Socket Mobile, Inc. (SCKT) Q3 2026 Earnings Report, Transcript and Summary

Welcome, everyone, to Socket Mobile, Inc. Q3 2026 Earnings Call. My name is Lynn Zhao, CFO at Socket Mobile. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include, but are not limited to statements regarding mobile data collection and related products, including their development, timing, distribution and market acceptance as well as anticipated trends, sales, market conditions and opportunities in the markets in which Socket Mobile sells its products. Such statements involve risks and uncertainties, and actual results could differ materially from those anticipated due to a number of factors, including delays in the manufacturing or product launches resulting from technological market or financial factors, the availability of product components and necessary working capital, the possibility that market acceptance and sales opportunities may not develop as anticipated; the risk that Socket's application partners and existing distribution channels may choose not to distribute its products or may be unsuccessful in doing so, and the risk that the Socket's products may not achieve the anticipated acceptance in vertical application markets. Other risks are described in Socket's most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission. Socket undertakes no obligation to update any forward-looking statements. On the call with me today is Dave Holmes, President and Chief Executive Officer. I will now turn the call over to Dave. Dave, you may begin.

Thanks, Lynn. Good afternoon, everyone, and thank you for joining us today to discuss our results for the third quarter of 2026. This quarter, we grew revenue, improved gross margin and narrowed our operating loss compared to both last year and last quarter. Revenue for the third quarter was $3.4 million, up 9% from the third quarter of 2025 and up 12% from the second quarter of 2026. Gross margin improved to 48.6% compared to 47.7% a year ago and 46.4% in Q2. Operating expenses were $2.3 million, down from $2.5 million a year ago and $2.6 million last quarter. As a result, our operating loss was $644,000 compared to $1.06 million in the prior year quarter and $1.2 million last quarter. We ended the quarter with approximately $1.4 million in cash. Our third quarter results reflect progress in stabilizing revenue while executing our inventory reduction and cost management initiatives. While not satisfied with the revenue outcome, we did show improvement in a market that remains uncertain. At the same time, we continue to align our cost structure with business conditions. Our reduction in operating expenses reflects our ongoing focus on operational efficiency and financial discipline while maintaining our ability to support customers and pursue future growth opportunities. This quarter, we also expanded our commercial reach through strategic partnerships. 3i Technologies supports industrial mobility solutions for Apple-based frontline workflows and Orda provides integrated mobile ordering and self-checkout for enterprise workplace dining. Both of these partnerships extend our data capture solutions into new markets. Looking ahead, we expect to continue our cost management initiatives through the rest of the year while pursuing opportunities to expand our data capture solutions across key markets. Our priorities are disciplined expense management, stabilizing revenue and expanding enterprise opportunities. We believe these will position the company for continued operational improvement on our march toward profitability. With that, I'll turn the call back to Lynn for more details on our financial results. Lynn?

Thank you, Dave. Our Q3 adjusted EBITDA loss was $262,000, an improvement from a loss of $745,000 in Q2 2026 and $540,000 in the prior year quarter. Loss per share was $0.09 compared with $0.16 in Q2 2026 and $0.15 in Q3 2025. Turning to the balance sheet. Cash totaled $1.4 million as of September 30, 2026, compared with $2 million at December 31, 2025. Inventory, net of reserves was $3.4 million as of September 30, 2026, compared with $4.2 million at December 31, 2026, reflecting our continued efforts to align inventory levels with current demand. In Q3, the company repaid $575,000 of convertible notes and converted an additional $50,000 into equity. In August, the company received $425,000 in secured subordinated bridge financing from Charlie Bass, the company's Board Chairman and an existing note holder. The loan bears interest at 10% and was used for working capital. Upon closing the convertible note financing, the loan principal will convert into subordinated convertible promissory note on the same terms as the other notes issued in the financing. Next, I'd like to address our recent announcement regarding the voluntary transition of our common stock listing from the NASDAQ Capital Market to the OTCID market operated by OTC Markets Group. As previously disclosed, the company received a notification from NASDAQ in August, indicating that our stockholders' equity was below the minimum $2.5 million requirement. After evaluating our strategic alternatives, market capitalization and operational costs, our Board of Directors determined that continuing to incur substantial legal, accounting, compliance and listing fees required to maintain a NASDAQ listing is no longer an optimal use of corporate capital relative to the benefits provided. By voluntarily transitioning to the OTCID market, we expect to significantly reduce administrative and regulatory costs, free up management resources and redirect capital towards core product development, operational execution and long-term growth. We have received a recent confirmation from OTC Markets Group that we have satisfied the onboarding qualification for quotation on the OTCID market. And we expect our common stock to begin quoting under our existing ticker symbol SCKT on or about November 19, 2026, following the filing of effectiveness of Form 25. Importantly, the transition will have no impact on our day-to-day business operations, customer commitments or product delivery schedules. Furthermore, we intend to continue filing periodic reports, including Forms 10-K, 10-Q and 8-K with the SEC in full accordance with the Exchange Act. This concludes our prepared remarks. We will now open the call for questions.

[Operator Instructions] Yes, we can hear you now.

This is Steve Swanson, a private investor. David, can you speak to any industrial customers we might have signed any contracts with over the last quarter or that we're getting close with going forward?

Yes. Thanks, Steve. So we've had some initial success here this year, but the results have been a little bit lumpy, which is why you've seen some inconsistencies with the revenue. I can't name anyone specifically by name. But what I can say is it's -- we've had some wins in a diverse customer group. So we have a major construction equipment manufacturer that we've won. We've had -- we have a flooring company, which is on the horizon that we're in good talks with. There's a whole -- there's kind of a nice cross-section of different industries that we're engaged with. Automotive is another one that we're fairly heavily engaged with. So although I can't name anybody specifically, we've tried to get some public testimonies from some of the customers that we're engaged with, but haven't been able to secure those yet. But we're still engaged across the board with several big players. And so we're still pretty bullish about the opportunities in front of us. We just wish it would have happened a little sooner and been a little more consistent to this point.

Steve? Sorry. Yes, I was there.

I was asking, David, are those industrial customers going to be 2026 opportunities? Or are they more 2027? And if so, the first half or the second half?

Yes. The short answer is all of the above. So we do have a few opportunities that will be fulfilled still this year. We have others that we've engaged with, which we are expecting to happen this year that slipped into first half of 2027. And we have new opportunities that are sort of new in the last couple of months that are in first half and also second half. And there's -- and there's some nice sized opportunities that we're chasing. So I think the revenue will get more consistent over time as we start stacking up more and more wins. But in this initial stage, we were sort of expecting it to be a little lumpy, and that's exactly how it's played out.

With everyone being reticent to be the first man in on a new product or a new area that the company is going into, are there -- is there much more reticence to go with Socket as a result of our financial issues over the last 90 to 120 days?

Thus far, there's been no issues on that front, at least none that have been communicated to us. A couple of the players that we go up against are some small guys, small companies. So especially on the iOS front. Obviously, when we're competing on the Android side, we're with some heavy weights. But so far, no one's brought that up, no.

Lynn, about the convertible debt that was -- that you guys called that was called in and you replaced, did you just basically swap out the Chairman who -- did the Chairman just basically swap out the debt that the mills person put back or wanted to get paid off?

Yes, that's correct.

And then I also know that you mentioned you'd be doing future earnings releases and 10-Qs and 10-Ks. Are you going to be having earnings calls going forward? Or are those going to fall off and we'll just get the earnings releases for the next 9 to 12 months?

No, we'll do everything as usual. [Operator Instructions] Dave, I don't see any other questions.

No, I don't either.

Okay. All right. Thank you, everyone. This concludes today's conference call. Thank you for attending.