Summit Wireless Technologies, Inc. (WISA) CEO Brett Moyer on Q1 2019 Results - Earnings Call Transcript

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About: Summit Wireless Technologies, Inc. (WISA)
by: SA Transcripts
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Earning Call Audio

Summit Wireless Technologies, Inc. (NASDAQ:WISA) Q1 2019 Earnings Conference Call May 15, 2019 12:00 PM ET

Company Participants

Mary Magnani - Investor Relations, LHA

Brett Moyer - Chief Executive Officer

Gary Williams - Chief Financial Officer

Conference Call Participants

Ed Woo - Ascendiant Capital

Daniel Carlson - Tailwinds Research

David Lavigne - Trickle Research

Operator

Good day, and welcome to the Summit Wireless Technologies First Quarter 2019 Update Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Mary Magnani with LHA. Please go ahead ma'am.

Mary Magnani

Thank you, Operator. Good morning, everyone. I'd like to welcome you to Summit Wireless Technologies first quarter 2019 conference call. With us today is Brett Moyer, CEO of Summit Wireless; and Gary Williams, CFO.

Before I turn the call over to Brett, I'd like to remind everyone of the Safe Harbor statement referenced in 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 upon current or historical facts are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the 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 and are subject to a number of risks, uncertainties and other factors that could cause the Company's actual results, performance, prospects and opportunities to differ materially from those expressed or implied in these forward-looking statements.

For a more detailed of some of the ongoing risk and uncertainties of the Company's business, I'll refer you to the Company's various filings with the SEC.

Now, it's my pleasure to turn the call over to Summit's CEO, Brett Moyer. Please go ahead, Brett.

Brett Moyer

Thank you, Mary. And thank for joining us today. Since it has been just a few weeks since our Q4 call, I would keep my remarks short to allow more time to take questions. We are making substantial progress towards our goal of establishing the WiSA brand as a global industry standard for wireless sound for smart devices. In the first quarter, we made several steps towards broader retail availability that we are expecting to achieve in the second half of the year.

I’ll review that progress. First revenue, for the first quarter our revenue was $465 representing a 65% increase over the same quarter of last year and in line with the guidance I mentioned in the Q4 call.

Turning to our expected product rollout, we are very excited that LG began shipping industry leading WiSA Ready OLED and NanoCell Televisions in Q3 and they're starting to show up in the retail now. And more recently, LG has begun the marketing launches in both the U.S. and Europe.

In the U.S., LG is actively working with the retailers and some speaker partners to educate them and spread the excitement about the WiSA feature enabling wireless immersive sounds. In fact, when their C9 OLED TVs are reviewed by the press, the WiSA Ready feature is a standout point.

In Europe, they kicked off the launch of the WiSA Ready feature at HIGH END 2019 trade show in Munich on May 8 and with several of our speaker members.

Harman began rolling out its Citation line in North America in March. Last week we held an event in Harman's beautiful New York's store, where we demo the WiSA Certified Citation speakers.

For Klipsch, the WiSA Certified Reference Wireless speakers are set to launch in retail in the next 90 days. This line of Klipsch loudspeakers was awarded Best of CES from Digital Trends, AVS Forum, and Hi-Def Digest.

Today we announced the certification of System Audio's Legend Silverback speakers, which presents a unique family of active speakers that can be used wirelessly with a WiSA hub or WiSA USB Transmitter or connected to a preamplifier. The SA Legend 40 Silverback standing speaker just won Best of HiFi Award from Germany's HiFi magazine at the HIGH END 2019 trade show in Munich last week.

Regarding partners during the quarter, we teamed up with team THX to develop and release modules that are approved by THX and certifications for Summit customers and partners. This is a key step in our forthcoming initiative to expand to the gaming market and esports.

As discussed in our last call, we expect certified products to launch later this year. Overall, the WiSA membership exceeds 60 brands with key members including TCL; Microsoft Xbox Division, Harman, a division of Samsung; Bang & Olufsen and others.

Looking forward, we expect WiSA Ready TVs, WiSA Certified speakers and AV receivers and WiSA USB Transmitters to reach the retail shelves in the third quarter of this year. With product expected to be in retail representing 1,000 storefronts by year end. We are well positioned for a strong second half of 2019.

Before I open the call to questions, I'd like to note that you can see us at several investor conferences in the next few weeks. On May 22nd and 23rd, I will be at the B. Riley Conference in Beverly Hills; and on June 4th and 5th, I will be at the LD Micro Invitational in Bel-Air.

Operator, I will now like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Ed Woo with Ascendiant Capital.

Ed Woo

Yeah. Thank you for taking my questions and congratulations on the progress. My question is on the WiSA Association. It looks like you've done a very good job this quarter getting more members. What does your outlook look for in terms of increasing membership going forward?

Brett Moyer

So there will be a new member announcement in June, as well as September that we’ll announce who's joined it. There's I would say probably by year end, we'd expect to see at least another 10 members joining.

Ed Woo

Great. And then my next question is in terms of the rollout of products. Has it been as you expected, is it a little bit slower or a little bit faster than you originally expected, particularly your rollout with LG?

Brett Moyer

So it depends on -- as expected it depends on the timing. But frankly the LG TVs have rolled out on time. The ecosystem of the LG TV is plus the link with Axon plus speakers has rolled out about five months later than we what we anticipated a year ago. And that was just through product testing and shaking and baking to make sure what shows up on the shelves or flawlessly put a consumer.

Ed Woo

Great. Well, thanks for answering my question and I wish you guy’s good luck.

Brett Moyer

Thanks, Ed.

Operator

[Operator Instructions] We'll go next to Daniel Carlson with Tailwinds Research.

Daniel Carlson

Hey, Brett. Question for you in regards to LG, I'm just wondering if you have any sense on the number of TV that are WiSA enabled that are going to be shipped this year, and sort of how that looks for next year as well and sort of the trend there?

Brett Moyer

So LG has publicly disclosed their OLED forecast, which is 3.6 million this year -- this model year, and 7 million next model year. They have not publicly disclosed their NanoCell volumes. So we've estimated as one to one ratio, which is we believe conservative. So, the 7 million gone to 14 million. And we think that's a conservative ratio just because of the price points. The LG TV are -- the OLEDs are generally above $2,000 and the Nano cells are $799 and up again.

Daniel Carlson

Okay. And can you talk sort of about the attach rates that retailers are seeing in terms of external audio when they make these sales to the higher end TVs?

Brett Moyer

Yes. So, in our investor decks we have shown various slides, but what we have modeled is there is a 25% attach rate for external audio and that can range from $99 poor quality sound bar to a $20,000 home theater system or more, right. We believe the 25% is a good broad number. We've gotten independent validation of higher numbers from some of our partners, particularly some of the gaming partners in terms of their attach rate of audio, but with the poor quality of audio on these super thin TVs, there's quite a bit of external audio now sold around them and that creates our opportunity.

Daniel Carlson

Right, right. And then I'm just wondering what's going on in terms of additional capital for the company this time?

Brett Moyer

Well, we have filed an S-1, so anybody can look at that. Just prior to that we did file, I don't know, if it was an S-1. Gary can jump in, but we did file that we reached a preferred share agreement with our largest shareholder. So, we need to draw down on that. And if anybody has any further questions, they can reach out to Alexander Capital, Jonathan Gazdak.

Daniel Carlson

Okay, great. Thanks Brett. Keep up the good progress.

Brett Moyer

Thanks Sam.

Operator

[Operator Instructions] We'll go next to Joe Michael [ph].

Unidentified Analyst

Hi Brett. Thank you for taking the question. I have a more simple question. So, you announced the WiSA membership with a number of the leading consumer electronics brands. How does membership in WiSA translate to potential revenues with the company in its core products?

Brett Moyer

So, membership is in our standard flow of product launch or development. The summit team generally requires that the prospect as a WiSA member before we engage with engineering resources. Again what WiSA organization does is that mandates the interoperability requirements for product functionality, but also equally critical as it mandates the marketing requirements where the logos go on the back of on products, on packaging, manuals, on websites, right, for the consumer. So the Summit's guys generally will not engage until somebody has joined WiSA and its all clear what the rules of the road are both from a product design perspective and interoperability and from a marketing communication perspective to the consumer.

Unidentified Analyst

Is it fair to say that membership is sort of the first step to the revenue cycle? It's not -- there's no sort of passive involvement in that membership or just an observer role?

Jack Dorsey

There could be. But generally at this stage WiSA development, if somebody is a member, there's at least interest of investigation. But there's members that have been there since the founding though for years that have not launched products yet, figuring out the timing, the price points etcetera. I'm not aware of any WiSA members that aren't just sitting there doing nothing.

Unidentified Analyst

Got it. And then just last question, if I wanted to -- if I live in New York and wanted to sort of see, touch and feel the product at this point are you in the retailers where I can go and do that?

Brett Moyer

We are in a number of retailers depends which products you're talking about. So as I mentioned in the script, the Harman store [technical difficulty] great setup of the likes of products. I think clips is, as I mentioned, is T minus 90 days. There should be some stores that have the Enclave system, the older version not the newer one that's come in.

And I think you can go into -- I don't know if they have the display on B&H photo, but I know they're starting to pick up the Harman line. Now on the LG TV's you can go into any retailer that has floored 2019 TVs and go into the sound out option and see where WiSA menu is.

Unidentified Analyst

Got it. Thank you very much.

Operator

Next to David Lavigne with Trickle Research.

David Lavigne

Hi, Brett. How are you doing?

Brett Moyer

Hi, Dave. How are you?

David Lavigne

So you can you address a little bit, sort of, the process of how you may be more involved in just the sell-through component of this, kind of, being on the ground on the retail side. And I'm kind of wondering how, or if, LG might be involved in some of that as well, if that makes some sense.

Brett Moyer

We believe the leverage point is the retail salesperson. There is a tremendous amount of background work going on, right now, creating both video and print content to train the buyers, to train the retail salesperson, as these products roll out. From what we've seen, there is high interest from the sales people that are typically in, say, at Magnolia HiFi have been looking for a solution like this. So I think that's how we're focused on it. There will be some POP that'll show up in the retail launch. I think that should best be disclosed by LG and the speaker they're partners.

David Lavigne

So then is there -- is it fair to say that LG, sort of, sees this as a kind of a first mover thing. I mean, I know, the technology is new and early and all that. But do they perceive some advantage you think in being the first people to really kind of do this on the television side. And are they willing to spend some money? Or do they plan on spending some money to advertise that or to be -- to make sure people know that?

Brett Moyer

So, look, every C9 press release -- not press release. Every C9 review that I have seen, has mentioned WiSA as a key feature. The entire two days before the CES show when LG did private press briefings had WiSA as a key feature in all their TV demos. So, yes, I think, this was first mover advantage. The activity with the TV guys is very high right now. As we expected would happen and its LG opportunity to be the technology trendsetter that they are.

David Lavigne

Great. Thanks.

Brett Moyer

Yes.

Operator

[Operator Instructions] We'll take our next question from Giovanni Domino with Alexander Capital.

Unidentified Analyst

Hello. Good morning, Brad. It's John Domino. Thank you so much.

Brett Moyer

Hey John.

Q – Unidentified Analyst

I just have a quick question. If you could please provide a little color in regards to the development of your embedded licensable software and a timeline in regards to rollout? And then also an addressable market that you believe the company has the potential to tap into?

Brett Moyer

Okay. That's like five quick questions, John.

Q – Unidentified Analyst

Sorry about that today.

Brett Moyer

Okay. Give the IP licensing that we're developed we showed that demo to about 15 companies under NDA. It is though the current wiser version is best of class. I don't think anything we'll ever challenge it and the IP version is designed to do two things, hit the sweet spot of good enough for and penetrate the broad market. So the broad market as we define it is your smart cell phones, your tablets. So there's 1.3 billion smartphones, there's 200 million smart TV, 200 million tablets et cetera, right. So where it is in terms of a launch cycle is we have publicly said we will secure a alpha customer this year and launch with them.

Q – Unidentified Analyst

Okay. Thanks so much, appreciate that.

Brett Moyer

Yeah.

Operator

And with no further questions in queue, I'd like to turn it back over to Mr. Moyer for any additional or closing remarks.

Brett Moyer

Yeah, I'd like to thank you for joining. We're in the company. We're extremely excited about the next 90 days as products roll out. As you know the industry has responded to the speaker guys with great awards both in Europe and here. LG has a terrific set of TVs coming out to support it. So we're looking forward to this retail rollout over the next 90 days. And if anybody has questions, my cell phone and email are all over the Internet, so you can reach me there. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.