Good morning everyone and welcome to the Minim 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 touchtone telephone. To withdraw your question, 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 Carbonara, 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 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 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 Mehul Patel, CEO of Minim. Mehul, please proceed.

Thanks James. Good morning and welcome to Minim’s Q4 and full year 2022 conference call.

At midyear, we initiated a number of steps to advance our competitive position, improve working capital management, and better align our business with the realities of the consumer market.

As a result, we exited 2022 with a more robust ecommerce distribution channel, an 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 inventories that were stockpiled to combat supply chain risks. Fourth quarter revenue was up 1.4% year-over-year and down 23.2% sequentially to $10.6 million. Subsequent to year end, we initiated 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 reductions as well as reductions in professional services and other spend categories, we have better aligned the 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 sustainable profitability on an Adjusted EBITDA basis.

Across the market, we continue to see consumer preference on online purchasing but are maintaining our market-leading position on Amazon with 40% market share in the networking category. At the same time, we significantly expanded our ecommerce channel in 2022 with the addition of homedepot.com, officedepot.com, HSN [indiscernible] to name a few. Through the addition of these channels, we are reaching a wider audience and scaling our current product 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 wind 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 unlimited free-of-charge support for purchases, has been a drag on our margins and cash flow.

With the launch of Support+, 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 as we head into Q4.

Support+ will be available to app users beginning in June. The subscription service offers a greatly enhanced end-to-end customer support experience.

For an annual fee, users will have access to 24/7 tech support, priority queuing, and call-back requests.

Importantly, there are virtually no incremental cost to this service as investment in the technology is sunk and we are shifting resources internally from our ISP business to support this new offering.

Beyond this initial launch, our technology road map includes additional features for rollout in the second half of 2023.

Specifically, we plan to add network diagnostics and management, threat protection and [indiscernible] tools. 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 household.

We remain vigilant in our efforts to strengthen our balance sheet. Since the end of second quarter, we have reduced our inventory by 26% to $25.4 million and reduced accounts payable by 75% to $2.8 million at end of Q4.

We have achieved a maintenance level of accounts 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 the 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 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 at more favorable terms and reduces our overall financing risk.

We expect to execute a final agreement soon.

It is with 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 road map to create a new revenue stream, and further expanding our distribution channel, particularly ecommerce channels.

I will now turn it 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 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 cost increases.

Our net loss was $4.5 million for Q4 2022, or negative $0.10 per basic and diluted share. This compares with a net loss of $4.1 million or negative $0.09 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 $0.9 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.

Inventory 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 30, 2022.

As of December 31, 2022, we had $38,000 in availability on the credit line.

Lastly, on March 28, 2023, our shareholders approved 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 markets.

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. [Operator instructions]

Our first question today comes from Tim Savageaux 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 timeline and maybe a revenue level where you feel like that could be achieved, and whether that could be achieved in calendar ’23 here.

Then maybe somewhat related to that, as you look at the year ahead, do you--how do you feel about the growth prospects of the company in ’23 overall, and 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 Mehul. Thanks for the question, and let me get into it.

I think the first question was around workforce reductions.

The workforce reductions have already been implemented - they were executed and closed as of end of this quarter, so we anticipate the savings effective April 1 and go forward, including all the restructuring costs, have 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. 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+ in Q2, late Q2, and then the other solutions on top which will help us through 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 improve our hardware margins along the line as well.

In terms of growth of the company, we have a full year of our ecomm channels, maybe Wal-Mart, maybe Shopify, maybe Motorola, our direct sales to consumer that we have. 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 they inventory down 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 4 to 6 to 7 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.

We still have a few other accounts to close this year, but we still have the confidence that we’ll be able to get them done here in the near future as well, so those are all of the places where I believe they’ll help us grow with where we are on this year and next year--I should say last year to this year, sorry.

Got it. Well, with that in mind, following up and 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 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 levels were still embedded in Q1, as Mehul mentioned, so as we exit through Q1, we’ll see that improvement, but Q1 will 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 question, you may press star and two. Again, that is star and then one to ask a question.

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? What’s the time period--

Donald, thanks--I’m sorry, go ahead?

What’s the time period that you anticipate that possibility could happen?

Yes Donald, thanks for the question. Based on everything that we have done--you know, that 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 have also done everything in terms of product portfolio and the new revenue streams, which allow us to get higher gross margins, and remove some of the sunk cost that we would have with realigning our portfolio.

We’re doing everything in terms of trying to get there before end of the year, but that’s again something that [indiscernible] 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?

Our goal is still in the second half of the year right now, so to get there by second half of the year.

Thank you.

Once again, if you would like to ask a question, please press star and one.

Our next question comes from Charlie Lacario [ph] with GTM [ph]. 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 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 basically still marketable and sellable at current market prices?

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. I’ll let Dustin kind of chime in initially and then I can jump back in as well. Go ahead, Dustin.

Thank you.

Yes, 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. 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--and there’s a lot of benefits to the Motorola arrangement. They have--when it comes to manufacturing product, 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 an arrangement or a relationship that’s been beneficial to us as a company.

Yes, and I’ll add onto that - thanks, Dustin, and your other question was around anything about inventory being obsolete. Most of our inventory that we still have is good inventory and there is no end of life in near term from anything from the DOCSIS portfolio that we do have on hand. Everything is still valid in terms of the salable 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 it before end of 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 a required number that we want before end of this year. But again, I’m not worried about any obsolete inventory in the numbers.

Great, thank you for that, and the final question will be obviously you guys are still negotiating your loan structure. Do you feel that loan structure will take you guys through getting into cash flow positive as far as getting another capital raise? Will you need more capital going forward, or is that loan going to help you get through that mess?

Dustin, do you want to answer that?

Yes, there’s no consideration for a capital raise at this point in time. Obviously the focus of this business as we right the balance sheet and we right the P&L, the focus obviously and 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, and so obviously we’ve worked on our AP, we’ve worked on our inventory and we’re working on our cash balance, so it’s all coming to that one direction as we try to right our financial statements.

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

Thank you Charlie.

Ladies and gentlemen, we will 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.

Thank you.