Minim, Inc. (MINM) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Zoom Telephonics Inc. doing business as Minim Q1 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like the hand the conference over to your speaker today James Carbonara from Hayden IR. Thank you. Please go ahead.
James Carbonara: Thank you and good day everyone. We appreciate you joining us today for Minim's first quarter 2021 earnings call. Joining me on the call today are Gray Chynoweth, Chief Executive Officer; and Sean Doherty, Chief Financial Officer. Following the prepared remarks, we will open the call to your questions and instructions will be given at that time.
Graham Chynoweth: Thanks James Well, great to be with everyone. Good morning and welcome to Minim's first quarter 2021 conference call. Let's get started on slide four. We entered 2021 on the heels of a successful merger between Zoom Telephonics and Minim Inc., and a rebrand of the combined company to Minim. This merger paved the way for a powerful combination of a proprietary AI-driven software and market-leading home networking hardware. Minim has a singular focus to make everyone's connected home safe and easy to use for life and work. As the holder of an exclusive global license to design manufacturing distribute Motorola branded home networking products. We stand out in the market with our advanced software driven networking products that empower end users with personalized and optimized their home connectivity experience. Turning your attention to slide five. I'm excited to discuss the momentum we have built in the first quarter of 2021. Minim delivered strong first quarter financial results. It was another record revenue quarter, our third in a row. We saw a 26% year-over-year increase from 2020. We also drove gross margin expansion on a year-over-year basis and on a sequential quarter-over-quarter basis.
Sean Doherty: Thank you, Gray. I'd like to direct you to slide 13 for a look at our revenue. As Gray stated, we recorded record revenue for the first quarter of $15.0 million, a 26% year-over-year increase. This marks our third consecutive quarter of record revenue growth. This growth continues to be driven by new investment in sales and marketing talent and a shifted focus to digital marketing, both of which have resulted in higher retail and amazon.com sales performance. Also contributing to revenue and profit margin is a climbing average sales price, which Gray spoke to earlier. Going forward, we are targeting a 10% to 20% lift to our average selling prices for bundled hardware/software products. Gross margin improved for the fourth consecutive quarter. For the first quarter of 2021, we reported a 34.0% gross margin, which represents an 810 basis point improvement compared to 25.9% in the first quarter of last year. This also compares favorably to the 32.8% gross margin recorded in the fourth quarter of 2020, a sequential improvement of 120 basis points. Gross margin improvements are being driven by an increasing proportion of revenues from software, as well as prudent management of various elements we set our cost of goods sold. Over the long term, and as we fully realize our software-driven product strategy, we expect our gross margin to normalize and expand. Please turn to the next slide for additional color regarding our revenue. We are introducing a key performance indicator this quarter, that is our revenue bookings. Bookings is a non-GAAP metric that we believe is important to understanding our business as we grow and shift our sales mix to include a larger portion of software subscription versus hardware only sales. Revenue bookings is our total recognized revenue, plus the changes in deferred revenue in the period. Bookings for the first quarter were $15.3 million, which includes the $15.0 million in recognized revenue that was referenced earlier and approximately $265,000 in deferred revenue, that was the result of software service sales that will be recognized as revenue ratably over the next 36 months. Importantly, our ratio of deferred revenue to recognized revenue for the quarter was 2%, clear proof that we are delivering on our stated merger goal of bundling software subscriptions into hardware products. As we build this deferred revenue from software subscription sales now available on two Motorola products and in upcoming products, we anticipate this ratio to continue to grow. Turning now to slide 15 for a look at some bottom line metrics. For the first quarter of 2021, our operating loss was $536,000, which compares favorably to an operating loss of $740,000 in the first quarter of 2020. This is a year-over-year improvement of $204,000. Sequentially, this compares to an operating loss of $2.2 million, which was inclusive of $1.3 million in non-recurring merger related expenses in the fourth quarter of 2020. Clearly, you can see the momentum that is building in our operating results. These improvements are due in large part to our continuing efforts to reduce our reliance on airfreight, the launch of our partnership with WPI relating to 5G research and our reduction in tariff expense exposure by shifting our production out of China and into Vietnam. Adding the below the line items of interest and other income and expenses, our net loss was $546,000 or $0.02 per basic share outstanding for the first quarter of 2021, which is approaching breakeven and compares favorably to a net loss of $752,000 or $0.04 per share in the first quarter of 2020. This is again a favorable comparison sequentially to a net loss of $1.2 million or $0.04 per share in the fourth quarter of 2020. These improvements are due in part to the reduction of non-recurring merger related and stock-based compensation expenses in the current quarter, but also to higher gross margins on a higher base of revenue. Quarter-over-quarter adjusted EBITDA also improved for the first quarter to positive $380,000 when normalized for non-cash items and deferred revenue compared with negative $449,000 in the fourth quarter of 2020. This $829,000 improvement was the result of a lower net loss based on the higher top line revenue, the improved gross margins, and the improved operational efficiencies I've just mentioned. Turning now to slide 17 for a look at the balance sheet. We ended the first quarter with cash and cash equivalents of $1.2 million, a decrease of $351,000 compared to $1.6 million as of the prior year-end. This change was due to our continued investment in inventory, both ahead of growth and as a risk mitigation factor to hedge against chipsets shortages. As a reminder, our cash balance for Q1 ending includes $800,000 of restricted cash related to prior period issuance of performance bonds for the payment of tariffs. Tariffs are fully paid as invoiced, and we expect these performance bonds to start being released beginning in mid 2021. Accounts receivable on a net basis ended the quarter at $8.6 million, representing a $2.7 million increase compared to the prior year, and is a reflection of the strong recent that has led to our continued top line revenue growth. Inventories were at $18.0 million at the end of the first quarter, an increase of $1.5 million compared to the prior year-end as a result of our proactive decision to invest in inventory to meet our projected demands and to hedge against those chipset shortages that we're seeing. As of March 31st, 2021, the company has outstanding debt of approximately $7 million, which was comprised of $60,000 related to a PPP loan after approximately $1 million was forgiven in Q4, 2020 and $6.9 million drawn on the company's $13 million line of credit. This compares with $2.5 million in outstanding debt as of December 31st, 2020, which was comprised of $80,000 related to a PPP loan and $2.4 million drawn on the company's credit line. Towards the end of the first quarter, we closed on our $13 million credit facility with Silicon Valley Bank that replaced our previous credit facility. This new facility more than doubled our previous capacity and gives us much more financial flexibility to invest in sales, marketing and the new product introductions that Gray discussed earlier to respond to consumer demand. As of the end of the first quarter, we had $7 million drawn on the facility and $449,000 in remaining availability. First quarter results set us off on a good start for 2021. With integration expenses behind us and consumer demand indicate future growth, we are on a trajectory to achieve profitability over the coming quarters. With that, we would like to open the call for questions. Operator?
Operator: At this time, there are no questions in the queue.
Graham Chynoweth: Awesome. Well, thank you everyone for joining us this morning. And as a reminder, we'll be presenting at the Sidoti Microcap Virtual Conference later this week on Thursday, May 20th. You can find details in our Investor Relations website ir.minim.com. We hope you can join us again then. If you have any questions, please contact Sean or our Investor Relations team. Thank you and have a great day.
Operator: Thank you. This concludes today's conference call. You may now disconnect.
