Good day and thank you for standing by. Welcome to Minim's Second Quarter 2021 Earnings 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. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Mr. James Carbonara from Hayden IR. Thank you. Please go ahead.

Thank you. And once again, welcome to Minim's Second Quarter 2021 Earnings Call. With me on the call are Gray Chynoweth, Chief Executive Officer; and Sean Doherty, 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 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 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 second quarter 2021 conference call. If you're following along with the deck available on ir.minim.com we're getting started on slide 3. 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 4. It all begins with our vision. We believe the simple single-purpose router must go the wave of the mobile phone. They 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 and is a globally recognized Motorola brain, a Minim trademark in leading US retailers over 140 ISP service providers, and now to SMBs. We operate in a massive and expanding market for high-performance WiFi 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, WiFi 6, WiFi 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 5, you'll see today, I'm joined by Minim's, CFO, Sean Doherty, who will be speaking later on in the call; and President and CMO, Nicole Zheng, who will be available for questions…

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 optimization. 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 remained 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 a material reduction in the use of airfreight. While gross margins continue to be positively impacted by an increasing proportion of…

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 accelerate, 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.

[Operator Instructions] Your first question comes from the line of Josh Nichols.

Yeah, hi. Thanks for taking my question, and good to see some strong operating performance out of what is typically a seasonally slower period. You, kind of, hit on it briefly, but you have a couple of significant tailwinds coming on in the second half with like India and some new product launches. Well, you haven't provided specific guidance. 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?

Well, good morning. Thanks, Josh. Yes, I would say that for the year, we continue to see that strong growth rate especially in Q4 we will really get the benefit of the products much more of a benefit of the products coming to the market. 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. Maybe, I'll ask Sean for you to weigh in on those as we look to those. They're exciting for us because they're higher ASP products and carrier software which has great gross margin implications. But Sean, do you want to speak to those. And I also 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 on the call.

Sure. Yes. Again, thanks for the question Josh, and thanks for listening in. I would just kind of double tap on what Gray just said with the new product introductions that we have slated for the second half of the year and all of those come 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.

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, bringing incremental software value to the market by additional MRR for security or data management.

Sure. So we are launching three new products in our WiFi 6 family. The Motorola AX1800 Mesh, which is our first WiFi 6 Mesh system. We'll be rolling out one pack, 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.

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 $1 million 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 say 12 months or so in deferred revenue software sales?

Yes. I think I would say just to start off and 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 we have I think, 20 products in market and only a limited number of those happens after on it. So when Nicole talks about those three products and as we talk about bringing every new product we're working to bring to market it's going to have software on it. As those kind of come in, 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 look ahead?

Yes, I would agree with what you just said Gray. So 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. I expect to see deferred revenue continuing to become a more material 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 just – I expect as each new product comes online and we start making sales to see a step function in deferred revenue.

Thanks. And then last question for me. Good to see the company is expanding out of North America. I know very early stage to 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 margins. Could you elaborate on that a little bit, please?

Yes. So I'll speak to this and then happy to have – again, happy to have Sean, you or Nicole weigh in on this one. Sean…

I'll hop in.

Okay. Great. Yes. Well, if you want to – I mean you did spend a fair bit of time thinking about this, especially because we launched Amazon, Nicole, if you want to give the first direct response.

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 road map to find some lower ASP or trying prime to 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 WiFi 6 products into these countries using primarily Amazon.

Thanks. I’ll pass it and chime in someone else can ask the questions.

Your next question comes from the line of Tim Savago [ph]. Please go ahead.

Hello and good morning. I had a couple of questions. First is kind of a little high level on end market dynamics, and to what extent you see the following factors was 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 for 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 and overall Wi-Fi capability regardless of speed here. As you look at those three factors, 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 end markets are growing right now?

So, I guess I'll say -- and just to make sure I tracked you, you talked about growth being driven by new subscribers, upgrades and connection speeds and just general upgrades and Wi-Fi connections. So, those are the three things you mentioned?

Yes. And feel free to add to that, but I felt those could be some pretty important factors in determining overall growth on the CPE side.

Yes. 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 US. I think it's really about the technology life cycle upgrade and about the combination of increased speed and increased needs. So, I think that the only one that you didn't mention there was the increase in what people are doing from home and how that's just going to be consistent and persistent, right? I think as people -- we enter into this, let's say, the second year and maybe we'll end up with people learning from home this fall and a way they don't expect. 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, 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 -- that's going to drive people to want faster speeds, bigger pipes and all of that's going to down to our benefit. 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 in the US, I think that we have a lot of room to grow even if subscribers growth slows. And then, 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, a massive, just massive amounts to grow and it's really driven by our execution in getting products to market. We 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 are all -- those three trends you mentioned are correct. But then, also the live or learn trends that are going to persist, and I think become just a fact that have changed the way that people interact with the network, which is going to drive both -- all three of those at a more fundamental level.

Yes. Let me just double tap on that. So, at a high level, the upgrades is really a matter of -- in 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 -- for example, in India purchasing a router through 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 the -- 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.

Great. Thanks. And my follow-up is kind of more on the ISP side where you'd mentioned, you have over a 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 asked this in the context of both the recent infrastructure bill as well as the art off, I know you mentioned Connect America in your presentation. But there's obviously a lot going on in terms of government rural broadband subsidies across a range of technologies fiber wireless cable and whether you're starting to see an impact from that activity? And what sort of opportunity you could see for the company upcoming?

Yes, I mean I would say we have seen an impact certainly customers are getting -- benefiting from those investments. And we're excited to be there to support them. We certainly do that customer base is biased towards challenger ASPs. We're very excited to be at that show with the Whisper America Show coming up here pretty shortly when we're going to be launching that Connect America Fund compliance speed-test compliance feature. I think that is -- we're very excited about it. They're benefiting from it and we're seeing them starting to make the commitments and we're excited to see more of that investment coming around. I think everyone kind of goes to my point earlier about everyone's living earning and learning at home. It's a -- oftentimes, you'd rather go without power than without Internet. So, having that brought -- having better speeds reach more Americans it's 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, we see not only supporting kind of challenger ISPs, ISPs in the US, but we see it as part of our mission to work with people globally right to bring more individuals online, make more connected home safe and supportive for lean work. So -- and that's getting a lot of -- Facebook has obviously a great incentive to get more people online 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 the next billion homes online; and be the software that's there Nicole mentioned that not only are we well designed to work on mineral hardware but also on microchip hardware in the US and around the world and third-party hardware. But working to bring low ASP hardware and having software that will work there, so that we can get those -- those homes using our software build that relationship with them and generate continued value for those consumers and for the ISPs to serve. Nicole, I don't know if you have any other comments you want to add to my perspective on that?

Sure. So the competition is great for us competition amongst ISPs in the US 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, 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 WiFi solutions. So it's a great time for us to be right there.

Great. Thanks very much.

[Operator Instructions] Your next question is from Keith Ross [ph]

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 Wiley in July and you reported a balance sheet at June 30. 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 Gray, you personally participated in that deal as well right?

Yes I did. Yes. I bought 200,000 shares. And Sean, you just want to speak to how much we added, how much between 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?

Sure, sure. So net proceeds from the offering $22.7 million. And then, the disposition of the trademark assets that Gray just mentioned is letting us another $4 million. So, clearly, liquidity has been improved quite a bit since that 630 [ph] balance sheet that you were referring to. And I would say that, we're targeting to have somewhere in the neighborhood of $22 million or so $21 million to $22 million of cash on the books at the end of Q3.

Yes. And just to comment on kind of what we're doing with some of that cash. We were in the raise -- one of the reasons that we went out to market is, I always believe there's a -- 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 of a line with Silicon Valley Bank, we were not able to optimize Amazon inventory in Q1 or Q2. In Q1 that cost us $1 million in top line. In Q2 would cost us around $750,000 in top line. So we're excited to put some of that capital to work alongside that operating -- the operating capital facility we have with -- the credit facility we have with 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. But is that helpful?

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?

Yes, 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.

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 these other ones that you've highlighted? At what point do you -- are you sort of in all of them versus some of them?

Right. So there are actually a couple of thousand retailers in the US, and we're in about a handful so up to 20, let's say. So we have 8% market share of all retailers according to NPD research data. So a lot of headroom to grow there both in our debt as well as –

Sorry, Nicole, I meant, penetration in the existing retailers. Are you carried in all of the Best Buys? Are you carried in all of the Home Depots?

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 where the third, as far as market share goes. I believe that's between 30% to 40% of – 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 are – we typically end up number three to ARRIS and NETGEAR in retailers and our sales footprint can range anywhere between 10% and 30% in any given retailer.

Thank you. So that sounds like you've got a lot of tailwinds. I appreciate it.

At this time, there are no additional questions. [Operator Instructions] There are no questions at this time. I would like to turn it back over to management for closing remarks.

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 Sidoti Conference coming up. And always – as always keep an eye on ir.minm.com for our calendar more information about the company, and always feel – feel free to reach out to James. We love talking with all of our stakeholders, our future stakeholders and I appreciate your time this morning. Thanks so much.

Thank you. This concludes today's conference call. You may now disconnect.