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

Greetings, and welcome to the Summit Wireless Technologies First Quarter 2021 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kirsten Chapman of LHA Investor Relations. Thank you. You may begin.

Thanks, Darryl. Good morning, everyone. I'd like to welcome you to the Summit Wireless Technologies First Quarter 2021 Financial Results 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 Securities Litigation Act of 1995 provides a safe harbor for 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 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 its future operating results, performance and opportunities. These forward-looking statements are based on information currently available to the company and are subject to a number of risks and uncertainties and other factors, including current macroeconomic uncertainties associated with COVID-19, our ability to predict the timing and design wins during production and the potential future revenue associated with our design wins, our rate of growth, our ability to predict customer demand for our existing and future products and to secure adequate manufacturing capacity, consumer demand conditions affecting our customers' end markets, our ability to hire and maintain and motivate employees, our suppliers' ability to provide supplies, the effect of competition including price competition, technological and regulatory and legal developments and developments in the economy and financial markets and others that could cause the company's actual results and performance, prospects and opportunities to differ materially from those expressed in or implied by the forward-looking statements. For a more detailed discussion of some of the ongoing risks and uncertainties of the business, I'll refer you to the company's various SEC filings. It's now my pleasure to turn the call over to Summit's CEO, Brett Moyer. Please go ahead, Brett.

Thank you, Kirsten, and welcome, ladies and gentlemen, to the Summit Q1 Investor Update. This is an exciting quarter. We're reporting out record revenue and significant improvement in the gross margin performance of the company and ending with a strong cash position. We will go through today some of the key growth drivers that we outlined in the Q1 call. So for new investors or investors still doing due diligence, I'd refer you to the March 12 year-end call, where we laid out the key milestones and the strategic plan as part of your education on WiSA. WiSA Summit, which with the WiSA stock symbol is 2 organizations. Summit does own the WiSA organization. And in the Summit side of the organization, we develop chips, modules, IP for wireless multichannel. And we have a standard organization with over 70 brands participating in, so that we can each transmitter or each TV or each speaker knows the standard to communicate with the other products. So that's the quick overview. The -- we're not going to go through all 70 brands, but we are going to talk about the brands that are shipping this year. So starting in the last call, we did outline this slide. There are some new brands, and I'd like to highlight that we added a 6 TV. So as investors, you can expect us to -- just like we announced Hisense since the last call, you can expect us to announce a fifth and the sixth TV brand, working with WiSA between now and the holiday seasons. In terms of overall brand shipping products for those that were around at the IPO 2.5 years ago, there were 6. Now you can see there's -- we say 25-plus. There's more than 30 brands on this page. And as products hit the market and are available, the consumer, we'll increase our brand count of companies using Summit's technology. Three main growth drivers for 2021 and 2022, just as a reminder, is SoundSend, which is a small transmitter that will plug into any HDMI-connected TV with ARC or eARC and connect to all WiSA-certified speakers. Second initiative is the WiSA Wave. The objective is to educate 1 million consumers on the category. And we're going to give you an update on that and SoundSend this quarter. And the third is our next-generation WiFi technology, which we are not updating today since we just did it on March 12. All right. Happy to announce that LG has extended their WiSA Ready TV line into the 2021 line. They also, as we previously announced, extended it to their projectors. And the next WiSA Ready brand is Hisense. They announced their products earlier this week on May 5. So you can now go out and do research. We've already started seeing some reviews come up on them. And those -- that review, in particular, included a mention about WiSA, which is important. On the speaker side, these slides are the cooler slides. If you look at Bang & Olufsen, we've just announced that one. Very high price, wicked cool, rotating form factor around it, and that is now available. The other really innovative design is from the Harman Radiance. This is not available in the U.S., but it is available internationally. It's a 2.1 system and those tall, thin columns are actually highly sophisticated speakers using some proprietary audio IP of Harman's. And then extending -- the first company to extend it in the Dolby Atmos is Lithe. So they have ceiling speakers, and that will let any of our speaker partners that are working with custom installers, connect to real speakers in the ceiling, so not simulated Dolby, not sounds coming out of the top of a sound bar, going up to the ceiling and then bouncing back down. This will be actually calibrated to the speakers installed in the ceiling, give you a great Dolby Atmos sound. And finally, Onkyo, we announced this morning, has launched the Onkyo Sound Sphere. And you will see that, well, they are aggressively marketing already in Japan, and they'll move it to international distribution. That's the eye candy for this presentation, update on SoundSend, and we've now picked up 4 awards. The most recent one is the Stevie Award. There's another one out there that we're competing for, but this just shows you the strong recognition the consumer electronics industry has given the SoundSend already as a brand-new product. We'll be pushing more features and software updates in a new software release for SoundSend in May. And this will probably happen every twice a year or so, just like TVs get it. And then starting this quarter, you'll see SoundSend distributed internationally. First 2 countries will be the U.K. and Japan. Okay. WiSA Wave. I will still say this is probably the biggest catalyst for this year, right? So if you think about the WiSA association, its mission is to help -- the mission beyond just making sure there's technical spec is to make sure consumers start getting educated on WiSA and the benefits and the simplicity of setting up a system, making sure that the retailer see WiSA products as a category as they see HDMI products as a category, as they see Bluetooth as a category. And I think as we build this out, we'll be able to lower our brands' marketing costs by using the analytics from the website. So we have been reporting out traffic growth. We saw that start to increase with LG's launch back in 2019. We had guided to 135,000 in Q1. There's some seasonality to the consumer shopping patterns. So clearly, it came down from 185,000 in Q4. But Q1 this year to Q1 last year is more than 300% growth in visitors to the various WiSA websites. Still on track and still projecting that we will reach 1 million visitors this year. Okay. Now by leveraging WiSA's analytics, as I mentioned, we plan -- we're working to drive down the cost of our members' marketing and to increase consumer awareness. So with that objective in mind, we added a new member to our Board, Wendy Wilson. She is VP of Marketing for ChargePoint. They just did their IPO, one of the world's largest EV charging networks. And comes out of the digital marketing space from Yahoo! and Disney and Jive. So we're looking forward to her guidance and participating in building the WiSA Wave into a powerful vehicle for our members. And then coming up, you'll be able to see that we will be opening a WiSA store on Amazon. So this will not cover all products, but any product that is listed in the U.S. that has been WiSA certified, we will aggregate into 1 storefront for the consumer. So if they come into Amazon and do a search for WiSA, they will see the WiSA Ready TVs; they will see from LG and Hisense; they will see WiSA Ready projectors from LG; they'll see transmitter, speakers. Everything that's been -- that is on that site in Amazon will be aggregated. And we think this will help make it easier for the consumer to choose to also validate the category. And finally, I think the -- it makes it a convenient place for either speaker companies or TV companies or AV receiver companies to create bundles and promote those bundles in the WiSA world. And with that, I'd like to turn the call over to George.

Thanks, Brett. We are happy to report Q1 was another record revenue quarter for us. Revenue was $1.2 million. That's an increase of 181% over the same quarter in 2020. Gross margin continued to improve to 25.6% compared to 23.9% in Q4 and over 15.3% in Q1 2020. Our OpEx came in at $3 million, that included $300,000 of noncash charges that was below the guidance previously of $3.2 million we gave. Cash improved to $9.7 million at March 31. In terms of Q2 guidance, we expect revenue to be 250% increase over Q2 2020. The gross margin is expected to continue to improve sequentially, up from the current 25.6%. OpEx is expected to be about $3.1 million, which will include approximately $400,000 of noncash charges. If you look at our trailing 12 months at the end of Q2, we forecast to be over $4 million on the trailing 12 months.

All right. Thank you, George. So from a position to the industry, we've dramatically expanded the number of products that are in market or about to be in market WiSA certified. We're driving consumer education, and we think we got a great year coming up for us. And with that, I'll open it up to questions.

[Operator Instructions] Our first question come from the line of Jack Vander Aarde with Maxim Group.

Great. Congrats on solid results.

Thank you.

Plus good to see the strong guidance. Brett, I'll start with a question for you. You mentioned an expectation to add another 2 display partners later this year. I know you can't provide any explicit obvious mentions, but maybe a 2-part question here: one, are you able to provide any kind of descriptive color? Maybe how large these potential partners are relative to your existing partners? What region or location? Anything you could provide, that would be just helpful to size it up? And then secondly, can you remind us what this means for you as you add more display strategic partners? What does that mean for your business momentum?

Well, our business -- so I'm not -- yes, so I'm not going to go beyond saying that there's 2 more coming. I would say they're both well-recognized brands. I think they're both in the top 10. And so we're going to leave it at that, right? But last call, there was 1 more coming, now there's 2 more coming. So we continue to make a lot of progress. From a business perspective, WiSA Ready products, TV products certainly help build the ecosystem and give confidence to the speaker companies that this is a standard that's here to stay. And that's one reason we brought out the SoundSend so the speaker guys know they can do the wireless speakers. There will be a SoundSend and there's a bunch of TVs, right? Now it SoundSend connects into all TVs, but if you're doing WiSA Ready, it's an easier consumer experience because it's integrated into the TV, and it's a cheaper consumer experience because it's a cheaper form of connection to the TV. In terms of -- so for us, it's great brand building, it's great enabling when the TV brands support this.

Got it. That's helpful color, Brett. And then switching topics. Can you maybe provide some more color on your plans to open the WiSA Amazon storefront? Just from my perspective, it seems like a pretty big deal. I imagine that would really help just accelerate overall WiSA brand awareness with consumers and also adds another sales channel. It just seems like a potential large opportunity. If you could provide any more color there?

Well, we do think it's going to be a catalyst, right? So how that transforms into the P&L will take several quarters only because if it increases WiSA sales, certified product sales, they got to go back to and do the whole production stuff, right? But I think the first big benefit out of that is, hey, this is the category. So all the other retailers that are worried about what Amazon is doing will see that there's 8, 10, 12, whatever the number of brands are in there, and they'll see all the WiSA Ready TVs as well, right? So it just tells the Best Buys of the world, it tells the Conn's of the world, it tells any of the retailers that this is a real category, and you need to focus on it both on your websites as well as your retail floor.

Got it. Okay. That's helpful, too. And then maybe I'll just ask 1 more question and then I'll just leave the floor. I just want to touch on the second quarter revenue guidance you provided sort of a directional informal guidance, but you expect growth of at least 250% year-over-year. That, I guess, implies you also expect at least sequential growth from this first quarter result. And it seems like you kind of left it open-ended with at least 250%. So it seems like there's potential for more. Can you maybe just talk about your level of confidence and visibility? Is this -- does this play into like the retail market? Is it opening up just the retail stores and all your brand members? And it just seems like it's a vote of confidence here that things are improving with COVID and your retail partners and then also supply constraints with the chip shortage, but you're still guiding to the strong revenue growth. So can you just talk about your -- what's driving that revenue growth and the factors playing into your visibility for that?

Okay, Jack. You got 5 questions in 1. So I'm going to give it a try. So when -- so you are right, we do expect another record quarter in Q2 from the demand side. So from our customers' side, we think Q2 and Q3 are strong quarters. We think there is a fair amount of demand from the consumers, both from COVID and people that are locked in as well as people because of COVID reassessing the value of their house, the value of the entertainment in their system. So I think that will continue through the year. Based on the orders we've seen, we've got strong bookings through Q3. And I think everybody will be looking to see how the Christmas season shapes up in September, right? In terms of supply, it's a tough world out there on -- for a lot of companies. Currently, we have firm commitments of delivery through the June production run and for all critical parts being our radio chips and our own chips firm commitments through the Q3 quarter. It could change at any moment, that's the environment, consumer electronics and auto worlds are living in. But right now, we see fully supporting our customers with product.

That's -- and I said that was my last question, just 1 more follow-up to that with your firm commitments through the June production run, does that set you up nicely then for that third quarter, which is a strong delivery month or quarter for you guys? Does that kind of help, I don't know, walking your ability to satisfy demand for that holiday season?

So we did place substantial POs on all critical parts back in October and November. So delivery dates have moved around a little bit. But from a supply and inventory balance, our modules are coming in and going out just about as fast as we can build them right now.

Our next questions come from the line of Kevin Dede with H.C. Wainwright.

So I'm going to see if I can pack as many into 1 as possible, too. So I beg forgiveness in advance. I love the color on color. That was a TV question. All right, so would you mind just taking us through your financial model again, given the surprisingly strong gross margin? What's your target gross margin for the year? Plus, George said that's going to improve sequentially. So I was hoping you wouldn't mind just taking us through what your general expectation is for the year. And maybe give us an idea on your breakeven?

Yes. So let's talk margins. So we have said for, I don't know, 6 quarters, 8 quarters, our target is to get to 30 points. You started to see that change in Q3 last year a little bit and more in Q4 and again, in Q1, we got into the 26% range, right? So we continue to expect a full year margin that will be close to or just shy of the 30 points over time.

Okay. And...

Okay?

Yes, that's -- okay, great. So I don't see that hasn't changed. It just looked like your report would suggest that you might be able to do better than that. Could you give us some insight on why you think you did so well in March?

So there's a couple of factors, Kevin, right? There's mix. So some of our -- the newer customers have slightly higher pricing, right? So when we were in the launch phase, we were more aggressive. There's also a fact that with higher revenue, the fixed cost of OpEx gets amortized over more revenue dollars, right?

Absolutely. Okay. Fair enough.

So those are the 2 components.

Okay. Fair enough. What I suspected. Back to the semiconductor issue. Understand you're feeling okay through Q3, can you just give us some insight on, I guess, your supply timing versus your customers' delivery schedule to meet 4Q sales in light of a difficult semiconductor environment globally?

Well, okay. So let's talk about the critical. The critical quarters for consumer sales is us to deliver in June through October. And we have POs in place to support all open orders plus anticipated orders. So we think that our customers will be fully supported. Now the only hedge I gave you is, it's a rough world out there. We fight for our share of allocation, and we have commitments for our share of allocation, and so we think we have a good Q2, Q3 supply chain.

Okay. Could you speak to the share count? I mean I know there were some warrants outstanding, it seems to me that many have exercised. Could you give us some insight? Obviously, it's in the 10-Q, I'd imagine, but I haven't seen that yet. So just some insight on that? And what you think might be left open that could yet be exercised?

Yes. So George, you can get ready to do the actual numbers if you have it available, but...

Yes. So the Q1...

Hold on. Hold on. Let me just say, there is still a substantial amount of unexercised in-the-money warrants, right? So the fundamental plan of we expect warrants to dribble in over time and that to be a non-dilutive source of funding is still the plan of record. So George, you can go through share count.

Yes. So the Q1 shares were just under 10 million. It was 9.98 million. And as Brett mentioned, there's approximately 5 million shares with a weighted average exercise price of like $2.99, that's outstanding in warrants.

Okay. Awesome. A couple more. I think this is probably the big one. Now obviously, with the addition you made to the Board, you're hoping to leverage great experience on the digital marketing side. Your visa (sic) [ WiSA ] visits are up through March...

WiSA visits are up, baby. WiSA visits.

WiSA, WiSA. Yes. WiSA visits. Okay. I still struggle with that, obviously. Give us some insight, please, Brett, on how you intend to take those visits and convert them? I know, obviously, there's lots of web analytics in the background, but given that you've been running this program for a few quarters now, maybe you could share with us how you've seen that program working to your advantage?

Yes. So there's a lot of layers to that, right? But the phase we are in with that program right now is to run ads around WiSA, right? So if you see a -- if you -- if there's 100,000 people that come to that website, that's probably 3 million WiSA brand impressions. Hope I did that right? Yes. So that's about 3 million WiSA brand impressions. And from there, you can see who returns to the websites. So now you know not only who is aware of WiSA, but you also know who is returning to WiSA to do more research. So you can now identify that person both in Google and Facebook and Bing to go back and remarket to them. You can identify people by region. So if you think about Onkyo is launching their SOUND SPHERE in Japan. Well, I have the ability to tell them every single person that came in from Japan for the last 6 months, right? So they have the ability to go back and say, "Look, we're going to -- we're doing our own marketing, but why not go after those thousands of people that have come in, in the last 6 months and already know something about WiSA and remarket directly to them?" If you think about -- we have a lot of European brands doing high-level stuff. Well, we'll probably -- I think in Q1, we got about 6,000 -- 5,000 to 6,000 consumers from Europe, right? So those people can be aggregated by company -- country or aggregated by the U.K. versus the Mainland and allows them to remarket back. So now that we have the data, that's what we're going back to the brands and showing them how to use it. So again, this is to shake it down, get the data, show them what they can do, how to use it and have them ready to use it during the fall season. Well, some other ways that we have used it, Kevin, if you think about building the WiSA category, we've run WiSA ads that have come to what we call a good, better, best page -- landing page. And that will talk about simple setup and the WiSA story, but then it will show 3 products. Typically, it's been Platin as a price leader, Enclave as the mid-tier, then a Klipsch or Harman or one of the premium brands, right? And that builds into mind of the consumer a broad category, that the category exists. So that's another example of how we can use it to build the category. Now when those consumers click on one of those product pages, they are able to go -- we are able to send them directly to a retailer. So we've sent people to Best Buy, we've sent people to B&H Photo, we've sent people to Amazon. Well, one of the advantages now of opening up that Amazon store is, we can just send anybody that clicks on all 3 of those into the Amazon store to see all the products.

Okay. Okay. I guess the thing that sort of stands out and listen, I have tremendous confidence in you and your team in complying with the GDPR regs, but could you just speak to that a little bit?

In terms of privacy?

Yes.

So we've already adjusted for the Apple adjustments. We're in full compliance. From our perspective, there's a lot of ways to reach out to a consumer. And one of the most effective ways, at least for us right now, is running look-alike campaigns on Facebook. So as consumers come in, we still -- we are still able to tag them. Facebook and Google are still able to build profiles around the people that have actually visited WiSA. So let's just say 100 people came in on -- to WiSA's, one of WiSA's landing page. Well, Facebook will look at those 100 people, throw them at their -- into their algorithms and run campaigns, advertising campaigns to people that look like those 100 visitors. So we haven't violated anybody's privacy rights, but we have used -- we are able to model campaigns around who has already engaged. So when you look at...

Right. So you watched it -- yes, I apologize for speaking over you, Brett. You just watched the data, so it's anonymous?

Well, Facebook does that, right? We just have tags. I don't have any idea who they are. Now if they give me their e-mail address for a promotional coupon, if they come in and buy something out of the Platin store, which is critical, right, once you get 100 sales out of, say, the Platin store, you can tell Facebook, -- hey, I mean, these are real buyers, right? These aren't people that clicked on ads. These aren't people that clicked on product shops on a landing page from an ad, right? This is somebody who has gone from an ad or a review or some research who's gone all the way through and purchased. So the farther down the channel we can get the tighter, we can retarget people anonymously, but retarget effectively because they look like existing purchasers. Does that make sense?

Okay. Okay. Anecdotal feedback -- yes, yes, yes. No, absolutely. I just -- I apologize, it was just sort of a next to all those huge black holes in my little brain, it was just sort of -- I was just curious. So I really appreciate the time you've taken to go through it.

Look, it's a -- there's a lot we still have to learn. We get a Board search to find somebody that has some deep expertise in this. I mean currently, Wendy is -- and if you think about our job is to find what I used to tell people 5 needles in a haystack, right? We need who want to buy a home theater, somebody that wants to buy a sound bar and you can convert them up to a real audio experience, right? Well, she has P&L responsibility for selling charging stations to EV vehicles. So very similar, right? A narrow market, just got to do it digitally. And so we think there's a whole level of sophistication that will come beyond this.

Okay. Okay. Well, -- yes, so just a little anecdotal feedback for you, partner here runs a Sonos system at home and disgruntle because it's very limited in its selection. So we just collectively see the advantages that an open system provides customers, for what it's worth. Greatly appreciate it.

Our next questions come from the line of Ed Woo with Ascendiant Capital.

Yes. Congratulations on the quarter. And also, congratulations on being able to manage the supply -- semiconductor shortages. My question is more on your customer partners. Are you hearing about any issues they are having in terms of being able to release products this year? And maybe is it holding back their ability to possibly ship more?

So there is widespread shortages across the industry. So we hear it all the time, right? And nobody is holding back. Everybody is chasing. They're chasing inventory, they're chasing launch dates, they're chasing capacity. But so far for us, we have a good order book and we have a good supply, and we continue to work it just like our customers do.

So you don't see it as an issue in terms of any of the products that your partners have a launch this year? You haven't heard from any of them saying, "Oh, we can't do it or it's significantly delayed because we're having our own supply issues?"

So I think, in general, if you talk about our customer base, a supply issue doesn't stop a launch. It may delay it 2 weeks, 6 weeks, 8 weeks. Because by the time you get to production, Ed, right, as an organization, you just spent all this time testing, certifying, designing, building, validation runs, you're not going to hold up, you're going to fight it and fight the supply issues and get them out. So it may cost you a week, it may cost you 8 weeks, but you're not going to hold it up. And it was a similar thing with COVID last year. I said sales were challenged when COVID was peaking, but if you remember on the call, I said that the design work in Asia is stopped for 4, 6 weeks in China and went right back that we didn't lose designs because of COVID, we lost 4 or 6 weeks on launches. Because it's the same thing now, right? We're not losing designs, we're not losing launches, but the timing is certainly moving around.

Great. And then my last question is, it seems that if most of your marketing focus is in the U.S., is that correct? And what about international, especially in Europe marketing?

So if you're talking about the Wave, the answer is at the moment, yes. And I would expect Europeans to see more active work from WiSA in Q3. We have a lot of brands that are out in Europe. They're premium brands. They're slightly different, but we're first focused on getting our analytics and our programs to offer to the members, sorted out where we have good knowledge and a large territory without different languages to struggle with.

[Operator Instructions] There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

Well, thank you, ladies and gentlemen, for joining the call today. The team is working hard to deliver great results. I'd like to thank the team. I'd like to thank our customers, and look forward to our next update in Q3. Thank you.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.