WiSA Technologies, Inc.

Q4 2021 Earnings Conference Call

3/11/2022

spk01: Yeah, I'd say we start at 8, because you've got to read the Safe Harbor Act anyway.
spk02: Yep. Here we go. Greetings, and welcome to the Weiss of Technologies, formerly Summit Wireless Technologies, fourth quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief Q&A session will follow the formal presentation. As a reminder, the conference is being recorded. With us today are Brett Moyer, CEO and President, and CFO, George Oliva. Before turning the call over to Brett, I'd like to remind everyone that today's presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of risks and uncertainties impacting the company's business, including financial current macroeconomic uncertainties associated with the COVID-19 pandemic, our inability to predict or measure supply chain disruptions resulting from the COVID-19 pandemic and other drivers, our ability to predict the timing of design wins entering production and the potential future revenue associated with design wins, rates of growth, the ability to predict customer demand for existing and future products, and secure adequate manufacturing capacity, consumer demand conditions affecting customers and markets, the 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 other risks detailed from time to time in the company's filings, with the SEC, including those described in risk factors on our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC. As revised or updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q. The information in this presentation is as of the date hereof, and the company undertakes no obligations to update unless required to do so by law. With that, I'll turn the call over to Brett. Go ahead, Brett.
spk01: Thank you, David. And I'd like to welcome you, ladies and gentlemen, to our fourth quarter call. Hang on. We have operator errors here. OK, so exciting call today. Lots of changes are going on and looking forward to walking through those changes and laying out the 2022 plan. Everybody has recognized WISA, whether you're a consumer in the industry, an investor, as really the highest wireless provider in the world, whether you're measuring channel count, lip sync, latency, speaker sync, et cetera. But we have talked about and alluded to changes in the market that we see as big opportunities. So the market opportunities that are being created now is one, Wi-Fi is getting better. And when we mean better, it doesn't mean it's easier to do 6, 8, 10, 12 channels in Wi-Fi, but they're performing better. So we're at a point where, in fact, we can move our IP from a custom module to Wi-Fi chips. Two, wireless speakers are everywhere, primarily interfacing with the internet with Alexa and Google, but there's the opportunity and some are starting to do it to be multi-role. They can be your internet interface and your music streaming player, or they can act like rear speakers. Third, consumers, we've all seen consumers buy a lot of TVs during the large TVs, or the logical purchase after that is audio to go around those TVs, and the audio codec companies which is Dolby and DTS. There's applying codecs that not only give you two dimensional audio but three dimensional so Dolby Atmos has ceiling sound. front sound, rear sound, side sound. So the consumer has the ability to really create a bubble sound in their room that covers all levels of it. So when you look at where has our first generation gotten, these are all tier one brands. They are the highest brands in the industry in terms of audio quality, but it leaves us a large market below that we haven't been able to address because of the cost structure of our current offering. Now, in addition to these brands, there's other products that we have not talked about because they have not been WISA certified. So we are changing the name to aggregate all our activity. We're going to move to WISA technology. We're going to reinforce the brand. of Wysa for the world and the consumer and the customer that our customers, our speaker brands, our ODMs, which have formerly seen our sales team, our engineering team as Summit Wireless, will now recognize them as Wysa Technologies, which is what they've been doing. They've been inventing Wysa Technologies all along. The consumers, the retailers, the in-channel people We'll still see Weissa Association run as an independent company by Tony Ohlstrom that does the matchmaking at retail, works with the consumer Weissa Wave to bring in consumers, continues to do interoperability testing, because we believe interoperability is important for some segments of the market. Now, One of the benefits of bringing everybody under the Weiss umbrella is we can talk about products that we have not talked with you or other people about. So the industry, by going to the weissassociation.org website in the past, has not seen these products. Now, there's a lot of really cool significant products to our P&L that we have not talked about. For example, if you look at the sofa here, this is the Love Sack sofa. Well, the wireless technology in Stealth Tech is us. That is our first generation product. That is the one that makes the subwoofer rumble and shake the sofa module. If you look at the KEF speakers, that is us as well. That's not a home theater system. That's a high quality audio listening. Soundbars. We've talked about soundbars with Savant because they were certified. But Harmon has a whole line of citation soundbars that use us. Bang & Olufsen has us in every TV. And if you look at this tall guy on the left, this is a $40,000 Lexicon speaker that has our wireless in it. So there's a lot of products that we'll start to be able to represent under the Wysa technology brand that we have not in the past. And this gives a full flavor to the industry for people checking us out in terms of designing with us or not. the depth of our design wins and our partners. So we think that's an immediate benefit. Now, our roadmap today, and we have the current generation, which has been referred to as WISA or Gen 1, that's interoperable. But we have started porting our IP onto the expressive chip and onto the real tech chip, working with real tech. And concurrently with that, we have set up an organization team in India to take that same IP and put it into software so it can be embedded into, for example, a TV or set-top boxes or ultimately cell phones. So while we're launching the modules for speakers and soundbars this year, We are in parallel creating the software to license the IP for transmission directly from smart devices to those audio speakers. And that will include interoperability, which I will cover shortly. Now, how do these new products line up? Wysa, the interoperability brand of Wysa is going to be known as Wysa HT for home theater. It is priced and it has a performance for that audiophile market, high-end TV. So we've been built into the Bang & Olufsen TVs, a select number models at TCL and Skyworth have us actually built in. So that will continue. There's a performance level that All other solutions cannot match. But what we're talking about today is addressing the rest of the market. And the first product that will come out after this will be based on the expressive module. Now, there's a lot of advantage to that. It'll be referred to as WISA-DS. There will not be interoperability with it. That is designed to be specifically for the low end of the market, albeit a high performance from us, for cost-effective low-end soundbars, Bluetooth subs. We think we can compete very aggressively in that market with the expressive module and RIP loaded onto it. Okay. But the purpose of Realtek, and Realtek is the first 5 gigahertz partner, but we're talking with other Wi-Fi vendors, is to port our IP onto their chip. It cuts roughly in half our price, and that's applicable to the broad market, whether it's TVs or set-top boxes or sound bars or home theater or smart speakers. So when you look at this chart and you think about all this technology is finished this year or about to be finished this year, We become the only supplier to the immersive wireless audio market that can go from the bottom of the market to the top of the market that can provide interoperability or no interoperability. So we think there's an extremely strong positioning for the company. We think it's our performance will continue to excel. Now for What does this mean in terms of brands, this positioning? So this is how the audio market has segmented, but these are our customers up above. Pure audiophile, right? So these are speakers that are costing $1,000, $40,000. Enclave and Platinum have reached into the consumer price points. We're defining as below Sonos. We think Sonos is not an audiophile brand. but they are the top of the consumer brand, right? They have broad distribution. They have good audio, not spectacular audio. They got a great firmware, but really the whole prior to these new products rolling out, we were not able to address the consumer market other than through Platinum Audio and offering those solutions. So with these new ones, Now we're able to have conversations with product management and technical engineering teams from all of these brands. And these are the brands that you'll see on a Walmart or a Target, Costco. So one is to think about the devices, but the other is to think about the brands that we can now work with, right? And this dramatically expands it. Moving our IP out of a custom chip to go onto IoT modules does more than open up the brands. It opens up the whole house to opportunities for phone apps, TV apps, to control audio in that space through IoT modules. So this is the market that we start opening up. We're looking forward to it. If you want to look from a TAM perspective, This is a great chart on how we are dramatically expanding our opportunity, both for revenue and customers. So WISA HT, the WISA interoperable logo that you've seen for the last four years is targeted to the home theater speakers, the high end of the sound bars and smart TVs. So you're talking a 50, 60 million unit annual market. WISA DS, right, not interoperable, but that expressive module, that comes in and grabs, and we think is applicable to all the smart TVs and soundbars. So that adds about 250 million unit TAM. But it's really WISA E, our IP ported onto the real tech, and can go out and address all the market segments. all the way up to just below the high-end home theater audio file space. So when you look at the product introductions, the reason we're excited is we have spent years developing this stuff. We have spent last year porting it onto the expressive module, and we'll finish porting it onto the real tech module this year. But that dramatically opens up the market opportunity for us and positions us as the primary leader for immersive wireless audio. Other enhancements that will be coming this year shortly You know, we announced the Wysa SoundSend app, which has won a lot of industry awards, could be downloaded on Android TVs. You will see us announce later this year that it and this will be before the Christmas season, that it can also be downloaded on WebOS TVs, which is your LG system and Tizen TV. operating system, which is Samsung. So between Android, LG, and Samsung, we've covered the bulk of the market for the Android, the WISA app to be downloaded onto TVs. All right. So we have talked about WISA DS on the expressive module being a low price per solution, but this is a really powerful solution. So when you look at our primary competitor, Skyworth, We offer more audio channels. We have a stronger wireless performance as measured by Novus Labs. So it's an independent lab that measured us versus them. And yes, they're in five gigahertz. We're in 2.4 gigahertz and we outperformed, right? And it's a lower cost solution. But from a consumer's perspective, what's really great about this is we can let a sound bar that has a 3.1 architecture in the front of the room. So it is with Dolby Atmos. So it has a left and a right floor and ceiling speakers. We can expand that to a true bubble of immersive sound with a 5.1.4 for less than $15 a wireless technology. Right. So you have front and rear ceiling sounds. You got front and rear floor sounds and you have a subwoofer. We think that's a hot architecture. We think the consumer is going to love it. And we are actively pushing that with customers today. How much can that be worth to us? So we went through and talked about billion unit TAMs, but if you just get right down to the SAM and you think about there's 42 million soundbars this year are projected to be sold, 5% of that market into that architecture with DS would be another 25 million of revenue. So we are highly focused on that one because it covers the beginning, lowest end of the market with a highly sophisticated solution. So if you summarize, where do we fit in the spatial audio ecosystem? You have the content providers sending stuff out. You got the wireless people or the cell phones streaming it into the router. You got Dolby and DTS giving you immersive ceiling and floor sound. The final step, though, is wireless transport. And if you think about WISA, that is what we do. That is our core. We now do it at all levels of the market, not just the highest level. We have the highest performance of each level of the market, but we can address the lowest price, the mid tier and the broad market, as well as the high performance market. And with that, I'd like to turn it over to George to go through our financials.
spk00: Thank you, Brett. So we have been tracking website traffic as a key performance indicator. We were targeting a million unique user visits in 2021. We exceeded 2 million, and we're projecting a target of 4 million visitors in 2022. If you look at our revenue, 2021, we had 172% growth. And our guidance for 2022 is approximately 40% growth year over year. I'm going to go to the next slide. So Q4 2021, we hit, we exceeded $2 million in revenue for the first time in the history of the company. That was a 93% increase over the same quarter the prior year. Our gross margin exceeded 30%, which was our target that we've been talking about. It's up from 24% in Q4 2020. Our operating expenses were 3.7 million, which included half a million of non-cash expenses, primarily stock comp expense. That was compared to 3.9 million, of which 900K was non-cash expenses. The net loss for the quarter was 3.1 million compared to 3.7 in the prior year, same quarter. And we ended cash for the year at 13.1 million, which is what we had guided to. If you look at guidance, we're off to a slow start this year, but it's a back-ended year. We're going to have between 30% to 50% growth year over year for the full year. So the midpoint is $9.2 million there for 2022. The gross margin, there's a lot of issues in the supply chain. Things are going to bounce around, but we're still targeting 30 points, but we could be in the high 20s as well. And with the $13 million, we're starting the year. That's enough cash to fund all of our initiatives we're talking about through the rest of the calendar year. And with that, I'll turn it back to Brett. Thank you, George.
spk01: So if you summarize the position the company's in, we have repositioned ourselves from the high-end audiophile market to the very broad audio market. We have positioned ourselves to have four product lines by the end of this year, three modules plus IP. We have positioned significant growth despite supply chain issues in Q1. and the balance sheet's strong. But the sum of all this is we are in an explosive audio market driven by the consumer. We have the only comprehensive wireless offering to the industry to address that demand. We have the only interoperability standard that's not only serving interoperability for the market that needs it, but also building the retail market around it with the storefronts. So we think we've solidly positioned the investment last year and this year to drive revenue growth this year and beyond and increase shareholder value. So with that, I'd like to turn the call over to David. He will moderate questions. I would ask you to state your name, your affiliation, whether you're with, cause we can't see it on the Shrex platform. So if you give us your name, your affiliation, whether you're with a bank or a investment firm or a private investor and ask your question. David. Great.
spk02: Yeah. Thanks, Brett. Um, again, we'll, uh, we kept conducting the Q and a session, take a moment to kind of gather the questions in this format. Yeah. You can raise your hand if you're joining via the internet. If you've dialed in to raise your hand, uh, you need to dial star nine and the way you can unmute your line is, uh, hitting star six and we will start calling on people, uh, with that understanding. And when you come in, do state your name and company affiliation before stating your question, as Brett mentioned. So one moment, please. And let's see. We have a question. I'll go to the first question. It's the dial in from the number ending in 884. You can unmute your line. There it is.
spk05: Hello.
spk02: There you go.
spk05: Can you hear me? Yes. Okay. Great. This is Jack. Jack Vanderarty, Sales Side Analyst at Maxim Group. Brett, great results. And George, thanks for taking my questions. Strong outlook. I want to just review, this was a record quarter for you guys in terms of revenues. That was great to see. And George, looking at your guide as well for the next year, it looks like you have strong growth baked into that. Brett, maybe if you could just help me understand, you know, how much of a role, you know, what were the key drivers of revenue for this quarter, particularly with the WISA wave? And then just all the moving parts with these new product launches you have going on for next year or this year, what's kind of driving the revenue growth that George outlined? So from, I guess, fourth quarter revenue drivers, and then what's driving 2022's revenue growth from a fundamental qualitative perspective? Thanks.
spk01: Yeah, so what's driving our revenue growth, Jack, is the wireless modules. So we do have the Platinum Audio line that we sell. I believe that was roughly 450,000 in Q4, maybe 400. And obviously that's always gonna be strong in Q4 because of seasonality of the consumer business. But when you look at what's driving 2022, the growth in 2021, this is design wins for wireless technology. I mean, if you go back 18 months, the brands we talked about then versus the brands now just within the certified world is, is significantly larger. Plus we just talked about a bunch of brands that we haven't talked about in the past. So the love sack deal, very important deal. Harmon's soundbars, very important.
spk05: Yeah, that's, that's helpful. And then, you know, speaking of which I want to just zone in on the, uh, the new, uh, The second gen opportunity basically and with real tech and there was a product in the initial press announcement from I'm not quite sure maybe a month or so ago that the initial product or sample may be in the market by 2022 or like a demo version of it. Can you just provide an update there and when you actually expect a product for to be ready for consumers?
spk01: So we expect, so we will, so we're, today we basically have announced the partner and we have announced the branding strategy. We will announce the actual first iteration of that product itself mid-year this year. So call it sometime in Q3. We expect to sample it shortly thereafter and we expect to release it to production by year end.
spk05: That's awesome news. Okay, great. That's exciting. And then let me just ask me one more, just the typical question around supply chain dynamics and maybe the impact or visibility of impact that you think it's having on some of your major brands. And how many brands do you have these days? It's still 70-plus consumer brands?
spk01: I believe so. We have started focusing more on how many brands are shipping, right? Because one is members, but more importantly is how many brands are shipping, and that's over 30 now. But I think we're still in the same ballpark of brands in the association. But you had a question before that.
spk05: Yep. And then so of these 30 brands that are shipping, 30 or more brands that are shipping products, how are they, what's your visibility or any color you could provide on potential impact or delays or just given the supply chain environment? Any comments there?
spk01: Yeah, so supply chain obviously has been an issue for the industry as a whole for starting, you know, early last year. From our communication out to you folks, it has not been an issue because we've been We've managed expectations. So prior to supply issues, we thought we had a higher year last year than what we did, right? But what we are seeing in Q1 is a drop in business because a lot of that product that did get built showed up after Christmas. So our brands, our consumer brands that are using our technology are sorting through how to clean up their inventory positions before they go to the 2022 Christmas build. So we have started in post Lunar New Year. started to see more PO activity that's impacted Q2, which is good. We have not seen any design losses or product EOLs. So we're pretty confident this is a short early in the year phenomenon until our customers get their inventory back in line. We do see POs coming in even in Q1 for new designs. So by the time we get into Q3, we're feeling good that All designs, whether they were last year's or this year's, are going to be needing production in the back half of this year.
spk05: Okay, great to hear. I appreciate the update. I'll hop back in the queue. Thanks.
spk02: Great. Thanks, Jack. I'm going to go to the next caller with a question ending in 884, that number. Excuse me, actually ending in 131. Go ahead and unmute your line if you could. There you go. We should be able to hear you.
spk03: Hello. There you go. Yeah, hi. It's Marty Elbaum, Horizon Networks. Hey, Brett, how are you? Hi, Marty. The question I have for you is, Could you give us some guidance as to when you see the loss, the company really turning around and either breaking even or showing a profit? Because if you lose $3 million a quarter, you're going to be out of money in a year.
spk01: Yeah, so we have not given guidance. But what I will say, Marty, is if you think about the TAM that we are driving to, We are all in at finishing and launching and introducing these all three technologies to the broad industry this year. So when you think about where do we see P&L improvement, we believe that starts next year. I'll say that much, right? Because you're not going after that 50, 60 million high-end market. You're going after the whole market with three different profit price points, three different performance levels. And that's fundamentally opens it up. So we believe using that 13 millions of cash that we had at year end, is a very critical investment to open up our market so that we can grow revenue beyond the revenue that we've seen in the last three years, that growth.
spk03: That's great. That's great. You know, hopefully we'll succeed in that area. I hope it works.
spk01: We're planning on it, baby. I feel I have a high confidence in our technical engineering team. I got high confidence in the sales team. We've added some engineers. Very talented people. Some of them you guys are aware of being Eric and Steve. So the two ringleaders behind the HDMI launch back in the day. We added a new country sales manager in Korea with very high relationships in LG and Samsung. So we're prepared for success.
spk03: Great. That's wonderful news. Thank you.
spk02: Okay, we've got another question coming in here from the dial-in ending in 019. You can unmute your line. Got a star six to unmute. Here we go. Are you in?
spk00: Do we need to mute Marty?
spk02: Oh, I'm sorry. Yeah, go ahead and mute Marty. And then the other one. Was it star six? That's the unmute or just mute your phone. And then we can dial this one here. And we have the phone number 019 ending. I believe that might be David Levine, but I'm not 100% sure. You can unmute by yelling star six.
spk04: Oh, now you can hear me, I bet.
spk02: There you go.
spk04: I pushed it three times, so it wasn't me.
spk02: Okay.
spk04: So if I understand this right, as we move forward in the product mix, I guess I'll call it, if the product mix shifts more to the embedded solution, Do we end up at a point then, or is the goal to end up at a point where you're basically providing a license or a piece of software? I'm not sure what the right term is there either, but that's just kind of a higher margin product. So is that where we end up? Is more likely in a kind of maybe a lower revenue, much higher margin place?
spk01: So that's a great question, David. First, I would say I never like to give up revenue ever, but what it does let us do. So when you think about that TAM ladder that we showed, the thing that the speakers need is they need a module. But what the big brands, if you think about penetrating a Samsung and LG, let's just take those two big brands, right? What they need is control their own destiny. So I look at it as we're expanding our revenue to IP licensing. That's what the team in India is doing. But we will never give up the module revenue because that's not what speaker companies need. They just want to go buy an amp, they want to buy a wireless module, and they want to know it connects to what's getting sent to them, right? They're not going to go out and design.
spk04: Right. So, so, okay. So I said that wrong. So I mean, lower, maybe lower unit revenues.
spk01: Yeah, but it's, it's a vastly larger market. So if you think, I understand that. Yeah. So just the soundbar market, you know, we have a few great designs on WISA HT, but in fact, It's a 42 million unit market this year. And we think there's a ton of upside around just that YCDS and the expressive module. So yeah, it'll be lower ASP sale, but it addresses 90% of the market or 95% of the market that we could not address.
spk04: And, and ultimately that will be a higher margin then. Right.
spk01: And we believe, the new products offer a higher margin. So George guided to 28 to 30% gross margin this year, and we have been targeting 30 points, but we've seen cost increases on the WISA HT module. Now we've made a choice for a couple points, not to, we have raised prices on those last year, but we're not going to push the price level any higher. But the new one- When you get to a, I'm sorry. Well, I was just going to say, so the margin structure we're looking at, whether it's the IP licensing, which is 100% margin, or the auditors will figure out how to turn it into 95% margin, right? But there's no margin cost, right? The expressive module and the real tech module sales, we think that that is higher than the 30 points that we've been guiding to. Okay.
spk04: Okay, that's what I was getting to. So as I'm sort of absorbing all of this, and I keep coming back to the term you used in one of the other slides where you said, you know, you're really in the wireless transport business. So, I mean, is it fair to say that what you're really trying to do ultimately is, in terms of audio, basically become a better solution to wireless transfer of audio than Bluetooth? I know we've tried to stay away from that analogy in the past, but that seems to me, I guess that's what that means to me. I mean, tell me if I'm wrong about that, I guess.
spk01: So there are some segments of the Bluetooth market that we are expressly, deliberately competing against with the expressive module. Wi-Fi is a better signal. There's better connectivity applications. There's more things you can do with it. So yes, now that's not the same as, I don't think we're at the point where every Bluetooth speaker can become WISA, but we're going to start taking that, going after that business because certainly those Bluetooth subs, those little Bluetooth speakers that are floating around the TV and the soundbars, those have serious performance issues that we can address.
spk04: Got it. Thank you.
spk02: At the moment, I don't show any other questions. If anyone has a question, raise your hand. Otherwise, we'll wait just a minute. Otherwise, I'll turn it back to Brett for closing remarks.
spk01: I think, David, you have to mute yourself again.
spk02: Okay.
spk01: No. Okay.
spk02: I think that's it.
spk01: I'd like to thank you for attending today. We think this is, you know, we had an exciting year last year with a lot of revenue growth with a couple quarters were record revenue growth. We continue to see revenue growing this year significantly, particularly in the back half. So, and we're really well positioned to address the wireless audio market going forward. And with that, I'd like to thank you and, uh, Have a good day.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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