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Operator
Greetings, and welcome to the Weiss of Technology's first quarter financial results conference call. At this time, all participants are in listen-only mode. A brief Q&A session will follow the formal presentation. As a reminder, this 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's 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 current macroeconomic uncertainties associated with the COVID-19 pandemic, our ability 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, rate of growth, the ability to predict customer demand for existing and future products, and to secure adequate manufacturing capacity, consumer demand conditions affecting consumers 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 Securities and Exchange Commission. including those described in risk factors in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC, and 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.
George Oliva
Thank you, David, and thank you, ladies and gentlemen, for joining us today on the WISA Technologies Q1 update. I will be going through three slides just to take new shareholders to the point, and then on the fourth slide, we'll start updating you on new information since the last call. WISA Technologies, formerly known as Summit Wireless, has been a leader on the technology front for multichannel. When it comes down to technical performance on synchronized video with audio, on latency, with speakers being synced together, we have the strongest team in the industry for developing that technology. As we move forward, we have believed and have started demonstrating that as Wi-Fi gets more powerful, we can take the know-how that we have from our original custom chips and port it to Wi-Fi chips, which dramatically drops the cost to have surround sound on multi-channel. Now, that high-performance leadership that we have demonstrated has brought quite a few names to the Weiss Association on certified products, starting with Harman, a division of Samsung, going all the way through most of the high-end pro audio speaker brands. Now, when we changed our name, there's a series of brands that we can now start talking about that you would have not heard us talk about because they were not certified as interoperable because of the way they are designed. So Love Sack Sofas, when that sectional vibrates, that's us sending the signal to the subwoofer underneath it, right? When Lexicon sells a $40,000 speaker, that's our wireless in there, but There's no need for interoperability. So as you look at our website, the WISA technology website, you'll see more products now than just the ones that have been certified as interoperable. Now, in the last call, we laid out basically the product roadmap that we've been working on for several years and the impact on how it fits into the ecosystem. We have consistently been delivering the highest cost and the highest performance modules to the audiophile market, that high-end home theater and high-end soundbar TV market. But with the expressive partnership, this lets us target a module directly to the soundbar with rear speakers or subwoofers, which is a significant market. And we think we have a significant advantage in it, and we'll talk about the progress of that in a couple slides and with the real tech partnership later this year lets us address the mid-market beyond four channels of audio just like we do with the high end but at half the price of what we're doing currently so highest performance lowest highest performance of the low end of the market and expect to have a high performing mid-tier product this year Now, the result of all those investments, as we mentioned in our press release today, is we have significantly increased our IP portfolio and our patent filings. So by the end of this quarter, we think we'll have a total of 24 patents and filings in the process. From the market segment, the audio file market is where you've seen our products launched. But as we bring these other new technologies into the market, it gives us the opportunity to go into the audio products at the lower end of the market and the mid-tier of the market. That substantially opens up our brands. Now, progress. What is our progress to date? So launching WISA DS, so this is a low-cost module, has four channels plus a subwoofer capability. The process is corporate, presentation, product presentation to potential customers. If that's successful, you go into vendor qualification where they test it and kick it around and make sure it does what we say it does. And then you go into the design cycle. So as we see here today, we have moved some accounts all the way through all three steps of the process in the few months of this year already. So there's A few accounts that are already in the design cycle. I would say the feedback from the verification cycle is extremely positive. The comments we make are to the effect that it's the highest performing 2.4 gigahertz module. They've tested it. We've heard that several times. And there's a pretty healthy pipeline of companies that are in the initial sales process. As COVID restrictions relax and we're able to travel more, we expect to close those presentations and start technical evaluation this quarter and next quarter. So where are we getting traction? So we targeted this to the low end, to the soundbar market, but not necessarily the low end soundbar market. And the dominant traction is, in fact, in soundbars. in tvs and the automotive aftermarket we have a couple of prospective designs there already right so the products perform in a way we wanted to we're getting the feedback from the customers that we wanted and we're working through the design cycle and again if you think about competitively this goes up against the skyworks product that sells in the 450 range or higher and we're in the 350 or lower range for more channels and a better performing product, in our opinion, of course. Now, so how much is that worth if we're getting good customer feedback, if we're getting good response to the sales pitches? Well, 5% of that soundbar market with rear speakers we think adds $25 million. Now, that's a sales cycle to get there. We don't think we should be limited to only 5% of the market. It's a much stronger product offering. But this is to give you an order of magnitude of what's 5% worth. You can double it, and then you know what 10% is worth to us. So very important technology. The expressive is based on the expressive IoT chip. It has our IP loaded onto it, and we're getting good customer feedback. In the end, this is a few years out, but as you look at taking the IP we're putting on the expressive and the real tech chips, and porting it to a licensable format with the team in India, that opens up all rooms in the house for us to have product offerings. But this is the end game, and you'll hear more about that as we go through the next couple of years. From a growth perspective, website traffic is up to 520,000 people. Again, that's 520,000 people that have come in to the YSA Technologies group of websites, lets us educate them on either cool end product, on modules that we're selling, on technology we're selling, or on products that are interoperable and in the market through the YSA stores at the various retailers. We're still looking for revenue growth to be in the 30 to 50% this year. Certainly, Q1 is, Not on that track, but when we look at the product offering and the pipeline, we're still aggressively looking at growth. With that, I'd like to turn the next slide over to George.
David
Thank you, Brett. The Q1 revenue, as Brett said, was low, $566,000. That was a decrease of 51% over the same quarter of the prior year. We expected the slow start to the year. It was a little bit low. We're already seeing second quarter bookings starting to accelerate. The gross margin was down to 11% compared to 26% in the same quarter in 21. That's purely a function of volume and not absorbing the fixed costs with the lower shipments. The operating expenses were approximately $4 million. That's including half a million dollars of non-cash expenses such as stock comp and depreciation. compared to 3 million in the same quarter of the prior year, which had 300K of the non-cash expenses. Increase in OPEX is primarily in engineering and in marketing. The net loss for the quarter is 3.9 million compared to 3.3 in Q1 of the prior year. Cash at the end of the quarter was 9.1 million. In terms of guidance, as we said, we're still guiding to 30% to 50% growth on the year. It's heavily back-end loaded. In terms of the supply chain, we have adequate supply to meet that. And as I said, revenue in Q2 is going to grow substantially compared to Q1. Might still be lower than the prior year, but it's recovering and we're still expecting the second half to be strong. Our target gross margin continues to be in the 28 to 30% range. And our current cash is sufficient to last through the end of the year. So the 30% to 50% guidance is $8.5 to $10 million of revenue for the year. And with that, I'll give it back to Brett.
George Oliva
All right. So before we open up for calls, if we just summarize where the company is, we've got a strong technology roadmap that's going into the market. It addresses a billion-unit TAM. The customer sales cycle is progressing satisfactorily, in fact, better than that. We're expanding our IP portfolio. We expect to see WISA DS impact revenue in the second half of this year, and we're still targeting year-over-year growth. We think when you add all that up, it presents a company to the industry that is of significantly higher value than what we're currently trading at. And with that, David, I'd like to open up the floor for questions.
Operator
Great. Thanks, Brett. Now we'll be conducting the Q&A session. In this format, you can raise your hand if you're joining via the internet, or if you've dialed in, you can raise your hand by dialing star 9 and unmute your line by dialing star 6. If called upon, we do ask that you announce your name and company affiliation before stating your question. One moment, please.
Brett
Okay, it looks like there's two people with questions. I'm going to unmute the number ending in 0884 first.
Gen 1
Hi, can you guys hear me?
spk07
Yes. Yes.
Gen 1
Hello? Hey, Brett. Hey, George. This is Jack Vandardi with Maxim Group. I appreciate the quarterly update and for taking my questions. Brett, so I'll just start with the revenue guidance. And George, you may be able to add some color here too. You expect the sequential growth in the second quarter. And I think it was said that maybe it might not be up year over year, but it will be sequentially up. Just any more clarity on what you're expecting for that second quarter? Could it be slightly, you know, almost flat, slightly up? Or is it, I don't know, how much visibility and how much comfortability do you have providing any more color there?
George Oliva
Yeah, are we answering that sequentially or year over year? How about sequentially? Yeah, we don't expect to be flat sequentially. We expect to be up, but not as high as last year. as we've guided. So, yeah, so somewhere in between. I think a lot depends on we have good visibility on Q2 POs. What we don't have good visibility is if anybody gets, if any of them get pushed out. So, and there's been a lot of that as we saw this quarter. So that's the only reason we're not being more specific, but I think I would, I would, I would probably model, you know, something in the, it'll be several hundred thousand. How's that?
Gen 1
Good enough. I appreciate the color there. And then maybe just sticking to the revenue guidance outlook. Definitely going to be a back cap load year. It's encouraging to see that you're still, you have confidence to expect that 30 to 50% year over year growth for the year. Given the, you know, you have these new products coming out, YCDS, YCE, just how much, I don't know, I don't think you disclosed this, but is there any way for us to understand better, like what is coming from the the existing Gen 1 technology versus these new products in terms of the revenue mix, since it's going to be very back cap loaded?
George Oliva
Yeah, so let's just talk about the optimism on the revenue forecast. So one of the drivers and why we think we're still will continue to be up year over year is that when you look at the designs that were there last year, You know, all the major designs are still there this year, right? So you haven't seen products go away. You're seeing them rebalance their inventory in their channel. And, you know, we announced, I think, yesterday a new product. There's several product announcements coming out shortly. So new products are coming into the production cycle, and the products that were there last year are staying in the sales cycle, right? If you look at what the mix is, I think the back half mix is largely driven still by Gen 1 and the speaker line. Okay, gotcha.
Gen 1
That makes sense.
George Oliva
You know, revenue from WISA DS is material to us from a product launch perspective. I think it's Not so material from your modeling perspective. Right, so one's valid that we're in market to other customers with the technology and they can have a higher level of confidence, right? That's just a pure sales cycle issue. From a P&L perspective, it's the vast, vast majority is from the products that you know and see today. Okay.
Gen 1
And then, you know, I caught some of your comments about some new partners that were announced, which is very encouraging to hear. I think if you could just help me understand, though, I think last quarter you were talking about you expect 30 or at least 30, more than 30 brands to be shipping WISA products this year. Did you provide an update on that this quarter? Or is that still a good way to think about it?
George Oliva
It is. You know, we announced a new one yesterday, Wharfdale, right? There'll be another product announced next week and several after that. So the brand list will continue to expand.
Gen 1
Okay. And then in terms of the WISA traffic or the WISA wave in your marketing program and in terms of what that's doing for your sales and your visibility, it sounds like that's all, you know, that continues to be robust. Can you just talk about that more specifically? Is the WISA wave performing in line with your expectations? And I've been kind of viewing that as a leading indicator of future revenue. How do you view that?
George Oliva
Yeah, so you tracked us for a while, right? So we used to talk about, you know, members joining WISA, right? And people got tired of it. Why are you doing that, right? Because that, well, we did that because it's a leading indicator, right? Then we talked about brands and design, right? And then we started seeing revenue go up substantially last year, right? And like you, to me, bringing more people into the YSA technologies website and ecosystem is a leading indicator to the health of the YSA ecosystem and our revenue, right? And the strength and the value of the YSA trademarks and the YSA association as a standard in the industry. Now, and those When we say 500,000 people, we're not talking about kids, right? These are people that are targeted, that are in market, that are looking at TVs, that are looking at audio equipment, that are generally 20, you know, core market is 34 to 54, but it runs, most of those visitors run 25 to 65.
Gen 1
Got you. And so, and then in terms of what that's, no, that makes sense. And I guess in terms of, you know, with the pandemic and the stay at home orders and all that, that really started playing out in 2020, kind of lingered into 21. Do you still see a large untapped market opportunity for, you know, consumers, whether they're moving homes, whether they're trying to deck out their, their, their living room or home theater? Um, Do you still see blue sky ahead for, you know, did everyone do it in 2020, 2021? Or it seems like you're confident or comfortable saying that there's still a large opportunity out there for consumers that are looking to, you know, really upgrade their living room, their home theater. Can you just provide an update there on your thoughts?
George Oliva
Well, I don't think we are anywhere close to having as an industry, haven't put good audio around TVs in America, in Europe or the world, right? The attach rate for soundbars, depending which TV company you talk to with their soundbars, runs as high as 20 or 25%. That still leaves 75, 80% of the TVs in the world without audio around them, right? I think without the pandemic, You're likely to see more concentration of revenue during normal seasonality. Right. So that's, I think part of what our customers are struggling with, because there isn't a pandemic in March and April and May and February to, you know, move. It's a low seasonality for audio because people are starting to focus on going outside again. Right. But, uh, but when you think about coming back into football season, coming back into the fall, coming back into cold winter months, those are all still there. You still have these great big TVs streaming a ton of content that has multi-channel in it. And you got 80, 85% of them without good sound around it.
Gen 1
Great. So there's a lot of, it sounds like, okay, no, that's encouraging to hear as well. The untapped market opportunity is still there and it's growing. And then just maybe if I could add one more question, Brett, It looks like you have your inventory at the end of the quarter, over 6 million. I think you mentioned that you guys have plenty of inventory. So no supply chain specific risk to WISA. But your consumer electronic brands, they may have some supply chain issues. But given your confidence to reiterate the back half of the guidance, just maybe if you could provide an update, what kind of visibility you have. into the supply chain impact on your customers? It seems like it suggests it's improving. Just wondering if you can share your thoughts, though.
George Oliva
Well, in general, with the customers, what we are hearing is logistics is still a big issue. Parts is still an issue, but less of an issue. You know, we have supplies for our customers, but you can't build 98% of a product, right? So I think a lot of what we're dealing with right now is products showed up late for Christmas, COVID's opening up, people are going outside, how do customers rebalance their inventory, right, and start building again? And that's what is impacting it. I was talking to an ODM, last week they're seeing a very similar pattern to what we're seeing so we think we're reasonably optimistic that orders will pick up in q3 and early q4 but we're cautiously watching what happens logistically because you can build something in october but if it's not in in your christmas markets in november it's not going to do you any good right that's right okay
Gen 1
And so would you expect your revenue for the year then to be more heavily weighted towards the fourth quarter then than it normally would under this scenario?
George Oliva
We have two product lines. So the chips will be strong in Q3 and Q4, probably equally. And the speaker product line will certainly peak in Q4.
Gen 1
Understood. Okay, great. Well, I appreciate the color and glad to hear things are still on track. I'll hop back in the queue.
Operator
Thanks, Chad. Let's go on to, I think, Kevin Deedy has his hand raised. Need to unmute.
Kevin Deedy
Thank you. Okay. And I hope you can hear me now. Thanks. Kevin Deedy, H.D. Wayne. I think that's a really interesting point in delineating your new product roadmap or your display product roadmap vis-a-vis Gen 1 and Gen 2 product. So I was hoping you could look at that for us just a little bit to make sure that we understand the transition and the migrations. through this year and next?
George Oliva
So let's just review the brand names, right? So you got WISA-HT, the product we've been selling. You got WISA-DS, the product that we're going through the design and sales cycle right now. And you got WISA-E coming in the middle of the market. WISA-DS is targeted to a completely different market. So this is somebody that has closed off systems it has a rear speakers or has a sub subwoofer around a sound bar or both rear and subwoofers around it if you remember on the slide we talked about how we're actually able to get at most out of the rear speakers going up to the ceiling as well the subwoofer so five channels um and that is probably 75% of the current price, 65 to 75% of the current price. So it's a 2.4 gigahertz, but it's a high-performing solution. And the way that rolls out is we're out of the design cycle and the tech cycle. It is strictly a blocking and tackling function on the sales. Now, YCE, which we expect to sample later this year, That will shake down this year. Sampling to a few beta customers will help shake it down, and that'll start a hard sales cycle in Q1 next year, which means, you know, it probably impacts, you know, late next year to some degree, but a much stronger 2024 cycle.
Kevin Deedy
You mentioned mid-market, but it seems to me the tech there is targeting the high-end as well.
George Oliva
Well, there's differences in latency. So when you look at speakers that are running 1,000 to 40,000 a speaker, we don't think that speaker, so the audiophile speaker, will come down to the mid-market. But if you look at all the, call it, now with inflation, sub $2,000 systems. However, they're configured soundbars or discrete speakers like Enclave. We think they have the opportunity to come down and that, you know, the price difference between HT and E is, you know, call it roughly five or six bucks times six or seven speakers times, a Forex markup, I mean, you're talking about dropping MSRP by $200, which is, you know, 15, 20% at retail, depending on what products you're going into. Now, that's over the next, call it four years, Kevin, right? Ultimately, as chips get more powerful in the Wi-Fi space, yeah, YSH team maybe tails out in five or seven years, but over the next three years, we don't see any impact. Okay. Both DS and E are incremental. Okay.
Kevin Deedy
And then sort of Kevin, I can't hear you. I'm sorry. Can you hear me okay now? Yeah. Okay. Apologies, Brett. No, no. I get a little tripped up, right, on your nomenclature because it shifted a little bit. And I apologize for that. But just sort of dialing it back to the Gen 1, Gen 2 thing. Is it fair to assume that PS and E are Gen 2? Yes. Okay. Fair enough. All right. It's a lexicon thing. Sometimes it goes over my head. I appreciate you holding my hand.
George Oliva
Can we talk a little bit about… The fundamental difference here, Kevin, the fundamental difference is Gen 2 is really IP, and it's not a chip design. So in Gen 1, it's a proprietary chip. It's custom designed. You can get the highest performance out of a proprietary chip that's focused on a specific market. But what you have in Gen 2, whether you're talking about DS at the low end or E and interoperability in the mid-tier or IP licensing with the team in India, it's all IP. We're not in the business of designing wireless chips anymore. when the business of making wireless chips, whether it's from Expressive or MediaTek or Realtek or anybody else, right, making them work right for immersive audio with RIP.
Kevin Deedy
Okay. I think that's a very important distinction to make, Brett. Yep. Okay, so just two more things. One on interoperability. Why is it important or not important that that SOFA product wasn't interoperable?
George Oliva
So the SOFA product has, if you think about the SOFA product, it has, Lovesac sells sectionals, right? So if you go into a Lovesac store, or you see any of their ads or YouTube videos, it's all about taking two or five sectionals and rearranging them and moving them around and doing whatever you want with your sofa furniture, right? So for them, they're not trying to interface with discreet speakers floating around the world. They're trying to make sure that you can design a good audio system using their sectionals so there's there's no interoperability there right they just want to make sure that when you sit on that sofa you're getting the vibration so they're not nobody else is building a subwoofer into their sectionals right okay so i see so when you say interoperability you mean across brands right so but correct what what
Kevin Deedy
would be their option if that their buyer wanted to you know add other channels that weren't necessarily available through their sectionals um there are no options for them because it is not interoperable your options are what sectionals do you want to buy period and where do you want and do you want it with audio right right right right
George Oliva
Interoperability. So interoperability comes into play when you start thinking about TVs talking directly to soundbars. Soundbars talking to speakers. Across brands. That creates across brands, right?
Kevin Deedy
Understood. Last question. The manufacturers and my understanding is that those arrangements are non-exclusive across your product line or maybe i'm wrong there is ex is expressive limited to just ds is real tech just the you know e help us understand that right so there is no exclusivity between who we'll work with the the current
George Oliva
people we're working with is really driven around the availability of a specific chip so Realtek has the first five gigahertz chip that we think can do what we need it to do at a cost point that is materially different than what we're selling now right expressive has a 2.4 and was willing to work with us to um uh load our ip and use their chip so but you know the ability to work with any other wi-fi vendors just strictly having a chip powerful enough to do what we want to do on it with our ip to transmit to six eight ten speakers thank you Thank you very much, Brent. Appreciate it. Yeah, I mean, Kevin, I think when you get to next year, you'd see us talking about other Wi-Fi brands. But right now, you know, we're heads down focused on supporting the expressive and real tech solutions. Understood. Thank you.
Operator
Yep. See if there are any other questions. Again, you can raise your hand if you're connected via the internet or if you've dialed in, dial star nine and unmute your line by dialing star six. We have a question. Let's see. I'm going to unmute the line of the number ending in 6030. Go ahead.
spk06
Yeah, hi, this is Ed Wu at Ascendian Capital. Brett, I had a question. You mentioned about lead times for the third and fourth quarter. For your two different product lines, for your speaker line and then for your chip modules, if somebody were to order a product today, how quickly would they be able to get the product and then put it in the product or put it on the retail store shelves?
George Oliva
So I can answer my side of the equation that if somebody ordered... modules that we did not have a six-month lead time on, we'd be able to support some of that, depending on how much they ordered. And we have a fairly strong flow of product through coming in through September. You know, that's the season for modules. Everybody, every speaker brand has their own lead times with their own ODMs. In terms of our speakers, we placed the POs for this year's revenue plan months ago. Like last quarter. No. Some of them we placed in Q4, actually. Because there are long lead times.
spk06
So pretty much with the lead times now, we're in May, you pretty much have all your POs done through the end of the year and expect to receive product up through the end of the year?
George Oliva
No, I would say we have POs through August.
spk06
Great. But you feel confident in supply chain that in the third and fourth, even if you get orders in the fourth quarter, it'll be enough time to get out to your customers, into the products, into the stores? within the quarter?
George Oliva
It depends. Well, so again, let's just break it apart. Because of lead times, I'm building modules to a forecast, and we are asking customers for six-month POs. Not all customers have solid enough business plans to do six-month POs, but I think We are in a position to support any customer demand this year. Certainly be able to massage it around and not impact anybody's Christmas sales. So that we're confident of. Other customers, whether they can take something in normal times, you can take you could do speakers in October and have them on retail shelves in November. I'm not projecting logistical transit times for the industry.
spk06
Great. Well, thanks for providing the color. Then my last question is on international growth in Europe versus in North America. Do you see similar growth opportunities and how are the individual markets looking so far this year?
George Oliva
The audiophile market is very strong in Europe and very strong in China, to be perfectly honest. The audiophile brands in the US are just coming on board. So for us, those markets are very strong.
spk06
Great. So you're seeing stronger growth in Europe than you do in America right now?
George Oliva
historically our designs have been weighted and that's larger because harman has been able to sell out their supply availability in north america in in europe so they retreated from north america because they're very very successful there if you look at the brands a lot of those brands are european brands great
spk06
Well, thanks for answering my questions, and I wish you guys good luck. Thank you.
George Oliva
Thanks, Ed.
Operator
I'm not showing any additional questions. I don't know if anyone else has a follow-up, or, Brett, if you want to just have some closing remarks, you can take it there.
George Oliva
Yeah, I'd like to thank the investors for participating this morning, or... listening to this later today. I think we have an extremely exciting technology offering that has been in the development for years. We've invested considerable money in it, and we think it's the strongest offering in the industry, which will get reflected in our revenue as we go forward. And with that, I'd like to thank everybody and have a good day.
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