SCKT....latest update....
From CFO to me: The company is very committed to keeping expenses low. It's a fine line though on salaries and hours because you can't afford to lose key people. They feel good they are holding the balance well. Expenses in 1rst Q will be kept near 4th Q numbers (which were historic lows) and they need $4.3M to be net income positive (I asked this specifically---not cash flow positive, but net income positive). It was emphasized again----increasing scanner sales does not increase expenses much since they only need to provide scanners, as the partners do all of the sales/marketing/advertising. It means warehouse employees need to be added in time with growth, not expensive sales reps. They are cross training other employees to work in the warehouse too so they don't have to hire outside people.
They had to get the crazy high interest loan in the late 3rd Q for working capital. That added almost $100K in interest to expenses in the 4th Q. It's completely paid off and there will be much less interest in expenses in 1rst Q.. They did though get $250K in a short term loan at 8% from the Board of Directors recently but there is NO options involved and they intend to pay if off over the next few months. NO conversion to shares. They don't intend to dilute and the Board is supporting this decision yet still loaning money at very fair interest rates. This money is not being used for anything else but paying for their supplier to build scanners for them in increasing numbers to satisfy demands.
There were 2300 7ci scanners sold in the 4th Q. My projected number was 2450. I've come to realize that my tracking of scanners is pretty accurate but is a bit high on my estimate of international sales. I will adjust for it. I've estimated that they receive $200/7ci unit from distributors. The CFO said this is accurate. All orders go through distributors including large orders, as such the 3200 order was for $640K. This is NOT the only large order coming but they are not going to elaborate on the future right now. Also, this order is only part of a larger order----it is a "trial". If the major Japanese company likes Fujitsu's point of sale system and scanners in their trial, they will roll it out to all locations which is "substantial". Something to note---- ONE order in 1rst Q for 7ci scanner was for more than all of 4th Q combined. Wait till this thing is hitting on all cylinders for scanners in the future.
Somo---the transition has been harder than they expected. What hurt them is prior customers of the Somo 650 stocked up heavily when it was being discounted and new customers got concerned with the whole hang-up on Windows 6.5 vs 8.0 and how it would affect them going forward as far as support from Microsoft. Now that they know the operating system is good for 9 years from Microsoft, it should open them up to more orders. I'm going to look at the 655 from now on as more like the 7ci than a continuation of the Somo 650 model. It needs to build new developers and prior customers will trickle back. Growth will be steady going forward but it's best to be conservative. The only thing that could make a real impact is Alere/Epocal. They used to be Socket's #1 customer and bought $500K worth of Somos per quarter. The Epoc blood gas analyzer has been a slower seller and, as such, they have surplus 650 units to still use up. What's interesting is that Alere just bought the remaining unowned part of Epocal for $166M earlier this month. Epocal just got more blood tests approved by the FDA for the unit. Alere obviously sees a future here. Socket has a great relationship with Epocal but who knows for sure when this will kick back in. Alere reports tomorrow and I'll be listening to the conference call.
$3.5M in "shippable orders" stated so far for the 1rst Q. This is all product that has cleared the distribution channel, the whole order for Japan, and all product orders to distributors for the next couple of weeks that need to be delivered and are expected to sell shortly. What it does not include is most of the orders to distributors for the month of March. Whatever is sent to them and sold through the channel will also be added to the total. Two things work here---March is the strongest month of the whole quarter. The second thing is I've found that scanners sell very quickly once they are in inventory at distributors. They are actually running behind (ex. have a backlog of 138 7ci units that have been ordered at Ingram and are waiting for delivery from Socket).
1rst Q estimate based on knowledge to date: Service/OEM can be fairly estimated at $300K (was $400K but we will be conservative), Somo: I put it at $1.2M. This is up from 4th Q (which they stated in the cc call it would be) but is still pathetically low (even lower than the $1.3M from 3rd Q and much less than $2M+ historically), profit margins around 39% (historical number), expenses very similar with $1.70M including interest and everything. All of these numbers are very fair. The key then is what will scanner sales be. Right now I put it at $3M based on the large deal, and what I've tracked so far in Jan and Feb (and comparing it to numbers I've had before) and projecting forward for the rest of Feb and March.
($3M scanners + $1.2M Somo +$300K OEM/Service) x 0.39 Profit Margin - $1.7M expenses = $4.5M revenue and net income positive by a little bit.
I am now starting to track Somos and will see if that number can be increased as time goes by. I will know more about scanner sales as Feb plays out and March develops. I'm going to be conservative in my estimates from now one for certain.
2nd Q on: This company can continue to grow scanners to new records every quarter so even if Somos stay pathetic forever, they will become nicely profitable. 100 Point of sale systems in 19 countries including most of the "big boys" will add up especially as most of them have hardly even started to push their product. If Somos ever kick back in again, they will become grossly profitable.
My enthusiasm was skewed towards the 4th Q by statements other shareholders made to me that I now question to be truthful. I don't intend to make this mistake again.
Dave
