Energous Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the Energous Corporation Third Quarter 2023 Financial Results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to Craig McSail, Investor Relations. Please go ahead.

Speaker 1

Thank you, Jeremy, 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 and 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.

Speaker 1

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'd like to turn the call over to Cesar Johnston, President and CEO of Energous Corporation. Please go ahead, Cesar.

Speaker 2

Thanks, Greg. Good afternoon. Thank you for joining today And welcome to the Energous 2023 Third Quarter Conference Call. Joining me today is Susan Kim Van Duncan, Our Interim Chief Financial Officer. Let me start first with a short business update.

Speaker 2

Energous continues to successfully execute its smart IoT centric strategy that we initiated in early 2022 When we reposition and we retargeted the company to develop IoT power charging products at a distance Using the intellectual property, regulatory knowledge and the market experience that had been built by the company from the previous years of operation and which is backed by our 200 plus patent portfolio. The newest strategy Has been focused on enabling new high value IoT markets using Energous wireless power networks. These networks allow our customers Greater placement freedom, mobility, security and lower installation costs by removing the need for wires and batteries across RF tags, Electronic smart labels and sensor applications typically within a cloud enabled environment. So how does a customer rollout of our technology happen? Typically, our customers initiate a wireless power network technology evaluation and then a POC proof of concept installation for their application.

Speaker 2

This is then followed by a proof of validation or POV phase, which can result in a high volume installation and volume purchase of Energous products. Understanding how Energous is progressing with its current customers And its addition of new customers through these POCs and POV implementation phases is an important indicator of the global adoption of Energous Technology and the timing of future revenue. This is why we update you every quarter on the number of our POC customers. The Energous 1 watt power bridge product is the only advanced and regulatory certified product for wireless power network installations Available on the market today. Last quarter, Q2 2023, we announced a 10 times growth.

Speaker 2

Yes. Times 10 on our PowerBridge based wireless network POC installations with multiple POC customers across the world and across different markets since we started reporting on POCs in Q3, 2022. Let me mention again that we believe that the best indicators of increased interest in Nanogis Technology And potential revenue in the future quarters is our POC growth status. During this past quarter, Q3 2023, Customer interest in our products accelerated. We believe that this was driven by a growing appreciation of the value proposition Of wire free charging and Energous wireless power networks, which help them to overcome their cost and operational bottlenecks.

Speaker 2

As we continue to rollout POC deployments and gain experience and knowledge of the technology capabilities of businesses in our target markets, we have improved the efficiency of our IoT wireless power network installations. By learning from each POC deployment, we are able to leverage our experience to shorten the installation times. We have been reporting a steady growth in POC deployments over the past year. To remind everyone, started with 2 POCs in Q3, 2022. We grew to 10, 14 and 20 from Q4, 2022 through Q2, 2023.

Speaker 2

Now, I'm happy to report that we have 31 POCs across the U. S, Europe and Asia across multiple markets Covering retail, industrial, medical and smart office and smart home represented a 15 times decrease in just 1 year. As an additional note, I would like to mention that the majority of our customer trials are for real time asset tracking For digitizing multiple retail or industrial products within large warehouses, while incumbent warehouses tracking technologies have been useful, They have seen little innovation in recent decades. We believe our POCs in this environment have generated efficiency and automation improvements That large scale supply chains and logistic companies need nowadays. As a result, we're targeting large Online suppliers and retail brands as our future customers.

Speaker 2

In summary, Energous is well positioned as the leader To execute our proprietary smart IoT strategy across wireless powered networks within our chosen segments, Our year to year growth expectation mentioned in past earnings call that 20% revenue growth target for 2023 It's now dependent on the POC conversion rate of the current 31 POCs as customers place purchase orders into Q4 2023 2024. We will update you at our next earnings call. Our product roadmap supports both 1 watt and 2 watt power bridges With a family of advanced EN-four thousand one hundred, EN-three thousand two hundred and ten and EN-two thousand two hundred and twenty three semiconductor devices. Additionally, As we move forward, we will seek to evolve our roadmap to support the future 15 watt regulatory certified market in the U. S, which could dramatically open up markets to our wireless power technology.

Speaker 2

Strategic partnerships Within the wireless power ecosystem play an important role in the deployment and today we're working closely with 17 technology partners, 2 distribution partners and 4 IoT system integrator partners, with more expected to be added in Q4 2023. Now, let's discuss our recent progress on this front And give you a real example, in September 2023, we announced our partnership with Via To target real time asset tracking and inventory control for industrial logistics and retail applications. Via product simplifies secure competence in a way that improves responsiveness and bandwidth costs while uploading central cloud dependency through a full range of connectivity options capable of bypassing current customer limited information infrastructure. As part of the Via partnership, the AT and T Mexico Innovation Lab combined the Energous Wireless Power and Via Edge computing products to deliver a POC trial installation for real time asset tracking geared towards large customer applications. We continue working with Via to enable and add new potential customers in this field.

Speaker 2

In October, We attended the Wireless IoT Conference in Wiesbaden, Germany. This conference brought together key companies in the fields of IoT, RF tags and sensors among others. At the conference, we launched our low maintenance wireless sensor for IoT Industrial Applications in a new partnership with Inplay, which was previously announced in September. Inplay is a fabless semiconductor company developing low power communication technologies. Energous and in play demonstrated a temperature and humidity IoT sensor solution Using the 1 watt power bridge on the transmit side and the inplay 100 SoC low energy beacon capabilities on our battery free IoT sensor receiver.

Speaker 2

Finally, in late October, our team installed an important trial POC in Germany with our customer, Ecobite. This critical trial brought together several companies and their products, demonstrating the Energous capabilities To free RF tags and sensors from wires and batteries in a real time asset tracking logistics application using our wireless power network products. The companies that were part of this important effort included Identiv, a global U. S.-based digital security and identification leader Randen Group, GmbH and Company, a parent company managing several logistics related companies Thank you, Germany. Echobyte, a digitization expert company, which is part of the Rondin Group WBG Pulling GMVH and Company, a lowered carrier management company in Europe, also part of the Grunden Group Schmidt's Cargo Bull AG, a German manufacturer of semi trailers and truck bodies And Gerald Steiner, Brunnen of GmbH, a German mineral water firm.

Speaker 2

This important trial demonstrates the ability to integrate Energous technology into a broader system for real time asset tracking In a logistics application across warehouses and trailers using digitized pallets and plastic containers. This is just one example of a POC that we were allowed to disclose. And as most of our customers prefer to and talk about 31 ongoing trials in detail. However, hopefully, this example gives you an appreciation of a POC application, Our competitiveness and the type of customers we do business with. To summarize, Energous has been executing and making significant progress as we reposition and retarget the company on the Smart IoT applications.

Speaker 2

We are working towards enabling new smart IoT wireless powered network markets. Finally, on the financial side, I am pleased to report that in Q3 2023, we recognized revenue approximately $169,000 representing a growth of 44% over the prior quarter. Additionally, we continue to manage our OpEx tightly, making efficiency improvements as we progress and align the company further to our strategy. This resulted in a 50% reduction in OpEx compared to Q3 2022 in our non GAAP costs and expenses. I will now turn the call over to Susan.

Speaker 3

Thank you, Cesar. Earlier today, we issued our earnings Press release announcing the operating and financial results of our Q3 fiscal 2023, which ended September 30th. The revenue in the Q3 was approximately $169,000 and As mentioned by Cesar, this was a 44% increase from the prior quarter. Compared to the Q3 of 2022, revenue declined by 24%. Revenue for the Q3 of 2022 was higher due to one time bulk sale to a partner As we move into the smart IoT centric markets, the quarter over quarter Increase compared to the Q2 of 2023 is mostly driven by the additional New proof of concept customers in Q3.

Speaker 3

For the 1st 9 months Of 2023, we achieved revenues of $383,000 a decrease of 43 Percent compared to the same period in 2022. Cost of revenue was $48,000 In Q3, a decrease of $34,000 compared to the prior period and 372,000 decrease compared to Q3 of 2022. The significant decrease from the prior year is primarily due to a decrease in Sale of higher cost products to our partner as mentioned earlier And a decrease in the net realized value adjustments. For the Q3, total GAAP costs and expenses, Which include the cost of revenue or $5,300,000 a $1,000,000 decrease compared to the prior quarter. As aforementioned decrease in cost of revenue, we recorded a $420,000 reduction in R and D expenses, a $314,000 decrease in sales and marketing And a $406,000 decrease in G and A expenses compared to the prior quarter.

Speaker 3

This was offset by a $170,000 increase in severance expense in Q3 compared to Q2 of 2023. Total Q3 GAAP costs and expenses decreased by approximately $1,100,000 compared to Q3 of 2022. The decrease was primarily due to the earlier mentioned significant reduction in cost of revenue, A $426,000 reduction in R and D expenses, a 300 and $19,000 reduction in sales and marketing and $233,000 reduction in G and A expenses. This was offset by $269,000 in severance expense in the quarter with no severance expense in Q3 2022. Looking at the 1st 9 months of the year, Total costs and expenses have decreased by 14.8% compared to the 1st 9 months of 2022.

Speaker 3

Net loss for the Q3 on a GAAP basis Was approximately $4,100,000 or an $0.86 loss per share on approximately $4,800,000 weighted average All share and per share numbers provided on this call Give effect to the 1-four twenty reverse stock split of our common stock that Became effective on August 16, 2023. From our continued efforts and cost containment and improving operations efficiencies, we were able to decrease our Quarterly cash burn rate to $3,900,000 for Q3 2023. Compared to the cash burn of approximately $5,700,000 1 year ago, Which is over 30% improvement over last year. Our Q3 net loss of $4,000,000 or $0.36 loss per share Our 4,600,000 weighted average shares outstanding compares to Q3 2022, The net loss of $6,000,000 or a $1.54 loss per share on 30 3,900,000 weighted average shares outstanding. The year over year increase in the share count was mainly due to the sale of the shares under at the market offering or ATM facility and a public offering completed in Q1 of 2023.

Speaker 3

In the Q4 of 2022 through the Q3 of 2023, We raised an additional $4,400,000 of cash and added 658,000 shares. Our continued focus on aligning our operations with our IoT vertical strategy and trimming access Yes. Let me now give you a non GAAP view of our numbers for the 3rd quarter. As we believe non GAAP information provides a useful comparison for investors, especially for a company at our stage when reviewed in conjunction with GAAP information. And non GAAP results Approximately $369,000 stock compensation, dollars 47,000 of depreciation and amortization, $269,000 of severance expense from our Q3 GAAP costs and expenses of 5 point As a result, adjusted net non GAAP cost and expenses totaled $4,600,000 This is approximately $1,000,000 less than $5,600,000 of total non GAAP costs and expenses In the Q2 of 2023 and approximately 994,000 less compared to Q3 of 2022.

Speaker 3

Our non GAAP net loss For Q3 was $4,200,000 or an $0.89 loss per share, which includes a non GAAP adjustment for $788,000 of other income For our warrant fair value adjustment in Q3, this is a decrease in net loss of approximately 1,000,000 Compared to the prior quarter and $976,000 decrease compared to Q3 2022. On the balance sheet, we ended the quarter with approximately $16,600,000 in cash and cash equivalents and we still remain debt free. We realized $788,000 reduction in fair value of our warrant Liability, which was accounted for as other income in Q3 of 20 20 To close, we Expect our GAAP and non GAAP cash operating expenses for full year to trend downwards As we continue to find savings in costs and expenses to align our financial operations with our market strategy. We'll now give the call back to operator for the question and answer session.

Operator

All right. Thank you so much. Okay. And our first question comes from the line of Suji Desilva from ROTH Capital. Gucci, please go ahead.

Speaker 4

Hi, Cesar. Hi, Susan. So, congratulations on the progress here on the POCs. Cesar, Of the POCs, the base of 31, just curious how many customers is that across? Do you seeing multiple POCs per customer or is it roughly 1 per More or 1 per?

Speaker 2

No, it's not one per. I mean, there's a couple of those where actually customers might have Larger than 3 or so, but in general, the majority at this point in time are single.

Speaker 4

Got it.

Speaker 2

Okay. Hi, Suji. I forgot to say hello.

Speaker 4

It's okay. And then the POCs, which end markets amongst the POCs Are closest to ramp? I know they probably cover a whole bunch of different applications. So curious, which ones do you think are closest to sort of volume?

Speaker 2

Yes. So last quarter when we talked about this, I gave a very good example of logistics and real time asset tracking as one of the Possibilities on the PLCs that I thought was important. What I'm happy to report this quarter is that I actually gave everyone A taste and a window of visibility of logistics and real time asset tracking. So what I'm trying to say is It will be along those lines. We're housing asset tracking applications, RF tag applications that we're seeing right now.

Speaker 2

And I did Cover a number of customers, if you notice on the German POC that for the first time ever, we're at least able to give that visibility to our Audience, because it's always hard to talk about POCs as we have plenty of NDAs and customers do not like to share that. So we're very thankful to Ecobite for allowing us to share those names and for all those companies that are well known companies and large companies in Germany and Europe to allow us to stay and they are the ones that actually publicize and very happy with our progress.

Speaker 4

Okay. Thanks, Susan. And then my last question really is on the, I think there was a partner that you work with that you had a bulk sale. I was just curious on the mechanics of those and What causes those bulk sales to happen? Is that kind of preparing for a ramp or what the mechanics are Thanks.

Speaker 2

Yes. So if you remember, we've only been focused on the smart IoT strategy since early 2022, which has been less than 2 years. Certainly, we're getting closer to 2 years. It is unusual for a technology to get to this Ramp as fast as we are. So I'm very, very happy to see products to see certification and so on.

Speaker 2

So early last year, As part of our investment on growing this IoT market, we have a partner that or a couple of partners that we work with and allow us to Basically put together a number of eval kits and ways to actually get our technology out there, which by the way was a great investment, a one time investment, because as you can see, if it wasn't for that, I don't think it would be possible to have 32 POCs in no time. Typically, companies take over 2, 3 years to just get a technology that's brand new to this point. So we're very, very happy with what we see so far.

Speaker 4

Okay. Thank you, Cesar. Thank you, Cesar.

Speaker 2

Thank you. Thank you.

Speaker 5

All right.

Operator

And our next question comes from the line of Jon Hickman from Ladenburg Thalmann. Jon, please go ahead.

Speaker 5

Hi, Cesar. I was wondering if you are still I'm going to hold your guidance for year over year growth this year in revenues.

Speaker 2

Yes. So as I mentioned on the call, I will give a final update next quarter. We're still looking into The conversion ratio of those POCs and those 31 convert into 2024 and Next quarter, we'd be able to update you on that. But right now, we are still moving forward with what's been said before. Yes.

Speaker 5

So my math says that you'll need revenues of like $400,000 to make that happen. Is that aligned with your math?

Speaker 2

Matt, at the time when we started looking at this, look into basically the growth of the POCs and definitely, I mean, It really considers that. Otherwise, we would not have guided that way.

Speaker 5

Okay. Thanks.

Speaker 2

No problem.

Operator

All right. We have no further questions at this time. I'll turn it back over to the team at Energous for closing remarks.

Speaker 2

Great. Thank you. Energous Smart IoT strategy is showing very promising results. And our customers see the value offered by our IoT wireless power networks and evidence of this is the fact that

Operator

I believe we just lost you, if you're still there. Still can't hear you. Came in very briefly.

Speaker 2

Can you hear us now?

Operator

Yes, I can.

Speaker 2

Yes, I'm sorry, but Polycom here was not behaving properly. Okay. So Energous Smart IoT strategy is showing very promising results and that our customers see the value offered by our IoT wireless power networks As evidenced by the 31 POC trial installations as of Q3 2023. Of particular importance this quarter, We are glad to announce our partnership with Ecobite, which we believe provides visibility into the installation complexity and type of customers that we work with, which shows an important example of the type of real time asset and logistics applications that we have been talking about in the recent earnings calls. We continue to focus on increasing our revenue as these POC trials evolve, while closely managing our OpEx spend.

Speaker 2

Thank you all, our shareholders, stakeholders and Energous team members. And we look forward to updating you on the company progress again next quarter.

Operator

This concludes today's conference call. Thank you for attending.

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