Minim, Inc.

Good morning, everyone, and welcome to the Minimum Reports fourth quarter and full year 2022 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to James Carbonera, Investor Relations. Please go ahead.

Thank you. And once again, welcome to Minim's Q4 and full year 2022 earnings call. With me on the call are Mahul Patel, Chief Executive Officer, and Dustin Tacker, Chief Financial Officer. As a reminder, all materials for 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 materially differ from those contemplated by these forward-looking statements. or 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 as in periodic filings with the SEC. Now, I would like to turn the call over to Mahul Patel, CEO of Minim. Mahul, please proceed.

Thanks, James. Good morning, and welcome to Minim's Q4 and full-year 2022 conference call. At mid-year, we initiated a number of steps to advance our competitive position improve working capital management, and better align our business with realities of consumer markets. As a result, we exited 2022 with more robust e-commerce distribution channel and all intelligent product portfolio and improved balance sheet. Revenue for the year was $50.6 million, a decline of 9%. As challenging economic conditions persist and traditional retailers continue to work through high inventory, that they are stockpiled to combat supply chain risks. Fourth quarter revenue up about 1.4% year-over-year, down 23.2% sequentially to $10.6 million. Subsequently, year-end, we initiate additional cost reduction actions that we expect will generate annual cost savings of approximately 20%. split evenly between cost of goods sold and operating expenses. Through a series of actions that includes workforce reduction as well as reduction in professional services and other spend categories, we're better aligned to size and scale of our business with the realities of current market and economic environments. Importantly, we expect this will also accelerate our path to achieve a sustainable profitability on a adjusted EBITDA basis. Across the market, we continue to see consumer preference on online purchasing. We're maintaining our marketing position at Amazon with 40% market share in networking category. At the same time, we significantly expanded our e-commerce channel in 2022 with addition of HomeDepot.com, OfficeDepot.com, HSN, and Newegg, to name a few. Through the addition of these channels, we are reaching a wider audience and scaling our current product for offering with a large customer base. Core to our mission is our commitment to software-enabled intelligent mobile products. We are on schedule to complete the buy-down of our ISP business later this year as we shift our attention and resources to premium subscription services. The ISP business, which currently provides customers with unlimited free of charge support for purchases, has been a drag on our margins and cash flow. With the launch of Support Plus, our premium support subscription service, We will establish a new revenue stream, which we believe will have an incremental positive impact to our gross margin beginning near the end of Q3, and we head into Q4. Support Plus will be available to app users beginning in June. The subscription service offers a greatly enhanced end-to-end customer support experience. For our annual fee, users will have access to 24-7 tech support, priority queuing, and callback requests. Importantly, there are virtually no incremental cost to the services as investment in the technology sunk, and we are shifting resources internally from our ISP business to support this new offering. Beyond this initial launch, our technology roadmap includes additional features for rollout in the second half of 2023. Specifically, we plan to add network diagnostics and management, threat protection, and parental controls. These features address the top pain points for consumers and create a highly attractive bundle of solutions that gives consumers peace of mind and more control around their households. We remain vigilant in our efforts to strengthen our balance sheet. Since the end of the second quarter, we have reduced our inventory by 26% to $25.4 million. and reduced account payable by 75% to $2.8 million at end of Q4. We have achieved a maintenance level of account payable and AP turnover that is more adequately aligned with the size of our business. As expected, the actions we have taken to improve working capital efficiency resulted in lower cash balance at end of the year compared to prior quarter end. More importantly, though, our working capital ratio improved from 2.0 at the end of Q2 to 2.1 at the end of Q4. We expect a further reduction in inventory to low 20 million as we exit Q1 and head into Q2 of 2023. Earlier this month, we signed a non-binding term sheet for a three-year $12 million asset-backed credit facility with a new lender. The new credit facility is subject to execution of final definitive documents. We have agreed on business terms and legal terms are working through the final steps to be completed. The new agreement will replace our existing credit facility with Silicon Valley Bank. More importantly, though, this new agreement provides us additional borrowing capacity on a global basis and more favorable terms and reduces our overall financing risk. We expect to execute a final agreement soon. It's a great confidence that I tell you our balance sheet is in a much improved position than it was six months ago. Looking ahead to 2023, we remain focused on prudent allocation of capital, executing on our product roadmap to create a new revenue stream, and further expanding our distribution channel, particularly e-commerce channel. I will now turn to Dustin for a review of our financial results. Dustin?

Thank you, Nihal. A friendly reminder that the financials I will cover are depicted in the earnings presentation that has been posted on our investor relations site at ir.minim.com. Our net revenue for the fourth quarter totaled $10.6 million, which is down 23.2% over the prior quarter, and deferred revenue increased to $1.4 million from $1.3 million in the prior quarter. Our fourth quarter net sales were impacted by consumer demand and brick-and-mortar retailers adjusting their on-hand inventory. For the quarter, our gross margin was 19.9%, down from 22.3% in the prior quarter. Excluding an inventory reserve charge of $1.2 million, our gross margin continues to approach 30%, despite negative impact from inflation and component costs increases. Our net loss was $4.5 million for Q4 2022 or negative 10 cents per basic and diluted share. This compares with a net loss of $4.1 million or negative 9 cents per basic and diluted share in the third quarter of 2022. For the quarter, our adjusted EBITDA was negative $3.9 million compared to adjusted EBITDA of negative $3.2 million in the prior quarter. Now for a look at the balance sheet. At the end of the quarter, we had cash and cash equivalents of $1 million, a decrease of $.9 million compared to the prior quarter. The decrease in cash on a quarter-over-quarter basis was largely driven by paying down $5.3 million in accounts payable and accrued expenses. Inventories decreased to $25.4 million at the close of the quarter, compared to $30.3 million at the end of the third quarter. We are focused on returning to three to four turns a year on our inventory as we monitor our production and inventory levels very closely. We ended the quarter with outstanding debt of $5.8 million, which comprises of $4.8 million from the company's $10 million line of credit and a $1 million bridge loan. This compares with $5.8 million in outstanding debt as of September 30th, 2022. As of December 31st, 2022, we had $38,000 in availability on the credit line. Lastly, on March 28th, 2023, our shareholders approved of the board to move forward with a reverse stock split. The ratio will be anywhere from 10 to 1 to 25 to 1. The reverse stock split is primarily intended to increase the market price per share of the company's common stock to regain compliance with the continued listing requirements of the NASDAQ capital market. That concludes my financial remarks. With that, operator, I would like to open the lines for questions.

Ladies and gentlemen, at this time, we will open the lines for a question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the key. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. And once again, if you would like to ask a question, please press star and then one. Our first question today comes from Tim Stavageot from Northland Capital Markets. Please go ahead with your question.

Hi, good morning. A couple of questions. You mentioned some cost reduction efforts and a path toward profitability. I wonder if you could give us a sort of timeline and maybe a revenue level where you feel like that could be achieved and whether that could be achieved in calendar 23 here. And then maybe somewhat related to that, you know, as you look at the year ahead, you know, how do you feel about the growth prospects of the company in 23 overall and where are Where would you say we were in terms of this inventory correction on the brick and mortar side? Thanks.

Hey, Tim. How are you doing? This is Mo. Thanks for the question. And let me get into, I think the first question was around workflow reductions. So the workflow reductions have already been implemented. They are executed and closed at the end of this quarter. So we anticipate the savings effective April 1st and go forward, including all the Restructuring costs has all been booked at this point into the Q1 numbers. So going forward, that should result into future savings that we mentioned around roughly 20% annualized. So that's one aspect that's already been done. The second question I think you had was around the growth of the company and where do we see it? So we do have, as I mentioned on the call, first and foremost is the execution of our software strategy that we continue to deliver We are on path to deliver our first release of Support Plus in Q2, late Q2, and then the other solutions on top, which will help us do the bundle going into 24. All those will be incremental revenue streams that we don't have today. It also allows us to review on our hardware margins and, you know, improve our hardware margins along the line as well. In terms of, you know, growth of the company, we have a full year of our e-comm channels, you know, maybe Walmart, maybe, you know, Shopify, maybe Modola, our direct sales to consumer that we have, you know, all those we executed towards second half of the year last year. We have a full year of growth. Last year, we also had our brick and mortar where they took their inventory down from anywhere from 15 weeks on hand down to four weeks on hand. I think we're past all that, and we're starting to build them back up. I don't think we'll ever be at 15 again, but we'll be closer to four to six to seven weeks, and we'll continue to manage that. I think that's where some of the other growth and the places that we have won that I mentioned on the call also will help with incremental volume that we didn't have last year. And we still have a few other accounts to close this year that we feel highly confident that we'll be able to get them done here in the near future as well. So those are all the places where I believe they'll help us grow with where we are from this year to next year.

I should say last year to this year. Sorry. Well, you know, with that in mind, following up, given where we are from a time perspective, Any commentary on how Q1 has shaped up?

Dustin, you want to take that? But overall, I think Q1 is anticipated to be where we initially had forecasted internally with our board. We're still waiting for Q, of course, the month of March to close, and we'll see how we land. But as of right now, not seeing any major surprises that we weren't anticipating. Right, exactly.

At the same time, too, our cost level was still, historical cost level was still embedded in Q1, as Mahul mentioned. So, as we exit through Q1, we'll see that improvement by Q1. We'll probably be more reflective of what we've seen in the past.

Thanks. Sure.

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to ask a question. And our next question comes from Donald Rosenfeld. Please go ahead with your question.

My question is, at what point do you see the company making a profit, coming through with a profit? Donald, thanks. What's the time period that you anticipate that possibility could happen?

Yeah, Donald, thanks for the question. And based on everything that we have done for what we were pushing for this year, we knew we had to do something around the reduction in staff to align with our portfolio and our line. We've also done everything in terms of product portfolio and the new revenue streams, which allow to get higher gross margins and remove some of the sunk costs that we had with realigning our portfolio. So we're doing everything in terms of trying to get there before the end of the year. But that's, again, something that is our goal is always to improve our profitability going down the path. But we're taking every measure in the meantime to execute our road to get there.

Time-wise, though, where do you see that happening? When do you see that happening?

So our goal is still in the second half of the year right now to get there by second half of the year.

Thank you. Thank you.

And once again, if you would like to ask a question, please press star and 1. Our next question comes from Charlie Locario from GTM. Please go ahead with your question.

Yes, thank you for taking my call, gentlemen. Excellent job on obviously selling some of your inventory and getting it down. I just have two questions, and hopefully you can just put some color on it. The first question is the inventory that's left. Is it still marketable? I mean, I know technology changes fast, and I know that you guys have a decent amount of inventory left. Do you guys see any of that being obsolete, or is it basically still marketable and sellable at current market prices today? And the next question I have, obviously, would be the contract with Motorola. I know that you guys have a contract in front of you with them, and I know it goes for numerous years. There is a large amount of money that's kicked back to them for part of the revenue that you guys sell. Is that still in place, or are you guys in a position where you can renegotiate that going forward?

Charlie, thanks for the questions. And I'll let Dustin kind of chime in initially, then I can jump back in as well. Go ahead, Dustin.

Thank you.

Yeah, so just to address the Motorola agreement, so that is a fixed contract until 2025. If there's opportunity to negotiate earlier, I'm sure we will take advantage of it. And then obviously it's beneficial to us at this time as we are selling underneath the Motorola branded name. So we do have a lot of benefits through the Motorola arrangement. When it comes to manufacturing products, the contract manufacturers that we rely on have to go through very stringent quality tests to ensure the products that are released out into market meet certain standards, don't have any material issues in the long run. So that's a an arrangement or a relationship that's been beneficial to us as a company.

Yeah, and I'll add on top of that. Thanks, Dustin. And your other question was around, you know, anything about inventory being obsolete. For most of our inventory that we still have is good inventory. There's no end of life in near term for anything from DOCSIS portfolio that we do have on hand. Everything is still valid in terms of the saleable inventory for not only this year, but years to come. Even after Wi-Fi 7 and DOCSIS 4.0, which is, I want to say DOCSIS 4.0 is at least two to three years away at this point. So there is plenty of time for us to continue to sell. I believe most of our inventory that we do have on hand, which is long in the tooth inventory, we'll be able to get rid of and be friendly this year based on our current forecast that we have. So we feel confident that we should be able to continue to drive that inventory down to the required number that we want in front of this year. But again, I'm not worried about any obsolete inventory of those numbers.

Great. Thank you for that. And the final question would be, obviously, you guys are still negotiating a new loan structure. Do you feel that loan structure will take you guys through getting into even cash flow positive as far as getting under capital raise? Do you need more capital going forward, or is that debt loan going to help you get through that mess? Do you want to answer that?

Yes. So there's no consideration for capital raise at this point in time. Obviously, the focus of this business, as we write the balance sheet and we write the P&L, The focus, obviously, and the intention of all of it is to get to cash flow positive. We do intend to get there. We expect to get there this year. So, obviously, we've worked on our AP. We've worked on our inventory. We're working on our cash now. So it's all coming to that one direction as we try to write out our financial statements.

Great. Thank you. Excellent job, gentlemen. Keep up the good work. Hopefully it all pays off for everybody.

Thank you.

Thank you.

And ladies and gentlemen, with that, we'll conclude today's question and answer session as well as today's conference call. We thank you for joining today's presentation. You may now disconnect your lines.