Energous Corporation
Q3 2021 Earnings Call Transcript

Published: 11 Nov 2021

[Operator:]

Good afternoon, and welcome to the Energous Corporation, Third Quarter 2021 financial results conference call. All participants will be in listen-only mode. . At today's presentation, there will be an opportunity to ask questions. . . Please note this event is being recorded. I'm now going to turn the conference over to Matt Sullivan of Investor Relations. Please go ahead.

[Matt Sullivan:]

Thank you, Anthony, and welcome everyone. Before we begin, I would like to remind participants that during today's call, the Company will make forward-looking statements. These statements, whether in prepared remarks or during the Q&A session, are subject to inherent risks and uncertainties that are detailed in the Company's filings with the Securities and Exchange Commission. Except as otherwise required by federal securities laws, Energous disclaims any obligation or undertaking to publicly release updates or revisions to the forward-looking statements contained herein, or elsewhere to reflect changes and expectations with regard to those events, conditions, and circumstances. Also please know that during this call, Energous will be discussing non-GAAP financial measures as defined by SEC Regulation G, Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today's press release, which is posted on the Company's website. Now, I would like to turn the call over to Cesar Johnston, acting CEO of Energous. Please go ahead Cesar.

[Cesar Johnston:]

Thanks, Matt. Good afternoon, and welcome to the Energous 2021 third quarter conference call. Joining me today is Bill Mannina, our acting Chief Financial Officer. The third quarter of 2021 was significant for Energous for several key reasons. Number 1, we continue to sharpen our vision for the Company, with a focus on far-field technologies, and the deployment of wireless power networks. Number 2, and this is very important; we received FCC approval for our 1 watt WattUp PowerBridge transmitter technology for active energy harvesting power transfer at any distance; no distance limitation. And number 3

[Bill Mannina:]

Thanks, Cesar. As you saw at the close of the market today, we issued our Q3 earnings press release announcing the operating and financial results for our fiscal 2021 third quarter-ended September 30th. For the third quarter, we recognized $201,000 in revenue, compared to $185,000 in the prior quarter, and approximately $62,000 in the same quarter of last year. GAAP operating expense for the third quarter was $12.7 million, approximately $1.5 million higher than the $11.2 million of operating expense last quarter, and approximately $5 million higher than the third quarter of last year. The increase compared to the prior quarter was largely due to a $4 million severance accrual related to the resignation of our former CEO, which was partially offset by a $2.3 million decrease in stock compensation expense. Together with a small increase in product development expenses, the severance accrual accounted for most of the increase compared to the same quarter of last year. Regarding the severance accrual, I would like to note that only 1.1 million of the 4 million accrual remain payable at the end of Q3, 2021. Year-to-date, our GAAP operating expense was $32.5 million, approximately $7.9 million higher than the $24.7 million of year-to-date GAAP operating expense in fiscal 2020. The year-over-year increase was primarily due to the severance accrual for our former CEO, and an increase in stock-based compensation. The net loss for the third quarter, on a GAAP basis, was $12.5 million, or a $0.20 loss per share, on 63 million weighted average shares outstanding. This compares to an $11 million net loss in Q2 of 2021, or a loss of $0.18 per share, and a $7. 6 million net loss or loss of $0.18 per share in Q3 of 2020. Our weighted average shares were 41.9 million shares in Q3 2020. The year-over-year increase in the share count was mainly due to the completion of our at-the-market offering, or ATM, in the fourth quarter of 2020, which raised an additional $38.8 million of cash and added 18.9 million shares. Now, for a non-GAAP view of our numbers for the quarter, as we believe adjusted or non-GAAP reporting provides a useful comparison for investors, especially for a Company at our stage, when used together with GAAP information. Excluding approximately $4 million of severance, approximately $1.9 million of stock compensation, and approximately $69 thousand of depreciation expense, from our total Q3 GAAP operating expense of $12.7 million, net non-GAAP operating expense was approximately $6.6 million. A decrease of approximately $263,000 compared to the prior quarter, and an increase of approximately $1.1 million compared to Q3 of last year. non-GAAP operating loss for Q3 was $6.4 million and approximately $279 thousand lower loss compared to Q2, and an approximately $930 thousand higher loss when compared to Q3 of last year. As a reminder, Q3 of 2020 had reduced spending due to the business disruption, lower travel expense, etc., due to the COVID pandemic. Non-GAAP engineering expense was $3.5 million for Q3, an approximately 56 thousand decrease versus the prior quarter, and an approximately 456 thousand increase compared to the same period last year. The year-over-year increase was mainly attributable to higher chip design costs and engineering supplies costs. Non-GAAP SG&A expense was $3.2 million, a decrease of approximately $200 thousand versus the prior quarter, and an increase of approximately $600 thousand compared to Q3 last year. The decrease compared to the prior quarter was mainly due to the annual meeting-related expenses in Q2. The increase over the prior year's quarter, was mainly due to an increase in headcount and consulting costs in sales and marketing, and also higher recruiting costs. Year-to-date, our total non-GAAP expense was $20 million, $1.9 million higher than the $18.1 million of year-to-date non-GAAP expense in fiscal 2020. The increase was mainly due to increases in cheap design costs, sales and marketing personnel costs, and recruiting costs. Turning to the balance sheet; we ended Q3 with $28.3 million in cash and remain debt-free. Also, as we mentioned in our earnings release, in Q4 we have raised gross proceeds of $27.9 million in cash from our ATM financing, which we announced in a filing with the SEC last month. We expect our Q4 net non-GAAP operating expense run rate to remain in our current range, averaging approximately $6.6 million per quarter. Overall, excluding one-time items, our 2021 non-GAAP operating expenses should reflect an approximately 10% increase over fiscal 2020 non-GAAP expenses. I will now turn the call back to Cesar.

[Cesar Johnston:]

Thank you, Bill. Operator, we would like now to open up the call for questions.

[Operator:]

We will now begin the question-and-answer session. . At this time, we will pause momentarily to assemble our roster. Our first question comes from Suji Desliva with Roth Capital. You may go ahead.

[Suji Desliva:]

Hi, Cesar. Hi, Bill. So question on the Renasys agreement and the transfer of the four products back. What are the manufacturing cost and budget business model applications of this -- the way you sell the products as that transfer happens? Just to understand the difference of the go-forward model.

[Cesar Johnston:]

Yeah, so you're asking some details of the agreement definitely. As far as the transfer, we own test lines with some local partners, and those are being done as we speak right now. That includes the movement of wafers devices and the setup -- and hardware-related hardware, and the setup of those in our test lines, which by the way, are in parallel with some of the other products that we have related to GAN and CMOS PA controllers. Okay? Now, as far as as the costs are concerned, at a high level, there was an agreement with Dialogue where we share the cost, and that extra expense that Dialogue will share with us is no longer there. So we will pretty much add that to our overall revenue. Any other questions?

[Suji Desliva:]

Yes sure -- Yes, that is. And then if we look at these two partners you have Wiliot and Technology, what is the -- where are the next steps in those partnerships in the go-to-market for customers, and what do they bring to Energous in terms of market regions and traction?.

[Cesar Johnston:]

Yes. Thanks for -- that's a very good question. There are two types of partners that we have. There are partners that are, call them integrators, or systems partners, in this case technology. What they bring and they add is they add the potential to further our capabilities in the engineering side and development side to support other potential customers in specifically here -- in the European Union. So, it's an extension of our team, our A team or of A team. And they are focused today on training potential customers, and also helping us find new customers that will need access to our development kits. So that's the technology side. Now, when it comes to Wiliot, Wiliot is a different type of partnership. That is a partnership were 2 companies in this case Energous and Wiliot with a very specific low-power tax have together partnered in such a way that we have a very unique and very special solution targeted to Active Power Transmission, okay? Targeted at being able now to open up a new market of low power tags that are very, very similar to RFID but are way much more smarter because they have very specific, very low power CPU base devices with BLE interfaces at -- that are extremely low cost. So, together we are opening up a brand new IOT vertical market that was nonexistent and we add through our very special transmitters, in this case our 1 watt transmitter, we are now able to deploy wireless power networks with no distance limitations across any potential industrial, retail, or healthcare floor, and it has been enable to piggyback on Wi-Fi networks and deploy together systems of that type. Now, as far as what are the next steps with them, we worked very closely together for months in the development of the technology. We certainly will continue to move forward as we progress on this market, on the technology side, and on the business side there are multiple potential customers that we're looking at, that we will be opening up and doing PLCs as we move forward. And as we prove and show the technology, those customers will eventually use that to track devices and being able to find devices anywhere on those three markets that I described to you; industrial, healthcare, and retail.

[Suji Desliva:]

Okay. Great. Thanks, Cesar. And then last question on the FCC approval there at any distance. What are the implications of that from a technology differentiation perspective and what are the market implications of that? Is it really the energy tags you can now do across a retail or other setting or? Any color there would be helpful.

[Cesar Johnston:]

Great question. As you know, we've been pushing standards for wireless power networks for years. We've been pushing the technology on that area. In the case of the 1 - watt systems, we have a unique solution that allow us to pass par 15, and which we have now demonstrated, and by virtue of that, have no distance limitation. By using multiple transmitters, again, by spreading those along the lines of Wi-Fi access points or even within shelves and different places in a given plant or industrial site. We can actually have no limit on distance.

[Suji Desliva:]

Okay. All right. Thanks, Cesar.

[Cesar Johnston:]

Thank you.

[Operator:]

Our next question comes from Jon Hickman with Ladenburg. You may go ahead.

[Jon Hickman:]

Hey, I have 2 questions. 1 is I think you mentioned that you were setting yourself up for deliverables for Q4 of this year. Does that translate into chip sales for this quarter?

[Cesar Johnston:]

Hi, John, how are you?

[Jon Hickman:]

Am good.

[Cesar Johnston:]

Glad to talk to you today. Yes. And what we're doing is we have chips, and we have actually systems that have been integrated into transmitters, so our -- we're ramping up contract manufacturing lines that allow us to build those in such a way that we can fulfill the orders that we have at hand right now. So it's a combination of the chips, and that certainly has a value on it. But we also benefit from the fact that we're putting those transmitters together, which adds an extra value on top of that.

[Jon Hickman:]

So were there any product sales in Q3 or was that our like – our NEE

[Cesar Johnston:]

Definitely. I mean, we have evaluation kits and that's part of the sales that we've done. And we continue to do and we've been doing that for a while.

[Jon Hickman:]

Okay, my last question is so now you're going to have to build the sales and marketing organization?

[Cesar Johnston:]

Yeah. Okay so --

[Jon Hickman:]

Dialogue's... the picture in

[Cesar Johnston:]

Great question. We always get that question. So we do have a marketing sales organization, okay? It's always been there, and they've always been connected and engaged with dialogue, so it's only the fact the dialogue was there, added to what we have. But the relationship has always been that we operated similar to a business unit where that context came through dialogues, and our team here took ownership and partnered with them. But we always took the lead as we were the ones that have the knowledge of the technology and the operation and could close the deals. So we do have that team, and that team is still intact here. Now, the question is will we need to add further in the future? Yeah, as we grow the business, we will definitely consider that.

[Jon Hickman:]

Okay. Are you going to look around for another partner like Dialogue or are you going to just do the manufacturing?

[Cesar Johnston:]

At this point in time where we can do the manufacturing. I mean, we've been enabled for years. Again, if you recall, during the presentation I mentioned that only a limited number of devices were with Dialogue. We have other devices including our GAN line of products and other controllers. So we are perfectly capable of doing that and we'll continue to do that and now certainly we will evaluate if other opportunities show up, but it's a matter of whether the potential partnership makes sense or not to Energous.

[Jon Hickman:]

Okay. Thank you.

[Cesar Johnston:]

Thank you.

[Operator:]

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

[Cesar Johnston:]

Thank you. We would like to thank our investors and partners for their ongoing support. We're making the future of WattUp wireless power networks a reality, and have a story to ramping up production and delivery. We will continue working to enable new markets via our regulatory efforts, while we will also continue to push our technologies to deliver higher power levels to open up future opportunities, resulting in new potential revenue streams. We look forward to updating you next quarter. Thank you.

[Operator:]

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