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spk00: Good morning, ladies and gentlemen, and welcome to the Sciata Mobile second quarter 2023 conference call. At this time, all lines are on a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 15, 2023. I would now like to turn the conference over to Glenn Kennedy, Vice President of International Sales. Please go ahead.
spk05: Thank you for joining the Sciata Mobile second quarter 2023 conference call. Today, I'm joined by our CEO, Mark Seelenfreund, and we will be available for questions at the end of the presentation. During this call, management will make express and implied forward-looking statements within the Private Securities Litigation Reform Act of 1995 and other U.S. federal securities laws. These forward looking statements include but are not limited to those statements regarding future product offerings the belief that we're on the path for strong organic growth. The goal to deliver strong year over year revenue growth and reach profitability in the coming quarters. The belief that the worst of the pandemic is behind us and that we will continue to see strong sales in all of our product lines and across our various markets. and the timing and sale of our rugged handsets to North American and international carriers. Such forward-looking statements are based on the company's current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are not statements of historical fact and are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The company's actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. The company cannot guarantee future results, levels of activity, performance, or achievements. The forward-looking statements contained in this presentation are subject to other risks and uncertainties. including those discussed in the risk factors section and elsewhere in the company's annual report on Form 20F for the year ended December 31st, 2022, filed with the Securities and Exchange Commission. Now, I'd like to turn the call over to Mark.
spk01: Thank you, Glenn. Good morning, and thank you for joining the call. Before reviewing the second quarter financials, I want to first share with you that we previously announced two capital raises on June 27th and July 11th, which generated a total of $4.55 million in gross proceeds for the company to support its working capital for growth. Then, on August 8th, Seattle announced that it affected a reverse stock split for 1 to 100 of its common shares to meet NASDAQ minimum bid price requirements. These transactions leave Sciata in a stronger position to grow the business in 2023 and beyond. Now, in the second quarter of 2023, ended June 30th, we are pleased to report that growth continued to accelerate with a 180% year-over-year increase in revenue compared to Q2 2022 on strengthening sales of our mission-critical SD7 handset and accessories. Adoption of our critical communication devices is expanding. Just as important, the increase in sales reaches beyond emergency services to include school safety, healthcare, industrial, and enterprise use cases, among others. Given our performance in the first half of the year and our expanding sales pipeline, we are increasingly optimistic that 2023 will be a strong sales growth year for SIADA. Total revenue was $2.7 million in Q2 2023 compared to just under $1 million in Q2 2022, a 180% increase in revenue. Revenue from the U.S. was 84% of total revenue for the quarter compared to 49% in Q2 2022. Rugged device sales in Q2 2023 are approximately 10 times higher than in Q2 2022, $2.1 million versus $220,000, an increase of approximately $1.9 million in the quarter directly attributed to sales of the SD7 handset. Gross margin percentage for Q2 2023 was 29.7% versus 11.2% in Q2 2022. Gross margin dollars increased from $109,000 to $804,000, a $695,000 positive variance, which is greater than 600% increase in gross margin dollars. SG&A expenses are $2.7 million in Q2 2023 versus $3 million in Q2 2022, a decrease of $275,000, or 9%. Adjusted EBITDA for Q2 2023 with negative $2 million compared to negative $3.4 million in Q2 2022, a $1.4 million positive variance in EBITDA, a 41% increase. Working capital as of June 30th, 2023 was $3.7 million versus $1.6 million as of December 31, 2022, a $2.1 million increase in working capital. So far this year, for the six months ended June 30th, 2023, total revenue was $4.5 million compared to $1.8 million in the same period of 2022, which is a positive variance of $2.7 million, a 150% increase. Gross margin dollars were $1.3 million in 2023 compared to $400,000 in the same period of 2022, which is a positive variance of $900,000, a 257% increase. Finally, the gross margin percentage was 29% in 2023, compared to 20% for the same period in 2022, a 45% improvement. Turning over to significant business highlights, we are pleased to report that Sciata has delivered on its plan to build and expand its potential customer base for the SD7 handset and accessories portfolio. We previously announced that the SD7 is certified and approved for use with growing lists of North American carrier customers, including FirstNet and AT&T, Verizon, T-Mobile, U.S. Cellular, and international carrier customers, including Dell Mobility in Canada, Telstra, which is the largest wireless carrier in Australia, and KPN, which is based in the Netherlands. We also previously announced that we have expanded our distribution to include strategic resellers, including Two-Way Direct and Tango Tango in the United States, and Entropia in Belgium. These companies will help us further grow sales of SD7 handsets and related accessories in their respective markets. And we also announced that Mobile Tornado is the latest PTT app provider to ensure that SD7 handsets will work with its PTT app solution. This foundation of increased distribution is directly leading to many potential opportunities that could be of significant size. We have begun shipping products in an increasing number of verticals beyond our primary focus of first responders, including government, schools, hospitals, utilities, security companies, defense contractors, amusement parks, and hotel resorts, to name a few. I am pleased to report that as we expected, the increase in the number of crucial concept trials by our customer base translated into volume growth for our SD7, which was the primary growth driver of our rugged devices and related accessories, increasing nearly six times year over year to $3.5 million in the six months ending Q2 2023, compared to $590,000 in the six months ending Q2 2022. Having said that, this remains a process. Interest is increasing and demand is growing, but we continue to believe that we are just hitting the tip of the iceberg in a multi-billion dollar industry. We expect even larger volumes will follow as end customers grow to appreciate our unique offerings of this new product categories. We also previously announced an exciting new product, the SD7 Plus, which features a wide-angle camera coupled with 4G connectivity that will have traditional body camera functionality as well as real-time situational and traditional tracking capabilities. The SD7 Plus will be powered with Visual Labs' innovative body camera software. Visual Labs is a highly respected software company and developer of Android-based body cam software. The company provides the software to public safety, private security, and other customers throughout the United States and internationally. Its public safety companies include town marshals, city police departments, country sheriff offices, wildlife, and other state agencies and federal customers. We expect the SD7 Plus with body camera capabilities will begin shipping in the coming months. And finally, we recently expanded our sales team by hiring Doug Clark, who previously was the Assistant Vice President at AT&T's FirstNet. In the brief time that Doug has been on board with Sciata, he has already helped us develop new sales opportunities based on his career experience and positive reputation with our customers and carrier partners, and we are excited to have a person of his caliber on our team. Now I would like to pass the line back to Glenn, who will discuss some of the industry trends and market dynamics that are benefiting our business and an update on our product categories.
spk05: Thank you, Mark. North American wireless carriers have recently delivered mixed results with some carriers beating on sales and earnings and raising profit forecasts to other carriers with in-line or better than forecast postpaid net additions, while other carriers shifted to cost cutting to address rising corporate costs and rising interest rates. Importantly, in July of 2023, FirstNet announced it supports more than 5 million connections to more than 26,000 public safety agencies. a gain of about 1,000 agencies during the second quarter of 2023 from the figures they released three months earlier. During the second quarter of 2023, FirstNet added 350,000 connections. Sciata works closely with FirstNet and their growth is further evidence that customers are moving towards push to talk over cellular solutions in the United States. Looking at our sales funnel, We continue to see strong opportunities in each of our three product categories. First, in our rugged handset product category, we have increased our shipments of the SD7 PTT handset that supports mission critical push to talk to North American and international wireless carriers. We displayed this handset at several trade shows during and after the quarter, including the Critical Communications World Show in Helsinki in May, the NASRO National School Safety Conference in Indianapolis in June, and just last week at the APCO 2023 show in Nashville, Tennessee. The increasing sales, the quantity of new customer trials, the customer feedback at the trade shows, and the direct engagement from senior personnel within the wireless carriers have all been strong as these wireless carriers aim to capture new customers who have been using traditional LMR or two-way radios. We're also seeing strong customer interest in our VK7 vehicle kit that works with our ST7 PTT handset. Today, we're active with AT&T, FirstNet, Verizon, T-Mobile, US Cellular, Bell Mobility in North America, with Telstra in Australia and KPN in the Netherlands, as well as with multiple dealers and distributors in the US and international markets. Our objective remains to expand our launch with additional North American and international carriers, and with additional PTT application companies in future. We've seen significant SD7 sales to first responders, schools, healthcare facilities, resorts, municipalities, and more. Large U.S. school districts are replacing legacy two-way radios by purchasing SD7 handsets to use throughout the schools they serve to help keep their students and staff safe. We anticipate more school districts following suit in the current and coming quarters. Recently, we announced a large purchase order for $1.4 million of our SD7 handset from a single customer. As a result of all SD7 market activity, we're confident that this will translate into multiple thousands of SD7 handsets sold throughout the balance of 2023 and in 2024 and we look forward to adding sales of the SD7 Plus with body camera capabilities in the coming months. Secondly, in our in-vehicle devices category, we continue to sell through our UV350 in-vehicle device with customers in North America and internationally. During the reporting period, we sold UV350 to one of the largest waste management companies in North America and believe this will be the first of many orders from this customer. We are experiencing increasing demand for our unique VK7 vehicle kit, which is the partner product to our SD7 handset. Several customers in the US, including some with yellow school buses, transit vehicles, and snowplows, are installing VK7 vehicle kits into their vehicles so that the SD7 handset can be easily used in the vehicle kit while their staff are in their vehicles. Also, in our in-vehicle product category, We received our first order, which was for $1.2 million for a new product called Real Time View, an integrated advanced video monitoring system for emergency management service or EMS providers in their fleet vehicles. And thirdly, in our cellular booster product category, we saw somewhat reduced but still steady demand for cellular boosters throughout North America. And now I will hand the line back to Mark for closing remarks.
spk01: Thank you, Glenn. I would like to take this opportunity to thank our employees for their commitment. They've worked tirelessly to build the company we have today. I would also like to acknowledge and thank our investors who stood by our company despite the turbulent environment. Overall, We are very pleased with the growing acceptance by our customers of our truly unique disruptive push-to-talk solutions, and we expect, based on what we are seeing today, growth in our various product categories, with especially strong growth coming from our rugged handset PTT product category. We are just beginning to see the rapid adoption of our disruptive solutions, and as the displacement of LAN mobile radio by push-to-talk over cellular continues to progress, this should drive meaningful growth for our innovative products. We stand by our previously stated goals of new customer wins, new and existing carrier launches, and continuous upgrade to our product portfolio, and ultimately, strong growth with a goal of profitability. We will file our second quarter 2023 financial results with the SEC on Form 6K and urge our listeners to access them from the SEC's website. Search for Cyanomobile. That concludes our formal remarks. With that, operator, kindly open the call to questions.
spk00: Thank you. Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Jack Vanderard from Maxim Group. Your line is live.
spk04: Okay, great. I appreciate the update, guys. Just for clarity, Mark, let me start with a question just so I understand. There are some restated financials. I think it was just related to one item. It was a $2.7 million change in fair value to a warrant that impacted the first quarter. Is that the only – is it the main change in the restatements?
spk01: Yes, it's the main change. It's a non-cash issue, and it was just the way that our accountant or our auditor – viewed the way that we had looked at those warrants in Q1. We actually worked with Grant Thornton in Q1 to do a review of those warrants, but the auditor thought that we should be handling it differently. And therefore, we restated that specific valuation of those warrants. Correct. That's the only issue.
spk04: Okay, good. That's helpful. And then if I just move forward here, I do notice that you have a, it looks like a bank loan outstanding of just about 700K, which is related to a recently obtained line of credit factoring agreement for your North America receivables. This was a new development I wasn't aware of before. What does this do for you exactly? Does this help boost your sales?
spk01: Yes, yes. This is a great development because it allows us to have factoring and to factor our customers. All of our customers are very high-level rated customers, and it allows us to factor them We entered into an agreement with a factoring facility that allows us to factor most of our customers. And that's what we're doing. And we hope that that number will only grow. It's not necessarily a bank loan. It's a factor company loan. And it's against receivables from specific invoices that we're giving to customers. And we think that that number is only going to grow. And it's a good thing because it's just assisting our cash flow in a non-dilutive way. So it's a very good thing for the company. And just, Jack, on that note, we're looking to do additional ways of financing without dilution. I can tell you that we're now looking at doing LC financing for our purchasing. So between LC financing and factoring, we think that that will be very, very helpful for the company, for our working capital to allow us to grow the company on our growing sales of our products.
spk04: Okay, got it. Understood. And then let me just look at the top line. You did 2.7 million of sales in the second quarter. So significant growth year over year, obviously. Congrats on that. And big growth sequentially as well. So that's great to see. Now, if I try to look forward before looking here, I see you did 2.6 million last year in the third quarter. So as we look at it, we're halfway through the third quarter this year now. Do you expect year-over-year growth in revenues, year-over-year growth and sequential growth in the third quarter? Is it going to be lumpy? Just any line of sight would be helpful.
spk01: It's very hard for us to give projections just because the sales are really ramping up now. And I don't want to say it's new to us, but it's relatively new to us getting this level of sales through the carriers. And it's going really in a great direction for the company. We do hope and our goal is to definitely have double-digit growth on a year basis, for sure. I can't tell you what's going to be in Q3 or what's going to be in Q4, but from what we're seeing, we're going to have substantial growth in the coming quarters just based on orders that we have coming in, partnerships that we've already signed, and we think that it's going to be a very different company in the coming quarters. The same way that you've seen in the first half of the year, we think that that's going to continue going forward.
spk04: Okay, gotcha. And there's comments, I think it was Glenn that was providing comments in his prepared remarks about AT&T's FirstNet adding, it was over 300,000 new subscribers, I believe. How do you, you know, who are those subscribers, you know, signing up with and what devices are they signing up with? And how do you start to get a larger piece of that with these new FirstNet subscribers turning on?
spk01: So the more that FirstNet is lighting up SIM cards, that's good for us because that's one of our main customers. They're working right now with companies like Samsung and Apple and a company called Sonim Technologies. Those are probably the three main vendors that they're working with right now. But we think that we have something which is very unique. We're the only vendor that has a device that looks and feels like a radio, but it's a cellular-based device. Everybody else is selling higher-end smartphone devices. We are the most cost effective, mission critical push to talk device available at FirstNet today. And we see that traction coming in from FirstNet, both in this quarter and the sales that we had in Q2. And we see that coming, you know, going forward also. So, you know, as I said, as FirstNet grows, that's a good thing for us. And our market is clearly much bigger than just first responders. FirstNet includes schools. It includes government. It includes military contractors. It includes airlines. So it's not just first responders on FirstNet that we're working with. It includes utilities. There's a lot of various verticals that we're going after. And we believe that it's a very, very large scale market. And the more that we get traction, you know, it's sort of business brings business. The more schools we get, the more schools we can sign up because we have reference customers. The more utilities we get, the more utilities we can sign up because we have reference customers. And we just see that momentum building. And it's a very exciting time for the company.
spk04: Great. Okay. And then, you know, just in terms of big needle movers, I know there's this kind of domino effect and you're spreading brand awareness, obviously, and these are all great additives. Do you have any expectations or any visibility into, I'm sure you're working behind the scenes hard with your new sales hires, but is there any just sense of when you might see a large volume order arrangement in the near future? So,
spk01: You know, there are a few very large scale opportunities that we're working with for large school districts. large corporations, just corporations that employ tens of thousands of people. But those are, you know, single opportunities that are not even going to get sold in one quarter. You know, if we got a large school district that would need 20,000 units, that would probably spread over two or three quarters, right? So it's not that we're going to get one order for 20,000 units. We'll get an order for a few thousand units, six or 7,000 units over, you know, two or three quarters, because they have to roll it out throughout the school district, just as an example. But there are multiple opportunities like that that we're working on. Having said that, we're getting a lot of a few hundred thousand dollar orders, and we're not necessarily putting out PRs in every single order. We can get $50,000 orders, $100,000 orders, and $300,000 orders. Some of them we put PRs out on, some of them we don't. And we're also very happy just to continue filling the bucket with these smaller drops because they add up. So, we're seeing both large-scale opportunities. Obviously, those take longer, but we do have trials with multiple large-scale opportunities, and we have ongoing sales to smaller opportunities of hundreds of thousands of dollars or even larger than that.
spk04: Okay, great. Well, I appreciate the answers to the questions, and great to see the growth. I hope it continues. Thanks.
spk01: If I could just add one more thing, Jack, you look at the market cap of the company right now, we're around a $7 million market cap. So again, we think that we're going after a major market. We already have our customers signed up, the major cellular carriers in the United States, and all of that is at a $7 million market cap. And that's why we feel that we're at a real inflection point for the company and for the shareholders.
spk03: Understood. Thanks, Mark. Thank you.
spk00: Thank you. Your next question is coming from Tom Kerr from Zacks Investment Research. Your line is live.
spk02: Good morning, guys. A couple of quick ones. Can you provide further color on the European markets and those distribution channels? Has that gained traction yet or is that more of a 2024 type story? That's definitely a Glenn question.
spk05: Hey, Tom. Yeah, thanks for the question. I would say things are growing in Europe, not quite as quickly as in North America, simply because the adoption of push to talk over cellular is trailing in Europe relative to what's happening here in North America. But we are having good conversations with multiple distributors, multiple carriers there. And so we do expect that that will follow, albeit just a little bit later than what we're experiencing in the North American market.
spk02: Okay, great. And the specific question on the SD seven plus, does that still appeal to the all the verticals you guys talk about? Or is it more narrow towards law enforcement or would you know, would it all the verticals out care education benefit from the SD seven plus?
spk01: So we're specifically starting trials in the education vertical for security within education, within schools. So that, you know, security, law enforcement, wildlife, there's hospitals, there's a lot of different verticals that we're going after with this. You know, not necessarily leisure, which is another area that we started going into now, but there are a lot of large scale verticals. that we are, you know, doing trials with right now with the SD7 Plus. And, you know, I'll give you an example. We have one school district which is taking from us, you know, over 1,000 units of the SD7. They're also going to be probably taking a few hundred SD7 Pluses for, you know, various security people that are, you know, related to that school district.
spk03: So it is related for sure. Okay, great. And just one last financial question.
spk02: The share count is, has it changed much from the issued statements? I think it was 185.4 million or 1.8 post split. Is that the current share count as of today?
spk03: Yes.
spk02: Yes. Okay, great.
spk03: Thanks. That's all I have for this morning. Thank you. Thank you very much.
spk00: Thank you. That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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