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spk00: Good day and welcome to the YFIS Technologies second quarter 2023 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to David Barnard with LHA Investor Relations. Please go ahead.
spk04: Thank you, Betsy. With us today is Brett Moyer, CEO and President. Before turning the call over to Brett, I'd like to remind everyone that today's 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. Rears 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 Weiss'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 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 development. developments in the economy and financial markets, risks and uncertainties impacting the proposed commoner transaction, such as the inability to enter into a definitive agreement with respect to the proposed transaction, the expected performance of the parties there to risks related to receipt of necessary regulatory and shareholder approvals, failure to realize the anticipated benefits from the transaction, the ability of the parties to satisfy various conditions of the closing of the proposed transaction, and other risks detailed from time to time in the company's filings with the SEC, including those described in risk factors in our annual report on Form 10-K for the year ended December 31, 2022, as revised or updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q, and the preliminary and definitive proxy statement or other documents that Weiss intends to file with the SEC in connection with the proposed common transactions. 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 good morning, ladies and gentlemen. Welcome to the WISA technology presentation for Q2. It's an exciting update that we have today from the – and we're going to focus on the WISA-E – announcements that we did in July, and a business update on YSA-HT, YSA-DS, and finances. You know, two quick slides in terms of where we are for new investors, if there are ones out there. YSA is a company that has developed wireless technology, both proprietary chips and software and IP, to help consumers enjoy immersive audio that's delivered by Dolby Atmos, Dolby Atmos Music, DTSX, and those audio forms. We stream to up to six or eight speakers currently, roadmap to 10. But today, with the announcements that we just completed at the end of July, we're now able to talk about a software implementation in smart devices that can stream out to WISA-certified speakers. And we'll give you more detail as we go through this presentation. Where does WISA fit in the audio world? We're not the creators of the content or the wireless or the encoding and decoding that Dolby or DTSX implement, right? What we are is either hardware or software now that allows us to use standard Wi-Fi chips to transport audio to speakers that's highly synchronized as speakers together and highly synchronized to the video that you're seeing in a high-def quality. The other role we serve for the industry is we have WISA LLC, which is an independent organization for certification of interoperability between products, between brands. That's the one that's led by Tony Ohlstrom. As we look forward to launch in YSA-E, we launch at this time, unlike 10 years ago when we launched the original HT. We launch with a strong customer base, a very high reputation in the industry for delivering the best wireless performance out there, technically speaking. We're not going to go through all these specs, but just as a refresher, this is the roadmap we've followed. The WISA HT was launched 10 years ago with Bang & Olufsen at CES. We started porting our IP out of those custom chips into a WISA DS implementation with Expressive. Then in the last 18 months with the new chip coming from Realtek, we uplifted that and created WISA-E, both in modules and embedded software. Now, this is not a comprehensive feature list. We have been, as we announced in the press release, working with strategic customers to define specific features that they need individually or as a whole, and those are shared only under NDA. So, WISA-E, what's the importance of it? Well, this is... the first time that we have a software version. And what software allows you to do if you have a sufficient Wi-Fi power, which we think with Wi-Fi 6 and other Wi-Fi chips coming down, this will expand beyond just real text chips. But it allows us to add software to TVs, to cell phones, to tablets, to smart devices that can all talk to the same type of speaker. And when you add IP, versus another Wi-Fi chip or another Wi-Fi module is substantially lower cost to the consumer and the brand. So before we jump into the press releases and the market economics around YCE, I got to give a big shout out to the Portland team. Every member up there has labored for years to move our IP out of a custom silicon into both WISA DS and then uplifting it into WISA E. And what they're delivering is the first product of its kind in the industry that can be embedded on SOCs and soundbars or smart TVs and other devices for immersive audio. In addition to our team in Portland, I'd like to do one more set of shout-outs to our partners, Expressive and Realtek and SunPlus, and the strategic customers that we have talked to over the last 18 months to refine the YCE product offering. Without them, we wouldn't have been able to get to today. So thank you, Portland. Thank you, strategic partners. All right. So the YCE effort started in earnest with the press release for Realtek in January 22. And once we made that announcement, it kicked off two days efforts within the company. One is clearly the uplifting of the IP from WiSA DS into a five gigahertz, more channels, higher resolution technical process for software. But the other was driven by the sales and product marketing team to work with strategic customers that can help define both the performance requirements that are minimally required for Wi-Fi the feature sets that they need, and the pricing that's appropriate for their type of products. And so with the announcements in July, we're now able to talk about these results. So the first announcement on July 25th, this is a set of software tools that may be not immediately transparent to the everyday investor or consumer. But these tools are designed to A, make it easy to take YCE to production in the factories. But I think more importantly, make it easy to port YCE from one SOC to another. So why is that important? Well, if you think about a large tier one TV company or consumer electronics company, LG or Samsung or Hisense or TCL or Sony. Typically, their product lines, when you look at, say, the TV, they have their own custom SOC, which is the chip that runs the TV and delivers the features at the high end. They're usually using MediaTek or Realtek or Amlogic in the mid-range and the lower end. So what does that mean? The audio division does not want to design sound bars or speakers for each one of those SOCs. So by creating the software tools to make it easy to port an implementation from one SOC to another, it allows a consumer electronic company to choose YSA-E and allow the audio groups to develop speakers around YSA-E and know that no matter what TV or what sound bar or what smart device the other sister divisions are doing, it will be able to interface with their audio. So we think that's very important to the success. The July 27th release, that's like the culmination of the last three or four years of engineering work out of Portland. That means we have now developed design kits, and we started shipping them to customers, right? In particular, we ship them to four countries, five different strategic customers that we have been working with to define the future pricing and performance specs. Now, those five customers is a small body count of five, but they represent more than 50% of the soundbar market. And that's based on future sources data with some limited input from customers. With WISA-E, as we mentioned earlier, we think it's important that there's interoperability between brands and interoperability within products of the same brand. And by going to software, we're able to do that. That is opposed to Sonos, which can work within its own speaker system, but does not have the ability to work with TVs and sound bars outside of their brand or speakers, right? YCE can be implemented on a TV with wireless audio transmission ultimately, and that's the purpose of this software. Now, those five customers representing 50% of the market, we think they are able to – ship one to three million units of yce product a year that's our sam that's uh the feedback we've gotten from each individual customer you know what does that represent for us you know somewhere between five and fifteen million dollars of revenue a year for each customer that rolls out an extensive yce designs project okay quick update on weiss the ht and ds We see WISA-HT continuing to lead the WISA interoperability certification for many years to come. You'll see new members and new products being announced between here and CEA on September 7th. There will be another set of products with Tier 1 customers as well that will be announced in January at CES 24. WISA-DES will see the first sound bar launch. In October, that will be under the Platinum Audio brand. We're really excited about that because, as we've said in the past, we think YCDS changes the price performance equation for the consumer significantly in being able to deliver rear Atmos speakers, rear firing speakers, as well as a sound bar in the front that has up-firing Atmos speakers. People that saw that demo at CES were blown away. And so we're looking forward to showing to the industry the power of WISE and DS in that soundbar in October. Financially, quick update here. So as we've talked about in the last few calls, the consumer electronics industry has not had a good 14, 15 months, right? When COVID unfolded, opened up travel, opened up eating out, dollars spent on the home entertainment systems, whether it's TVs or speakers, dried up, which caused inventory buildup at every level of the supply chain, whether it's modules, components in our inventory, modules or speakers in our customers' inventory. But we also said in the last call that we thought the second half, that would open up. And What we're seeing today is it is opening up, hence the guidance of sequential growth. What's driving that opening, I think, is the TV brands and the speaker brands have adjusted their pricing to bring the consumer back to making investments in their home. Now, the first sign of this pivot by the consumer spending we saw in July. July's revenue for our consumer audio products exceeded Q2's total revenue for audio products and was just shy of Q1's. So we think this is a powerful sign. We anticipate that our customers are having the same impact, which will drive both consumer product sales in Q3 and Q4 for our audio products and more module sales as our customers start returning to building for future sales versus bleeding off inventory. So, when we look at revenue, we expect Q3 to be up, and we expect Q4 to be up significantly more. I think two calls ago, we talked about expense reductions going down in Q1. We're continuing to evaluate strategic spending. We expect second half this year to be lower by another half million from the prior year. and we expect 24 operating expenses be approximately $2 million lower versus 2023. At the end of June, we have $2 million on the balance sheet, and through warrant exercises, we raised another $700,000. So before we open up for questions, I just want to summarize what I think are the main positions for investment in WISA. We have a strong patent portfolio in applications around immersive wireless audio. We think WISA-E will lead the industry over the next several years and establish itself as the way to deliver immersive wireless audio. We have a first rate customer base that works with WISA certified and the WISA organization. And there's more than 30 brands that have delivered and built products around our WISA products. So we're launching WISA-E into a defined customer base with a reputation of delivering the highest quality. So with that, I'd like to open up the call for questions, operator.
spk00: We will now begin the question and answer session. To ask a question, you may press star and 1 on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vanderaar with Maxim Group. Please go ahead.
spk02: Okay, great. Good morning. Thanks for the update. I'm taking my questions. Brett, it sounds like the second half of the year has opened up like you expected, maybe slower or less than previously expected, but nonetheless it's opening up. And your guidance is for sequential growth, pretty strong sequential growth. So we're halfway through the third quarter now. So, kind of a two-part question. How much visibility do you have in confidence in hitting that second half guidance? And also, how much does WISA DS contribute to that guidance, given your first soundbar set to ship in October? Thanks.
spk01: Okay. So, from a visibility, we have a couple levers. Within Q3, we can see the daily sales rate of the Platinum Audio products. you know, at Amazon, at our retailers. So when we saw that pivot in July, just like if you go back to a call last year, I said we saw a sharp drop from April to May. So given that July is not the strongest audio month, typically for seasonality reasons, and to see the pickup in audio, we believe, you know, that piece of the forecast is on track going into Christmas season to strengthen our revenue. So that's the primary growth driver for the Q3 forecast. Q4 is a combination of three things. The seasonality of Christmas, so that typically will drive more audio sales. The DS-based soundbar, so we have, I would say, approximately half a million of that of the Q4 forecast is based on that sound bar, and then general speaker sales going into Q4. I think the module base off of WISA HT will be up from Q3, but I can't tell you yet how much because it really depends on how the increased consumer spending ripples through to our customers issuing replenishment and new production schedules. When we saw sales drop in May of last year from April, we saw our customers responding to that same type of drop late in August. So right now we're being conservative on module growth and more aggressive on extrapolating out what we're seeing in July and the first half of August for consumer product sales and the strength of the sound bar in Q4.
spk02: Okay, great. Helpful color there. That would give good momentum. That's great to hear. And then if I just, if I may, I want to shift gears to what I think was the most notable and important announcement from this quarter is that you have these five Tier 1 HE TV and audio customers that seem like they could represent material revenue, 1 to 3 million units each, it looks like, or 5 to 15 million in revenue per customer. with those turning on potentially in the second half of next year. Did you provide a revised guidance? I think last quarter you mentioned your initial 2024 guidance. Do these customers factor into that? And can you just revisit what your 2024 outlook is?
spk01: Okay, so these customers did not provide at the lower end of that guidance. So if you remember on that call, I think it was Jim asked and I said, You know, the $10 million is five and five from us. At that level, these customers did not factor into it. We will probably factor in these customers into official guidance after the CES set of meetings that we'll have in January.
spk02: Okay, understood. That's great to hear. And then maybe just an update on – the marketing and sales front online. Any more WISA wave statistics or any sort of read-through there? Are you seeing traction online? Anything you can provide there? Thanks.
spk01: Yes, I don't have the statistics here. I'll remind you that between Q1 of last year and Q4 of this year, of last year, we pivoted from spending money bringing consumers into WISA. and shifted the money, which was more cost-effective, to platen advertising WISA certified. So the result was traffic went down significantly, but organic traffic at WISA went up dramatically, particularly as a ratio. So we're continuing to optimize our spending around WISA certified and using platen products to help subsidize the expense of building the WISA certified. I can go back in and do a summary for you. But on the next call, I have no problem doing that. But that is our strategy now, right? Market WISA certified, drive products, be more cost efficient. And it proved out last year. It proved out because organic visitors, so for those that aren't familiar with the term, Organic visitors are not people that we ran an ad that clicked on an ad that came to WISA's website. They're people that went to Google or Bing or Safari and typed WISA or WISA technology or WISA speakers and then clicked on wisatechnologies.com and came to our website. So that's a valuable number to us because that's really a good indication of brand building.
spk02: Got it. That's helpful, Brett. And really great to see you guys gaining traction and building momentum with the YCE and the YCDS launches. It's great to see. That's it for me. Thanks.
spk01: Thanks, Jack.
spk00: The next question comes from Jim McElroy with Boston James. Please go ahead.
spk03: Thank you. Good morning.
spk01: Good morning, Jim.
spk03: Brett, can you give us your best guess on the amount of time it's going to take these customers to evaluate the YCE offering and then assuming that they want to go forward with it, how long it would take to develop or integrate it into their offerings? And then, you know, after that, what's the timeframe on actually introducing it into the market? Is it You know, they would need to wait for the next season in order to introduce it, or is it a rapid introduction? I was hoping you could just, you know, give us your best guess on the timeframe to introduce YCE by your customers.
spk01: So the normal sequence is a sales team will go out and, you know, convince customers you know, company X to evaluate their technology. And then you go through product marketing and get the product spec on the roadmap if you're successful. And then, you know, product marketing leads into product design and manufacturing. And that is generally a two to three year process for a component level, base level technology that's new. In our case, because we have had repeated conversations with these strategic customer targets that we think that's cut in half or even more, right? So the reason we said second half is there are some design discussions that would impact second half of next year. There are Most of the designs are targeted to 2025, which, depending on the company, means Q4 24 shipments. And a couple are focused on smaller, quicker implementations that could impact the second half in a broader way.
spk03: And your sales? are recognized on sales to the customers, or are they recognized on the sale to the end consumer?
spk01: Oh, no, to the customer. We don't ship anything unless it's been paid for. So, when it's paid, it's a sale. Okay.
spk03: All right, and if you can just give us an update on the acquisition, where you are, timeframe, likelihood of closing, all of that.
spk01: Yeah, let me just expand the other answer a little bit, Jim. So what I said is we don't ship unless it's been paid for, which is true. But as you move into WISA-E, there could be licenses that are prepaid. That will then get amortized out. So, you know, as investors start looking at 24 and 25, there could be prepaid licenses that show up any time next year or this year for that matter, right? In terms of the comm-year acquisition, we are, I believe we have most of the items in the definitive agreed on. George has worked diligently with the CommEAR team on that. And I think really the long pole intent now is twofold. One is there's some business conditions we're waiting to get finalized at CommEAR so that we have confidence to go forward with the acquisition. And then two, we just have to get a shareholder vote.
spk03: And have you scheduled the shareholder vote? Or is that a – you know, how long will that take?
spk01: I won't schedule the shareholder vote until we sign the definitive agreement, which will follow achieving some of the business objectives that we need to have achieved. And the shareholder vote is, I don't know, 30, 45 days, right? Right. Okay. So if you're trying to put it on a calendar – end of October would be a fair guess.
spk03: Yeah, I always push things a little to the right, but, you know, that sounds reasonable enough. Okay. Great. Yeah, that's it for me. Thanks a lot. Okay.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Brett Moyer for any closing remarks.
spk01: All right, I'd like to thank everybody for their participation today. I'd like to thank the Portland team again for doing a great job of getting WISA e-launched, and we really look forward to bringing it to the market and consumer over the next 18 months. Thank you.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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