Datavault AI Inc. (DVLT) Q1 2021 Earnings Report, Transcript and Summary

Greetings and welcome to the Summit Wireless Technologies First Quarter 2021 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kirsten Chapman of LHA Investor Relations. Thank you. You may begin.

Thanks, Joe. Good morning, everyone. I'd like to welcome you to the Summit Wireless Technologies first quarter 2021 financial results call. With us today are Summit Wireless CEO and President, Brett Moyer; and CFO, George Oliva. Before I turn the call to Brett, I'd like to remind everyone of the Safe Harbor statement referenced in the SEC filings. The Private Securities Litigation Act of 1995 provides a Safe Harbor for forward-looking statements, including statements made during the course of today's call. Statements contained herein that are not based on current or historical facts are forward-looking in nature and constitute forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements reflect the Company's expectations about future operating results, performance and opportunities. These forward-looking statements are based on information currently available to the Company and are subject to the number of risks and uncertainties and other factors, including current macro-economic uncertainties associated with COVID-19, our ability to predict the timing and design wins entering production and the potential future revenue associated with our design wins, our rate growth, our ability to predict customer demand for our existing and future products and to secure adequate manufacturing capacity, consumer demand conditions affecting our customers and markets, our ability to hire and maintain and motivate employees, our suppliers ability to provide supplies, the effect of competition, including price competition, technological and regulatory and legal developments, and developments in the economy and financial markets and others that could cause the company's actual results and performance, prospects and opportunities to differ materially from those expressed in or implied by the forward-looking statements. For more detailed discussion of some of the ongoing risks, uncertainties of the business, I'll refer you to the company's various SEC filings. It's now my pleasure to turn the call over to Summit CEO, Brett Moyer. Please go ahead, Brett.

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

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

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

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first questions come from the line of Jack Vander Aarde with Maxim Group. Please proceed with your question.

Great. Hi, Brett. Hey, George.

Hey, Jack.

Congrats to all results.

Thank you.

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

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

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

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

Got it. Okay. That's helpful too. And then maybe I'll just ask one more question and then I'll cede the floor. That -- I just want to touch on that, on the second quarter revenue guidance you provided, sort of a directional informal guidance, but you expect growth of at least 250% year-over-year?

Correct.

That I guess implies you also expect at least sequential growth in this first quarter result. And it seems like you kind of look at open-ended with at least 250%. So it seems like there's potential for more. Can you maybe just talk about what your level of confidence and visibility? Is this play into like the retail market? Is it opening up just the retail stores and all your brand members? And it just seems like it's a vote of confidence here that things are improving with COVID and your retail partners, and then also supply constraints with the shift shortage. But you're still guiding to the strong revenue growth. So can you just talk about your -- what's driving that revenue growth and the factors playing into your visibility for that?

Okay. Jack, you got five questions in one. So I'm going to give it a try. So when -- so you are right we do expect another record quarter in Q2 from the demand side. So from our customer side, we think Q2 and Q3 are strong quarters. We think there is a fair amount of demand from the consumers both from COVID and people that are locked in as well as people because of COVID reassessing the value of their house, the value of the entertainment in their system. So I think that'll continue through the year based on the orders we've seen, we've got a strong bookings through Q3. And I think everybody will be looking to see how the Christmas seasons shapes up in September, right. In terms of supply, it's a tough world out there on for a lot of companies. Currently, we have firm commitments delivery through the June production run. And for all critical parts, being our radio chips and our own chips, firm commitments through the Q3 quarter could change at any moment. That's the environment, consumer electronics and auto world is limiting, but right now we don't -- we see fully supporting our customers with product.

That and actually that was my last question, just one more follow-up to that with your firm commitments through the June production run does that set you up nicely then for that third quarter, which is a strong delivery month, or quarter for you guys. Does that kind of help walk in your ability to satisfy demand for that holiday season?

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

Excellent. Fantastic to hear. Congrats on the solid results again. I'll hop back in queue.

All right. Thanks, Jack.

Thank you. Our next question comes from the line of Kevin DeDe with H.C. Wainwright. Please proceed with your question.

Hi, Brett.

Hi, Kevin.

Thank you for taking my call. So I'm going to see if I can pack as many into one as possible too. So I beg forgiveness in advance.

Okay.

Now that you know I love the color on -- color that was a TV question. All right, so would you mind just taking us through your financial model again given the surprisingly strong gross margin, what's your target gross margin for the year plus George said, it's going to improve sequentially. So I was hoping you wouldn't mind just taking us through what your general expectation is for the year, and maybe give us an idea on your break-even?

Yes, so let's talk margin too. We have said for six quarters, eight quarters that our target is to get to 30 points. You started to see that change in Q3 last year, a little bit and more in Q4. And again in Q1, we got into the 26% range, right. So we continue to expect full-year margin, that'll be close to or just shy of the 30 points over time.

Okay.

Okay.

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

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

Absolutely. Okay, fair enough.

So, those are the two components.

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

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

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

Yes. So George, you can get ready to do the actual numbers. If you had it available --

Yes. So the -- so the Q1 --

But hold on, hold on.

Right.

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

Yes, so the Q1 shares was just under 10 million, it was 9.98 million.

Okay.

And as Brett mentioned, there is approximately 5 million shares with a weighted average exercise price of like $2.99 that's outstanding in warrants.

Okay. Awesome. A couple more, I think this is probably the big one. Now, obviously, with the addition you made to the board, you're hoping to leverage great experience on the digital marketing side. Your VISA visits are up through March.

WiSA visits are up, baby, WiSA visits.

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

Yes. So there's a lot of layers to that, right. But the phase we are in with that program right now is to run ads around WiSA, right. So if you see a -- if you -- if there's 100,000 people that come to that website that's probably 3 million WiSA brand impressions. Did I get that right?

Yes.

So that's about 3 million WiSA brand impressions. And from there, you can see who returns to the websites. So now, you know, not only who is aware of WiSA. But you also know who is returning to WiSA to do more research. So you can now identify that person both in Google and Facebook, and then to go back and remarket to them. You can identify people by region. So if you think about Onkyo is launching their Sound Sphere in Japan. Well, I have the ability to tell them every single person that came in from Japan for the last six months, right. So they have the ability to go back and say, look, we're going to -- we're doing our own marketing, but why not go after those 1000s of people that have come in the last six months and already know something about WiSA and remarket directly to them. If you think about, we have a lot of European brands doing high-level stuff. We'll probably I think in Q1 we got about 6,000 -- 5,000 or 6,000 consumers from Europe, right. So those people can be aggregated by company country, or aggregated by the UK versus the Mainland, and allows them to remarket that. So now that we have the data, that's what we're going back to the brands and showing them how to use it. So again, this is to shake it down, get the data show them what they can do, how to use it, and have them ready to use it during the fall season. Now, some other ways that we have used it, Kevin, if you think about building the WiSA category we've run WiSA ads that's come to what we call good, better, best, page landing page. And that'll talk about simple set up in the WiSA story, but then it will show three products. Typically, it's been Platin as the price leader, Enclave as the mid-tier, then a Klipsch or Harman or one of the premium brands right. And that goes in the mind of the consumer a broad category that the category exists. So that's another example how we can use it to build the category. Now, when those consumers click on one of those product pages, they are able to go -- we're able to send them directly to a retailer. So we've sent people to Best Buy, we've sent people to B&H photo; we've sent people to Amazon. Well, one of the advantages now of opening up that Amazon store is we can just send anybody the Klipsch, all three of those into the Amazon store to see all the products.

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

In terms of privacy?

Yes.

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

Right. So you watched -- you watched it. Yes, I apologize for speaking over you, but you just watched the data so it's anonymous.

Well, Facebook does that, right? We just have tags.

Okay.

I don't have any idea who they are.

Okay, right.

Now, if they didn’t use their email address for a promotional coupon. If they come in and buy something out of the Platin store, which is critical, right. Once you get a 100 sales out of, say, the Platin store, you can tell Facebook, hey, I mean this, these are real buyers, right. These aren't people that clicked on ads. These aren't people that clicked on product shots on a landing page from an ad, right. This is somebody that's done from an ad or review or some research going all the way through in purchase. So the farther down the channel we can get the tighter we can retarget people anonymously, but retarget effectively because they look like there's listing purchasers.

Okay, okay.

That made sense.

Anecdotal feedbacks. Yes, yes, yes no, absolutely. I just -- I apologize it was just sort of a next to all those huge black holes in my little brain that was just sort of, I was just curious. So I really appreciate the time you take it go through.

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

Okay, okay. Well, yes, so just a little anecdotal feedback for you. Partner here runs a Sonos system at home, and disgruntled because it's very limited in its selection. So we just collectively see the advantages that an open system provides customers for what it's worth. But thank you again, Brett, greatly appreciate it.

Well, thanks for the questions.

Thank you. Our next question comes from the line of Ed Woo with Ascendiant Capital. Please proceed with your question.

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

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

So you don't see it as an issue as terms of any of the products that your partners are planning to launch this year. You haven't heard from any of them saying, oh, you know, we can't do it, or this was significantly delayed, because we're having our own supply issues.

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

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

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

Great. Well thank you for answering my questions, and good luck.

Thanks, Ed.

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

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

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