Energous Corporation
Q2 2015 Earnings Call Transcript

Published: 10 Aug 2015

[Operator:]

Good day and welcome to the Energous Corporation's Second Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I'd like to turn conference to over Mr. Matt Hayden, Chairman of MZ North America. Please go ahead, sir.

[Matt Hayden:]

Good morning. We like to thank everyone for joining us today for Energous Corporation’s second quarter 2015 update call. Your host today will be Mr. Stephen Rizzone, President and CEO; who will introduce the rest of team who is joining us. The press release detailing the quarterly update crossed the wire this morning and is available on the company's website at energous.com, you can also find additional information on the company at the website. After management’s prepared comments today, we will open the floor for your questions. Before we get underway, I'd like to ask everyone to take note of the Safe Harbor paragraphs in the press release, any forward-looking statements that may be made today whether in prepared remarks or during the Q&A session speak to the date thereof and are subject to inherent risks and uncertainties included in all of our filings with the SEC. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking to publicly release updates or revisions to forward-looking statements contained therein or elsewhere to reflect changes and expectations with regards to those events, conditions, and circumstances. At this time, I'd like to turn the call over to Mr. Rizzone. Steve, the floor is yours.

[Stephen Rizzone:]

Thank you, Matt. Good morning. I'd like to welcome everyone to our second quarter 2015 financial results and company update call. Joining me today are George Holmes, our Chief Commercial Officer and Brian Sereda, our recently appointed Vice President and Chief Financial Officer. To start off with I want to welcome Brian to his first investor call with Energous, for over 20 years Brian has provided financial management expertise to a diverse set of emerging growth technology companies in software, semiconductors, networking equipment and consumer electronic devices. We’re pleased and fortunate to have someone of his caliber and financial acumen join our senior management team and believe his skill set and industry experience will be instrumental as we evolve into a pure licensing company and begin ramping revenues. We’re also pleased to announce that Martin Cooper the father of the cell phone who was previously on our Board of Advisors has recently joined the Board of Directors. Marty is an innovator in the field of radio spectrum management and brings a vast amount of regulatory and wireless communication experience to Energous. Finally we have continued to expand our technical team, which now includes 6 PhD's with over a 110 years of cumulative industry experience covering RF Engineering, algorithms and consumer electronics. We have been able to attract key technical talent from some of the industry's leading companies join Energous and be part of a launching ground breaking technology that will have a major impact across the entire tech landscape. We now have a team of 50 talented and experienced employees with 38 focused on engineering or engineering services. With that let me move on to our update. During the first half of 2015, our engineering team was focused on three key development deliverables, the delivery of our third versions of silicone, significant advancement in antenna technology and the expansion of our IT portfolio. With the close of the second quarter we have met these objectives and as a result continue to retire risk associated with commercializing the WattUp technology. These key milestones are geared towards the expansion of our strategic partnerships and the adoption of the WattUp technology on a mass market basis. At the same time we continue to support our Tier 1 partner and [indiscernible] their specialized program forward. For those of you who are new to this story, earlier this year we signed a development and licensing agreement with the Tier 1 consumer electronics company to embed WattUp, wire free charging receiver technology into various products including but not limited to mobile consumer electronics and related accessories, subsequently this agreement was expanded to include WattUp transmitter technology which we believe paves the path to creating the ubiquitous wire free charging eco-system we envision. It is important to note that we can and will continue pursuing relationships with other transmitters producers as part of this agreement and an important initiative will be the integration of the WattUp technology and WiFi transmitter product as well as collaborating with this Tier 1 partner to introduce WattUp technology to potential partner companies including router and accessory manufacturers. This agreement has also derisked our path to regulatory approvals and accelerated the overall commercial development cycle for WattUp. As our most important relationship to-date we jointly engage with our strategic partner in very specific development activity to ensure we deliver a solution that meets their specification and requirements. Independent of the strategic partner effort from an engineering perspective the most significant technological milestone in the second quarter was the receipt of our third version of silicon. We believe this version of ASIC development will be the final form factor incorporated into consumer products through our initial licensees. The third version of silicon consists of a transmitter chip, a receiver chip as well as a power amplifier chip. These versions of ASIC are especially noteworthy and that they significantly increase the efficiency and reduce the cost of the WattUp technology to the point where reference design incorporating these ASICs can support a wide spectrum of consumer products with ASPs [ph] necessary across their broad adoption. The ability of our development team to move from discreet off the shelf component to third generation silicon in only 18 months speaks volumes to the company's pace of execution and our first mover advantage. It is important to note that these steps will need to be taken by any potential competitor who embarks on a commercialization path from prototype to commercial grade silicon with the quality, reliability, efficiency, footprint and cost necessary to meet the expectation of a Top Tier consumer electronics company and ultimately the consumer. To our knowledge based on information received directly from our existing and potential strategic partners none of the companies in the uncoupled market segment of wireless power are anywhere this stage of development which creates a meaningful time to market advantage for Energous. As we have communicated the development and licensing agreement with our Tier 1 partner contained both invention and development milestones that we need to achieve in order to proceed towards commercialization and generate engineering services revenue for the company. As a result the second quarter demanded a great deal of our engineering bandwidth in order to meet these milestones. We’re now at a point where we can feel some of our development resources to provide the necessary focus and bandwidth to support the next growth of joint development and licensing agreements with strategic partners marked such as IoT, toys, mobile devices and cylindrical batteries. George will speak further to this later in the call but we anticipate announcing additional agreement in the company month. Another key investment and significant progress for Energous is intellectual property. IT is important to the company for three reasons, first it's built significant core value. Second if done correctly it creates strong defensible positons against potential competition and finally it gives Energous the necessary credibility to engage with Top Tier consumer electronic companies as partners, with the broad IT portfolio it is easier to work with us than to try and work around us. During the second quarter Energous increased it's patent filings to over a 150. I'm very pleased to report that we just received word from the U.S. patent office that three of our core patents have been granted a notice of allowance and our attorney expects the patents to physically issue in the coming months. We expect both filings and awards to continue in the months ahead to the point where WattUp will be surrounded and protected by a wall of over 200 patents in eight key areas that are core to our technology. While I hope you can sense our enthusiasm, as a prudent CEO I want to reiterate to our shareholders that while we have made great progress advancing the WattUp technology furthering our relationship with our Tier 1 strategic partner as well as derisking our business model there is still work to be done in engineering and advance development. With each passing quarter, we expect to make further progress thus minimizing risk and leading towards commercial launch. Now I would like to turn the call over to George who will provide additional details on our go-to market strategy regulatory and IT efforts. George?

[George Holmes:]

Thanks, Steve. As Steve described our focus on the development milestones in the first half has consumed a great deal of our collective resources year-to-date to ensure we meet our initial objectives. Through this focus we have made solid progress with our Tier 1 licensing and development partners since our last update in May. Additionally we have continued our engagement with GDA partners and the new engagements we have launched at CES 2015. It's through these efforts we expect to sign additional licensing development deals in the second half of this year. Keep in mind that our first development licensing partner has timed a market advantage on the receiver side, focus on what this means for the rest of the market vertical Energous partners. As discussed last quarter we have an excellent pipeline in opportunities including other Tier 1 consumer electronics, semi-conductor wireless infrastructure and appliance partners. One of our top priorities for the remainder of 2015 is converting the right partners into former development and licensing partners. We’re targeting companies to have the resources, customer base and focus to achieve meaningful market penetration all being complimentary to our Tier 1 initials offering and true that we can achieve the largest foot print and greatest penetration post launch. As Steve alluded to we expect to announce additional agreements before the end of the calendar year and to anticipate further momentum on this front as we move into 2016. As always development and commercialization schedules will be determined by each of these partners' business plan and product launch cycle. We anticipate agreements during the coming year to encompass companies focused on both transfer and receiver technologies for products in the Internet of Things space, toys, gaming, cylindrical batteries, packed batteries as well as other markets that are outside of the first market requirements [indiscernible] Tier 1. Well we like to be fully transparent about all of these details of these negotiations and agreements. They may not be possible in some cases. Some licensees made complete anonymity as a condition of the agreement while other licensees maybe less stringent. Regardless of our obligations of confidentiality, all of these licensees are will be required to meet the inoperability specification of the want to technology as a result, once products are released in the market, WattUp enabled technology, the market will know it. In-line with our goal to help partner shorten their development cycles in complete products with robust functionality we are on track to deliver solutions to support valuation of our technology to reference designs. We are targeting the first of these development tools become available in the fourth quarter of this year. As we have previously discussed each of our customers will be responsible for SEC approval of their products. On that front we’re collaborating with our Tier 1 and seeking regulatory approval whereby we’re providing a technical and product support during the development cycle. Obtaining that first regulatory approval, lot of [ph] technology is critical as all subsequent approval cycles for the same technology are by reference and will like be easier to obtain. We believe our collaboration with our partners will result in a more predictable regulatory process in one which customers can leverage and capitalize upon. As a result of our supporting role during the second quarter we were at the meet with the California Energy Commission, CEC. Based on this meeting we believe the requirements for compliance will be met. An area that comes frequently and is the competitive landscape, based on the information we have received from our partners in the general market and alliance we have, we believe Energous has the significant lead over our competitors in the [indiscernible] recharging space. This lead comes from our development progress on both hardware and software as well as our business development and regulatory efforts to-date. All of this collectively creates meaningful barriers to entry to competition. Earlier this year the [indiscernible] meeting announced the signing of the new merger between the two organizations. This new organization's core focus is increasing consumer awareness of the wireless charging and thereby excelling and growing of the wireless charging market. The new organizational [indiscernible] later this year and sports existing tightly lose the couple of [indiscernible] plus the newly formed uncoupled segment. The consortium also supports standards certification, environmental impact, network management in which Energous intent be especially active. Now I would like to turn the call over to our Vice President and CFO, Brian Sereda to provide some details on the financial results for the recently completed quarter. Brian?

[Brian Sereda:]

Thanks, George. As you saw at the open of market today we issued a press release announcing our operating and financial results for our second quarter ended June 30, 2015. In the second quarter we recognized slightly higher revenues of $225,000 on engineering services revenue compared to the first quarter of revenue of $2000, tied to Tier 1 arrangement sight earlier this year. Our GAAP operating expenses were 6.4 million down approximately 0.7 million from 7.1 million in Q1 and we generated a net GAAP operating loss for the second quarter of approximately 6.1 million compared to a 6.9 million operating loss in Q1. Net of minor interest income our net loss for Q2 was also 6.1 million or $0.48 per share on 12.9 million weighted average shares outstanding. This is 0.8 million and $0.06 better than our Q1 net loss of 6.9 million and $0.54 per share respectively. To clarify today's external financial news [ph] comparing to company's year-over-year performance. The net income of 0.3 million in Q2 of last year was as a result of a non-operating gain on these extinguishment of debt in the form of convertible notes upon the consummation of the companies ITO. Non-GAAP or adjusted EBITDA in Q2 of this year was negative 4.8 million which excludes 1.3 million of stock based compensation and depreciation, amortization charges from 6.4 million of GAAP operating expenses reported for the quarter. This compares to a non-GAAP net operating loss of 5 million in Q1 on like basis. We believe adjusted or non-GAAP EBITDA provides a more useful picture to investors when used in conjunction with GAAP information, by providing a more focused measure of operating results. As I mentioned previously our GAAP operating expenses totaled 6.4 million for the quarter. Excluding approximately 0.2 million in depreciation and amortization and 1.1 million in stock based compensation expenses, non-GAAP operating expenses for Q2 was approximately 5 million compared to non-GAAP operating expenses in Q1 of 5.2 million. Of the 5 million in non-GAAP Q2 operating expenses R&D was 3.1 million or flat with last quarter. Sales and marketing expenses was down approximately 0.3 million to 0.5 million from 2.5 million for Q2 versus 0.8 million in Q1 and G&A increased slightly to 1.4 million versus 1.3 million on a non-GAAP basis in Q2. We remain focused on managing our operating cost to maximize our investment in R&D and tie remaining spending to achieving ongoing business and technology milestones. Turning now to the balance sheet, we ended June 30, 2015 with $20.5 million in cash and cash equivalents with no debt outstanding, down approximately 6 million over the prior quarter. This includes approximately 0.9 million of accumulated third party chip development payables that were settled in the quarter. We continue to use our cash on hand principally for research and development, product certifications and ongoing customer integration and selling efforts and we’re maintaining our forecast of having sufficient working capital runway into the third quarter of 2016. Let me now turn it back to Steve for his closing remarks.

[Stephen Rizzone:]

Thanks, Brian. As we have previously stated accelerating time to revenue is a primary corporate advantage. Going into this year it was our expectation the company would generate nominal revenues. By expanding the scope and timeline of our joint product development with our Tier 1 strategy partner we have been able to modify our payments schedule thus accelerating revenues ahead and above of it's expectation. As a result of our first strategic joint development and licensing agreement we anticipate revenues in the low seven digits in calendar 2015 increasing in 2016 to the mid-seven digit million and reaching monthly cash flow breakeven in the third quarter of 2017. It is important to note that revenue from any licensing agreement would be additive to this forecast. As an early stage company we recognize the tracking execution is an important validation point for our investors. This being said Energous is focused on the following execution milestones for the balance of this year. We plan to actively collaborate with our Tier 1 partner to obtain SEC and other regulatory approvals within the next 12 months. We expect to sign additional development and licensing agreements this year in IoT, toy, mobile and battery markets. Our engineering team will work diligently to complete reference design incorporate in our third version ASIC that have broad applicability in a number of consumer electronic products and markets without the need for custom development. We will continue to ramp revenue consistent with our forecast, we will continue to drive and expand our patent portfolio and grow our dependable IT position. We will actively manage our SG&A getting the most out of our team and ensuring that all dollar spent will deliver or return to the company and extend our operational run-way. Closing comments, first as we have repeatedly noted there is a tremendous interest in energy and our WattUp technology. Because of this interest we have been fortunate to receive broad media coverage including thesis CNN Money, Yahoo! Tech and Tech Crunch among others. As an example the Tech Crunch video provides an interview with management, an explanation on how the technology works, a discussion on the competitive landscape and demonstrates the WattUp technology and action. We feature all these videos on our website and I would invite you to watch them to get more context on our company and a better understanding of the revolutionary nature of the WattUp technology. I also want to mention that we will be presenting at the Oppenheimer Technology, Internet and Communications Conference on August 11th. We will also participate in the panel with leading wireless power companies to discuss the future of wireless power. Finally we will be in several cities throughout the country in the next four weeks for conferences and non-deal road shows. Please feel free to contact us if there is an interest in meeting with members of Energous management team. In summary, we’re executing, we have made great progress on retiring risk while shortening the timeline to broad scale commercial adoption. We intend to fully capitalize on this great opportunity with the end goal of having WattUp become as ubiquitous as WiFi. I will now turn the conference over to the operator for any questions. Operator?

[Operator:]

[Operator Instructions]. And we will take our first question today from David Williams of Ascendiant Capital.

[David Williams:]

My first question is in regards to == you said a little acceleration there you kind of reiterated the low seven digit figure for this year, how should we think about that going forward, and maybe you had a chance to kind of look through I guess what the estimates are, how should we maybe think about the revenues trending now versus where we were last quarter?

[Stephen Rizzone:]

Well I think that as we said there is a level of acceleration, we have milestones that we are very focused on in the latter half of this year and depending on the number of milestones we will determine ultimately the amount of engineering services revenue that we will receive but we have the potential as we have indicated to significantly accelerate and expand revenue coming into both this year and next year. The original agreement was very, very heavily back end loaded with the changes to the agreement the addition of the transmitter technology and the change in the milestones. We have been able to reshape the agreement so that we have as I said potential to increase. I think we have been conservative in the number that we forecast and we will see how our development efforts playout and what we are able to realize in the latter half of the year.

[David Williams:]

And then Brian, I know that you’ve always been in that position for a few weeks maybe but can you walk us through how you’re thinking about the acquisition, I know you said you’re thinking maybe through 3Q I think that’s a little bit different than what we had before maybe thinking about 2Q and the place where the cash becomes critical. Has anything changed maybe you had the chance to get in and really look at things and it sounds like maybe you’ve expanded that horizon but can you give us a little color on maybe how just you’re thinking about your cap position and how you maintain that moving forward?

[Brian Sereda:]

You’re right, I’ve only been here few weeks but as we look at our forecast going forward I think have the opportunity to scrub, fine tune, we have had additional time with our Tie 1 partner and additional customers, the product is maturing. So we continue to you might say evolve our cash forecast or our P&L forecast as well. So we’re getting little more mature on timing expense forecasting the timing of expenses and the timing of revenues and the timing of cash receipts. So it's a -- again just a constant evolution of the company as we mature and getting better data points as the technology matures as well.

[David Williams:]

And I guess one last one for me, can you maybe rank order the significance of receiving the initial feedback from the CEC, it sounds like, I know that was one of the easier certifications maybe get through, but can you kind of tell us how do you think about that? Is there any real cross over between that and maybe some of the other FDC regulation that maybe give you little more confidence heading into these other regulatory issues?

[Stephen Rizzone:]

Well it's actually easier it's much digital, it's what allows you to sell products in California and most companies will not kind on jump on the bandwagon unless you can do that. So it is actually while it's an easier conversation, it's much more digital in it's outcome either you’re going to be able to pass or you’re not. So I think this is pretty significant, this also speaks to the fact of kind overall efficiency of the system and kind of what it is that we have been talking about at this point is really to how our system operates the fact that we can deliver power when want to deliver power and where we want to deliver power to and at the times want to deliver power, it's all goes to system operability and we think this is actually a pretty significant milestone to have reached this past quarter.

[Operator:]

And we will take our next question from Andrew Uerkwitz with Oppenheimer.

[Andrew Uerkwitz:]

Just a couple here, first on this acceleration with the first Tier 1 number, can you just give us a color no what kind of -- allowed to change some of the agreements to move revenue forward, was it you hit milestones earlier, customer got more confidence and what you guys are doing, can you give us a little bit of color of how that happened?

[Stephen Rizzone:]

Yes I think the basis of it is all about the expansion of the opportunity. Initially as we said it was all about the incorporating the receiver technology into their consumer electronic devices and then jointly going out to the major transmitter companies together to talk about integrating our technology into their transmitting devices. Subsequent to that as you’re aware the agreement was expanded to include transmitters which of course we think is very, very significant and with that expansion the contract was reworked, milestones were reworked and in conjunction with that the opportunity to accelerate revenue was made available.

[Andrew Uerkwitz:]

Do you think Tier 1 customer or guess the demand for the transmitter was very positive or very positive as such that came back and are willing to add that or was this road map all kind of the part plan and this is you guys being conservative and wanting to deliver.

[Stephen Rizzone:]

I think it represents I think our strategic partners interest in really delivering on the vision that we have and which is the ubiquitous solution. As you may be transmitters were a key problem for the tightly coupled and loosely coupled technologies to take rate on transmitters for those technologies is very, very low and we have always viewed transmitters as a key to ubiquity and the fact that our key strategic partner I think is in alignment with this strategy and I think is a net positive for us and we will also accelerate broad adoption. George, do you want to comment further on that?

[George Holmes:]

Yes I think the other thing that’s key to note here Andrew is, you know clearly when they first started this engagement with us they were focused on the receiver and how to integrate the receiver in a multitude of different technologies that they have that they want this to be implemented in but when they picked up and choose to do the transmitter, what that allowed them to do is actually work with us on the regulatory front and actually drive that to conclusion sooner and that’s why we think that is so significant, they want to take the kind of the front seat on the regulatory approval process for parting team [ph] because they have much greater resources and they put 10s of products, 20s of products, through the regulatory process every year and they believe that through the relationships there that they can get that done much more efficiently and much more cost [indiscernible] so we think it's very, very significant from that standpoint.

[Andrew Uerkwitz:]

Just last question on the potential second deal that you mentioned, how should we think about your R&D ramp and your OpEx, do you think this second one will command the same intention in the first spectrum? Thank you.

[Stephen Rizzone:]

No, I don’t think so. Again our focus here is to develop reference designs that have broad applicability, the last thing we want to do is to become a custom shop and so I think the fact that we have worked with this top tier consumer electronic company has helped us immeasurably understanding the commercialization requirements to successfully penetrate the broad market and so with that again our focus is to leverage across all of our development efforts and to build the reference design that will be easily integrated into a broad range of products, provides the necessary footprints, the necessary efficiencies and the necessary cost to be able to again accelerate the adoption of the WattUp technology.

[Operator:]

And we will go next to [indiscernible].

[Unidentified Analyst:]

Steve, just in terms of some of the advancements you’ve made, what is your sense in terms of the actual timeline for commercialization, one with the Tier 1 and then with the non-Tier 1 products.

[Stephen Rizzone:]

Well let's be clear, we are not engaged with our Tier 1 partner on the product side of the house, so they have their own product cycles, and they determine when these -- our technology will be incorporated into their products and as a result they will make the call on terms of timing and we really have no visibility to that, we believe it's a technology through either our strategic partners that we will sign in the coming months who may have accelerated product cycles who will likely will be available towards the end of 2016 the first part of 2017 and it will have a broader expansion into markets in the latter half of 2017.

[Unidentified Analyst:]

Okay. Back to the product that you’ve here, your third generation ASIC now, can you share with us what are some of the metrics you’ve been able to achieve incrementally from your second generation in terms of power and distance and number of devices you can power and then more importantly as you look ahead you see further developments to be done in terms of spinning of silicon and more investments towards the next generation product to get to what their Tier 1 customers are looking for?

[Stephen Rizzone:]

Well again we don’t speak to specifically in terms of efficiency, we can tell you that the silicon that we have developed meets the specifications that we have communicated in terms of putting power into a space, the distance associated with the transmitting field, the ability to pair transmitters and also to work with multiple receivers, all of the specifications that we have published to-date are consistent with that. I don’t think -- well I don’t know, George do you actually want to speak on -- I guess we can't talk about some of the efficiencies.

[George Holmes:]

So let me just kind of touch of this really briefly. As Steve said we’re not publishing our specification today, we’re keeping that very tight with our Tier 1 partner and our other GDA partners but what I can tell is the differences between our first revision silicon, second revision silicon, third revision silicon, we went and we increased our performance by a 100% Gen-1 to Gen-2 and another 60% Gen-2 to Gen-3 such that we’re surpassing the commercial requirements of our customer at this point with our third person silicon. So fairly significant and keep in mind that the first person [ph] silicon was the first time that we had dropped the technology from a discreet design into an integrated silicon design. So fairly significant increases, I mean I think as you might expect you get to a lot of diminishing returns [ph] as it relates to continuing to spend silicon while we do believe we will continue to get some performance enhancements, we’re now focusing in other areas beyond silicon for example we have a tremendous amount of IP in a fairly sizeable team in antennas. So we’re focusing there and doing somethings that are pretty significant in that front because we have seen the same types of gains and performance enhancements in those areas and now it's really about cost and size reduction.

[Stephen Rizzone:]

I think it's very important to emphasize that, we’re seeing increased deficiencies that George talks about we were able to [indiscernible] the technology so that it will easily be encompassed in wearables and small mobile devices and at the same time we dropped the bill of material requirements to the point where we think that the ASPs resulting from the incorporation of the WattUp technology and consumer products will be acceptable to the consumer and will drive broad consumer adoption.

[Unidentified Analyst:]

Okay, last question from me, in terms of the competitive landscape you mentioned -- made some comments about it but let me ask you more specifically some of them have taken a different approach to wireless power and as you speak with your Tier 1 and Tier 2 customers what are the feedback for those approaches versus yours and what is your sense in terms of where the top tier customers are really backing, which efforts are they backing?

[George Holmes:]

Jay, let me make sure I have clarity here because there is early adopters kind of mid-staged adopters and then the focus that we are working with today, clearly the early adopters were working with the tightly coupled solutions which didn’t have a lot of commercial success, what we’re seeing is they are still working with tightly coupled solutions yet. If you look at the take rate on these things it's still all about receivers not a lot about transmitters. I think what we’re seeing with the people that we’re talking with is they are very excited about the fact that there is a kind of new segment, something new to talk about it as it relates to technology coming into this space but it still hasn’t delivered on the promise of true mobility which is what we bring to bear with our technology and that’s really what's driving the engagements with all of these customers that we have whether it be the tier 2 to support tier 1, the big OEMs [ph] big Tier 1s themselves or the silicon manufacturers.

[Stephen Rizzone:]

Also Jay, I think what we see is really kind of a natural bifurcation of the market. We’re seeing the tightly coupled and loosely coupled technologies which are quality and mature technologies really looking into support affordable applications, applications where you can take your device and drop it down on top of the map [ph] like your PC and leave it there or drive your Tesla over a large coil in the cement and charge your EV overnight versus the area where we play and where we believe we can maintain a dominant position and that’s in the mobile arena and so we see a natural bifurcation taking place now between portable and mobile. We think that they are compatible between the technologies and that there is of course room for multiple technologies and our focus is clearly on the mobile and from a competitive perspective we think we have a first to market advantage on the licensing front. Now we have heard that some of our competitors maybe looking to develop a consumer electronic product themselves in which case they are not subject to third party product cycles and conceivably move quickly. That remains to be seen because developing a consumer electronic product is expensive, time consuming and we will have to wait and see how that all rolls out but in terms of licensing and working with key strategic partners we think that we have a very solid position, we really don’t see the uncoupled competitors in this space directly and again we keep focus on expanding on what we believe is a first to market advantage by expanding our technology, our intellectual property and our strategic partner base.

[Unidentified Analyst:]

Last question from me for Brian, what was the cash fund [ph] during the quarter and what do you expect the burn to be for the foreseeable future until you get to the cash flow positive?

[Brian Sereda:]

Sure, as I stated our cash dropped about 6 million obviously from part from our operating loss on a non-GAAP basis of 4.8 million, the balance came from timing to payables so they accumulated ship development costs were settled in the quarter. I think we will see on average probably plus minus 5 million a quarter from operations and now that we’re through the third generation of chip we will see probably lower chip development costs and associated spending on that front until the way in the future. So for the next several quarters I think we see gradual expense ramp to additional headcount adds but nothing dramatic, there is no step function in expenses in our forecast.

[Operator:]

[Operator Instructions]. And we will go next to William Gibson with ROTH Capital Partners.

[William Gibson:]

Could you give a probability or an odds of other licensing agreements this year paying non-recurring engineering fees?

[George Holmes:]

Well first and foremost let's talk about non-recurring engineering versus engineering services. Let's use this opportunity to talk about that. We’re not looking to do NRE based deals to generated e-based deals or typically cost plus and you’re really trying to cover the cost with you know some added margin for carrying that development activity. This is an entering services business model where we’re actually making money and designed as a potential profit [ph] albeit we expect to be a small portion of our overall revenues, it is something that from our perspective it is really a business opportunity for us. As it relates to additional partners in their likelihood that they could be services fees between now and the end of the year, I mean clearly that’s what we’re working to. I mean we have got a nice pipeline, we have got GDA partners that would like to convert into services agreements and like to do that in a very quick fashion. I think as I stated in my portion of the call our challenge is to determine which one of these partners is the right ones for us to carry forward so that they are complementing to our Tier 1 for those first product releases. We want to make sure that we have a ground swell in a certain market area so that we can really see that we get a lot of penetration, we get a lot of activity and we can see that these companies can take advantage of one another's promotional activity but to -- answer your question, I think the likelihood is good.

[Stephen Rizzone:]

I also have a couple of comments here. First of all let me say that in 40 years in the business I have never seen an opportunity with the kind of interest and demand that Energous and the WattUp technology has generated, I think we have again the ability to really devise and implement a strategy based on careful selection of our strategic partners and the roll out of the technology. I also want to comment briefly on something that often gets overlooked at Energous and that is our extremely robust software technology. Unlike the first generation tightly coupled and loosely coupled technologies, Energous invested considerable time effort and money to develop an enterprise software control and management system as an integral part of our technology from the very beginning and we see this technology not only as an enabler for the enterprise but also as a possible revenue source going forward in the terms of specialized service and so on so forth and again in considering our opportunity we think there are number of touch points where we can generate revenue, revenue from royalties, revenue from engineering services, revenue from software services and so all of these combined I think puts us in a position to really develop a very robust and significant cash model as the technology continues to roll out and the cadre of strategic partners expands.

[William Gibson:]

And then just one last small question, can you give little color perhaps on the rationale behind opening the Costa Mesa office?

[Stephen Rizzone:]

Yes it's pretty straight forward, we’re all about getting identifying and hiring a world-class team and there are a very, very significant number of very experienced engineering and technical people in Southern California. And so the cost of Costa Mesa office is really all about a second development and engineering location and we believe that it will be the hub for our silicon development that will have [indiscernible] and software resources there but it's really a second engineering in development site. And I will add that we may in fact develop or launch a third depending on the availability of key engineers in certain geographic location. Fortunately we have the infrastructure in place and the process in place that supports remote facilities in such a manner that we can continue to execute and drive the business and so we will open facilities anywhere that make sense to hire and attract and maintain key engineering and development resources and key marketing and sales resources.

[Operator:]

And we will take our next question from [indiscernible] with National Securities.

[Unidentified Analyst:]

I wanted to talk a little bit about this the Tier 1 partner and kind of what's going on, so just to be clear the original agreement was on the receiver side and now you’ve expanded it to the receiver and the transmitter side. What was the thought process if you can get into a little bit when they only did the original and they did the original field on only the receiver side that they assume that you guys were going to be signing up other people on the transmitter side and now something has changed that they have perhaps are eager to do it themselves versus letting you do with other people or kind of just talk me through that a little bit, wants changed?

[Stephen Rizzone:]

Well let me make a comment and then I would like George to comment further on this and so again initially the agreement was to incorporate the WattUp technology in as receivers in their consumer electronic products and also as a key part of the agreement was the element of us walking hand in hand to the major transmitter manufacturer which is still part of the agreement and as you can imagine us going into the major WiFi companies independently versus going in with a Tier 1 consumer electronic partner who is indicating that they are adopting the technology has a tremendous impact on our ability to really engage with the transmitter manufactures. Subsequent to that and I will let George speak about this, you’re correct, the agreement came or the decision was made to expand the agreement that includes now the transmitter technology. George do you want to speak to the specifics on that?

[George Holmes:]

Well I mean for as much as we can say about that, the bottom line by having a transmitter and receiver they have a complete system and having a complete system what allows them to go through and do regulatory testing end to end which is what's required to be able to go through and do SEC approvals. I think what we’re seeing there is as you tend to look at these technologies and look at implementing them you know if you want to it as just an ancillary product as part of the product category saying check the box that’s one way to go and another way to go is say want this to be a critical feature set for the product line and we want to take advantage of having the ability to go drive the technology in a broader scale. We would like to think it's the latter that’s why they made a decision to move ahead with this on both transmitter and receiver, it gives them a real ability to have a complete end to end solution something that they can market the brand and create as a true differentiator rather than just a check box, hey we have got wire free charging as part of the portfolio of products. I think this is very critical to us and real significant acknowledgement that what they are doing with us is really has not seen to be very, very successful in the long term. Steve?

[Stephen Rizzone:]

Yes I just want to make one another comment, we get asked quite frequently you know why don’t you reveal the name, why can't you talk about this. I think it's important to really be clear about this, we’re very, very fortunate to have a relationship with a Tier 1 consumer electronic company especially at this stage of the company's development and evolution and this is just the way Top Tier consumer electronic companies work. It's a very competitive environment and it is a natural course of business for them to require very significant and broad range confidentiality agreements and that’s where we’re we intend to respect that and maintain that and as I said it's part of the business, we know the guidelines that we have and what we can talk about and we’re just not going to go beyond that. Again I think overall the key issue here for us is to continue to drive the relationship forward and ultimately incorporate the technology into their consumer facing devices.

[Unidentified Analyst:]

So just one follow-up, given the original plan has to go hand in hand to transmitter companies, now with your Tier 1 partner also creating the transmitters how does that change the dynamic when they walk in with you too, a different company that makes transmitters and so you should this one, they now themselves are doing it as well.

[George Holmes:]

Well I don’t really think it changes that at all and I will tell you why it is, because they are creating demand pull for their own in the box solution. I think what you might imagine is they want to do an ultra-cost, lower feature set type of product versus a complete feature set solution that would be available from a WiFi manufacturer or somebody of that type. I mean if you recall and see the products that we demonstrated CES we had a low power solution and a high power solution and one is full featured, one is limited feature set and those really are tied to cost and so if you sit back and think about having in the box solution or near in the box solution, you’re going to have a less features, have less ability to do more things where we believe the WiFi solutions will be full feature set have the ability to do multiple devices as we have stated historically upto 12 simultaneously. We’re perhaps in the [indiscernible] solution might be something less. So I think there are kind of two different complimentary feature sets and the one that you could expect to see is complimentary out there in the market.

[Stephen Rizzone:]

The important thing to note is that unlike some of the other technologies out there we have a contractual requirement for computability and have an inoperability test for verification element to our agreement and so the key here in terms of any transmitter is that any WattUp enabled device will be able to receive power from any WattUp enabled transmitted be it standalone transmitter, our transmitters incorporated into third party devices like the bezels of televisions or the door on a refrigerator or the combination of WiFi router and wireless power router. The key issue here is everyone will be able to communicate and talk with and receive power from everyone else.

[Operator:]

And we will take a follow-up question from David Williams with Ascendiant Capital.

[David Williams:]

I just had a quick question about your patents whereas, we’re at near 150 patents now. I'm just kind of curious if you can kind of maybe give us an idea on how many of those patents do you see as maybe choke points or barriers to entry versus just for your base technology, I'm trying to get a sense like I guess for what the ability of those patents would be for the exiting solutions whether it be RF or maybe laser or sound and maybe even the in-house competitor. Just trying to get a sense on how many your patents are you think would be barrier to entry?

[George Holmes:]

If you sit back and you look at the technology and as we have articulated previously we’re landscaping in eight different areas so eight different technological areas and the areas in which we’re actually developing technology and we create choke points between those but the other thing that we’re doing is not only we will be going in the XY plane as we go through and develop our technology, so we’re in focused around wireless power. We’re actually looking at where we have applicability of the technology we’re developing in other areas. So for our example our antenna technology where it has applicability and things like WiMAX and WiFi, we’re extending the IP into those areas as well to give additional coverage, create additional value. If you look at the choke point scenario and what we’re doing in that area, that’s probably ion the 15% to 20% without going through and doing a tabulation but that’s really kind of what I would think would be kind of off the shelf would be kind of where we come in at, I mean obviously what we’re doing is all of our IT development is focused on the primary categories that we’re focused on and then we take it from there to develop these choke points, so I see probably in the 15% to 20% is probably where that ends up.

[Stephen Rizzone:]

Just also a quick comment here, I see it as an area that I'm very pleased with our progress. I think we have got a very mature approach as it relates to landscaping the environment. I think that we understand what it takes to develop a technology in wireless power and because we have a system again keep in mind that the WattUp technology is a system, there is core competencies in silicon in the very, very significant and complex algorithms that’s a part of the mobile element of the technology. In the areas of hardware, software and in particular in antenna technology. In our applications and our peripherals, in pocket forming and being structures. And so the fact that the WattUp technology as a system it allows us to broaden our portfolio to build these checkpoints and since I think we have a clear understanding of what it's going to take to send power at a distance, we can use that knowledge in conjunction with our technological development to build these checkpoints. Of course you know the other real elements that we focus on is not only building defensible positions but building significant core value in the technology that elevates the value of the company.

[Operator:]

And we will take our final question from [indiscernible].

[Unidentified Analyst:]

Just two follow-up questions, one, maybe a little bit more deal on the three patents that looks like you’re going to get approved on and a second question on the Tier 1 consumer electronics company. So they were not in the WiFi space before so they were just on the consumer electronics that they didn’t provide any WiFi boxes or anything like that and now they want to get into and incorporate your technology? Thanks.

[Stephen Rizzone:]

Okay, so let me try and clarify, first of all we have not received the specific numbers from the U.S. patent office, we have told that we have three awards, three of our core patents which were filed in 2012 we don’t know exactly which one but any of them are very, very significant because [Technical Difficulty] and as I said they are core to our technology and so we have announced that we have gotten awards in the first three, we will make more announcements as we provide detail and we also believe that this is just a first of many awards that we will be able to discuss and follow-up on. As it relates to the key strategic partner, there is a separation here, the idea of the initial agreement was for the key strategic partner to incorporate the technology as I said into their consumer devices and then for us to work with jointly to contact and to engage the major WiFi transmitter vendors and so it's not an issue of the key strategic partner changing their decision as it relates to WiFi the key strategy partner has remained consistent that their core goal is to incorporate the technology into their receivers and now to develop transmitter so that they can bundle a transmitter and receiver together as well as control the regulatory process and then we will continue with the initial engagement agreement to jointly go out and engage with the major WiFi router manufacturers.

[Operator:]

And that does conclude our question and answer session. I will turn the call back to our speakers for any additional or closing remarks.

[Stephen Rizzone:]

Well I want to thank you all for attending our conference call today. Again I want to reiterate the fact that the company is executing that we continue to drive ahead on all fronts that we have met or exceeded every single milestone to-date that we have laid out. We believe that we have reduced risk significantly through our continued development efforts and we look forward to informing you of continued progress in the future in both press releases and our next conference call. So thank you very much for your continued support and we will look forward again to speaking with you in the near future.

[Operator:]

Thank you. And that does conclude today's conference. Thank you for your participation.