Earnings Call Transcript - LGMK Q4 2023

Operator, Operator

Good day, and welcome to LogicMark's Fourth Quarter and Full Year 2023 Financial Results and Corporate Update Conference Call. Today's speakers from LogicMark are Chia-Lin Simmons, Chief Executive Officer and Mark Archer, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address LogicMark's expectations for future performance or operational results and anticipated product launches. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in LogicMark's most recently filed annual report on Form 10-K and subsequent reports filed with the SEC as well as LogicMark's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, April the 18, 2024. Except as required by law, LogicMark disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. At this time, I would like to hand the conference over to Chia-Lin Simmons. You may begin.

Chia-Lin Simmons, CEO

Thank you, Tawanda, and good afternoon, everyone. I am very pleased to report that during the fourth quarter of 2023, we achieved revenue growth of 13% and a 21% increase in gross profit compared to the same period last year. Our annual gross margin for 2023 was the highest compared to the previous two years, and we have successfully achieved key operational objectives such as strengthening distribution channels, launching new products, entering new verticals and establishing new intellectual property. The period between 2020 and 2022 was a time of transition for our company, characterized by the impact of COVID-19, the arrival of new management and the rebuilding of our corporate infrastructure. In 2023, we took a significant step forward with our progress, finishing the year with strong momentum. So I would like to congratulate the entire LogicMark team for their effort. In 2023, we were laser-focused on advancing our Caring Platform as a Service or CPaaS cloud ecosystem. This includes the use of advanced technologies, such as artificial intelligence or AI, machine learning or ML, GPS tracking, fall detection sensors, two-way communications, 24/7 U.S.-based monitoring and integration with smartphones and smart home devices. All of these technologies combined to create a truly interconnected network of devices, and Internet of Things or IoT collective network. At LogicMark, we understand that our lives are being extended through the help of technology. We are addressing the quality of our lived experience through a combination of AI-enhanced care, wellness and safety systems through our products as well as the development of our intellectual property or IP as it's commonly called. The investment in research and development that we have been making in our technology is yielding great results, both with our pipeline of new products and our library of patents. You see that from our AI-enabled proprietary fall detection oriented devices geared towards the aging population as well as our software products and services aimed towards providing safety for people of all ages. Since I arrived at LogicMark in mid-2021, we have filed 12 patents and moved seven to final patent status, six have been published. This includes two provisional patents filed last month focused on AI. In our recent AI-focused IP filings, we disclosed our sensor-enabled environment, which employs our AI and ML systems at the edge in combination with our cloud-based care processing systems, integrating AI, ML and game theory for active and passive behavior-based monitoring. These patents, interwoven with our other patents, allow us to provide much-needed products in industries that monitor behavior and provide early accurate information that could be used to remediate adverse health, wellness and safety situations. Our patent and product framework supports a recurring revenue model for existing and new products, allowing us to introduce new features seamlessly and provides the opportunity to license our technology to other third parties. We've made great strides with our product offerings. In 2023, we introduced the Freedom Alert Plus, it's Wi-Fi-enabled and the first hybrid product to be launched into the marketplace by the company since 2015 or eight years ago. It is also our first product to be released using a newly developed cloud-based AI-enabled services by our Caring Platform as a Service model. Freedom Alert Plus is an advanced device with proprietary software offering the following features: patented fall detection technology that automatically notifies caregivers or emergency services, a free Care Village mobile app for iOS or Android, which can be downloaded from the Apple App Store or Google Play Store, caregiver calling via two-way voice communication to further enhance the level of connection and support, a one-inch screen made for those with reduced dexterity; device monitoring with battery life and over-the-air software and fall detection algorithm updates. And we provide a 24/7 U.S.-based emergency monitoring service, giving caretakers the peace of mind that someone is always available to help. In 2023, we also released the new Freedom Alert Mini. Features include patented fall detection technology, two-way communications during emergencies, GPS monitoring. This smaller form factor Mini pairs with our Caregiver Companion software app available on iOS or Android devices. With the push of a button, users can request assistance from our 24/7 U.S.-based emergency monitoring service using devices' 4G LTE cellular service. Additionally, it has the functionality to create a virtual boundary around a specific location known as geofencing. If a loved one moves beyond this designated area, caregivers receive an alert promptly, providing them with an extra layer of security and peace of mind. Geofencing is particularly important for individuals with Alzheimer's or other forms of dementia who are prone to wandering, as it helps ensure their safety. I'm also excited to share that recently we expanded the company's aperture and market reach by providing safety and security to everyone. We've done so with the launch of our new subscription-based software application, Aster. It's our first standalone software product that operates independently of any hardware. This new app contains many features to provide peace of mind to users of all ages, allowing them to remain connected to their loved ones. It's available both on the Apple App Store and Google Play stores. Aster is a product designed to provide a layer of safety for many use cases. This includes college students walking on campus at night, lone workers, such as a real estate agent hosting an open house, contractors going to a home they've never been to, active seniors taking a stroll by themselves or even parents on the go. A unique feature called Follow Me allows you to connect your mobile phone calendar and share specific events with family and friends. This allows them to be notified at the end of that event. If you don't check back in, let's say, after a date or a run in a park. A Bluetooth button accessory can also be purchased from LogicMark and placed in the pocket or attached to your backpack, purse, or keyring as a quick access emergency device paired with Aster. We understand how people use products during emergencies and are creating solutions to meet those needs. Paired with the Bluetooth button, you do not need to have the app running in active mode or remember to launch the app before you walk to your car, scenarios which can drain the battery of your phone when you need it the most. So as long as your phone is within range of the button, you can just push that button even if your phone is in your backpack or pocket. Your notification will be sent to your loved ones who are following you and also to our U.S.-based 24/7 monitoring service. At that time, the last GPS location will be delivered to your friends, family as well as emergency services. Our recent technology releases are excellent examples of how our CPaaS model is evolving, and our traction thus far affirms our ability to expand our capabilities as a device, IoT solution and service provider. We've mentioned previously that our business plan includes expanding distribution channels. As we continue to build out our product and services offerings, we know that having multiple channels will help us grow our brand awareness and revenue streams. Approximately 70% of PERS customers are estimated to fall into the direct-to-consumer category. To capitalize on this trend, we continue to expand the product line into our LogicMark store on Amazon and on our e-commerce store on our website, where we can now accept customer orders for PERS devices and related accessories. We expect these stores to help boost sales, reduce our customer acquisition costs and increase margins. Another channel we're focused on is the health B2B opportunity. We are exploring partnerships with organizations such as independent living facilities, hospitals, insurance companies, managed care organizations, affiliates and dealers. Partners can provide leads for new and replacement customers having significant buying power and can provide collaboration on product research and development. We envision a continued focus on growing the health channel during 2024. On the government side, we are proud to continue our relationship with the Veterans Administration. This past Veterans Day, we celebrated 17 years of our long-standing working relationship, providing products that safeguard our valued veterans with life-saving devices. We have a contract with the U.S. General Services Administration, or GSA, where we have an opportunity to expand our business into other federal state and local government agencies. We believe there is ample room to increase our market share based on the reported Care Economy Trends. The United Nations, World Health Organization and National Institute of Health, just to name a few, provide insights regarding the quality of life of an aging population. These leading advocates remind us about continued challenges such as the ability to remain active and independent, the lack of caregivers and the increasing cost of meeting the needs of the elderly. Personal safety is now another area of care economy in which we are participating. A Gallup poll states that 40% of all Americans are afraid to walk alone at night within only a mile of their home. 66% of adults avoid social or outdoor activities due to fear of personal crime. This figure is the highest in three decades. You've seen the growing need for solutions to help people feel more secure and our innovative Aster solution is a step in that direction. The marketplace is demanding a diverse set of technology solutions, and we have an excellent opportunity to meet the needs of customers across this broad spectrum, including students in the bus on the go who deserve additional safety, seniors who wish to age in the comfort of their own homes, people with chronic health conditions or disabilities, healthcare providers such as hospitals and nursing homes and government agencies and their constituents and our valued military veterans. We are also excited about the potential to grow our business by offering more recurring, monitored and connected services. We intend to expand our product line of cell-based safety solutions to include additional product services and support using CPaaS. This will enable us to integrate with a variety of third-party devices and services, allowing us to serve our customers no matter where they are, whether at home or on the go. While we are excited to expand and capture new business through recurring monthly services and products our plans also include the continued growth of our unmonitored PERS business, which is potentially a life-saving product for those on low or fixed income and/or require long charge devices. We believe that everyone, regardless of economic circumstance, deserves the ability to age with grace and live with safety and security. As you can see, our vision includes casting a broader net relative to where this company has historically operated. We meet customers' needs directly and also expand our capabilities and enterprise offerings as an IoT solutions provider.

Mark Archer, CFO

Thank you, Chia-Lin. Our 2023 results reflect the team's continued work to build a durable business model with a product portfolio of technology that meets a broader segment of the care economy. As to the financial results, I'm also happy to report our fourth quarter 2023 revenues were $2.4 million, a 13% increase from $2.1 million in the same period last year. The 13% increase was due to 8% higher unit sales and a 5% increase in average selling price. Gross profit for the fourth quarter of 2023 was $1.6 million, up 21% from the same period last year. Higher gross profit was driven by both the increase in year-over-year sales and margin improvement. Gross margin improved to 66% in the fourth quarter of 2023, and that's a 450 basis points increase over the same quarter last year. We continue to make improvements in both our inbound and outbound shipping costs. Total operating expenses were $11 million, which included a non-cash goodwill impairment charge of $7.8 million in the fourth quarter. Excluding the impairment, expenses were $3.2 million compared to $3.7 million in the same period last year, a 14% decrease. Now if we look into those operating expenses, and look just at G&A, G&A was lower by $650,000 from $3.2 million to $2.5 million during this most current quarter, an improvement of 21%. Cost reductions were realized in salary and wages, professional fees, recruiting expenses and the elimination of franchise tax payments that came with our re-domestication from Delaware to Nevada. In the fourth quarter of 2023, a non-cash deemed dividend of $900,000 was recorded due to the warrant inducement transaction completed in November of 2023. Net loss for the quarter was $1.73 per share on 1.7 million weighted shares outstanding, excluding the impact of the impairment charge and the deemed dividend and that compares with a net loss of $5.23 per share on 0.5 million weighted shares outstanding in the prior quarter. Adding back the two non-cash charges, the net loss for this recent fourth quarter was $5.74. Now if I could turn to the full year 2023, annual revenues were $9.9 million, a 17% decrease compared to the prior year's $11.9 million. This decrease was driven by 22% lower unit sales, partially offset by a 5% increase in average sale price. As we've discussed on previous calls, we have been comping against 2022 revenues that included one-time replacement sales from our customers with 3G PERS units that were made obsolete by the sunsetting of 3G support by the national mobile carriers. Those replacement sales stopped in October of 2022. Gross profit for the year was $6.7 million, down from $7.2 million in the prior year. Margin improvement measures helped offset the impact of lower year-over-year revenues. Gross margin improved to 67.1% for the year 2023, a 640 basis points increase from the full year 2022. As was the case in the fourth quarter, much of the improvement resulted from lower inbound and outbound shipping costs. Total operating expenses for the year were relatively unchanged at $14.2 million compared to $14.1 million in the year ended 2022 and that's excluding the recent quarter's goodwill impairment charge. Total G&A expenses for the year were also relatively unchanged at $11.8 million, up just 1% from the full year 2022. The net loss for 2023 was $4.03, compared with the prior year's net loss of $15.15 per share, excluding the impact of the impairment charge and the deemed dividend. Adding those two non-cash charges back, the net loss for 2023 was $11.66. As of December 31, 2023, the company had cash and cash equivalents of $6.4 million compared with $7 million at the end of 2022. During the year ended 2023, the company received gross proceeds of $6.4 million from issuing common stock, warrants and the exercise of common stock purchase warrants. At this time, I'd like to open the call for questions.

Operator, Operator

Thank you. Our first question comes from Marla with Zacks. Your line is open.

Marla Marin, Analyst

Thank you. So I have a few questions. First, starting with Aster. So I mean it sounds like Aster could extend your target market significantly, given the very versatile nature of the device and the service it offers. Is it too early for you to provide any color on the kind of feedback you're hearing since its launch?

Chia-Lin Simmons, CEO

The opportunity here is quite significant. As you mentioned, Marla, I appreciate your input. This represents a substantial expansion of our business. This product is driven by our desire to help individuals who lead active lifestyles, particularly those in the early aging population who continue hiking and often carry their smartphones. We see a real opportunity to apply this technology to a broad audience, ranging from college students to lone workers. It continues to amaze me how many people report feeling unsafe, according to Gallup polls. The product we offer is a remarkable opportunity. Early feedback indicates that when paired with our Bluetooth button, the product is both exceptional and unique. We approach product development with great care, especially considering the perspectives of women and those in the sandwich generation. We contemplate what it means to introduce a new product to the market, such as when someone crosses a dark parking lot. It’s crucial to provide something easily accessible without needing to retrieve your smartphone, input your password, and manage a potentially dangerous situation all at once. What you really want in an emergency is immediate access to services. Aster, in conjunction with our Bluetooth button, facilitates that without needing to remember to activate the app beforehand. It's unrealistic to assume people will always do that, and we know some of our competitors lack this feature. Our efforts went into ensuring this functionality, making it easier for users in emergencies, which we believe will resonate as we introduce this product to a broader market.

Marla Marin, Analyst

Thank you. This leads to my next question. You've mentioned before, and referenced in the press release, about integrating with third-party connected and wearable devices and services. Without asking for any specific details that you can't disclose, are there any early conversations happening at this time, or is it too soon?

Chia-Lin Simmons, CEO

I apologize for the brief interruption there. While I can't disclose specific partners, we are definitely in discussions about how to integrate various products and devices into our care-based services. For instance, as we develop products like Freedom Alert Plus, we're focused on providing tools that can help prevent falls before they happen. We're also exploring integrations with other service providers that may assist with this. We expect to launch some of these innovations this year, although I won't specify the exact timing. We believe that features such as blood pressure and pulse oximetry can further help understand fall risks. We're committed to exploring these integration opportunities to enhance our service offerings. Our CPaaS system enables us to roll out new services without necessarily requiring new hardware, showcasing the flexibility we aim to provide. Our goal is to ensure that our products are continuously improving, much like how modern car navigation systems update over-the-air compared to older models that needed manual updates. We plan to create state-of-the-art hardware for our PERS devices while also seeking partnerships with companies that excel in hardware development. This will allow us to enhance our offerings through better data integration and technology collaborations. We are actively pursuing these paths and look forward to sharing more advancements soon.

Marla Marin, Analyst

Okay. That makes sense. Thank you. And then last question is on the goodwill impairment. It looks like that goodwill was associated with LogiMark transaction. So I just want to confirm the transactions that led to the impairment charge predates the current management team. Is that correct?

Mark Archer, CFO

Yes. You're correct, Marla, that it does relate to the acquisition of the LogicMark business. The challenge for us is right now is our market cap. And it really doesn't support the amount of goodwill that was on the books. But kind of to your question, we also looked at the intangibles, the other elements that were acquired with the acquisition of LogicMark some eight years ago, and there was no impairment there. So it was just a goodwill.

Marla Marin, Analyst

Got it. Okay, thank you very much.

Operator, Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Chia-Lin for closing remarks.

Chia-Lin Simmons, CEO

Thank you. As we conclude, I would like to thank everyone for their ongoing support of our journey to become a leading provider of solutions that enhance the quality of life for all. At LogicMark, our passion is to continue developing innovative products and implement the latest technologies, including AI and machine learning to provide personal safety so that people of all ages can live their life to the fullest, whether or not they're aging at home or taking a jog in the park. We aim to offer a range of products with a variety of features and price points so that even those with low or fixed incomes can access solutions that enhance our personal safety and well-being. This includes landline, cellular and Wi-Fi-based hardware and software solutions. Our team is making great strides, and we look forward to updating you on our next call.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.