Energous Corporation (NASDAQ:WATT) Q4 2022 Earnings Call Transcript

Energous Corporation (NASDAQ:WATT) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Good day and welcome to the Energous Corporation Fourth Quarter 2022 Financial Results. I would now like to turn the conference over to Matt Sullivan, Investor Relations. Please go ahead.

Matt Sullivan: Thank you, Dave 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.

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, CEO of Energous. Please go ahead, Cesar.

Cesar Johnston: Thanks, Matt. Good afternoon and welcome to the Energous 2022 fourth quarter conference call. Joining me is Bill Mannina, our Acting Chief Financial Officer. Q4 2022 is an important quarter. It is the end of our fiscal year and the culmination of 12 months of significant accomplishments, which also sets the foundation of an exciting 2023 with strong partnerships and business momentum. Let’s begin this call by summarizing our 2022 highlights, followed by a discussion of specific achievements in Q4 2022. I will end this call with an overview of our direction and business goals for 2023. During the year 2022, we focused the company on our vision to be the leader in eliminating batteries and cables by unleashing the full potential of IoT through wireless-powered networks.

Our main goal is to enable our customers with the technology elements and capability to build IoT wireless-powered networks. In 2022, we pivoted the company and our efforts to support applications for RF tax, electronic shelf labels and IoT sensors with a combined total addressable market of $280 billion according to IDC report data. Our target was to create new active energy harvesting IoT wireless-powered network ecosystems for these applications while adding value to our customers. Today, we are proud to report that our 2022 efforts have now resulted in multiple customers purchasing our evaluation kits to learn about our technology. But most important, we would like to report that at least 10 customers are now in the process of installing or have installed our IoT wireless-powered networks in proof-of-concept deployments across the retail, industrial, health care and automotive markets in three different regions, including the U.S., the European Union and Asia.

These installations represent important first steps towards driving broader adoption of our technology in the marketplace. Our customers are well-respected leaders across their respective business fields. As new customers decide to implement our technologies, their installation status progresses from proof of concept to proof of validation and ultimately, to the final production phase. To give you an example, a proof-of-concept phase typically integrates up to 100 PowerBridges, while a proof-of-validation and a final production phase can include hundreds or even thousands of PowerBridges. Today, the majority of our customer applications are focused on IoT RF tax for asset tracking, with at least one customer in the production phase. These are important accomplishments on two forms.

First, they demonstrate our success in creating an enabling a new market. Second, they highlight the effective execution of our 2022 short-term and long-term goals that we shared at the start of the year. I’ll now provide an update of each of these goals. The first two 2022 short-term goals of fulfilling the delivery of 1 watt PowerBridges and identifying a beachhead for our applications were accomplished. We have shipped thousands of our PowerBridges and now have at least 10 proof-of-concept and at least 1 production installation underway. The company is now positioned for expected revenue generation as our customers transition to the proof-of-validation and production phases during 2023. The third short-term goal was to develop an electronic shelf label, or ESL end-to-end system, which we have demonstrated in various conferences, including electronica 2022 and CES 2023.

Here, together with our partners, we focused on collaborating on delivering end-to-end systems to very large retail outlets that can offer significant volume potential for our PowerBridges. I will continue to keep you updated here as we progress with our partners and customers during the next quarters. With respect to our long-term goals for 2022, the first was to make wireless-powered network a standard, and that was finalized in December 2022, while the ITU’s historic recommendation for 900 megahertz use for wireless-powered transfer was approved in October 2022, fulfilling our second long-term goal. Wireless-powered networks are now fully recognized for the first time as an important emerging technology worldwide. The third long-term goal, to certify wireless-powered networks without distance limitations, was accomplished in August 2022 with our 15-watt PowerBridge FCC certification.

Our EU certification for greater than 1 watt was accomplished earlier in the year. These efforts have positioned Energous as the leader in IoT wireless-powered networks with certified capability to charge IoT devices at a distance around the globe. The fourth long-term goal is similar in the status to the third short-term goal, and we will update you the status as we make progress. Finally, the fifth and final long-term goal was achieved in Q3 2022, as we announce our support of sensor market applications with multiple partners and deliver sensor receiver demonstrations in Q4 2022. We announced a third IoT wireless-powered network application, demonstrating indoor air quality and multi-spectral live sensor capabilities at multiple public conferences.

On the financial side. On a full year 2022 basis, I’m happy to report that we delivered approximately $151,000 revenue, demonstrating year-over-year growth over 2022 of 12.5% from these early programs, while setting the stage for sustained longer-term growth through the balance of this decade as our proof-of-concept customers, move along the path to final production. This will translate into our PowerBridge product ramps and ultimately increase revenue and cash flow generation for Energous. Additionally, we continue to prudently manage our OpEx, demonstrating a significant reduction over 2021 through a number of internal cost-cutting initiatives. Let’s now move our discussion to update our Q4 2022 specific progress. In Q4 2022, we delivered approximately $179,000 in revenue, and Bill will cover this in more detail shortly.

We increased the number of our wireless-powered network proof of concept from 2 installations in Australia, which we announced in August and September 2022, respectively, to now 10-customer proof-of-concept installations across multiple markets and across the world with at least one customer in the production phase. This is a 5x increase in the number of important POC installations in just one quarter and it demonstrates the growing customer interest and potential of our technologies. At Energous, we are constantly identifying and executing in the development of ecosystems based on IoT wireless-powered network technologies. Our strategy is to build IoT wireless-powered network ecosystems by complementing our technologies with unique technology partners to open up new applications and markets.

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Some examples here include: a relationship with Catapult, a well-known sports performance analytics company based in Australia. In partnership with Catapult, we announced the American football of the future, which integrates an embedded tracker that charges wirelessly using our technology without sacrificing precision data or ball regulations. The new football reports the athletes and ball movements during the game in real time to the Catapult cloud to track and analyze the results. The Catapult football is just one product example that benefits from our RF-powered transmission technology, disrupting and advancing the sports performance industry. Additionally, as part of our new IoT sensor application ecosystem development, we unveiled our new air qualities, CO2 receiver, using a Sensirion device.

And we also announced our receiver sensor with multi-spectral licensor capabilities in partnership with ams OSRAM. Indoor air quality and light control are just a couple of IoT sensor examples that wireless-powered networks can support for a smart home, a smart office, industrial, retail and healthcare markets, enabling real-time control and efficiency improvement in the ongoing new IoT digital transformation. On the products and systems front, we have partnered with Sato Holdings Corporation, a Japanese global pioneer in auto-ID and labeling solutions, to develop next-generation smart store dynamic inventory replenishment applications for IoT wireless-powered networks. As system partners, our aim is to improve overall efficiency of tracking and replenishment management for merchandises and retailers.

Demonstrations of our combined solutions have been recently showcased at the National Retail Federation 2023 in New York and at the Retail Japan 2023 Trade Shows. And finally, we announced technology partnerships with CAP-XX in Q4. CAP-XX is an Australian company that manufactures supercapacitors, which are energy storage devices that replace batteries and result in maintenance-free IoT receiver devices. We also partnered with NGK in Japan to introduce the use of lithium-ion rechargeable inertia batteries in our IoT receiver devices. Moving on to standardization. We supported and participated in the first industry standard to charge IoT devices over the air. This standard was developed by global coalitions of companies as members of the AirFuel Alliance.

We also participated in leading the process to develop the International Telecommunications Union, ITU approval and recommendation for radio frequency-based wireless-powered transfer in the 900 megahertz band. Energous IoT wireless-powered networks are now a standard-based technology, transmitting power in the wireless transfer official 900 megahertz band for wireless-powered network deployment worldwide. In the regulatory arena, we announced the certification approval for unlimited wireless-powered distance transmission in South Korea for our 1-watt PowerBridge transmitter. This effort expands the original reach of the Energous IoT wireless-powered network global ecosystem. The certification in Korea complements previously supported approvals in the U.S., Canada, European Union, UK, India, China, Australia and New Zealand and continues to position Energous as the only IoT wireless power leader with certified technology worldwide.

I would like to now turn to the current year and outline our 2023 goals. As such, our 2023 goals are as follows: maintain our technical and growing market leadership through innovative IoT wireless-powered network product development. Number two, work closely with our PowerBridge production partners to optimize the cost and corresponding gross margin as we move to higher volume production. Number three, continue to identify key technology and system partners to expand our potential markets and facilitate access to new potential markets through our industry-leading technologies. Number four, move our current and future customers steadily along the path to commercialization from POC to proof of validation and then to full production. Number five, support the rollout of PowerBridge production ramps with our key customers and partners and achieve expected annual revenue growth over 2022.

Given the assumptions, we currently anticipate year-over-year revenue growth of 20% or more, which will be weighted towards the second half of the year. In summary, 2022 was a transition year and in particular, Q4 was a quarter of major achievements at Energous, making the end of a year center on pivoting and refocusing the company in IoT wireless-powered networks. It was the result of finding the best intersection of our technology with our certifications and standards to support a growing IoT market across the smart home, smart office, industrial, retail and healthcare markets. Throughout our organization, we firmly believe that we have now positioned Energous as the leader in the emerging IoT wireless-powered network markets with tremendous value potential due to its proprietary semiconductor, antenna and software products supporting multiple IoT markets.

We now look forward to 2023 as the demand of our solutions grows, and we support our customers to achieve success. I will now turn the call over to Bill.

Bill Mannina: Thanks, Cesar. Earlier today, we issued our Q4 earnings release announcing the operating and financial results for our fiscal €˜22 fourth quarter and full year ended December 31. For the fourth quarter, we recognized approximately $179,000 in revenue, a decrease of 20% compared to approximately $223,000 in the prior quarter and a 21% decrease compared to approximately $225,000 in the same quarter of last year. On an annual basis for 2022, we recognized approximately $851,000 in revenue, an increase of 12.5% compared to approximately $750,000 in 2021. This increase was in line with our revenue guidance for 2022. Cost of revenue for Q4 was approximately $383,000, a decrease of $37,000 compared to the prior quarter.

The Q4 cost of revenue included a small inventory write-down, which was similar to the write-down in Q3. We did not report any cost of revenue in Q4 of 2021. Total GAAP costs and expenses for the fourth quarter totaled $6.5 million, approximately $200,000 higher than the total cost and expenses of last quarter. The increase was mainly due to an approximately $165,000 increase in severance expense and a $140,000 increase in bonuses, which were partially offset by a $103,000 decrease in stock comp expense. Compared to the fourth quarter of last year, total GAAP costs and expenses were approximately $3.1 million lower, which was mainly due to a $2.3 million decrease in R&D due primarily to an approximately $1.5 million decrease in stock comp expense and a $390,000 decrease in payroll expense and also a decrease of approximately $1.4 million in sales and marketing, due primarily to an approximately $950,000 decrease in stock comp expense and a $230,000 decrease in payroll expense.

For 2022, on an annual basis, our total GAAP cost and expenses was $27.5 million, approximately $14.7 million lower, and the $42.2 million of total GAAP costs and expenses in fiscal 2021, a decrease of just under 35%. The decrease year-over-year was primarily due to an approximately $9 million decrease in stock compensation expense, a $3.2 million decrease in severance and a $2.2 million decrease in payroll expense, which were partially offset by a $1.3 million increase in cost of revenue. The net loss for the fourth quarter on a GAAP basis was $6.1 million or an $0.08 loss per share on 78.3 million weighted average shares outstanding. This compares to a $6 million net loss in Q3 or $0.08 per share and a $9.4 million net loss or $0.13 per share on 72.9 million weighted average shares outstanding in Q4 of 2021.

Now for a non-GAAP view of our numbers for the quarter and fiscal year, as we believe non-GAAP information provides a useful comparison for investors, especially for a company at our stage, when used in conjunction with the GAAP information. Excluding approximately $595,000 of stock-based compensation, approximately $45,000 of depreciation and approximately $165,000 of severance expense for our total Q4 GAAP cost and expenses of $6.5 million, our net non-GAAP cost and expenses totaled approximately $5.7 million, an increase of approximately $173,000 compared to Q3 and a decrease of approximately $513,000 compared to Q4 of last year. The increase compared to Q3 was mainly due to an increase in FCC testing and for overhead costs. The decrease compared to Q4 of 2021 was mainly due to reduced headcount, a decrease in chip development costs, engineering supplies and consulting costs again partially offset by an increase in cost of revenue.

Our non-GAAP net loss for Q4 was approximately $5.3 million and approximately $142,000 higher loss compared to Q3 and then approximately $683,000 lower loss when compared to Q4 of last year. Non-GAAP research and development expense was $2.6 million, which was consistent with the prior quarter and an approximately $780,000 decrease compared to the same period last year. The decrease compared to Q4 of 2021 was mainly due to decreases in payroll expense, chip development costs and consulting costs. Non-GAAP SG&A expense was $2.7 million, an increase of approximately $148,000 versus the prior quarter and a decrease of approximately $116,000 compared to Q4 of last year. The increase compared to Q3 was mainly due to an increase in employee bonuses and consulting costs.

The decrease compared to Q4 of 2021 was mainly due to decreases in marketing costs and consulting costs. On an annual basis, our total non-GAAP costs and expenses was $23.8 million, $2.4 million lower than the $26.3 million of non-GAAP expense in fiscal 2021. The decrease was mainly due to an approximately $2.2 million decrease in payroll expense, a $930,000 decrease in chip development costs and engineering supplies and a $750,000 decrease in consulting costs, partially offset by an increase of approximately $1.3 million in cost of revenue. Turning to the balance sheet, we ended Q4 with $26.3 million in cash and remain debt free. Additionally, we continue to raise cash with our ATM. We raised $800,000 in Q4 2022. And year-to-date in 2023, we have raised an additional $2.7 million from our ATM.

We expect our GAAP and non-GAAP cash operating expenses for 2023 to trend in the current range similar to 2022 with our normal quarterly fluctuations. We continue to look for OpEx reductions such as rent savings on our headquarters lease that took effect last quarter. And for cost of revenue, we are signing up with a contract manufacturer for 2023, which should substantially reduce our cost of revenue on a per unit basis. Also, as mentioned earlier, we currently anticipate year-over-year revenue growth of 20% or more for 2023, which we expect will be weighted towards the second half of the year. I will now give the call back to the operator for a question-and-answer session.

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Q&A Session

Operator: The first question comes from Suji Desilva with ROTH MKM. Please go ahead.

Suji Desilva: Hi Cesar. Hi Bill. Congrats on the progress to-date here. A question on the retail customers you have with your partners in Australia. What’s the update on the status of the pilots there? And what may be the timing of those pilots shifting into production rollouts or spreading across more stores?

Cesar Johnston: Hi Suji. How are you? Thank you for your question. We continue supporting our partner in Australia. They are a very important partner. We continue finding further opportunities. I don’t €“ we don’t have an update on that yet today that I can share with you. But what I would like to add is that while we have those two, we just reported a total of 10 by this quarter. And what that means is that the interest of our technology out there, and by the way, that’s a 5x increase compared to those two that you just asked about.

Suji Desilva: Good. That’s great progress there. My second question is about the numerous partners you discussed in the press release and have highlighted through calendar €˜22. Maybe you could highlight for us maybe the one or two of those partners that has the best near-term opportunity to bring in business for Energous? I know they are all fairly interesting, but I am curious if any one or two stand out for the next 12 months.

Cesar Johnston: It is hard to tell you one or two. What I would like to do maybe is look at the different markets, and each one of them offer their unique solutions to each particular market. So, if we look €“ as you remember, we have talked about three applications that we are focused on, RF-tags, ESL and sensors, right. So, potential important partners in the area of RF-tags, definitely, we work with Wiliot, right. And we have, as you know, deploying retail in Australia with them. So, that combination, that ecosystem, it’s important to us. And out of those 10 PoCs that we have mentioned so far, I would say the majority of them are in the retail area. So, that’s one particular area and one partner that’s important to us. Second one is in the area of electronic Electronic Shelf Labels.

Our transmitters, our networks are required to have extreme low-power capabilities at the receive side. And there, in fact, we do have an evaluation kit that we sell today with our partner, e-peas. So, we see e-peas as an important partner as well as EINC , who as you know, is a low-power display company, well known out there and leader on displays. And the third application happens to be sensors, and we are proud that we finally made that decision to move into sensors and most important partners there today that have already been announced, and by the way, demonstrated, which is important, the technology has been demonstrated at electronica as well as CES. It’s Sensirion, which is considered like the top two companies out there for sensors.

And of course, ams OSRAM, a well-known name out there. And we are working with them with lighting applications. So, I would say each one of those is important, each one of their applications. But more than that, there is others behind that. And by the way, the ones that I have talked to you are effectively technology partners that allow us to build those ecosystems that now add value to customers. But also there are other potential partners that we work with that we are not at liberty today to disclose. And they are also system integration partners, customers €“ partners that are extremely close to customers and can take those ecosystem solutions that we have developed and get us closer to a potential PoC and towards production effectively and eventually generating revenue for the company.

Suji Desilva: Okay. And then my last question. Thanks for the guidance for €˜23 of revenue doubling. Can you talk about, perhaps of the 10 programs you have announced, how many of those might you expect to contribute roughly to the €˜23 revenues? Just to understand which ones are going to kind of hit revenues versus which ones will be further out? Thanks.