FiEE, Inc. (FIEE) Q3 2022 Earnings Report, Transcript and Summary

Good morning, and welcome to the Minim Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to James Carbonara of Investor Relations. Please go ahead.

Thank you. Welcome to Minim's Q3 2022 earnings call. With me on the call are Mehul 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. 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 measure 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 Mehul Patel, CEO of Minim. Mehul please proceed.

Thanks, James. Good morning, and welcome to Minim's Q3 2022 conference call. Our third quarter revenue was $13.8 million, up 8% compared to Q2 of 2022. Revenue is boosted by Amazon Prime Day in July, which was up 53% from prior year Prime Day and continued success with our e-commerce channels. We started off Q4 with October Amazon Prime Day. Our gross sales for this event were approximately 50% of our Prime Day performance from July. Our performance for this event was consistent with other retailers, although lighter than we had hoped as consumer appears to be delaying purchases ahead of a more traditional start to the holiday shopping season in November. According to Amazon, over 100 million products were sold during this October Prime early access sales, but this was down compared to summer Prime Days when 3x more items were sold between July 12 and July 13. Across the markets, we continue to see consumer preference for online purchasing despite inflation concerns and retailers' best efforts to jump start the holiday shopping season in October. Pricing remains aggressive across our product categories as competitors seek to turn inventory. Regarding our cash and inventory position, we continue to execute our plans to reduce inventory levels by purchasing a small selection of product and focusing our program to recover return items rather than purchase new ones. We ended Q3 with $30.3 million in inventory, down from $34.3 million at end of Q2. And importantly, we carried that momentum into fourth quarter. We expect to reduce inventories to a range of $25 million to $27 million as we exit 2022 and reduce even further to low-20s as we exit Q1 into Q2. Our cash balance as of end of the quarter was $1.9 million. Cash was used during the quarter primarily to reduce accounts payable by nearly 40% from $11.4 million at the end of the second quarter to $6.9 million as of end of the third quarter. We ended the quarter with outstanding debt of $5.8 million, which was a drawdown of our company's $25 million line of credit. This compares to $5.6 million in outstanding debt as of June 30, 2022. As of September 30, 2022, we had $0.5 million in availability of the credit line. As we continue to reduce inventories and convert them to cash, we anticipate further reducing our accounts payable to a balanced maintenance level in $4 million to $5 million range by end of 2022. Heading into the year-end, we expect our cash balance to be plus or minus $0.5 million from September ending cash balance. Our commitment to software-enabled intelligent mobile product continues. We're advancing our product road map on the consumer side of the business to develop a whole stack software offering that will enable us to compete more effectively in industry and launch new streams of revenue and cash flow. Our plan also include offering for premium support, network diagnostics and management, threat protection and parental controls. Congruent with the strategy, we recently announced the wind down of our ISP business, which currently provides customers with unlimited and free of charge support for purchases. We plan to fully exit this business by November of 2023. Lastly, our mobile app is now paired to all our products, a deep factor for accelerating our growth. Subsequent to quarter end, we announced further expansion of our e-commerce footprint to include Lenovo.com. Lenovo now offers its customers the ability to pair Motorola home networking products with its world class PCs to achieve outstanding performance. The offering on Lenovo.com will include our top performers that feature cutting-edge technologies such as DOCSIS 3.1 and WiFi 6. Furthermore, the recently signed agreements with Office Depot, Staples and Newegg that provide further growth in our e-commerce channel starting in Q4. We're also in advanced discussions for opportunities to showcase our products across entertainment channels and placements with larger home improvement retailers. We successfully launched our new mesh products, the Motorola Q11 and Motorola Q14, first WiFi 6E products as planned in third quarter of 2022. Both products come bundled with our motosync app and sell at a higher price point, which will help raise our average selling price. We will recognize the finalist an Outstanding Use Case, Customer Experience category of the 2022 Leading Lights. The Global Communication Industry Award program run by Light Reading. The Light Reading award recognizes the industry's top companies and their executives for their outstanding achievements in next-generation communication technology. Applications, services and strategies and innovations. Minim was selective from hundreds of high-quality entries. Finalists are expected to be announced next week. Looking ahead, we are focused on prudent allocation of capital, executing on our product road map to create new revenue streams and expanding our distribution channels. No doubt the macro environment of our industry is challenging, but I'm confident in our strategy and the team to execute it. Now I'll turn to Dustin for a review of our financial results. Dustin?

Thank you, Mehul. 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 quarter totaled $13.8 million, which is up 8% over the prior quarter and the per revenue increased to $1.3 million from $1.1 million in the prior quarter. Our third quarter net sales benefited from the Amazon Prime Day in July and continued success with our e-commerce channel. For the quarter, our gross margin was 22.3%, up from 19.7% in the prior quarter. Excluding onetime costs, our gross margin continues to approach 30% despite the negative impact from inflation and component cost increases. Our net loss was $4.1 million for Q3 2022, or negative $0.09 per basic and diluted share. This compares with a net loss of $4.4 million or negative $0.10 per basic and diluted share in the second quarter of 2022. For the quarter, our adjusted EBITDA was negative $3.2 million compared to adjusted EBITDA of negative $3.4 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 $1.9 million, a decrease of $2.8 million compared to the prior quarter. The decrease in cash on a quarter-over-quarter basis was largely driven by paying down $3.6 million in accounts payable and accrued expenses. Inventories decreased to $30.3 million at the close of the quarter compared to $34.3 million at the end of the second quarter. We continue to monitor our production and inventory levels closely with the focus to reduce inventory levels at 3 to 4 turns per year. We ended the quarter with outstanding debt of $5.8 million, which was a drawdown on the company's $25 million line of credit, this compares with $5.6 million in outstanding debt as of June 30, 2022. As of September 30, 2022, we had $0.5 million in availability on the credit line. Lastly, on October 25, 2022, we received a 180-day extension from NASDAQ to comply with the minimum bid price requirement of $1. We continue to monitor our stock price and can consider options to secure the listing requirements before the April 24, 2023, expiration. That concludes my financial remarks. With that, operator, I'd like to open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from David Tokos [ph], Private Investor. Please go ahead

Hi, good morning, everybody. Thanks for the update. I appreciate it. I'm an individual investor. I do own a lot of shares. I do pop on to these calls. My major concerns are lack of revenue growth in light of all the initiatives that you've taken, so that's a little concerning. And I'm worried you're going to run out of cash, so I'm kind of curious why – how you project the cash bleed next quarter to be less than this quarter? I'm kind of curious to know about that. I know you did pay down some payables. And then I'm terrified that the future could – would consider a – that you all would consider a reverse split, which every time I have been a party to those as an investor, I've gotten crushed financially. So I'm hopeful that is not an option that you'll do because I've lost every time. So if you guys could address those, I would be grateful. Thank you.

Dustin, do you want to take that?

Yes. Good morning, David. I appreciate your concerns there. Understandably, we know where you're coming from. So as a company, obviously, I guess, first address your revenue growth question. We are – we have been continuously negotiating new contracts with new customers. Those customers, obviously, it takes some time to ramp up the sales path, but we do expect to generate – start generating more substantial revenues with those customers and then as we go into 2023. And then at the same time, too, as it was announced, we're looking another revenue stream that we don't have that. So think about the software subscription license model. Today, we don't have that in place, right. That will provide additional cash, that will provide recurring revenue, so that's a model that is more valuable to the company as we – let's say, obviously, as we pivot, and we design our strategy around how we – how do we go to the bid. Two, I think as we – as you talked about the cash, if you look at our balance sheet, we do have $30 million of inventory still on hand. That inventory is still viable product subject to obsolescent. We will continue to bleed down that inventory. We're not going to be buying some large amounts of inventory as we had – initially had done in the prior year. So we will be generating cash, converting that inventory to cash. That will help to finance the company itself. And then as we get into 2023, we have the new revenue stream as well as the new customer base. We now start to supplemental in the – our cash balance.

Yes. So David, I'll jump in on that so well. So just – good question on the revenue expansion and what we're trying to do. So the sales team on our side has done an excellent job from our top 2 sides. One is around e-com channel. We continue to be the #1 market share for our categories on Amazon and also continue to excel in the other places that we have started to invest. And from a brick-and-mortar side, you've got to remember, from a retail side, there is cyclical things that happen for every retailer. It doesn't matter which one it is. So winning a new channel, it does take anywhere between 3 to 4 months is earliest and also there's a call on a spring reset. So you – once you miss one, you have to wait for the next cycle. So that's one thing. But it's great that we know that we have locked in on the 3 or 4 different opportunities at this point to allow us to expand that growth and going into next year. And as Dustin mentioned, the things that we're doing around making sure our resources are more aligned to consumer solutions going forward. As we mentioned just on the call a few minutes ago versus ISP support, where we're trying to wind down allocate our resources to enable us to provide some of the more software services that we want to continue to start to monetize over that we're not doing today, and allow us to be more of a higher – leveraging our resources to do that. So between those 2 alone, allows us to grow our sales channels that we don't have today. The other question that you had around cash burn, of course, that's going to be a number one focus for Dustin and myself and the executive team on the Board. What we've been doing is to make sure we, as I mentioned, even on the call, that there is no additional purchases, there's a limitation of purchases only buying high volume products or NTI and continue to burn down the $30 million of inventory that we have. I think I even mentioned that we expect that to be in the mid-20s, so that should be in the range of 25% to 27%, so we should get additional cash generation from that and also from going into Q1, continue to burn that down further. And that's been a focus – and continue to purchase as less as possible. So continue to maintain AP and turn that inventory into cash. So I think we feel pretty confident in that execution from our team and that's going to be our #1 goal to make sure we do so. And your third question around the reverse stock split. The Board has the options in hand. We did get the extension, as Dustin mentioned, to go out to April of next year. So we're going to continue to look at those options between now and then, and we'll announce definitely well in advance in terms of what the decision is from a Board standpoint to move forward with any of those options.

Thank you. Thank you. One, the last question is because the stock price is right around $0.21 give or take, today $0.22 maybe, as the company thought about, if you all are so upbeat about matters. And I suspect you all have investments in the company so I'm not picking on anybody for a lack of investment, but I thought with the stock price so low, if you all are so upbeat in the company's future, why the Board or senior management doesn't initiate their own stock purchases to bolster the price because – and I'm not exactly sure what the float is. I know there's about $46 million outstanding, but I don't know if that's the float or is the float some lesser number where if you all bought a couple of million shares of stocks, it's $0.20 to $0.30, $0.40, even if the price gets driven up, why would you all be considering that? And then I also – I did talk to James about it, but there was a day where I don't know, I don't remember how many shares traded in the last 60 days, I think, 12 million plus or minus shares traded in the stock price went to $0.38. And James thought maybe it was an algorithm thing, but I'm not an expert to be honest. So I would be kind of curious if anybody else had thought on that trading day, but also the fact that with the price so low, and it sounds like with the drop in – you're dropping the inventory, you're managing the cash that are probably in the next quarter or two or so, will make your way, hopefully, to profitability. I mean, I think that's key to driving the stock price. And I know that April deadline kind of looms, I don't remember if there was any other extensions with the SEC to buy – can you buy another six months or is that the last six months, but thoughts I'm kind of curious on that matter.

Yes. So good question. So first and foremost, yes, like I said, the options on – some of the investment discussions has been in front of the legal and Board conversation. So we have had those conversations when you're in a blackout, you can't really invest in it, but we are looking into it as well as ourselves, myself Dustin and a few other senior members as well, along with a few Board members. So you'll see something turn around, hopefully in the next few months and see what we can do. The other portion of the – the other question you had was around the other options that we have of an extension. We're looking to see what the extension is. Again, we just executed on an extension, I want to say, 2 weeks ago. So we're going to continue to see what the next conversation with the NASDAQ. But for now, I think we have enough review to go and decide on those options that we have in play right now.

Okay, great.

Thanks, Dave.

The next question comes from David Grohl [ph], a Private Investor. Please go ahead.

Yes, hi. Good morning.

Good morning.

First, I just want to say that I totally share the concerns of the other David, who just asked his questions. I've been a shareholder for over 5 years, and they also have an incredible number of shares in the company. And coincidentally, my organization development consultant with many companies, and so with that, that will be the frame for my question. And that is, I mean, I get the tactical plan for the company, and I think – I look forward to it. And I'm wondering, if it were 3 years from now and the company has achieved great success. What do you see happening? If you were standing 3 years in the future, what would you tell me that happened that led to the company's great success? And what would be happening at that time? That's usually the question that I start off with when I lead a 1- to 3-day retreat with management. And it can take 3 days to answer the question. So I know I might be putting you on the spot, and it's not my intention to do so. But as you look out to the future, where do you see Minim?

Yes. No, great question. So look, it's not the first time I'm not being asked that question. So I joined this company a little bit over, I want to say, 8 months ago at this point and being in the CFO and CEO roll, I was asked this several times. And where do you see yourself taking this company and coming from the – from where I come from, from my background in this industry for many years, there was something that attracted me to this business, and it continues to be my focus on this business, which is we're no longer just the hardware business, right, where – which is what Zoom Technologies before Minim acquisition was. We are something that allows us to get into every household with the heartbeat that we have in every household that we serve. So right now, with our software development that we have in play, now that we have integrated our software onto all the devices, as we mentioned back in August, allows us to play into that deal that we weren't allowed to – we didn't have access to before. And to me, having a revenue generation above hardware because right now, our customer lifetime value is just our hardware sale, and it stops. But when you go and build that relationship with the end consumer, and provide them throughout their household and be able to manage their household with them and show them what we can do and make them secure, make sure they feel it's easy to use software on top of that, and at a nominal fee, which we're not charging today. So that's something that we're – we mentioned even on the call that, that's been our goal into – going into next year, and you'll see in the second half of the year probably as early as second quarter that some of those things are going to get executed and allow us to generate revenue and a reoccurring stream that we don't have today. Now what percentage of that will be? That's one thing. So that's one part of the growth path, which allows us to sell a full solution that we don't have today, right? We have it. We offer certain things free, but we want to put a robust feature out there that allows us to compete with all our competitors and allow us to offer similar solutions and will make it price competitive. So that's one thing. The other part is we're dominantly in a retail market today, we are not in any other market. So allows us to grow in footprint in places that we're not in today. And that's going to be a really good challenge going into next year. We already started to have conversations with companies and folks that allows us to grow in areas that I really don't want to get into right now, but it's definitely a place that we don't have today. So that's second part of it. We're not in anywhere in any of the other countries today where we can take our product and scale it, and that's going to be the next evolution of this place. So it being just in U.S., there are places where we should be able to take our products and to see how we can scale it and grow the – just get the gross margin dollars rather than go chase an investment down, and it doesn't mean we won't chase an investment down. And at the same time, we go execute and review and see what opportunities are out there above and beyond what we're doing today. 2, 3 years from now that allows us to be successful in other areas that we're not in today, may be in a different country now with the right investment allows us to generate products for that region because as you can see, we're nowhere in Europe, we're nowhere in Asia today or Latin America. So it allows us to see if there's a possibility to go and review those business cases and opportunities and build our footprint that we don't have today. So as you can see, we're just a U.S.-based hardware allows us to grow into software, allows us to grow into distribution channels across the globe, allows us to grow in the different regions with different product portfolios as well. So there's massive growth opportunities that attracted me – when our first shot here and I'll continue to have that focus and so does the team. And Dustin and myself and the executive team and us, they all have the same focus, and I'm pretty confident on the strategy that we have laid out that we just got to show and execute over the next few quarters, and you'll see that start to play out.

Okay. Well, that sounds great. And I remain hopeful. I haven't sold any of my shares. And I just want to mention, I remember a slide when the company was Zoom and it showed distribution channels around the world at the time. And I don't remember if they were hoped for or whether they were actually occurring. I think many of them were actually occurring around the world. And whatever happened to those?

Yes. So I wish I can step that and David, I'd love to have a separate call to see if you – I'd love to have you me and James get together, be more than happy to go back and look and see what happens. But I can tell you at that time, Zoom was in a little bit of – I guess, that's why they merged with Minim at that point. But I'll go back and look at it and see if I can get you an answer.

Question about the vision, you...

I'm sorry, I broke out there.

Thanks for taking my question.

No worries. Thank you. Thanks for – again, thanks for being a long-term investor as well.

Okay.

The next question comes from [indiscernible] with GTM. Please go ahead.

Hello, there. Thank you for taking my call and I want to congratulate you guys on all your hard work over there. I know you're in a very competitive marketplace. Just I have a few simple questions. Hopefully, you can give some clarity on them. The first one is our relationship with Motorola. I know you guys have a contract with them to use their name. I believe it expires in 2025. And I know you have to give them a royalty every year. Could you give a little bit more color on the royalty that has to be paid to them? And what – how your relationship with it is going forward? And what do you expect after 2025 on that?

Dustin, do you want to take that?

Sure. You're correct about that. So the royalty agreement goes through December 2025. We do expect that we'll extend that contract, we have had a great relationship with Motorola. We've succeeded well with their expectations. The structure of that agreement itself today provides for a minimum royalty payment. And then once we get to a certain revenue level, we start paying them more incremental royalty rate. But again, too, that relationship has been very healthy. We do expect to renew that when that time comes. And obviously, it has been a great value to us as we try to introduce our product into the market, and we feel that we can as we expand and have our other initiatives, we feel that the Motorola name will give us even more value.

Great. Another quick question is your patent protection. I noticed you guys, obviously, everyone out there has the same modem. I mean you gone Amazon, you can see our model we had 7 of them comparing the same modems, different prices, less price, more price. I know you guys have applied for certain patents. I know there's a couple of pending. How do you guys feel going forward with your patent protection as it stands right now as far as what you have out there in the marketplace? Because it seems like everything is generic as far as I can see.

Yes. So we continue to develop our technology. And if there is patents that we have to apply – we're pretty aggressively doing some and based on what we are today. And I don't see that is stopping to do continue to evolve into different technologies. As we – it won't be just a hardware patents that we're worried about. We're also developing software patents, doing things around software, which is our key play. So maybe hardware, if there is no patents or there is patents who have to review as we go and invent the next-gen products. But our goal is to continue to make sure we aggressively file for those patents along with the software side of the world as well, not just the hardware side, which is what you don't see a lot with some of our competitors. It's mostly hardware side.

The next question comes from [indiscernible]. Please go ahead.

Hi, good morning. Thank you for taking my call. My question is, I haven't seen a 10-Q out this morning, and I was wondering, if there's any going concern from the auditors?

So we plan to file that on Monday. So it's a decent order right now, but we're just going to go through a couple of internal reviews before we finalize the 10-Q itself. Yes, we will have – just because the going concern measurement looked at a period of 12 months from the data filing, if you look at our Silicon Valley Bank line that itself expires November 1 of next year, so it's less than 12 months. And just given where our balance sheet position is at right now, and the timing of the filing itself, we will have to put some type of going concern language into the document. However, at the same time, too, we're working through certainly breaking to negotiations to extend the terms of that for kind of Silicon Valley Bank line. So we don't expect to see that going concern or that matter being publicized in our 10-K once we release the 10-K sometime in Q1 of next year.

Bank line in consideration of your inventory that you have on hand, is that what they're holding as a credit?

Yes, both accounts receivable and a portion of our inventory.

Okay. And then my…

Yes, it's not 100%, it's some portion of it is, as Dustin said, and I have the confident that will get the extension place well before or early in the quarter.

Okay. And then my second question is, have you ever considered diversifying your portfolio or maybe getting into some type of bitcoin router?

Look, I'll take that. So that's a good question. We thought about it at one point when that market was hot. But given where we are, I want to make sure the team is focused on executing to our road map and our strategy we have laid out, which is to make sure we continue to role our hardware products that we have on the road map along with the software, which I said we want to make sure we roll out the full solution. And once we roll out the full solution will allow us to have the reoccurring revenue will be the key for us to be the step 1 to make sure how we can grow this company as a whole. And we'll look at any other opportunities at that point, but that's not on our road map right now.

This concludes the question-and-answer session. I would like to turn the conference back over to Mehul Patel for any closing remarks.

Thanks again. Thank you for all the questions from all the investors and for long-term investors and even on short-term investors for all the faith and believing in the company. And I can tell you, the goal for us is to show and execute between myself, Dustin and the senior team on Minim, and we're looking forward to showing you how we can execute that in the first half and continue to grow this company to where we can take it to next. So thank you for all your support and wish everybody a happy Thanksgiving coming up and holidays, and we'll talk again soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.