Energous Corp Q4 FY2020 Earnings Call

Good day and welcome to Energous Corporation's Fourth Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. Please note today's event is being recorded. I would now like to turn the conference over to Mike Bishop with the Company's Investor Relations. Go ahead.

Thank you, Rocco 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 forward-looking 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 in expectations with regard to those events, conditions and circumstances. Also, please note 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 Steve Rizzone, CEO of Energous. Go ahead, Steve.

Thanks Mike. Good afternoon, everyone, and welcome to Energous' fourth quarter conference call. With me today is Brian Sereda, our Senior Vice President and Chief Financial Officer. Our agenda includes an overview of our fourth quarter and full year performance, our team growth strategies, upcoming milestones, and our future outlook. We believe 2020 was a year of building momentum for the company due to the progress we made in customer validation of our contact technology and the introduction of our PowerHub distance technology. Despite the pandemic's challenges, which delayed many customer engagements and impacted revenue, the opportunity for WattUp technology continues to grow, especially in distance technology. In the fourth quarter, we announced that the Gokhale's Method PostureTracker received FCC certification, which is significant for two reasons. First, it validates that WattUp technology is gaining acceptance as more companies begin shipping to end users or are in the final stages of preparation. Second, this announcement marks Energous' entry into the large and rapidly growing market for wirelessly charged sensors and trackers that will evolve to include distance transmitters. Following Gokhale's announcement, we shared that American Equus completed trials for Equine Health Tracking and is preparing to go to market, possibly this quarter. Both Gokhale and American Equus product designs demonstrate key advantages of WattUp technology, including the ability to hermetically seal the receiving device, making it watertight, and charge multiple devices simultaneously with a single transmitter. The consumer electronics industry has faced challenges with charging multiple devices simultaneously, particularly with first-generation coil-based technology. Our RF technology addresses these challenges, allowing for simultaneous charging of various devices and configurations while providing flexibility in placement. Many of the contact charging applications we discuss today will also benefit from wireless charging at a distance, as our partners and customers work on over-the-air charging transmitters. In the hearable segment, we now have two hearing aid customers with products available or soon to be available to end users, starting with the Delight PSAP launched with our Korean partner SK Telesys, followed by NewSound's Primo M hearing aid that offers a true drop-in charge experience. Users simply place their hearing aids on the charger, which identifies the devices and begins charging. Battery levels are monitored to provide appropriate charging based on the hearing aids' power management technology. Additionally, EarTechnic has selected WattUp technology for their new Tie-X hearing aid model, which will likely be the first WattUp-enabled device on the market in Europe, a milestone we are excited to reach. The WattUp technology supports full hearing aid models, including in-the-ear devices with unique shapes that pose challenges for first-generation charging options. It also allows for one-to-many configurations, enabling hearing aid designers to utilize a common transmitter across multiple product SKUs. We are encouraged by the growing interest in our charging technology across various vertical markets beyond sensors and hearing aids. Now, I would like to update you on customer announcements for 2020. Energous is collaborating with companies like Xentris, exploring military applications such as the soldier of the future. We anticipate strong interest and opportunity in second-generation wireless power transfer solutions utilizing WattUp's capabilities for contact and distance charging. We are dedicating resources to develop our market business and are beginning to see the benefits, with military and federal applications potentially becoming a significant part of our future revenues. We are still developing a partnership with Grepow, a leading battery manufacturer in China, to integrate battery and charging technology into a cost-effective solution for various applications, expecting to provide updates in future calls. Additionally, we recently announced a second battery partnership with Thinfilm to enable ultra-thin wirelessly charged solutions for hearables, wearables, and connected sensors. This collaboration addresses form factor constraints, as many devices need to be waterproof, durable, portless, or very thin. Thinfilm is a leader in solid-state lithium micro battery technology, and together we're promoting solutions for today's small form-factor applications, which we believe will lead to innovative wearable designs. Our collaboration with Pasco, alongside efforts with [indiscernible] and SK Telesys, is ongoing. Last quarter, we completed a field trial of a WattUp enabled ultra-wideband industrial tracking device, and we expect momentum to grow once Korean regulatory certification is formalized. Cost is always a significant factor in introducing new consumer technology. Energous is fortunate to work with a prime ODM that has developed a common transmitter platform for WattUp-enabled receivers, allowing customers to benefit from economies of scale and reduce risks and startup costs. As the WattUp technology matures, we see an expansion in the number and role of ODMs, which will lessen the demands on Energous' internal support and development resources. Now for an update on our regulatory efforts. We have pending certification for WattUp technology in important markets like China, Korea, and India. Our goal is to finalize the certification process in these markets by the end of the year, but we want to caution investors about potential uncertainties given the involvement of government agencies. We believe India will likely be first, followed by Korea and then China, with the potential for accelerated progress in China due to increasing customer engagement and improvements in US-China trade relationships. On the technology front, Energous made a significant announcement in September regarding advancements in our power broadcasting technology, the PowerHub. We announced FCC regulatory certification of the PowerHub, expanding the distance charging zone to one meter, which has substantial technical and strategic implications for Energous. Our engineering team developed a multi-antenna transmitter to concentrate power in a small space, achieving a milestone in the industry for distance wireless power transfer. In response to customer feedback regarding size, cost, and complexity of beamforming technology, we developed a new single antenna non-beamforming solution that is cost-effective and easy to implement while meeting FCC health and safety standards. While beamforming remains an option for future applications, we are focusing on the PowerHub, which is generating strong interest for creating a workspace or desktop charging environment for wireless keyboards, mice, and Bluetooth earbuds—essentially any battery-powered device on a desk. The level of interest has exceeded our expectations, and we are reallocating resources to support this demand, believing it will accelerate the commercialization of desktop and far-field distance applications. Many investors have inquired about our relationship with Dialog, especially following the recent announcement of Renesas' acquisition of Dialog. To clarify, Dialog remains our go-to-market partner, and we believe the growing traction in the distance market will be attractive to both Dialog and Renesas, given that it showcases Energous's unique differentiation and potential for significant revenue creation. Although the acquisition process may take time, we are currently unaware of any developments that would affect our partnership. During the fourth quarter, we completed an at-the-market equity offering. Brian will provide further details, but our balance sheet is stronger than ever and will set a solid foundation for our financial growth. Brian, I will now turn the call over to you.

Thanks Steve. Before I get started, we issued a press release at the close of market announcing our financial results for fiscal 2020, along with two other customer-related announcements. Before I get into the discussion for our fiscal 2020, we're seeing what we believe are encouraging signs from engagements that will lead to commercialization opportunities. Some of these engagements have been underway for several quarters as these customers want to pivot to wireless charging 2.0 in existing products and others are now independently running their own internal engineering projects to possibly integrate our technology into yet unreleased products, where the need for wireless charging, particularly at distance, is key to the functionality of the product. In addition and as some of you may have seen, three major consumer electronics companies in the last several weeks announced RF-based charging concepts. We continue to believe we're the technology leader in this space. We understand the science behind it. We have made key investments in proprietary technology in semiconductors. We understand the regulatory issues and have built a formidable portfolio of intellectual property to support our expectations of continued commercial progress. Recapping 2020, we recognized $327,000 of revenue compared to $200,000 in 2019. Revenue for the fourth quarter was $90,000 compared to approximately $62,000 in the third quarter and approximately $46,000 in the same quarter last year. Total expenses for the year on a GAAP basis was $32.2 million, $6.8 million, and 17% below the $39 million of total expense in fiscal 2019. The lower expense was primarily in engineering due to lower headcount costs, including stock compensation and lower R&D and chip development costs. Total expenses for the fourth quarter was essentially flat to the third quarter and $1.9 million lower than total GAAP expenses in the fourth quarter of last year. Net loss on a GAAP basis for fiscal 2020 was $31.8 million, approximately $6.6 million lower than the $38.4 million of net loss in 2019. This translated to a net loss per share of $0.76 on $41.7 million weighted average shares outstanding compared to a $1.27 loss per share in the prior year. Net loss for Q4 was $7.5 million or $0.15 per share loss, slightly better than the $7.6 million loss in the third quarter and $1.9 million lower than compared to the loss of $9.4 million or $0.29 per share loss in the fourth quarter of last year. I would like to now review our 2020 results on a non-GAAP basis as we believe that adjusted or non-GAAP EBITDA provides a healthy tool to investors when used in combination with GAAP information. Excluding non-cash charges for depreciation and stock compensation expense of approximately $8.2 million in fiscal 2020, total net non-GAAP operating expenses were approximately $24 million, $3.6 million and approximately 13% lower compared to $26.7 million of net non-GAAP operating expenses in 2019. This is largely due to lower R&D and chip development in fiscal 2020 versus 2019, offset slightly by higher spending in SG&A as we increase sales engineering talent in response to our increasing customer engagements despite COVID. Spending in R&D operations and regulatory represents just over 54% of our non-GAAP cost structure, down from 62% in 2019. For the fourth quarter, non-GAAP expenses declined year-over-year by approximately $0.9 million to $5.9 million from $6.8 million of total non-GAAP expense in the same quarter last year. Compared to the prior third quarter, non-GAAP expenses increased by approximately $0.3 million from $5.6 million. We ended the year with 56 employees compared to 51 at the end of 2019. After two years of reduced spending, we could see a modest increase of approximately 10% in operating expenses in fiscal 2021 as we engage new customers on PowerHub and other distance-based WattUp charging solutions. Our net loss for 2020 on a non-GAAP basis was approximately $23.6 million or $0.57 per share loss. This was $3.14 million and 14% lower than the $27.4 million or $0.90 per share non-GAAP net loss incurred in 2019. For the fourth quarter, our non-GAAP net loss was $5.8 million or $0.12 per share, approximately $0.3 million higher than the $5.5 million or $0.13 per share last quarter. Non-GAAP net loss in the third quarter was approximately $0.9 million or 14% lower than the $6.8 million or $0.21 non-GAAP loss per share in the fourth quarter of 2019. During the fourth quarter of 2020, we completed our at-the-market offering, raising our cash balance to $50.7 million at the end of fiscal 2020. We remain debt-free with the strongest balance sheet in the history of the company. I'll now turn the call back to Steve.

Thank you, Brian. A few comments before I turn the call over to the operator for questions. As I noted earlier, the accelerated development and interest in the WattUp PowerHub charging over-the-air transmitter, coupled with regulatory approval, has had a profound impact on the company. To be clear, contact-based technology continues to be an important element of our long-term vision, as we believe a true ecosystem will require both contact and distance wireless charging. Further, contact wireless charging represents the near-term path to revenues and customer adoption, both of which are very important to the company. Finally, there are significant applications that will always be contact-based where the element of distance will never be considered a migration path. Having said this, the WattUp technology is unique in that it supports both contact and distance, however, distance has always been the real differentiator for Energous. This has been the case since the company was first brought public in 2014. One of the major benefits of the PowerHub technology is that it can be extended from the desktop to encompass solutions for emerging far-field harvesting applications. Continuing with this theme, today's partnership announcement with e-peas is of special significance. E-peas is a leading provider of ultra-low power controllers for harvesting applications including patient tracking and monitors, asset tracking, livestock trackers, retail displays, automated automotive and security sensors, health and safety sensors, and home automation to name a few. As these devices continue to grow in functionality, so do their power requirements to the point where they can no longer be supported by ambient harvesting or super caps. They need to be actively charged. The Energous distance technology is ideally suited for these applications and the e-peas collaboration partnership represents the first step into what we believe will be a major market opportunity to transmit wireless power extended distances of five meters and beyond, requirements that the WattUp technology is currently capable of doing within all health and regulatory standards. The point being is that Energous is now actively engaged with actual products in three markets: Contact, desktop with charging fields out to three meters, and far-field harvesting out to five meters and beyond. Given the differentiation the PowerHub provides and the increase in inbound interest we're seeing in distance charging, the majority of our core R&D efforts are now focused on distance technology, shifting the engineering efforts surrounding the more mature contact technology over to our applications engineering team. To this end, you can expect to hear some important exciting announcements in the coming months regarding customer PowerHub wins for wireless power distance applications. As Brian noted earlier, we expect to modestly increase our expenses this year over 2020 as we add headcount to accelerate development to meet the demand for distance technology and the introduction of one, possibly two new chips to extend our technology lead in WPT. To conclude, when we first launched Energous in March of 2014 with a vision, an early prototype, and a few employees, we were excited by the fundamental paradigm shift we could drive in the daily changing morass of cables, extension cords, and hunting for power outlets. As a new start-up, we expected challenges, but we believe our approach to wireless had the potential for adoption and reach comparable to what WiFi has achieved today. We expected this would be hard, and we were not disappointed. We have persevered, steadily overcoming the many obstacles we have faced, and today we're entering 2021, energized by our technical achievements, the many regulatory approvals received, and by our growing customer engagement, and we're enthusiastic about how they're building on our vision and deploying our products. Together with our partners, employees, and stakeholders, we're working hard, and we are committed to building a business that is sustainable, profitable, and a visionary leader in global WPT. Operator, we will now take questions.

Today's first question comes from Suji Desliva with Roth Capital. Please go ahead.

The projects that have been delayed by the macro, COVID. Can you talk about whether those projects continue to be pushed out or whether we're towards the back end of that sort of project push-out impact from the macro and COVID environment?

Yes, I think that COVID has certainly had an impact. But I think it's becoming less of an issue. The reality is also that we're experiencing component problems. The semiconductor issue is not confined to automotive alone—it's a broad-based problem and some of our customers have experienced significant component problems. We've also had issues in ramping up from the development to production verification testing and moving into pre-production, with the typical production problems you would expect, which were associated with yields and first-time builds. The fact that we could not be on site and had to resolve these issues at a distance has had an impact. We see that lessen, but we've also taken steps. We've tried to increase the number of team members that are out in field locations in China and Europe, as an example. And again, we're starting to see the benefits of that. I think it has had an effect. I think we're on the downward side of that, and I think again you can expect to see a continuing number of WattUp enabled products coming to market throughout 2021.

That's great Steve. And then the desktop opportunity for the PowerHub sounds exciting, certainly. Can you give us the sense of the order of magnitude of how many engagements you have for opportunities you have here in the diversity of those and then also, what's your content for desktop or transmitter versus an end kind of receiver device, if you would, just understanding the relative size of those too?

So again, there's two elements here. One is interest and the other is focus. Our current customer interest skews well over 200 opportunities and we continue to massage and work these opportunities. But then the key especially for us is focus and really understanding which of these opportunities have the quickest path to full commercialization. We're done doing experiments and investigations into innovation. We understand this business very, very well. We understand what's doable today, especially in the regulatory environment, and so focus is a key consideration. To that end, our focused customer number is about 20, and they are a combination of distance and contact—which as I mentioned earlier continues to be an important part of our business. In 2021, contact will certainly be the major focus of our revenues and our customer adoption announcements. Having said that, distance is really exciting. The work that our engineering and our regulatory team did to bring down the size, complexity, and especially the cost in terms of integrating this device into a very small form factor that easily fits into a smart speaker, easily fits in the bezel of a monitor, and can be easily integrated, as I said, because we're talking about a single antenna, a single power amplifier, and a single control chip, with all of the necessary software and hardware configuration preconfigured. We've worked very hard to make it simple, and I think that hard work and good work is really going to pay off. The other thing that we're very, very excited about is that we're also seeing a lot of movement in the far-field or harvesting arena. This market has quite a way to really mature, but there's just a lot going on there. As I mentioned earlier, we're seeing the migration of that to market. In that, there were early-stage sensors and tracking devices looking to use ambient harvesting or super caps because their power requirements were very, very low, and that was largely due to the fact their functionality was very, very limited. But what we're seeing is that functionality is really starting to ramp up, and as you ramp up that functionality, so do your power requirements, and they become ideally suited for the PowerHub. And again, keep in mind, this is the same technology for the desktop, and so we have three viable commercial offerings in contact, desktop, and in far-field, which we're defining as five meters and beyond, active today—and in truth, there's just no other WPT company that can speak to or come close to those kinds of productivity and market opportunity.

And Steve, the relative content for a transmitter versus an end-type device, just to understand the ratio there.

So the content for a transmitter for the PowerHub, as I said, is one power amplifier, one controller chip, hardware and software, and a single antenna. The receiver is—our standard receiver has been able to shrink down to three millimeters by three millimeters in size, and so it is made up of very inexpensive building materials that go into putting this technology together.

Okay, great. And then my last question on the, I guess the further distance opportunity, multi-meter distances. Is that limited to energy harvesting, or should we think you're talking about other opportunities there? And if so, is that just because of the amount of power you can transmit over the distance? Any color there would be helpful.

Certainly. I think what we're talking about now, again, it's always been the delta between what the technology is capable of and what the regulatory environment will support. We demonstrated conclusively several years ago that we could charge a smartphone at 15 feet. We have UL-documented independently that the technology today is fully capable of doing that and more. However, the regulatory environment is just not there yet, and that's why it's been very, very important to us and quite frankly, that's why some of the delays in terms of us really kind of reaching this inflection point. We had to first really understand the technology and the differences in frequency and you're noticing a lot of white noise today in different frequencies, and I will tell you that the difference in frequencies is material. The higher the frequency, the longer the distance, it impacts efficiency; it impacts regulatory in a very, very significant way. But we had to understand the technology and then we had to understand the regulatory environment and what was doable and what was not doable and then match that to customer opportunities. As I said, I think going into this year we feel really confident and really enthusiastic about the fact that all three of those vectors have come and achieved a linkage. To that end, as I said, I think that our business is starting to accelerate. So again, I know it's an elongated answer. I think initially we're talking milliwatts of power at distances, and I think as you've seen in Wi-Fi over a period of time, where the regulatory environments relax and the health and safety restrictions become better understood, you'll see the same things happening with the regulatory environment and easing of power restrictions. I think also the consumer and industry have a lot to do with that. The more demand, the more requirements, the bigger this issue becomes, the more the regulatory agencies are going to pay attention to it. So it's milliwatts now. Certainly, the technology has far more capability, and over time we think that will increase from relatively very low power to certainly opportunities that support much higher power.

Okay, helpful color. Thank you, Steve.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management team for any following remarks.

Well, thank you. Thank you for listening to our fourth quarter 2020 update. We plan to participate in the 33rd Annual Roth Capital Partners Conference being held virtually on March 15 through the 17th. Please continue to monitor Energous.com for additional updates on the company and exciting announcements on the future of Energous and WPT. Good afternoon.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.