Greetings, and welcome to the Summit Wireless Technologies Second Quarter 2021 Financial Results Call. . As a reminder, this conference is being recorded. It is now my pleasure to introduce Kirsten Chapman at LHA Investor Relations. Thank you. You may begin.

Thank you, Daryl. Good morning, everyone. I'd like to welcome you to the Summit Wireless Technologies Second 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 Reform Act of 1995 provides a safe harbor for certain 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 its future operating results, performance and opportunities. These forward-looking statements are based on information currently available to the company, are subject to a number of risks and uncertainties and other factors, including current macroeconomic uncertainties associated with the COVID-19 pandemic; our ability to predict the timing and design wins entering production and the potential future revenue associated with our design wins; our growth rate; our ability to predict customer demand for our existing and future products to secure adequate manufacturing capacity; demand -- consumer demand conditions affecting our customers' end markets; our ability to hire, retain and motivate employees; the effects of competition, including price competition, technological, regulatory and legal developments; and developments in the economy and financial markets and others that could cause the company's actual results, performance, prospects and opportunities to differ materially from those expressed in or implied by the forward-looking statements. For a more detailed discussion of some of these ongoing risks and uncertainties of the company's business, I refer you to the company's various SEC filings. Now it is my pleasure to turn the call over to Summit's CEO and President, Brett Moyer. Please go ahead, Brett.

Thank you, Kirsten, and good morning, ladies and gentlemen. I'd like to welcome you to our second quarter earnings call. We had a pretty exciting quarter, with a lot of accomplishments I'm looking forward to going through with everybody. We'll highlight the accomplishments. We'll go through a few slides to catch up new investors on the business model, and then we'll go into more detail on the initiatives for revenue growth. So we have guidance out there that we have 6 TV brands using our technology. We were able to announce the fifth one since our last call, which is Toshiba. They market in Japan and Asia, and they have adopted the WiSA SoundSend standard certification. So that the SoundSend app be downloaded onto their TV. The consumer can set up the entire WiSA system, optimize their audio preferences like from the -- with the TV remote on the TV screen. And the market will be hearing about partnerships -- marketing partnerships with Onkyo later this year. We'll have the WiSA Certified system out as well. Also we announced that under the SoundSend certification program, any of the Android TVs, which can be -- which are marketed by Sony, Toshiba, Sharp, Hisense, Insignia, which is a Best Buy brand, and several other brands are able to download the app, load it up and drive SoundSend and the WiSA system from their TV just like Toshiba. A big component of our plan this year is to increase WiSA's awareness with the consumers. So we had guidance out at $1 million, and we announced that we increased that guidance now to $2 million for this year. We have approximately just under 1 million people have visited the WiSA websites, and that's important to increase the consumer awareness. Now we're launching the first…

Thank you. So revenue continued to grow sequentially. The June quarter was approximately $1.6 million in revenue. That's over 350% growth over the same quarter prior year. The gross margin was approximately 29% compared to 3.4% in Q2 2020 and up several points sequentially from the prior quarter. OpEx was $3.3 million, which included about $400,000 of noncash expenses, primarily stock compensation expense, compared to $2 million in the prior year, of which $100,000 was stock compensation expense. If you recall, Q2 2020 was the height of uncertainty around COVID. We cut salaries and cut spending while we were -- the markets were in a bit of uncertainty. So that was our low point in terms of spending. The net loss for the quarter was $3.4 million. That was after about $600,000 of other expense, which was noncash expense relating to warrant exercise inducement. And that compared to a $3.4 million loss in the prior year Q2, of which about $1.4 million was interest expense that was related to bridge funding that we did in Q2 of the prior year. In terms of guidance, we're far along in the year where we feel comfortable giving guidance for the full year. We think we're going to come in between $6.5 million and $7 million of revenue for the year. That will represent about 180% increase year-over-year. The gross margin will continue to trend around our target, 28% to 30%. We -- looking at a full year of OpEx around $12.8 million, of which $1.4 million will be noncash stock compensation expenses. That's all. So with that, I'll hand it back to Brett.

George, let's recap the balance sheet.

Okay. June cash was $10.3 million. We raised a net $9.2 million in July. And we expect year-end cash to come in between $13 million and $15 million. So with that financing, we feel that the company is well capitalized for 2022. Keep in mind, we still have warrants outstanding that are in or near the money that could be exercised, but we feel we're in pretty good shape now.

All right. Thanks, George. And so with that, before we take questions, to summarize, we're actively building a wireless standard around WiSA. We've got both trademarks and IP. We think the HDMI model is a good model for us to emulate. We've got a large market out there with smart devices, headphones and sound bars. Adoption is being -- is increasing both with brands and consumers. And we think this -- working with the retailers in a tighter fashion will really help drive revenue growth this year and beyond. With that, operator, I'd like to open it up for questions.

. Our first questions come from the line of Jack Aarde with Maxim Group.

Congrats on the solid results, strong guidance. I'll start with a question for maybe both Brett and George. So you guys introduced 2021 full year guidance parameters for the first time. The guidance itself appears to be positive relative to expectations. But what is perhaps, I don't know, more encouraging in my view is the fact that you provided full year guidance at all given the semiconductor industry environment we're in. So maybe just two questions. Can you talk about whatever factors are at play that give you that confidence or incremental visibility to provide 2021 guidance? And then two, maybe can you talk about your revenue expectations for the third quarter and the fourth quarter, kind of how you expect that to directionally trend?

All right. So you're absolutely right. The semiconductor world is challenging in terms of supply. We have secured our supply to provide modules for our customers, but we have seen our customers push back production, waiting for other components to arrive. We saw orders move out of Q2 into Q3. Now in terms of why we guided to the year, we think that at this point in the year, in August, given the orders that are on the book and the lead time for our orders, we have a pretty clear sight on the bulk of our revenue. Certainly, there's always upside or downside of products get pushed because of part shortages. But we're sitting there thinking this is really where we're going to be. And we'll properly hedge under any minor changes to the plant.

Okay. Great. That's helpful, Brett. I appreciate the color. And then maybe just a follow-up. As it relates to the gen 2 opportunity in general, is there any impact, a similar impact or kind of maybe a nuanced impact in terms of how the semiconductor industry impacts your gen 2 plans? Is there anything there of note?

So the -- we believe the IP that we've developed and the software we've developed can be easily loaded on most WiFi chips. We are not looking for a more expensive solution. We have ongoing semiconductor conversations with potential partners that would, let's just say, offer a broad selection of channels to use for the audio and a significantly lower cost than what we're shipping today. But until those partnerships are finalized, that's a directional statement, and we'll leave it at that.

Got it. That's helpful. And then just maybe another kind of growth catalyst, I imagine something that could ramp up over time into material growth drivers is your new Amazon storefronts. So any initial expectations from a -- what that means for your revenue or your sales momentum as you kind of like go from 3Q to the fourth quarter? Are you already getting inbound interest more so than without it? Just anything you could provide there would be interesting.

I think the Amazon store and the ones that are to come have a fundamental long-term impact on building WiSA as a trademark that consumer recognizes the universal wireless standard for multichannel, number one, right? In terms of, two, how does it impact Q2 -- how does it impact Q3 and Q4 sales, I am a believer that it will significantly impact the sales of our customers, right? So if you go in there, you'll see LG TV. You'll see Hisense TVs. You'll see Enclave. You'll see Klipsch. You'll see Platin. You'll see transmitters from Axiim, I believe. And the consumer traffic has been significant already. I think we're close to putting -- having directed 10,000 consumers into Amazon already.

Our next questions come from the line of David Lavigne with Trickle Research.

So Brett, can you just give me the -- or give us the current number of brands of products in the market now, and then maybe a little bit of color on those that are coming but not quite there yet, maybe the third quarter things? Can you give us that number or something close to that?

So we're not going to comment on what brands are bringing out in the third and fourth quarter. That's their job, okay? That would be -- that would not be appreciative of our customer base. In terms of who's in the market, I can run through real quick and pull that slide up. Harman, Bang & Olufsen, Onkyo, Klipsch, Almando, Primare, Savant, Platin, Enclave, Buchardt, Axiim, I think Ecler is in the market, EC Living is in the market, PIEGA is in the market, System Audio is in the market as well as the 5 TV guys.

Can you give us a number -- just a number on what you expect in the third quarter that aren't there today?

It's this list on slide -- I don't know, the brand slide. We're saying 25-plus brands will be shipping our technology.

Okay. So -- and I know this is our job, but I'm going to ask you anyway. Are you starting to see or develop any comfort level with correlations between the website traffic and your actual business? I mean you sort of talked about those sort of the leading indicators. Are you starting to develop any sense that we might get to a point where we can sort of look at website traffic and think about how that might translate into sales? I mean I know that's a big if, but just sort of curious how you view that.

Well, I think you absolutely should be, right? I'm not -- my team laughs at me for being quantitative. I'm not doing it for my health, right? I'm an absolute believer that the point of educating consumers and showing them multiple products and showing them category and the license side and then I'm moving to a retailer to see a category, albeit virtual, fundamentally changes the sales curve. I see the week before -- the week of Father's Day, traffic went up to -- I think it was actually 25% of the traffic was return visitors. What does that tell you? That tells you that the consumers that were coming in a week before or a month before, 6 months before, came back shopping, right? That's highly educational. We saw that in Christmas season last year, and we were just getting started on the program that from Thanksgiving weekend until mid-December, we were running in the low 20% of return visitors. So people have valuable time. I don't think people come back to a site they thought was worthless, right? So to the extent that you can see that type of consumer behavior, you can see a lot of people being directed to the WiSA store, there's some initial good metrics coming out of Amazon that we like, that only leads -- can only lead to higher sales for the ecosystem.

Yes. I mean I don't know how necessarily to -- at this point, how to sort of put it all into numbers. But it certainly seems to me that WiSA Wave is becoming quite constructive to you. That's how it seems. So I'll leave it at that.

Our next questions come from the line of Ed Woo with Ascendiant Capital.

Yes. Congratulations on the quarter, and thank you for providing us full year guidance. You mentioned that you have visibility for this year. What about visibility into next year? Do you think that the challenges in the semiconductor industry will ease up for yet to be able to have no issues next year?

So we're not ready to guide next year. We just got to a point of guiding this year. But for the semiconductor space, I can't say that I can truly definitively say what will happen, right? And what I do think is pretty common thought among a lot of executives, that it will ease. I think there are several components of that easing. One, supply expanding. Two, there may be some protective inventory buying that dissipates almost like what you saw a year ago with the consumer buying toilet paper and paper towel because the sky was falling. There may be a component of that. We don't see it because we know where our customers move and know that a number of our customers are not entering new regional markets because of their part shortages. But I think all those can be factors. And yes, it'll work itself out over time. But whether it's Q1 or Q4 next year, I know not to say that.

All right. And then the other question I have is, what do your retail partners see for the holidays? I mean, obviously, there's a lot of spending on the stay-at-home, building up the house last year. Do people feel as confident that consumer demand will increase and we'll have a good holiday season for consumer electronics this year?

I believe the trend continues strongly. Yes. And I believe the trend is capped in the supply.

Our next questions come from the line of Spencer Kirschman with H.C. Wainright.

Congrats on the quarter. I just had a quick question. If you were able to provide some color on the percentage that the Amazon web store makes up of your sales mix as well as any color on those future storefronts that you talked about earlier.

Well, I'll take the last part of that question first. So we're targeting 4 or 5 storefronts for the holidays for this year. First one is up at Amazon. We are actively working with a handful of other retailers to create those storefronts and however their e-presence allows it to be done. What was the other part of your question?

The percentage that the Amazon web store made up of the sales mix.

Well, if you look at Amazon just from the brands that are in there, those are only the U.S. brands. And it's only the entry-level mainstream up to Klipsch type brands. Harman has a very small presence in the U.S. They're inventory-constrained. So most of their volume goes to China and Europe. So I don't think it's -- I think the license store is critical, especially getting a handful up, and we'll ultimately look at how to replicate that in Europe and China. But how it responds to each individual brand in that store, how it impacts the bundles that are in that store with some of resellers already or impacts on TV lines, we don't know yet. We do know, like I said in the -- we probably have about 10,000 -- 8,000 to 10,000 consumers that have already gone to that store shopping.

That's very helpful. And in terms of second half revenue, you mentioned that some orders had been pushed back from the second quarter to the third quarter. Do you think that might impact any of the manufacturing that might take place, preparation for the holiday season?

No. I think that from a manufacturing line, there's capacity. Everybody's fighting their parts shortages.

. There are no further questions at this time. I would like to hand the call back over to Brett Moyer for any closing comments.

Look, I'd like to thank you for taking the time to hear our products. The team has been doing a great job executing. It's a pretty exciting time for WiSA, and we look forward to updating you throughout the rest of the quarter. Thank you.

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