WiSA Technologies, Inc.

Greetings. Welcome to Summit Wireless Technologies' fourth quarter financial results conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Kirsten Chapman from LHA Investor Relations. Kirsten, you may begin.

Thank you, Rob. Good morning, everyone. I'd like to welcome you to Summit Wireless Technologies' fourth quarter and year-end 2020 update call. With us today are Summit Wireless CEO and President Brett Moyer and CFO George Oliva. Before I turn the call to Brett, I'd like to remind everyone of the Safe Harbor Statement referenced in the SEC filings. The Private and Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during the course of today's call. Statements contained herein that are not based on current or historical facts are forward-looking in nature and constitute forward-looking statements within the meaning of the Section of 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements reflect the company's expectations about future operating results, performance, and opportunities. These forward-looking statements are based on the information currently available to the company and are subject to the number of risks and uncertainties and other factors, including current economic uncertainties associated with the COVID-19 pandemic, our ability to predict the timing of design winds entering production and potential future revenue associated with our design winds, our growth rate, our ability to predict Customer demand for future and existing products and to secure adequate manufacturing capacity. Consumer demand conditions affecting our customers and markets. Our ability to hire, retain, and motivate employees. The effects of competition, including price competition. Technological, regulatory, and legal developments. Developments in the economy and financial markets and others that could cause the company's actual results, performance, and prospects and opportunities to differ materially from those expressed or implied in the forward-looking statements. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the company's various SEC filings. I'm pleased to turn the call over to Brett Moyer, President and CEO of Summit Wireless. Please go ahead, Brett.

Thank you, Kirsten. And good morning. And thank you, ladies and gentlemen, for joining us on the call today. So we're looking forward to it. Hope we have some good questions, discussion afterwards. We did notice, because we are tracking shareholder growth through the Shracks Acquire program, there's about 1,200 new shareholders. So we'll do two slides of catch-up overview. And then there's a Good number of new slides in terms of performance and growth that I think you all find interesting Summit just as a catch-up for the new shareholders businesses one is the Core business developing technology selling chips modules IP for the wireless home theater space the other is the WISA standard now The WISA standard is the interoperability and the marketing of products that transmit and can receive interoperably between each other. And we have talked about WISA being more than 70 brands. The objective is to make sure a TV knows how to communicate to a speaker, a speaker knows how to communicate to an AV receiver, and that standard is maintained by WISA. This is a new slide for everybody. It may look similar, but it's fundamentally different. So if you think about when we IPO-ed a little more than two years ago, we had six speaker brands shipping WISA-certified products. This slide is not a member slide anymore. This is a slide that talks about brands that will be shipping in 2021 if they're not already shipping. And as you can see, it's going to exceed more than 25 brands. We have three TV brands, a fourth one and a fifth one we expect to come this year for the fall selling season. And we look at 25 plus speaker brands in the market for Christmas selling season. For the new shareholders, we see the mission here as making sure a consumer has a very simple way to install completely immersive surround sound around that smart TV. Thin TVs have the poor audio. Soundbar helps, so soundbar and subwoofer is better. But when you look at what Oasis has, and you look at, say, the Platinum or the Enclave price points, you're looking at $1,000 to get a complete home theater system that you can set up in 10 minutes. Most of that time is unpacking. And it's half the price of what the premium sound bars are going for by Sony Bose Sonos. So we think as the consumer becomes educated, there's a broad demand that will come around these price points. Three growth drivers now. One is SoundSend. That's pretty well vetted. A couple of new information on there. We're going to talk a lot about why it's a wave today. and then the next generation IP. Fundamentally, if we go to the SoundSense slide, you've seen this. It's a universal low-cost transmitter that can plug into any HDMI TV and transmit to all WISA-certified speakers. It'll set up the wireless home theater system automatically in a second or two. Question is, we did announce this in the fall. How's it being received? I'll tell you that we're happy with the demand on this for it, and the industry pros at CES awarded it three different awards, which is outstanding for a new product in a new category. All right, what's the mission of the wave? So, you know, the mission of the wave is to educate the consumer, both on that exists and the benefits, critically expand the category as perceived by the consumer and the retailers and the brands, and drive lower marketing costs for the brands that are shipping products. We think this is high leverage for us. We're putting a lot of effort in it, and we're going to talk a little bit about it. This on your left is one example of a WISA wave ad that we ran, right? It sucks people in by looking at a TV or sound bar, talks about some of the bigger tier one brands that are shipping product. You click on that, they come to a landing page. Now on that landing page, we generally run a good, better, best solution as defined by price points. So what this does is it creates in the consumer's mind a category. So for example, if you look at this one, there's an 899, uh, $14.95 and a $24.95 solution. And we can mix and match these, and we have put different brands in them. This is just the one example. Now, the advantage of having multiple brands is, A, it creates that category, which is important to WISA. B, it actually increases the consumer engagement to see three brands there and three different looking solutions versus one. So if a individual brand just ran an ad to looking at Enclave, well, that's the only thing that could pique their interest. But, like, in this case, what happens if you're in an apartment and you want a low-profile sub, which is what Monaco has, and you don't want a big sub like Clips or Enclave? Well, okay, you're still the WISA customer then. If you had just gone to Enclave, we might have lost you because you didn't want a big sub, and vice versa. There's a bunch of people who don't want a low-profile sub. So, B&L offer different looks, price points, audio solutions, creates that category image for the consumer. Now, the next 90 days, you'll see a lot of transformation on the WISA website to increase the engagement and leverage what we started to do in the fall. You'll see a new website come in. You'll see the ability of brands to launch and promote their new products. You'll see the ability of brands to increase promotions and giveaways to create engagement with the consumers. Each brand, as part of its association fee, will get a member page. So they can, although it'll have the top of it will look like the WISA website page, because it will be, everything on that content is defined by the brand and by their imaging and messaging. So great. Somebody like Enclave has two different tiers of products out. They might want to put both of them on there. They might just want to put the one they're doing promotion. A company like LG that has projectors, OLEDs, and nanos may want three sites, three different images, and talk about each one of those categories and allow the consumer to click off to their website. Or you can click off directly to a retailer. And that's important because you will hear us talk about and define what an authorized reseller program, right? So again, this is all about building that category, both in the consumer and the retail mind. And if you're going to be an authorized reseller, you're going to have three or more WISA products. You're going to have a trained specialist that can answer the questions from the consumer. So for example, you'd probably have on your page, your member page, you would have, you know, reach contact us for questions at WISA at B&H Photo or something, right? So we think it's important that we identify 10 or 12 key retailers that have both TVs and speaker brands, different price points, different brands, and they can educate the consumer. And we work intensely with those retailers to make sure their databases are set up properly. A consumer can type in WISA and get all their products, not some of them, depending who set it up. And so we'll be working heavily with that. And in the end, all of that should expand the consumer's awareness and education of wireless home theater and the WISA solutions. Traffic, this is an update to how we see the million visitors coming in this year. It is heavily tied to September through December. We see the first two quarters as growth certainly over year over year. So Q1 we think will be about 135,000. versus 34,000 last year. So that's up about 400%. But really, Q1 and Q2 is all about us focusing on bringing up all those initiatives we just talked about. So when it comes into Q3 and Q4, the brands know how to market to the WISA-educated consumer, and the consumer sees a broad category of products. Now, this is to give you a quick idea of how our analytics can help. a consumer brand directly market to their consumer. And first cost effectiveness that we can as association drive is cost sharing through the association fees, the identification of consumers interested in home theater. So you go out and you buy a million impressions, 98% of them are worthless, but you're going to get 20,000 people Those 20,000 people may like a low-profile sub, a big sub, a known brand, an unknown brand, an innovative brand. But how do we go back and remarket to them? So the analytics that we've developed over the last three months of the last year, we're able to let a brand go back to anybody that's visited WISA based on when they visited in the last six months, last 90 days, last 30 days, whether they visited from Europe or Brussels or Kansas, right? we can drill down to letting them remarket to people that click buy now from that landing page. We saw they went to Amazon. But the people that go to Amazon, one half of 1% buy a product, more or less. So there's still 99.5% that are engaged enough to get all the way to a reseller but need something else. So why not let another brand come back and remarket to them? You can remarket to somebody that's visited Why is it two or more times? Spent more than two minutes or five minutes on the website. We can drill down and give the brand the ability to even segment between the consumer and the audiophile engager. So if you came in and you looked at Bang & Olufsen and you looked at System Audio or Bouchard, those are audiophile speakers, right? And they're priced that way. But if you came in and looked at Platin or Enclave, We're going to categorize you as a consumer so that somebody that's trying to target a $1,500 or less price point product can go back and remarket to them. Requirements on the brands are very minimal. You've got to be paid current on your association fees. You need to use a WISA-certified logo in your ad up front, not at the end of a video. And there's no bashing peers. We're all a WISA family. All right, new products. This is a new slide, not necessarily a new product, but just to clear up what we're doing, the Platin product line is distributed by Summit in North America, not in Europe and Asia, but if that product's been certified by WISA, we are doing the distribution in the U.S. Now, we are in no way headed to being a speaker company. But we are using the Platin line as a critical component of the WISA wave to define the category and open up the category to more consumers. So without Platin, the lowest price point MSRP would be 1098 at Enclave. Now, Enclave has shared how the mix works between their $1,100 and $1,500 range. And that $1,100 opens a door and a very high percentage move to $1,500. That is the same objective with Platinum. Open the door to the $799 shopper, move them to $999. Move them from $999 to $1,198 and up the ladder. So the ODM had designed this product. It was shopped to several speaker companies. And we chose to pick it up because it opens that market to a broader consumer and feeds people up the ladder in the WISA category. Next, if we, because we believe in the wave and the critical leverage we get out of it, having our own brand to model programs around is critical too. for developing the right analytics to go back to the speaker brands and saying, this is what you should do, this is how you should do it, et cetera, right? So most of the data that we have today is around the Platin ads and the Platin products and the good, better, best ads. Now, you'll see us open up a store, and the reason we're open up in the store is so that we can sell some of that Platin direct, because when we sell it direct, we're able to actually identify the exact buyer. and the demographics of that buyer. And we can turn those, and then Facebook knows who purchased, not who clicked on a site, not who clicked on a landing page to go to a reseller, but who actually purchased. So this allows the media companies to target exact buyers, not shoppers, but buyers. So that's good for everybody in the YSA ecosystem for us to be able to refine the 90% males that come into the WISA site to, hey, these are the 10% that really buy, right, and remarket to them. And then finally, the critical point on Platin is we're a technology company that develops new wireless technology. We have another wave of technology coming out that we started launching in January. And WISA, the Platin line, will be an early adopter to prove to the industry that that it is successful. Generally, the pattern is, as a small company, you develop something, you shake and bake it, you spend a year to sell it, and then you watch your customer design it per year. We're shortcutting that cycle on the Gen 2. So we will move Gen 2 into a platinum product as fast as we can once we've developed and started shipping Gen 2. For the analyst modeling, I just don't see this being more than 10% of our revenue. It helps certainly a little bit here, but really this is a tool of the WISA wave and driving the overall category. All right, next gen. We have launched a 2.4 gigahertz Wi-Fi four-channel product to the smart market. We've got multiple customers evaluating it now. We are hopeful our IoT module manufacturer will bring out their 5 gigahertz, which is scheduled for Q3, which would allow us to have a full multi-channel, low-cost solution next year. Now, again, if you go back to, you know, two years ago in the IPO, you know, we had the Axiom Q, which is an AV receiver, Transmitter, $1,200. Axiom then brought up a 229 dongle, USB dongle, that transmitted for Xbox and Wiser Ready TVs. The SoundSend drops that another $50. It drops the Xbox cost, so you're at $179. Currently, the Platinum product line is evaluating a SoundSend USB. We mentioned TV brand four and five. There will be more brands shipping Wiser Ready TVs this year. And if you look at what happens if you move SoundSend to a USB architecture, you drop a painful Dolby tax, you drop HDMI royalties, and you lower the tariffs and overall costs. We think that would let a brand bring out a dongle at 99 to 119. And then if you look at next generation, There are three TV brands that have products built into them currently, or two, Bang & Olufsen and Skyworth. And, you know, that module is $13 to $16, roughly. That next generation is going to drop that cost by 80%. And so if you think about enabling the TV to go direct to wireless speakers, you're now getting into a very low single-digit cost burden. But not much more than maybe an HDMI cable to the consumer. Now, how does all this technology trend into, say, the lower end of the market, which is where the volume is? Two years ago, it was $9.99 was the lowest you could get. You'll see $8.99, $7.99, and we think with the next gen next year, you're in the $6.99, $7.49 price point. Now, those are consumer prices. We think our margin... continues to grow and expand with this evolution, but the market broadens even with the lower solution cost of the consumer. With that, I'm going to turn the call over to George.