Greetings, and welcome to the Summit Wireless Technologies Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kirsten Chapman. Thank you, Kirsten. You may begin.

Thank you, Paul. Good morning, everyone. I'd like to welcome you to the Summit Wireless Technologies third 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 of 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 Securities 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 and are subject to a number of risks and uncertainties and other factors, 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 our design wins. Our growth rate, our ability to predict the customer demand for our existing and future products and to secure adequate manufacturing capacity. Consumer demand conditions affecting our customers' end markets, our ability to retire higher retain and motivate employees, the effect 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 and 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 the ongoing risks and uncertainties of the company's business, I'll refer you to the company's various SEC filings. Now it is my pleasure to turn the call over to Summit's CEO, Brett Mayer. Please go ahead, Brett.

Thank you, Kirsten, and good morning, ladies and gentlemen. I appreciate you taking the time out of your -- the middle of your day to join our earnings call. Two quick slides just for anybody that may be new, right? Some it is 2 organizations in the Summit wireless side, we develop IP ASIC chips that handle multichannels, wireless audio. Primarily, you see those being sold in 2 speakers, some TV companies right now. And we have an association called WiSA, whose function is to make sure that when a signal is sent to a speaker or from a speaker or from a TV to a speaker, there's a clean standard on how that signal should go out and how the signal should be received and then you get interoperability for the consumer. So technically, WiSA manages that standard. But from a consumer's perspective, the WiSA brand is a lot the consumer knows this TV works with that product, these speakers work with that transmitter, right? So when Summit sells a module and a speaker is certified, each speaker will have one of our modules in it, that will make it WiSA certified, and that's our revenue model today. Some exciting news since the last call, last week, Rolling Stones, called the Plat Milan 5.1 best home theater system. And that's pretty interesting when you think it's only $899 in of all the systems Rolling Stones tested. So you'll see that obviously show up in Christmas ads, right? We were able to engage with the 2 leading HDMI executives that launched HTMI back in the day. So one was Eric Almgren and one is Steve Venuti. One ran the HDMI organization and one ran all the IP licensing. So we brought them on to help drive our next-generation of technology…

Thank you, Brett. So Q3 2021 revenue exceeded $1.8 million for the quarter. That's an increase of 198% compared to the same quarter in 2020. Gross margin was 28 points. It's up nearly 10 points over Q3 in 2020. Our OpEx was approximately $3.4 million, which included $400,000 of noncash expenses, primarily stock compensation expense and a small amount of depreciation. That compared to $3.1 million, including $700,000 of noncash expenses in Q3 2020. The net loss for the quarter was $2.1 million. That is -- reflects the benefit of nearly $900,000 relating to the forgiveness of the PPP loan that we received in 2020, and that compared to a $3 million loss in Q3 2020. With respect to the guidance for the rest of the year, we adjusted the guidance down to between 6.3 and $6.5 million for the year. That continues to be an increase of 160% compared to the prior year. The reason for that was very recent information where we had customers who are rescheduling delivery of approximately $450,000 of modules that have been moved out due to their redesign of components that were problematic in the supply chain. So the gross margin for the year continues to be expected between 28 and 30 points. OpEx, we've revised slightly to $13.4 million for the year. That reflects $1.4 million of noncash charges. That represents a $600,000 increase in anticipated spending. The reason for that is attributable to the strategic marketing and engineering relating to the future launch of the next-generation technology. And as Brett mentioned, HDMI team members that we brought in to help ensure a successful launch. The balance sheet continues to be very strong. Cash and cash equivalents for the quarter end was $16.1 million. We're targeting to finish the year at $13 million, and we believe that we're well capitalized for the balance of the entire 2022 year. And that's all I have.I'll give that back to you, Brett.

All right. Thank you, George. So when we wrap up and think about where we're at, we think the industry is coming around to focus on immerse over spatial audio, and we are the leaders in that space. It's a large market. We've got increasing adoption around WiSA with some really strong marketing around it from our partners. Before we take Q&A, it wouldn't be a call without -- in the holiday seasons without letting everybody know, you could take WiSA $100 and use that at Platin Audio to test out the technology you're making an investment in. And with that, operator, we'll open up the call, but I'm going to let this slide hang. So everybody gets the message.

Thank you. We will now be conducting a question-and-answer session. Our first question is from Jack Vander Aarde with Maxim Group.

Appreciate the quarterly update. I'll start with the question for you, Brett. So just regarding this -- obviously, it's no secret, the global supply shortage is impacting companies in every industry. It's interesting because it's not having that much of an impact on your revenue outlook for this year now, but it is nonetheless. So just curious, when you say your customers -- these particular customers are redesigning the products or for rescheduling at a later date. What does that mean exactly? Are there other components that suffice that they're replacing whatever component was in shortage? Or do you have any insight there? Is it that flexible where they're just substituting certain components or redesign an entire product altogether? Just any insight there would be helpful.

Yes. It's not -- say, if you take a speaker design, you're not redesigning the whole cabinet and drivers and speaker, right? But if you have -- just take an example, a DSP processor in there and you got 50 week lead times, but there's another one that maybe has 15 week lead times or 20 week lead times, that's a substantial change. So it will take time to retune the speaker. But from a hardware perspective, other than probably that one component, it should be -- it will be the same to the consumer, it will look exactly the same.

Okay. And then an estimated impact on your revenue of, call it, $450,000, as George said, is that -- does that roughly imply 40,000, 45,000 units, system units that you were expecting would be sold before this year, just based on your module kind of ASPs?

Yes, using $10, that's what it would apply. 40,000 modules, give or take.

And then how much, given it is kind of -- we're halfway through the quarter almost. In your range for revenue for the year now, it's a pretty tight range, which to me suggests you have pretty strong visibility at this point, especially with the holiday season coming up. I'm sure a lot of the orders have already been placed to stock the shelves and whatnot. So can you just talk about your visibility levels at this point? And then also, any signs of what you expect for maybe the first half of next year given the supply chain?

Well, we have visibility to orders on books, right? We don't have visibility to, as in the case of the adjustment we just made to other people's problems with other parts until they indicate that through adjustments on the PO delivery dates, right? But we're not aware of any other adjustments to the orders are on the books. So when we look at the Q4 guidance that we gave you, that's around orders on the books, plus an estimate of what holiday sales will be for Platin audio.

Got you. Okay. And then maybe just a last question for me is, it's pretty great to see all these new storefronts and so the WiSA logo being very -- I imagine it's being broadcasting now. It's being well received by customers. Obviously getting great attention from like Rolling Stones and getting good reviews. With the 7 retail stores, online retail storefronts from 0 last year, just what does this do? I mean that's 6 incremental new storefronts steer from just last quarter. Just what does this do for your revenue momentum or at least your sales momentum in your view? I imagine it's going to accelerate it, but are all these -- are all 7 retail store fronts? Do you have -- are you -- do you have high aspirations for all of them? Or is it just the more of the marrier? How are you viewing that from an economic standpoint?

Well, this is 7 more than Q2, not just last year, right? So from our point, look, we think these storefronts are very fundamental to building the WiSA category in the consumer's mind and in the e-tailers mind, right? It's hard to do that during COVID. So that's why we've been working on the Wave initiative. We think if you look at some of those e-tailers, and we don't have control over the non-Amazon one since we control Amazon where we could do what we wanted. But you -- I know probably half of the others, they now have WiSA listed up there with Samsung and LG as a brand that has to be promoted as a Tier 1 brand. That's invaluable. I think how it drives revenue. I certainly think it drives a lot of revenue next year, some revenue for the WiSA brands this year, but really critical sets up the marketing for next year's revenue increases for our customers as soon as they get over their part shortages, right?

Got you. And I said that was my last question. Just one more. I think in 2019, you're shipping 6 brands with WiSA products or there are 6 brands shipping WISA products. You're on track for 2021, I believe, to ship over 25 brands with ship waste products. Do you have a number and expectation for -- or maybe just directionally, how many brands you expect to be shipping WiSA in 2022? Is it similar? Has that changed? Just curious there.

What I think -- well, we will -- we are always adding brands, but also, we're always adding more designs with the existing brands. So I think both impact next year.

So do you think both it sounds are likely to increase in terms of brands and the number of systems from each brand?

Yes.

Excellent. Okay. Great. I'll hop back in the queue. I appreciate the update.

Our next question comes from Kevin Dede with HCW.

So I wanted to peel the onion back a little bit more on where Jack was going. Could you -- I mean, you mentioned both brands and designs. And I imagine you just mean specific products. But could you just sort of give us the comparison, audio, brands, TV brands and products, year-end last year and where we are today? I mean, to me, it's about adoption, right? Granted, you've got your HDMI guys, but we've done pretty remarkably without them thus far. So I was just hoping you could dial in on those numbers for us?

Well, so when you're talking about HDMI guys, you're talking about the next-generation technology, right? So we are anticipating announcing that next year in the first half. We -- but then there's a whole design cycle. So what you're more likely to hear us talk about, say, this time next year is projects in design versus launch because that's a vastly bigger market, right? So they're going to -- the next-generation technology will add to both designs and designs within a brand is what we think. As compared to -- did you ask for comparison to last year?

Yes. I just -- are just in marking your progress. You got the stores just since last quarter, that's impressive. Just curious where you are with brands and products year-over-year, both on the audio side and the visual side? If you have that in front of you?

Yes. Well, so look, the -- on the TV side, there was LG and B&O. So it's 2 to 5 announced with a 6th one coming. On the speaker side, this is totally off the top of my head because my challenge is the brands we're showing you that are shipping or launching this year. I mean, I've seen those brands for 2 years, right, on the active list. But I would guess, from a speaker side, it's up 100%.

Brands or products, Brett?

Brands.

Okay. So now what about the products themselves, right, because each brand has multiple?

I don't know that off the top of my head when you go year-over-year.

All eight. Okay. Okay. Okay. So your press regarding -- I mean, you started this -- your response off with HDMI, that executive team. But your initial press about a month ago, I guess, right, had 3 gentlemen, but -- okay. So do you still have?

The third one is Roger Isaac, and he's available for us. We brought him on to do a deep dive on the WiFi chips in the pipeline from competitors. And he is still available from a technical reference perspective to help with either competitive research or standard writing. But from a marketing and launch perspective, this is primarily the Eric and Steve Group.

Okay. And again, you're not really expecting that to kick in for another 12 months. I think that's the way to look at it?

Yes.

Okay.

But we'll announce more next year.

Then, of course, the big one is a little bit more on logistics side, given shipping issues. Brett, you spoke to a module and components for that, but I'm just sort of wondering how you think stuff is getting to consumers this year? And what sort of impact that's having? Just in general versus not that particular module per se?

Yes. So let's just be clear. On our side, supplying modules, we are fully able, right? It has been all year. So we've managed the shortages with our suppliers. From an industry perspective, if you're asking a broader perspective, I think consumers will find tight supplies at Christmas. So when we look at the Milan perspective, from the Platin audio line, we will do some promotional around Milan around Thanksgiving, Black Friday, Cyber Monday for a brief period, but unlikely to do much more on Monaco, just as we look at the supply time line coming in on product. So this WiSA $100, that will be the best deal you'll be able to get on Monaco during the Christmas season.

Okay. Good to know. Yes.

But I mean, it's going to be -- there'll be shortages for all brands. I mean I think Sonos has talked about it, quite a few have talked about it. We have brands that are strong internationally have not launched in the U.S. because I can't get the pipeline inventory to launch.

All right. So then the next question is, how do you see that straightening itself out?

Well, that's a million-dollar question.

No, no, just $64,000, just 64,000.

Well, it's a pretty multifaceted issue. I think post Christmas, the influx and the urgency of the influx of the products will ebb, which helps shipping companies rebalance trucks, containers, railcars, et cetera. I think from a demand perspective, there's two opinions out there. Is the consumer going to continue to spend like they are, in which case brand are going to continue to chase production? Or will there be other events that drive the consumer to back off a little bit. And that's -- to solve the logistics problems, you need the consumer to back off a little bit or need to get out at Christmas.

Okay.

But we know, just to give you a perspective, I mean, a month ago, we had an ODM tell us on around the Platin line that we wanted 50 week lead times.

50 week lead times.

50 week lead times. That's how tight it is today. But...

Was that for module manufacturer or end product manufacturer?

No, that was for Platin. So that was system -- speaker system.

Yes, an ODM, right?

Yes. Yes.

Wow, okay. Can you talk a little bit about what you plan on doing at CES?

Yes. So WiSA traditionally has had been in the show, in the booth, into the niche. This year, we will have 2 suites at the Embassy Suites next to South Hall. We will not be officially in the show. We did that largely because when you had to make the decision back in the summer, it was highly doubtful that the -- there'd be a large contingency coming to CES out of Asia. You might have -- and I still think that's true. I can see a small contingency coming, but the reentry going back to Asia is pretty hard for those people. And the value to us as WiSA was being able to take example, Sony. We would have 5 different waves of visitors from a brand, a company, right? And so you've got management, you've got product management, you've got engineers. And if you don't have that, it's smarter, I believe, for us to continue to drive the expansion of the WiSA category through the wave versus spending a lot of money on being inside the CES trade show. We will have a next-generation demo in those suites for NDA only visitors.

Okay. Would you -- you mean the Gen 2 demo, that's what you're..

Correct. Correct.

Okay. Can you just -- can you speak a little bit to the advantages there given NDA potential here is slim to none?

So if you think about Gen 2 versus Gen 1, I think the first -- the first 5 gigahertz product will be already a substantial -- substantially lower price. As we've said there will be some performance softening, but that performance softening will be within the requirements of, say, Dolby and the main brands.

Well, I thought one of the other advantages, too, correct me if I'm wrong, is that you get 8 channels out of that or more?

We've got 8 panels now, right? We've got 8 channels now. And we have not launched the product, Kevin. So we're not really going to go much further down this conversation until we're ready to launch the product.

Fair enough. Message understood. Thank you very much, sir.

Our next question is from Ed Woo with Ascendiant Capital.

Yes. Congratulations on managing the chip shortages pretty well. You said you guys haven't really been affected this year. Do you have enough visibility to know if you guys will be impacted next year if the chip shortages continue into 2022?

Well, so actually, look, we have not been affected until this call by the shortages in terms of guidance that we've given you, but it certainly has capped our growth this year, right? You just didn't see it because we didn't brought -- we managed expectations, all right? So let's be clear. We -- if there would have been part shortages, our revenue numbers would have been, I think, significantly different. In terms of next year, the challenge is not my supply chain into me, the challenge is my customers, and it's very hard for us to know their problems. But the fact that we see a couple redesigning out of some known problem parts is optimistic for me because that means their volume drops out of those problems, parts and those parts, then should become available for other customers.

Great. And then another question, we're beginning to see a lot of inflation in various places out there. Has inflation been an issue for you? And is it going to impact possibly having to either raise prices or take lower margins?

It has been, it is and it will be. So we did increase prices on September 1. There's likely to be additional price changes in Q1. We're trying to sort through what's transitory versus permanent, it pretty hard on the audio products, so the Platin product line, brutal price changes on that. So as the new inventory comes in, in Q1, there will be price point adjustments.

Great. And the guidance for this quarter of gross margins of 28% to 30%, that's already incorporated inflation that you've already seen?

Yes.

Great. Then my last question is, thanks for talking about Gen 2 and giving us a participation for next year. How long is the lead time from when you announce it to when consumers can expect to see the products on the shelves?

So here's what I'll say about that. Part of the reason we launched the Platin line is so that we would have an early adopter of next generation. So when we announce the next-generation product and time lines around it, I would expect that you'll see the Platin line launch a product, using it, let's just say, within 4 or 5 months. Because it helps the sales cycle, right, to be able to tell prospective customers that this technology is in the consumers' hands. And Kevin Dede, thank you for that order and taking advantage of the WiSA $100. I'm sorry, I just saw that order come through. So that's what you'll see first. From a normal design cycle, it's probably 12 months, for a big company, right.

Great. Thanks for answering that question. I wish you guys have a great holiday and wish you guys good luck. Thank you.

Our next question comes from Marty Elbaum with Horizon Networks.

Congratulations, Brett and your team. I think your company is very exciting. It's unfortunate that a lot of the financial community really doesn't know about the company or supporting what you guys are doing. One of the problems that I have, one of the issues I have, maybe you can give us some clarity on this, when will this company become profitable? When do you see that happening? And that's very important because if you keep losing money, not a good situation. So when can we see a turnaround and the company staring profitable?

So profitability is one component of valuation. The other component is value of the business opportunity, right? So if you think about now through the next 12 months, well, we have said consistently that margin generated from the Platin sales would be used to drive the WiSA wave in the category for the whole WiSA ecosystem. So that's why if you look at our P&L, you see our OpEx has gone up, but so has gross margin. So our burn has still stayed roughly in the mid-2s, right? Yes. From a -- so that's on the current generation technology. We're going to use that margin to drive the category on our next-generation technology that will require continued investment until probably late next year. So I think we are perspective, Marty. The value from the company is going to be first built by announcing a second-generation technology at a much lower cost and a much broader market into the WiSA ecosystem that we've been establishing in the last 2 years. That's going to be the first. That will be a bump in valuation regardless of our P&L. Following that, as design wins come in, you'll see the P&L positively impacted.

Okay. Clarify this, maybe I misunderstood or misheard you. Did you say that generation 2 could do $100 million? Or was that a number you threw out before earlier in the conference call?

Earlier in the conference call, what we talked about was the SAM for our current generation product, right? And that was -- which is on the screen now, I've gone back to it. There's about 42 million soundbars. If 5% of those got converted into enclave audio or Klipsch or Harman or Platin audio or Bang & Olufsen audio, right? That would drive about $100 million revenue for us. So we think the current generation, not -- we think the next-generation of technology is a massive market. But we think there's -- given where we are today at $6.5 million of revenue projections, we think just the current technology has a lot of legs to drive revenue for us over the next several years.

That would be unbelievable. You get $100 million company would be very profitable. That would be unbelievable. You have a story -- label story.

Yes, we're not going to get there next year, but we're going to chip away and grab that market and convert soundbar people to immersive sound. But that's the short term. And yes, 2 years from now, 3 years from now, the next-generation technology that we'll talk about next year in the first half, then you have an even bigger market, but it will be a bigger market with an established WiSA industry category.

I think it's very exciting what you're doing with WiSA brand and building the structure of the company. And certainly, it takes an investment. But I think you're going in the right direction. I think you're building a company for the future, which we're excited about. And we're supporting. And we elected a lot. And I think the future looks very bright for you, and I think you're doing a great job. Keep up the great work and congratulations.

We appreciate the support. Thank you.

. There are no further questions at this time. I'd like to turn the floor back over to Brett Moyer for any closing comments.

Yes, I'd like to thank everybody for the Q&A discussion for participating. Certainly, I'm available if you have other questions. It's an exciting time of year for us, both for marketing our customers' products through the WiSA wave and moving into next year and a new technology launch. So I will remind people, you could use the WiSA $100 save on Platin audio. It's got a limited number of uses, so jump on in there. And personally, I'd buy the Monaco over the Milan with the Milan's cudar, and that sounds great. All right. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.