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

Good day, and welcome to the WiSA Technologies Second Quarter 2023 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Barnard with LHA Investor Relations. Please go ahead.

Thank you, Betsy. With us today is Brett Moyer, CEO and President. Before turning the call over to Brett, I'd like to remind everyone that today's presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. 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 WiSA's business, including current macroeconomic uncertainties associated with the COVID-19 pandemic, our inability to predict or measure supply chain disruptions, resulting from the COVID-19 pandemic and other drivers. Our ability to predict the timing of design wins entering production and the potential future revenue associated with design wins, rate of growth, the ability to predict customer demand for existing and future products and secure adequate manufacturing capacity, consumer demand conditions affecting customers' 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, risks and uncertainties impacting the proposed Comhear transaction, such as the inability to enter into a definitive agreement with respect to the proposed transaction, expected performance of the parties there to, risks related to receive necessary regulatory and shareholder approvals, failure to realize the anticipated benefits from the transaction. The ability of the parties to satisfy various conditions, the closing for the proposed transaction and other risks detailed from time to time in the company's filings with the SEC, including those described in Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, as revised or updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q. And the preliminary definitive proxy statement or other documents that WiSA intends to file with the SEC in connection with the proposed Comhear transaction. 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 good morning, ladies and gentlemen. Welcome to the WiSA Technology presentation for Q2. It's an exciting update that we have today from -- and we're going to focus on the WiSA E announcements that we did in July and a business update on WiSA HT, WiSA DS and finances. Two quick slides in terms of where we are for new investors if there are ones out there. WiSA is a company that's developed a wireless technology, both proprietary chips and software and IP to help consumers enjoy immersive audio that's delivered by Dolby Atmos, Dolby Atmos Music, DTS-X in those audio forms. We stream to up to 6 or 8 speakers currently, road map to 10. But today, with the announcements that we just completed at the end of July, we're now able to talk about a software implementation in smart devices that can stream out to WiSA certified speakers. And we'll give you more detail as we go through this presentation. Where does WiSA fit in the audio world? We're not the creators of the content or the wireless or the encoding and decoding from that Dolby or DTS sets implement, right? What we are is either hardware or software now that allows us to use more standard Wi-Fi chips to transport audio to speakers as highly synchronized as speakers together and highly synchronized to the video that you're seeing in a high-def quality. The other role we serve for the industry is we have WiSA LLC, which is an independent organization for certification of interoperability between products, between brands, right. That's the one that's led by Tony Ostrom. As we look forward to launching WiSA E, we'd launched it this time unlike 10 years ago when we launched the original HT. We launched with a strong customer base, a very high reputation in the industry for delivering the best wireless performance out there. Technically, we're not going to go through all these specs, but just as a refresher, this is the road map we have followed. The WiSA HT was launched 10 years ago with Bang & Olufsen at CES. We started porting our IP out of those custom chips into a WiSA DS implementation with Espressif. Then in the last 18 months with the new chip coming from Realtek, we uplifted that and created WiSA E, both in modules and in embedded software, right. Now this is not a comprehensive feature list. We have been, as we announced in the press release, working with strategic customers to define specific features that they need individually or as a whole. And those are shared only under NDA. So WiSA E, What's the importance of it? Well, this is the first time that we have a software version and what software allows you to do if you have a sufficient Wi-Fi power, which we think with Wi-Fi 6 and other Wi-Fi chips coming down, this will expand beyond just Realtek's chips. But allows us to add software to TVs, to cell phones to tablets to smart devices that can all talk to the same type of speaker. And when you add IP versus another Wi-Fi chip or another Wi-Fi module is substantially lower cost to the consumer and the brand. So before we jump into the press releases and the market economics around WiSA E, I got to give a big shout out to the Portland team. I remember up there has labored for years to move our IP out of a custom silicon into both WiSA DS and then uplifting it into WiSA E. And what they're delivering is the first product of its kind in the industry that can be embedded on SoCs and sound bars or smart TVs and other devices for immersive audio. In addition to our team in Portland, I'd like to do one more set of shout-outs to our partners, Espressif and Realtek and Sunplus and the strategic customers that we have talked to over the last 18 months to refine the WiSA E product offering. Without them, we wouldn't have been able to get to today. So thank you, Portland. Thank you, strategic partners. All right. So the WiSA E effort started in earnest with the press release for Realtek in January '22. And once we made that announcement, it kicked off two efforts within the company. One is clearly the uplifting of the IP from WiSA DS into a 5 gigahertz, more channels, higher resolution technical process for software. But the other was driven by the sales and product marketing team to work with strategic customers that can help define both the performance requirements that are minimally required for Wi-Fi, the feature sets that they need and the pricing that's appropriate for their type of products. And so with the announcements in July, we're now able to talk about this results. So the first announcement in July 25. This is -- was a set of software tools that maybe not immediately transparent to the everyday investor or consumer, but these tools are designed to, a, make it easy to take WiSA E to production in the factories. But I think, more importantly, make it easy to port WiSA E from one SoC to another. So why is that important? Well, if you think about a large Tier 1 TV company or consumer electronics company, LG or Samsung or Hisense or TCL or Sony, typically, their product lines when you look at, say, the TV, they have their own custom SoC, which is the chip that runs the TV and delivers the features at the high end, they're usually using MediaTek or Realtek or Amlogic in the midrange and the lower end. So what does that mean? So the audio division does not want to design sound bars or speakers for each one of those SoCs. So by creating the software tools to make it easy to port an implementation from one SoC to another, it allows a consumer electronic company to choose WiSA E and allow the audio groups to develop speakers around WiSA E and know that no matter what TV or what sound bar, what smart device, the other sister divisions are doing, it will be able to interface with the audio. So I think that's very important to the success. The July 27 release, that's like the combination of the last 3 or 4 years of engineering work out of Portland. That means we have now developed design kits and we started shipping them to customers, right? In particular, we ship into 4 countries, 5 different strategic customers that we have been working with to define the feature, pricing and performance specs. Now those 5 customers is a small body count of 5, but they represent more than 50% of the sound bar market and that's based on future sources data with some limited input from customers, right. With WiSA E, as we mentioned earlier, we think it's important that there's interoperability between brands and interoperability within products of the same brand, right. And by going to software, we're able to do that. That is opposed to Sonos which can work within its own speaker system, but does not have the ability to work with TVs and sound bars outside of their brand or speakers, right? WiSA E, can be implemented on a TV with wireless audio transmission, ultimately, and that's the purpose of this software. Now those 5 customers representing 50% of the market, we think they are able to ship 1 million to 3 million units of WiSA E product a year. And that's our SAM. That's the feedback we've gotten from each individual customer. And what does that represent for us somewhere between $5 million and $15 million of revenue a year for each customer that rolls out an extensive WiSA E designs project. Okay, quick update on WiSA HT and DS. We see WiSA HT continuing to lead the WiSA Interoperability certification for many years to come. You'll see new members and new products being announced between here and CEDIA on September 7. There will be another set of products with Tier 1 customers as well that will be announced in January at CES '24. WiSA DS will see the first sound bar launch in October, that will be under the Platin Audio brand. We're really excited about that because as we've said in the past, we think WiSA DS gives -- changes the price performance equation for the consumer significantly and being able to deliver rear Atmos speakers, rear firing speakers as well as a sound bar in the front that has up-firing Atmos speakers. People that saw that demo at CES were blown away. And so we're looking forward to showing to the industry, the power of WiSA DS, in that sound bar in October. Financially, a quick update here. So as we've talked about in the last few calls, the consumer electronics industry has not had a good 14, 15 months, right? When COVID opened up travel, it opened up eating out, dollars spent on the home entertainment systems, whether it's TVs or speakers, dried up, which caused inventory buildup at every level of the supply chain, whether it's modules, components in our inventory modules or speakers in our customers' inventory. But we also said in the last call that we thought the second half that would open up. And what we're seeing today is it is opening up, hence the guidance of sequential growth. What's driving that opening, I think, is the TV brands and the speaker brands have adjusted their pricing to bring the consumer back to making investments in their home, right? Now the first sign of this pivot by the consumer spending we saw in July. July's revenue for our consumer audio products exceeded Q2's total revenue for audio products and was just shy of Q1's. So we think this is a powerful sign. We anticipate that our customers are having the same impact, which will drive both consumer product sales in Q3 and Q4 for our audio products and more module sales as our customers start returning to building for future sales versus bleeding off inventory. So when we look at revenue, we expect Q3 to be up, and we expect Q4 to be up significantly more. I think two calls ago, we talked about expense reductions going down in Q1. We're continuing to evaluate strategic spending. We expect second half this year to be lower by another $0.5 million from the prior year, and we expect '24 operating expenses to be approximately $2 million lower versus 2023. At the end of June, we have $2 million on the balance sheet and through warrant exercises, we raised another $700,000. So before we open up for questions, just want to summarize what I think are the main positions for investment in WiSA. We have a strong patent portfolio and applications around immersive wireless audio we think WiSA E, will lead the industry over the next several years and establish itself as the way to deliver immersive wireless audio. We have a first-rate customer base that works with WiSA certified and the WiSA organization. And there's more than 30 brands that have delivered and built products around our WiSA products. So we're launching WiSA E, into a defined customer base with a reputation of delivering the highest quality. So with that, I'd like to open up the call for questions, operator.

[Operator Instructions] The first question today comes from Jack Vander Aarde with Maxim Group.

Brett, it sounds like the second half of the year has opened up like you expected, maybe slower or less than previously expected, but nonetheless, it's opening up. And your guidance is for sequential growth, pretty strong sequential growth. So we're halfway through the third quarter now. So kind of a 2-part question. How much visibility do you have in confidence in hitting that second half guidance and also, how much does WiSA DS, contribute to that guidance given your first sound bar is set to ship in October?

Okay. So from a visibility, we have a couple of levers. Within Q3, we can see the daily sales rate of the Platin audio products at Amazon at our retailers. So when we saw that pivot in July. Just like if you go back to a call last year, I said we saw a sharp drop from April to May. So given that July is not the strongest audio month typically for seasonality reasons and to see the pickup in audio. We believe that piece of the forecast is on track going into Christmas season to strengthen our revenue. So that's the primary growth driver for the Q3 forecast. Q4 is a combination of 3 things. The seasonality of Christmas, so that typically will drive more audio sales. The DS base soundbar, so we have I would say, approximately $0.5 million of that -- of the Q4 forecast is based on that soundbar and then general speaker sales going into Q4. I think the module base off of WiSA HT will be up from Q3. But I can't tell you yet how much because it really depends on how the increased consumer spending ripples through to our customers issuing replenishment and new production schedules. When we saw sales drop in May of last year from April, we saw our customers responding to that same type of drop late in August. So right now, we're being conservative on module growth and more aggressive on extrapolating out what we're seeing in July and the first half of August for consumer product sales and the strength of the soundbar in Q4.

Okay. Great. So it gives good momentum. That's great to hear. And then if I just -- if I may, I want to shift gears to what I think was most notable and important announcement from this quarter is that you have these 5 Tier 1 HD TV and audio customers. It seem like they could represent material revenue, 1 million to 3 million units each looks like or $5 million to $15 million in revenue per customer with those turning on potentially in the second half of next year. Did you provide a revised guidance. I think last quarter, you mentioned your initial 2024 guidance. Do these customers factor into that? And can you just revisit what your 2024 outlook is?

Okay. So these customers did not provide at the lower end of that guidance. So if you remember on that call, I think it was Jim asked and I said, the $10 million is [indiscernible] -- from us. At that level, these customers did not factor into it. We will probably factor in these customers into official guidance after the CES set of meetings that we'll have in January.

Okay. Understood. That's great to hear. And then maybe just an update on the marketing and sales front online. Anymore more voice to wave statistics or any sort of read-through there? Are you seeing traction online? Anything you can provide there?

Yes. So I don't have the statistics here. I'll remind you that between Q1 of last year and Q4 of this year -- of last year, we pivoted from spending money bringing consumers into WiSA and shifted the money which was more cost effective to Platin advertising WiSA certified. So the result was traffic went down significantly, but organic traffic at WiSA went up dramatically, particularly as a ratio. So we're continuing to optimize our spending around WiSA certified and using Platin products to help subsidize the expense of building the WiSA certified. I can go back in and do a summary for you. But on the next call. I have no problem doing that, but that is our strategy now, right? Market WiSA certified, drive products, be more cost efficient and it proved out last year. It proved out because WiSA organic visitors. So for those that aren't familiar with the term, organic visitors are not people that we ran an ad that clicked on an ad that came to WiSA, to website. They're people that went to Google or Bing or Safari and typed WiSA or WiSA Technology or WiSA speakers and then clicked on wisatechnologies.com and came to our website. So that's a valuable number to us because those -- that's really a good indication of brand building.

That's helpful, Brett. And really great to see you guys gaining traction and building momentum with the WiSA E and the WiSA DS launches. It's great to see.

Thanks, Jack.

The next question comes from Jim McIlree with Dawson James.

Brett, can you give us your best guess on the amount of time it's going to take these customers to evaluate the WiSA E offering. And then assuming that they want to go forward with it, how long it would take to develop or integrate it into their offerings. And then after that, what's the time frame on actually introducing it into the market? Is it they would need to wait for the next season in order to introduce it? Or is it a rapid introduction? I was just hoping you could just give us your best guess on the time frame to introduce WiSA E by your customers.

So the normal sequence is a sales team will go out and convince company X to evaluate your technology and then you go through product marketing, get the product spec on the road map, if you're successful and then product marketing leads in the product design and manufacturing. And that is generally a 2- to 3-year process for a component level, base-level technology, that's new. In our case, because we have had repeated conversations with these strategic customer targets that we think that's cut in half or even more, right? So the reason we said second half is there are some design discussions that would impact second half of next year. There are -- most of the designs are targeted to 2025, which depending on the company, means Q4 '24 shipments and a couple are focused on smaller, quicker implementations that could impact the second half in a broader way.

And your sales are recognized on sales to the customers? Or are they recognized on the sale to the end consumer?

No, to the customer, We don't ship anything unless it's been paid for. So when it's paid, it's a sale.

Okay. All right. And if you can just give us an update on the acquisition, where you are, time frame, likelihood...

Yes, let me just expand the other answer a little bit, Jim. So what I said is we don't ship unless it's been paid for, which is true. But as you move into WiSA E, there could be licenses that are prepaid, that will then get amortized out. So as you -- as investors start looking at '24, '25, there could be prepaid licenses that show up any time next year or this year for that matter, right. In terms of the Comhear acquisition, we are -- I believe we have most of the items in the definitive agreed on. George has worked diligently with the Comhear team on that. And I think really the long pole in the tent now is twofold. One is there are some business conditions we're waiting to get finalized at Comhear so that we have confidence to go forward with the acquisition. And then two, we just have to get a shareholder vote.

And have you scheduled the shareholder vote? Or is that a -- how long will that take?

I won't schedule the shareholder vote until we sign the definitive agreement, which will follow achieving some of the business objectives that we need to have achieved. And the shareholder vote is, I don't know, 30, 45 days, right? So if you're trying to put it on a calendar end of October, would be a fair guess.

Yes. I always push things a little to the right, but that sounds reasonable enough.

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Brett Moyer for any closing remarks.

All right. I'd like to thank everybody for their participation today. I'd like to thank the Portland team again for doing a great job of getting the WiSA E launch, and we really look forward to bringing it to the market and consumer over the next 18 months. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.