Sonim Announces First-Quarter Results, Says It Is Facing Financial Difficulties
Wednesday, May 12, 2021 | Comments

Sonim Technologies reported financial results for the first quarter ended March 31 and provided an update on new product orders. The company said it is facing financial difficulties and may have difficulties continuing.

Net revenues for the first quarter of 2021 were $12.2 million, compared to $12.7 million in the first quarter of 2020. The change in net revenue reflected the expected decline in sales of our legacy products, partially offset by the introduction of the RS80 late in quarter one, and the shipment of more than $1 million in products during the period.

Gross profit for the first quarter increased 14% to $2.5 million (20.1% of net revenues) from $2.2 million (17.0% of net revenues) in the first quarter of 2020. The increase in gross profit and gross margin included the addition of higher gross margin scanner sales in the first quarter and recovery from the inefficiencies in the first quarter of 2020 caused by factory and supply chain shutdown due to the global pandemic. Offsetting this benefit, to a certain extent, was that unit costs were negatively impacted by rising component prices for legacy products as they approach end of life. Sonim anticipates that gross margins will further benefit from increased sales of handheld devices in future quarters, as well as steps taken to convert higher fixed cost internal manufacturing and software functions to competitively priced outsourced solutions going forward.

Operating expenses for the first quarter were $11.5 million, compared to $11.2 million in the first quarter 2020. The increase in operating expenses was driven by $2.4 million in legal expenses pertaining to a previously disclosed and ongoing SEC investigation. Setting aside these legal costs, general and administrative expense declined by 13% year over year, and sales and marketing declined by 30% year over year, while research and development increased 18%, as Sonim continued to invest to bring additional next generation handset products to market in the second half of 2021.

"First-quarter operating expenses were primarily impacted by higher-than-expected legal expenses related to an ongoing SEC investigation,” said Chief Financial Officer (CFO) Bob Tirva. “A somewhat elevated level of legal spending is likely to continue until the matter is resolved. A portion of our legal expenses may be covered by our corporate insurance policy in the future once certain deductible levels are met. We have made significant progress on our other operating expense categories, in line with the lean operating mantra Sonim has adopted over the past 18 months. We have also invested cash to fund original design manufacturer (ODM) commitments for our next-generation products launching in the second half of 2021, which we believe will notably expand our addressable market opportunities. We are already seeing traction with these products, including a $10 million stocking order from a U.S. carrier partner, mirroring our enthusiasm for the value proposition these rugged communication devices provide to customers."

Net loss for the first quarter of 2021 totaled $9.3 million or $0.14 per basic and diluted share, compared to net loss of $10.0 million in the first quarter of 2020, or $0.48 per basic and diluted share.

Sonim ended the quarter with $13.9 million in cash and equivalents and remained essentially debt free. The decline in cash was primarily the result of Sonim's net loss. Inventory was $10.6 million at quarter end, and accounts receivable was $5.8 million.

Sonim's liquidity has been negatively impacted by a decline in sales of legacy products while next-generation products are still under development. In addition, legal expenses have been higher than expected and may continue to impact results in the foreseeable future. As a result, substantial doubt exists regarding Sonim's ability to continue as a going concern. Sonim plans to explore raising additional capital from the sale of equity securities or the incurrence of indebtedness to allow it to continue operations. Sonim has also retained B. Riley as its investment bank to explore capital market financing ideas as well as strategic alternatives for the company including both buy and sell side opportunities.

Sonim's management team and board of directors expects to work closely with the bankers to chart a path forward. However, there can be no assurance that Sonim will be able improve its financial position and liquidity or raise additional capital. Sonim's strategic plans are not yet finalized and are subject to numerous uncertainties including conditions in the credit and capital markets.

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