Datavault AI Inc. (DVLT) Earnings Call Transcript & Summary

Greetings. Welcome to Summit Wireless Technologies Fourth Quarter Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Kirsten Chapman from LHA Investor Relations. Kirsten, you may begin.

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

Thank you, Kirsten, and good morning, and thank you, ladies and gentlemen, for joining us on the call today. So we're looking forward to it. Hope we have some good questions, discussion afterwards. We did notice because we are tracking shareholder growth through the SRAX acquire program. There's about 1,200 new shareholders, so we'll do 2 slides of catch-up overview. And then there's a good number of new slides in terms of performance and growth that I think you all find interesting. Summit just as a catch-up for the new shareholders of both business. One is the core business developing technology, so on chips, modules, IP for the wireless home theater space. The other is the WiSA standard. Now the WiSA standard is the interoperability and the marketing of products that transmit and can receive interoperably between each other. And we have talked about WiSA being more than 70 brands. The objective is to make sure a TV knows how to communicate to a speaker, a speaker knows how to communicate to an AV receiver, and that standard is maintained by WiSA. This is a new slide for everybody. It may look similar, but it is fundamentally different. So if you think about -- when we IPO-ed a little more than 2 years ago, we had 6 speaker brands shipping WiSA Certified products. This slide is not a member slide anymore. This is a slide that talks about brands that will be shipping in 2021 if they're not already shipping. And as you can see, it's going to exceed more than 25 brands. We have 3 TV brands, a fourth one and a fifth one, we expect to come this year for the fall selling season. And we look at 25-plus speaker brands in the market for Christmas selling season. For the new shareholders, we see the mission here is making sure a consumer has a very simple way to install a completely immersive surround sound around that Smart TV. Thin TVs had the poor audio, soundbar helps. So Soundbar subwoofer is better. But when you look at one of the WiSA set little pass and you look at, say, the Platin or the Enclave price points, you're looking at $1,000 to get a complete home theater system that you can set up in 10 minutes, most of that time is unpacking. And this half the price of what the premium soundbars are going forward by Sony, Bose, Sonos. So we think as the consumer becomes educated, there's a broad demand that will come around these price points. Three growth drivers now. One is SoundSend. That's pretty well vetted, a couple of new information in there. We're going to talk a lot about WiSA Wave today and then the next-generation IT. And fundamentally, if we go to the SoundSend slide, you've seen this. It's a universal low-cost transmitter that can plug into any HDMI TV and transmit to all WiSA Certified speakers. It will set up the wireless home theater system automatically in a second or 2. Question is, we did announce this in the fall, how is it being received? I'll tell you that we're happy with the demand on this for it and the industry pros at CES awarded it 3 different awards, which is outstanding for a new product in a new category. All right. What's the mission of the Wave? So the mission of the Wave is to educate the consumer, both on that exists and the benefits, critically expand the category as perceived by the consumer and the retailers and the brands and drive lower marketing costs for the brands that are shipping products. We think this will be -- this is high leverage for us. We're putting a lot of effort in it, and we are going to talk a little bit about it. This on your left would be is 1 example of a WiSA Wave ad that we ran, right? It sucks people in by looking at a TV or a soundbar. Talks about some of the bigger Tier 1 brands that are shipping product. You click on that, they come to a landing page. Now on that landing page, we generally run a good, better, best solution as defined by price points. So what this does is it creates in the consumer's mind a category. So for example, if you look at this one, there's an $8.99, $14.95 and a $24.95 solution, right? And we can mix and match these, and we have put different brands in them. This is just a 1 example. Now the advantage of having multiple brands is, a, it creates that category, which is important to WiSA; b, it actually increases the consumer engagement to see 3 speaker -- 3 brands there and 3 different looking solutions versus 1. So individual brand just ran an ad to looking at Enclave. Well, that's the only thing that could peak their interest. But like in this case, what happens if you're in an apartment, you own a low profile sub, which is the Monaco has, yes and you don't want a big sub like Klipsch or Enclave. Well, okay, you're still the WiSA customer then. If you have just gone to Enclave, we might have lost you because you didn't want a big sub and vice versa. There's a bunch of people who don't want a low profile sub. So we now offer different looks, price points, audio solutions, creates that category image for the consumer. Now the next 90 days, you'll see a lot of transformation on the WiSA website to increase the engagement and leverage what we started to do in the fall. You'll see a new website come in. You'll see the ability of brands to launch and promote their new products. You'll see the ability of brands to increase promotions and giveaways to create engagement with the consumers. Each brand is part of its association fee will get a member page, so they can, although it will be -- has a top of it will look like the WiSA website page because it will be. Everything on that content is defined by the brand and by their imaging and messaging. So somebody like Enclave has 2 different tiers of products out. They might want to put both of them on there. They might just want to put the one they're doing promotion. A company like LG that has projectors, OLEDs and Nanos. They want 3 sites, 3 different images and talk about each one of those categories and allow the consumer to click off to their website or you can click off directly to a retailer. And that's important because you will hear us talk about and define an authorized reseller program, right? So again, this is all about building that category, both in the consumer and the retail mind. And if you're going to be an authorized reseller, you're going to have 3 or more WiSA products, you're going to have a trained specialist that can answer the questions from the consumer. So for example, you'd probably have on your page, your member page, you would have contact us for questions, WiSA at B&H Photo or something, right? So we think it's important that we identify 10 or 12 key retailers that have both TVs and speaker brands, different price points, different brands, and they can educate the consumer. And we work intensely with those retailers to make sure their databases are set up properly, a consumer can type in WiSA and get all their products, not some of them, depending who set it up. And so we'll be working heavily with that. And in the end, all of that should expand the consumers' awareness and education of wireless home theater and the WiSA solutions. Traffic, this is an update to how we see the 1 million visitors coming in this year. It is heavily tied to September through December. We see the first 2 quarters as growth certainly year-over-year. So Q1, we think will be about 135,000 versus 34,000 last year. So that's up about 400%. But really Q1 and Q2 is all about us focusing on bringing up all those initiatives we just talked about. So when it comes into Q3 and Q4, the brands know how to market to the WiSA educated consumer and the consumer sees a broad category of products. Now just to give you a quick idea of how the -- how our analytics can help. A consumer brand directly market to their consumer. And first, cost effectiveness that we can, as association drive is cost-sharing through the association fees, the identification of consumers interested in home theater, right? So if you go out and you buy 1 million impressions, a 98% of them are worthless, but you're going to get 20,000 people. Those 20,000 people may like a low profile sub, a big sub, a known brand, an unknown brand, an innovative brand. But how do we go back and remarket to them? So the analytics that we've developed over the last 3 -- well, the last 3 months of the last year, we're able to let a brand go back to anybody has visited WiSA based on when they visited in the last 6 months, last 90 days, last 30 days, whether they visited from Europe or Brussels or Kansas, right? They can -- we can drill it down to letting them remarket to people at click buy now from that landing page. We saw they went to Amazon. But the people that go to Amazon, 0.5% or 1% by a product, more or less. So there's still 99.5% that are engaged enough to get all the way to a reseller but need something else. So why not let another brand come back and remarket to them. You can remarket to somebody who's visited WiSA 2 or more times, spent more than 2 minutes or 5 minutes on the website. We can drill it down and give the brand the ability to even segment between the consumer and the audio file engager. So if you came in and you looked at Bang & Olufsen, and you looked at system audio or Buchardt. Those are audio file speakers, right? And they're priced that way. If you came in and looked at Platin or Enclave, we're going to categorize you as a consumer so that somebody that's trying to target a $1,500 or less price point product can go back and remarket to them. Requirements on the brands are very minimal. You got to be paid current on your association fees. You need to use to WiSA Certified logo in your ad upfront, not at the end of a video. And there's no bash in peers. We're all a WiSA family. All right. New. This is a new slide, not necessarily new product, but just to clear up what we're doing. The Platin product line is distributed by Summit in North America, not in Europe and Asia, but if that product has been certified by WiSA, we are doing the distribution in the U.S. Now we are in no way headed to being a speaker company, but we are using the Platin line as a critical component of the WiSA Wave to define the category and open up the category to more consumers. So without Platin, the lowest price point MSRP would be $10.98 at Enclave. Now Enclave has shared how the mix works between their $1,100 and $1,500, and that $1,100 opens a door in a very high percentage move to $1,500. That is the same objective with Platin, open the door to the $7.99 shoppers, move them to $9.99, moving from $9.99 to a $11.98 and up the ladder. So we -- the ODM had designed this product. It was shot to several speaker companies and we chose to pick it up because it opens that market to a broader consumer and feeds people up the ladder in the WiSA category. Next, if we -- because we believe in the way and the critical leverage we get out of it, having our own brand to model programs around is critical for developing the right analytics, to go back to the speaker brands and saying, this is what you should do, this is how you should do it, et cetera, right? So most of the data that we have today is around the Platin ads. And the Platin products and the good, better, best ads. Now you'll see us open up a store. And the reason we're opening up in a store is that we can sell some of that Platin direct because when we sell it direct, we're able to actually identify the exact buyer and the demographics of that buyer. And we can turn those and then Facebook knows who purchased, not who clicked on a site, not who clicked on a landing page to go to a reseller, but who actually purchased. So this allows the media companies to target exact buyers, not shoppers, but buyers. So that's good for everybody in the WiSA ecosystem. For us to be able to refine the 90% males that come into the WiSA site to, hey, these are the 10% that really buy, right, and remarket to them. And then finally, the critical point on Platin is we're a technology company that develops new wireless technology. We have another wave of technology coming out that we started launching in January. And WiSA -- the Platin line will be an early adopter to prove to the industry that is successful. Generally, the pattern is, as a small company, you've developed something, you shake and vacate. You spend a year or 2, a year to sell it and then you watch your customer design it per year, we're shortcutting that cycle on the Gen 2. So we will move Gen 2 into a Platin product as fast as we can once we develop and started shipping Gen 2. For the analyst modeling, I just don't see this being more than 10% of our revenue. It helps certainly a little bit here, but really, this is a tool of the WiSA Wave and driving the overall category. All right. Next gen. We have launched a 2.4 gigahertz WiFi 4 channel product to the smart market. We've got multiple customers evaluating it now. We are hopeful our IoT module manufacturer will bring out their 5 gigahertz, which is scheduled for Q3, which would allow us to have a full multichannel, low-cost solution next year. Now again, if you go back to 2 years ago in the IPO, we had the Axiim Q, which is an AV receiver transmitter, $1,200, Axiim then brought up a $229 dongle, USB dongle that transmitted for Xbox and WiSA Ready TVs, the SoundSend drops another $50. It drops the Xbox cost so you're at $179. Currently, the Platin product line is evaluating a SoundSend USB. We mentioned TV brand 4 and 5. There will be more brands shipping WiSA Ready TVs this year. And if you look at what happens if you move SoundSend to USB architecture, you drop a painful Dolby tax, drop HDMI royalties and you lower the tariffs and overall costs. We think that would let a brand bring out a dongle at $99 to $119. And then if you look at next generation, there are 3 TV brands that have products built into them currently or 2, Bang & Olufsen and SKYWORTH. And that module is $13 to $16 roughly. That next-generation is going to drop that cost by 80%. And so if you think about enabling a TV to go direct to wireless speakers, you're now getting into a very low single-digit cost burden, but not much more than maybe an HDMI cable to the consumer. Now how does all this technology trend into, say, the lower end of the market, which is where the volume is, 2 years ago, it was $999 was the lowest you could get. You'll see $899, $799. And we think with the next gen, next year, you're in the $699, $749 price point. Now those are consumer prices. We think our margin continues to grow and expand with this evolution. But the market broadens, even though with the lower solution cost to the consumer. So with that, I'm going to turn the call over to George.

Thank you, Brett. Q4 was the strongest quarter to date. We see continued improvement in key metrics, revenue and gross margin. Revenue for the quarter exceeded $1 million. That represents a 141% increase over the same quarter in 2019 and a sequential increase of 71% over the third quarter in 2020. The gross margin was approximately 24% for Q4. That's compared to 17% in the third quarter. So that's a 7-point increase in margin, mainly attributable to scale as volume increases. Total OpEx was $3.9 million for the quarter. That included $955,000 of noncash charges compared to Q4 '20 was $2.9 million. In 2019, which included $222,000 of noncash charges. The Q4 2020 number included $250,000 of advertising expenses relating to the Wave. Cash at the end of the year was $7.4 million at December 31. Cash projected at the end of March 31 this year is between $9 million -- it will be above $9 million and could be up to $10 million, depending upon the timing of customer payments late in the month. That increase in cash is mainly attributable to the warrants that were exercised in January and customer prepayments relating to orders for the balance of the year. In terms of revenue guidance for Q1, we expect to exceed 100% growth over the same quarter Q1 '20, again. Revenue in Q1 '20 was approximately $400,000. So we're projecting over $800,000 of revenue for Q1, and the margin should be again in the mid-20s. OpEx -- total OpEx is forecasted at $3.2 million that will include $600,000 of noncash charges relating to stock comp expense mostly. And that also includes about $200,000 for advertising relating to the Wave. And as I said, the gross margin will continue in the mid-20s as we see improvement from scale. And with that, I'll hand it back to Brett.

All right. Thanks, George. And so if I summarize where I think we are, you're going to see very shortly more TVs that engage with the WiSA system. Clearly, you're seeing more consumers coming into the WiSA Wave websites. There's a lot more speaker brands that are shipping products. And lower prices to the consumer are rolling out, all of which we think drives revenue for us this year and next year. And with that, I'll open up the call for questions, operator.

[Operator Instructions] Our first question comes from the line of Suji Desilva with ROTH Capital.

Great work on the progress here. Yes, no problem. And pleasure. So first question here, Brett or George. What percent of your design wins, your product design wins are ramping today versus still on the come to launch, just to understand kind of how full the pipeline is for you?

So in terms of launching this year or launch in next year, I'm not sure the time frame you're looking for in terms of what's in the market...

Sure. Launching in -- yes, launching in calendar '21, which of your wins have not yet come to market? Like what percent of your wins have not come to market yet versus the ones that are already in the marketplace?

From the consumers' perspective, from a brands perspective, I would say, 60% are now in the market, I mean, very shortly will be. From a project perspective, yes, I'm not sure. I mean we're -- total projects that are in the market -- that will be in the market are close to 95 -- in the high 90s. So each brand -- a lot of the brands have multiple projects.

Okay. That helps. And then is there any way to quantify the -- or qualitatively describe the shape of the unit ramp in calendar '21? And what are some of the key factors there are as you go through the year, how the quarters literally shape up in the ramp?

So let's just -- I mean, the classic seasonality of component to a consumer electronic business as Q3 is strongest seasonally. June through October is when you'd hit most of the shipments. Because you got to build it, get it on the water and get it to Europe or North America for Christmas, right? So certainly, we are seeing strong demand already for Q3 from -- certainly from a historical perspective. And I think that's how I'd calendarize it. Now to a small extent that we have the product, the Platin product line, that's going to be a Q4. But as I said in my guidance, I wouldn't be building a big model around that. That's not our objective.

Right. Understood. Is there any -- in your ramp in '21, is there any customer concentration among 2 or 3 large customers driving the units? Or is it fairly diversified?

Our largest customer is Harman, which is division of Samsung. Our largest WiSA Ready TV is LG. There will be a second one that will -- that is really a very high Tier 1 that will diversify that. And I think by the time you get to the end of the year, all those brands that we saw earlier in the presentation, will start to heavily diversify Harman.

Okay. Good. Should be a good year for you guys. And then lastly, just the IP business model. I want to understand that a little better, just what the business model is there and what the opportunity for what mix of revenues there is?

Yes, Suji, can I just qualify one thing on the Harman discussion?

Of course.

There is a concentration around on Harman. But there is not a concentration around a particular product in Harman. We have any project under the Harman world, right? So if you go to the project level, there's no 1 concentration anywhere.

Okay. Great. Appreciate that clarification, Brett. And then lastly, just the IP business model, I want to understand that better, what the business model is there and what the opportunity as a mix of percent of revenue is longer term if it's strategic to grow revenues there?

So it is strategic. We think it's the largest market by far. The 2.4 gigahertz is a 4 channel. So that is targeted to your soundbars with subwoofers or wireless rears. We think it is really -- now, we like our side of the margin of the business, but it is an aggressive price compared to current solutions in the market for that market segment. We're highly encouraged. We think it because -- when you -- if you go into a soundbar, you're talking 30,000, 40,000 systems on a design, right, or more. So these are higher volume products, we see it impacting -- our 2022 significantly and may the 2 solutions have a good solid race.

Our next question is coming from the line of Jack Vander Aarde with Maxim Group.

Good to see solid fourth quarter growth. It sustained momentum based on that first quarter outlook, good to see. I'll start with a question for Brett. Just regarding the revenue outlook, again, you're forecasting this more than 100% year-over-year growth. You just came off over 100% growth in fourth quarter. You're expecting over 100% again in the first quarter, which is very exceptional growth, clearly. Can you provide maybe additional color on -- you touched on the drivers, but as it relates to the first quarter, what are the key drivers outside of just, I guess, SoundSend and then when you include all these new speaker partners and WiSA Certified systems? How do I just think about which ones are driving the most growth? I imagine the WiSA partners and then also just thinking about retail versus online e-commerce. Anything you could provide there?

So -- well, that's a big dump truck full of questions, Jack.

Pick and choose.

All right. So for the -- for our brands that are in market, it may not be a surprise. We haven't talked about it, but I think almost all the brands are seeing strong demand, right? And the -- we -- the brands are benefiting from a surge of buying and outfitting the house from COVID. Certainly in Q4 and Q1, it would be interesting to see how it goes. But for us, we have quite a few projects coming on. So it's not a factor in terms of how we see the year. We see Q1 -- well, we talked about that Suji a little bit, but Q3 is traditionally the big quarter seasonally for the industry. We have a steady stream of products rolling out between here and September, which should make a good consumer selling season in Q4.

Got it. That's helpful. And that's expected, and it's good to see that your view remains there. And then just going back to prior quarters, I know you talked about sometimes level of visibility as you look beyond a given quarter, a couple of quarters, plus the design process takes a while. Just what's your level of visibility right now? Like how far out is your visibility in terms of what your potential production ramp is throughout this year. And then keeping in mind maybe some external supply shortage factors on semis?

Yes. So we -- when you see the K filed, we have increased our inventory levels. You'll see an inventory increase at the end of Q1 as well, right? And we made a decision back in December, we were very concerned about the tightness of the silicon industry versus all these projects that were coming online. So we placed orders around the turn of the year to ensure that we are in the food chain to make sure we had all our long-term chips, right? So we can -- conversely with that, we told the brands, our customers that we were going to 21 lead times, 21-week lead times. Now that gives us some visibility. But in fact, when new customers come on board, they're going to put POs in no matter when you told them the lead time was, right? If customers sell down. So for example, if you try to buy a Klipsch speaker system, they have been sold out since mid-December. There's a piece here or a piece there, but you cannot get a 5.1 -- or I don't even think you can get a 3.1 anymore. So if you're sold out, you're going to put an order in regardless. So we're seeing both longer term demand POs come in even our lead times and we'll see POs come in because they're sold out.

Got you. That's helpful. And then maybe just a question for George on the gross margin front here. The fourth quarter gross margin result was exceptionally strong, definitely relative to consensus and my estimate. Which is good to see. And it sounds like it's benefiting from that ramp in revenue now at the $1 million level. So I guess, as you look for the balance of 2021. If revenue continues to remain at $1 million or above per quarter, just can you talk about how you'd expect that to impact gross margins? What kind of range we're looking at? I know you provided for first quarter, but for the rest of the year as revenue really scales.

Well, I would expect to see continued improvement. I don't want to overpromise, but I would look at it in the mid- to high 20s over time.

Okay. That's fair. And then maybe just one last follow-up back to Brett, kind of relating to the gross margin and the long-term opportunity with Gen 2 technology. This is my understanding. Has a much higher gross margin profile or potential. So just you think -- I guess, just to review your comments, you expect the Gen 2 to really be launched, I guess, in next year. Did I hear that correctly? Or am I misunderstanding that?

Well, let's just clarify the data points. Because it could be both, right? So we did launch the 2.4 gigahertz. We look for that to start impacting Q4. We do expect a 5 gigahertz chip out of our module chip partner that we can use to expand our IP to more than 4 channels in Q3, which means we will probably launch it at year-end, and it should impact next year's revenue as well.

Got you. And a margin kind of profile dynamic of this, still early stage on paper here, but is there opportunity for upside relative to the Gen 1 technology?

The answer is yes. But we're not going to disclose that to customers. The price is going to be set based on the volume in performance versus Bluetooth or other wireless WiFi solutions.

Fantastic. Make sense. Okay. Great. That's it for me guys. Congrats on the strong results. And wish you the best at the strong outlook.

Our next question is from the line of Ed Woo with Ascendiant Capital.

Yes. Congratulations on the quarter again. My question is, what are you guys seeing and hearing from your customers, your partners in terms of what they're seeing in consumer demand for this year? Obviously, it was very volatile last year. How do they feel right now, obviously, looking towards the holiday season of this year?

Well, I think if I summarize the majority of our brands in Q4 and Q1 is strong for them. I think anybody can guess on what will happen during the summer. But I think it's sad to say, I think COVID, though, really created an awareness of what you can do from home entertainment in your house, cost affordably, both from large screen TVs to wireless audio surround sound. I think it pushed and part of that, and it's going to be a permanent shift to adoption in the home, particularly because it also pushed the streaming services to step up. I mean Disney+ crossed 100 million users, right, or is about to. I saw in the press, right? So all those streaming services, and there's been a lot of streaming, but streaming first run movies, first run action movies, content movies. That's just begging for a good audio system around the 65-inch TVs and 70-inch TVs et cetera.

Great. And then are you seeing any difference between your European market customers and North American customers?

Consumers or brands?

Consumers and brands.

So when you look at the brands that we say are shipping or about to ship, those brands cut across all segments. So some brands are much stronger in Europe. Some brands are stronger in China. Some brands are stronger in North America, right? From a consumer demand, I do not know enough to say what the difference between the European and the U.S. consumer. We have more dealt on the U.S. consumer, primarily because I can see what the lower-priced solutions being Enclave and Platin are doing. And there -- the European brands are dominant in the mid-tier and higher audio file categories or style, right? So if you look at Harman, if you look at Buchardt, if you look at system audio, Bang & Olufsen, those are audio file products. And in the case of Harman and Bang & Olufsen, they're highly artistic.

What percentage of your business right now is international? Can you tell?

Well, from where we ship, we ship almost everything to China. It's almost everything is built there. There's some stuff that goes into the Europeans for low running stuff. From a consumer brand, I would guess, it's fairly distributed between Europe and North America. I think the consumer -- the brands that are strong in China, they're coming online in Q2 and Q3.

Our next question is from the line of Kevin Dede with H.C. Wainwright.

So I apologies. I'm still a little confused on your current module, the Gen 2, and I guess, the Gen 2a. Can you talk about how you to plan on integrating those technologies into SoundSend, just so I understand. I mean I get that the Gen 2 and Gen 2a model -- module, I guess, which is the 5 gig. Those get integrated into television. But I just wanted to make sure I understood how you planned on migrating SoundSend?

Well, so let's talk Gen 1, Gen 2 as families first. So the current generation that SoundSend is using and all certified products are using. That is of the highest performance, and that continues on for years, right, years. The Gen 2 softens respect to good enough for the broader consumer market. But it is not in any way an audio file technology, okay?

Yes, no, understood. Given few words supported channels.

Yes. Well, even when we get the 5 gigahertz, and we think we could do 8 or 10 or 12, that's not an audio file quality of performance, right? I mean, what you get out of Gen 1 is 5 millisec latency and 24-bit uncompressed audio, right? Now we'll still use uncompressed audio on it. The 5 gigahertz let's just get more channels off the same module. And I think both of them is not just going into a TV, I mean, they're all applicable to either a PC or a soundbar or a TV or any high-volume product, right? From -- you had 1 more question, I forgot, Kevin, sorry.

No, no, no problem. I just want to make sure I understood how you plan on bringing these to market, right? And how SoundSend -- your. Yes, yes. Just your thinking behind how because there's -- I mean, it leads to my next question, Brett. And so let me prelude that too.

So let me just answer this one. We see at least the 2.4 gigahertz, I don't think that will go into SoundSend. We don't have that planned. We see the 2.4 going into soundbars. We see that in a product with 4 channels that can displace the current WiFi vendor and displace the current Bluetooth vendors, right, and the WiFi vendors. And those are -- those solutions are generated like a home theater box. They're sold integrated, right? So we have not made a part of the WiSA standard. If you want a WiFi performance, here's a lower cost, higher performing solution, done. Now the 5 gigahertz will be a -- will address an interoperability market. We think a TV is needed, we think the speaker brand is needed at the consumer level. But again, at this price point, we still think at $749 or $699, you're selling a solution in a box, primarily. But a brand that wants to turn a WiSA Ready TV into an integrated solution and stream directly to their soundbar or their speakers, they do need to still have interoperability at some level, we think.

Okay. So in your prepared remarks, Brett, you mentioned moving customers up the technology ladder. And it begs the question, right. The price ladder, okay. Yes, but it begs the question on, I guess, replacement cycles for lack of better definition. I was wondering if you could speak to that a little bit. Given there's a huge installed base, a COVID nothing new. So large screen TVs have been selling well. And that's sort of why I was curious about how you're going to position SoundSend. You can drive price -- the price point of that lower, maybe you get more wireless surround sound adoption, given such a large big screen TV installed base?

Yes. So TVs have had a phenomenal run last year, which creates with the streaming service, a great opportunity for aftermarket audio sales, number one, right? From a replacement cycle, most of these design wins are 2-, 3-year cycles. At these price points, right, for the Gen 1 stuff. That stuff doesn't get cycled out every year. Those are long-term design wins.

What I meant is really at a consumer level, right? So I think everybody is pretty much used to buying a new iPhone every 18 months or maybe 24 months now that they're $1,200. I'm just wondering how you see -- or the way that we should -- listen, I know you've been in this business a long time, and there's nobody on this call that knows it better than you do. I'm just wondering how you'd expect consumers to react to this new technology coming to market and their willingness to change out what they have?

I don't think it's a replacement cycle issue at all, right? I think what's being sold now is prosumer audio file category of products. And as a 5 gigahertz solution comes out next year, that's a whole different consumer market. Preference between the TV world, an LG OLED versus an LG LED right? You got a $1,500 price point versus a $350 price point. So we totally see Gen 2 as opening a market that we're not even addressing.

I see, okay. It helps.

Yes. They're not oil and water, Kevin, but I don't truly think the 2 markets between Gen 1 and Gen 2 mix.

Okay. Okay. Thanks for that clarification because I clearly didn't get it.

Yes. No, Gen 1 has a performance level that no solution has. And that is if you're going to spend $1,500 on an audio system, you're not going to take any other solution. Unless you want to take wires and spend another half a day or day wiring your house, right?

Yes. No, I wouldn't be speaking to you if I thought that was the ideal end adoption. That just -- that's another rhetorical statement for rhetorical question. Okay. Let's take a step back and look at Platin. Yes, give us a sense on how you've seen your constituents, right? Your partners, the TV brands, the speaker brands sort of react to that introduction. I know part of it was sort of a kick with the spurs, oh, I'll let you know. I mean, like Jack, I have a dump truck full of questions, too, but I promise I want to keep you all day. I'm just kind of curious on how you see that reaction now and whether or not you think you'll see a response to that sometime this year? Or do you think it might take some of the bigger players a little bit longer to react to that. What's your take on that?

Was your question on how they're responding to the Platin product line?

Exactly. And not so much the line per se, but the concept, right? It's really about the philosophy. Let's to your point, open up a market at a lower price point and address a market that hasn't been addressed. And I know -- at least my understanding is that part of driving that was introducing this line, if I'm not mistaken.

100%. 100%. So if you look at the customer base, if they're selling a $2,000 solution, they could care less about a $799, $699, $999 solution, right? If they're selling a $1,500 or $1,100, they're a little guarded at the moment. But the proof is in the pudding a year from now, do I have 1 million consumers coming through? Am I able to funnel those consumers? I mean, we send as many people off to Enclave in a week. That's what we think their monthly website traffic is. Now you can be mad about a $999 price point. But in the end, if I'm driving consumers to you because if you break it down, say 1 million consumers come into WiSA, it doesn't matter what products are there. It's a 0.3 to 0.5 sales perspective on close rate. At least a 99.5% of those people will buy a different solution is no different than retail. So if they see value in the traffic that gets driven their way, then they'll be okay by the end of the year. I have -- if they've seen me show up in 25 retail store fronts. They'll be mad. But I'm not. I don't have any intention to do a full brick-and-mortar launch. This is all about the consumer awareness, the consumer traffic and at least the e-commerce part of retailers structured around WiSA. And to be perfectly honest, the reason I'm not encouraging people to model out the speaker business because if a TV1 brand came in and said, look, ODM, we want to buy 50,000 of those systems next year. I'm done. Have it. That's why I want it. Well, they're going to modify it, they'll do whatever, right? So that probably won't happen. But right now, I'm still one of that. We gained the lower price customer an option or price to get to $999, we didn't do it. So I want a $999 price point for WiSA, I want a $799 price point. Nobody else is going to step in then I will step in and establish it, at least in the Internet world.

Okay. Okay. Understood. Thank you for the clarification. On association fees, when do you suppose you might have to break those out? Or can you give us any indication of their contribution to annual revenue at this point?

I do not believe they will cross 10%. So we would not have to break them out. They're pure margin. I want the association fees plus the gross margin of Platin to cover my LIFO marketing expenses. So association fees are -- so fundamentally, any association fee, I'm going to drive to use as support to WiSA Wave.

Okay. George, you mentioned a sort of a target operating margin in the high 20s. I'm wondering if you expect that this year, what's the time line associated with your thinking on that?

I would say the next several quarters.

Obviously, obviously, the change with the top line seasonality.

Yes. I mean there's some contributing factors of mix when Gen 2 comes in and so forth. But as volume increases, we should see some continuous improvement.

We have time for one additional questioner today. It will be the line of Jim McIlree with Bradley Woods.

Brett, on Slide 12 of your deck, the one that's WiSA Wave accelerating web traffic?

Yes.

Yes.

The projected visitors in 2021 is that based on just the product launches that have been announced so far? Or does that include anticipated product launches in 2021?

No. It includes a full look at our 2021.

Great. And then if I were to try to map the slope of this projected visitors to the slope of revenue, would it be similar or would be -- or would one of those be steeper than the other?

Well, if you mapped consumer traffic versus our quarterly revenue is there at least off by a quarter, right? Kind of somebody's buying in Q4 at retail, that product was shipped -- I shipped that product in Q3 most likely, maybe October. And we saw in Q4 this year, past year, in 2020, that between Christmas and December 15 or 13, but never Amazon cut off big box shipping and time for Christmas. There was a lot of consumer research going on, on the website, return visitors, which generally run in the 8% to 12%, jumped to 20% for that 3-week time period, and some days, it was at 24%. So there would be a cycle -- there would be a quarter lag between one or the other, depending which way you're referencing it, right?

Got it. Perfect. That's exactly what I was looking for. Thanks a lot. Good luck with everything.

At this time, we've reached the end of our question-and-answer session. I'll turn the call over to Mr. Brett Moyer for closing remarks.

All right. So I really appreciate all the questions today. I appreciate everybody attending the call. We're speaking for the team. We are very excited about our opportunities in 2021 and building WiSA as that wireless category for the consumer. And bringing great audio around those great TVs that all you guys have and gals. And with that, I'll close the call.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.