Q1 2023 WiSA Technologies Inc Earnings Call

Speaker 2: Good morning and welcome to the WICER Technologies First Quarter 2023 results conference call.

Speaker 2: All participants will be in listen only mode. Should you need assistance, please signify conference specialist by pressing the star key followed by zero.

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Speaker 2: Please note the event is being recorded.

Speaker 2: I would now like to turn the conference over to David Barnard in Best of Relations. Please go ahead.

Speaker 3: Thank you, Andruf, and thank you all for joining us today.

Speaker 3: With us on the call are Brett Moore, CEO of President, Fau, Jeff Oliva, and Mike Bin, SVP, business marketing from Comer.

Before turning the call over to Brett, I'd like to remind everyone that today's presentation means forward-looking statements within the meeting of Section 27A of Securities Act of 1933 as amended and Section 21 of Securities to Exchange Act 1934 as amended.

Readers are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of risks and uncertainties impacting WISES business, including current macroeconomic uncertainties associated with the COVID-19 pandemic.

Our inability to predict or measure supply chain disruptions resulted from COVID-19 pandemic and other drivers. Our ability to predict the timing of design winds entering production and the potential future revenue associated with design winds, rate of growth, the ability of future revenue associated with design winds and predict customer demand for existing and future products to secure.

certain defects in the proposed commerce transaction, such as the inability to enter into definitive agreements with respect to the proposed transaction, the expected performance of the parts to risk related to receipt of necessary regulatory and shareholder approvals, failure to realize the anticipated benefits from the transaction.

The ability of the parties to satisfy various conditions, closing the proposed transaction, and a lot of risk detailed from time to time in the company's filings with the Securities and Exchange Commission, including those described in risk factors in our annual report on form 10k for the year and December 31st, 2022, as revised or up to you for any...

changes described in any subsequently filed quarterly reports on 4 and 10Q and the preliminary and definitive proxy statement or other documents that wife's intent to file with the SEC in connection with the proposed commerce transaction. The information in this presentation is as of the date hereof and the company undertakes no obligations to update

With that, I'll turn the call over to Brett. Thank you, David. And good morning. I'd like to welcome both new investors, old investors, and particularly the comier investors today on the call. We will be focusing on our intent to dono, that happens.

prior calls. But Wi-Fi is focused on smart devices and getting wireless audio from smart devices into the room, around the room, around its commercial space to make sure that the consumer gets that immersive audio experience as if they're in the stadium listening.

watching a live game as if they're in a theater here in the movie itself and all the audio above it behind it to the sides of it, right?

So in the core that we're going after that market and we have a strong portfolio of wireless IP, we have an interoperability standard around under the brand Wysa.

We have a pretty broad customer base of tier one consumer electronics customers and Wysa has a small product line of speakers under Platten audio that's mainly there to drive awareness of Wysa certification within the industry Build up Wysa stores with the retailers

and drive technology demo success with our new technologies as we launch it.

But today to that portfolio we will be adding Comair's Immersive IP and Immersive Audio techniques for adapting audio to where a listener is where they are sitting. Financially we think it has a strong impact once we have merged the 2 companies.

There will be some variability around Q3 and how that impacts us, but starting in Q4 and into 2024, we think the combined impact of the technology investments in the last three years above companies.

The design work of the last three years of both companies drives a revenue forecast for 24 in the 10 to 15 million range.

So a little bit about Wyser.

little bit about WISA for the new investors.

Traditionally, we've had a custom chip on modules going into either small hubs, into televisions, into speakers under the YSAHT brand. It's been expensive. Each module is 10 to $12, but it was the highest performing...

wireless technology industry that even allowed bagging holes and use it in their $40,000 speaker.

But where the investment has gone in the last three years is to take the know how an IP and why say HT and make it portable an IP so that we can load it onto lower cost non-custom chips yet still deliver a higher performance of audio than

any competitors can do. And the first product we launched with our IP in that format was on an expressive chip under the brand of WITHDES.

And YSA DS is roughly a quarter the cost of YSA HT. It does a few less channels, but it is extremely powerful and it's impact when you add rear speakers to a sound bar with upfiring drivers at send the sound above, right?

So you'll see that roll out in the Platon Rio product this year. We talked about last call. There's design winds going on actively with the S and it'll impact revenue this year.

The next phase was, we took the IP and moved it to a real texture.

Now the real tech chip is a 5 gigahertz chip. It is more powerful. That'll allow us to...

to give comparable performance, in some cases, see the performance of YSAHT, and we expect to release that product to production in Q3.

Finally, the IP showed a small demo prototype at CES of our same wife's EIP, running on a set top box SOC.

showed a small demo prototype at CES of their same wife EIP, working on a set top box SOC, which means...

The IP not only has been demonstrated working on a 2.4 gigahertz IOT module and DS, a 5 gigahertz with real tech for Y2E, but here it was with a SOC demo for a set top box, where the set top box was streaming a 2.1 audio signal out to speakers.

not the full home theater suite, but the first step in developing and morphing the YCE into a complete product. We think the total TAM of smart devices that an embedded IP platform can penetrate is up to a billion units.

And so we think strong market, we got the best technology position, and it's all starting to hit production and revenue this year.

From a business update on the last call, there were a few highlights that we gave you, so I'm just gonna update those for those that were listening. We still believe it's a very compelling technology to the industry. It is in beta with the initial customer when it gets released to production.

There's a...

a good list.

tier one branded companies that are waiting to test and get their hands on it. So that will start happening in Q3 when we release the first software to production on the Realtek chip. DS as I mentioned is in production. We will launch the sound bar around it on their platen audios.

brand name called the Rio 5.1.4 soundbar. It'll be at a great price point for the consumer and a good price point for us from a margin perspective. So we look forward to demonstrating to the industry that Wysa DS delivers a product that the consumers want.

And finally, around WISA marketing, we talked last quarter. We have an grouping semester with our industry.

have scaled down the marketing from Q4 to Q1. We're still right at 9% up from Q1, far ahead.

working it to be highly efficient. So the objective of the marketing program is to drive awareness of WISAs certified, WISAs stores. We think we'll be announcing another WISAs store coming up with a major Midwest retailer in the next month or so.

So while we're trying to be cost effective, we're still marketing, why is the certified, and why is the product to the industry and the consumer. Thanks Mr A Saturday at 40 Hills.

From an overall industry, we think consumer electronics is in a slump and it'll continue that way through Q2. And maybe early Q3, we think the impact of over building inventory from the logistical issues in during COVID.

is leading to price erosion and margin compression. And that'll last through the summer. You can see that in your ads. You could hear that in the Sonos calls. Devantes soft, so brands are lowering their price to try to move inventory to get ready for the Christmas season with new products.

We did drop operating price expenses from Q4 to Q1.

approximately three quarters of a million dollars and with the new products going into production in the second half of the year we still expect to have year-over-year growth.

Those new products are both DS, white-to-HT designs, and the platinum Rio designs.

Now with that, before Mike gets started, we're pretty excited about the announcement we put out yesterday. We think it's a great opportunity to take add to YSA's audio IP portfolio for immersive audio. Dolby is pushing their atmost.

object-based three-dimensional audio, taking a wireless capability plus a comirability to steer the audio to specific locations, depending on using some AI and where consumers are, complements our products and lets us build out the portfolio.

We think when you look at it financially, both companies have spent the last three years investing heavily in terms of taking their technology and putting it into an IP licenseable format so that we can have not only licensed. Access Today

Licensing revenue and module revenue. We think there's an overlap in market segments like consumer electronics, so that makes sense for a synergy perspective.

And when you look at some of the bigger international corporations, Commier may be working in a commercial group. We may be working with a consumer group. It gives the sales a combined being the ability to have more products to talk to. And if one or the other companies on the approved vendor list, now let the other products come into.

onto that approved vendor list. And finally, when we look at why now and the community comm year brings, bring in Andy Arno, who's chairman of Comm year onto the WISA board, onto S. Chairman. We think strengthens the board's governance capabilities.

and adds some capital market expertise. So strategically that's what we see as Wysa, but Mike's going to walk through what they see in the immersive audio and I'm going to turn it over to Mike down to talk about Commier and some of their plans.

capital market expertise. So, strategically that's what we see as WISEA, but Mike's going to walk through what they see in the immersive audio, and I'm going to turn it over to Mike down to talk about Commier and some of their plans. Mike.

Yeah, yeah, hi everyone. Thanks again, Shia's on Brett. I definitely would reiterate that there's definitely a lot of excitement about the areas of synergy between the two companies as well as future areas of where the technology overlaps and can enhance different areas.

So a little bit about ComHear. You know, ComHear's mission is really to innovate the immersive and directional audio space.

with our foundations from patents that are highly defensible from Qualcomm, the Qualcomm Institute in UCSD.

We deliver really a real class experience by leveraging a number of different technologies and deliver those sweets with world class brands,

We continue to innovate in a lot of those areas of innovation or in the wireless space, wireless meaning.

Using IoT sensors and emerging AI to really create unique audio listening experiences, whether that be finite directional audio like Brett mentioned or...

Immersive audio without the need for surround sound speakers, through a linear speaker bar, et cetera, and multiple different application verticals. Israel exciting for us, and we're looking forward to the opportunity to collaborate further as this conversation and acquisition moves forward.

What does that mean? What are we doing with AI? What are we doing with IoT sensors and how does that apply to how we want to expand into the marketplace? The comm here has a unique set of patents, like I mentioned, and what we're able to do is do dynamic audio filtering.

What that means is we can take in AI enabled and information from sensors and in real time beam audio into different areas and create different formats. Meaning we can detect, if we can detect a number of people in the room or objects and movement, we can reciprocate with an audio format that's very interesting. So it's important for

immersive audio for 3D audio, whether it be an entertainment, and the home smart conferencing or and casino-based and kiosks. And I'll talk a little bit about the verticals that were active in.

or whether it's partitioned or private audio for different types of listening experiences.

Just kind of a background into the basics of our beam forming. This is just an example of how we do some of it. We're really trying to use our software and our algorithms and that in conjunction with DSP.

system on an audio system on a chip to create either private audio and immersive audio or highly functional beam steering audio. Meaning we can say audio we want audio in one space and we don't want audio in other space. We can enhance beams. We can do surround sound fields.

And that all comes from one linear speaker ring versus having several speakers all around you and a traditional format.

Like Brett said, there's a lot of synergies. We are active in the consumer electronic markets, meaning we have current engagements with top tier brands in the Smart TV space.

Downbar home entertainment. We're highly active in the emerging area of hearing help and hearing optimization. Just a quick note, you probably heard some of the rulings that happened through government for hearing aids to go over the counter this year, which has been a large increase in interest into those types of applications within the home.

as well as partitioned audio. Gaming is a space that we're highly active and we work with major brands on bringing immersive audio and binorial experiences, by neural meaning a headphone experience without having headphones.

partitioned audio. Gaming is a space that we're highly active and we work with major brands on bringing immersive audio and by neural experiences, by neural meaning a headphone experience without having headphones. So that's highly popular with the gaming industry.

We are also working in various other areas that are less commercial or consumer-director, direct to consumer. So smart kiosk, gaming casinos, advertising technology, marketing technology.

Some of these use new AI-enabled solutions in IoT and some of them are just looking for added enhancement to their current customer base. For a quick example, casinos, and we'll jump into that, another part of the deck, just having an immersive experience to correlate with new and more interactive content. Audio and AI delivery platforms, we talked a little bit about.

and then smart audio retail solutions. So that is the growing market of marketing as well as creating frictionless retail shopping experiences or consumer engagement experiences where that time spent with the consumers highly valuable.

and brands and technology companies are looking for ways to engage that consumer in a more immersive way.

I can break that down a little bit in this little diagram.

Some of these areas you can see a clear correlation between some of the markets that WISES working in, so working with digital media and directed audio, whether that means working with Smart TV companies or integrated audio solutions in the home entertainment space as an example.

Multibeams surround sound or multibeam content delivery. So this also pertains to our partition.io capabilities.

Meaning we can deliver audio content to one side of the room and not the other side of the room. Or we can do what we call directed doospeem. And this is highly relevant and our audio are hearing enhancement and hearing optimization solutions.

Meaning if someone's hard of hearing in the room, we can create a level amount of decibel in the entire room and then boost it for one person with higher speech and telegibility and parametric EQ. So that's really interesting. We're getting a lot of traction with major audio brands in that space. Automated retail.

I call it edge consumer engagement. So really just using sensor fusion and AI to deliver really unique and targeted audio experiences to match the legacy investments and to visual types of formats that marketing companies, kiosks, and others alike have been using.

Gaming, as I mentioned in the immersive 3D audio, continues to be an integral part of our technology solution and stack.

And then other growing segments of content. So 3D content and then having the correlating real time 3D audio that correlates with the imaging looks the 3D display. So that's really an interesting space for us.

So just a couple slides on examples. So entertainment and gaming and hearing health, these are all very much directed consumer correlated with major brands. So whether that's in someone's home, whether it's on their desktop, whether it's a smart conferencing solution.

where they want a different experience or they're in a workplace.

and they don't want their audio bleeding over to the neighbor or their co-worker. These are all very interesting solutions that we've been engaged with Carolyn Brands to deliver, hearing help which I already mentioned.

One of the fastest growing segments for COM here is our entrance and growth into immersive audio for the casino gaming space. The casino gaming space up until about three or four years ago was a bit antiquated, and now they've been growing into more dynamic content delivery.

In addition to that, the consumer in that space and the player in that space has been changing. It's not the player of old. They demand different types of games, different mathematics into the content solutions and how it interacts.

So there's been a lot of movement and to licensing lots of interesting solutions, everything from celebrities to movie, king of walmrants to, you know, national football league, to F1 racing, and then deliver a real immersive experience. And what that does, it enhances consumer attachment to the content.

It keeps them playing longer and it's an overall better experience. That's a little bit more.

playing longer and it's an overall better experience. That's a little bit more engaged.

And then on our Edge Consumer Engagement platform, and specifically smart retail, we have solutions around helping brands communicate to their customer and enhance their equity when they talk to a consumer about whether it's through natural language processing.

During the audio, creating a private conversation, allowing for immersive audio, for an example, maybe a sports drink, brand, has some type of promotional material it wants to run while this person is using this frictionless shopping platform.

They can create a really unique and impactful immersive experience, both visually and through the audio, that leaves that customer with a different feeling about that brand that's quite impactful.

So yeah, so overall we're really excited. We see a lot of areas where Com here adds a unique market penetration and could brand into areas that aren't necessarily direct to consumer. It's consumer related but has different market trends and cycles. So we think that adds something.

Also our suite of services is both software licensing, IP and reference and modularity rated. We have several different ways to deliver those revenues. And we think it's complementary to what WICES is doing. And the two together I think is a great story, but also functionally I think it's going to be a great move.

Alright, thanks Mike. Excuse me.

So before we open up for questions today, I think we're excited about this opportunity. I think it strengthens our relationship with key customers. It deepens our IP portfolio. And so we're looking forward to completing a...

Set up final documents and sending this out for shareholder vote and close in the transaction in Q3.

And was that operator will open up the call for Q&A? We will now begin the question and answer session.

To ask a question, you may pre-star then one on your telephone keypad.

If you are using a speaker phone, please pick up your handset before pressing the keys. Do withdraw your question, please press star then two.

Once again, that was star then one to ask a question, and at this time we will pause momentarily to assemble the roster.

And our first question will come from Jim Negillery of Dawson James. Please go ahead.

Thank you, good morning. Good morning, Jim. The 10 to 15 million in revenue that you're looking for next year.

And you just break that down in a range of what you think it'll be from the legacy YC versus the acquired come here.

So we didn't do that. I think the characteristics between the two gem is

There's a large pipeline of design work going in. Anyone can add in.

moved by a quarter or two and they make a difference. But if you want to split it out, roughly, is 5 to 10 for each.

Okay, that's helpful. Thank you.

And in the com here deck.

It shows that they sell modules as well as IP licensing.

Is there, can you give us some indication about the split between those two revenue streams now and what you think it'll be in the future? And that's just for the CommHERE side. Just for the CommHERE side? Mike, do you want to answer that? Yes, so when we say modules, we mean –

integrated audio hardware.

that has our technology on it, right? And the software, so moving forward, we see a higher ratio of software licensing and IP licensing.

over the hardware component.

and moving directly to or I should say the majority of our revenue will be off of reference designs.

RIP licensing and our software stack with our suite of solutions.

So we do take a revenue share off of the hardware that's delivered to consumers through our global manufacturing partners. That will shrink as our software and licensing income increases, which is higher.

revenue for us and is a good compliment to like that. Understood, that's great. Thank you. And I know you didn't put this in the release, but can you just give us a

either a range or a broad brush characterization of the COM here, cash burn in either recently or the expectation for 2023. Well, our expectations when we get consolidated is that it would not impact

our cash burn as a company. So there would be offsetting cost reductions in the WISA group to absorb the commir expenses.

But they have a very lean operation right now. And one of the advantages of the merger for them, I think, is to fold into a company that's been built out.

Understood. Understood. Okay. Great. Thank you. And I'm sorry, just a couple more. Is there going to be a merger of the R&D teams or are they going to operate separately?

Well, it depends what time frame you are, right? If you go out three years, there's one team that's working on all opportunities based on the value of the opportunities, right? If you're looking at day one, both teams are highly focused on getting their initial.

customers launched and I don't think we would change that you know in year one but yeah I'm thinking day one eighty or you know the mid-point of that

Okay, if you've got to answer my question. I think I see what you're saying. So that's fine. I got it. Thank you. I'll withdraw. And my last one is, can you just talk about the inventory reserve in the quarter that you've reported?

Okay, if you've never thought of my breath, I think I see what you're saying. So that's fine, I get it. Thank you, I'll withdraw. And my last one is, can you just talk about the inventory of reserve in the quarter that you've reported? What?

What was that about and are there? I mean, I'm assuming that you think that's all you need to reserve, but is there additional risk for the inventory that WICES holding right now? So, well, so the answer to that is we did not believe so, or we would have had a different reserve, right?

their The reserve largely is addressing an imbalance between different components Around which is a legacy of the whole COVID

The reserve largely is addressing an imbalance between different components, which is a legacy of the whole COVID supply chain debacle.

So I believe we've adequately reserved for products that are misbalanced. We have a number of products that are still going into production on HD that have three to four year life. So I think we're set, okay. Okay.

And just one more if I might so the the operating expenses this quarter down about 800k from Q4 is the current

Operating expense, run rate, stable for the rest of the year, flat, down, up, and you characterize directionally what you think op-x is going to do, just on the wise side for the rest of the year.

expense, run rate, stable for the rest of the year, flat, down, up, and you characterize directionally what you think op-ax is gonna do, just on the wife's side for the rest of the year. Yeah, so.

It will be up in Q4 as we launch the 5.1.4 sound bar with WICEDES.

We think there's, we're continuing to look at pushing expenses down in Q2 and Q3, so I don't see it going back up.

Q4 with Christmas season will have some additional marketing expense in it.

And that additional is relative to Q1 or relative to the potential declines in Q's to entry. And that additional is relative to the potential declines in Q's to entry.

Okay, fantastic. Thank you so much and congratulations on the transaction. It looks very interesting.

Thanks Jim. The next question comes from Jack VanderArne of Nexum Group. Please go ahead.

Good morning, guys. I appreciate the update. Good to see the strong 2024 growth outlook.

So Brett, it's clearly been a tough environment for the entire consumer electronics industry, as I mentioned last quarter. But it sounds like you're still expecting 2023 growth. Can you just talk about the industry headwinds in general and what you're seeing in your maybe your online marketing data? And then I'll have a follow up just.

the pandemic highs in 2020 and consumers refreshing their, I guess upgrading their home theaters. Is there enough coming to refresh, like hold a think about from those consumers? Thanks, Brett.

All right, Jack, that's a lot of big questions. All right. So from a demand perspective, we think we get a fairly solid pulse from the Platon Audio line. Right? It's not our main business, but we see stuff turn.

And from what we've seen this quarter so far with least, if you make price moves, tough price moves, in some cases, consumers respond.

which is good, but I still personally believe consumers are

pretty tight on the wallets. There's a fair amount of inflation sucking up discretionary income, but we've seen response. We've seen demand change with price actions.

So we'll continue to take those price actions in Q2 and Q3 to align the speaker business with the new products that are rolling out, right? The point of the marketing in Q3 and Q4 around the speakers is really to talk about WISA and Atmos.

and immersive audio. So we will move the smaller ones out and we will focus on at most 5.1.2 Monaco, which has the bigger speakers and the uppiring speakers in the front. And then at a lower price point, we'll focus on the 5.1.4 sound bar.

what we see on the consumer side. What was the next question you had?

Yeah, it from the pandemic kind of highs our room was in their COVID gauge, upgrading their home feeders back in 2020-21. Are we, is there a potential for a refresh cycle from those consumers, you know, further upgrading their home feed? Well, I don't.

Yeah, I don't think there's a refresh cycle on TV's coming, but I do think there's an opportunity for the audio space.

I wouldn't say refresh but to extend that home entertainment piece. So if you look at

refresh with to extend that home entertainment piece. So if you look at building.

whether it's a soundbar, a soundbar with rears, a full 5.1 or 5.1.2, whatever, speaker system around that TV, you still have 75% of the TV sold without external audio. And if you think about your experience in the movie theater, your experience when you go to a...

So we think as consumers either see their wallets expanding with wage increases or price discounts, so kind of expands the reach of their disposable income that this fall should see a rebound in audio demand.

Okay, great. And then just a follow-up, I'm not sure what you can comment. I haven't looked too deep into the 10Q yet, but with the pending acquisition of Comair, can you connect this to your ongoing exploration of strategic alternatives that's been kind of laid out in your prior filings?

Is this all tied together to satisfy your exploration? Just send the update there would be helpful. Yeah, so we are still active in conversations around.

strategic partnering with bigger companies. We think the Comair opportunity is a great opportunity if we say stand alone.

and potentially depending on which strategic partner we're talking about, could strengthen our opportunity to be a value to a bigger partner.

I'm looking forward to tracking it. Thanks Brett.

Thanks Brett. Thanks Jack.

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

Yeah, so I'd like to thank the people who are taking the time this early morning for the data listed to the call. I'm certainly available for calls, but look, the WISA team is excited on two fronts.

both with the traction and the performance we're getting out of WICA, DS and WICAE and the possibility, the intent to merge that with the efforts coming from Commier. We think the two teams can execute well. They can be a more valuable partner to some of our customers and vice-herp to with our customers.

and we look forward to our next call with you in August .

And we look forward to our next call with you in August . And that's it.

call with you in August . And that's it.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect. juice ?