Q3 2020 Summit Wireless Technologies Inc Earnings Call

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This conference is being recorded.

It's now my pleasure to introduce your host Kirsten Chapman with AK Investor Relations. Thank you you may begin.

Thank you Doug Good morning, everyone I'd like to welcome you to the summit wireless technologies third quarter 2020 update call with US today are wireless somebody parlous, CEO, Brett Moyer and CFO Joe.

George.

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Before I turn the call I'd like to remind everyone of the safe Harbor statement referenced in the FCC 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 with into meeting other.

Securities.

<unk> of 933 and section 21 E of the Securities Exchange Act of 19 forties.

34, such.

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 'cause it 19 pandemic.

I'd to predict the timing of design wins, a drink production in the future revenue associated with our design wins.

Our greatest growth, our ability to predict customer demand for our existing and future products into secure adequate manufacturing capacity consumer demand conditions affecting our consumers end markets, our ability to hire retain and motivate employees and FX is competition, including price competition, Texas logical regulatory.

As legal developments developed from the Academy and the 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 fourth lookingstatements format more detailed discussion of the outcome.

Oh, becoming risks and ongoing risks and uncertainties of the company's business I refer you to the companys various SEC filings with that it's my pleasure to turn the call over to Brett Moyer. Please go ahead Brett.

Thank you Kirsten and I'd like to welcome welcome you, ladies and gentlemen to the summit wireless call for Q3 update.

Well, we started the year our team was very excited about all the progress and work that got done a 2019 and how that would impact 2000 Twentys CNL.

Clearly.

Coated impacted out initially.

For the quarter, we got to start showing you see what has kept us motivated and excited in terms of design wins membership growth consumer response.

Revenue growth.

For the new investors I'll do a quick overview.

Potential investors someone has two pieces one is the technology side.

Designed custom basics are gone the wireless modules that gets built into either T.V.'s Arabia receivers, but primarily speakers.

Well the company is selling a weiss a certified product.

That means they purchased a module from me from nine to 10 Bucks.

And.

Inserted into that product.

Your wife's a ready that means or interface you to us, but they have not bought a module.

The other part of the summit.

Last month is why so we run the wife's association for the industry.

And the reaches more than 60 brands not waste Association has a critical role.

Right.

It is to make sure that the consumer ultimately has a great experience.

The ones because they know that this product can connect with the other products.

So for the consumer when they see that they know that they're going to get a simple set up so they're going to know what's going to be a high fidelity signal and they'll be able to have.

I have a burst of sounder theatres from this movie Theater sound. However, you want to phrase it in their room in their living room.

No.

During the last four months, we added seven more companies to why so we added 11 more brands and two of the more important ones out of that group are sky worth the Tysons.

Well these are display companies skyworth claims to be the largest Chinese domestic TV manufacturer.

In Houston is is either number five or close the number by worldwide Fourk TV production and you will see their products and the big box stores in the U.S., you'll see skyworth, all over China and Europe, they own the breadth the Mets brand, which was a German TV company.

And so we continue expanding membership with critical players like high since its guidance.

One of the other critical achievements in Q4 is the surround sound.

Uh huh.

Why so sounds said no.

This is critical for the consumer.

So with this product the consumer now has a very affordable.

Got it that a plug into any smart TV with arc or New York. It was probably 800 million to a building of those installed now.

Will translate to any Weiss a certified speakers.

This isn't gonna list at 179, or probably street at 149, it can get bundled with other speakers for a surround sound and the box.

Probably a $99 price point right.

For the Speaker company. This it gives them confidence that they can do what they love design speakers and deliver great audio sound. So I hope for their price point without having to worry about is there enough transmitters. So they can sell have speakers to make the project work that's.

For the TV Guy made a critically you know TV guy the TV is used to be the center family Entertainment.

Sounds gotten worse a lot of the video content watching has moved off to handheld devices tablets and phones. This gives the TV brands the opportunity to bring that cinema sound back to the.

TV around the big TV and the family night and be in the center of home Entertainment, they've got all the content industry down through Netflix and Hulu and Amazon Prime and Apple TV et cetera, now they have an easy way to market to their customers great audio around the big screen for good family.

No. This chart is a updated chart from once you might have seen oh year ago.

And.

The point here is where the euro high fidelity audio file and you want to spend $10000 on it John.

Hi, its music system.

2.0, or banging Olson surround sound or euro soundbar customer valued customer. These are the green highlighted ones I want a great audio experience, but don't want to break the bank.

It's a certified products now.

[noise] range from the lowest to the highest price points from all configurations. We've got great sound bars, we got great surround sound and the box, we got great music systems.

And this is what's going to be driving or rather the breadth of products.

And these are some examples on this you know.

No. The other great progress. We've made is we continue to make progress on product integrating to weisel systems.

Talked in the past about LG OLED, so nano cells and that's box.

Enclave and Roku TV integrated their products, so that they could get surround sound around local TV, we announced a skyworks, which should have been on their side. They are integrating our transmitter into their sculpture one products.

So the TV can transmit directly to their speakers and when they start shipping this quarter.

So a lot of great products in the product development occurred last year are now showing up on the market for you to buy C. validate Oh, some its business model now.

Going to look a little talk a couple of slides now about these green skews that are being marketed by platinum enclave in action, that's up $1500, a sub $1000 price point.

Sounds sense, certainly helps out in the product line.

But you know what's the consumer response.

Not going to go through these but if you take a quick scan or look at it later or better yet go out to Amazon and checked out check out the comments in the reviews are verified buyers.

Consumers Love these products.

A simple to setup surround sound system.

At a value price of a thousand bucks or less.

Getting great response out there so.

Yes, there's a lot of great trade around it that's what consumers are doing very well and enjoying the experience why.

Well fundamentally its about spatial sound. So if you think about the audio experience.

Tvs have the.

Lease audio performance out of Soundbar, It gets better at an expensive sound bar, because even better what the sub corporate takes a lot of a big step up now.

Well put in a couple of years in a room that helps it a little bit, but really 90 plus percent of your content audio content is in the front of the room. So when you jam it into a small sound bar, you're you're less you're sending your right soundtracks are on the small little space when you move to separate speakers.

And you separate them out now all that audio related to the video you're seeing is crossing the room and you got a much deeper sound a richer sound that the consumer is appreciating coming.

Combine that with you can get this experience for sub $1000 we.

We think the price value performance equation is heavily weighted to gaining traction around the sub 1000 dollar products.

Another critical indicator we started tracking this in Q1, when we did our Q4 earnings call last.

At the end of the year.

We continue to see consumer growth an interesting to watch the web site. This is coming from referrals from product reviews open box reviews links from other sites like DHX from waste away participants.

We continue to see consumer growth grow.

That that will hit a 150 to 175000.

Reserves this quarter.

We think.

We see that if you look at.

Quarter to date versus September viewing time is up 22%.

And probably more critically in terms of what's going to happen in the holiday season, and a 2021.

Returning users has moved from 10% of the viewers to 16, 17% of yours. So these are people coming back to Whites Association do their research to figure out what surround sound system, what high fidelity music system, they want to buy.

Now I'd like to turn it over to George should do to give you a few highlighted comments George.

Thank you Brett.

So Q3 was our strongest quarter to date.

Revenues in the quarter were 607000, that's a 45% increase over the same quarter in the prior year.

Our gross margin was just over 17 points, which was compared to 7.6 in Q3, 2019, which is about nine point improvement.

And our Josh was north of 9 million at the end of the quarter.

And we're projecting that Q4 will be about 860, plus a 100% growth over Q4 in the prior year.

All right. Thank you George.

So when we look at all the activity that's gone on and 2019 2020 under the radar screen and.

And we look forward into Q4 and 2021.

We still anticipate to add new members, including more TV in projector companies.

We expect more brands to Shiftwise the certified products as.

As well as more project from existing branch shipping.

We see sounds and increasing speaker sales because of the easy installation and the broad distribution and.

And we expect to add more TV brands and increased volume and Weiss enabled TV.

No.

Before we go to the questions. It is the season just want to highlight there is great surround sound in a box. All you have to do is rapid out up and wait for the surprise. So here three three links to three great audio systems that will give you for under 1500.

It's a kick ass sound shipping one box and.

And you click there if you want to really build out your home theater LG has got some great. All let a nano cells are a waste already that are called connect to flatten and clip speakers.

So I'm going to let this slide hang during Q in a just the dry the point on this is a great opportunity [noise] click on this and look for promotions on these websites and with that operator I'd like to open up for your questions.

Thank you very.

Ladies and gentlemen at this time, we will be conducting a question and answer session.

I'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your life isn't quite thank you.

You May press Star two if you would like to remove your question from the Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Our first question comes from the line of Ruben Roy with Benchmark. Please proceed with your question.

Hi, Thank you and hey, Brett Congrats on seeing some traction here, it's great to.

See the numbers move up and you know kind of the excitement as we head into year end I guess just to start can you maybe give us an update you know obviously you are getting some traction with yes. My end brands out there, but in terms of overall market dynamics you know as you think about it we've got your Q4 guidance, but you know.

So you had a tough beginning of the year how are things looking around the supply chain. You know can we build these things get them out the door and you know are we going to have a little bit of a different.

Seasonal trend as we think about.

The first part of next year, given that you know things slowed down a bit earlier this year that'd be helpful to kind of understand how you're thinking about all that at this point.

Well, so I think.

There's going to be different seasonality. This year, then traditionally in the consumer space or you know the home audio TV space.

I'd say that for a couple of reasons I have said most of the year that we expect to fall to be a good selling season, because it could you know the home improvements the home gyms, all that stuff got done in the spring people went outside.

Now what do you do now you're stuck in the house and we're in weight too right.

I think there is validation that we've seen from our customers.

Lead times are extending because products are selling out.

We have seen orders coming in.

Inside our lead times.

Since late August.

So I believe there is a a pretty strong consumer demand and it should continue into Q1 is.

Customers are not going to be able to fulfill all the demand even though it's Christmas season.

Our customers right.

Right. Okay. That's very helpful and yeah I'd agree with that you were seeing that in some of the other areas of consumer electronics as well, maybe just a quick follow up right.

I dialed in a little bit late but did you give us an update on how things are going with your waves strategy and you know any anything new to report around that.

At this point.

Yes, so if you.

If you go back to consumer interest and the graph you know.

We got a lot of consumers growing we have run a series of ads that are multi brand.

Whether its LG flatten and clips, whether it's flattened enclave and clips or flatten enclave axon.

Et cetera, they perform.

Very well I think from a consumer from a.

Integration perspective. This is critical for 2021 thing that's huge leverage for the Weiss Association to help those brands cost effectively reach consumers as a partner so our our.

Our multibrand tests or what we refer to as say a good better best for example, add that lands on a plant and an enclave in a clip sad.

If you run just one brand.

You'll get one click to one of those brands, you know website or or Amazon page. When you put three brands then you actually get 1.8 clicks, so almost it almost doubles the number of.

Clicks to brick Weiss of certified brands, and then increases the engagement with the consumer.

And I think you can see that impact, which I mentioned earlier.

Proven that.

Our return visitors to the site has gone from 10% in September to 17% in October early November.

Right got it okay, just to finish up right. So obviously exciting to see you know the traction the engagement the way.

Et cetera, how are you thinking about marginal cost you've said in the past that your thinking at all that on average at nine Bucks you know any changes as we start to see some momentum here into 21.

I do not anticipate us changing the guidance of nine Bucks.

When we set that guidance, we anticipated whatever changes that we expect that we would have so I think.

As you look forward, that's a solid number 2021.

Great Awesome. Thank you Brett have a great day.

Thanks.

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

Yeah. Thank you and congratulations on the quarter. My question is more on the retail channel in terms of you know the retailers you do you see them up willing to take up more inventory as we head into the Christmas selling season, or you're kind of holding back or what is it like when you're talking to the retail channel right now.

So.

We're a component.

So we talk to the retail channel.

And the effort to get them to recognize wise to as a category.

That they should multi brand multi skew.

Get them to recognize it would there's one brand there's other brands around it that they should look at bringing in we talk to them about the wave and how that can drive business to their actual store fronts or their web sites.

So I don't think.

We're on the front line of on the actual orders from retail, but I do know that we have had some of our customers say they.

They wish they had more access to component beyond us.

To build more product for the season, so I would expect retailers to have tight inventory.

Because they were hurt hard by coated I expect a consumer to have higher than normal demand for this category as I mentioned a prior question. So I think supplies will be tight inventory will be tight by the end of the year at retail.

All right that's great to hear and then my question is you know you typically use you know CES in January as a big showcase for your new products obviously.

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Get a similar type of a new introductions by either you or by some of your part.

Partners.

Yes.

So I can't tell you exactly how those formats will get done.

Right everybody's very curious and how she asked plays out the CS is going to happen it'll happen virtually and it's still well consumer electronic has a very defined seasonality.

Products have to be announced in early Q1, they have to be in production or go into production in Q2 I have to get delivered in the European U.S. markets by a late Q3 October.

So I don't think that seasonality changes the events around CES might spread over four six weeks in terms of product announcements because certainly a people aren't there to see it.

Ah individual brands have the opportunity to.

Wait until its closer.

Well the seasonality is going to remain the same it's all driven by the holiday season Bye.

Great well, we're definitely looking forward to hearing about your new products.

Thank you for asking my question. Thank good luck.

Thanks, Ed.

As a reminder, ladies and gentlemen, it is star one to ask a question.

Our next question comes from the line of Jason Starr, a private Investor. Please. Please proceed with your question Hey.

Hey, Brett any.

Any progress with any of the cell phone manufacturers Samsung or Apple.

Apple or LG in particular.

Hi, Jay.

So.

You are really talking about what's going on with Gen. Two and the ability to transmit from handheld devices, whether it's a tablet.

Even on a TV.

We have said, which we will can can you just say that we'll announce our first product later this quarter.

That's what we anticipate and that'll be a let's start talking more about gen two into year end call.

So when you when you say gen two that'll be.

Youre perfected product rather than a an introduction of like LG has has agreed to put this at all their phones.

Agreed that that will be we have a product that is.

Different performance meets the good enough meets is target to the broader market and there's a series of products that will roll out of that.

Over the course of next year, and we're starting the selling process.

Because it seems like if you get one of those done the volume there.

It's just a enormous and I don't know what the margin on that will be but if you get a any of those three.

It seems to put it in their phone it seems the others are going to be driven to do it.

To copy.

That's true in theory, clearly from the presentation no.

Now in May.

Mostly this year.

Hi, I'm focusing both the team.

And then.

The investor attention on.

Market adoption that in the in the sound bar space. We think there is a highly competitive offering we think.

That gives us the opportunity that gives us a a near term service available market of the $100 million and we have a good foothold in the TV market and audio going around the TV market and that's our focus now when we launch.

Our Gen. Two we'll start talking about that more detailed but what's going to drive this piano. This year next year.

Dominantly is the stuff we're talking about today.

And is there any forecast as it is to when you turn cash flow positive or is that just too.

Too unpredictable.

Well, yeah, we have those forecasts internally, we have not issued on publicly.

We see.

A pretty strong business plan in front of us.

So, we'll let the quarter speak for themselves as we continue.

Continued to grow.

And so have you publicly said, what what kind of revenue you need in a quarter.

To achieve cash flow.

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Oh, we have not okay.

No you know people can model off that historically.

We have set up our opex is runs around 2.4.

We guided 2.42 0.5 for Q3.

On excluding.

Some non cash charges around.

Doug.

Issues, we were at 2.4 in Q4 so.

Hey, good anybody can model it out yeah, yeah, okay. Thank you.

Right well I appreciate the progress keep it up.

Thanks Jed.

As a reminder, it is star one to ask a question.

All right operator, we're going to give it one more plug go to platinum go audio audio enclave audio or accident and get a grace around system in a box that you just have to wrap for Christmas and then Hans.

And all the other gift giving opportunities in the holiday season.

And with that I'd like to thank everybody for joining us today.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

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