DVLT - NASDAQ

Good morning, and welcome to Datavault AI's Third Quarter Conference Call. With us today are Nathaniel Bradley, CEO; and Brett Moyer, CFO. This call will contain forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 and 2026 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause actual results to differ materially -- I do not have rest of the scripture, I do apologize. It's now my pleasure to turn the call over to management. Please proceed.

Yes, I am Nathaniel Bradley here. Thank you very much, everyone, for joining the call today. We put together a brief presentation. There's obviously the safe harbor there. So look, we had an incredible Q3. Our results really speak for themselves. Again, this is kind of loading both the performance of WiSA from a more scalable to a more scalable, more nimble business model around the WiSA technologies in our Acoustic division. And really a surge in our ADIO technology revenues and also the beginning of what becomes in our fourth quarter, an explosion around our flagship Datavault, our kind of pride and joy. The Datavault platform had incredible performance in our Q4, but Q3 was really a loading of that performance. And thanks to Jeff Jones and some of the key players on our team that we are able to marshal the technological resources and the integrations necessary to scale our systems globally. We're now in position with the Datavault platform here Q4. So aggressive revenue guidance for 2026. Really the highlight of this call is that based on the performance of Datavault and what we can see both in the WiSA, in the ADIO technology lines and our Acoustic divisions that we're going to aggressively advance our guidance. We're going to increase from a $50 million guidance in 2026 to a full $200 million minimum for next year. And that's just leading into that a process that's underway in terms of tokenizing real-world assets all over the world and some of the progress that we've made with our Acoustic division in the WiSA technology where we've really honed in that technology and see a very scalable future that includes robotics and includes using WiSA in signage and in other areas to deliver data over sound. And so we have a very scalable model moving forward that we're very excited about and very pleased to announce that we've increased our guidance quite substantially to $200 million by the end of 2026. And that's a process underway. It's hard to gauge in the fourth quarter how we're going to work through a lot of that growth and recognition and all the issues around our revenues in Q4. We do know that it's coming in droves, and we're managing that as a team. And so strategic investment in the financial flexibility, really, this was all triggered by the $150 million strategic equity that we received. This is a lifeblood of capital that unlocks our company inside the scale of our customers' operations. So we're expanding globally our footprint, and we've got a presence now in

[Operator Instructions] Our first question today is coming from Ken Londoner from Endicott Partners.

That was a comprehensive update. Can you give us some detail on the scope of contracts you're talking about regarding the tokenization of real-world assets? You mentioned quite a few, but what are sort of the big focuses for you going forward?

So really, the strategy there is driven by the quality of the assets that are being tokenized, gold, diamonds, silver. We're big believers in copper. Copper will have -- it's a conductive metal, of course. And as we rebuild around the world and build new infrastructure around the world, including data centers, copper, we believe, has a lot of value as do many other elements. We're kind of an open ear around the world. The cool thing is we've been invited to governors' mansions. We've been invited into really the governments of international countries and places that we're excited to go and listen and find where the most valuable assets reside and how we can help move those assets. We did open out of

Next question today is coming from Jack Vander Aarde from Maxim Group.

Okay. Great. I appreciate the update. You covered quite a lot of ground there. Where do I start? The guidance is jumped off the page to me. So revenue guidance raised in 2025 to over $30 million and $200 million plus revenue for 2026. So maybe, Nate, I mean, this is really leveled up here, I mean, clearly. So maybe help us understand what's sort of locked in that 2026 guidance versus how much is kind of are you working towards locking in? Just so we have a sense of maybe stress testing that a little bit.

So look, I had to arm wrestle with many on my financial team, Brett Moyer, who deserves a lot of credit for unlocking this value in the first place. But the concept here is to really underpromise and overdeliver. I don't look at that 200 number and feel intimidated. I want my team to feel inspired and to be fired up about a mission that we jointly have together. But I also -- so I didn't want to have a low bar where we are simply overperforming by a function of living. I wanted us to have a goal as a team in our public guidance is obviously our public guidance. Internally, we aim high. And as a leader, we would aspire to be much greater than that number. Our competitors have numbers that are much greater, but they were much older and much more, I would say, bloated and stuck in their way. We have a very nimble AI strategy. We have the #1 partner in the world in IBM around our development, around our technology and the development of quantum systems, which are in near term, a concern for every operation that has any technological reach. So to stress test, the fourth quarter is to understand that this is our first go around. We're working with our auditors. We're working with sophisticated systems around the world. There are revenue recognition and other things to consider that we simply need to understand. So the fourth quarter is likely the steepest climb. It has a lot to do with our technological resources, putting a lot of pressure on that Georgia Development Center that we've begun to develop. We will be expanding that development to meet the demand of this international demand for tokenomics. We also have our new facility in Philadelphia, where we're bringing a team that worked disparately or worked from a Philadelphia location that was private, but many from their homes and from locations that were disparate, bringing our team together, there's a common coffee pot focus that I think when we bring our team together, these numbers start to be quite achievable. And I hope to readjust guidance because we don't want to have a situation where it's easy to achieve what we intend to achieve. We are rookie in terms of our first year on the NASDAQ as data evolves. We have exceptional pedigree technology from WiSA and a tenure on the NASDAQ that shows in our volume and the respect that we're getting worldwide. We're also garnering a number of government -- and you can see today very important projects that impact our world. So I want to thank you for your early guidance for seeing this so early and for having the strength to come out and call us at $3. And as we shoot past that guidance, I hope people recognize your prowess. And we appreciate you following our company for so long.

Great. No, and I appreciate that. Let's -- there's so much to queue on here, Nate. I just want to understand it and also make sure I'm also setting the expectations appropriately. So -- and if Brett's there as well, maybe that would be helpful, too. On the gross margin line, so if we just look kind of going forward, these are, I imagine, high-margin licensing agreements right now on paper. And I've yet to see it play out within the tokenization on your guys' income statement. So that's going to be a forward-looking thing. Can you just help maybe, help us -- help investors understand what are we going to look like on the gross margin line as these revenues would seem to be pretty large, especially relative to historical levels. I'll...

Yes, I'll let Brett answer that. But what I would tell you is that we do a great deal of work. If you look at the refinement of data, you might make 20 points on your best day on refinement. You're not looking to get your customer really into these large contracts of CapEx expenditure where you end up in these kind of slow-moving board-level type decisions. Instead, we have a low-cost approach to that. We like to refine on our customers' premises and give them a data refinery and essentially a vending machine for their data. The ability to buy and sell data from our Datavault on the exchange is our aim. So when you get to the exchange and our SaaS has traditional SaaS margins, which are great. But our exchange has exceptional margins, and those can flirt with upper 80s on the exchange. So it's Refinery Vault exchange. And as you walk through that -- those tires, I think you have varying degree of margin in the business. And then, of course, our Acoustic division takes on the more traditional cost of goods versus price of product type analysis. But Brett, with that, I'll turn it to you.

Yes. So Jack, if you -- I think Nate framed it actually, right? So when you look at the businesses we're acquiring or have acquired, right, CSI, API and ultimately NYIAX, that creates probably the opportunity to do $35 million to $50 million next year. And that's going to be more traditional margins in the, call it, 35% to 45% range. But when you move to -- if you go back and look at the deals we've announced, they all have a component of licensing. So I would expect the rest of the revenue to be weighted higher to the $60 million range, right? So I think when you blend it all out, you're going to be in a 55%, 60% margin across the company.

Fantastic. Okay. Those are excellent margins. And then can I get an update there's so many moving parts here, obviously, because you guys are on fire. How do we -- how do I think about the balance sheet? So -- because the third quarter, it doesn't really do a justice, I don't believe. So we have a huge Bitcoin investment, it sounds like coming in from Scilex. There's been a lot more acquisitions that have closed subsequent to the quarter. So there's debt, there's fiat cash. Maybe if we could just boil it down, do we have a rough sense of what cash is and what the state of that investment is from Scilex?

From Scilex? Yes, Nate, do you want me to answer this?

Yes, yes please.

Scilex, my apologies.

All right. So let's take the investment from Scilex because that's $150 million. We got aid in just at the end of the close of the quarter, but that investment is locked down and documented. The only thing between us and having that on the balance sheet is the shareholder vote on November 24. We -- that is an Annual Shareholder Meeting. So we will have quorum, and we have voting agreements prior that we had signed at the time of signing the Scilex deal that amount to, I believe, more than 40 million yes votes. So we're highly confident that the majority of the votes cast will be -- will approve the increase authorized so we can close that $150 million on November 24 or 25, right? So when you think about the balance sheet, that's triggered -- that deal triggered a couple of reactions on the balance sheet. A, it means by the end of the year, you have $130 million plus of liquid assets, maybe $125 million because we're buying API. It also meant that the convertible debt that we had in Q3 triggered out and is off our balance sheet for good. So the only debt on the balance sheet currently is debt associated with the strategic acquisitions of CSI and Datavault Holdings now known as EOS Technologies. So I think you get to a pretty powerful and strong balance sheet as we report out the K at the end of the year.

Excellent. That's very helpful. Just one more follow-up to that. With the Bitcoin investment, let's say the shareholder vote is approved, so all $150 worth of Bitcoin is now in your possession. Are you going to be -- does that mean your -- how much of that is going to be kept in the form of Bitcoin versus how much of that is out the door to fund some of this stuff?

Well, look, I think there's -- I think it's real important for investors to understand that when we took the 150 -- when we signed that financing deal, there are no treasury restrictions around it. So from management's perspective, Nate in my mind, that $150 million is the same as cash, except it has a little bit more volatility than cash, right? But fundamentally, we look at it as cash, so we don't look at having any pressure for multiple years to have to raise cash, raise any money for the company which is fundamentally changing, right, our platform...

Yes. So for all effective purposes, it's both working capital or it's an investment. It's kind of whatever you need it to be when it's in the door.

Exactly.

Our next question today is coming from Peter [ Ruggieri ] from a private investor.

I'm going to tell you a little bit about myself. I got involved originally as an investor in Sorrento, which owns Scilex, which owns Semnur. They're involved with Celularity, piece of Aardvark [indiscernible] involved, now Semnur or Scilex has put $150 million into Datavault which is new to me. And I have a lot of questions because with all this -- with like IPMC and a precision medicine globally with Robert Hariri with Celularity, you're running a whole platform globally with increasing medicine AI. It's a big thing. And I'm just astounded by the revenue guidance, by the way. I'm wondering what's the revenue contract backlog right now?

It's significant. It's one of the hardest things to get through and particularly internationally, just in terms of getting the company's chops up for that. And our Philadelphia headquarters is going to address legal and governance and many other things. Also, these exchanges are not simple in their constructs from a governance standpoint. And we have a very kind of governance-first model that served us very well. We get to be the iTunes in the space as opposed to the Napsters, if you will. So I'm excited about that. I think your question is regarding to the biotech space and Scilex investment or interest in us. Scilex is wildly accretive to our strategy. We had announced previously digital twinning and digital twins as a marketplace that we were interested in developing technology around and we have. And its really data into experience, data into hologram, data into model, data into experiential models where management teams don't struggle to understand the challenges or the data related to the challenges around them. They're able to actually experience that data and see the pathways before them more clearly. And that's kind of at the center of the Datavault which is experience around and that experience includes valuation and score because it had to be sustainable. So valuation and score. And one of the things that is common across these threads, but very specific in the biotech space is our work with the Brookhaven National Laboratory, which I believe Scilex was studied and saw our progress there and read our cooperative research and advancement agreement drafts that are now being considered at Brookhaven. We have the great privilege of working with supercomputers there in a supercomputer environment of people that we've come to trust and in fact, love that we are able to develop a system between our federal laboratories, our allies, so BAE over -- just over the pond and some of the collaborators we have here in the United States, whether it's General Dynamics, Raytheon or Boeing, our ability to take information and have rather than stovepipes and everybody not share their marbles that everybody can collaborate on a global basis for the advancement of technologies across a myriad of spaces, none more important, none more probably well-funded than biotech. And Scilex is a leader in that, the people there and the leaders, Dr. Henry Ji, certainly financially Stephen Ma, who's become a mentor to me. These are incredible people who have a great grasp over biotech science and biotech technologies. And we're proud to have that investment that allows us to build that platform and so much more. We're a platform of platforms. We're exchange of exchanges, the ability to launch exchange after exchange, our biotech exchange, which will have a great name. I know the name, I can't say it, but the biotech exchange will be a very special attribute. So to the size question about -- part of your question about size and why is this space so hot or why did we increase our guidance? It's only partially for the real-world asset of biotech that's in our guidance. And I think it's an explosive piece that maybe makes us to re-guide. But the biotech piece is incredibly exciting and has attribution and use case and utility across every medical science, oncology and heart, acute, post-acute. When you look at the healthcare space, it is not a market, it's the market. Everyone will engage with it at some point. And many of us on a daily basis, many more on acute management basis are spending hundreds of thousands of dollars per annum to address our health. And the kind of compound nature of that makes it not only an international crisis, but something that needs technology to address. And we're happy and proud to be part of the solution of creation of digital twins. And you could see scanning the human body and having a digital twin could aid you, just like it aids management in experiencing their data decisions. When you see your digital twin, it has the same effect. And healthcare is very exceptional. It's very well-funded, but also in crisis. So it's a unique combination. We're happy to be part of the solution.