Q3 2019 Earnings Call
Good afternoon, and welcome to the Energy Corporation's third quarter 2019 financial results Conference call.
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Please note. This about just 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 can't and welcome everyone.
Before we begin that we'd like to remind participants that during today's call, but the company will make forward looking statements.
Statements whether in prepared remarks are during the Q1 day session are subject to inherent risks and uncertainties that are detailed in the company's filings with the Securities Exchange Commission.
Except as otherwise required by federal Securities laws and are just 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 in circumstances.
Also please note that during this call energous will be discussing non-GAAP financial measures as defined by FCC regulation G.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in todays press release, which is posted on the company's website now I'd like to turn the call over to Steve results CEO of right Energous. Please go ahead Steve.
Thank you Mike Good afternoon, and welcome to the Energys third quarter Conference call.
Brian rather our Chief Financial Officer is also joining me today.
I'd like to begin with comments on the company's progress and provide a general business update before turning the call over to Brian for a financial update.
Well then open the call for questions.
Looking at the third quarter, we are not where we expected to be from a revenue standpoint.
However.
For reasons will expand on in a moment I remain extremely confident and optimistic about the future of energy.
As we communicated in the past our goal has been to establish and launched a new technology on a global basis.
We originally focused our attention and resources on high volume opportunities from tier one accounts with a global reach.
This ambitious plan was contingent upon regulatory certification in three major markets.
North America, Europe and Asia.
To date, we've been successful in both North America, and Europe and are making significant progress in Asia Asia, which we will expand on later in the call.
The current lack of regulatory approval in Asia has delayed major customer launches.
Negatively impacting our revenue and growth expectation.
Again, we see this as a delay as customer engagement in multiple verticals remained strong.
In spite of this.
I remain extremely confident and optimistic about the future an energetic and here's why.
First.
We have been able to prioritize our near term customer projects.
Focusing on product launches in regions, where we already have regulatory certification.
This reset that stakes in some time, but we're now seeing the benefits of this change.
For example, you saw that aren't customer delight.
Launch their Oasis artsy, yes, 80 into North American ended the North American market this past quarter.
The launch of the delight CSAPR was the first tangible evidence that the Wattup technology from energy and progress from the developmental stage two for regulatory certification and commercialization.
Also recently one of art hearing AIDS partners, New sound formally announced the launch of the Primo W. Next generation hearing aid.
The Primo W isn't advanced hearing aid that will soon be available from doctors and professional Audiologist. Initially Andy you asked before expanding to other regional launches.
No Primo W. incorporates many of the advanced features of our wireless what up charging technology, including both Bluetooth communication and what are charging management.
What else improves the Primo W. W user experience as they can simply place their hearing aid onto the charger.
At any angle orientation, and they hearing AIDS will start charging and then automatically shut off when the batteries are fully charge. This is Doug first implementation of a Bluetooth control integrated power management solution for RF based wireless charging.
They use their spirit experience is unique and compelling and has generated serious interest in like implementation from the top hearing aid manufacturers that we estimate represent the majority of the global hearing aid market.
In addition, our customer fits the mentioned and now they're upcoming smart glasses will be wireless recharged fire Wattup technology.
Our next generation smart glasses are built using a unique artificial intelligence technology dedicated to sound speech and understanding developed by dimension in partnership with public Research Institute and major French University.
These three product launches are important as they validate the applications across three target markets terrible hearing aid and smart glasses.
They also represent just the beginning at what we expect will be additional wattup enabled product launches in the coming month.
I'd also like you mentioned one additional customer lives that we expect to take place before the end of the year.
That's our customer has reserved the right formally launched their product we cannot specifically mentioned their name.
But we can't tell you that this will be the first implementation of the one up charging technology in fast growing medical sensor market.
The application involved a number of sensors that are placed on the body. What's your charge via the Wattup technology between use it.
One key technological advancements in this application is that what up supports charging of up to five separate definite sensors from a single charging that surface, which we all know it's been a challenge for competing wireless charging technology.
All of these customer opportunities are aligned with our regional strategy and are expected to launch within the next few months.
Additionally, we are tracking a much larger number of product launches for 2020.
Customers that have application in our target markets.
It can be supported by our existing technology and current regulatory certification.
Overall, we believe this pipeline is evidence of the increasing momentum to our business and we will track and report progress on both fronts at our next conference call.
The second reason for my optimism is the advancements we've made across our technology portfolio and the commercial readiness of our near field charging technology.
In the third quarter, we announced the developer kit for here hole, which complements our first developer kits launched earlier this year for hearing AIDS in P.S. AC.
Developer kit availability is significant as each kid contain reconfigured software and production ready just configuration, enabling agile software and hardware design along with enter just high performance high efficiency antenna design.
Each developer kits, we represent a mature application, which will signals the beginning of a meaningful penetration into my target markets.
The third reason or I am excited about the future I've been there just isn't there are strong indication that a transition is underway in the world of wireless charging.
There is no doubt the demand for wireless charging will continue to grow.
Multiple reports paid the market expansion, who over 10 billion by 2023.
However, what is not represented in these numbers is what really we believe it's growing evident.
The needs and requirements for the market are changing and cannot be met my current incumbent such as she and other coil based charging technology.
Literally first generation. She technology is the current dominant player in wireless charging in terms of product implementation.
This is largely based on the fact that after roughly 15 years I.
A number of smartphones began to adopt and therefore on Ci wireless charging technology.
While still dominant were beginning to see evidence that the technology has reached the limitations of its functionality utility and overall desirability.
We believe the signs of this began even before at cancellation of their cheap pay a airpower charging Matt.
As we've noted in past fall, we're seeing strong interest for RF based technology as an upgrade and replacement for first generation coil charging technology.
Wireless charging interest it's also moving in another direction to support smaller footprint with improved efficiency orientation flexibility and multiple devices from charging from a single transmitter all of which are limitation coil based charging technology.
Despite the delays we haven't heard we believe the deeper anyone dig into wireless charging market that clear they will see that a technology transition is occurring.
And no one else is positioned to why can't or just with the expertise and investment in intellectual property to capture share across a broad spectrum of markets, an application, including both contact and distance based charging.
Touching on regulatory certification in China, Korea, and Japan.
The past the certification in these countries has taken longer than originally anticipated.
However, we remain confident and optimistic that we will see regulatory certification of Wattup enabled devices in one or more of these companies countries excuse me beginning as early as the first half of next year.
We also believe there is now a path to global certification for the following reason.
First entered just and our customers are directly working with all three Asian countries to take tangible step forward to create a certification process for RF based wireless power transfer or W.P.G.
Second interest is strong in the global RF watch based wireless charging for consumer product that has fostered direct top tier manufactured joining alongside us in our regulatory certification efforts.
This strategically important to expedite the approval process in these countries.
Finally international spectrum and standards organization are now in the formal process of addressing RF based wireless transfer.
All of these positive indicators lead us to conclude that we can expect to see tangible progress in the first half of 2020 with a goal of global certification.
Possibly before the end of next year.
It is important to note the energy is the leading RF based charging company driving these worldwide regulatory efforts and we are recognized as the global leader for W.P.T., We look forward to sharing more positive developments on our global regulatory efforts in the coming month.
I would also like to comment on the recent the power partnership announcement.
The power the leading innovator and micro battery technology has identified our Wattup technology has uniquely capable of meeting all the functional requirements for charging the next generation of hearing devices as well as providing a low cost high performance solution for legacy hearing aid.
We believe the technology currently under joint development can be expanded to other markets to the benefit of both companies, including smart glasses, Wearables medical sensors and more.
On the topic of partnerships our relationship with dialogue remains on track.
We continue to benefit from dialogue global sales presence as well as their operations expertise.
We believe as more customers watch wattup enabled products and revenues ramp tangible synergies between dialogue and entered just will come into play contributing to what we hope will be a domino effect in our target market.
On a separate no discussions with our long term partner continuing so there's nothing to update on this relationship at this time.
Moving on I would also like to take a moment to welcome our New Board members, Rahul Patel Senior Vice President General manager connectivity and networking business unit Qualcomm.
My newness silicon industry veteran and currently CEO at the semiconductor startup Mexico.
And right now Oh, a vice president at Intel.
As our company has matured and we started to scale, we have transitioned before focusing on members who have deep experience in high growth semiconductor company.
We are very privileged to have these three industry best friend join our board.
Finally, looking at the financial financial picture, we ended last quarter with just under 23 million in cash and for the first time in our history a growing backlog.
We also filed an 80 has to supplement our working capital while we work diligently do bring customers currently under engagement to market, enabling a ramp in revenue, which is our top corporate priority.
Just conclude.
Despite the delays we haven't heard tend to stock price depreciation we had experience we believe the deeper anyone dig into the wireless charging market. The clear they will see that a technological transition is occurring and no. Other wireless power company has the hardware.
Where antenna design qualified silicon artsy partnerships and active customer engagement with specific applications like energy.
Our optimism and confidence is justified.
Our goal is leading to a company relevant and profitability are clear and well understood. Our determination is unwavering as our expectation for success.
I would like to turn the call over to Brian now for a financial overview Brian .
Thanks, Steve at the close of market today, we issued our Q3 earnings press release announcing our operating and financial results for the third quarter fiscal 2019 ended September 30.
For the quarter, we recognized 41000 revenues compared to last quarter's 48100, and say 87000 lower than 228000, a revenue in the same quarter last year.
As Steve just discussed we believe we're on track for additional product announcements later this year was more expected for 2020.
We're engaged with a wide range of customers from regional companies with a single skew to multinationals with multiple consumer and industrial products. I've also mentioned this before but similar to other enabling next generation technologies that are disruptive and have gone before us one of our biggest challenges remain the internal development integration cycles are customers. However, we are seeing progress as evidenced by.
By recent announcements and customers joining us in the regulatory process that Steve spoke to Moreover, the Z power partnership announced in Q3 reflects the growing confidence of other key technology suppliers and these initial verticals that off base charging is a significant growth opportunity.
Moving to expenses total GAAP expense for the second quarter was 8.3 million the lowest level in four years. This is 1.7 million below the prior quarter at approximately 4.5 billion below the $12.9 million total GAAP expense in the same quarter last year.
The drop over the last quarter and prior year is mainly result of lower R&D expenditures, such as third party chip and prototype development costs and lower stock compensation expense. We believe we can maintain this range of expense along with headcount in the 60 plus minus range.
We could see occasional quarterly increases in R&D expense to cover chip tape out requirements as a technology advances and gains and gains traction, but they should not climb to the same levels as in previous quarters in past years.
As we've also emphasized our ability to maintain a consistent and more importantly, scalable or leverage Leverageable business model is in part thanks to our relationship with dialogue and working with their global operational and customer facing capabilities.
Net loss for the third quarter on a GAAP basis was approximately 8.2 million or 27 cents per share on 30.7 million weighted average shares outstanding.
This compares to.
$9.8 million net loss in Q2 or 32 cents per share.
And a 12.6 million net loss or 49 cents per share.
In Q3 of last year.
Now, let me turn to a non-GAAP view of our numbers for the quarter as we believe adjusted or not or non-GAAP operating results provide useful comparison for investors, especially for a company of our stage when used together with GAAP information.
Excluding 2.3 million of stock compensation and depreciation from our Q3 GAAP expense of 8.3 million net non-GAAP operating expense totaled $6.1 million down approximately 900000 over the prior quarter and 2.7 million below the 8.8 million of non-GAAP expense in Q3.
We have last year.
Revenues, our non-GAAP operating loss decreased to Q3 in Q3 to $6 million, approximately <unk> point $9 million lower than the prior quarter, and two and a half million better than last year.
non-GAAP engineering expenses of 3.9 million was essentially flat to last quarter and 2.3 million lower than the same period last year as I discussed earlier. This can be attributed to lower third party expenses associated with chip and prototype development and lower headcount.
Lower headcount costs.
non-GAAP SGN a decreased by approximately point 8 million versus the prior quarter and was quite $4.4 million lower than the same period last year due to lower legal and headcount costs.
Total cash used in the quarter was six and a half million ending the quarter with $22.8 million of cash.
We continue to remain debt free.
During the quarter, we implemented an aftermarket facility to support our working capital requirements, while we remain hyper focused on bringing customers to the market to capitalize on prior years investments as the leader in next Gen RF based charging.
In closing, we expect our cash operating expense run rate to remain at these new low levels.
Lower than in past quarters, we believe we remain on track beginning in the fourth quarter for additional customer launches and more heading into 2020.
Steve highlighted the business is operationally transition from heavy R&D to customer launches partnerships being formed along along with others being shape as a result from our progress in our first vertical markets and also customers joining us in the overseas regulatory approval process for those few remaining key markets I'd like to thank our investors for that.
Patients and continuing support and I'll now turn it back to Steve for additional Thomas.
Thank you operator, we'll now take question.
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At this time, we will pause momentarily to assemble a roster.
First as a question from William Gibson of Roth Capital. Please go ahead.
Yeah, Okay, any sort of brain, Steve on the number of products you would expect to be on the market.
By the end of next year.
By the end of next year.
I certainly double digits.
Be our expectation I don't think I can give you anymore.
Clarity than that.
We as I said, we have undergone a major refocusing of our efforts.
Understanding the importance of generating revenue as quickly as possible and with this new regional focus.
We are also targeting the key markets that we've talked about Hearables hearing AIDS wearables medical sensors and smart glasses.
And so I think you'll see a as I said double digit launches.
Across regions, where we have certification.
In those are targeted market.
Gaining momentum throughout the year.
Yeah, and you also mentioned that you.
I expect to have.
Certification and the three Asian countries by the end of 2020.
Could one or two of those hit earlier would that potentially open up business in advance of the all three.
Its our goal to have.
Regulatory certification on a global basis.
Before the end of next year, but as we've always said in dealing with regulatory agencies. It is impossible consolidate.
50 timeline I believe the cause for optimism is justified based on the reason that the I noted in my remarks.
I do believe that Theres, a distinct possibility that one or more of the countries could conceivably certify.
In the first half of next year.
Depending on the country and there is a chance that that will or that will move forward the customer engagement that require a <unk> a global certification.
The the top tier customers that were engaged with they have a broad spectrum of requirement.
Some require a certification in all three jurisdiction others are limited and require only one or two because they're not active participant in the respective Europe jurisdiction. So it is possible that are the a singular launch or a singular certification.
And in a country will open up opportunities do at some of the tier one and a global requirements that that have basically basically you couldn't put on hold until the certification is approved.
Thanks, Steve.
I will now turn the conference back over to Mr., Brazil for closing remarks.
Alright, Thank you I would like to thank all of you listening today as well all of our long term investors, who continue to believe in the vision of a second generation wireless charging technology powered by energy.
Significant private holders of enter just stock the executive management team and the board of directors understands our investors' concern with the stock price and the delays in the revenue momentum.
These delays and dilution effect all of it.
However, the company is moving forward and after considerable revamping of our customer final we have a forecast for revenue in 2020, which does not have any regulatory or technologically related dependency leading to us, leaving us gas confident our revenue will.
Randy.
There is also strong evidence that wireless charging isn't a state of transition.
Energen is uniquely positioned to capitalize on these changes in the markets and the benefit of all of our constituents.
We will be at Roth Conference next week in New York, and we look forward to reporting additional progress at our next conference call. After the first of the year. Thank you and good afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.