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

Greetings, and welcome to the WiSA Technologies, formerly Summit Wireless Technologies' Fourth Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. With us today are Brett Moyer, CEO and President; and CFO, George Oliva. Before turning the call over to Brett, I'd like to remind everyone that today's presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Readers are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of risks and uncertainties impacting the company's business, including current macroeconomic uncertainties associated with the COVID-19 pandemic, our 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, rates of growth, the ability to predict customer demand for existing and future products and secure adequate manufacturing capacity, consumer demand conditions affecting customers' end markets, the ability to hire, retain and motivate employees, the effects of competition, including price competition, technological, regulatory and legal developments, developments in the economy and financial markets and other risks detailed from time to time in the company's filings with the SEC, including those described in Risk Factors on our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC, as revised or updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q. The information in this presentation is as of the date hereof, and the company undertakes no obligations to update unless required to do so by law. With that, I'll turn the call over to Brett. Go ahead, Brett.

Thank you, David. And I'd like to welcome you, ladies and gentlemen, to our fourth quarter call. So exciting call today. Lots of changes are going on and looking forward to walking through those changes and laying out the 2022 plan. Everybody has recognized WiSA, whether you're a consumer in the industry and investor, as really the highest wireless provider in the world, whether you're measuring channel count, lip sync, latency, speaker sync, et cetera. What we have talked about and alluded to changes in the market that we see as big opportunities. All right. So the market opportunities that are being created now is, one, Wi-Fi is getting better. And when we mean better, it doesn't make -- mean it's easier to do 6, 8, 10, 12 channels in Wi-Fi, but they're performing better. So we're at a point where, in fact, we can move our IP from a custom module to Wi-Fi chips. Two; wireless speakers are everywhere, primarily interfacing with the Internet with Alexa and Google. But there's the opportunity and some are starting to do it, to be multi rolled. They can be your Internet interface and your music streaming player or they can act like your speakers. Third; consumers -- we've all seen consumers buy a lot of TVs during the pandemic, large TVs where the logical purchase after that is audio to go around those TVs. And the audio codec companies, which is Dolby and DTS, they're supplying codecs that not only give you 2-dimensional audio, but 3-dimensional. So Dolby Atmos has ceiling sound, front sound, rear sound, side sound. So the consumer has the ability to really create a bubble sound in their room that covers all levels of it, right? So when you look at where has our first generation gotten, these are all Tier 1 brands. They are the highest brands in the industry in terms of audio quality, but it leaves us a large market below that we haven't been able to address because of the cost structure of our current offering. Now in addition to these brands, there's other products that have not -- we have not talked about because they have not been WiSA certified. So we are changing the name to aggregate all our activity, right? We're going to move to WiSA technology. We're going to reinforce the brand to -- of WiSA for the world and the consumer. And the customer that -- our customers, our speaker brands, our ODMs, which have formally seen our sales team, our engineering team as Summit Wireless, will now recognize them as WiSA Technologies, which is what they've been doing, they've been inventing WiSA Technologies all along. The consumers, the retailers, the in-channel people will still see WiSA Association run as an independent company by Tony Ostrom, that does the matchmaking at retail, works with the consumer, WiSA Wave to bring in consumers continues to do interoperability testing because we believe interoperability is important for some segments of the market. Now one of the benefits of bringing everybody under the WiSA umbrella is we can talk about products that we have not talked with you or other people about, right? So the industry by going to the wisaassociation.org website in the past has not seen these products. Now there's a lot of really cool significant products to our P&L that we have not talked about. For example, if you look at the sofa here, this is the Lovesac sofa, with the wireless technology in StealthTech is us. That is our first-generation product. That is the one that makes a subwoofer rumble and shake the sofa module. If you look at the KEF speakers, that is us as well. That's not a home theater system, that's a high-quality audio listening. Sound bars. We've talked about sound bars with Savant because they were certified. But Harman has a whole line of citation sound bars that use us. Bang & Olufsen has us in every TV. And if you look at this tall guy on the left, this is a $40,000 Lexicon speaker that has our wireless in it. So there's a lot of products that we'll start to be able to represent under the WiSA Technology brand that we have not in the past. And this gives a full flavor to the industry for people checking us out in terms of designing with us or not, the depth of our design wins and our partners. So we invested an immediate benefit. Now our road map today and we have the current generation, what has been referred to as WiSA or Gen1, that's interoperable. But we have started porting our IP onto the expressive chip and on to the Realtek chip, working with Realtek. And concurrently with that, we have set up an organization -- team in India to take that same IP and put it into software so it can be embedded into, for example, a TV or set-top boxes or ultimately cell phones. So while we're launching the modules for speakers and soundbars this year, we are in parallel creating the software to license the IP for transmission directly from smart devices to those audio speakers. And they will -- that will include interoperability, which I will cover shortly. Now how are these new products lining up? So -- why is the interoperability brand of WiSA is going to be known as WiSA HT? For home theater, it is priced and has a performance for that audiophile market, high-end TV. So we've been built into the Bang & Olufsen TVs, a select number of models at TCL and Skyworth have us actually built in. So that will continue. There's a performance level that all other solutions cannot match. But what we're talking about today is addressing the rest of the market, right? And the first product that will come out after this will be based on the expressive module. Now there's a lot of advantage to that, it will be referred to as WiSA DS. There will not be interoperability with it. That is designed to be specifically for the low end of the market, albeit a high performance from us, for cost-effective low-end soundbars, Bluetooth subs. We think we can compete very aggressively in that market with the expressive module and our IP loaded onto it. But the purpose of Realtek, and Realtek is the first 5 gigahertz partner, but we're talking with other Wi-Fi vendors is support our IP under their chip, it cuts roughly in half our price, and that's applicable to the broad market, whether it's TVs or set-top boxes or soundbars or home theater, smart speakers. So when you look at this chart and you think about all this technology is finished this year or about to be finished this year, we become the only supplier to the immersive wireless audio market that can go from the bottom of the market to the top of the market, that can provide interoperability or no interoperability. So we think there's an extremely strong positioning for the company. We think it's -- our performance will continue to excel. Now for -- what does this mean in terms of brands, its positioning? So this is how the audio market has segmented, but these are our customers up above pure audiophile, right? So these are speakers that are costing $1,000, $40,000. Enclave and Platin have reached into the consumer price points, we're defining as below Sonos. We think Sonos is not an audiophile brand, but they are the top of the consumer brand, right? They have broad distribution. They have good audio, not spectacular audio. They got a great firmware. But really, the whole prior to these new products rolling out, we were not able to address the consumer market other than through Platin Audio and offering those solutions. So with these new ones, now we're able to have conversations with product management, technical engineering teams from all of these brands. And these are the brands that you'll see on a Walmart or Target, Costco. So one is to think about the devices, but the other is to think about the brands that we can now work with, right? And this dramatically expands it. Moving our IP out of a custom chip to go on to IoT modules does more than open up the brands. It opens up the whole house to opportunities for phone apps, TV apps to control audio in that space through IoT modules. So this is the market that we start opening up. We're looking forward to it. If you want to look from a TAM perspective, this is a great chart on how we are dramatically expanding our opportunity both for revenue and customers. So WiSA HT, the WiSA interoperable logo that you have seen for the last 4 years, is targeted to the home theater speakers, the high end of the soundbars and smart TVs, so you're talking 50 million, 60 million unit annual market. WiSA DS, right, not interoperable, but the expressive module, that comes in and grabs and we think it has to go to all the smart TVs and sound bars. So that adds about 250 million unit TAM, but it's really WiSA E, our IP ported on to the Realtek, that can go out and address all the market segments, all the way up to just below the high-end home theater audiophile space. So when you look at the product introductions, the reason we're excited is we have spent years developing this stuff. We have spent the last year porting it on to the expressive module, and we'll finish porting it on to the Realtek module this year. But that dramatically opens up the market opportunity for us, and positions us as the primary leader for immersive wireless audio. Other enhancements that will be coming this year shortly. We announced the WiSA SoundSend app, which has won a lot of industry awards, could be downloaded on Android TVs. You will see us announce later this year that -- and this will be before the Christmas season, that it can also be downloaded on webOS TVs, which is your LG system, and Tizen operating system, which is Samsung. So between Android, LG and Samsung, we've covered the bulk of the market for the Android -- the WiSA app to be downloaded onto TVs. All right. So we have talked about WiSA DS on the expressive module being a low price per solution. But this is a really powerful solution. So when you look at our primary competitor, Skyworth, we offer more audio channels. We have a stronger wireless performance as measured by Novus Labs. So it's an independent lab that measured us versus them. And yes, they're in 5 gigahertz, we're in 2.4 gigahertz, and we outperformed, right? And it's a lower cost solution. But from a consumer's perspective, what's really great about this is we can let a soundbar that has a 3.1 architecture in the front of the room, so it is with Dolby Atmos. So it has a left and a right floor and ceiling speakers, we can expand that to a true bubble of immersive sound with the 5.1.4 for less than $15 a wireless technology, right? So you have front and rear ceiling sounds, you got front and rear floor sounds and you have a sub-woofer. We think that's a hot architecture. We think the consumer is going to love it, and we are actively pushing that with customers today. How much can that be worth to us? So we went through and talked about 1 billion unit TAMs. But if you just get right down to the SAM and you think about there's 42 million sound bars this year that are projected to be sold, 5% of that market into that architecture with DS would be another $25 million of revenue. So we are highly focused on that one because it covers the lowest end of the market with a highly sophisticated solution. So when we -- where do -- so if you summarize where do we fit in the spatial audio ecosystem, you have the content providers sending stuff out. You got the wireless people or the cell phone streaming it into the router. You got Dolby and DTS giving you immersive ceiling and floor sound. The final step, though, is wireless transport. And if you think about WiSA, that is what we do. That is our core. We now do it at all levels of the market, not just the highest level. We have the highest performance at each level of the market, but we can address the lowest price, the mid-tier and the broad market as well as the high-performance market. And with that, I'd like to turn it over to George to go through our financials.

Thank you, Brett. So we have been tracking website traffic as a key performance indicator. We were targeting 1 million unique user visits in 2021. We exceeded 2 million, and we're projecting a target of 4 million visitors in 2022. If you look at our revenue, 2021, we had 172% growth. And our guidance for 2022 is approximately 40% growth year-over-year. If you want to go to the next slide. So Q4 2021, we hit -- we exceeded $2 million in revenue for the first time in the history of the company. That was a 93% increase over the same quarter in the prior year. Our gross margin exceeded 30%, which was our target that we've been talking about. It's up from 24% in Q4 of 2020. Our operating expenses were $3.7 million, which included $0.5 million of noncash expenses, primarily stock comp expense. That was compared to $3.9 million, of which $900,000 was noncash expenses. The net loss for the quarter was $3.1 million compared to $3.7 million in the prior year same quarter. And we ended cash for the year at $13.1 million, which is what we had guided to. If you look at guidance, we're off to a slow start this year, but it's a back-ended year. We're going to have between 30% to 50% growth year-over-year for the full year. So the midpoint is $9.2 million there for 2022. The gross margin, there's a lot of issues in the supply chain. Things are going to bounce around, but we're still targeting 30 points, but we could be in the high 20s as well. And with the $13 million we're starting the year, that's enough cash to fund all of our initiatives we're talking about through the rest of the calendar year. And with that, I'll turn it back to Brett.

Thank you, George. So if you summarize the position the company is in, we are in -- we have repositioned ourselves from the high-end audiophile market to the very broad audio market. We have positioned ourselves to have 4 product lines by the end of this year, 3 modules plus IP. We have positioned significant growth despite supply chain issues in Q1, and the balance sheet is strong. But the sum of all this is we are in an explosive audio market, driven by the consumer. We have the only comprehensive wireless offering to the industry to address that demand. We have the only interoperability standard that's not only serving interoperability for the market that needs it, but also building the retail market around it, with the storefronts. So we think we have solidly positioned the investment last year and this year to drive revenue growth this year and beyond and increased shareholder value. So with that, I'd like to turn the call over to David. He will moderate questions. I would ask you to state your name, your affiliation, whether you're with -- because we can't see it on the SRAX platform. So if you give us your name, your affiliation, whether you're with a bank or an investment firm or a private investor and ask your question. David?

Great. Yes. Thanks, Brett. Again, we'll be conducting a Q&A session, take a moment to kind of gather the questions. [Operator Instructions] I'll go to the first question, it's the dial-in from the number ending at 884.

Great. This is Jack. Jack Vander Aarde, sell-side analyst at Maxim Group. Brett, great results and George, thanks for taking my questions, strong outlook. I want to just review -- this was a record -- this was a record quarter for you guys in terms of revenue. So that was great to see. And George, looking at your guide as well for the next year, it looks like you have strong growth baked into that. Brett, maybe if you could just help me understand how much of a role -- what were the key drivers of revenue for this quarter, particularly with the WiSA Wave? And then just all the moving parts with these new product launches you have going on for next year or this year, what's kind of driving the revenue growth that George outlined? So from, I guess, fourth quarter revenue drivers and then what's driving 2022 revenue growth from a fundamental qualitative perspective?

Yes. So what's driving our revenue growth, Jack, is the wireless modules. So we do have the platinum audio line that we sell, I believe, that was roughly $450,000 in Q4, maybe $400,000. And obviously, that's always going to be strong in Q4 because of seasonalities of the consumer business. But when you look at what's driving 2022, the growth in 2021, this is design wins for wireless technology. I mean if you go back 18 months, the brands we talked about then versus the brands now, just within the certified world is significantly larger, plus we just talked about a bunch of brands that we haven't talked about in the past. So -- the Lovesac deal, a very important deal. Harman's sound bars, very important.

Got it, that's helpful. And then speaking which I want to just zone in on the new -- the second gen opportunity basically, and with Realtek. And there was a product in the initial press announcement from I'm not quite sure, maybe a month or so ago, that the initial product or sample maybe in the market by 2022 or like a demo version of it. Can you just provide an update there on when you actually expect a product for -- to be ready for consumers? .

So we expect -- so we will -- so we're -- today, we basically have announced the partner and we have announced the branding strategy. We will announce the actual first iteration of that product itself midyear this year. So call it sometime in Q3. We expect to sample it shortly thereafter. And we expect to release it to production by year-end.

That's awesome news. Okay, great. That's exciting. And then let me just ask me one more, just the typical question around supply chain dynamics and maybe the impact or visibility of impact that you think it's having on some of your major brands. And how many brands do you have these days? Is it still 70-plus consumer brands?

I believe so. We have started focusing more on how many brands we are shipping, right? Because one is members, but more importantly, is how many brands which are shipping, and that's over 30 now. But I think we're still in the same ballpark of brands in the association. You had a question before that.

Yes. And then so of these 30 brands that are shipping, 30 or more brands that are shipping products, how are they -- what's your visibility? Or any color you could provide on potential impact or delays or just with -- just given the supply chain environment, any comments there?

Yes. So supply chain obviously has been an issue for the industry as a whole for starting early last year. From our communication out to you folks, it has not been an issue because we've been -- we've managed expectations. So prior to supply issues, we thought we had a higher year last year than what we did, right? But what we are seeing in Q1 is a drop in business because a lot of that product that did get built showed up after Christmas. So our brands, our consumer brands that are using our technology are sorting through how do they clean up their inventory positions before they go to the 2022 Christmas build. So we have started in post Lunar New Year started to see more PO activity that's impacted Q2, which is good. We have not seen any design losses or product EOLs, so we're pretty confident this is a short early-in-the-year phenomenon until our customers get their inventory back in line. We do see POs coming in even in Q1 for new designs. So by the time we get into Q3, we're pretty -- we're feeling good that all designs, whether they were last year or this year are going to be needing production in the back half of this year.

Then I go to the next call over the question ending in 884 that number -- excuse me, actually ending in 131.

It's Marty Elbaum, Horizon Networks. Brett, the question I have for you, when -- can you give us some guidance as to when you see the loss, the company really turning around and either breaking even or showing a profit. Because if you lose $3 million a quarter, you're going to be out of money in a year.

Yes. So we have not given guidance. But what I will say, Marty, is if you think about the TAM that we are driving to, we are all in at finishing and launching and introducing these -- all 3 technologies to the broad industry this year. So when you think about where do we see P&L improvement, we believe that starts next year. I'll say that much, right? Because you're not going after that 50 million, 60 million high-end market, you're going after the whole market with 3 different profit price points, 3 different performance levels, and that fundamentally opens it up. So we believe using that $13 million of cash that we had at year-end is a very critical investment to open up our market so that we can grow revenue beyond the revenue that we've seen in the last 3 years, that growth.

That's great. That's great. Hopefully, we'll succeed in that area. I hope it works.

We're planning on it. I feel -- I have a high confidence in our technical engineering team. I got high confidence in the sales team. We've added some very talented people. Some of them you guys are aware of, being Eric and Steve, so the 2 ring leaders behind the HDMI launch back in the day. We added a new country sales manager in Korea with very high relationships in LG and Samsung. So we're prepared for success.

And another question coming in here from the dial-in ending in 019. I believe that might be David Lavigne, but I'm not 100% sure.

So if I understand this right, as we move forward in the product mix, I guess, I'll call it, as the product mix shifts more to the embedded solution, do we end up at a point then? Or is the goal to end up at a point where you're basically providing a license or a piece of software, I'm not sure what the right term is there either, but that's just kind of a higher-margin product. So we -- that what we end up is more likely in kind of maybe a lower revenue, much higher margin place?

So that's a great question, David. First, I would say I never like to give up revenue, ever. But what it does let us do -- so when you think about that TAM ladder that we showed, the thing that the speakers need is they need a module. But what the big brands, if you think about penetrating a Samsung and LG, let's just take those 2 big brands, right? What they need is control their own destiny. So I look at it as we're expanding our revenue to IP licensing. That's what the team in India is doing. But we will never give up the module revenue because that's not what speaker companies need. They just want to go buy an app, they want to buy a wireless module and they want to know it connects to what's getting sent to them, right? They're not going to go out and design.

Right, so okay. So I said that wrong. So I mean lower -- maybe lower unit revenues.

Yes. But it's a vastly larger market.

Yes I understand that, yes.

So just a soundbar market, we have a few great designs on WiSA HT. But in fact, it's a 42 million unit market this year. And we think there's a ton of upside around just that WiSA DS in expressive module. So yes, it will be lower ASP sale. But it addresses 90% of the market or 95% of the market that we could not address.

And hopefully, that will be a higher margin than [indiscernible]

Right. And we believe the new products offer a higher margin. So George guided to 28% to 30% gross margin this year, and we have been targeting 30 points. But we've seen cost increases on the WiSA HT module. Now we've made a choice for a couple of points, not -- we have raised prices on those last year, but we're not going to push the price level any higher. But the new one...

When you get to a -- I'm sorry.

Well, I'm just going to say, so the margin structure we're looking at, whether it's the IP licensing, which is 100% margin or the auditors will figure out how to turn it in 95% margin, right? But there's no margin costs, right? The expressive module, the Realtek module sales, we think that is higher than the 30 points that we've been guiding to.

Okay. That's what I was getting to. So as I was sort of absorbing all of this and I keep coming back to the term you used to on the other slides, where you said you're really in the wireless transport business. So I mean, is it fair to say that what you're really trying to do ultimately is in terms of audio, basically become a better solution to wireless transfer of audio than Bluetooth? I know we've tried to stay away from that analogy in the past, but that seems to be -- I guess that's what that means to me. I mean, tell me if I'm wrong about that, I guess.

So there are some segments of the Bluetooth market that we are expressly, deliberately competing against with the expressive module. Wi-Fi is a better signal. There's better connectivity applications. There's more things you can do with it, so yes. Now that's not the same as -- I don't think we're at the point where every Bluetooth speaker can become WiSA, but we're going to start taking that -- going after that business because certainly, those Bluetooth subs, those little Bluetooth speakers that are floating around the TV and the soundbars, those have serious performance issues that we can address.

At the moment, I don't show any other questions. [Operator Instructions] Otherwise, I'll turn it back to Brett for closing remarks.

I'd like to thank you for attending today. We think this is -- we had an exciting year last year with a lot of revenue growth, with a couple quarters were record revenue growth. We continue to see revenue growing this year significantly, particularly in the back half. So -- and we're really well-positioned to address the wireless audio market going forward. And with that, I'd like to thank you, and have a good day.