Datavault AI - Q3 2023

Transcript

Operator (participant)

Good day, and welcome to the WiSA Technologies third quarter 2023 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 touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. And now, I would like to turn the conference over to David Barnard from LHA Investor Relations. Please go ahead.

David Barnard (SVP)

Thanks, Marlise. As a reminder, this is the third quarter results conference call for WiSA Technologies. With us today is Brett Moyer, CEO and President. Before turning the call over to Brett, I'd like to remind everyone that today's conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our filings with the SEC. WiSA assumes no obligation to update any of these forward-looking statements, except as required by law. With that, I'll turn the call over to Brett. Please go ahead, Brett.

Brett Moyer (President and CEO)

Thank you, David, and thank you, ladies and gentlemen, for joining the call today. Today, we will not be going over the financials. We filed the Q last night. If you have questions on financials, I'll take those during the Q&A. But, you know, 60 days ago, at the end of July... 90 days ago, at the end of July, we launched the WiSA E module, which is a major four-year milestone for the company. So what we're gonna focus on today is what happened in the next 90 days. So what did we do in July or August, September, October, and I think you'll find that we really had tremendous success in the launch and getting this product out into the market. So we'll just go through two quick slides if there's new people listening to the webcast.

You know, WiSA is about wireless audio, spatial audio. If you look at what the Dolby and Xperi or DTS are doing, they're trying to bring in elevated audio as well as front, back, rear, side audio, traditionally, the home theater stuff. So WiSA's role in it is to make sure that we can get whatever audio is being decoded by the TV or the AV receiver or a smart device to the speakers, all the speakers, make sure they're in sync with the video and in sync with each other, so you have a truly immersive, flawless, wireless audio.

The other role WiSA does is we have a WiSA Association, which is designed to make sure that when a product says WiSA or WiSA E on it, the market knows, the consumer knows that that product will work with any others, that it's interoperable. And we think that's a very important thing. It's important to the speaker companies. It's important to all the audio companies, as well as if you're a smart device, a phone or a TV, you wanna know that the consumer has options to listen to the content on your smart device, and it works with multiple brands. So that's the crux of it. Historically, we've had really premium audio brands designing and shipping our products. Right? But today, let's talk about WiSA E. So we had launched WiSA with custom chips.

A lot of IP, took us a while to develop, but as we've talked about in the last several years, our goal was to get to a software-based technology that can be loaded onto low-cost Wi-Fi chips, whether they're 2.4 GHz, 5 GHz, can be loaded onto smart devices without additional hardware. And with that launch at the end of July, we now have a full suite of WiSA E products to go out and talk to customers about. We have the WiSA DS module, which is on the Espressif Wi-Fi IoT module that handles up to four channels, and we'll talk about a soundbar that launched with that last week. We have the WiSA E modules, which is what we sampled at the end of July, and that includes the software that can be also loaded into a smart device directly to transmit to speakers.

Right? So let's talk about the soundbar that was launched last week. It was previously announced, and we started shipping customers, is the Platin Audio 5.1.4 Milan soundbar. We have talked for 18 months now that one of the great things about DS is it can handle five audio channels, and it can give you the ability to have Atmos speakers at a very low cost in the rear of the room. So you got left rear, you got audio coming from the left side, from the right side, and audio going up above you, hitting the ceiling, and coming back down to give you that truly immersive sound. So when you look at the Milan 5.1.4, you got two rear speakers that are also two ceiling speakers, and you have a soundbar that's adding two up-firing speakers.

So there's really four speakers sending audio to the ceiling. There's a total of 10 speakers or six going directly at ear level where you're sitting. So the combination creates a truly immersive sound. Now, if you go out and look at some of your tier one audio companies, Samsung, LG, the soundbar guys, Klipsch, you'll see these type of products selling at $1,200, $1,800. This product is being launched at an MSRP at $799. It has a launch promo at $699 right now, and for anybody listening to this call or reading the press release today, you have 48 hours to go to platinaudio.us and enter promo code WiSA E to test this audio system out.

So we think it's a great demo for investors to understand WiSA E and how does it work, what's the quality of the audio that's being wirelessly transmitted. We think it's a great audio product, and we're offering that 48-hour opportunity for people to test it. But you have to go to platinaudio.us and enter WiSA E for the promo code. All right, WiSA E. So a month ago, give or take, we announced a licensing, a free license from the associations to any members, to TV and display members, so that's TVs and projectors. We think that we thought that was an exciting idea. We have spent the last four weeks presenting to TV guys. We'll go through some of the stats, but why did we do that? Because TVs are extremely sensitive to their bill of materials cost.

It's a highly competitive market, and by offering the transmit software to TVs for free, it creates a lot of use cases for them. It doesn't matter whether it's these, a low-end TV, a high-end TV, a gaming TV, or a projector; they all have less audio than what most consumers desire. So by having a free, free WiSA E embedded software to transmit to speakers, it opens up a lot of use cases. So it can go. The TV could go straight to the soundbar. That would eliminate all the HDMI cables, or it can go another level, and since the TV decodes audio and the soundbar decodes audio, you have the ability to go directly to the soundbar or speakers and eliminate the cost of decoding and the electronics in the soundbar.

We think that could drop $25-$50 off of the retail price of low-end soundbars. Some of what the response we got are TVs, particularly, this is true in the China brands, is they'd like to just simply get a left and a right stereo speakers around their TV with a subwoofer to get that better sound, but at a low cost. So that's a great use case. Headphones, you know, for elderly people that have a hard time hearing, for gamers that don't want to wake up the whole house, there's no reason the TV can't use WiSA E to stream directly to headphones designed with WiSA E.

Or more sophisticated TVs, which, you know, if you look hard, you'll see them in the U.K., but a lot of the TV companies are looking at it, of adding speakers in the top of the TV as well as the bottom of the TV, which is where they are today, traditionally. So the Atmos is coming out of the front of the room to the ceiling from the TV directly, or, and if you have WiSA E, then you could add Atmos speakers just like that soundbar we walked through, and subwoofers for the back of the room, right? So... Or you can make combinations any way you want. So we, we thought a month ago, by offering this opportunity, it would give the TV guys a great opportunity to start thinking about different design applications that serve their customer better. So why WiSA E?

There's other not as dominant or not as sophisticated technologies. Well, as we talked about, the program we now are offering is a zero cost to BOM, right? We have the high audio channel counts that we can support Dolby Atmos. We have interoperability between brands. We have a speaker ecosystem, and would maybe not be completely transparent to the average investor, most TVs have two or three SoCs that they use to cover their whole product line. So one of the advantages WiSA E has is you can implement it at your low end, at your mid-range, or your high end, and whatever audio products, whether they're soundbar, speakers, subwoofers, you design, it'll work across all your TV line. And finally, as we talked about, we think WiSA E creates the opportunity to lower prices on audio products by eliminating the duplication of audios in soundbars and TVs.

So what's gone on since we launched at the end of July? We've had more than 60 meetings, presentation, demos across 30 companies. So frequently, this means we've gone back 2 or 3 times to some of the bigger companies to make sure the audio divisions, the TV divisions, the technology approval people are all going through and reviewing WiSA E or testing WiSA E and demonstrating WiSA E. Right? We have met 13 brands specifically around the licensing opportunity that we announced 30 days ago. We've met with 13 of them. 7 of them are currently reviewing the licensing agreement right now. We think this is great progress by the sales team and the WiSA Association to so quickly have 7 brands reviewing our license agreement.

Then finally, the final milestone for people trying to track our progress is we've shipped more than 85 development boards for WiSA E modules to let brands test, develop, et cetera, on WiSA E, and that's worldwide, all regions, for consumer electronics. Finally, we think there's gonna be a lot of press coming up at CES, just before, just after CES. But we will say that one of the big things is we will show a tier one TV brand with WiSA E embedded in it, streaming, using just our software, two speakers, right? We think that's a fundamental milestone that'll excite the industry. We think all these meetings we've had will drive executives into the WiSA booth, and that'll, we'll have a very successful CES, and we think all this activity will impact 2024's revenue materially.

So with WiSA E, we've talked a lot today about the TV being able to go to audio speakers or soundbars or even smart speakers, right? We think that's important. But as you look forward into 2022, I'm sorry, 2024, you'll see more and hear more about implementations and expansion of the technology to allow WiSA E to be on phones or tablets, as well as the TV, reaching all audio devices. So we're excited about the response over the first 90 days. There are companies that are starting to design with the WiSA E module. We think it materially impacts our 2024. We think there's quite a bit of use cases that'll be demonstrated and announced both at CES and in 2024. There'll be TV partnerships, speaker partnerships, and strategic partnering as we go through the first half of next year.

So finally, this slide, if you've watched us, is very similar, but look, we have a very strong IP position. We have WiSA E complete enable. We can talk to and engage customers at every level, whether it's the low-cost 2.4 solution, DS, whether it's the embedded solution and the direct implementation. We've got an established speaker association that is unparalleled in the industry, and there's 30+ brands that have designed and used WiSA technology historically. That really is partly driving why we've had so many meetings quickly. We're not launching WiSA E into a vacuum as a new company. We've launched WiSA E in three different flavors, three different cost points into an established customer base of WiSA. And with that, operator, I'd like to open up the call to questions.

Operator (participant)

Thank you. We will begin the question-and-answer session. So to ask a question, you may press star then one on your touchtone phone, and if you are using a speakerphone, please pick up your handset before pressing the keys. And 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'll pause momentarily to assemble a roster. And we have a question coming from Jack Vander Aarde from Maxim Group. Jack, please go ahead.

Jack Vander Aarde (VP and Senior Research Analyst)

Thank you. Good morning, Brett. Thanks for the update. Good to hear WiSA E and the new product launch is on track. You know, a couple questions on financials, obviously, but, and on the outlook. Let me start on the WiSA E and some of the stats you discussed, just to try to understand things a little better. Okay, so you had 60+ meetings for the WiSA E so far, across 30+ companies, and I'm gonna zero in on the seven display brands that are reviewing licensing agreements. Can you maybe just, just to start, explain at a high level what the licensing agreement process kind of is or whatever you think, however you think it might play out? How many stages are involved? What's kind of the timing of this?

And then what does it mean from a, from a potential revenue and revenue ramp perspective? Thank you.

Brett Moyer (President and CEO)

Okay, so... Let's go one level higher, Jack, to the 13 and the TV display companies we've talked to, right?

Jack Vander Aarde (VP and Senior Research Analyst)

Sure.

Brett Moyer (President and CEO)

So this truly has covered all the primary TV companies, whether they're Chinese, Taiwanese, Korean, Japanese brands, right? We've covered them all. The licensing program, in terms of a process, you know, first we have to demo, offer the program. The program is specifically driven around WiSA interoperability. So if you're willing to transmit a WiSA E interoperable signal, then we are offering a free license to the TV display companies, right? If you're not willing and you want to use our technology to only transmit to your brand, then there's a pricing discussion around that. Because as our mission has been historically, it's to build a global interoperable brand... that works both with audio and display devices, right? So you have to be a member of WiSA.

There is a limited time to join WiSA, and there's a limited time to sign the membership agreement, or if you're a member, to sign the addendum to the agreement that gives you the right to use WiSA E in your display device. Right. From an economics perspective, we'll make our money off of the modules, right? WiSA E modules, whether they're going into soundbars or speakers, et cetera, right? From a timing perspective, there are a couple TV brands that are pushing to try to implement in 2024. But I think the majority of the TV brands, if they implement, will be 2025, 2025 modules. Now, the TV brands are not the only ones that are implementing WiSA E, so that's why we mentioned that we think materially, WiSA E will impact 2024, right?

So you can have media servers, you can have speaker companies, you can have soundbars. All those people move faster. But what's being worked on in the TV brands right now are the—it's primarily the 2025 product line. Now, our engineering team has come up with what we think is a genius solution. If you wanna just use four channels, which is great for rear Atmos speakers, or is great if you wanna, like the Chinese companies are talking about, put just stereo and subwoofers around the front of the room in their TV. That, we think, is capable of being implemented onto the 2024 product line and is a 90-day-ish type implementation timeline.

Jack Vander Aarde (VP and Senior Research Analyst)

Okay, great. Okay, got you. So a couple different... Okay, those are some important nuances for sure. So revenue - okay, so it's - you still expect a pretty strong push from WiSA E in 2024 from a revenue line. Probably not so much from the TV guys right off the bat, but - but these are all important drivers at the funnel, it sounds like, bigger picture-wise. But you do think you'll have some revenue coming in from WiSA E, maybe in the fourth quarter or at least in the first half of 2024. Is that correct?

Brett Moyer (President and CEO)

I think you can anticipate, mid-year, so right at that Q2, Q3 timeframe for WiSA E to start impacting revenue. Probably from your position, you'd want to model it as a Q3.

Jack Vander Aarde (VP and Senior Research Analyst)

Gotcha. Okay, that's, that's helpful. And I don't wanna, I don't wanna—I know it's not official guidance or anything like that, so I just wanna make sure I have a general directional idea. It's good to hear, though, Brett. Okay, let me shift gears then quick, just some nuts and bolts, kind of, housekeeping, financial questions.

Brett Moyer (President and CEO)

Yep.

Jack Vander Aarde (VP and Senior Research Analyst)

So in terms of the revenue, the revenue guidance that you provided from last quarter or a couple quarters ago, your revenue for the third quarter exceeded your expectation, it seems like. That's, that's good to see. Now, you provided fourth quarter revenue guidance of $1-$1.4 million for the fourth quarter, and then for 2024, you at one point provided $10 million-$15 million of revenue, which may have had some impact from the potential pending acquisition of Comhear Inc. So just, just wondering, A, what, what can you—can you just reiterate or review kind of what your expectations are now, or if that guidance still holds true for the fourth quarter and for 2024?

Brett Moyer (President and CEO)

Right. So the $10 million-$15 million on the full year was two conferences ago, and that was with Comhear in our P&L. All right? And I think I said baseline was $5 million for each, and each company was targeting $10 million, so that put us in the $10 million+ range. Right? So that was that guidance.

Jack Vander Aarde (VP and Senior Research Analyst)

Okay.

Brett Moyer (President and CEO)

Regarding Comhear, we are still active with them. We think there's a good synergy. They are wrapping up their strategic customer, and that's the trigger for us to get to a final definitive agreement. All right? From a quarterly perspective, Q3 was stronger than we expected. Some of that I would anticipate coming from Q4, but clearly Q4 is the holiday season, right? So the next five weeks are the big sales weeks for the Platin line, and we just launched the soundbar, which really is a stunning product and an amazing value for that type of price point, any one of those prices I showed earlier.

So as that rolls out, we expect that to positively impact both traffic coming to WiSA and building the awareness of WiSA itself with consumers, as well as driving some additional revenue for us.

Jack Vander Aarde (VP and Senior Research Analyst)

Gotcha. Okay. So just, just to review fourth quarter, though, you, you still expect a seasonally strong quarter. Is the guidance range still true, or are, are we, do you expect the quarter just to be stronger than the third quarter?

Brett Moyer (President and CEO)

So I think, if the consumer does the right thing, it gonna be in the target of... In the range of Q3, right? So because we did pull in some revenue from Q4 into Q3, effectively.

Jack Vander Aarde (VP and Senior Research Analyst)

Gotcha. Okay, that's helpful, Brett. And then if I move on to just, gross margin, which is obviously, it, there's an explanation covered in the press release, in the 10-Q. But just trying to get a read through on kind of your expectations then, from an analyst perspective, more or less. So what are you expecting there for, like, the four-- just in general, do you expect kind of more of a normalized gross margin, or do you expect kind of a similar, result, I guess, in the near term until the WiSA E licensing kind of kicks in next year?

Brett Moyer (President and CEO)

Yeah. So the gross, you know, there's, there's good news and the bad news of the gross margin, so let's just put those pieces together. The assessment of the, you know, 60-odd meetings that we had, we think more designs in the audio file space are going to get implemented in, in WiSA E versus WiSA HT, WiSA HT. So that's one of the reasons we modified our inventory reserve on it, right? So, you know, bad news, we took the reserve. Good news is we took it because, we're getting very strong feedback from the technology evaluations on WiSA E. Right. From a-

Jack Vander Aarde (VP and Senior Research Analyst)

Mm-hmm.

Brett Moyer (President and CEO)

audio product perspective, we think they'll continue in the low teens. Our mission there is convert inventory to cash effectively, versus margin, because as we look into Q3 and Q4, it's all about WiSA E products. So, you know, we only market audio products like a soundbar or speakers to drive consumer awareness around WiSA HT and to demonstrate performance of our technology with the consumer to potential customers of ours, which is, you know, particularly example of the soundbar, right? So I think, as you look at speaker margins, it's probably the high teens, through Q2.

Jack Vander Aarde (VP and Senior Research Analyst)

Gotcha. Okay. That's helpful to know. And, yeah, it's cash. Cash is king, right? So that's, that makes sense there. Okay, Brett, if I have any more, I'll, I'll, I'll let you know, but I'll hop back in the queue. Thanks for the update.

Brett Moyer (President and CEO)

Yep.

Operator (participant)

And again, if you would like to enter the queue and ask a question, press star one. And since there are no further questions at this time, I will turn the conference back over to Brett Moyer for some closing remarks. Thank you.

Brett Moyer (President and CEO)

So I'd like to thank everybody for joining us either today or on the webcast later today and tomorrow. I would like to remind you that WiSA E is launched, and the first product that we can offer to you, to the consumers directly is the soundbar, the 5.1.4 Milan soundbar. And there's a great opportunity to get that just ahead of Christmas at $649. If you use WiSA E as a promo code at PlatinAudio.us. That's my commercial, but thanks for joining. Appreciate it.

Operator (participant)

This concludes the conference. We thank you very much for attending today's presentation. You may now disconnect.