Energous Corp (WATT) 2021 Q2 法說會逐字稿

Good day, and welcome to the Energous Second Quarter 2021 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mike Bishop, with the company's Investor Relations. Please go ahead.

Thank you, Andrew, 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 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 Brian Sereda, CFO of Energous. Please go ahead, Brian.

Thanks, Mike, and good afternoon. I am Brian Sereda, Chief Financial Officer. And before I begin, I'd like to point out 2 press releases that hit the wire just after close today. The first announcing organizational changes in Energous and the second press release announcing our Q2 operating results ended March 31, 2021.

Joining me today is Cesar Johnston, Executive Vice President and Chief Operating Officer and acting CEO; and Bill Mannina, our VP, Finance and Corporate Controller, who will assume the role as acting CFO next month as I transition to an advisory role. In addition to organizational changes, the company also announced Kathy Bayless joining our Board as an Independent Director and Member of the Audit Committee.

Continuing with the discussion from last quarter, the goal of distance charging or sending meaningful and sufficient energy at distance under global regulatory constraints has been the goal of the company since it began life as a public company in 2014. Since then, significant technical and regulatory progress has transpired over the last several years, and we are now seeing the potential of the intersection of distance power transfer requirements and IoT powering big data via smart sensors and tag-like devices designed to collect more relevant and monetizable data that is not feasible through NFC or RFID legacy devices constrained by distance and lack of necessary communication protocols.

In addition, thanks to advancements of the technology and recent regulatory approvals, distance charging and energy harvesting is becoming reality and will bring new benefits to other industrial, medical, defense and consumer verticals. And as we stated in our previous call, we continue to expect real examples of distance-based power transfer entering the market by the end of this fiscal year. We also expect that previously announced customers incorporating our contact based solutions should finally appear in the market by the end of this year.

Just a quick recap on the operating results for the second quarter ended June 30th, before we get into the details. We continue to see modest progress in terms of revenue growth, closing Q2 with $185,000 in revenue versus $145,000 in Q1. Total Q2 GAAP expenses were $11.2 million versus $8.6 million in Q1. The difference primarily result of non-cash stock compensation charges in the quarter, and Bill will provide a breakdown of our financial results later in the call.

With that, let me turn the call over to Cesar, who will provide an update on our regulatory, technical and partnership progress. Cesar?

Thank you, Brian, and good afternoon, everyone. We believe that Energous continues to be the leader in the development of next-generation wireless charging technologies, using radio frequency wireless power transfer or WPT techniques. Our vision for safe, higher transmit power at a longer-range continues to expand, and it is at the core of our technology road map that we believe is in line with various markets such as industrial, retail and medical IoT, which will require such a solution beginning in the next few quarters and far into the future.

From the last quarter, our patent portfolio grew by 4 patents to 240 patents granted. Our patents protect our dedicated RF WPT semiconductors and systems devices. And we believe that we have one of the strongest and most valuable RF WPT IP portfolios in the industry, which continues to make Energous the clear technology leader in RF WPT.

Also, during this quarter, the FCC certified a product from American Equus, representing our fourth near field customer to receive certification. We believe that we are the only RF-based wireless charging company to have 4 partner products that have been certified by the FCC. We also announced the availability of a new 5.5 watt conducted power active energy harvesting developer kit. The developer kit includes a thin spare transmitter based on a new antenna design that has been optimized for far-field performance. This transmitter can be mounted on walls or ceilings in multiple instances to cover large areas requiring guaranteed power in a seamless manner and at a distance delivery greater than 15 feet. The evaluation kit includes previously announced receivers, supporting sensors, electronic labels or low power CPU BLE smart data processing devices geared towards IoT market applications, using our active harvesting technologies.

Based on power delivery at a distance requirements, we are uniquely poised to support the accelerated growth and expanding the scope of IoT applications. The WattUp active energy harvest and ecosystem, along with various partners devices supporting a myriad of solutions is here now. Every building block is of importance, and it should be. Now it's very obvious to all of our followers that we have systematically built a group of partners over time that include Dialog, Grepow, E Ink, e-peas, Atmosic and others. We continue to identify additional companies that are actively evaluating our technology for use with their specific applications, involving IoT devices requiring reliable power at a distance. Whether charging internal batteries or in most cases, harvesting transmitted energy to low power devices that do not require batteries if on a reliable source of energy, such as what we supply is available.

While our WattUp active energy system is currently geared to support several vertical markets, including industrial, retail automation, military and medical markets that require multiple network edge sensors, which are driven -- which are driving the growth of smart data in the cloud, captured by sensors that are capable of powering. Our regulatory efforts continue to progress, focusing on opening up the RF WPT market and with strong support of 900 megahertz as a key frequency of operation due to its many technical advantages, including longer range. For instance, 900 megahertz shows a 2.0 to 3.0x range advantage over 2.4 gigahertz. It is a well-known fact that frequencies of 2.4 and 5 gigahertz are extremely crowded with other wireless communication technologies, which precludes good performance compared to 900 megahertz, adding to our technology advantage.

At the ITU or the International Telecommunications Union, the current RF WPT draft includes 900 megahertz for worldwide application. And in Japan, the broadband wireless forum support 900 for a new RF WPT standard that shows indications of a first completion target by the end of this year. Meanwhile, in the U.S., we continue our dialogue with the FCC and have secured guidance to increase our road map transmission power beyond 5.5 watts at 1 meter. This is significant as longer-range delivery of power will be necessary for large area deployments of smart sensors in industrial applications, such as for instance logistics. We are developing new technologies along the FCC guidelines, which we will disclose details of in the near future.

Furthermore, we have also received an FCC PAG, preapproval guidance for one of our first mid field customer products, which shows safe power delivery at less than 1 meter distance. In summary, we believe Energous is on a cheer path with the evolution of IoT and the requirements for power delivery and increasing distances. The advent of the IoT H is crossing path of our maturing charging at a distant technologies. And as we have said on past calls and highlighted at the beginning of this call, we expect to see not only near field customers releasing products into the market in the next 2 quarters, but we also expect to see first examples of products charged at a distance in the market. Unfortunately, we cannot get into the details of the specific applications, but hopefully, we will soon be able to showcase the advantages of true wireless power in markets with significant TAMs, such as smart tag and sensor markets, along with other examples of distance charging, allowing for functionality that cannot be accomplished by first generation coal-based charging technologies.

I will now turn the call over to Bill Mannina, Vice President of Finance and Corporate Controller.

Thanks, Cesar. As you saw after the close of the market today, we issued our Q2 earnings press release announcing the operating and financial results for our fiscal 2021 second quarter ended June 30th. For the second quarter, we recognized $185,000 in revenue compared to $145,000 in the prior quarter and approximately $114,000 in the same quarter of last year.

Total GAAP expense for the second quarter totaled $11.2 million, approximately $2.5 million higher than the $8.7 million of total expense last quarter and approximately $2.9 million higher than the second quarter of last year. The bulk of the quarterly total GAAP expense increase was related to stock compensation expense recorded in the second quarter tied to the achievement of the vesting milestone that triggered the vesting of employee performance share units or PSUs.

Year-to-date, our total GAAP expense was $19.9 million, approximately $2.8 million higher than the $17 million of year-to-date GAAP expense in fiscal 2020. And from my earlier comment, the increase year-over-year was primarily tied to higher stock compensation with the majority of the increase expense in the second quarter.

The net loss for the second quarter on a GAAP basis was $11 million or an $0.18 loss per share on 62.1 million weighted average shares outstanding. This compares to an $8.5 million net loss in Q1 or $0.14 per share and an $8.2 million net loss or $0.20 per share in Q2 of 2020. Also, our weighted average shares were 40.6 million in Q2 2020. The year-over-year increase in the share count was mainly due to the completion of our aftermarket offering or ATM in the fourth quarter of 2020, which raised an additional net $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 EBITDA provides a useful comparison for investors, especially for a company at our stage, when used together with GAAP information. Excluding approximately $4.2 million of stock compensation and approximately $62,000 of depreciation expense from our total Q2 GAAP expense of $11.2 million, net non-GAAP operating expense totaled approximately $6.9 million, an increase of approximately $450,000 compared to Q1 and an increase of approximately $750,000 compared to Q2 of last year.

Net of revenue, our non-GAAP operating loss for Q2 was $6.7 million and approximately $400,000 higher loss compared to Q1 and an approximately $700,000 higher loss when compared to Q2 of last year. Non-GAAP engineering expense was $3.5 million and approximately $150,000 increase versus the prior quarter and an approximately $300,000 increase compared to the same period last year. This was mainly attributable to higher chip development costs.

Non-GAAP SG&A expense was $3.4 million, an increase of approximately $300,000 versus the prior quarter and an increase of approximately $500,000 compared to Q2 last year. The increase was mainly due to an increase in headcount and consulting costs and sales and marketing and an increase in annual shareholder meeting costs and G&A. Year-to-date, our total non-GAAP expense was $13.4 million, $900,000 higher than the $12.5 million of year-to-date non-GAAP expense in fiscal 2020.

Turning to the balance sheet. We ended Q2 with $38.2 million in cash and remain debt-free. We expect our Q3 net non-GAAP operating expense run rate to remain in our current range, averaging approximately $6.6 million per quarter. For Q3, excluding the onetime restructuring charge reflecting Steve Rizzone's severance cost related to his retirement in the third quarter, we may also see a slightly higher spend due to chip tape-out cost expected to occur in the third quarter. However, the tape-out cost could end up being pushed to Q4. Overall, excluding onetime items, our 2021 net non-GAAP operating expense should remain close to the expected net increase of approximately 10% over fiscal 2020.

As Cesar discussed, expectations hold for multiple examples of contact and distance charging entering the market before the current fiscal year-end.

I will now turn it back to Cesar.

Thank you, Bill. In closing, we would like to thank our investors for their ongoing support. We continue progress in terms of partner and customer engagements, especially with regards to distance and harvesting opportunities, and we want to reassert our expectation of both near field and distance-based customers entering the market before the end of this fiscal year. We also expect to announce additional technical and regulatory achievements that we anticipate will lead to commercial opportunities in the coming quarters. Distance charging is here, and we expect to share real examples of this that can only be commercially achieved through RF-based power transfer.

At this time, I would like to open the call for questions. Operator?

(Operator Instructions) The first question comes from Suji Desilva with ROTH Capital.

Cesar, best of luck in the new role, the CEO role. And then Brian, good luck in your next role and Bill, welcome to the call. So Cesar, I just want to ask -- I just wanted to be clear on the label of acting CEO and what the process is next, if any? And if there's a strategy change you might want to articulate as you come into the CEO role versus the last few years, if there's anything you wanted to point out at this point, that would be helpful at the starting point.

Sure. The company is conducting a CEOs search. Other than that there is no update we can provide.

Okay. Fair enough, Cesar. I'll save the question about the strategy until that search is concluded. So looking at some of the information in the press release in the earnings, the 4 customers you highlight, I just want to be clear, that's the 4 customers you've already announced then. I'd say NewSound, EarTechnic, Gokhale, Equus but I'd just love clarification to make sure that's how I should interpret that.

That is correct. So those are the 4 customers, yes.

I appreciate that. And then the -- what I'd like to know from that list of 4 is kind of how many months does it take on average to get FCC approval once the process starts? Just understand how long that cycle is? And then how does the pipeline look for additional FCC approvals among customers, perhaps future customers or additional? Just to understand where the pipeline stands now?

We have a number of customers going through the process. It's a function of the customer is using our reference design. A lot of these customers today use the times that have already been preapproved and can go fairly fast. But in general, depending on whether it's a new design or not, it could take longer. And as far as the times, it's hard for me to go and pinpoint a time when this is a government office, and there are always different time frames that they provide to us. Yes.

Okay. Fair enough. I just want understand, perhaps it's getting easier because of the reference design, but we'll kind of watch that. And then you talked a lot about energy harvesting this quarter. You talked about the partnership with Atmosic and so forth. What -- how should we watch for the rollout or success of this energy harvesting area? What milestones Cesar, would you point to for us to keep an eye on in the next few quarters, that would indicate you're tracking with this opportunity to what you're hoping to achieve.

Yes. So active harvesting is happening today. We have partnerships with a number of companies that we have already pointed out. If you recall, we did announce last quarter a reference kit design that puts together the technology with Dialog as well as e-peas and E Ink. What you will see is that we are now ramping up and providing those kits to different potential customers. And as we do that and we move forward, we're also identifying new potential customers that can -- sorry, partners that can actually add up to the whole ecosystem. And we'll be announcing those as we have systems that show their utility.

Okay. Helpful. And then last question perhaps for Bill. The OpEx, I guess you guided $6.6 million versus the $6.9 million. I want to understand if that -- for the second half of the year, I mean, is that level sustainable going forward or will there need to be an increase in investment in terms of the calendar year '22 time frame? What -- how should I think about the level you're at now versus what further products you need to build?

Suji, this is Brian. I can take that. I think we're in that 10% year-over-year increase range. We don't see a lot of fluctuation in the expenses other than for one time. And again, timing of the chip tape outs, whether they're CMOS, GaAs, GaN there's a big difference in cost. So we're kicking off a CMOS tape-out here shortly, but it could fall into Q4 based on timing. As you know, the fabs are pretty busy and backed up. As far as capital investments go, and I think that was the second part of your question, we're fully built out. We have built these labs out over the last several years. They're fully utilized. We don't see any big CapEx requirements. There may mean that we may have to go out and buy some additional test equipment, but overall, not really material in terms of dollar amount or investment size.

No, Brian, the question is actually about OpEx going ahead after the second half of this year. I think tis is a level you can build the business on.

I'd say, I do believe, as we've talked, this is a highly leverageable model, right. We're an engineering company. And once we deliver the technology, it's a fabless semiconductor model with the usual amount of systems integration and design work upfront. But I believe, and we continue to believe that this model is highly leverageable. We'll see some modest headcount increases as, obviously, the business volume increases but overall, very leverageable model. We don't expect an inflection point in expenses to mirror any revenue ramp.

Okay. That's all I had. Yes, absolutely. Again, good luck to your brand new roles. And Brian, thanks for all the help these years.

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

Just want to thank everyone that attended this conference call. We can assure you that moving forward, this is the RF wireless power company that has the lead and will make it happen. So we're here to make it happen. Thank you.

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