Energous Corp Q3 FY2021 Earnings Call

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.

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.

Thank you, Matt. Good afternoon, and welcome to the Energous 2021 third quarter conference call. Today, I'm joined by Bill Mannina, our acting Chief Financial Officer. The third quarter of 2021 was significant for Energous for several key reasons. First, we are refining our vision for the Company, focusing on far-field technologies and the deployment of wireless power networks. Second, we received FCC approval for our 1-watt WattUp PowerBridge transmitter technology, which enables active energy harvesting power transfer without distance limitations. Third, we formed new partnerships with leading IoT companies that will drive the demand for wireless power delivered at a distance into 2022 and beyond. Energous is at a critical turning point that we believe will propel the Company into its next phase as we capitalize on the significant investments being made by various firms in low power devices, including electronic shelf labels, retail tags, IoT sensors, and low power computing. We are gaining recognition as a leading developer of RF Power Transmission semiconductor devices for a new generation of wireless power networks. Our vision of RF Power Transmission at a distance, considering market needs and regulatory constraints, continues to develop, driving the creation and availability of our WattUp PowerBridge transmitter solutions at both 1 watt and 5.5-watt power levels. We recently announced receiving approval for our one-watt solution, supplementing our earlier European Union regulatory certification for unlimited distance wireless charging. Encouraged by this progress, we're pleased to announce that we have begun production of our 1-watt WattUp PowerBridge transmitters to meet orders from our first WattUp wireless power network customer, with deliveries set to commence in Q4 of 2021. We believe our wireless power networks will effectively cater to the power requirements of the IoT ecosystem, supporting numerous receiver devices across various market segments, including retail, industrial, and healthcare. By receiving power wirelessly from an Energous power network, these receivers can operate with smaller batteries or potentially no batteries, resulting in more sustainable, cost-effective, and easier-to-manage IoT deployments. For instance, IoT wireless power receivers could enhance artificial intelligence processing at the edge of an IoT network for audio or video tasks, improving device uptime and the speed of data flow. Currently, many new features of IoT devices face implementation challenges due to the limitations of ambient energy harvesting, coupled with their power needs and battery depletion cycles. Providing wireless power to these environments can significantly enhance IoT device performance and deployment feasibility. Regarding our financial performance, we are pleased to report that third quarter revenues increased to $201,000 from $61,500 in the third quarter of 2020. Sequentially, third quarter revenues rose from $185,000 in the second quarter. Bill will offer a more detailed breakdown of our financial results, including our recently strengthened balance sheet through previously announced ATM financing. Now, for an update on our operations. Our search for a CEO is ongoing, and we have no immediate updates. In August 2021, Renasys finalized its acquisition of Dialog Semiconductor. Consequently, Energous was informed during the quarter that Renasys wished to amicably terminate our system agreement with Dialog. Our agreement allows for an orderly transition upon notice of termination, and we have begun transferring manufacturing operations back to our Company for the four Energous devices involved: the EN 4100 transmitter, the EN 3210 one-watt power amplifier, the EN 2223, and the EN 2210 receivers. It's important to note that these four devices were entirely designed and engineered by Energous, and we hold all intellectual property rights. This is crucial because our team's technical expertise with these devices, combined with knowledge of Dialog's processes, will facilitate a smooth transition of factory testing back to Energous. We will utilize our existing production and testing capabilities currently employed for our other devices, which were not part of the Dialog agreement. Furthermore, the production foundry for these devices is a third-party company with which both Dialog and Energous have had long-standing business relations. On the sales support side, the Energous team has been actively engaged with Dialog on potential customer opportunities, offering technical, sales, and business support to our joint customers. The Energous team now possesses direct ownership of the entire customer pipeline. In summary, we do not anticipate a materially negative effect on our business during this transition of manufacturing and sales. As we finalize this transition, we expect to collaborate effectively with the Renasys Dialog team, ensuring smooth operations. Moving on to the technical aspects, we would like to provide additional information on our WattUp PowerBridge transmitters and our vision to establish them as the foundation for WattUp-based wireless power networks, which we believe represents a significant market opportunity for the Company. During the third quarter, we enhanced our position in supporting the application of our active harvesting technology. WattUp wireless powered networks operate similarly to communication networks by deploying multiple transmitters across a designated power transmission area. Energous WattUp power transmitters integrate direct power network needs with communication networks through our E Ink platform, allowing for immediate deployment of WattUp wireless power networks that support a variety of IoT receive devices simultaneously, each receiving different levels of power. For example, IoT-connected devices with differing power requirements, such as tags and sensors, can be implemented across retail, industrial, and healthcare sectors, contributing to a potential total addressable market of 30 billion devices by 2025, as reported by the Internet of Things statistics and non-IT IoT active device connections. In addition to our initial shipments of the one WattUp PowerBridge transmitters, we recently introduced a developer kit to enable IoT device designers to quickly explore the benefits of Energous WattUp-based wireless power networks in their offerings. Our WattUp Power app technology, built on a common technology platform, has led to our WattUp Power Bridge transmitters receiving European Union certification back in May 2021. Our RF semiconductor devices, combined with our WattUp software developer kit and advanced antennas, are key components in building our WattUp PowerBridge transmitters, which can complement any communication infrastructure and facilitate the collection of valuable and monetizable data into a cloud environment. For instance, our WattUp PowerBridge can be easily connected to a Wi-Fi access point, leveraging existing investments to provide readily deployable and consistent powered coverage. Our BLE communications interface can also be used for additional data communication channels, including data concentration and relaying to Wi-Fi APs and IoT devices. Now, a brief update on our partners. Looking ahead, we believe Energous is well-positioned to be a major player in the development of IoT wireless powered networks. We continue to collaborate effectively with multiple companies that share and enhance our vision and technologies. We have previously discussed our partnerships with e-peas, E Ink, Atmosic, and Technology. This quarter, we are excited to announce a new partnership with Wiliot. This collaboration positions Energous to support Wiliot as a leader in deploying ultra-low-power smart tags, or IoT pixels, which will revolutionize the extraction of relevant and monetizable data into the Wiliot Cloud. Wiliot's technology represents a significant advancement in the real-world implementation of next-generation RFID-like networks, creating new market opportunities. On the regulatory front, we continue to make progress internationally and are opening new markets for wireless power transmission. As previously mentioned in our past earnings calls, we see notable advantages in the 900 megahertz band compared to other, more congested bands that face higher propagation losses, granting Energous WattUp solutions significant efficiencies and range benefits. We are also observing steady developments at the International Telecommunications Union towards the complete global allocation of wireless power transmission, including the 900 megahertz band. In Japan, the broadband wireless forum is furthering this progress on RF-based wireless power transmission. We are maintaining our engagement with the FCC, and alongside industry partners, we are part of an expert test filing focused on obtaining regulatory approval for higher-performance next-generation systems. Lastly, we are pleased to announce that earlier today, we received two CES Awards: one for embedded technology and another for sustainability, DCO design, and SmartHome. These awards recognize our RF wireless power network technology. Energous will present at CES 2022 in January, showcasing the award-winning WattUp PowerBridge transmitters in collaboration with multiple partners to demonstrate a complete WattUp ecosystem of transmitters, receivers, and operating IoT and Edge sensors, including CPUs. We will also demonstrate our power hub and near-field technologies. In summary, our WattUp PowerBridge transmitters for distance charging are prepared to support the onset of the IoT age as we expand the U.S. and EU markets for wireless power networks. I will now hand the call over to Bill Mannina, our acting CFO.

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 remains 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 $69,000 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 $279,000 lower loss compared to Q2, and an approximately $930,000 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 expenses, etc., due to the COVID pandemic. Non-GAAP engineering expense was $3.5 million for Q3, an approximately $56,000 decrease versus the prior quarter, and an approximately $456,000 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 $200,000 versus the prior quarter, and an increase of approximately $600,000 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 chip 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.

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

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 Desilva with Roth Capital. You may go ahead.

Hi, Cesar. Hi, Bill. I have a question about the Renasys agreement and the return of the four products. What are the manufacturing costs and the business model applications for selling the products as this transfer occurs? I'm trying to understand how the new model will differ moving forward.

You're asking for details about the agreement, and I can provide that. Regarding the transfer, we have test lines in partnership with some local companies, and we are actively working on that now. This involves the movement of wafers and devices, as well as setting up hardware related to those test lines, which are running alongside some of our other products related to GAN and CMOS PA controllers. In terms of costs, we had an agreement with Dialog to share certain expenses, but that additional cost Dialog was responsible for is no longer applicable. Therefore, we will incorporate that into our overall revenue. Are there any other questions?

Yes, sure. If we look at your two partners, Wiliot and Technology, what are the next steps in those partnerships for reaching customers, and what do they contribute to Energous in terms of market regions and traction?

Yes. Thank you for the insightful question. We have two types of partners. The first type includes integrators or systems partners in technology. They enhance our engineering and development capabilities to better support potential customers, particularly in the European Union. They effectively extend our team and are currently focused on training potential customers and assisting us in identifying new clients who need access to our development kits. On the other hand, Wiliot is a different kind of partnership, involving a collaboration between Energous and Wiliot to tackle a specific low-power task. Together, we have developed a unique solution aimed at Active Power Transmission. This initiative allows us to tap into a new market for low power tags that resemble RFID but are more advanced, featuring low power CPU-based devices with BLE interfaces at a low cost. Through our specialized 1-watt transmitters, we are now able to create wireless power networks that can function without distance limitations across various sectors, including industrial, retail, and healthcare. These systems can leverage existing Wi-Fi networks for deployment. Looking ahead, we have collaborated closely on developing the technology over the past few months. We will continue to advance this partnership as we explore the market. There are multiple potential customers we are considering, and we plan to initiate pilot programs moving forward. As we validate and demonstrate the technology’s capabilities, these customers will be able to track devices in the industrial, healthcare, and retail sectors.

Okay. Great. Thanks, Cesar. And then the 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 settings? Any color there would be helpful.

Great question. As you know, we've been pushing standards for wireless power networks for years. We've been pushing the technology in that area. In the case of the 1-watt systems, we have a unique solution that allows us to pass part 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.

Okay. All right. Thanks, Cesar.

Thank you.

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

Hey, I have two questions. One 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?

Hi, Jon, how are you?

I'm good.

Glad to talk to you today. Yes. What we're doing is we have chips, and we have systems that have been integrated into transmitters, so 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 extra value on top of that.

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

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

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

Yeah. Okay, so we also benefit from the fact that we're putting those transmitters together, which adds extra value on top of that. Definitely. I mean, we have evaluation kits and that's part of the sales that we've done. We continue to do, and we've been doing that for a while. Okay, my last question is so now you're going to have to build the sales and marketing organization?

Dialogue's... the picture in.

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 Dialog, so it's only the fact that 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 Dialog, 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.

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

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 for Energous.

Okay. Thank you.

Thank you.

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

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.

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