Good morning, and welcome to the Minim third quarter 2022 financial results conference call. All participants will be in 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, then one on a touch-tone phone. To withdraw your question, please press star then two. 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 was boosted by Amazon Prime Day in July, which was up 53% from prior year's 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 consumers appear 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 its October Prime Early Access sale, but this was down compared to summer Prime Day, when 3 times more items were sold between July twelfth and July thirteenth. 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 positions, we continue to execute our plan to reduce inventory levels by purchasing a small selection of products 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. Importantly, we carry that momentum into fourth quarter.
We expect to reduce inventories to a range of $25 million-$27 million as we exit 2022 and reduce even further to low 20s as we exit Q1 into Q2. Our cash balance as of the 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 the end of the third quarter. We entered 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 have $500,000 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 balance maintenance level in $4million-$5 million range by end of 2022. Heading into the year-end, we expect our cash balance to be ± $500,00 from September ending cash balance. Our commitment to software-enabled intelligent mobile product continues. We're advancing our product roadmap on the consumer side of the business to develop a full 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 offerings 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 2023. Lastly, our mobile app is now paired to all our products, a key 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 performance that feature cutting-edge technologies such as DOCSIS 3.1 and Wi-Fi 6.
Furthermore, we recently signed agreements with Office Depot, Staples, and Newegg that provide further growth in our e-commerce channels 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 Wi-Fi 6E products, as planned in third quarter of 2022. Both products come bundled with our Moto Sync app and sell at a higher price point, which will help raise our average selling price. We were recognized as finalists in 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 selected 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 roadmap 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 IP 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 channels. For the quarter, our gross margin was 22.3%, up from 19.7% in the prior quarter. Excluding one-time 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 -$0.09 per basic and diluted share. This compares with a net loss of $4.4 million or -$0.10 per basic and diluted share in the second quarter of 2022. For the quarter, our Adjusted EBITDA was -$3.2 million compared to Adjusted EBITDA of -$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 a focus to reduce inventory levels at three to four turns per year. We ended the quarter with outstanding debt of $5.8 million, which was a drawdown on the company's $25 million-dollar line of credit. This compares to $5.6 million in outstanding debt as of June 30, 2022. As of September 30, 2022, we had $500,00 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 consider options to cure the listing requirement before the April 24th, 2023 expiration. That concludes my financial remarks. With that, operator, I would like to open the line for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then one. Today's first question comes from David Tokos, Private Investor. Please go ahead.
Hi. Good morning, everybody. Thanks for the update. I appreciate it. I'm an individual investor. I don't own a lot of shares. I do pop onto 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. I'm worried you're gonna run out of cash, so I'm kinda curious how you project the cash bleed next quarter to be less than this quarter. I'm kinda curious to know about that. I know you did pay down some payables. I'm terrified 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.
I'm hopeful that is not an option that you'll do because I've lost every time. If you guys could address those, I would be grateful. Thank you.
Dustin, you wanna take that?
Yes. Good morning, David. Appreciate your concerns there. Understandably, we know where you're coming from. As a company, obviously, I guess first address your revenue growth question. 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 start generating more substantial revenues with those customers in the next, as we go into 2023. At the same time too, as it was announced, we're looking at other revenue streams that we don't have today. Think about the software subscription license model. Today, we don't have that in place. That'll provide additional cash, that'll provide recurring revenue.
That's a model that is more valuable to the company as we let's say, I would say, as we pivot and redesign our strategy around how we go to market. Too, I think 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 as a product, but subject to obsolescence. We will continue to bleed down that inventory. We're not gonna be buying large amounts of inventory as we had initially done in the prior year. We will be generating cash, converting that inventory to cash. That'll help to finance the company itself.
As we get into 2023, we have the new revenue streams, as well as the new customer base, and that will start supplementing our cash balance.
Yeah. David, I'll jump in on that as well. Just, you know, a quick question on the revenue expansion on what we're trying to do. The sales team on our side has done an excellent job from a. I'll talk from two sides. One is around e-com channel. We continue to be the number one market share for our categories on Amazon and also continue to excel in the other places that we've started to invest. From a brick and mortar side, you got to remember from a retail side, you know, there's a cyclical thing that happen for every retailer, it doesn't matter which one it is. Winning a new channel, it does take anywhere between three to four months at earliest, and also there's a fall and a spring reset.
Once you miss one, you have to wait for the next cycle. That's one thing. It's great that we know that we are locked in on three or four different opportunities at this point to allow us to expand that growth and going into next year. As Dustin mentioned, you know, 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 the ISP support, where we're trying to wind down, allocate our resources to enable us to provide one of 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, you know, more of a higher leveraging our resources to do that.
Between those two alone, you know, allows us to grow our sales channels that we don't have today. The other question that you had are on cash burn. Of course, that's gonna be a you know, a number one focus for Dustin and myself and the executive team on the board. What we're been doing is to make sure we, as I mentioned even on the call, that there was no additional purchases. There's a limitation on purchases, only buying high volume products or NPI, 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 25-27.
We should get additional cash generation from that and also from going into Q1, continue to burn that down further. That's been a focus, we've done, you know, and continue to purchase as little as possible. Continue to maintain A/P and turn that inventory into cash. I think we feel pretty confident in that execution from our team. That's gonna be our number one goal to make sure we do so. You know, the third question around, you know, 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. We're going to continue to look at those options between now and then.
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. The last question is because the stock price is right around, you know, $0.21, give or take, today, $0.22 maybe. Has the company thought about, you know, 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 lack of investment. 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 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 a float or is the float some lesser number where if you all bought a couple million shares of stock, it's 20 to 30, 40 cents, even if the price gets driven up, why would you all be considering that? I also 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 shares traded, and the stock price went to $0.38. James thought maybe it was an algorithm thing, but I'm not an expert, to be honest.
I would be kind of curious if anybody else had thoughts on that trading day, but also the fact that with the price so low, and it sounds like with the drop in inventory, you're dropping the inventory, you're managing the cash better, 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. 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? I'm kinda curious on that matter.
Yeah. Good question. First and foremost, like I said, the options on some of the investment discussions has been in front of the legal and board's conversation. We have had those conversations. You know, 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. You'll see something turn around, hopefully in the next few months and see what we can do. The other portion and the other question you had was around, you know, the other options that we have of an extension. We're looking to see what the extension is. Again, we just executed an extension, I wanna say two weeks ago.
We're gonna continue to see what the next conversation is with Nasdaq. For now, I think we do have enough breathing room to go and decide on those options that we have in play right now.
Okay, great.
Thanks, Dave.
The next question comes from David Grau, a Private Investor. Please go ahead.
Yeah. 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 five years, and I also have an incredible number of shares in the company. Coincidentally, I'm a organization development consultant with many companies. With that would be the frame for my question. That is, you know, I mean, I get the tactical plan for the company, and I think, you know, I look forward to it. I'm wondering if it were three years from now and, you know, the company has achieved great success, what do you see happening?
You know, if you were standing three years in the future, what would you tell me had 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 one- to three-day retreat with management. It can take three days to answer the question. I know I might be putting you on the spot, and it's not my intention to do so. You know, as you look out to the future, where do you see Minim?
Yeah, no, great question. Look, it's not the first time I'm asked that question. I joined this company a little bit over, I wanna say, 8 months ago at this point. Being in the CFO and CEO role, I was asked this several times, and where do you see yourself taking this company? Coming from, you know, from where I come 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 a hardware business, right? Which is what Zoom Telephonics before Minim acquisition was.
Mm-hmm.
We're something that allows us to get into every household with a heartbeat that we have in every household that we serve. Right now with our software development that we have in play, you know, now that we have integrated our software onto all the devices, as we mentioned back in August, allows us to play into that field that we weren't allowed or we didn't have access to before. To me, having a revenue generation above a hardware, because right now our customer lifetime value is just our hardware sale and it stops.
When you go and build that relationship with the end consumer and provide them, you know, throughout their household and be able to manage their household with them and show them, you know, 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. That's something that we mentioned even on the call that that's been our goal going into next year. You'll see in the second half of the year, probably as early as second quarter, that some of those things are gonna get executed and allow us to generate revenue and a recurring stream that we don't have today. Now, what percentage of that will be? That's one thing.
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 wanna put a robust feature out there that allows us to compete with all our competitors and allow us to offer similar solutions, and we'll make it price competitive. That's one thing. The other part is we're predominantly in a retail market today. We are not in any other market, so allows us to grow our footprint in places that we're not in today. That's gonna 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, you know, I really don't wanna get into right now, but it's definitely a place that we don't have today. 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 gonna be the next evolution of this place. With being just in U.S., there are places we should be able to take our products and go see how we can scale it and grow them, you know, just get the gross margin dollars rather than go chase an investment down. Doesn't mean we won't chase an investment down.
At the same time, we go execute and review and see what opportunities are out there above and beyond what we're doing today, two, three years from now, that allows us to be successful in other areas that we're not in today. You know, may it be in a different country, 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. 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. 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 into different region with different product portfolios as well.
There's massive growth opportunities that attracted me, you know, when I first got here, and I continue to have that focus and so does the team. You know, Dustin and myself and the executive team and us 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, you know, and I remain hopeful. I haven't sold any of my shares. Just wanna mention, I remember a slide when the company was Zoom, and it showed distribution channels around the world at the time. 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. Whatever happened to those?
Yes, I wish I can speak to that. David, I'd love to have a separate call to see if you know, I'd love to have you, me, and James get together, be more than happy to go back and look and see what happened. 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. I'll go back and look at it and see if I can get you an answer.
About the vision.
I'm sorry, you broke up, Dave.
Thanks for taking my question.
Oh, no worry. Thank you. Again, thanks for being a long-term investor as well.
Okay.
The next question comes from Charles Lacario with GTM. Please go ahead.
Hello there. Thank you for taking my call, and I wanna congratulate you guys on all your hard work over there. I know you're in a very competitive marketplace. Just, I have a few couple simple questions. Hopefully, you can give some clarity on them. The first one is your relationship with Motorola. I know you guys have a contract with them to use their name. I believe it expires in 2025. 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 how your relationship with them is going forward, and what do you expect after 2025 on that?
Dustin, you wanna take that?
You're correct about that. 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, then we start paying more incremental royalty rate. Again, too, that relationship has been very healthy. We do expect to renew that when that time comes. Obviously, it has been a great value to us as we try to introduce our product into the market.
We feel that we can, as we expand and have our other initiatives, we feel that the Motorola name will help give us even more value.
Great. Thank you. Another quick question is your patent protection. I noticed you guys. Obviously everyone out there has the same modems. I mean, you go on Amazon, you can see your modem. You got seven of them comparing the same modems, you know, different prices, less price, more price. I know you guys have applied for certain patents. I know there's a couple 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? I mean, 'cause it seems like everything's generic as far as I can see.
You know, we continue to develop our technology, and if there is patents that we have to apply, you know, we're pretty aggressively doing so and based on where we are today, and I don't see that stopping to continue to evolve into different technologies. It won't be just the hardware tech patents that we're worried about. We're also developing software patents, doing things around software, which is our key play. You know, maybe hardware, there is no patents or there is patents. We'll have to review as we go and invent the next gen products. 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.
Which is what you don't see a lot, with some of our competitors. It's mostly hardware side.
The next question comes from Tim O'Malley with Cass Investment. 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.
We plan to file that on Monday. It's in decent order right now, but we just got to go through a couple of internal reviews before we finalize the 10-Q itself.
Okay.
We will have just because the going concern measurement looks at a period of 12 months from the date of filing, if you look at our Silicon Valley Bank line, that itself expires November first of next year. That's less than 12 months. 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 negotiating to extend the terms of the Silicon Valley Bank line. 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.
Now, is that 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.
Yeah, it's not 100%, it's only a portion of it, as Dustin said. I feel confident that we'll be able to get the extension in place well before our 2024.
Okay. My second question is, have you ever considered diversifying your portfolio and maybe getting into some type of Bitcoin router?
I'll take that, Dustin. No, that's a good question. We thought about it at one point when that market was hot. Given where we are, I wanna make sure the team is focused on executing to our roadmap and our strategy we've laid out, which is to make sure we continue all our hardware products that we have on the roadmap, along with the software, which I said we wanna make sure we, you know, roll out the full solution. Once we roll out the full solution, will allows us to have the recurring revenue, will be the key for us to be the step one to make sure how we can grow this company as a whole. You know, we'll look at any other opportunities at that point, but that's not on our roadmap right now.
This concludes our question and answer session. I would like to turn the conference back over to Mehul Patel for any closing remarks.
Good. Thanks again. You know, thank you for all the questions from all the investors and for long-term investors and even on short-term investors for, you know, all the faith and believing in the company. I can tell you the goal for us is to show and execute, between myself, Dustin and the senior team on Minim. We're looking forward to, showing you how we can execute this in the first half and continue to grow this company to where we can take it next. You know, 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.