Sonim Reports Financials, Reduces Workforce from 700 to 450
Wednesday, March 11, 2020 | Comments

Rugged handset maker Sonim Technologies reported financial results for the fourth quarter and full year ended Dec. 31, along with a restructuring update.

For the full year, net revenues were $116.3 million compared with $135.7 million in 2018. Gross profit was $34.5 million compared with $48.1 million in 2018.

Net revenues for the fourth quarter of 2019 decreased 63% to $17.2 million, from $46.5 million in the fourth quarter of 2018. The decrease in net revenues was primarily attributable to lower volumes for the XP8 smartphone and XP5 feature phones sold to both U.S. and international carriers. Gross profit was $4.2 million compared with $18.2 million in the same 2018 quarter. GAAP net loss totaled $8.3 million.

Since November, management has proactively reorganized the company into a lower cost organization focused on a path to growth and profitability. The company reduced its global headcount from about 700 employees at year-end 2018 to about 500 employees as of Dec. 31. The company executed an additional reduction in force of about 10% of its U.S. employees in February. Sonim also intends to relocate its headquarters to Austin, Texas, a lower cost location, as swiftly as possible.

"We have made meaningful progress on our restructuring plan over the past four months," said Tom Wilkinson, CEO. "Since joining Sonim late last year, I have worked with Bob Tirva, our CFO (chief financial officer), to closely evaluate all aspects of our business. This includes product engineering and development, supply chain, sales and marketing, distribution, partnerships, strategic opportunities and administration. Within every function of Sonim's business, we have identified opportunities to streamline our operations and reduce costs. These changes are being implemented with rapid effect, such as a reduction in force of more than 200 positions worldwide. We are positioning Sonim to be leaner, more nimble and more effective in bringing our rugged mobility products to market so as to drive improvement in our operating results as we weather a challenging transition in our business and global economic uncertainty related to the COVID-19 virus, including specifically its impact in China."

These actions are expected to result in a run-rate savings of about 20% or $12 million from the company's 2019 operating expense run rate, excluding one-time initial public offering (IPO) related costs. Restructuring the company positions Sonim to stabilize its operations and invest for future growth, a statement said.

"Sonim's board of directors has approved an operating plan for 2020 changing how we execute our business so that we can focus not only on the needs of our customers but also on performing well for our shareholders," said Wilkinson. "In addition to our actions on the operating cost side of the business, we have also taken steps to better align our inventory with our projected channel sales activity. We anticipate a challenging first portion of the year for 2020 as we make these adjustments, but we believe the adjustments are the necessary steps to realign Sonim's operations within the rugged mobility marketplace."

Sonim Technologies is closely monitoring the impact of the COVID-19 global outbreak. The Chinese government placed a moratorium on employment reductions while the crisis continues. As a result, restructuring in the company's China operations has been deferred until the health crisis subsides and the moratorium is lifted.

"The impact of COVID-19 has delayed the execution of certain portions of our planned restructuring actions in product development and supply chain, but at this point we believe our sales partners have ample inventory to continue meeting customer needs in the near term," said Wilkinson. "There is an increasing likelihood that our results could be negatively impacted by an interruption in the operation of our manufacturing facility in Shenzhen, China, during the first quarter. The magnitude of any potential impact is unknown, as it is unclear how long it will take for the overall supply chain to return to normal. We continue to work closely with our partners and suppliers to manage this process appropriately."

The company will continue to refrain from offering forward-looking guidance until the COVID-19 situation achieves greater resolution and additional actions in the restructuring plan are implemented.

Sonim's smartphones include the XP6, XP7 and XP8 models. The number of smartphone units sold during the three months ended Dec. 31 compared with the three months ended Dec. 31, 2018, decreased by 57%, primarily because of decreased demand for older XP7 and XP6 models, and slower than expected ramp of the XP8.

Feature phones include the XP3, XP5 and XP5s models. The number of feature phone units sold during the last three months of 2019 compared with the last three months of 2018 decreased by 65%, primarily due to decreases in demand for the XP5s from several carriers. With introduction of the higher volume XP3 in the second quarter of 2019, feature phones represented about 46% of unit sales in the fourth quarter of 2019 compared with about 51% in the last quarter of 2018.

For the full year, the decrease in net revenues was primarily because of a decrease in average sales price due to changes in product mix and a decrease in professional service revenue. The decline in gross profit was primarily due to the one-time reserve of $3.1 million noted previously, changes in product mix and $1.5 million in amortized fulfillment costs as a result of the adoption ASC 606.

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