Earnings Transcript for WISA - Q2 Fiscal Year 2023

Operator: 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.

David Barnard: Thank you, Betty. 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 of future revenue associated with design wins and predict customer demand for existing and future products to secure adequate manufacturing capacity, consumer demand conditions affecting consumers' end markets, and 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 at transaction such as the inability to enter into a definitive agreements with respect to the proposed transaction, the expected performance of the parties there to risk 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 to the closing of the proposed transaction and another risk 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 and 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.

Brett Moyer: 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

Operator: [Operator Instructions] The first question today comes from Jack Vander with Maxim Group. Please go ahead.

Jack Vander Aarde: Okay. Great. Good morning. Thanks for the update and taking my questions. 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 two-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 soundbars set to ship in October? Thanks.

Brett Moyer: 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 three things. The seasonality of Christmas, so that typically will drive more audio sales. The DS Space 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.

Jack Vander Aarde: Okay. Great. Helpful color there. It sounds to give 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 five Tier-1 HDTV and audio customers. It seemed 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?

Brett Moyer: 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 5 and 5, 5 from Comhear and 5 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.

Jack Vander Aarde: Okay. Understood. That's great to hear. And then maybe just an update on the marketing and sales front online. Anymore WiSA Wave statistics or any sort of read-through there? Are you seeing traction online - anything you can provide there? Thanks.

Brett Moyer: 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't go back 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 there is 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. Or people of that went to Google or Bing or Safari and type 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.

Jack Vander Aarde: Got it. Got it. That's helpful, Brett. And really great to see you guys gaining traction, and building momentum with the WiSA E and WiSA DS launches. It's great to see. That's it for me. Thanks.

Brett Moyer: Thanks, Jack.

Operator: The next question comes from Jim Mcllree with Dawson James. Please go ahead.

James Mcllree: Thank you. Good morning.

Brett Moyer: Good morning, Jim.

James Mcllree: 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 timeframe 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 timeframe to introduce WiSA E by your customers?

Brett Moyer: So, the normal sequence is our 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 roadmap, if you're successful, and then product marketing leads in the product design, and manufacturing. And that is generally a two to three-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.

James Mcllree: And your sales are recognized on sales to the customers, or are they recognized on the sale to the end consumer?

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

James Mcllree: Okay. All right. And if you can just give us an update on the acquisition, where you are, timeframe, likelihood -

Brett Moyer: 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 license that show up anytime 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 pull intent 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.

James Mcllree: And have you scheduled the shareholder vote or is that a - how long will that take?

Brett Moyer: 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?

James Mcllree: Right. Okay.

Brett Moyer: So if you're trying to put it on a calendar end of October, would be a fair guess.

James Mcllree: Yes. I always push things a little to the right, but that sounds reasonable enough. Okay. Great. Yes, that's it for me. Thanks a lot.

Brett Moyer: Okay.

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

Brett Moyer: 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 WiSA E, launch, and we really look forward to bringing it to the market and consumer over the next 18 months. Thank you.

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