DNA X, Inc. Q1 FY2020 earnings call

• Tom mentioned the COVID-19 pandemic has been disruptive but not as severely as for many others, with rugged devices in demand. The company reviewed the business in Nov-Dec, implemented cost cuts, manufacturing in Asia was shut down for 3 weeks impacting gross margin. Plan to increase R&D spending in Q3 for 5G devices, moving to leaner workforce. - Bob discussed revenue decline due to inventory buildup and delayed customer ramps, gross margin hit by COVID factory shutdown, operating expenses reduced, cash balance improved, suspension of formal guidance but expecting Q2 revenue and gross margin growth over Q1, impact of T-Mobile/Sprint merger on product sales.

Net revenues for the first quarter of 2020 decreased to $12.7 million. Gross margins for the first quarter of 2020 decreased to $2.2 million or 17% of net revenues. Total operating expenses for the first quarter of 2020 were $11.2 million compared to $13.2 million in Q1 of last year. Net loss to common shareholders for the first quarter of 2020 totaled $10 million or a loss of $0.48 per basic and diluted share. Cash balance at the end of March was $12.4 million.

• The company suspended formal guidance but anticipates sequential growth in revenue and gross margin in the second quarter compared to the first quarter.

• COVID-19 led to manufacturing shutdown in Asia delaying cost improvements and impacting gross margin. - T-Mobile/Sprint merger may create headwinds as products need to be T-Mobile certified which Sonim isn't, though current offerings may be available to Sprint customers non-stock.

Q: Can you quantify how much the COVID driven factory shutdown impacted cost of goods and how gross margins will trend?

A: Margins traditionally around 30% last 2 quarters, drop primarily due to factory shutdown in Shenzhen, expecting margins to go back to general range.

Q: Impact of Sprint T-Mobile merger?

A: Next products will be T-Mobile certified, but current offerings available to Sprint customers non-stock, later in year will be a headwind but next gen devices will engage with new T-Mobile.

Q: Competitive environment for rugged solutions?

A: No new major players in rugged mobile devices, one larger producer dabbles, focus on 5G important.

Q: Order pattern in April/May, linearity?

A: Enterprise products not linear, no repeatable month-to-month pattern, work with carrier partners on projections.

Q: Budget impacts from project constraints?

A: No significant trickle down, initial pauses for non-governmental uses moved past.

Q: OpEx in Q2?

A: Some cost cuts bleed into Q3, e.g., subleasing former HQ on hold due to pandemic shutdown