WiSA Technologies, Inc.

Greetings, and welcome to the Weiss Technology Second 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 call is being recorded. With us today are Brett Moyer, CEO and President, and CFO Jeff Oliva, or George Oliva, sorry. 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 in 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 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 rate of growth the ability to predict customer demand for existing and future products and to 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 Securities and Exchange Commission, including those described in Risk Factors on our annual report on Form 10-K for the year ended December 31, 2021. file 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.

Thank you, David, and thank you, ladies and gentlemen, for joining George and I in this Q2 update. Last year, the company initiated a strategic vision to expand our technology solutions beyond the niche audio file market that we dominate to solutions that can reach the broad consumer electronic market. The primary investments that were undertaken included expanding our R&D effort and patent filings, hiring the former HDMI executives to build strategic partnerships in the industry, expand Weiss's role to work with retailers and directly with the consumer. Today, in addition to our Q2 results, we will discuss why now for these investments, the size of the market opportunity, the technology roadmap for each market segment, and the anticipated revenue ramp. Why now? When you think about where the industry has evolved, there's enormous work on spatial algorithms. There's release of codexes that can give you that three-dimensional sound by both Dolby Atmos and DTS. Wi-Fi chips have become significantly faster and lower cost. even to the point that some of the IoT chips, like the expressive chip we have a partnership with, can become useful in multi-channel immersive wireless sound. As we all saw in the last two years, being in our COVID caves, content is prevalent. It is streamed everywhere from every device. Yet when we're watching that content, it is not the same as when you're in a theater, when you're in a stadium, when you're at a concert or a symphony, that audio sound is half the experience, not just the video. So we got the content. How do we bring the rest of the audio to market? And then the third leg here is when you look at the TVs, they've gone 1K, 2K, 4K, 8K. They're running out of display technology that's meaningful to the consumer. So how do you continue to grow your business as a TV manufacturer? You synchronize audio to your TV and integrate audio solutions to build your P&L. So we think those three factors create a great opportunity for spatial audio and for WISA technologies. Now, where do we fit in that space? Because we're not the content guys. We're not the Wi-Fi media guys, right? And we're not the codecs. But we are the transport. So what our engineering team knows how to do is synchronize a lot of speakers, keep the latency low, make sure we work in a heavily congested Wi-Fi space. So we get audio from the smart device to the speaker. And that's our role, to support the other three legs of this tool. We've been successful with our original technology launch. Most of you have tracked us, so you've seen these brands. But these are really the premium brands in the industry. The audio guys are some of the highest performing audio speaker companies in the world. So we have a great reputation to launch this new endeavor. So we take, number one, we take the IP developed originally with WISA-HT. We extended and developed the WISA Association that moved from a test organization, a certification organization, to a broad consumer-reaching organization, which we'll talk about a little bit. We are now launching... The first product with our IP called WISA DS that's on a 2.4 gigahertz high performance. And then following that, we'll take the IP that we are working with in DS and move it to a five gigahertz solution, which lets us add more features and reduce latency as well as license IP. So three technologies, one existing, two starting to ship this year, third one coming next year. WISA-HT, WISA-DS for sound bars and TV integration, WISA-E for IP licensing and smart speakers and all other devices. So when you look at the whole market, WISA is the only company that is able to offer a low-cost module for soundbars, a mid-range solution for all smart devices, and a premium solution for those audiophile customers that we have today. And we're the only company that's being able to span the breadth of solutions and cost points. When you look at the market size, this dramatically increases our market size. We showed you this slide last time, but just for the refresher, we're going from a 40, 50, 60 million TAM to several hundred million with YSA DS to over a billion with YSA E. And the price parallels are, you know, HT is the most expensive. YSA DS is probably 65, 70% less. then HT, and WISA E is right in the middle. So that chart of future cost goes from the lower left hand all the way up to the right. And no matter what your objective is, whether you need IP licensing or a complete module, we're able to handle the whole market. So the role of WISA, which... has expanded dramatically in the last 12 months. I think it was this time last year that we talked about WISA stores. And the first one was at amazon.com backslash WISA. And we expected to get five or six last year. Today, we did announce that we expect to expand that and buy another three to five. And materially, we now have inbound requests from retailers asking how do they become a WISA certified retailer? How do they set up a WISA store and what are the requirements? That's a big swing in terms of momentum for WISA when you can take WISA certified TVs or speakers and have the retailers aggregating them so that WISA looks like one complete solution to the consumer. With the consumer marketing, you saw us grow web traffic from relatively nothing to 2 million consumers last year. This year, we'll increase that to 3 million, between 2 and 3 million. That's lower than our previous guidance, and that's as a result of consumer patterns changing and what they're buying. Now that people are leaving the COVID cave, we saw a change in demand, both through our customers, as well as our marketing with Wysa. So we shifted more of the marketing dollars out of Q2 and Q3 into the fall selling season, when people come back from their vacations, come back from their first trips, come back from eating restaurants, and they're back in their house thinking about what to do for the fall and winter. And finally, for WISA, critical to that was we did launch, invest, and then launch the SoundSend. And as you can see below, the SoundSend actually provides to the industry the safety of knowing they can design speakers and there will be a WISA HD SoundSend, there will be a WISA E SoundSend for our interoperable standards. The industry has responded with some great awards, including the 2022 winner for Smart Home Excellence. And we'll continue to support that product so that the consumer and the retailer and the speaker guys know there's a product that'll connect WISA speakers to any smart TV. Okay, so there's new information on this slide, but for the new people joining this call, WISA DS has one primary competitor that dominates the wireless speakers in the soundbar, and the soundbar transmits either subwoofer or rear speakers. WISA DS, comparing to that, can offer more channels that we can do upfiring as well as rear speakers and a subwoofer. It has a stronger performance in a congested wireless space, and it's substantially cheaper. So we think all three of that positions us strongly. Now, we launched this particular feature of 5.1.4 capability in March. COVID has hampered our ability to go to Asia, but our Asian team has already generated 12 companies that are going through the testing evaluation cycle, and they break out between eight companies focused on soundbars, three companies focused on integrating testing and for the possible integration into TVs and one company that's launching a product for the auto active market. We expect at least two of these will go into production in Q4 this year. So how does all this technology evolve over time? So if you start at 2023, you have WISA-HT, the Gen 1 modules. You have the speaker systems. You have WISA-DS and WISA-E modules all in market next year. Now, WISA-E will just be getting there late in the year, and we will launch platen speakers into the market with WISA-E, with a WISA-E SoundSense. And again, what's the purpose of that? Not to be a speaker company, but to prove to potential customers that we perform well in the retail and perform well in the consumer home, and we're a safe technology to adopt, right? So YCE will start in 23 and build us the blue color. WISA DS modules will start in Q4 this year in terms of revenue and continue to build. We think it's a strong product and it builds continuously through 2024. Speakers will grow as a result of our effort to prove WISA E a viable technology and performing well with consumers. And the G1 WISA HT modules will grow have new design starts throughout next year, and then slowly ramp down over the next three or four years. From an IT position, from our investment in the last 12 months and the next six, fundamentally changed our position in terms of patent holdings. We've now got 12 issued or in the process of review or filings. That's from the benefit of the 12 years we've been working at it. And again, this is all about, do you have an engineering team that knows how to handle sync, latency, congested Wi-Fi space, and audio repair? And the engineering team has done fabulous at developing WISA DS and WISA E. We're really excited at that performance as it measures against competition. So now I'd like to turn the slides, the presentation over to George, our CFO.

Thank you, Brett. Q2 revenues were $946,000. It's down 40% from the same quarter the previous year, but up 67% sequentially from Q1. The gross margin was 20 points, down from 29% in the previous year, but up from 11% sequentially from Q1. Operating expenses were $4.3 million, including half a million of non-cash expenses, primarily stock comp expense, compared to $3.3 million in the previous year with $400K of non-cash expenses. The increase in OPEX was due in large part to our engineering efforts, as Brett has discussed. The loss for the quarter was 4.1 million compared to 4.6 million in the prior year. The larger loss in the prior year despite lower OpEx was due to a non-cash charge we took in relation to converting the preferred last year to common. The ending cash for the quarter was approximately 4.8 million. In terms of guidance for the rest of the year, we expect revenue to continue to increase sequentially in Q3 compared to Q2 and increase additionally in Q4 compared to Q3. As module volumes increase, the margin should continue to improve into the mid-20s. And then with the cash on hand, in combination with increasing revenue, decreasing inventories, and the $3 million in financing that we announced this morning should be sufficient to fund our execution into 2023. As we proceed, Mention, we closed, we signed a definitive agreement with our largest shareholder for 3 million of net funding on convertible note. And that includes warrants that are priced at a dollar, approximately 2 million warrants at a dollar. And that's it. I'll turn it over to Brett.