WiSA (WISA) 15 Nov 242024 Q3 Earnings call transcript

Good day, and welcome to the WiSA Technologies Q3 Results and Business Update. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to David Barnard with Alliance Advisors Investor Relations. Please go ahead.

Thank you, Megan. With us today are Brett Moyer, CEO and President of WiSA Technologies; and Nate Bradley, CEO of Data Vault Holdings.

Before turning the call over to Brett, I'd like to remind everyone that today's conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our filings with the SEC. WiSA assumes no obligation to update any of these forward-looking statements, except as required by law.

We also refer you to Slides 2 and 3 of today's accompanying presentation for more detailed information.

With that, I'll turn the call over to Brett. Please go ahead.

Thank you, David, and good morning, ladies and gentlemen.

So it's been an eventful 3 months since our last update, starting with the announcement in early September of our purchase of assets from Data Vault Holdings for the IP and trademarks around Datavault and ADIO.

And so with such a significant transaction and transformation of the company, we have Nate Bradley on the call today. And I'll turn it over to him shortly because during the interim, since that announcement, we have had several press releases about new products and new markets that Data Vault's IP is being entered into, and he's going to walk us through that today.

But first, if we look at what's going on with WiSA and WiSA E, which we've picked -- invested heavily over the last 3 years on and have roughly 26 patents filed around it, right, so results in Q3 financially improved. We had $1.2 million in revenue, which is up from -- up 240%.

Our gross margins improved. Driving that was the decision to take the small Platin Audio speaker lineup that we have out of retail.

So we're strictly direct-to-consumer, and we've reduced inventory by 17%. We ended the quarter with $3.9 million of cash.

From an operational milestone, we did announce in our pre-announcement, the team significantly started shipping WiSA IP for transmit in a set-top box with the customer, and that product is expected to be on the shelves by -- for the Christmas season.

So it's working through the logistics. That will be on the shelves in Europe initially, and it will go worldwide in 2025.

Now that's an Android OS system -- based system, and the team has already started developing WiSA E transmit software to work on Linux operating system, which will impact our 2025 revenue.

For new people on this call, I'm going to briefly review the transaction again that we announced at beginning of September with Data Vault Holdings, right? And that was to acquire the patents, the trademarks and the IP for their subsidiaries of Datavault and ADIO.

The terms were $200 million in stock at $5 a share and $10 million in an unsecured promissory 3-year note.

As we -- if we raise money from a strategic or financial partner, 10% of that will go back to paying off that note over the next 3 years.

Major milestone this morning, we filed the preliminary proxy for both the Annual Shareholders' Meeting and the purchase of this IP.

So we'll clear any SEC comments and should be mailing at, so that we can close out both the Annual Shareholders' Meeting and the transaction with Data Vault this year.

Post-closing, Nate will become CEO of the company. We'll change the name to Datavault, and I'll become CFO.

Now with that brief summary on WiSA and the transaction, I'd like to turn the call over to Nate. He's going to walk through both his history, which is long, successful track record of taking IP and monetizing it in both public companies as well as financially.

And with that, Nate, I'm going to turn it over to you.

Sure. Thank you very much, Brett. I appreciate your time this morning in joining us.

We have obviously a very exciting time here.

My background, for those that don't know me, is centered around invention. I have successfully taken products from invention to commercialization and into the public markets. Over my lifespan, I've had various timing that I have figured out with respect to this.

You get better in life or at least you intend to, and this current opportunity follows really a career that is highlighted by our solution of the Internet for people with disabilities at AudioEye, a previous company, ticker, AEYE, NASDAQ-traded company. We sought for making mobile and Internet sites accessible for those with disabilities.

And in doing that, in my subsequent experience around intellectual property patents, I have perfected a process in both filing and receiving patents from the United States and international bodies, but also reducing those to practice. And here, we've got the timing right with WiSA. Discovering their 26 patents and their incredible traction in the marketplace, combined with our own, we've got a very exciting company moving forward.

So really, these inventions have been targeted at 2 primary vertical markets.

If you look at blockchain and artificial intelligence, these represent high-growth markets. The growth rates are impressive, but the utility of these technologies is probably why we are all here.

WiSA has a strong data infrastructure that we found, along with their patented audio systems and technologies.

We have a blockchain and artificial intelligence play at Data Vault that is harnessed in our flagship technologies, Datavault and ADIO. ADIO is really the overlap that we have with WiSA.

And why we're so excited about the collaboration is that we have an ultrasonic technology, a system that uses quick response -- mobile quick response technology that rides over sound. Think of it like an invisible QR code.

We have the ability to, over these ultrasonic anchors, deliver data and connect real-world objects with their virtual counterparts in meta form.

And so this is where we enter into the Datavault systems, but the benefits of this ADIO platform allow us to perfect systems in events and venues.

We have a number of pilots under our belt and just completed one in the MMA space over this past weekend, where we proved a model that had a very high visitor engagement, improving upon what we did last year with the Katy Perry concert at Resorts World.

We've also deployed this at the largest convention center, the largest casino floor in America, the LIV Golf tour. We've been on MMA fights. We've been at Art Basel. We were the first to arrive there with the NFT technologies.

So we have a number of big event venue pilots under our belt, including Major League Baseball, where we proved an ability to use these ultrasonic sounds to get significant increases in mobile response and mobile marketing at these venues. We've also perfected an ad network over these networks that we've patented and perfected with respect to its high-margin delivery of advertising data to consumers.

So working with some of the largest event venues, we've been able to perfect these systems. And also work with WiSA to hone these technologies to control better our ultrasonic signals using WiSA technologies, we can make spatial and other very specific tuning available on site at these venues. I'd also point out that our technology goes over broadcast.

So it's a very successful technology that first addresses an event venue, but can also be broadcast for the at-home audience, which is a significant breakthrough.

If we go to the next slide. We've also announced the ability for us to harness data in its most consumable form.

We have launched a hollow vision, DVHolo, that uses holographic technology, can take data assets and convert brand and data assets into visual experiences that are human-like.

We've been able to take the name, image and likeness of individuals and provide now a display that's connected to our Datavault and our ADIO systems that allow for monetization.

So we're literally a pay-per-view box that can unlock a content on a paid-for basis or a licensed basis and control the display of holographic content up to including brand displays and highly scientific data, where we proved a model for scientists that allow them to use data within their research to create in silico environments to view and experience their experimental data in a way that allows them to experience and have better connection to data sets that they're creating and explain to others what their scientific research means and presents to the world.

So we perfected this across a number of shopping malls, events and convention centers, hotels and resorts, sports arenas and stadiums as well as university campuses, which we have a very focused effort around generating revenue in that marketplace. And that leads us to this, which is a degree credential.

In addition to experiential holographic content, we perfected a holographic content that represents degrees, college degrees, bachelor's, master's and doctoral can be delivered in a very high-quality and experiential coin that is issued to the graduate.

And it can be used in a format that our ADIO tone provides for a signal that can be confirmatory of a degree credential, meaning that a utility coin is issued to the graduate. That coin has within it audio technology that we've patented called ADIO. And when you play that ADIO tag, it can literally confirm with that college and university the credential itself. Things like transcripts and other assets of data can be conveyed using that same technology.

So we're extremely excited about this. It's a great productization of the combination of our acoustic division and our data division. It productize down to our clientele, and we proved this at Arizona State University, working with their Luminosity labs to cut our teeth and get all of the necessary data arrangements made within that university, so that we're able to issue coin in a way that is passive to the university.

They simply do what they are doing normally, and we're delivering a Web 3 credential on top of that. That is a revenue center for the school. Certainly for us, it's a focal revenue center to prove the Datavault and ADIO models in the marketplace. And in this one, a highly scalable vertical market, where every graduate is developing revenue for our company in the form of this coin, which is also saving the college and university money.

It's actually generating revenue on top of the money they save. And these protective credentials represent a Web 3 systems integration and a revenue generation that's never existed before.

So we're very excited about this. I have a focal effort, and we're knocking down a number of known brands.

We've also announced our collaboration and work that we're doing with scientific laboratories.

We have perfected a supercomputing software application of Datavault, where we index data, no matter how large the repository, our national laboratories having amongst the largest data repositories outside of our federal government, and some of them owned and controlled by the federal government agencies.

And what we are able to do, with respect to the data asset, is to develop an index.

Our software is a Web 3 utility that's not storing the data of our customers, but is characterizing it. It's this new meta layer. And at that meta layer, we can function as a librarian, an indexer, think of it as the Dewey Decimal System of data assets.

And we're able to then also provide a value layer. We can understand how much data cost to create, we can understand the value of data and how much it represents in the marketplace, and most importantly, we develop technologies that allow us to monetize data on behalf of our clientele.

And by doing that, we've perfected a system that allows national laboratories to share data, to funnel data into the other systems, while also being remunerated for the cost of data and the creation of data. And this is a breakthrough in scientific research.

Our Datavault has also perfected a system, as I showed with the hologram, to view a scientific data in experiential ways that help scientists collaborate and communicate their scientific objectives.

So we're very excited, again, about this initiative. We do have a focal point here on the East Coast, where we're developing this strategy with a leading laboratory.

So if we go to the next slide.

Our data technology really in Synopsys, we have a history of proven success with our team. We've taken IP portfolios that were much smaller than that we have here at Data Vault and WiSA, and we perfected that into commercial operation. We're both technologies in that same position now. We happen to meet at that inflection point and increase each other's value as we've learned to use WiSA's technology.

We've also looked at their IP assets and ours together in what that means to the market space.

We have a combination of 67 patents. That will be 100 patents going into the mid part of next year.

As we get issuances, we're filing continuations and continuations apart. And we've been meeting as engineering teams to combine our technology stacks and find these acoustic connections to data and Data Vault's monetization, which we're perfecting.

You have also high-margin licensing models that are congruent at Data Vault and WiSA.

We have a high-performance computing software licensing strategy. We've also leveraged that across sports and venues and our biotech and education, fintech, real estate, health care and energy sector clientele, where we've looked at the effect of that AI and blockchain combination using Web 3 in total addressable markets that are expansive in those cases.

So automation, technology utilization across big bang opportunities, opportunities where we unlock inside the scale of our clients, and so we're doing that across a number of acoustic and data initiatives.

We have traction with these clientele that are household names, large brands that have adopted and trust our company and our technologies to bring forth a number of revenue-generating strategies.

So this is our outlook going into 2025.

And really, with that, I will conclude my comments.

Thanks, Nate.

So with that, operator, we'll open up the call for questions.

[Operator Instructions] The first question comes from Jack Vander Aarde with Maxim Group.

Okay. Great. I appreciate the third quarter update, and congrats on the recent steps you've made to finalizing the Data Vault transaction. No shortage of moving parts going on.

So let me start with a question for Brett on the third quarter and then looking at the fourth quarter.

So Brett, third quarter revenue, $1.2 million, that's a nice strong uptick. Was this solely driven by Gen 1 WiSA HT sales? Or was there any WiSA E in there at all?

So that's 2 questions. Yes, there was WiSA E in there. But yes, it is still primarily Gen 1 WiSA HT. Primarily Gen 1, but there was some WiSA E.

Okay. And you have 5 WiSA E agreements formalized and more in the pipeline, it sounds like. Can you just remind us what are your -- do you have any initial expectations for WiSA E in this fourth quarter? Like will it ramp up a little bit from the third quarter here? And then if you could just remind us of your kind of 2025 WiSA E expectation?

Okay.

So we haven't done any guidance on 2025, but we will say that WiSA E-related revenue will have a significant uptake in Q4 versus Q3?

Okay. Got you. That's helpful to know. And then it sounds like -- just intuition-wise and just obviously, more time with the WiSA E brands rolling out, it sounds like 2025 will -- no guidance, but will further ramp obviously.

Okay.

So good. And one other point, Brett, in the third quarter here, your gross margin did recover. Do you expect -- I think that kind of -- the WiSA HT Gen 1, the gross margins around -- they can be around 30% on a unit basis. Is that still a fair assessment? Or will there -- is there any lumpiness to the gross margins?

It's fair on WiSA HT to model 30%, 35%. It is -- I would anticipate, as you go forward with both WiSA E kicking in with NRE charges, WiSA E being a software license for transmit and royalty payments, that as you model out through '25 and '26 and we bring in the software licensing out of Data Vault, to have significantly higher gross margin percentages.

Okay. Great. That's helpful color. Maybe I'll switch gears. A couple of questions for Nate. Nate, so there are clearly many moving parts and a lot of recent developments.

You guys have -- I've been tracking your press releases.

On the Data Vault side, maybe can you just walk us through some of the -- just a couple of the near-term monetization drivers you're most focused on or think are the most meaningful as you enter 2025.

You've covered a range of examples and a range of partnerships, ADIO and HYPERVSN and VerifyU. Can you just touch on some of the specific ones that you see as the most likely or the most meaningful monetization drivers as we head into next year?

Yes.

So on the 2, Datavault and ADIO, ADIO, sports entertainment venues, live events, large sporting events in the golf space, in particular, any event really where you have a sprawling canvas to produce from or to host fans upon.

So if you look at PGA and some of the tour concepts around ADIO, that's a big driver for the ADIO business, events and venues and concerts.

They're broadcast corollaries, so streaming and traditional broadcast delivery of ADIO.

So that all is handled in ad network.

So it has a traditional kind of monetization. Think of a complex technology, but very simplified in its operation and in its creation of revenue around ad network.

So a very complex technology that gets very consumable in how it's productized and brought to market.

So an ad platform, ADIO, across venues, sports and entertainment.

And then with Datavault, the high science, the ability to use the holograms of HYPERVSN that we are with the DVHolo brand, bringing a pay-per-view gateway experiential layer around the use of holograms and high science.

So that's using scientific data that we proved and showed at an exhibit at the Digital Twin Institute that we were able to show a plant being grown off of the data into it.

So you see a sun cycle into a seed.

You feed nutrients and you feed other data sets into an object that has a genome that is mapped, and you can grow that seed right in front of you into a plant rather than waiting 6 months.

And so this is a strategy where we use data to display. We've proven it in one of the hardest use cases, but it has application downstream and much easier to understand, easier to implement things, such as looking at a car, looking at a building, looking at things in 3D that are driven by data.

Our ability to inspect them and to trust what we're seeing is accurate through the Datavault.

So that's where anchoring and other assets come in.

So we're going to focus on that high science laboratory setting in monetizing data as an index and data as a value. And downstream from that effort, colleges, universities, other commercialization efforts of Datavault that will start to emanate.

All of that, again, as ADIO is focused on an ad network, Datavault is focused on an exchange.

We have the ability with our information data exchange to simplify all of that business into an exchange. We sell data on behalf of our clientele in a safe and secure environment that's never existed before on our information data exchange.

So those are the focal points, the ad network and the information data exchange, driven by those 2 platforms.

Excellent, excellent, and I appreciate that. That's helpful color. And maybe just let us go one step further there.

So on the Datavault and kind of creating digital twins side of the business, well -- I mean like how do you actually monetize it then? Will this require like contracts to be announced, signed? Or is this more just -- is this like a live marketplace where end customers can actively go on and purchase data from you guys? Or is this -- what kind of visibility will an analyst be able to see, I suppose? Will there need to be a contract that's announced or more partnerships? That would just be helpful color.

Yes.

So partnerships on the buy and sell sides.

So you will see a number of clients sign into the platform. We're at the commercialization stage of Datavault. It's the flagship property of WiSA and Data Vault. WiSA has a strong data back end that's very useful to Data Vault, and it's function for us like Sonar, bringing data back to the Data Vault through the ultrasonic technology of ADIO.

But the monetization, to answer your question, on the information data exchange, you could expect a 70-30 split, 30% of the yield of a trade, think of it as 15% buy-side, 15% sell-side interest in that data set comes back to our company.

So a 70-30 split, 30% coming to Data Vault, 70% in the pocket of our client, where we've taken like Bloomberg does a terminal. And we have a virtual meta terminal that we turn up for our clients called Datavault.

And what we add for our clients to their data sets is a meta layer that adds value.

So we value and score.

We have patented technologies that values and scores that data. And when we split, it's on a 70-30 basis.

So you'll see turned up clientele with announcements around contracting on the sell-side or on the data side, the inventory. And then on the buy-side, organizations that we've aligned our [ systems ] with, such as Bloomberg and BlackRock and Accenture. And those -- that are large institutional buyers of data that have very complex requirements that Data Vault meets on behalf of customers.

So both sides announcing, buy and sell-side, and then the events and venues and the use of ADIO being other areas that we'll announce. And when we do announce those, keep in mind, Data Vault is the back end.

All of those ad systems and other systems are really built for the purpose of creating data, and we harness that at Data Vault.

Excellent.

Okay. No, that makes a lot of sense. I appreciate that rundown, Nate. And then maybe just one more for both of you, for both Brett and Nate.

Just -- it sounds like you got the proxy pretty much formalized, that will be sent out here. It sounds like if our shareholders approve the transaction, this will happen pretty quick soon after.

Do you guys envision hosting a joint kind of Investor Day of some sort after in the -- shortly after? Just once all the dust has kind of settled and the name -- everything kind of tranches over, what should we be expecting? Will there be an Investor Day type event where you kind of formalize and crystallize everything and crystalize the message maybe in January or late December? Just what are you guys thinking there?

I think the time that you should think about is it will either be at or immediately following CES.

So January 1.

Do you plan on both being at CES, Brett, showing up both technologies?

Yes.

I know WiSA had a strong presence there in the past, obviously.

Yes.

Fantastic.

Both there. Both Nate and I, both technologies, both teams.

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

Yes.

So I think clearly, there -- to quote Jack, there's a lot of moving parts, but it is a very exciting combination of IP that we've acquired.

I think the whole -- both teams are looking forward to executing this out and watching revenue grow as we come into 2025.

And with that, I'd like to thank everybody for joining the call this morning.

The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect.