FiEE Inc (FIEE) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to Minim's Q1 2020 Earnings Call. (Operator Instructions)

I'd now like to hand the conference over to your speaker today, Mr. James Carbonara from Hayden IR. Thank you. Please go ahead.

Once again, welcome to Minim's Q1 2022 Earnings Call. With me on the call are Gray Chynoweth, Chief Executive Officer; Nicole Zheng, President and Chief Marketing Officer; and Mehul Patel, 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.

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 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 our periodic filings with the SEC.

Now I would like to turn the call over to Gray Chynoweth, CEO of minim. Gray, please proceed.

Thanks, James. Good morning, and welcome to Minim's Q1 2022 Conference Call. Let's start things off with a look at market dynamics. The world continues to need incredible broadband at home. The experts at Ladder say remote work is here to stay and predict it will continue to increase through 2023. Smart Home analyst Parks Associates just released their estimate for the number of connected devices per U.S. broadband home. In 2021, this number went up by 16 devices, a 23% increase.

In its most recent fiscal quarter, Disney added 11.8 million Disney+ subscribers. And just this Monday, President Biden announced that some 48 million American households will become eligible for a $30 monthly 100-megabit-plus per second Internet plans. Net, this means our mission to help everyone do more and live better with connectivity has never been more relevant. Amidst this backdrop, we have seen a return to pre-pandemic purchasing levels in home networking equipment. Yes, it appears that there was a rush to upgrade Home Networks at the height of the pandemic, and much of the industry is adjusting to back to normal demand levels.

However, despite this trend, Minim continues to outperform. For Q1 2022, Minim's GAAP revenue was $13.3 million, up 27% compared to last quarter. By way of context, a leader in the market recently announced its Q1 2022 revenue dropped by 11% compared to the prior quarter. With this context, I want to share our approach to sustaining growth in the face of headwinds. We are particularly proud of 3 points of strength that drove our outperformance this past quarter. First, we continued to perform on Amazon.com, holding the #1 market share position for the full first quarter.

Second, working closely with our retail and distribution customers, we reestablished order volumes that were disrupted by supply chain concerns in the second half of 2021 and the Omicron variant. The resumed purchasing is evidenced by 100% plus growth in Q1 orders when compared to last quarter. Third, we continue to deliver high-value products to the market and see durable demand for our products despite price increases we implemented in the second half of last year.

The primary headwinds to further accelerating our growth are those brought by continued supply chain disruptions, consumer demand that remains elevated when compared to pre-pandemic levels but is below the pandemic peak and potential impacts that inflation may have on home networking purchases. These headwinds, among others, have affected several technology sectors on both major U.S. exchanges.

Despite the headwinds, we continue to execute against our plan to drive outperformance. We are diversifying our suppliers at all levels of the supply chain. We're working to increase the number of retail and distribution partners in the U.S. We're driving growth in the U.S. market share in our primary market segment and expanding penetration into new segments, and we continue our efforts to expand beyond the U.S. market.

In Q1, we made progress on all these fronts. On supply chain diversity, we scaled production of an intelligent product with our second material ODM partner, and we'll bring a new intelligent product to market with a third OEM partner this summer. On distribution, we established several new rep groups that we expect will support continued expansion into new sales channels in the U.S. On product, we were pleased to see solid performance from professional and consumer reviews of our MH 7600 product, including great reviews from PC Mag and ZDNet and that sales of this product remain elevated when compared to those of our initial offering in the category.

On geographic expansion, we were pleased to announce paid trials, which includes sale of Motorola-branded mesh hardware to an 800,000 subscriber ISP in Indonesia and a 300,000 subscriber ISP in India. Turning to our profitability metrics. Our gross margin in Q1 was 31.5%, down from 33% in Q4. Adjusted EBITDA came in at a negative $1.7 million, an improvement when compared to a negative $3.1 million for last quarter. With continued disruptions to the supply chain in Q1, we remain focused on mitigating the negative impact of component price increases on gross margins. Additionally, while we continue to focus on investments in R&D and distribution, we are doing so with a clear focus on growth without requiring the need for additional capital from the equity markets.

Turning to our cash and inventory positions. As we indicated in our last call, we expect to settle down inventory in Q1 and Q2, see our cash position drop as we pay for that inventory and thereafter increase as we collect on accounts receivable. This is occurring as expected. We exited Q1 with $30 million in inventory, down from $32.5 million as we exited Q4. As we paid down invoices in Q1 due to our Q4 inventory buildup, cash came in at $10.5 million exiting the quarter compared to $13.1 million exiting the prior quarter. We continue to expect our cash position to improve over the course of the year as we [sail] through. The team is very focused on hedging against both the risks of not having enough inventory to meet market demands and the risks of having inventory levels that put pressure on liquidity.

I will now turn to progress on our software transformation efforts. With hybrid working models becoming permanent, home networks becoming more complex and cybersecurity events constantly in the news, Minim's mission to help people do more and live better with connectivity is more relevant than ever, and we're excited to be executing on this with powerful software. Three work streams are driving this transformation. The first is our work to deliver value to consumers with intelligent products. As we continue to accelerate sales of our existing intelligent products, bring new and intelligent products to the market and incorporate intelligence to all our products this year, we expect to surpass our 2022 goal of 100,000 Minim intelligent networks. Additionally, Q1 deferred software revenue grew to $832,000. Second is our work to deliver value to consumers with software regardless of where or how they connect to the Internet.

The first step on this journey will occur over the summer when we begin distributing the mobile app software with our cable modems. This addition will further differentiate our products on shelves and drug consumers into a more valuable relationship with the brand and the company. The third is our work to deliver value to consumers through innovative software upgrade features and product upsells initiated in our mobile app. On this front, in Q1, we became the first home networking product company to add live in-app chat support in the Moto Sync app powered by Minim. The new functionality has improved our customer support operations, reducing time to resolution of tickets by 35%. Up next, Nicole will give you a deeper glimpse into our product sales performance and we look ahead towards progress on software and intelligent product development during the rest of the year. Nicole?

Thanks, Gray. Our outperformance in sales growth from the prior quarter was primarily driven by a return to normal and retail orders. We were pleased to see this return to normal in Q1, illustrated by an increase of 110% of quarter-over-quarter sales in our largest retail channel. Our sales performance in Q1 was also supported by continued stellar performance in Amazon.

As Greg mentioned, we spent the quarter in the #1 position for cable modem and gateway sales are core categories with an estimated 40% market share according to a leading e-commerce data platform. In addition, our shift to direct sales on walmart.com in December 2021 is proving beneficial.

Since the beginning of the year, we grew sales by 44% and more than doubled our core categories market share from approximately 4% to 8% on a quarter-over-quarter basis. The walmart.com channel represents an estimated 5% in additional revenue opportunity, and it is a cornerstone for a deeper partnership with a value-driven retailer. Across all channels, our top-selling products continue to be our line of DOCSIS 3.1 modem and the MG8702 modem router, the latter of which was our first intelligent product to market as a combined company.

In all, we grew our cable bottom and gateway market share by an estimated 24% to 27%. Our average selling price increased on a quarter-over-quarter basis from $95 to $121 in Q1 2022, reflecting the introduction of our higher ASP products and pricing increases. As a reminder, our ASP takes into account the discount price sold to retailers and distributors. Taking a look at our minimum advertised price or MAP paid by consumers, our average increased by 4% in Q1 2022 from the prior quarter in our core categories in Amazon, while the channel saw an approximate 10% MAP increase from $149 in Q4 2021 to $164 in Q1 2022. We believe the industry's higher MAP reflects both consumer adoption of premium networking products and competitor price hikes.

With that in mind, we believe we have 2 opportunities ahead. First, we are in a good position to develop wider distribution of higher ASP products. Launched at the end of last year, our premium Wi-Fi 6 modem, router product sales were constrained by supply due to pandemic disruption. We have made progress to unlock production and expect to expand the placement of the Motorola MT8733 modem router this summer. Second, we are currently planning price increases for select products for the second half of the year to preserve gross margins while maintaining price competition. Now, let's turn for a few specific product highlights.

Last year, we increased the number of our software-driven intelligent products in our portfolio from 1 to 5. These 5 products offer a subscription to the Motosync app included with purchase, providing Minim a communication channel to form a lasting relationship with the customer. Included in these products are the Motorola MG-8702, a cable Minim gateway, that is one of our top 3 sellers as well as the Motorola MH-7600, our first Wi-Fi fixed mesh system.

On that note, our mesh category entrance has been more challenging than expected. Still, we're proud to have lessons learned and new strategies to forge ahead. We learned that out of the gate, it is less cost efficient to advertise in Amazon, our strongest sales channel than our core categories. We believe this is challenging, mostly due to the platform's competing product placements. This represents an opportunity to shift our marketing strategy to other channels, and our recently announced retail partnerships will play a key role here. In analyzing our marketing data and consumer surveying, we have confirmed that Motorola resonates more strongly than many competitors in mesh Wi-Fi. In other words, there's a lot of room to build brand awareness to the level that we have with our core categories. We are focusing on media reviews and Motorola customer loyalty programs to support our long-term sales strategy.

Finally, with our unique position in the Motosync app to chat directly with consumers, we are gathering offer feature requests to make our products even more compelling in the market. So why are we excited? At Minim, our core purpose is not to deliver hardware. We exist to help everyone do more and live better with connectivity. Like most modern consumer products, the hardware becomes a vehicle to deliver powerful and continuously evolving software. We are expected because the mesh Wi-Fi category represents a continued opportunity for software distribution in the context of our broader plan. As Gray mentioned, we are firing more cylinders to make our entire portfolio intelligence and offer feature upgrades. A couple of recent milestones include our recent blockchain invention, the launch of [inactive] support, which will become a premium feature for app-only users and just recently exceeding 80,000 Minim intelligent networks with the goal of 100,000 by end of the year, a milestone we now expect to hit early.

Looking ahead, we are focused on making all of our Motorola products intelligence and upcoming launches, the Motorola Q 11 and Motorola Q4 team. These products will challenge competitors in price and performance, and they're the latest cutting-edge Motorola designs. In [Motorola] and gateway categories, we have exciting upgrade announcements in the second half of the year with DOCSIS 4.0 development to follow.

Finally, let's walk through the business case related to our software transformation goals. The following scenario and pricing are illustrative. Today, a Motorola modem sold to a retailer for $123 represents an anonymous transaction where the unknown customers' lifetime value, or CLTV, to Minis is $123. Tomorrow, by bundling in Motosync with the modem for live support, that end customer becomes known to us.

If she has opted in for loyalty rewards, we know her name is Mary, and she would like to receive e-mail and text promotion. Through our continued outreach and app recommendations, she learns that she can save on a Motorola mesh system directly on motorolanetwork.com. That, in turn, quadruple our CLTV.

Further still, Mary decided that she would like to upgrade her Motosync app subscription to secure her phone activities everywhere with malware block and ad lock. In turn, we have grown our CLTV by 5x. I hope our investors share our conviction and excitement on this journey to form deeper customer relationships and deliver increasing value through software. I'll now turn to Mehul for a review of our financial results. Mehul?

Thank you, Nicole. A friendly reminder that the financials I'll cover are depicted in earnings presentation that has been posted on ir.minim.com. As described by Gray earlier, our net revenue for the quarter totaled $13.3 million, which is up 27% over prior quarter and deferred revenue increased to $832,000. We are encouraged by our revenue growth for the quarter and with the fact that it is up 11% or $1.3 million compared to pre-pandemic levels of Q1 '20.

That said, our first quarter net sales did shrink 11% compared to peak pandemic levels of Q1 '21. For the quarter, our gross margin came in relatively similar to prior quarter at 31.5%. Our gross margin continues to be above 30% despite the headwinds brought on by inflation and component cost increases, which remained stable year-over-year.

For the quarter, our net loss was $2.5 million or negative $0.06 per basic and diluted share. This compares with a net loss of $3.2 million or negative $0.07 per basic and diluted share in fourth quarter of 2021. For the quarter, our adjusted EBITDA was negative $1.7 million as compared to adjusted EBITDA of negative $3.1 million in Q4 2021. As Gray noted, we remain focused on improving these results and encouraged by the return of quarter-over-quarter revenue growth.

For now, I look at the balance sheet. At end of the quarter, we had a cash and cash equivalent of $10.5 million, a decrease of $2.5 million compared to prior quarter. The decrease in cash on a quarter-over-quarter basis was driven by investments in areas discussed during our capital raise, investing in inventories and R&D and sales efforts necessary to support our transformation. To that end, inventory decreased to $30 million at the end of the quarter compared to $32.5 million at the end of the year. We continue to monitor our production and inventory levels closely as we balance the risk of not having enough inventory to meet market demands against risk of having inventory levels that pursue pressure on liquidity. At the end of the quarter, we had outstanding payables of $8.2 million compared to $12.5 million at the end of 2021. As of end of the quarter, we had an outstanding debt of $7.1 million, which was drawn down on the company's $25 million line of credit. This compares to $5.1 million in outstanding debt as compared to December 31, 2021.

And finally, I'd like to close with a brief discussion on our stock value. As indicated in our April 27, 2022 filing, on April 25, 2022, Minim received a notification of NASDAQ that the company no longer meets the minimum bid requirement of $1. If the company does not regain compliance by October 24, 2022, the company may be eligible for additional 180 calendar days compliance period. On this front, the company intends to continue to monitor our stock price, build sustainable growth and corporate value through execution of its operating plans and engage advisers to consider available options. With that, I will turn it over to Gray to announce the timing for our Investor Day before we open the line for questions. Gray?

Thank you, Nicole and Mehul. And in closing, I would like to reiterate that I am proud of the company's ability to outperform for another quarter. We continue to focus on our software transformation and sustainable growth revenue to build increased value for our customers, the company and investors. Thank you for your attendance, and we hope to see you again shortly at our upcoming Investor Day, which will occur during the first half of June. The exact details regarding this event will be published on our investor website at ir.minim.com.

With that, operator, I'd like to open up the line for questions.

(Operator Instructions) Your first question comes from the line of Josh Nichols.

Yes. I was curious if you could provide any commentary about what you're seeing about the supply chain. Is that -- have those pressures been easing at all? Or has it gotten a little bit tougher to get some of the parts that you typically need, and it sounds like you're pretty comfortable on the inventory level, you don't expect to need to -- have to increase that level going forward?

Thanks, Josh. Yes. So we continue to -- as we said in there and continues to be on the headlines, we continue to monitor supply chain very closely. Our ops team has been very creative and strategic in the way that they've engaged in the issue over the last year. That continues to be the case. But shutdowns in China make it more complicated for component supply chains. And there continues to be a difficult environment in terms of chips.

And I think this is the reason why I'm pleased with our decision to build inventory last year because it was both helpful from buying it before inflation took kind of greater hold this spring and also as a hedge to the risk of no supply. So we continue -- as we said in the call, we continue to burn it down.

Some of that burn down will be because we're planning that, and some of it will be because we couldn't get it if we wanted to. In both cases, we feel like pursuing that strategy of managing down from that higher levels is going to be the one we'll pursue and will support our operations effectively. I don't know if that helps, but complicated and we're in a good position to progress.

And then typically, 2Q, I think normal seasonality is kind of flattish to down a little bit sequentially. Is that expected to be the case this quarter that you have a return to more normal seasonal patterns? Or is there anything else that would be impacting that?

Nicole, do you want to take that one?

Sure. Yes. So we expect it to continue as you've seen the seasonality, sure. It's pretty predictable in retail, the seasonality. So no changes there.

And I guess with the price increases and whatnot the company has implemented, do you think that you're going to be able to hold around the current gross margin levels, 31 or so percent that's effectively what you kind of average throughout the year last year? Or are there other puts and takes that could have a significant impact on the margin going forward?

Yes. And Nicole has done a lot of thinking about pricing, as you might imagine. Nicole, do you want to cover that one as well?

Sure. So one of the exciting things this time around in terms of pricing increases is that we are seeing a lot of competitor price hikes. And as I mentioned in the call, pretty significantly. So we have a lot of room here. That said, we are continuously tracking our competitor price business, and we will be pricing up against according -- not based on cost, but rather what the market will bear. And we are targeting maintaining our at least 30% margin structure. I will caveat, especially for my COO, who's listening that we -- it's a changing environment. Every quarter, we get updated information regarding the component costs. So it is a shifting environment. But right now, we are confident that we will be able to protect margins with pricing increases.

Great. And then last (inaudible) the company has been talking more about profitability. Clearly, a big focus in a tough market environment like we have here. What's the expectation for when the company will be able to kind of transition to EBITDA profitability. Is it fair to assume that 2Q will be another quarter of burn, but potentially a return to profitability in the second half as sales kind of ramp into the stronger seasonal period?

Mehul, do you want to take that one?

Sure, Gray. So thanks, Josh, for the question. So overall, when we look at the market and where we're headed in terms of our seasonality that you mentioned earlier, second half of the year does look -- as with the growth, we'll continue to monitor profitability as we continue to adjust for price increases, adjust for potential cost on where we go in. We're also going to take account for inflation adjustments that we're looking at as well that we're seeing in the market take place right now. But overall, we continue to be focused, and we believe you'll see the turn of the corner over the rest of the year and going forward.

Your next question is from Tim Savageaux.

And maybe this is a little far out, but in terms of scope, but do you think the company -- I mean should we be looking at 20% as a baseline for potential growth this year? Do you think the company will be able to grow relative to what you did in '21? You mentioned double-digit growth over Q1 '20, sort of pre-pandemic. Is that the way we should be looking at this? Or do you aspire to grow revenue this year relative to '21?

No. We aspire to grow revenue this year to '21. I think the way that we're -- the reason we referenced that is just because we want to kind of set the baseline, and I think indicate one of the things which we're most excited about, which is our performance compared to peers. We're excited that while in a market where not everyone grew, we grew significantly quarter-over-quarter.

And we think that momentum is really being driven by great performance online, great packaging, product positioning, great execution and then delivering more value with our products and really enriching our product set. I couldn't be more excited about the idea that all of our products will be intelligent by the end of the year. And it's really going to differentiate them on the shelf and online when people look at how to get the most value for their technology buck.

Okay. And then to follow up on that. I mean, obviously, you have seasonal tailwinds in the second half. I think you ran through a couple of new products on the Motorola side, rather quickly in Q '11 and '14. I wonder if you could talk a little bit more about new product pipeline into the second half that might help generate that growth.

Yes, sure. And I'll turn it over to Nicole for the answer on that one. And I'll ask Nicole, maybe talk not just about the hardware models that he was referencing, but also the software that we have planned for product.

Sure. So we are excited about the Q11 and the Q14 to start out with the hardware. These are our next generations of Mesh solutions. The C11 is an AX3000 product, so faster than our current MH7600 on the market, and it will be competitively priced. Our Q14 is super exciting. It's an AXE, which means Wi-Fi 6E product with 5.4 gigabits per second capacity to deliver Wi-Fi.

So it's basically a very, very fast solution, and it will also be priced extremely competitively. So super excited about that and both of those are coming this summer. Now of course, paired with that is the Motosync app and the Motosync app itself is -- right now, it's getting features to allow for a wider distribution on non-Wi-Fi products. So it will have features for modem users and legacy gateway users.

And then eventually, in the second half of the year, it is getting upgrade features, and we're looking forward to implementing our security feature set on any network. So essentially, you can take malware block and a block on the go. We are also looking forward to implementing premium support as a subscription.

So you can imagine having an IT pro in your pocket. So both of those are scheduled for the second half of the year and will represent a potential for additional revenue that's the -- growing the customer lifetime value excitement that we have over here.

Okay. And last question for me. Gray, you mentioned some announcements earlier this week and efforts on the part of the administration to increase broadband connectivity. Can you sort of review what the company's positioning is to maybe online with some of that and try and benefit from some of that activity?

Yes, of course. So the key thing is really that it continues to drive these trends that are our tailwinds. So when you get higher speeds at home, what you do on that network gets more important to you and the things that happen to get more complex. So you can imagine that it has been difficult for many Americans to do remote work if they have poor Internet quality at their house, right, if they have poor Wi-Fi.

And so you can imagine the 48 million people that present Biden referenced, they could be doing amazing jobs all over the country of the world. They could be doing -- at the low income levels, they could be doing customer support jobs. We have entry-level employees at the company that work remote and all of them have great Wi-Fi to do that. So you can imagine that this really unlocks the number of people that are going to start to earn and learn at home more actively. When that happens, that means that they're going to turn to say, "Okay, now that I have this pipe into my house, I need to start bringing more technology in to make that useful for me to go earn money.” And we really see that as an opportunity for us.

We are a premium value brand, which means that we can go all the way up and we can access -- we can use our brand to access at competitive price points and value different price points. And so I really think that puts not only the people that are in the business of connecting people for earning and learning in a good spot, but it also puts us specifically given our brand in a very good spot. And when you think about the fact that we can look at that customer lifetime value as a way to bring people into our -- or bring people into our orbit and then upsell them as we deliver more value over time, I think this puts us in a really good position. And specifically, with that group, that Biden is talking about connecting to what I view as really earning from home.

(Operator Instructions) Your next question is from David (inaudible).

Great. Let me ask a question. I spoke last quarter a little bit about my concerns about being -- delisting, so thanks for addressing those this morning. My other question is, when I see a stock reach these low levels, I'm curious if -- I know you have cash constraints and you're rightly concerned about inventory versus cash and a little bit the cash bleed. But I'm wondering, as individuals in the senior management level and maybe on the Board, if people aren't considering doing significant stock purchases because you believe in the future of your company to go ahead and that would be something that would be helpful for the investor base to know that you're invested in your company. So I'm curious if that's under consideration.

Yes. So I'd say we're considering options. I mean that's certainly been an active discussion at the Board, and I think we'll continue to be. In terms of purchasing, individual purchasing, I'll leave that for my colleagues to consider themselves. And obviously, we are subject to the blackout periods. But I think that's certainly something that we're actively considering to support.

Okay. That's good information because a lot of times I see companies shares running into trouble times. And so a lot of times, company folks will step in and go, I have so much faith in my company, I'm going to invest $50,000, $100,000, $200,000, some number of dollars to say I'm invested long-term in the company, and I don't really see that happening here. So that's a little bit of a flag for me, knowing where the price is at. So I look forward to seeing what happens in that area.

Yes, of course, and I will just note that I'm incredibly aligned with stockholders on this point. I invested $500,000 in the raise last summer until very aligned with excitement about the business and driving enterprise value.

That's good information. Thanks for sharing.

No further questions. You may continue.

All right. Well, thanks again for everyone for joining us this morning. And again, we look forward to speaking with you guys at our virtual Investor Day, which we'll release some details on around the first 2 weeks of June. So everyone, enjoy your morning, and we'll talk to you soon. Thanks. Bye-bye.

And this concludes today's conference call. Thank you for participating. You may now disconnect.