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

Thank you 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 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. Reconciliation 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'd 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 second quarter conference call. Joining me today is Susan Kim Van Dongen, our Interim Chief Financial Officer. For those of you unfamiliar with our technology, Energous develops IoT wireless charging or wireless power networks through its Advanced Semiconductor and PowerBridge products based on its proprietary technologies. Our strategy is to energize IoT devices in RF-tags, electronic shelf labels, and sensor applications across the smart home, smart office, industrial, retail, and healthcare markets. Energous power IoT devices operate without depending on large and costly replaceable batteries and the related operations replacement maintenance overhead. We aim to enable smart IoT devices with placement freedom, mobility, and lower installation costs by removing wires and electrical outlet requirements. Additionally, wireless power networks provide energy and connectivity to smart IoT devices, enabling control, monitoring, and tracking of the IoT device in its environment. For example, a warehouse or a shelf label or medical equipment in a hospital environment. Since the beginning of 2022, Energous has focused on developing differentiated and optimized RF products to build IoT wireless power networks and then to put the correct strategic partnerships in place to create a cloud-enabled end-to-end smart IoT market ecosystem for our customers. We are focused on selected markets, namely IoT devices in RF-tags, electronic shelf labels, and sensor applications across the smart home, smart office, industrial, retail, and healthcare markets. We aim to work with leading customers or those emerging customers with the highest potential in these markets. In a typical rollout of a wireless power network, our customers conduct a wireless power network technology evaluation and then a proof-of-concept installation or POC for their particular application. This is then followed by a proof-of-validation phase and a final production phase. Understanding how Energous is progressing with its current customers and the addition of new customers through this POC and POV implementation phases is, in our view, an important indicator of increased interest in Energous technology and potential revenue in future quarters. On that note, I am incredibly pleased to report that Energous continues progressing on a positive POC trend from when we first reported two POCs in the third quarter of 2022. This grew to ten POCs in Q4 2022 and 14 POCs in the first quarter of 2023. And we are now glad to report that the total number of active POCs has grown to 20. We are really in early discussions or early implementation phases with additional POCs. We have achieved ten times POC growth since we started our IoT wireless power efforts in Q3 2022. From the 20 POCs, we have now eight systems in the proof-of-validation phase. So remember that's the second phase or awaiting to move into this phase. We are also happy to report that one of the wireless power network installations has entered the production phase with a Fortune 100 company in partnership with Thinaer. We are proud of Energous' progress in developing cloud-enabled end-to-end smart IoT wireless power networks ecosystems. Let me provide a live example of one of our customers to give you an appreciation of how the Energous technology is being deployed. In this example, our technologies are applied to the transportation and logistics supply chain markets. PowerBridges are installed in multiple areas, energizing warehouses as the PowerBridges are mounted on the ceiling, in multiple corridor walls and inside merchandise shelves. PowerBridges energize BLE-based RF tags and collect digitized information from smart IoT devices, which are attached to the customer's products sitting at a warehouse. As the customer products are moving inside and outside of the warehouse, the PowerBridges at the corridor walls or doors provide expanded coverage compared to old technologies and offer complete product mapping visibility as components enter or leave the storage area. As the customer products leave the storage area, forklifts can load the merchandise into trucks, which are also equipped with PowerBridges to track the products for distribution as trucks are loaded and unloaded. Finally, in this example, using our system integration partners' cloud software, IoT devices with real-time visibility and transparency can now be analyzed using predictive capability for self-optimization, resulting in cost efficiency improvements and full automation. Energous' efforts in developing and identifying new POCs and technical collaboration with our customers in our focused applications and markets continue. As we identify and onboard new system integrators and distributors, we will continue to update you. Today we stand at 14 technology partners, two distribution partners, and four IoT system integrator partners, with more expected to be added in the second half of 2023. Let's now move our discussion to update on the first half of 2023 specific progress. Earlier this week, we announced the next phase of our partnership with Wiggle, sponsored by the Air Force Research Lab at the US Department of Defense, DOD. Energous PowerBridges will continue to provide radiofrequency-based wireless power over distance for Wiggle's WPT networks. In this second phase, also as we close our first half of 2023, we would like to give an update of our 2023 goals as presented in our Q4 2022 earnings call. First, maintain our technical and growing market leadership through innovative IoT, WP, and product development. In the first half of 2023, we completed the one-watt PowerBridge certification in the world's largest markets, and we introduced our two-watt PowerBridge. The new two-watt power transmitter provides extended range, better coverage, and RF signal penetration than the one-watt PowerBridge transmitter. We also offer evaluation kits featuring our technologies for RF sensors as well as connectivity and PMIC devices for our customers to evaluate our technologies. Second, work closely with our PowerBridge production partners to optimize the cost and corresponding gross margin as we move to higher volume production. In the first half of 2022, we identified and enabled production lines with a well-known Asia-based contract manufacturer supporting our PowerBridge assembly for low-cost and large volume execution. Third, continue to identify key technology and systems partners to expand our potential markets and facilitate access to new potential customers through our industry-leading technologies. As of the end of Q2, we have 14 technology partners, two distribution partners, and four system integrated partners. We continue our efforts to find new potential partners to support or develop new market applications. Move our current and future customers steadily along the path to commercialization from POC to proof-of-validation and then to full production. As of the first half of 2023, we now have 20 POCs, eight proof-of-validation, and one customer at the production installation phase from just two POCs in the third quarter of 2022, a 10 times increase since our first early installations. And finally, support the rollout of PowerBridge production ramps with our key customers and partners and achieve expected annual revenue growth over 2022. As part of the POC efforts, we now have several IoT wireless power networks installed across multiple markets in the US, Europe, and APAC regions. We expect POCs to result in production installations to bring revenue generation with a target to achieve annual revenue growth over 2022. Given these assumptions, we currently anticipate year-over-year growth of 20% or more, which will be weighted towards the second half of the year. On the financial side, we continue to make efficiency improvements and achieved a 7% reduction compared to Q2 2022 in our non-GAAP costs and expenses. We recognized revenue of $117,000 for Q2 2023, representing a growth of 21% over the prior quarter, in addition to adding six new proof-of-concept installations in this quarter. The number of proof-of-concept customers moving along the path to final production has increased compared with the prior quarter, which we view as an important indicator of future revenue potential. We have made good progress in the last year with 20 POC installations as of today, and we're working to secure additional POC installations and higher production volumes in the future.

Thank you, Cesar. Earlier today, we released our Q2 earnings press release, detailing the operational and financial results for the second quarter of fiscal year 2023, which concluded on June 30th. Revenue for the second quarter reached about $117,000, which is a 21% increase from the previous quarter and a 50% increase from the $233,000 reported in Q2 of 2022. For the year to date, revenue was approximately $214,000 as of June 30th, marking a 52% decline compared to 2022. The cost of revenue for Q2 was around $83,000, decreasing by $56,000 from the prior quarter and $189,000 from Q2 of 2022. Total GAAP costs and expenses rose by $145,000 compared to the previous quarter, totaling $6.2 million. This increase was largely due to a $210,000 reduction in R&D and chip development costs, a $100,000 decrease in trade show expenses, and an increase of $208,000 in annual meeting expenses. Year-over-year, total GAAP costs and expenses for Q2 decreased by about $1.1 million compared to the same quarter last year, primarily due to a $543,000 drop in severance pay, $289,000 in recruiting expenses, $189,000 in cost of revenue, and $125,000 in chip development and engineering supplies. The net loss for the quarter on a GAAP basis was around $4 million, or a $0.04 loss per share based on approximately 91.2 million weighted average shares outstanding. This figure includes $1.9 million from other income resulting from changes in the fair value of our warrants. The Q2 net loss contrasts with a $6.7 million net loss in the previous quarter, or a $0.08 loss per share based on 81.4 million weighted average shares outstanding, and a $7.0 million net loss or a $0.09 loss per share in Q2 of last year with 77.1 million weighted average shares outstanding. Our year-over-year net loss is declining largely due to our strategies in aligning operations for the IoT vertical and cutting down on excess expenses from our previous market approach. Now, I'd like to present a non-GAAP perspective on our Q2 numbers, which we believe provides a beneficial comparison for our investors, particularly at our current developmental stage when considered alongside GAAP figures. Non-GAAP costs and expenses for Q2 exclude about $504,000 for stock compensation, $45,000 for depreciation and amortization, and $90,000 in severance expenses from the total Q2 GAAP costs and expenses of $6.2 million. Non-GAAP costs and expenses amounted to roughly $5.6 million, which is about $216,000 lower than the $5.8 million in total non-GAAP costs and expenses in Q2 and approximately $424,000 less than Q2 of 2022. Our non-GAAP net loss for Q2 was $5.3 million or a $0.06 loss per share, which accounts for the non-GAAP adjustment regarding the $1.9 million other income from the fair value adjustment of our warrants in Q2. This represents a decrease in non-GAAP net loss of around $240,000 compared to the previous quarter and $498,000 in comparison to Q2 of 2022. We observed minor expense variations across all segments as anticipated. Specifically, non-GAAP research and development expenses totaled $2.6 million, which is about a $199,000 reduction from the prior quarter and approximately $258,000 less compared to Q2 of 2022. On our balance sheet, we concluded the quarter with about $20 million in cash and cash equivalents, remaining debt-free. As previously mentioned, we recognized a $1.9 million change in the fair value of our warrant liability, recorded as other income in Q2 this year. In summary, we anticipate our GAAP and non-GAAP cash operating expenses for the full year to decrease as we continue to identify cost savings to better align our financial operations with our market strategy. I will now turn the call back to the operator for questions. Thank you.

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

Hi, Cesar. Hi, Susan. Thanks for taking the question. So first of all, Cesar or Susan, on the POCs, 20 of them. I know, like you said, one of them is into production. What portion of the remaining 20 do you think are relatively close to the validation production stage versus maybe earlier? If you could kind of rank order those and maybe segregate them from which are the 20 might be kind of nearest or near to it?

Yes. Hi, Suji. How are you?

Good. Thanks.

Yeah, so we reported 20 POCs. We went from 14 to 20. So six of them are kind of early. But if you recall during the conversation, the presentation, I mentioned there are eight of them that are now in proof-of-validation. So we're already in the second stage. I would expect some of those, if not all of them, to eventually become production. And if you're going to ask me how it takes to production, it is dependent on the industry and the applications. Certainly, the one production that we have went pretty fast from a time perspective and went into production within, I would say, six to nine months.

Okay, that helps. I didn't realize that the 20 included both validation and production, and that definitely clarifies things. For the one that's currently in production, Cesar, how should we consider the ramp-up? What end market does it serve? What opportunities are available, and what is the timing? Is there an initial ramp period, or is it phased in by sites, or will it be combined?

Very good question, Suji. First of all, we're very glad, we're very happy to report that, that one production is done with our partner Thinaer, and that's already been deployed with a Fortune 100 company. Reality is that due to NDA constraints, we cannot, at this point in time, discuss who the Fortune 100 company is, okay? But what we can say about that company and what the deployment has been, which is in the hundreds of the number of transmitters, is the fact that it is in the logistics area. It's in the warehousing area. And it's looking into components that are extremely expensive that need to be tracked and need to be stored and need to be known where they are at a given time. And in those particular installations that we had in warehouses. And I want to stress this, when we deploy our wireless power networks, we deploy the networks on the ceiling, on the walls, and in many cases, inside the shelves, to provide more and more coverage. So having a very strong background on WiFi in my previous life before joining Energous, typically, in the case of WiFi, we have, let's say, one AP every 10 meters or so. But in certain applications that we've seen so far, in particular, this one, in many cases, we see maybe up to 10 times the number of transmitters that we actually provide to be able to cover one WiFi system. That gives you kind of an idea of where this technology is gearing towards, right? I mean.

No, that's very helpful, Cesar. I appreciate that color. Maybe my last question is on the calendar '23 outlook guidance. I think at the revenue, I think you're saying up 20% year-over-year from last year, obviously, implies a ramp in the second half. Any sense of sort of how that plays out 3Q versus 4Q, just to understand at least qualitatively, perhaps? And what's your visibility into achieving that second-half ramp?

So we still guide in that direction. We are loaded towards the second half of the year. We have those validation – proof-of-validation systems. Some of those are moving really, really well. So we will be updating you in the next quarter on where we are with those.

Okay. Can I just ask my last question there? Will there be more than one production system contributing to revenue in 4Q? Is that the expectation built into your guidance?

That is the expectation based on what we have right now. And at this point in time, it is a function of the customer's decision-making. And some of those are, by the way, related to the Fortune 100 company we've been working with.

Okay. Very helpful, Cesar. Thank you, Cesar. Thank you, Susan.

Thank you. Thank you, Suji.

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

Most of my questions have already been addressed, but could you discuss how having 20 of these proof-of-concept programs in place is impacting customer validations? Are customers finding it easier to validate due to prior work?

Yes, definitely. We are way much more experience on the requirements and on the installations. We've done a number of them by now. So in many cases, we are able to go and set them up way much faster than we usually do. We have situations where within 24 hours, 48 hours, we can actually set them up and show the capability and the feasibility of our technology, which, by the way, compared to other old technologies, is far superior when it comes to visibility and coverage.

And do you have the manpower for like a proof-of-concept to double by the end of the year to 40? Could you handle that?

Yes. Yes, we can. In fact, as you pointed out, as we move forward, what we've done as part of the strategy is try to focus ourselves into a very limited number of products, and that includes our one-watt, two-watt systems. They're all the same. They're not changed pretty much. We just step and repeat that. And how we install and how we deploy the technology is something where we have developed internal tools that are unique to our industry and allow us to pretty much know what the best places and what the best locations are. And working with those customers, we have very, very clear technical guidelines that actually have saved tremendous amounts of time. And yes, I mean, if we have to double, we are prepared for that. Yes.

Okay. Thank you.

Thank you, Jon. Appreciate it.

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. Energous continues progressing as we lead in the emergence of IoT wireless power networks and toward removing the need for batteries and cables. We continue to innovate in developing novel solutions used in our advanced technologies and robust intellectual property, resulting in this quarter in the two-watt PowerBridge transmitter enhancements, which positions the company as a leader in power charging solutions. Finally, I was pleased to see a 21% increase in revenue over the prior quarter and believe that a key progress indicator for potential revenue in future quarters as the number of IoT wireless power network proof-of-concept installations, which has grown by 43% over the past quarter, now totaling 20. 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.

Yes. Thank you.

Thank you.