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spk01: Thank you for standing by. Mr. James Carbonara from Hayden IRR, thank you. Please go ahead.
spk05: Thank you. And once again, welcome to Minim's second quarter 2021 earnings call. With me on the call are Gray Chinoweth, Chief Executive Officer, and Sean Daugherty, Chief Financial Officer. As a reminder, all materials, including today's live presentation, are available on the company's investor relations website at ir.minim.com. Before we begin, I want to remind everyone that today's conference call may contain forward-looking statements. Forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report on Form 10-K contained in subsequent filed reports on Form 10-Q, as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Please note, too, that today's call may include the use of non-GAAP numbers that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP numbers to the most comparable GAAP measures is available in our most recent press release, as well in our periodic filings with the SEC. Now I would like to turn the call over to Gray Chinawith, CEO of Minim. Gray, please proceed.
spk06: Thanks, James. Good morning, and welcome to Minim's second quarter 2021 conference call. If you're following along with the deck available on ir.minim.com, we're getting started on slide three. In the second quarter of 2021, the company grew top-line revenue by 45%. This represented a 73% acceleration of growth from Q1 of 2021, when we grew at a 26% pace. I'm especially pleased with this result given that the results of some of our key competitors have shown single-digit growth or significant declines in our product segment for the same period. I'm excited to share with you today how we're doing it and where we're headed. Please turn to slide four. It all begins with our vision. We believe the simple, single-purpose router must go the way of the mobile phone. It must transform into an intelligent device capable of making everyone's connected home safe and supportive for life and work. At Minim, that's what we deliver. We sell intelligent networking products under the globally recognized Motorola brand and Minim trademark in leading U.S. retailers, over 140 ISP service providers, and now to SMBs. We operate in a massive and expanding market for high-performance Wi-Fi and look to serve the billion homes that are connected to the Internet today and the billion homes that have yet to come online. We have exciting technology inflection points ahead of us, including the adoption of 5G, fiber to the home, mesh networking, Wi-Fi 6, Wi-Fi 6E, DOCSIS 3.1, DOCSIS 4.0, and smart home devices. These advancements are accelerating network product replacement cycles and increasing consumer spending on the latest offerings. On slide five, you'll see today I'm joined by Minim CFO, Sean Doherty, who will be speaking later on in the call, and President and CMO Nicole Tseng, who will be available for questions at the end of this discussion today. Turning to our financials on slide six. Our second quarter again demonstrates the momentum we're building in the market and the progress we're making towards growing software revenue bookings and achieving positive EBITDA profitability this year. We accelerated our year-over-year revenue growth to 45%, up from 26% in the first quarter of 2021. despite this typical second quarter seasonal slowdown, and drove our gross margin to more than 30%, representing a significant improvement year over year. Our subscription business gained additional traction as evidenced by the increase in deferred revenue on the balance sheet, which is driven by expanding sales of our intelligent, software-enabled hardware products. Our ratio of deferred revenue to recognized revenue for the second quarter was 7%, up from just 2% in the first quarter, Over time, we expect this ratio to continue to climb as our sales increase and the mix shifts towards more software-driven intelligent networking products. On the expense side, most notably, we incurred a $500,000 one-time material scrap expense that marked the completion of a warehouse organization and optimization project. We also met higher component costs and increased spend on air freight to meet the Amazon Prime Day demand. which Sean will cover later on in the conversation when he looks at the financials. Without normalizing for the impact of this one-time $500,000 charge, our Q2 2021 adjusted EBITDA was negative $300,000 versus a positive $300,000 EBITDA recorded in Q1. Notably, cash flow from operations was an area of marked improvement on a quarter-over-quarter basis. Q2 saw a net negative cash flow of $400,000, whereas Q1 saw net negative of 5 million. Subsequent to the end of the quarter, we raised $22.7 million in net proceeds from a secondary public offering of our common stock. Completion of this offering provides us with the opportunity to invest in inventory to sales optimization, global market expansion, and new product development and marketing. Also, after the end of the quarter, Having completed the rebranding of the company to Minimum June, we executed a disposition of the Zoom-related trademark assets. The combination of the proceeds from this sale and a secondary offering, a net impact of almost $27 million, has strengthened and significantly improved the balance sheet of the company and places us as an incredibly strong position to execute on our operational plan. From an operational perspective on slide seven, I'd like to share the following highlights. In corporate development, we formally changed her name to Minimink, uplisted to the NASDAQ, and elevated Nicole Tseng to president. In sales and marketing, we saw tremendous momentum and performance in e-commerce and retail and have expanded our sales channel in the U.S. and to India. In product and innovation, we were awarded a new patent that protects our differentiated innovation in mesh networking and made strides in the cloud platform we have at scale. On supply chain, we navigated chipset supply challenges and price challenges with a five-pronged strategy. The Minim brand was designed both for business and consumer appeal, and it represents AI-driven software that creates harmony in the smart home and office. Musicians of the call may recognize Minim as the term representing one half note. Looking forward, our Minim identity now carries reduced risk of investor confusion, and provides a solid foundation for building enterprise value. Lastly, in corporate matters, I'll note with great excitement and pleasure that we elevated Nicole to the role of president and CMO. As president and CMO, Nicole has taken on a broader leadership role in company management while retaining her existing responsibilities in the company's marketing operations. Nicole's deep technology background, she holds two bachelor's degrees from Carnegie Mellon in engineering, combined with her amazing track record as a three-time CMO, and experience as a co-founder of Minim, the pre-merger organization, make her a simply amazing partner for me as we look to drive growth and enterprise value. Turning to our sales and marketing highlights in slide nine, this quarter saw an incredible Prime Day sales performance in June. More specifically, this year, we sold more than the past four years of Prime Day events combined, with DOCSIS 3.1 modem router category leading our path to success. Our marketing department accomplished this through collaborations with operations for optimized inventory, combined with effective advertising strategies on Amazon's Seller Central platform. The sales volume was almost matched by our June product sales in Best Buy, where we took the number one spot in modem router orders to run competing Amazon Prime Day promotions. In addition to great sales numbers for Q2, given the typical seasonality, we added new retailer partners, including the Home Shopping Network, the Home Depot, Lowe's Sam's Club, and BJ's Wholesale Club. Beyond the financial and market share impact of our Amazon sales, I'm also excited about the results for two reasons. First, they reflect our strategic advantage in pairing Amazon Seller Central platform with exceptional marketing performance and talent. By leveraging Seller Central, where we directly sell to consumers, simply using Amazon as a platform, we can control pricing, marketing, and the resulting net profitability better than competitors who are using the buyer central model. And it's a great time to be good at this. Industry analysts, Park Associates, just reported that for the first time, online retailers are dominating channels for smart home device sales. Second, our Amazon results bode well for our new market expansion goals as we can combine the global power of the Motorola brand with Amazon's massive global footprint in consumer markets and last mile logistics. To that end, we began selling in India for the first time this July, a new market entry executed in a matter of months. Consumers in India can now find the Motorola MH7020 mesh system powered by the Minimap on amazon.in and flipkart.in, which we intend to formally launch with local influencers this fall. Our speed to market is a great testament to both our e-commerce execution and the outsized benefits we retain by being a Motorola license partner. Our products and marketing are amplified by Motorola's brand expertise, existing distribution channels, market intelligence, security testing, public relations, and more. We are excited to continue to leverage these resources and our continued effort to grow into new markets and scale under that amazingly recognized brand In our business-to-business sales channels, I'd like to highlight a customer announcement from the quarter. South African Internet Service Provider, Vox, has selected Minim to be its cloud software platform, which will underpin its next-generation Vox Wi-Fi Home Manager offering for Fiber-to-the-Home subscribers. Leveraging Minim software with third-party MicroTik routers, Vox has chosen Minim to deliver top-notch customer service, improve customer retention, and reduce support costs. Vox subscribers will benefit from our intuitive mobile app, offering device management, threat protection, parental controls, and more. The Vox network targets 400,000 Fiber to the Home subscribers, aiming to be one of the region's largest broadband service providers in the next few years. On the product side, on slide 10, we're happy to report our top three earning products in the second quarter were our highest ASP products in each category, lending to our year-over-year margin expansion. These products were the Motorola MG8702, DOCSIS 3.1 modem router combo with our mobile app, which made up for 13% of sales in Q2, a 14% increase over the strong launch it had in Q1, and it led in its category on Amazon Prime Day by units sold. The Motorola MB8611, DOCSIS 3.1 modem, which targets consumers with gigabit speed plans, which made up for 26% of sales in Q2, a 104% increase over Q1, and the Motorola MH7020 tri-band mesh system with our mobile app, which made up 11% of sales in Q2 and 881% increase over Q1. Also in the second quarter, Minimum was accorded a patent for our standard software-driven approach to mesh network setup. It's easy, reliable, and is standard across several hardware brands and models. Minimum's patented approach allows a guided Wi-Fi system setup solely using the device's Wi-Fi network instead of a one-time use Bluetooth radio or error-prone manual buttons. This innovation offers a competitive advantage in product component savings, better user experience, and improves the integratability of our software with a variety of hardware platforms. Behind the scenes, we've also been hard at work on successfully and efficiently scaling our cloud platform for resiliency and improved quality of service in new geographies. With the addition of a European data center that is now available for production use, we can better serve customers in Europe, Africa, and now India. The ModaSync app will drop this fall alongside our high-speed Wi-Fi 6 product family. We've already seen great interest in these products from across our retailer footprint, with special interest from those that are looking for an alternative to selling the house brand of one of their competitors. Turning to slide 11, to focus on supply change management, disruptions continue to create challenges across several industries around the world, including ours. To date, the team has navigated these rough waters, but we believe chipset strains and challenges will persist through at least the second quarter of next year. And we've been actively working to mitigate these risks. Now I'd like to share with you our five-prong mitigation strategy, which we've been following to great success. First, we extended component order forecast to 52 weeks. Second, we have started building relationships and negotiating directly with chipset vendors. Third, we're sourcing and purchasing our own supply chain from brokers and other channels. Fourth, we align our marketing and operations closely to manage product inventory and optimize for sales. Fifth, we source chip substitutes and have re-engineered products to take advantage of the availability of alternative components. As a result of this approach, while chipset availability remains an issue that we are paying incredibly close attention to, we are very pleased both that our efforts to date have resulted in minimal operational impacts and that our forecasts do not currently suggest future disruptions in product availability. Before I ask Sean to speak to our financial results, I'd like to take a look at what's ahead on slide 12. The back to school season has started and the holiday season is right around the corner. In the second half of the year, businesses will contemplate their performance with remote networking and revisit their real estate and IT budgets. As we expect organizations and families to continue to face the realities of the pandemic's effects on their locations, we know that they're going to be using their home networks even more intensely to live, earn, and learn. With this backdrop, we plan to launch our premium products for highly connected homes. This family includes an expandable Wi-Fi 6 mesh system and two powerful Wi-Fi 6 DOCSIS 3.1 modem routers, one of which will be the first to achieve the low-latency DOCSIS certification by CableLabs. Each of these products has an attractive new design and a new app, MotoSync, powered by Minim, often differentiated network security, automated performance improvements, parental controls, privacy protection, and more. These products have been designed for gamers, streamers, students, remote workers at excellent performance and value, earning them anticipated wide product placement in our retail and e-commerce channels. As we widen our product portfolio and placement, we will invest in the marketing to support successful product launches in business and direct-to-consumer channels in the U.S. and now India. For ISP customers, we look forward to launching a network speed performance test suite this year. to benchmark their broadband speed delivery to subscribers on their network. These test results will be used to meet government requirements, such as the Connect America Fund compliance, as well as in their product marketing materials. We're always looking for new and innovative ways to help ISPs acquire subscribers, lower their operational costs, and deliver superior service and customization. Looking ahead this year on other fronts, We'll continue to mitigate corporate risks, including supply chain challenges, which I've already discussed, and remain focused on the competition for the best talent. We have seen evidence of an increasingly competitive market for human resources in the technology sector with the move to work-from-anywhere models. Our shift to a remote-first approach has given us an advantage in this area that has strengthened our ability to recruit and retain top talent, which is especially important as we anticipate adding one to two senior-level positions over the next few quarters. Lastly, I'll land on our continued focus to drive top-line growth and the operational efficiency necessary to achieve EBITDA profitability during the year. I will now turn it over to Sean for an even more detailed discussion of the financial results.
spk08: Thank you, Gray. I'd like to direct you to slide 13 for a look at our financial overview. Our growth continued to accelerate in the second quarter with a 45% year-over-year increase to $14.9 million of revenue. This marks a material increase in our year-over-year growth rate up from the 26% recorded in the first quarter. It is important to also note that the second quarter is one historically impacted by retail sales seasonality. This year, we were able to largely combat that with effective sales and marketing efforts and inventory optimizations. Our efforts led to Q2 revenues that were on par with Q1, resulting in only a 1% reduction on a sequential quarter basis versus the 14% decrease experienced in 2020. This growth was driven by exceptional results on Amazon Prime Day and continued uptick in sales of our highest ASP products, as Gray mentioned earlier. Importantly, our average sales price continues to increase on increasing volumes, rising from under $95 in the year-ago quarter to over $103 in the quarter just closed representing a 9% year-over-year increase. We continue to target a 10% to 20% lift to our average selling prices for intelligent networking products compared to those products that are not managed by our Wi-Fi as a service platform. Gross margins remain strong for the second quarter with 30.1% reported, a 940 basis point improvement compared to 20.7% in the second quarter of last year, and generally in line with margins in the low 30s in the most recent previous quarters. That year-over-year improvement was primarily driven by our shift of manufacturing out of China and into Vietnam to escape the burden of tariffs and material reduction in the use of air freight. While gross margins continue to be positively impacted by an increasing proportion of revenues from software in our bundled solutions, as well as prudent management of our cost of goods sold, we did experience a modest increase in component costs. In addition, we made the proactive decision to utilize air freight on certain shipments in order to optimize inventory ahead of Prime Day in June, a strategy that was successful considering this year's Prime Day netted $873,000, which was more than the previous four Prime Day events combined. Over the long term, as we continue to execute our software-driven product strategy, employ limited use of air freight, and execute continuous improvements in operational efficiency, we expect our gross margins to expand and eventually normalize at a rate north of where we are today. Please turn to slide 14 for additional discussion about our revenue. Beginning in the first quarter, we introduced revenue bookings, a key performance indicator that provides additional insight into the drivers of our revenue. It is a non-GAAP metric that is a composite of our total recognized revenue plus the changes in deferred revenue in that period. We believe this is an important metric that can help investors understand our business better as we grow and shift our sales mix to include a larger portion of software subscription versus hardware-owning sales. Total revenue bookings for the second quarter were $15.6 million, which includes the $14.9 million in recognized revenue that I mentioned earlier, and a net increase in our deferred revenue balance of $0.7 million. The net increase in deferred revenue in the second quarter of 2021 was the accounting result of software service sales that will be recognized as revenue ratably over the next 36 months, less revenue recognized for prior period sales. In this case, sales in the first quarter of 2021. Our ratio of total deferred revenue to recognized revenue for the second quarter was 7% compared to only 2% in the first quarter of 2021. We expect this ratio to continue to grow as software subscription sales increase both from existing products and as we introduce new intelligent hardware products. Turning now to slide 15 for a look at our profitability metrics. For the second quarter of 2021, our operating loss was $1.6 million, which is in line with an operating loss of $1.5 million in the second quarter of 2020. Please note that the non-rounded increase in net loss year over year was only $24,000. Also important to note, the net loss recorded in the second quarter of 2021 was impacted by a non-recurring and one-time inventory scrap expense, which marked the completion of a warehouse organization and optimization project in the amount of $0.5 million. Sequentially, This compares to an operating loss of $536,000, which was inclusive of $116,000 of non-recurring merger-related expenses in the first quarter of 2021. Driving this improvement was our ability to effectively manage our expenses and accruals, as well as the success we saw in the quarter with selling intelligent hardware products, driving the related increase in deferred revenues. We are delivering meaningful improvements in our operating results across the board with both accelerating top line growth and material improvements in our operating efficiencies. Below the line, interest and other income and expenses were $78,000, resulting in a net loss of $1.6 million or minus 4 cents per basic and diluted share for the second quarter of 2021, which is in line with a net loss of $1.5 million or negative 4 cents per basic and diluted share in the second quarter of 2020. These results compare slightly unfavorably to the prior quarter when we reported a net loss of a half million dollars or minus two cents per share for the first quarter of 2021. On a quarter-over-quarter basis, Q2 2021 adjusted EBITDA was negative $0.3 million, which represents an unfavorable change of negative $0.6 million versus the positive $0.3 million recorded in Q1. I would like to note that the Q2 result was impacted by a $500,000 one-time material scrap expense that, again, marked the completion of a warehouse organization and optimization project. The continued steady progress in our operating results were driven across the board by assertive marketing of our products, improved execution and diligent management of costs, including effective supply chain management, the strategic use of air freight, and also tariff avoidance. We will continue these efforts as we progress through the second half of the year with a focus towards achieving EBITDA profitability during 2021. Turning now to slide 16 for a look at our balance sheet. At the end of the second quarter, we had cash and cash equivalents of $1.6 million, an increase of $0.4 million compared to the $1.2 million as of the prior period end. Our Q2 ending cash balance includes $750,000 of restricted cash related to prior period issuance of performance bonds for the payment of tariffs. Tariffs are fully paid as invoiced, and these performance bonds have started being released beginning in the second quarter. The increase in cash compared to the prior quarter was due to effective expense management while we were able to continue investing in inventory, both ahead of growth and as a risk mitigation factor to hedge against chipset shortages. Accounts receivable on a net basis ended the second quarter at $9.3 million, representing a $0.6 million increase compared to the prior quarter and is the direct result of our strong sales performance. Inventories were $19.6 million at the end of the second quarter, representing an increase of $1.6 million compared to the prior quarter end due to our investment in inventory to meet both projected demands and to hedge against industry-wide chipset shortages that continue to persist. As of June 30th, 2021, We had outstanding debt of $7.3 million, which was comprised of $60,000 related to a PPP loan and $7.2 million drawn on the company's $13 million line of credit. The company had an additional $2.8 million worth of availability on that credit facility at quarter end. This compares with $7 million in outstanding debt as of March 31, 2021, which was comprised of $60,000 related to the PPP loan and $6.9 million drawn on the company's credit line. As a subsequent event to the quarter end, I am happy to report that we raised approximately $22.7 million in net proceeds from a fully marketed secondary public offering of our common stock. Completion of this offering provides us with additional financial flexibility and sufficient capital to support our strategic growth initiative. Additionally, as Gray mentioned, having completed our official name change to Minimum June, we executed a disposition of Zoom-related trademark assets in a sale that netted the company $4 million of cash. Our second quarter financial results reflect the momentum we are building and reinforce our enthusiasm for the plans we have for continued improvement. With that, I'd like to pass it back to Gray for closing.
spk06: Thanks, Sean. Turning to slide 17, I'd like to close with a summary of how our second quarter reflects solid execution of our strategy to build value for customers and shareholders. With a new management team, we're rapidly growing e-commerce channels and performance. Tapping our Motorola partnership as a differentiator and new market entry accelerant. Achieving margin expansion through higher ASP products driven by powerful software. And leveraging the latest technologies to address the rising need for a connected home that's safe and supportive for life and work. And with that, thank you everyone for joining us this morning. Operator, we're now open for questions.
spk02: At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad to ask a question. Your first question comes from the line of Josh Nichols.
spk04: Yeah, hi. Thanks for taking my question, and good to see some strong operating performance out of what is typically a seasonally slower period. um you kind of hit on it briefly but you have a couple significant tailwinds coming on in the second half with like india and some new product launches um william provided specific guidance uh fair to assume that we should see a significant step up in sales as we move into the stronger second half and what are the opportunities to kind of increase the gross margin level from the current levels yeah hey good morning thanks josh uh
spk06: Yes, I would say that, you know, for the year, you know, we continue to see that strong growth rate, especially in Q4. We'll really get the benefit of the products, much more of a benefit of the products coming to the market. You know, so that's going to be a real tailwind for us. And then I think you said the second part of your question was a gross margin question. You know, maybe I'll ask Sean for you to weigh in on those as we look to those. You know, they're exciting for us because they're higher ASP. products and carrier software, which has, you know, great gross margin implications. But, Sean, do you want to speak to those? And I'd also, you know, welcome Nicole to comment on that. She does think a lot about gross margin and ASP and driving ASP in terms of our strategy. So I'll welcome your comment on that, too, as well, Nicole.
spk08: Sure. Yeah, again, thanks for the question, Josh, and thanks for listening in. I would just kind of double tap on what Gray just said with With the new product introductions that we have slated for the second half of the year and all of those coming to market with the software built in, we do expect higher ASPs. Those are higher margin products. So we do expect to get some uplift in our gross margins with those introductions.
spk06: Nicole, just maybe do you want to expand on that a little bit about some of the things we're thinking about doing on those products? You can even go into some of the ideas we have around you know, bringing incremental software value to the market via, you know, additional MRR for security or data management?
spk00: Sure. So we are launching three new products in our Wi-Fi 6 family. The Motorola AX1800 Mesh, which is our first Wi-Fi 6 mesh system. We'll be rolling out one packs, two packs, and three packs for expandable mesh. and this is definitely the highest price point mesh product to date, and we are launching in online retailers. We're also rolling out two modem routers, the Motorola MG8725 and the Motorola MT8733. These have very strong, powerful routers built inside, and they're both extremely high-speed products. We like to call them the Rolls-Royce, of our product line. And these are rolling out at $369.99 and $379.99, which is definitely our highest ASP modem routers to date. And we see a blended hardware software margin of over 50%, which will be a nice, it's our highest gross margin products to date as well.
spk04: Thanks for elaborating on that, some of the product releases coming up. And then just to kind of hit on it, again, since you mentioned it, very strong deferred revenue growth quarter over quarter here. Now you're a million dollars, right, of deferred revenue. What's the expectation for how quickly that could ramp and if you could help? or maybe talk about one or two of the larger opportunities that could accelerate that trajectory as we think about the next 12 months or so in deferred revenue software sales.
spk06: Yeah, I think I would say just to start off, maybe I'll take it to Sean to see if he has any commentary on any prospective growth on that line. But it's really about getting more of our products with that software on it, right? Today, we're very excited about the products we have with the software on them. But, you know, we have, I think, you know, 20 products in market and only a limited number of those have a software on it. So, you know, when Nicole talks about those three products and as we talk about every new product we're working to bring to market is going to have software on it, as those kind of come in, you know, we expect to see continued strong growth in that deferred revenue number as a percentage of total bookings, which we track internally as a metric. Sean, do you have any other comments on that on kind of the look ahead?
spk08: Yeah, I would agree with what you just said, Gray. So, you know, with continued expected strong sales in the MG8702, which is the new product we launched in Q1, that's really been a main driver of deferred revenue to date. You know, I expect to see deferred revenue continuing to become a more materially piece of our balance sheet. And then again, in Q4 and with every new product launch going forward that comes together as an intelligent hardware software product, I expect as each new product comes online and we start making sales to see a step function in deferred revenue.
spk04: Thanks. And then last question for me. Good to see the company is expanding out of North America. I know very early stage still about selling into India. But if you could kind of provide us a little bit of some insight, obviously a different market than what you're dealing with today in terms of ASPs and margin. Could you elaborate on that a little bit, please?
spk06: Yeah, so I'll speak to this and then, you know, happy to have, again, happy to have Sean, you or Nicole weigh in on this one.
spk00: I'll pop in.
spk06: Okay, great. Yeah, well, if you want to, I mean, you did spend a fair bit of time thinking about this, especially because we launched it. Amazon, Nicole, if you want to. I'll give the first direct response.
spk00: Sure. So we're kicking off with India per our announcement today in Amazon and Flipkart. Amazon is our highest margin sales channel. So that is a huge benefit for us in our global footprint. We will be charging about the same for the products that we are launching at the moment in India. And these will represent high sort of more premium products than you see on the market. We are looking in our product roadmap to find some lower ASP or create some lower ASP products as far as the hardware is concerned so that we can get our software out to as many homes as possible. And that will be our strategy for ongoing emerging markets, which include South America and some other countries nearing India. we will be looking to build some lower ASP products. Interestingly, our software is able to work on lower ASP products, and that is actually a unique differentiator for us in the market. Most other software platforms have really high requirements of the hardware itself, so this is why it's important that we take our first mover advantage and bring our software to market in the emerging markets, even if it means lower ASP hardware, in order to get our software distributed. And then we will also be tackling mid-market and mature markets in Europe. And these will be a matter of bringing our Wi-Fi 6 products into these countries using primarily Amazon.
spk04: Thanks. I'll pass the baton and let someone else take a chance to ask some questions.
spk02: Your next question comes from the line of Tim Sivago. Please go ahead.
spk03: Hello and good morning. I had a couple of questions. First is kind of a little high level on market dynamics and to what extent you see the following factors as kind of key in driving growth from a market perspective and those would be additions of new broadband internet subscribers by cable and other ISPs, which obviously have been strong through the pandemic, but kind of normalizing a bit. Upgrades in connection speed and capability on the part of consumers, and maybe probably associated with that, just upgrades in overall Wi-Fi capability, regardless of speed tier. As you look at those Pre-factors, you know, which do you see really driving your business? And I know you mentioned kind of growing ahead of the market, and your TAM estimate is based on a pretty big TAM, but how fast do you think your markets are growing right now?
spk06: So I guess I'll say, and just to make sure I tracked you, you talked about growth being driven by new subscribers, by upgrades in connection speeds, and just general upgrades in Wi-Fi connections, for those are three things you mentioned.
spk03: Yeah, and feel free to add to that, but I felt, you know, those could be some pretty important factors in determining, you know, overall growth on the CPE side.
spk06: Yeah, I would say that. I mean, I think when I think about which of those will ultimately lead to greater growth for the company, especially as we consider outside the U.S., you know, I think it's really about that technology lifecycle upgrade and about, you know, the combination of increased speed and increased and increased needs so i think that the only one that you didn't mention there was you know the the increase in what people are doing from home and how that's just going to be consistent and persistent right um you know i i think as people we enter into this you know let's say the second year and maybe we'll end up with people learning from home this fall in a way they don't expect you know it's just going to become a We know that Internet is a utility, but good Internet that can support multiple people doing very important life tasks, you know, earning and learning from home, just becomes kind of an unavoidable reality. And as people settle into those patterns, they start to just expect more. And I think that, you know, that's going to drive people to want faster speeds, bigger pipes, and all that's going to, you know, redound to our benefit. You know, I do think that new subscribers is important for us, but I also would say We have so much room to grow, especially as we bring these new Wi-Fi products to market that, you know, in the U.S., I think that we have a lot of room to grow, even if subscribers, you know, growth slows. And then, you know, we get to the international markets and we're just such a tiny, such a limited market penetration at the moment that we have, from my perspective, you know, massive, just massive amounts to grow. And it's really driven by our execution and getting products to market. You know, the need is there. We know we have the brand. We know we have software that makes our product sticky, and we're just at the outset of actually creating those daily relationships, weekly relationships with customers with the software that we have. So I think those three trends you mentioned are correct, but then also the live, earn, learn trends that are going to persist and I think become just a fact of life, change the way that people interact with the network, which is going to drive both you know, all three of those at a more fundamental level.
spk00: Yeah, let me just double tap on that. So at a high level, the upgrades is really a matter of, in a mature market, the product upgrades are very prevalent and the main driver for business. In an emerging market, actually just the availability of products in retail is the driving factor. Many companies For example, in India, purchasing a router through a retail channel is actually quite a new concept as opposed to purchasing it through your ISP. And so we are going to be grabbing that tailwind. So it really depends on the markets you're looking at. And then when you look at our drivers of growth, domestically, we're only about 8% penetrated in retail. So that represents a ton of headroom for us to go after. And then internationally, a nice tailwind is our ability to take advantage of the Amazon marketplace, as Gray mentioned in our overview. So those are our two sort of micro drivers internally, and then macro is really about upgrades, the availability of high speed for the first time, and also the availability of products in a retail environment.
spk03: Great, thanks. And my follow-up was kind of more on the ISP side where you'd mentioned you have over 100 providers that you're working with. And to what extent those providers are biased toward smaller type or even rural providers? And I guess I ask this in the context of both the recent know infrastructure bill as well as the uh the ardoff i know you mentioned connect america in your presentation there's obviously a lot going on in terms of uh you know government rural broadband subsidies across a range of technologies fiber wireless cable and whether you're starting to see you know an impact from that activity and what sort of opportunity you could you could see for the company um upcoming
spk06: Yeah, I mean, I would say we have seen an impact. Certainly, you know, customers are benefiting from those investments, and, you know, we're excited to be there to support them. We certainly do. That customer base is biased towards challenger ISPs. We're very excited to be at that show with the WISPA America show coming up here pretty shortly when we're going to be launching that Connect America Fund compliance uh, speed test compliance feature. You know, I think, I think that is, uh, we're very excited about it. They're benefiting from it and we're seeing them starting to, to, you know, make the commitments and we're excited to see more of that investment coming around. I think we, everyone kind of goes to my point earlier about, you know, everyone's living, earning and learning at home. It's, it's a, you know, sometimes you'd rather go without power than without internet. So, Having better speeds reach more Americans is great for us. It's great for the economy. It's great for both the consumers and the ISP customers we have. I also think an interesting thing for us is we did sign an MOU with Facebook, and we do partner with Microsoft on their initiatives to really connect a much, much broader swath of the globe. So, you know, we see not only supporting, you know, kind of challenger ISPs, extra ISPs in the U.S., but we see it as part of our mission to work with people globally, right, to bring more individuals online, make more connected homes safe and supportive for life and work. And that's getting a lot of attention. You know, Facebook has obviously a great incentive to get more people online by using their Facebook accounts from home. and doing all the other things that they expect to deliver that are going to be made more sense kind of in a home network architecture as opposed to a mobile architecture. So we're excited to be partnering with them and with Microsoft to bring, you know, the next billion homes online and be the software that's there. Nicole mentioned that, you know, not only are we well designed to work, you know, on Motorola hardware, but also on, Microchip hardware in the U.S. and around the world and third-party hardware. But, you know, working to bring low ASP hardware and having software that will work there so that we can get those, you know, those homes using our software, build that relationship with them, and, you know, generate continued value for those consumers and for the ISPs that serve them. Nicole, I don't know if you have any other comments you want to add to my perspective on that.
spk00: Sure. So the competition is great for us, the competition amongst ISPs in the U.S., and that is certainly being fueled by government funding. It's building out the ISPs or the smaller ISPs are getting the funding to build out fiber to the home, which is great for us, particularly because of our CAF suite that's coming up. But just in general, our solution is turnkey. for smaller ISPs, and really we give them a lot of benefits, including the ability to choose their own hardware, the ability to pay as they grow. So the pricing model really works out for them, and we continue to value pack that offering. So competition is great for us, and we see it every day in the inbound inquiries we get In marketing, we just ran an inbound campaign on competing with Starlink. So SpaceX Starlink is rolling out coverage areas, and that has a lot of incumbent local ISPs questioning, you know, how do I compete against SpaceX? And so we did a deep dive and put out a white paper and got – it has been our most popular marketing campaign endeavor yet. So it just goes to show that the competition is really heating up, which really drives consumer choice, and it makes consumers smarter. They are looking for intelligent Wi-Fi solutions, so it's a great time for us to be right there.
spk03: Great. Thanks very much.
spk02: Thank you. Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question is from Keith Rose.
spk07: Guys, thanks for the update. I came in a little late, but I just wanted to get some clarity on the balance sheet. You guys did this offering with Riley in July, and you reported a balance sheet at June 30th. So on the pro forma, can you give us a sense for how much cash the business is sitting on, net cash, and what your liquidity profile looks like today? And then on that, I just also want to clarify, Greg, you personally participated in that deal as well, right? Yes, I did.
spk06: Yeah, I bought 200,000 shares. And, Sean, you just want to speak to how much we added, how much between really the two significant events post-quarter were the net proceeds from the raise and then the – the money we got for the disposition of the trademark assets. So what does that add to the balance sheet?
spk08: Sure, sure. So net proceeds from the offering, $22.7 million. And then the disposition of the trademark assets that Gray just mentioned is netting us another $4 million. So clearly liquidity has been improved quite a bit since that 630 balance sheet that you were referring to. And I would say that we're targeting to have somewhere in the neighborhood of $4 $22 million or so, $21 to $22 million of cash on the books at the end of Q3.
spk06: Yeah, and, you know, just to comment on kind of what we're doing with some of that cash, you know, we were, in the raise, one of the reasons that we went out to market is I always believe there's a, you know, if you see reasons that, if you see capital being a constraint on your opportunity, then it's the right time to speak to the capital markets. And in We were not able to, notwithstanding the expansion line with Silicon Valley Bank, we were not able to optimize Amazon inventory in Q1 or Q2. In Q1, that cost us a million dollars in top line. In Q2, it cost us around $750,000 in top line. So, you know, we're excited to put some of that capital to work alongside that, you know, operating, you know, the operating capital facility we have with the credit facility we have at Silicon Valley Bank. to allow us to really perform, right? We have customers that want to buy our product and we want to make sure that that product is on shelves. So that gives you some characteristics of it. Is that helpful?
spk07: It is. And then I just wanted to say back to you what I was sort of understanding. Your first half numbers were with your existing product line and with basically Best Buy and Amazon as your distribution channels. These retailers that you guys just highlighted bringing on, Lowe's, Home Depot, et cetera, were you not selling through those channels previously and now you will be selling through those channels?
spk00: Yeah, let me just jump in there. So we have been in primarily Best Buy and Amazon make up the majority of our sales. But we also have been in retailers including Target, and Walmart, B&H Photo, Barnes & Noble, and Staples. So quite a few. So the announcement that you just saw is representative of net new retailers, but we are also already in a bunch of retailers.
spk07: Okay. And then can you talk about penetration? What does that look like? at those retailers? So you've been in Best Buy. What percentage of Best Buy are you in? Is that growing? You know, these other ones that you've highlighted. At what point are you sort of in all of them versus, you know, some of them?
spk00: Right. So there are actually a couple thousand retailers in the U.S. and we're in about a handful, so up to 20, let's say. So we have 8% market share of retailers all retailers according to NPD research data. So a lot of headroom to grow there, both in our depth as well as... Sorry, Nicole, I meant penetration in the existing retailers. Sure.
spk07: Are you carried in all of the Best Buys? Are you carried in all of the Home Depots?
spk00: We are carried in all of the Best Buys in-store. We are in Home Depot online. So we have the opportunity to get into store for several retailers that were not already in store. That would include, for example, Walmart. And so for Best Buy, to give you an idea, we're the third as far as market share goes. I believe it's between 30% to 40%. Sorry, it's Up to 40% in sales, we had a really, really good June, for example, where we sold about 40% of all of the sales in our category. But usually it's more to the tune of between 20% and 30%. And that's just for Best Buy. So we typically end up number three to Aris and Netgear in retailers. And our sales footprint can range anywhere between 10% and 30%. in any given retailer.
spk07: Thank you. That sounds like you've got a lot of tailwinds.
spk08: I appreciate it.
spk02: At this time, there are no additional questions. If you should have a question, press star 1. There are no questions at this time. I would like to turn it back over to management for closing remarks.
spk06: Thanks, everyone. Really appreciate your time this morning for the exciting news, especially during the latter part of August. Great to have you on the phone. And look forward to joining you. If any of you guys are interested, we're at the Sudoti conference coming up. And as always, keep an eye on ir.minim.com for our calendar, more information about the company. And always feel free to reach out to James. We love talking with all of our stakeholders. our future stakeholders and appreciate your time this morning. Thanks so much.
spk02: Thank you. This concludes today's conference call. You may now disconnect.
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