Minim, Inc.

Good day, and thank you for standing by. Welcome to Minimum's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, press star 0. I'd now like to hand the conference over to your speaker today, Mr. James Carbonaro from Hayden IR. Thank you. Please go ahead.

Thank you. And once again, welcome to Minimum's Third Quarter 2021 Earnings Call. With me on the call are Gray Chinoweth, Chief Executive Officer, Nicole Tsang, President and Chief Marketing Officer, and Sean Daugherty, Chief Financial Officer. As a reminder, all materials for today's live presentation are available on the company's investor relations website at ir.minimum.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 materially differ from those contemplated by these forward-looking statements. For a 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, 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 as in our periodic filings with the SEC. Now, I would like to turn the call over to Gray Chenoweth, CEO of Minim. Gray, please proceed.

Thanks, James. Good morning, and welcome to Minim's Q3 2021 conference call. Let's jump right in. Given all the headwinds to performance in Q3, we're pleased with our execution against our business plan. We generated net revenue of $15 million, representing 25% year-over-year growth, up from $12 million in Q3 of 2020. This growth significantly outpaced the competitive landscape amidst what was the most challenging quarter in 2021 for consumer electronics sales. illustrated by a 3% decrease in sales according to leading analyst firm NPD Group. Our Q3 sales increase is more consistent with our first quarter, following a substantial Amazon Prime Day revenue bump in Q2. We've continued to increase our software services as a percentage of our revenue mix. Our ratio of deferred software subscription revenue to recognized revenue increased to 8% compared to 7% in the prior quarter and just 2% in the first quarter. In just under one year, we brought four intelligent networking products that carry recurring software revenue to market. We posted a net income of $1.7 million, which includes one-time income of approximately $4 million related to the sale of the Zoom trademark, compared to a net loss of $0.3 million in Q3 of 2020. Our gross margins dipped by 234 basis points to 29.9% compared to Q3 of 2020, which was below expectations due to inflation and COVID follow-on effects on component and transportation pricing. We're taking actions to mitigate the impacts of these effects on performance in Q4. Further on this point, persistent component and inflationary pressures could accelerate end-of-life and product portfolio replacement cycles, which would impact FY22 top-line targets as we focus on driving sustainable growth. As we work through these considerations, we will be transparent in their impact on financial performance. I'm pleased with our revenue outcome compared to our industry peers. Our performance reflects outsized growth in domestic market share for our products, given that consumer home network market data indicated a soft Q3. This achievement excites me for two reasons. First, leading analyst group NPD expects positive year-over-year growth in consumer electronics sales in Q4. Second, we're only scratching the surface of the international market and the higher growth Wi-Fi 6 system segment. These significant short and long-term opportunities are ours to seize. Two strategies we have discussed in prior quarters are primarily responsible for our performance, optimizing inventory for online sales and growing revenue per customer with higher ASP intelligent networking products that benefit from the value delivered by our software. Our efforts in inventory optimization, particularly for Amazon sales, have been fruitful. In the DOCSIS cable product category, we increased our sales by 5% versus the prior quarter, growing our market share to an estimated 31% and strengthening our position as the number two brand in the category. In addition to the Amazon showing, we saw strong sales in Best Buy with 3% quarter-over-quarter growth. Our efforts in driving higher ASPs were reflected in a 22% year-over-year increase for Q3, driven by both intelligent connectivity and next-generation products. To support execution against these strategies, we closed two financing transactions in Q3. We raised $22.7 million in net proceeds from a secondary offering of our common stock and completed the sale of Zoom-related trademark assets, netting cash proceeds of $4 million. In addition, subsequent to the end of the quarter, we amended our revolving credit agreement with Silicon Valley Bank, increasing the line from $12 million to $25 million and extending the maturity to November of 2023. We are using this liquidity selectively and with discipline to invest in opportunities that will result in achieving material profitability on an adjusted EBITDA basis in FY22. Looking ahead, we're addressing inflation and component pricing pressures that have been felt across the industry and are evidenced in our Q3 gross margin results. We'll now respond to this with strategies, including price changes, that Nicole will discuss shortly. Of course, any upticks in price create headwinds to top line revenue both in terms of new sales and the potential for destocking from retailers and distributors. We are monitoring sell-through rates and utilization of return reserves closely and will make investment decisions consistent with our focus on sustainable growth. Turning to our global expansion efforts, the third quarter marked three major milestones. Establishing a representative office in Vietnam, adding Africa's leading entertainment company, MultiChoice, as a trial customer, and launching Motorola networking products in Amazon India and Flipkart.in for the first time. We're pleased with the local press and influencer coverage in India and remain excited about our ability to build revenue momentum in that market. Lastly, during these dynamic times, I want to emphasize our focus on building a business that, both financially and operationally, is resilient, agile, and ultimately self-sustaining. Our efforts on this to date have minimized the impact of supply chain and logistical challenges to our operations. We have confidence that these mitigation strategies will continue to support our ability to meet the market demand for our products and have no current information that suggests that these strategies will not continue to support our success on a go-forward basis. Up next, Nicole will give you a deeper glimpse into the product sales performance pricing strategy and a look ahead towards progress on software and intelligent product development in FY22.