SCKT....Some thoughts + assumptions on 4th Q and beyond:
4th Q 2015:
----Kevin Mills said in the cc call that scanners will fall between 4th Q last year ($3.101M for scanners + accessories) and 3rd Q this year ($4.0M).
----60% of the $1.6M Somo order will occur in 4th Q. A portion of the 600 unit Somo order from Japan will occur.
----Dave Dunlap said margins should be around 1% less than what they did in 3rd Q, which then means = 48.5%
----Expenses will go up a bit because of a couple of new hires.
We now know that 2Q and 3Q 2014 scanner numbers were falsely high due to $900K in large orders in 2Q last year and $600K in large orders in 3Q last year. I found out most of those were not POS related, but a unique order that wrapped around both quarters. As such, it boosted sales growth last year in a way that made for tough comparisons. The numbers this year for large orders were $400K in 2Q and $270K in 3Q. However, "run rate" to small businesses through their partnerships with tablet/mPOS partners grew 27% in 2Q and 16% in 3Q. I don't know the % of large orders that occurred in 1rst Q 2015. I asked awhile back but they didn't respond with specifics other than saying not much occurs there. Scanner sales (scanners + accessories) grew 19% year over year in 1rst Q.
4th Q last year did $3.101M in scanner sales. I will assume it grows 15% year-over-year. That's fair when you look at the "run rate" growth of the previous quarters. If you take out the large deals from 2014 that skewed those numbers falsely upward, 15% growth rate in 4th Q is conservative imo. October this year should get some rollover from Sept + regular organic growth rate + more of the 8ci inventory related sales happening this year. I will assume $0 of the "van line deal"----it never seems to happen (though the driver newsletter claims it is moving forward) and so I will leave it out. As such, I will say $3.101 x 1.15 = $3.56M in scanner related income.
$960K from the large Somo deal. They did $379K in regular Somo sales in 3Q. I'm going to say this will be repeated. I still can track Somo sales reasonably well and the numbers in Oct are similar to what I saw in June. I will assume the portion of the Japanese 600 unit order will make this $379K rock solid, but not add to it. Obviously there is upside potential here, but I will be conservative. Somo = $960K + $379K = $1.339M.
$100K Service. This has been running around $125K-$150K each quarter. I will say Service is just $100K to be conservative.
Total Revenue for 4th Q = $3.56M + $1.339M + $100K = $4.99M. I'll say $5.0M to make my math easier. Does all of this sound reasonable?? I think it does. Now we will make the "Socket Mobile" correction to it.........namely "nothing ever goes as planned!". We will minus off $200K from this total. I don't where my assumption is too great as I think I'm being conservative, but it's better to be too low than too high. As such, $4.8M is my revenue prediction for 4th Q.
Gross Profit: Dunlap said 48.5% margins. I will go less and say 48% margins. As such, $4.8M x 48% = $2.30M gross income.
Expenses: Expenses in 3Q were $1.71M. They are expected to go up a bit. I think Expenses = $1.80M would be a "too high" of a number and I will use that to be conservative.
Net income: That comes out to $500K in net income. 6.0M shares is a proper number for full dilution. As such, net income/share = 8.33 cents/share. This would give them 22 cents/share (fully diluted) net income for the year.
What if........ What if I don't subtract out the extra $200K as a "downside" assumption + that the Somo is $50K more because of the Japanese order + margins really are 48.5% + expenses are closer to $1.75M, then you are looking at $720K in net income and 12 cents/share.
What about 2016...... I think 1rst Q 2016 produces numbers very similar to 4th Q. Yes, there will only be 40% of the large Somo order vs 60%, but scanner sales will be higher. The last 2 years 1rst Q scanner sales grew sequentially over 4th Q. They did $3.48M in scanner related sales this year and should grow above that. As such, I could easily see another $4.8M in revenues. I will say 7 cents/share because of added expenses for the audit and possibly dilution is just a bit higher.
2Q and 3rd Q 2016.......Both these quarters easily come in above 10 cents/share imo. I will worry about the details here another day. The point I'm trying to make is that the next 4 quarters are rock solid. The big things are the following: what are the POS partners growing at and are they pushing inventory tracking more and more to small businesses? Is business enterprise/inventory type of applications taking off in 2016? Can they get some Tier 2 and 3 businesses putting in large orders for POS? Are international scanner sales finally starting to grow? These will determine revenue growth rate.
4th Q 2016 and 1rst Q 2017........Now this is where the scanner growth rate starts to make a difference. If it's growing 15% a year next year, then these quarters will have tough comps and that will be an issue. If it's growing 25% a year, then scanner growth makes up for the loss of the Somo product line. The revenue may end up similar, but the margins will be higher and the net income will do well. Also, can they squeeze anymore Somo sales out or get the new RFID/NFC products to trickle in some revenue to the mix? These 2 quarters are what may produce a speed bump going forward. The plus here is that either a NASDAQ listing has already occurred (i.e. the do a mid-year audit after 2nd Q) or it's obvious that one will happen for sure in early 2017. They are at $2.2M in shareholder equity now and will break the $4.0M they need by 2nd Q next year imo (they did $680K in cashflow this quarter).
2Q 2017 and beyond: By then the RFID/NFC products will start to contribute revenue and it's back to doing well.
Overall Thoughts: They did 9 cents/share in 2014. They should do around 22 cents/share in 2015. 2016 will be at least 35 cents/share and could be much better depending on scanner growth rates. 2017 will have RFID/NFC products starting to add to the mix in meaningful revenue. The balance sheet is cleaning up fast. The next 4 quarters should do $600K+ in cashflow. The market cap currently is around 5x the cashflow that will be generated over the next 12 months.
Overall, I thought the scanner growth rate would be better. Little did I know that scanner revenue in 2014 was heavily weighted to unique large orders in 2Q and 3Q. I get impatient at times and it will probably still continue. I try and remind myself that this is not too shabby of an investment right now as it stands plus there is still a chance for a very nice upside surprise if the industry ramps up.
