WiSA Technologies Inc (WISA) 2022 Q1 法說會逐字稿

Greetings, and welcome to the WiSA Technologies first-quarter financial results conference call. (Operator Instructions) As a reminder, this 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 ability 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 to secure adequate manufacturing capacity; consumer demand conditions affecting consumers' 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 Securities and Exchange Commission, including those described in Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC, and 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 thank you, ladies and gentlemen, for joining us today on the WiSA Technologies Q1 update. I will be going through three slides just to take new shareholders to the point, and then on the fourth slide, will start updating you on new information since the last call.

WiSA Technologies, formerly known as Summit Wireless, has been a leader on the technology front for multi-channel. When it comes down to technical performance on synchronized video, with audio, on latency, with speakers being synced together, we have the strongest team in the industry for developing that technology.

As we move forward, we have believed and have started demonstrating that, as Wi-Fi gets more powerful, we can take the know-how that we have from our original custom chips and port it to Wi-Fi chips, which dramatically drops the cost to have surround sound on multi-channel. Now that high performance leadership that we have demonstrated has brought quite a few names to the WiSA Association on certified products, which starting with Harman, a division of Samsung, going all the way through most of the high-end pro audio speakers brands.

Now, when we changed our name, there's a series of brands that we can now start talking about that you would have not heard us talk about because they were not certified as interoperable because of the way they are designed. So, Lovesac sofas, when that sectional vibrates, that's us sending the signal to the subwoofer underneath it, right? When Lexicon sells a $40,000 speaker, that's our wireless in there, but there's no need for interoperability. So, as you look at our website, the WiSA Technology website, you'll see more products now than just the ones that have been certified as interoperable.

Now, in the last call, we laid out, basically, the product roadmap that we've been working on for several years and the impact on how it fits into the ecosystem. We have consistently been delivering the highest cost and the highest performance modules to the audiophile market, that high-end home theater and high-end soundbar TV market.

But with the Espressif partnership, this lets us target a module directly to the soundbar with rear speakers or subwoofers, which is a significant market, and we think we have a significant advantage in it, and we'll talk about the progress of that in a couple slides. And with the Realtek partnership later this year, lets us address the mid-market beyond four channels of audio, just like we do with the high-end, but at half the price of what we're doing currently. So, highest performance, lowest -- highest performance of the low-end of the market, and expect to have a high-performing mid-tier product this year.

Now, the result of all those investments, as we mentioned in our press release today, is we have significantly increased our IP portfolio and our patent filings. So, by the end of this quarter, we think we'll have a total of 24 patents and filings in the process.

From a market segment, the audiophile market is where you've seen our products launch. But as we bring these other new technologies into the market, it gives us the opportunity to go into the audio products at the lower end of the market and the mid-tier of the market. That substantially opens up our brands.

Now, progress. What is our progress to date? So, launching WiSA DS, so this is a low-cost module, has four channels plus a subwoofer capability. The process is corporate presentation, product presentation to potential customers. If that's successful, you go into vendor qualification where they test it, and kick it around, and make sure it does what we say it does, and then you go into the design cycle.

So, as we sit here today, we have moved some accounts all the way through all three steps of the process in the few months of this year already. So, there's a few accounts that are already in the design cycle. I would say the feedback from the verification cycle is extremely positive.

The comments we make are to the effect that it's the highest performing 2.4 gigahertz module. They've tested it. We've heard that several times, and there's a pretty healthy pipeline of companies that are in the initial sales process. As COVID restrictions relax and we're able to travel more, we expect to close those presentations and start technical evaluation this quarter and next quarter.

So, where are we getting traction? So, we targeted this to the low end -- to the soundbar market, but not necessarily the low-end soundbar market. And the dominant traction is, in fact, in soundbars, in TVs, and the automotive aftermarket. We have a couple of prospective designs there already.

So, the product's performing the way we want it to. We're getting the feedback from the customers that we wanted, and we're working through the design cycle. And again, if you think about competitively, this goes up against the Skyworks product that sells in the $450 range or higher, and we're in the $350 or lower range for more channels and a better performing product, in our opinion, of course.

Now, so how much is that worth if we're getting good customer feedback, if we're getting good response to the sales pitches? Well, 5% of that soundbar market with rear speakers, we think, adds $25 million.

So, that's a sales cycle to get there. We don't think we should be limited to only 5% of the market. It's a much stronger product offering, but this is to give you an order of magnitude of what's 5% worth. You can double it, and then you know what 10% is worth to us. So very important technology. The Espressif is based on the Espressif IoT chip. It has our IP loaded onto it, and we're getting good customer feedback.

In the end, this is a few years out, but as you look at taking the IP we're putting on the Espressif and the Realtek chips and porting it to a licensable format with the team in India, that opens up all rooms in the house for us to have product offerings. But this is the end game, and you'll hear more about that as we go through the next couple years.

From a growth perspective, website traffic is up to 520,000 people. Again, that's 520,000 people that have come in to the WiSA Technologies group of websites. It lets us educate them on either cool end product, on modules that we're selling, on technology we're selling, or on products that are interoperable and in the market through the WiSA stores at the various retailers.

We're still looking for revenue growth to be in the 30% to 50% this year. Certainly Q1 is not on that track, but when we look at the product offering and the pipeline, we're still aggressively looking at growth. With that, I'd like to turn the next slide over to George.

Thank you, Brett. The Q1 revenue, as Brett said, was low, $566,000. That was a decrease of 51% over the same quarter the prior year. We expected the slow start to the year. It was a little bit low. We're already seeing second quarter booking starting to accelerate. The gross margin was down to 11% compared to 26% in the same quarter in '21. That's purely a function of volume and not absorbing the fixed costs with the lower shipments.

The operating expenses were approximately $4 million. That's including $0.5 million of non-cash expenses such as stock comp and depreciation, compared to the $3 million in the same quarter of the prior year, which had $300,000 of the non-cash expenses. The increase in OpEx is primarily in engineering and in marketing. The net loss for the quarter is $3.9 million compared to $3.3 million in Q1 of the prior year. Cash at the end of the quarter was $9.1 million.

In terms of guidance, as we said, we're still guiding to 30% to 50% growth on the year. It's heavily backend loaded. In terms of the supply chain, we have adequate supply to meet that. And as I said, revenue in Q2 is going to grow substantially compared to Q1. It might still be lower than the prior year, but it's recovering and we're still expecting the second half to be strong.

Our target gross margin continues to be in the 28% to 30% range. And our current cash is sufficient to last through the end of the year. So the 30% to 50% guidance is $8.5 million to $10 million of revenue for the year. And with that, I'll give it back to Brett.

So before we open up for calls, if we just summarize where the company is, we've got a strong technology roadmap that's going into the market. It addresses a 1 billion unit TAM. The customer sales cycle is progressing satisfactorily, in fact, better than that.

We're expanding our IP portfolio. We expect to see WiSA DS impact revenue in the second half of this year. And we're still targeting year-over-year growth. We think when you add all that up, it presents a company to the industry that is of significantly higher value than what we're currently trading at. And with that, David, I'd like to open up the floor for questions.

Great. Thanks, Brett. Now we'll be conducting the Q&A session. (Operator Instructions)

Okay, it looks like there's two people with questions. I'm going to unmute the number ending in 0884 first.

Hi, can you guys hear me?

Yes.

Yes.

Hello. Hey, Brett. Hey, George. This is Jack Vander Aarde with Maxim Group. I appreciate the quarterly update and for taking my questions.

Brett, so I'll just start with the revenue guidance. And George, you may be able to add some color here too. You expect the sequential growth in the second quarter. And I think it was said that maybe it might not be up year over year, but it will be sequentially up. Just any more clarity on what you're expecting for that second quarter? Or could it be slightly, almost flat, slightly up? Or is it -- I don't know, how much visibility and how much comfortability do you have providing any more color there?

Yeah, are we answering that sequentially or year over year?

How about sequentially?

Yeah, we don't expect to be flat sequentially. We expect to be up, but not as high as last year as we've guided. So, yeah, so somewhere in between. I think a lot depends on -- we have good visibility on Q2 POs. What we don't have good visibility is if any of them get pushed out. And there's been a lot of that as we saw this quarter. So, that's the only reason we're not being more specific. But I think I would probably model something in the -- it'll be several hundred thousand. How's that?

Good enough. I appreciate the color there. And then maybe just sticking to the revenue guidance outlook. Definitely going to be a back half load year. It's encouraging to see that you're still -- you have confidence to expect that 30% to 50% year-over-year growth for the year.

Given the -- you have these new products coming out, WiSA DS, WiSA E, just how much -- I don't know, I don't think you disclosed this, but is there any way for us to understand better what is coming from the existing Gen 1 technology versus these new products in terms of the revenue mix, since it's going to be very back half loaded?

Yeah. So let's just talk about the optimism on the revenue forecast. So one of the drivers in why we think we're still -- we'll continue to be up year over year is that when you look at the designs that were there last year, all the major designs are still there this year, right? So you haven't seen products go away. You're seeing them rebalance their inventory and their channel.

And we announced, I think, yesterday, a new product. There's several product announcements coming out shortly. So new products are coming into the production cycle, and the products that were there last year are staying in the sales cycle, right? If you look at what the mix is, I think the back half mix is largely driven still by Gen 1 and the speaker line.

Okay, got you. That makes sense.

And revenue from WiSA DS is material to us from a product launch perspective. I think it's not so material from your modeling perspective. Right, so one validates that we're in market to other customers with the technology, and they can have a higher level of confidence, right? That's just a pure sales cycle issue. From a P&L perspective, it's the vast, vast majority is from the products that you know and see today.

Okay, and then I caught some of your comments about some new partners that were announced, which is very encouraging to hear. I think -- if you could just help me understand though, I think last quarter you were talking about you expect 30 or at least 30, more than 30, brands to be shipping WiSA products this year. Did you provide an update on that this quarter, or is that still a good way to think about it?

It is. We announced a new one yesterday, Wharfedale, right? There'll be another product announced next week and several after that. So, the brand list will continue to expand.

Okay, and then, in terms of the WiSA traffic or the WiSA Wave in your marketing program and in terms of what that's doing for your sales and your visibility, it sounds like that's all -- that continues to be robust. Can you just talk about that more specifically? Is the WiSA Wave performing in line with your expectations? And I've been viewing that as a leading indicator of future revenue. How do you view that?

Yeah, so, you've tracked us for a while, right? So, we used to talk about members joining WiSA, right? And people got tired of it, why are doing that, right? Because that -- well, we did that because it's a leading indicator, right? Then we talked about brands and design, right? And then we started seeing revenue go up substantially last year, right?

And like you, to me, bringing more people into the WiSA Technologies website and ecosystem is a leading indicator to the health of the WiSA ecosystem and our revenue, right? And the strength and the value of the WiSA trademarks and the WiSA Association as a standard in the industry.

Now, and those -- when we say 500,000 people, we're not talking about kids, right? These are people that are targeted, that are in market, that are looking at TVs, that are looking at audio equipment, that are generally 20 -- core market is 34 to 54, but it runs -- most of those visitors run 25 to 65 -- in age.

Got you. And so -- and then in terms of what that's -- no, that makes sense -- and I guess in terms of, with the pandemic and the stay-at-home orders and all that, that really started playing out in 2020, kind of lingered into '21, do you still see a large untapped market opportunity for consumers, whether they're moving homes, whether they're trying to deck out their living room or home theater?

Do you still see blue sky ahead for -- did everyone do it in 2020, 2021? Or it seems like you're confident or comfortable saying that there's still a large opportunity out there for consumers that are looking to really upgrade their living room, their home theater. Can you just provide an update there on your thoughts?

Well, I don't think we are anywhere close to having -- as an industry, having put good audio around TVs in America, and Europe, or the world, right? And the attach rate for soundbars, depending which TV company you talk to with their soundbars, runs as high as 20% or 25%. That still leaves 75%, 80% of the TVs in the world without audio around them, right?

You're -- I think without the pandemic, you're likely to see more concentration of revenue during normal seasonality, right? So that's, I think, part of what our customers are struggling with. Because there isn't a pandemic in March, and April, and May, and February to move. It's a low seasonality for audio because people are starting to focus on going outside again, right?

But when you think about coming back into football season, coming back into the fall, coming back into the cold winter months, those are all still there. You still have these great big TVs streaming a ton of content that has multi-channel in it, and you got 80%, 85% of them without good sound around it.

Great. So there's a lot of -- it sounds like -- okay, no, that's encouraging to hear as well. The untapped market opportunity is still there and it's growing. And then just maybe if I could add one more question, Brett.

It looks like you have like your inventory at the end of the quarter, over $6 million. I think you mentioned that you guys have plenty of inventory, so no supply-chain-specific risk to WiSA. But your brands, your consumer electronic brands, may have -- they may have some supply chain issues.

But given your confidence to reiterate the back half of the guidance, just maybe if you could provide an update, what kind of visibility you have into the supply chain impact on your customers. It seems like it suggests it's improving. Just wondering if you can share your thoughts though.

Well, in general, with the customers, what we are hearing is logistics is still a big issue. Parts is still an issue, but less of an issue. We have supplies for our customers, but you can't build 98% of a product, right? So I think a lot of what we're dealing with right now is products showed up late for Christmas, COVID's opening up, people are going outside, how do customers rebalance their inventory, right? And start building again. And that's what is impacting it.

I was talking to an ODM last week, they're seeing a very similar pattern to what we're seeing. So we think we're reasonably optimistic that orders will pick up in Q3 and early Q4, but we're cautiously watching what happens logistically. Because you can build something in October, but if it's not in your Christmas markets in November, it's not going to do you any good, right?

That's right. Okay. And so would you expect your revenue for the year then to be more heavily weighted towards the fourth quarter then than it normally would under this scenario?

We have two product lines, so the chips will be strong in Q3 and Q4, probably equally, and the speaker product line will certainly peak in Q4.

Understood. Okay, great. Well, I appreciate the color and glad to hear things are still on track. I'll hop back in the queue.

Thanks, Jack.

Let's go on to, I think, Kevin DeDe has his hand raised. Need to unmute.

Great, thank you. Okay, and I hope you can hear me now. Thanks. Kevin DeDe, H.C. Wainwright. I think Jack made a really interesting point in delineating your new product roadmap or your display product roadmap vis-a-vis Gen 1 and Gen 2 product. So, I was hoping you could look at that for us just a little bit to make sure that we understand the transition and the migration through this year and next.

So, let's just review the brand names, right? So, you've got WiSA HT, the product we've been selling. You've got WiSA DS, the product that we're going through the design and sales cycle right now. And you've got WiSA E coming in the middle of the market.

WiSA DS is targeted to a completely different market. So, this is somebody that has closed-off systems. It has a -- rear speakers, or it has a subwoofer around a soundbar, or both rear and subwoofers around it. If you remember on the slide, we talked about how we're actually able to get at most out of the rear speakers going up to the ceiling as well, the subwoofer, so five channels.

And that is probably 75% of the current price -- 65% to 75% of the current price. So, it's a 2.4 gigahertz, but it's a high-performing solution. And the way that rolls out is that we're out of the design cycle, the tech cycle. It is strictly a blocking and tackling function on the sales.

Now, WiSA E, which we expect to sample later this year, that will shake down this year. Sampling to a few beta customers will help shake it down, and that'll start a hard sales cycle in Q1 next year, which means it probably impacts late next year to some degree, but a much stronger 2024 cycle.

Okay. You mentioned mid-market, but it seems to me the tech there's targeting the high end as well, no?

Well, there's differences in latency. So, when you look at speakers that are running $1,000 to $40,000 a speaker, we don't think that speaker, so the audiophile speaker, will come down to the mid-market.

But if you look at all the, call it now with inflation, sub-$2,000 systems, however they're configured, soundbars or discrete speakers like Enclave. We think they have the opportunity to come down, and that -- the price difference between HT and E is, call it roughly $5 or $6, times six or seven speakers, times a 4x markup. I mean, you're talking about dropping MSRP by $200, which is 15%, 20% at retail, depending on what products you're going into.

Have you talked (inaudible)?

Now, that's over the next, call it four years, Kevin, right? Ultimately, as chips get more powerful in the Wi-Fi space, yeah, WiSA HT maybe tails out in five or seven years, but over the next three years, we don't see any impact.

Okay.

Both DS and E are incremental.

Okay, and then sort of back (inaudible) I guess far again will (inaudible).

Kevin, I can't hear you.

I'm sorry, can you hear me okay now?

Yeah, yeah.

Okay, apologies, Brett.

No, no.

I get a little tripped up, right, on your nomenclature because it shifted a little bit, and I apologize for that. But just sort of dialing it back to the Gen 1, Gen 2 thing, is it fair to assume that DS and E are Gen 2?

Yes.

Okay, fair enough, Brett. All right, it's a lexicon thing. Sometimes it goes over my head. Appreciate you holding my hand. Can we talk a little bit about --?

The fundamental difference here -- Kevin, the fundamental difference is Gen 2 is really IP and it's not a chip design. So in Gen 1, it's a proprietary chip, it's custom designed, you can get the highest performance out of a proprietary chip that's focused on a specific market. But what you have in Gen 2, whether you're talking about DS at the low end, or E and interoperability in the mid-tier, or IP licensing with the team in India, it's all IP. We're not in the business of designing wireless chips anymore.

When [you do] the business of making wireless chips, whether it's from Espressif, or MediaTek, or Realtek, or anybody else, right? Making them work right for immersive audio with our IP.

Okay. I think that's a very important distinction to make, Brett.

Yep.

Okay, so just two more things. One on interoperability, why is it important or not important that sofa product wasn't interoperable?

So the sofa product has -- if you think about the sofa product, it has -- Lovesac sells sectionals, right? So if you go into a Lovesac store or you see any of their ads or YouTube videos, it's all about taking two or five sectionals and rearranging them and moving them around and doing whatever you want with your sofa furniture, right?

So for them, they're not trying to interface with discrete speakers floating around the world. They're trying to make sure that you can design a good audio system using their sectionals. So there's no interoperability there, right? They just want to make sure that when you sit on that sofa, you're getting the vibration. So they're not -- nobody else is building a subwoofer into their sectionals, right?

Okay. So I see. So when you say interoperability, you mean across brands, right?

Correct.

So, but what would be their option if that -- their buyer wanted to add other channels that weren't necessarily available through their sectionals?

There are no options for them because it is not interoperable. Your options are what sectionals do you want to buy?

Period.

And where do you want -- and do you want it with audio?

Right, right, right, right.

So interoperability comes into play when you start thinking about TVs talking directly to soundbars, right? Soundbars talking to speakers. Now, and that creates --.

Across brands.

Across brands, right?

Understood. Last question. The (technical difficulty) manufacturers, and my understanding is that those arrangements are non-exclusive across your product line, or maybe I'm wrong there. Is Espressif limited to just ES? Is Realtek just the E? Help us understand that.

Right. So there is no exclusivity between who we'll work with. The current people we're working with is really driven around the availability of a specific chip. So Realtek has the first 5 gigahertz chip that we think can do what we need it to do at a cost point that is materially different than what we're selling now, right?

Espressif has a 2.4 and was willing to work with us to load our IP and use their chip. But the ability to work with any other Wi-Fi vendor is just strictly having a chip powerful enough to do what we want to do on it, with our IP, to transmit to 6, 8, 10 speakers.

Thank you very much, Brett. Appreciate it.

Yeah, I mean, Kevin, I think when you get to next year, you'd see us talking about other Wi-Fi brands. But right now we're heads down focused on supporting the Espressif and Realtek solutions.

Understood. Thank you.

Yeah.

See if there are any other questions. (Operator Instructions) Okay. We have a question. Let's see. I'm going to unmute the line of the number ending in 6030. Go ahead.

Yeah. Hi, this is Ed Woo at Ascendiant Capital. Brett, I had a question. You mentioned about lead times for the third and fourth quarter. For your two different product lines, for your speaker line and then for your chip modules, if somebody were to order a product today, how quickly would they be able to get the product and then put it in the product or put it on the retail store shelves?

So, I can answer my side of the equation, that if somebody ordered modules that we did not have a six-month lead time on, we'd be able to support some of that, but it depends on how much they ordered. And we have a fairly strong flow of product coming in through September. That's the season for modules.

Everybody -- every speaker brand has their own lead times with their own ODMs. In terms of our speakers, we placed the POs for this year's revenue plan months ago. Like, last quarter -- no, some of them we placed in Q4, actually. Because there are long lead times.

So, pretty much with the lead times now, we're in May, you pretty much have all your POs done through the end of the year. And I expect to receive product through the end of the year?

No, I would say we have POs through August.

Great. But you feel confident in supply chain that in the third and fourth -- even if you get orders in the fourth quarter, it'll be enough time to get out to your customers, into the products, into the stores within the quarter?

It depends. Well, so again, let's just break it apart. Because of lead times, I'm building modules through a forecast. And we are asking customers for six-month POs. Not all customers have solid-enough business plans to do six-month POs. But I think we are in a position to support any customer demand this year. Certainly be able to massage it around and not impact anybody's Christmas sales. So that we're confident of.

Other customers, whether they can take something -- in normal times, you could do speakers in October and have them on retail shelves in November. I'm not projecting logistical transit times for the industry.

Great. Well, thanks for providing the color. Then my last question is on international growth in Europe versus in North America. Do you see similar growth opportunities? And how are the individual markets looking so far this year?

The audiophile market is very strong in Europe and very strong in China, to be perfectly honest. The audiophile brands in the US are just coming on board. So for us, those markets are very strong, right?

Great. So you're seeing stronger growth in Europe than you do in America right now?

Historically, our designs have been weighted. And that's largely because Harman has been able to sell out their supply availability in Europe. So they retreated from North America because they're very, very successful there. If you look at the brands, a lot of those brands are European brands.

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you.

Thanks, Ed.

I'm not showing any additional questions. I don't know if anyone else has a follow-up. Or Brett, if you want to just have some closing remarks, you can take it there.

Yeah, I'd like to thank the investors for participating this morning or listening to this later today. I think we're -- have a extremely exciting technology offering that has been in the development for years. We've invested considerable money in it, and we think it's the strongest offering in the industry, which will get reflected in our revenue as we go forward. And with that, I'd like to thank everybody and have a good day.