Greetings, and welcome to the Summit Wireless Technologies Second Quarter 2021 Financial Results Call. . As a reminder, this conference is being recorded. It is now my pleasure to introduce Kirsten Chapman at LHA Investor Relations. Thank you. You may begin..

Thank you, Daryl. Good morning, everyone. I'd like to welcome you to the Summit Wireless Technologies Second 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 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 within the meaning of the Section 27A of the Securities Act of 1933 and 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, are subject to a number of risks and uncertainties and other factors, including current macroeconomic uncertainties associated with the COVID-19 pandemic; our ability to predict the timing and design wins entering production and the potential future revenue associated with our design wins; our growth rate; our ability to predict customer demand for our existing and future products to secure adequate manufacturing capacity; demand -- consumer demand conditions affecting our customers' end markets; our ability to hire, retain and motivate employees; the effects 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, 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 these ongoing risks and uncertainties of the company's business, I refer you to the company's various SEC filings. Now it is my pleasure to turn the call over to Summit's CEO and President, Brett Moyer. Please go ahead, Brett..

Thank you, Kirsten, and good morning, ladies and gentlemen. I'd like to welcome you to our second quarter earnings call. We had a pretty exciting quarter, with a lot of accomplishments I'm looking forward to going through with everybody. We'll highlight the accomplishments.

We'll go through a few slides to catch up new investors on the business model, and then we'll go into more detail on the initiatives for revenue growth. So we have guidance out there that we have 6 TV brands using our technology. We were able to announce the fifth one since our last call, which is Toshiba.

They market in Japan and Asia, and they have adopted the WiSA SoundSend standard certification. So that the SoundSend app be downloaded onto their TV. The consumer can set up the entire WiSA system, optimize their audio preferences like from the -- with the TV remote on the TV screen.

And the market will be hearing about partnerships -- marketing partnerships with Onkyo later this year. We'll have the WiSA Certified system out as well.

Also we announced that under the SoundSend certification program, any of the Android TVs, which can be -- which are marketed by Sony, Toshiba, Sharp, Hisense, Insignia, which is a Best Buy brand, and several other brands are able to download the app, load it up and drive SoundSend and the WiSA system from their TV just like Toshiba.

A big component of our plan this year is to increase WiSA's awareness with the consumers. So we had guidance out at $1 million, and we announced that we increased that guidance now to $2 million for this year. We have approximately just under 1 million people have visited the WiSA websites, and that's important to increase the consumer awareness.

Now we're launching the first of what will be a handful of stores this year, WiSA storefronts, on Amazon.

This will allow us to bring consumers to the WiSA site, educate them on WiSA, educate them on all the brands that are shifting WiSA products, premium audio, mainstream, entry-level price points, and then let them go to one store that covers a lot of the brands.

And so when we direct traffic off the website rather than directing traffic to a specific speaker brand or a specific retailer, we'll send them to these WiSA stores as they open up, and Amazon is the first one. I'll show you what it looks like in a minute. But if you want to get online, it's amazon.com/wisa.

We also joined the Russell Microcap Index and raised $10 million in July. Two big growth metrics for -- I want people to pay attention to. As I mentioned, we did start pivoting last year the WiSA Association from the technical standard to a consumer-facing organization.

And with that, the growth of visitors being educated on WiSA has gone from 26,000 to 360,000 to, we expect, more than 2 million people this year. Revenue growth. So we have said WiSA membership is a leading indicator to designs. Designs is a leading indicator to revenue growth.

Consumers is a leading indicator to sell-through on revenue growth to drive further revenue growth. And as you can see, with our guidance for 2021 and our results in Q1 and Q2, we are experiencing significant year-over-year revenue growth. And that plan is working.

For new investors, if you look at -- if you're looking at investing in Summit, there's really 2 pieces to the investment. One is the technology side and know-how to build high-performing multichannel wireless audio, both in chips and IP.

And then there's the standard for WiSA, which has more than 70 brands in it that helps build the ecosystem for those products. If you look at the low of WiSA, just like with HDMI, when you're sending a highly sophisticated signal from one source to another, you need to know what to send out and the receiver needs to know what to receive.

So WiSA has a technical spec around transmission so that TVs, AV receivers can transmit to speakers, and speakers know how to understand and process that audio. This year, not all these products are in market yet, but they're either in market, in production or about to go into production.

So we'll have a broad range of products in the fall for the consumer to market to. In total, there's more than 25 brands that will be using our technology, and we look forward to continue building out the ecosystem.

For the people that are thinking about what is the market that we're addressing, it's really the deficiency in the TV market and the deficiency in the WiFi technology. So the TV -- thin TVs have pretty low audio quality. It helps with a sound bar. Add a sub, it's better. And with WiFi, you can add a couple of your speakers.

Now with WiSA, you can actually add all the speakers and get the full impact of going to the movie theater with front speakers, center speakers, rear speakers, Dolby Atmos speakers and still have the simplicities of a sound bar setup, right? So you're not installing. You're not paying an installer.

You plug in some devices into wall outlets and an HDMI cable into a TV. Just like the sound bar, just as simple. So from a consumer experience, you're getting better sound, same simple installation.

And if you look at Enclave Audio or Platin Audio, you're actually getting considerably lower-priced solution for a better sound field than, say, some of these premium sound bars from Bose and Sonos and Sony, which just the sound bars are running at $800. So a subwoofer moves you in the $1,300 price.

So that is the market opportunity to get full cinema sound around those smart TVs with almost all the streaming services streaming high-resolution, multichannel audio for the consumer to use, right? The three growth initiatives are SoundSend, the WiSA Wave, which is impacting both retailers, brands and consumers, and our next-gen technology.

So SoundSend, it was an important program this quarter to announce that you can -- a TV brand can now certify that you're SoundSend-compatible. And this lets both the TV guys communicate that they're ready to support WiSA as well as the speaker guys know that they can support WiSA.

And for the consumer, they now have a simple app that can be loaded on their TV. And the TVs turns into an effective AV receiver, right? We're getting good product awards for a product that's been out just 6 months, good consumer traction, and we think this is a big catalyst for us going forward. All right.

A couple of new things for the long-term investors that we're going to talk about now. So we have talked about driving consumers to WiSA, educating them on the benefits of WiSA, benefits of full surround sound, with Dolby, without Dolby Atmos versus a sound bar that's simulating everything. Well, it benefits the entire ecosystem by driving this.

One, the brands get their products out marketed as a category. Two, the consumers get the longing and hear what we're doing.

Three, as marketers, we can actually identify who's engaged as a consumer and in market to buy audio, who's in market to buy audiophile levels of $2,000, $3,000 and above systems, who's looking for just a great audio at a better price and new to the program is helping the reseller.

So one way is to open up WiSA storefronts like you saw with Amazon, and we'll talk about it in a minute.

The other thing is when you look at our data analytics, we can take all that information, whether it's geography, time on site, pages, looking for high end or lower end entry level price point, we are making that data available to WiSA Certified resellers.

So if you have two brands of TVs, if you have two brands of speakers, and you want to create a WiSA storefront, they will also make available that data, those analytics so you can remarket directly to these engaged consumers your WiSA offerings and bring them to your WiSA website. We think this is a great enhancement to the WiSA Wave campaign.

What's the store look like? Look, I'm proud of the marketing team. I think the WiSA store looks fabulous.

I think it does exactly what you'd want it to do, right, the consumer quickly on one landing page can see certified speaker category, certified transmitters, TVs and TVs and audios bundled together, right? So consumer sees that this is a full category. They can click in. Now you will not see all brands on Amazon.

There's a lot of premium brands at malls. There's premium brands that are only shipped in Europe, in China, et cetera. But when we open up these stores, whatever is in WiSA Certified is able to come into those store pages, and the consumer will see the whole category.

If you think about it, that was part of why we launched the Platin Audio brand, simply to create a bigger category for all consumers, right? We think the Enclave is a great mainstream product, really high performance. We think the audiophiles, of course, with the $3,000, $5,000, $20,000, great products.

But when you think about what you can do with a cost-effective design, we can really go out and market a great sounding system for $800, $900. And so we wanted to create that entry point for the WiSA ecosystem with Platin Audio. All right. Gen 2. So I get lots of questions on the market side. I get lots of questions on gen 2.

This -- we have launched our first product. That is our IP and software loaded onto an IoT device, WiFi device. It is specifically targeted to sound bars and speakers and subwoofers. But the plan here is to bring out 5 gigahertz, which has more than 4 channels.

And that product is applicable to smart TVs, smartphones, smart speakers, tablets, headphones, the whole smart wireless connected market. Now we have defined this as our strategy. We will continue to talk about it as we get closer to when there's designs to talk, when there's revenue to recognize.

But right now, it's the 2.4 gigahertz that is applicable to sound bars that we're marketing. In terms of market size, another popular question we get. We think that gen 1 is really applicable to -- and that's the current product we're shipping, the top third of the market for the industry.

But when you look at 270,000 smart TVs being shipped, and you look at IP that can either be loaded onto a TV or really a very cost-effective transmitter, substantially lower than the SoundSend, then we can see a 30% share for the whole market. When combined, the $85 million TAM for gen 1 and $554 million, gen 2.

This is a $650 million market TAM, not considering what is available on headphones and other smart devices that the gen 2 ultimately would be applicable to. All right. With that, I'd like to turn the call over to George to update you on revenue and guidance.

George?.

Thank you. So revenue continued to grow sequentially. The June quarter was approximately $1.6 million in revenue. That's over 350% growth over the same quarter prior year. The gross margin was approximately 29% compared to 3.4% in Q2 2020 and up several points sequentially from the prior quarter.

OpEx was $3.3 million, which included about $400,000 of noncash expenses, primarily stock compensation expense, compared to $2 million in the prior year, of which $100,000 was stock compensation expense. If you recall, Q2 2020 was the height of uncertainty around COVID.

We cut salaries and cut spending while we were -- the markets were in a bit of uncertainty. So that was our low point in terms of spending. The net loss for the quarter was $3.4 million. That was after about $600,000 of other expense, which was noncash expense relating to warrant exercise inducement.

And that compared to a $3.4 million loss in the prior year Q2, of which about $1.4 million was interest expense that was related to bridge funding that we did in Q2 of the prior year. In terms of guidance, we're far along in the year where we feel comfortable giving guidance for the full year.

We think we're going to come in between $6.5 million and $7 million of revenue for the year. That will represent about 180% increase year-over-year. The gross margin will continue to trend around our target, 28% to 30%. We -- looking at a full year of OpEx around $12.8 million, of which $1.4 million will be noncash stock compensation expenses.

That's all. So with that, I'll hand it back to Brett..

George, let's recap the balance sheet..

Okay. June cash was $10.3 million. We raised a net $9.2 million in July. And we expect year-end cash to come in between $13 million and $15 million. So with that financing, we feel that the company is well capitalized for 2022.

Keep in mind, we still have warrants outstanding that are in or near the money that could be exercised, but we feel we're in pretty good shape now..

All right. Thanks, George. And so with that, before we take questions, to summarize, we're actively building a wireless standard around WiSA. We've got both trademarks and IP. We think the HDMI model is a good model for us to emulate. We've got a large market out there with smart devices, headphones and sound bars.

Adoption is being -- is increasing both with brands and consumers. And we think this -- working with the retailers in a tighter fashion will really help drive revenue growth this year and beyond. With that, operator, I'd like to open it up for questions..

. Our first questions come from the line of Jack Aarde with Maxim Group..

Congrats on the solid results, strong guidance. I'll start with a question for maybe both Brett and George. So you guys introduced 2021 full year guidance parameters for the first time. The guidance itself appears to be positive relative to expectations.

But what is perhaps, I don't know, more encouraging in my view is the fact that you provided full year guidance at all given the semiconductor industry environment we're in. So maybe just two questions.

Can you talk about whatever factors are at play that give you that confidence or incremental visibility to provide 2021 guidance? And then two, maybe can you talk about your revenue expectations for the third quarter and the fourth quarter, kind of how you expect that to directionally trend?.

All right. So you're absolutely right. The semiconductor world is challenging in terms of supply. We have secured our supply to provide modules for our customers, but we have seen our customers push back production, waiting for other components to arrive. We saw orders move out of Q2 into Q3.

Now in terms of why we guided to the year, we think that at this point in the year, in August, given the orders that are on the book and the lead time for our orders, we have a pretty clear sight on the bulk of our revenue. Certainly, there's always upside or downside of products get pushed because of part shortages.

But we're sitting there thinking this is really where we're going to be. And we'll properly hedge under any minor changes to the plant..

Okay. Great. That's helpful, Brett. I appreciate the color. And then maybe just a follow-up.

As it relates to the gen 2 opportunity in general, is there any impact, a similar impact or kind of maybe a nuanced impact in terms of how the semiconductor industry impacts your gen 2 plans? Is there anything there of note?.

So the -- we believe the IP that we've developed and the software we've developed can be easily loaded on most WiFi chips. We are not looking for a more expensive solution.

We have ongoing semiconductor conversations with potential partners that would, let's just say, offer a broad selection of channels to use for the audio and a significantly lower cost than what we're shipping today. But until those partnerships are finalized, that's a directional statement, and we'll leave it at that..

Got it. That's helpful. And then just maybe another kind of growth catalyst, I imagine something that could ramp up over time into material growth drivers is your new Amazon storefronts.

So any initial expectations from a -- what that means for your revenue or your sales momentum as you kind of like go from 3Q to the fourth quarter? Are you already getting inbound interest more so than without it? Just anything you could provide there would be interesting..

I think the Amazon store and the ones that are to come have a fundamental long-term impact on building WiSA as a trademark that consumer recognizes the universal wireless standard for multichannel, number one, right? In terms of, two, how does it impact Q2 -- how does it impact Q3 and Q4 sales, I am a believer that it will significantly impact the sales of our customers, right? So if you go in there, you'll see LG TV.

You'll see Hisense TVs. You'll see Enclave. You'll see Klipsch. You'll see Platin. You'll see transmitters from Axiim, I believe. And the consumer traffic has been significant already. I think we're close to putting -- having directed 10,000 consumers into Amazon already..

Our next questions come from the line of David Lavigne with Trickle Research..

So Brett, can you just give me the -- or give us the current number of brands of products in the market now, and then maybe a little bit of color on those that are coming but not quite there yet, maybe the third quarter things? Can you give us that number or something close to that?.

So we're not going to comment on what brands are bringing out in the third and fourth quarter. That's their job, okay? That would be -- that would not be appreciative of our customer base. In terms of who's in the market, I can run through real quick and pull that slide up.

Harman, Bang & Olufsen, Onkyo, Klipsch, Almando, Primare, Savant, Platin, Enclave, Buchardt, Axiim, I think Ecler is in the market, EC Living is in the market, PIEGA is in the market, System Audio is in the market as well as the 5 TV guys..

Can you give us a number -- just a number on what you expect in the third quarter that aren't there today?.

It's this list on slide -- I don't know, the brand slide. We're saying 25-plus brands will be shipping our technology..

Okay. So -- and I know this is our job, but I'm going to ask you anyway. Are you starting to see or develop any comfort level with correlations between the website traffic and your actual business? I mean you sort of talked about those sort of the leading indicators.

Are you starting to develop any sense that we might get to a point where we can sort of look at website traffic and think about how that might translate into sales? I mean I know that's a big if, but just sort of curious how you view that..

Well, I think you absolutely should be, right? I'm not -- my team laughs at me for being quantitative.

I'm not doing it for my health, right? I'm an absolute believer that the point of educating consumers and showing them multiple products and showing them category and the license side and then I'm moving to a retailer to see a category, albeit virtual, fundamentally changes the sales curve.

I see the week before -- the week of Father's Day, traffic went up to -- I think it was actually 25% of the traffic was return visitors. What does that tell you? That tells you that the consumers that were coming in a week before or a month before, 6 months before, came back shopping, right? That's highly educational.

We saw that in Christmas season last year, and we were just getting started on the program that from Thanksgiving weekend until mid-December, we were running in the low 20% of return visitors. So people have valuable time.

I don't think people come back to a site they thought was worthless, right? So to the extent that you can see that type of consumer behavior, you can see a lot of people being directed to the WiSA store, there's some initial good metrics coming out of Amazon that we like, that only leads -- can only lead to higher sales for the ecosystem..

Yes. I mean I don't know how necessarily to -- at this point, how to sort of put it all into numbers. But it certainly seems to me that WiSA Wave is becoming quite constructive to you. That's how it seems. So I'll leave it at that..

Our next questions come from the line of Ed Woo with Ascendiant Capital..

Yes. Congratulations on the quarter, and thank you for providing us full year guidance. You mentioned that you have visibility for this year.

What about visibility into next year? Do you think that the challenges in the semiconductor industry will ease up for yet to be able to have no issues next year?.

So we're not ready to guide next year. We just got to a point of guiding this year. But for the semiconductor space, I can't say that I can truly definitively say what will happen, right? And what I do think is pretty common thought among a lot of executives, that it will ease. I think there are several components of that easing. One, supply expanding.

Two, there may be some protective inventory buying that dissipates almost like what you saw a year ago with the consumer buying toilet paper and paper towel because the sky was falling. There may be a component of that.

We don't see it because we know where our customers move and know that a number of our customers are not entering new regional markets because of their part shortages. But I think all those can be factors. And yes, it'll work itself out over time. But whether it's Q1 or Q4 next year, I know not to say that..

All right. And then the other question I have is, what do your retail partners see for the holidays? I mean, obviously, there's a lot of spending on the stay-at-home, building up the house last year.

Do people feel as confident that consumer demand will increase and we'll have a good holiday season for consumer electronics this year?.

I believe the trend continues strongly. Yes. And I believe the trend is capped in the supply..

Our next questions come from the line of Spencer Kirschman with H.C. Wainright..

Congrats on the quarter. I just had a quick question. If you were able to provide some color on the percentage that the Amazon web store makes up of your sales mix as well as any color on those future storefronts that you talked about earlier..

Well, I'll take the last part of that question first. So we're targeting 4 or 5 storefronts for the holidays for this year. First one is up at Amazon. We are actively working with a handful of other retailers to create those storefronts and however their e-presence allows it to be done.

What was the other part of your question?.

The percentage that the Amazon web store made up of the sales mix..

Well, if you look at Amazon just from the brands that are in there, those are only the U.S. brands. And it's only the entry-level mainstream up to Klipsch type brands. Harman has a very small presence in the U.S. They're inventory-constrained. So most of their volume goes to China and Europe.

So I don't think it's -- I think the license store is critical, especially getting a handful up, and we'll ultimately look at how to replicate that in Europe and China. But how it responds to each individual brand in that store, how it impacts the bundles that are in that store with some of resellers already or impacts on TV lines, we don't know yet.

We do know, like I said in the -- we probably have about 10,000 -- 8,000 to 10,000 consumers that have already gone to that store shopping..

That's very helpful. And in terms of second half revenue, you mentioned that some orders had been pushed back from the second quarter to the third quarter.

Do you think that might impact any of the manufacturing that might take place, preparation for the holiday season?.

No. I think that from a manufacturing line, there's capacity. Everybody's fighting their parts shortages..

. There are no further questions at this time. I would like to hand the call back over to Brett Moyer for any closing comments..

Look, I'd like to thank you for taking the time to hear our products. The team has been doing a great job executing. It's a pretty exciting time for WiSA, and we look forward to updating you throughout the rest of the quarter. Thank you..

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a great day..