Energous Corp Q1 FY2023 Earnings Call

Good day, and welcome to the Energous Corporation First Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Craig McFall, Investor Relations. Please go ahead.

Thank you, and welcome everyone. Before we begin, I would like to remind participants that 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 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 and SEC filings. Now, I would like to turn the call over to Cesar Johnston, CEO of Energous. Please go ahead, Cesar.

Thanks, Craig. Good afternoon, and welcome to the Energous 2023 first quarter conference call. Joining me is Bill Mannina, our Acting Chief Financial Officer. Energous started this year 2023 with a solid foundation based on partnerships and initial business momentum as we reported our first 10 IoT proof-of-concept installations, referred to as POC installations using our WattUp technology. Our focus on increasing the number of Energy's technology installations continues to show promising results, and we are glad to report that we have now expanded that number to a total of 14 in Q1 2023 across the retail, industrial, and healthcare markets in three different regions, including the US, the European Union, and Asia. We believe that the increase in POCs is a strong product indicator of the adoption of our technologies and solutions. We will continue to report on POC status in the coming quarters, as we feel it is the best metric to track the growth of our business. As the leader in the emerging IoT wireless power network market, we continue to execute our focus and strategy to energize IoT devices in RF tax, electronic shelf labels, and sensor applications across the smart home, smart office, industrial, retail, and healthcare markets. We are focused on energizing a new generation of IoT devices, reducing the need for wires and batteries and supporting device mobility and freedom of placement. We aim to enable ubiquitous receiver installations, which can use the higher levels of available receiver power to support integrated artificial intelligence capabilities with the support from the next-generation wireless power network infrastructure that our proof of concept customers are installing using Energy Power bridges and energy semiconductor technologies. Yesterday, we announced the expansion of our portfolio with the availability of a new 2-watt PowerBridge transmitter, pushing our technology and product leadership in IoT wireless power networks to a new level. The 2-watt PowerBridge introduces a level of performance and innovation designed to enable a new generation of charging devices using the latest part 18 regulations in the US and the latest international certification rules that now recognize wireless power networks as an emerging technology across the world. The new 2-watt transmitter provides extended range, better coverage, and improved signal penetration, and is built using Energous' intellectual property, semiconductor, and firmware capabilities. Customers will now be able to access and optimize their networks with 1-watt and 2-watt PowerBridge transmitters to safely provide them a higher energy level resolution as required for their specific applications. The Energous team is executing an IoT-based business strategy within a worldwide IoT market. The strategy is based on three fundamental pillars intended to ignite the wireless power network ecosystem. The first pillar has been a significant focus for our team. It consists of multiple technology partner companies that complement our technology capabilities to support the applications that we are focused on, such as SaaS, electronic shelf labels, and IoT sensors. Today, we work with 14 companies that support our technology partnership plans and whose technologies can be used as system blocks for our solutions. The other business strategic pillars are critical to delivering our products to the hands of potential end customers. Our second pillar includes distribution partners, who facilitate our technology delivery through our semiconductor evaluation kit products to customers for evaluation, design, and building of their IoT wireless power network solutions. As of today, we have announced two partners that are strategic to the markets on which we focus. We continue to identify more potential strategic companies to help us expand our customer reach. Finally, our third strategic pillar, which will be fundamental to supporting customers installing our products is establishing a global network of IoT system integrators with a strong technical background and well-established business relationships. We are expanding our system integrator network, which we hope will lead to further installations in the field. Let's now move our discussion to update on our Q1 2023 specific progress. This past quarter, we welcomed three new IoT system integrator partners: SATO, Thinaer, and InnoTractor. SATO is a global auto-ID solutions provider for leading manufacturing, logistics, retail, food and beverage, and healthcare companies. Thinaer is a leading provider of IoT and indoor location services that enable organizations to optimize operations, improve the bottom line, and unlock new value from their assets. InnoTractor is an IoT company with the vision of zero waste supply chains. InnoTractor implements digital technologies for a better world. It reduces waste and emissions in supply chains by using IoT, blockchain, cloud, and the latest wireless technologies. Our newly announced partners have installed our PowerBridge wireless power networks in proof-of-concept deployments. For example, SATO announced its dynamic inventory replacement solution aimed at providing real-time on-shelf inventory data to retailers and brands, following testing at a Japanese convenience store. Thinaer has also installed a solution for the US Department of Defense designed to monitor assets in secure areas by deploying Energous Power bridges at entrances to classify areas. Similarly, InnoTractor installed PowerBridges to track shipments from a supplier in Sweden to a production facility in the Netherlands. InnoTractor has also installed Energos PowerBridges for a mining company to view information about pallets that carry mine materials to customers and to ensure that those customers are properly charged for their delivery. Finally, InnoTractor is using PowerBridges with a company tracking its fleet of returnable transport items to ensure that they do not go missing and are correctly routed to prevent any shortages in the RTI supply ecosystem. We believe that installation reports by our partners using our technology are strong product indicators for the future adoption of our technologies. We look forward to providing additional updates as they become available in the future. In Q1 2023, we also announced that Japan's regulatory body approved our 1W PowerBridge for unlimited power distance transmission. As a result, this effort completes a series of significant market approvals for the 1W PowerBridge with similar certifications previously obtained in South Korea, China, the United States, Canada, the UK, Europe, India, Australia, and New Zealand. Finally, on the financial side, we recognized revenue of $90,000 for Q1 2023. This is down from the prior quarter. However, the number of proof-of-concept customers moving along the path to final production has increased compared with the prior quarter, and we believe that this is an important indicator of future revenue potential. We have made good progress in the last year with 14 PoC installations as of today, and we are working to secure additional PoC installations and higher production volumes in the future. As we move forward with building out these global PoC installations, we may see some revenue fluctuations in our business on a quarterly basis. However, I encourage you to look at the growing installation trend, which we believe is an indicator of our future growth potential, and which I will continue to outline over the next quarters. I will now turn the call over to Bill.

Thanks, Cesar. Earlier today, we issued our Q1 earnings press release announcing the operating and financial results for our financial results for our first quarter of fiscal 2023 ended March 31st. Revenue in the first quarter was approximately $97,000, a 55% decrease from the $216,000 we reported in Q1 2022. Sequentially, this compares to $179,000 in Q4 2022. Our revenue guidance for 2023 is unchanged at this time. Cost of revenue was $139,000 in Q1, a decrease of $244,000 compared to the prior quarter and a $64,000 decrease compared to Q1 of 2022. The Q1 2023 cost of revenue included an inventory write-down, as did Q4 2022. For the quarter, total GAAP costs and expenses, which includes cost of revenue, decreased by $147,000 compared to the prior quarter, down to $6.4 million, primarily due to a decrease of $244,000 in cost of revenue and a decrease of $165,000 in severance expense, offset by an increase of $117,000 in trade show costs and a $122,000 increase in chip development costs. Year-over-year, total GAAP spending for Q1 decreased by approximately $1 million compared to the same quarter last year, which is primarily due to a $305,000 decrease in payroll expense, $275,000 decrease in stock compensation expense, and a $223,000 decrease in consulting costs. Net loss for the first quarter on a GAAP basis was approximately $6.7 million or an $0.08 loss per share on approximately 81.4 million weighted average shares outstanding. This compares to a $6.1 million net loss in the prior quarter or a $0.08 loss per share on 78.3 million weighted average shares outstanding and a $7.2 million net loss or a $0.09 loss per share in Q1 of last year on 76.9 million weighted average shares outstanding. Let me now give you a non-GAAP view of our numbers for the first quarter. As we believe that non-GAAP information provides a useful comparison for investors, especially for a company at our stage, when used with GAAP information. Excluding approximately $522,000 of stock compensation expense and $46,000 of depreciation expense from our total Q1 GAAP costs and expenses of $6.4 million, the net non-GAAP costs and expenses totaled approximately $5.8 million, approximately $90,000 more than the $5.7 million total non-GAAP costs and expenses in the prior quarter and approximately $682,000 less compared to Q1 of last year. Our non-GAAP net loss for Q1 was $5.5 million or $0.07 loss per share. This is an increase of approximately $158,000 compared to the prior quarter and a $793 decrease compared to Q1 of last year. We saw minor expense fluctuations across all areas in line with our expectations. Non-GAAP research and development expense was $2.8 million in Q1, which is an approximately $206,000 increase compared to the prior quarter and an approximately $309,000 decrease compared to Q1 of last year. Non-GAAP SG&A increased over the prior quarter by approximately $130,000, due primarily to an increase in trade show costs. Compared to the same period last year, Q1 non-GAAP SG&A cost decreased by approximately $307,000, primarily due to payroll compensation, engineering supplies, and trade show costs. On the balance sheet, we ended the quarter with approximately $26.3 million in cash and cash equivalents and remain debt-free. We also added approximately $3.1 million of warrant liability, which resulted from the warrants that were issued in our March 2023 financing. To close, we expect our GAAP and non-GAAP cash operating expenses for the full year to trend in the current range with our normal quarterly fluctuations as we continue to look for cost savings. I will now give the call back to the operator for the question-and-answer session.

We will now begin the question-and-answer session. The first question today comes from Suji Desilva with ROTH Capital. Please go ahead.

Hi, Cesar. Hi, Bill. Question first on the numbers, the guidance remains for up 20% for the year, 23% versus 22%. The first quarter was down. I'm wondering, if it's a back-end loaded ramp to that 1 million, and if the back end implies a conversion of a POC to a production customer or whether those are still POC revenues in the 20% guide?

We maintain our 20% guidance. That has not changed. And we're looking at POCs increasing, of course, which eventually will become production.

Okay. The – the two of that product, new one, Cesar. It sounds like you now have the customers have the ability to mix and match to WattUp 1W. Can you just give me a sense of how the customers might use that for a topology of layouts and to their advantage? I presume you have you'll have higher wattage products in the future; how that will all kind of map out hybrid drain?

I want to remind everyone that we are the leader in wireless power networks. We are the only company that has secured full certification by the FCC for up to 15 watts in the US, and we continue to advance in this area. The 2-watt PowerBridge transmitter is a groundbreaking development, as no other company offers this capability. This technology enables us to effectively pursue certification using Part 15 in the US and supports our global efforts to establish wireless power networks as an emerging technology, which previously had no recognition. The 2-watt capability expands the applications for our technology and opens up new potential markets we plan to explore. The 2-watt system allows for greater range and instantaneous power delivery, exceeding our previous limits. It also enhances penetration in applications requiring full visibility, and this new transmitter is designed to meet those needs. We envision that both the 2-watt and 1-watt product lines will be used together based on customer application requirements.

Okay. That's helpful, Cesar. Thanks. And then for a typical customer, how much are they investing either in dollars or employees towards running a POC? Just to understand their commitment as these POCs grow to 14 here?

I can mention in general what a POC might look like. Some POCs can be single units, and some POCs involve hundreds of transmitters. It's all a function of the application, where and how it's being deployed. So, to give you an example of a larger deployment, we have done a POC in large US Department of Defense warehouses where it is important to have visibility of equipment. So, again, it's all a function of how it's being used, where it's being used, and by whom it's being used. We see a mix of both. However, I want to focus on the large deployments; you’re talking about thousands of transmitters deployed, not just in the ceiling, but also all around the deployment areas, which is important for penetration and energy levels that are consistent.

Okay. One last clarification for me. The POC is 14, I'm just curious if a single customer has multiple sites like a retailer, do you count that as a single POC, or are those multiple POCs? I'm trying to understand if POCs to 14 implies 14 customers?

In general, we try to discuss the different sites that have been deployed. Most of them are individual, but some have multiple sites. For instance, in some early deployments with retail customers, a couple of customers had several sites. In the case of warehousing, hundreds of deployments within a large warehouse count as one POC, but we also have numerous other efforts across the country. So, we see this as an important indicator. Our strategy is showing results, having gone from 2 PoCs two quarters ago to 10 PoCs last quarter and now 14. This is a positive indication of our strategy and the traction we are gaining here. Thank you.

That’s helpful. All right. Great. Thanks, Cesar. Thanks, Bill.

Thank you.

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

Great. Thank you. So, Energous continues to progress as we lead in the emergence of active energy harvesting IoT wireless power networks and toward removing the need for batteries and cables. We continue to innovate in developing novel solutions using our advanced technologies and robust intellectual property, resulting this quarter in the 2W PowerBridge transmitter announcement, which positions the company as a leader in power charging solutions. Finally, we believe that a key progress indicator for potential revenue in future quarters is the number of IoT wireless power network proof-of-concept installations, which has grown over the past quarter. It is important to understand that as we move forward and progress in opening up the emerging active harvesting IoT wireless power network markets, we expect there to be fluctuations in our results. Thank you to all our shareholders, stakeholders, and Energous team members, and we look forward to updating you on the company's progress again.

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