922 | $(8,486) | (41)% | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Sonim Technologies is not required to provide quantitative and qualitative disclosures about market risk[117] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in IT general controls, with remediation efforts underway expected by year-end 2023 - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period due to a material weakness in internal control over financial reporting[118] - The material weakness relates to the design and implementation of IT general controls, specifically regarding the review of changes to user roles in financial reporting systems[119] - Remediation efforts are underway, including removing elevated administrator access and implementing new auditable reviews of user role changes, with full remediation expected by the end of 2023[120][121] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but does not anticipate a material adverse effect on its financial position or operations from their resolution - The company states that while it is involved in various legal proceedings, it does not expect the outcomes to materially impact its financial condition, results, or cash flows[63][125] Item 1A. Risk Factors The company highlights new risks, including management attention diversion due to new product lines, potential Nasdaq delisting, and the inherent uncertainties of financial projections - A new risk factor has been added regarding the company's entry into the data device sector, which could divert management attention and presents execution risks related to manufacturing and supply chain[127][128] - The company is not in compliance with Nasdaq's minimum bid price requirement of $1.00 per share and faces the risk of delisting, which could severely impact the stock's trading, liquidity, and market price[129][130][132] - The company cautions that its financial and operational projections are based on numerous assumptions and are subject to inherent risks, meaning actual results could differ materially[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - There were no unregistered sales of equity securities during the period[135] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - There were no defaults upon senior securities during the period[136] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company[137] Item 5. Other Information There is no other material information to report for the period - There is no other information to report for the period[138] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including corporate governance documents, a consulting agreement, and required CEO/CFO certifications - Key exhibits filed include corporate governance documents, a consulting agreement with Alan Howe, the amended 2019 Equity Incentive Plan, and required CEO/CFO certifications[139]