Q3 2020 Energous Corp Earnings Call

Good afternoon, welcome to Energous Corporation third quarter, 2020, <unk> financial results Conference call.

Oh disciplines will be in listen only mode should you need assistance. Please take note conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Please note that this event is being recorded I would now like to turn the conference over to Mike Bishop with a company Investor Relations go ahead.

Thank you Kate and welcome everyone.

Before we begin I would like to remind participants that during todays 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 companys filings with the Securities and Exchange Commission.

Except as otherwise required by federal Securities laws that are just disclaims any obligation or undertaking to publicly we publicly release updates or revisions to the forward looking statements contained herein or elsewhere to reflect changes and 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 FCC regulation G.

Conciliations 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 ski Arizona CEO of Energous. Please go ahead Steve.

Thanks, Mike.

And welcome to the energy <unk> third quarter conference call joining.

Joining me today is Brian threaten our senior Vice President and Chief Financial Officer.

Our agenda today includes a high level overview of our third quarter performance.

A review of our key growth strategies and the progress we achieved during the quarter.

Upcoming milestones, we are driving toward and our future outlook.

Brian will then cover the third quarter financials in a more detailed review followed by a Q1 a session.

Like most companies our third quarter performance was adversely impacted by pandemic related headwinds.

We also experienced a last minute shift in priorities for certain government business, we were forecasting.

Combined these resulted in lower than anticipated topline growth for the third quarter.

To be more specific.

While internally the company has adapted well to the complexities and complications of the pandemic, we're being negatively impacted externally by the inability to interact directly with customers on site and a slowdown of product cycles by some customers who are dealing with their own pandemic issues filing.

Finally, with respect to government business, we forecasted funding being made available to support a W.P.T. projects for which the Energous technology was well suited.

These funds for reallocated to another project based on a shift in government priorities.

As we look ahead, we view this separate situation as temporary for a number of reasons, which I will detail in a moment equally important we remain confident and steadfast in our growth strategy.

Here's why we're optimistic about the future.

Interest in our charging technology continues to expand across a variety of vertical markets.

Indicative of the progress is the recent announcement of the new so am I hearing aid FCC certification.

As a result of this certification the first of the Primo W. units are in the process of being made available to distributors signaling the initial phase of general availability.

Along the same lines, we Atlas we anticipate at least two additional wattup enabled products will begin FCC certification process before the end of the quarter because of the holidays and the distractions associated with the change in Washington, We believe the certification process. This may take longer than usual, but we will announce the.

A successful certification following confirmation from the FCC.

Further validation of the enter just contact based technology, taking hold on the anticipated announcement of two possibly three wattup enabled products being made available to end customers in the near future.

Certainly before the end of the year with timing largely dependent on the pandemic issues mentioned earlier in the call.

All three are in the final stages of product launch as such we believe the only question is timing.

Two of these launches are in the medical sensor market and one is a new hearing aid customer which represents the third entrant into this very important market.

The new hearing aid customer now that will also represent the first product launch in Europe, expanding our customer product regulatory certification internationally.

Another meaningful validation point is today's announcement that posco in conjunction with the partnership efforts of feedbacks and SK Telecom has an enter just a.

Successfully complete the field trial of a wattup enabled ultra wide band industrial tracking device. This represents the first flight phase of a product a planned product launch subject to regulatory certification that could result in while scale excuse me wide scale deployment of the tracking technology.

Beyond the specific opportunity completing a successful field trial of a wireless power tracking device has positively as positive implications for wattup and the emerging markets of tracking devices and sensors in retail industrial medical and I O P devices.

Sides, the Pasco opportunity Energous is engaged in a number of product cycles involving implanted sensors rechargeable as well as continually charging medical industrial and I O T devices and tracking applications.

These market opportunities are taking shape rapidly with many applications that are ideally suited to the RF based wattup technology.

These application support high volume for whats the Wattup technology has unique competitive advantages over other wireless charging technology and are quickly emerging as a meaningful opportunity for the company.

Energous is also pleased to report that our partnership with Gray Powell the Chinese battery manufacturer is gaining traction grace.

Gray five significant market share an important target markets, including hearing aid medical devices and sensors sensors.

Respective engineering teams are developing a cop one common reference design that will combine both the battery and charging technology into a single easy to integrate cost effective solution for a broad spectrum of applications. We hope for general availability of this advanced charging solution in the mid 2021 time.

Timeframe.

While on the subject of partnerships our relationship with dialog remains strong dialogue.

Dialogue continues to support energy since operations and sales functions and believe we believe both companies are poised to benefit from the sale of energy chipsets and the continued expansion of the Wattup technology.

Regulatory certifications remain a top priority for the company one of our customers in China is in the process of petitioning petitioning the Chinese regulatory agency, thereby ti for certification of the first wattup enabled product in that country.

Moving on successful completion of this process, it's difficult to estimate but it result represents a significant step into completing the cycle.

We are employing the same strategy in Korea, where we are in discussions with customers potentially taking the lead role in petitioning the Korean regulatory officials to allow W.P.T. access. We are encouraged by the fact that we have partners who are willing to assume this responsibility as this appears to be the fastest approach to gain certification.

In these two important <unk> jurisdictions.

Further.

The addition of feral Wilkinson to our board of directors adds considerable expertise and experience in regulatory and government affairs to the company.

Carol is a highly experienced federal government adviser and a formal legal advisor to the FCC chairman beyond her potential contributions her direct involvement with Energous further expands the already considerable expertise of our board of directors.

Related to regulatory and the issue of certifications is the issue of standardization.

There's also positive movement along these lines to report.

First the FCC has lots in our P. R. N P. R M or notice of proposed rulemaking wet.

In this case represents an effort by the agency to gain industry feedback with the intent to formalizing wireless power transfer and its certification process as part of the Fccs title 47 code of federal regulations.

I can't.

As announced last month, the Airfit alliance or a epay is in the midst of establishing a standard for RF charging.

A standard is a key element to foster broad adoption and development the ecosystem as products adhering to the standard will be able to coexist and inter operate with each other launching these efforts reflects the kind of traction RF charging is gaining in WPP entered this will continue to support and contribute to this effort as part.

Of our commitment to the Fe Energous has assumed a leading role in both of these standards process.

As earlier as noted earlier part of our third quarter revenue delay was attributed to priority changes in one of our military opportunities.

With the caveat that breaking into the federal government and military markets is typically a long and arduous process. These markets increasingly look to be strong opportunities for the energous wireless charging technology, both contact and distance military applications like the soldier of the future in this city with the army.

Two arm and in power. The next generation of field. So soldier are heavily dependent on rechargeable batteries and mobile power under extreme conditions.

Both of these functional requirements are especially well suited to the competitive advantages of Ruggedized RF based enter just wireless power.

With our military applications partner Zentaris entered this offers a broad spectrum of compelling wireless power solution to the point, where the efforts of the combined companies have collectively generated several proposals for a wide range of applications across a number of command who have expressed interest in RF space.

Wireless charging.

Separately the larger overall federal government represent such a significant opportunity that we have made the decision to dedicate resources to capitalize on W.P.T. initiatives that are being developed for wireless power, especially distance for emergency responders homeland security and the department of energy.

Just to name a few.

We are pleased to report a significant number of technology validation point for our contact knowledge excuse me for our contact technology.

Of special importance is the interest being generated by the first wattup distance transmitter the Wattup power hub.

Because of its uniqueness and suitability for a broad spectrum of applications. The Wattup power hub has generated a lot of interest and significantly increased our perspective customer funnel there.

The result of this interest in distance technology, coupled with the Dod desire on the part of several potential customers to bring the technology to market quickly because of its differentiation is that we have multiple customer product cycles that are ramping faster than many of our contact based opportunities.

With respect to our goal of driving a top tier opportunity to design in status before the end of the year, we have a number of engagements with top tier companies defined as one of the top two or three participants in their respective markets to the point, where we expect at least one we'll make the decision to move forward with the Wattup technology before.

The end of this year, we anticipate the positive momentum will continue into 2021 with a possibility of one to two additional favorable decisions in the first half of next year it.

It is important to note that all of these top tier prospects are highly qualified and have specific timeline product cycles associated with them as well as specific product I'd.

Given the product forecast associated with these top tier opportunities.

With the continuous flow of announcements, we expect to make regarding smaller second and third tier opportunities. We expect to see tangible progress in terms of revenue and cash flow in the coming quarters. However, given the environment. We are in our ability to predict timing and trajectory is limited and subject to fluctuate.

Finally, IP continues to be an enter just frame a significant contributor to the core value of the company and a strategic barrier to potential competition with 227 awarded patents today, Brian I will now turn the call over to you.

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 of fiscal 2020 and at September 30.

Recognize 61.5 thousand revenues in the third quarter compared to the prior quarter's 114 point 4040, 0.4 5000 in the same quarter of last year year to date, we have recognized approximately 237000 in revenue versus 155000 for the same period in 2019.

Total GAAP expense for the second quarter was 7.6 million approximately point 7 million lower than the $8.3 million of total expense in the prior quarter and a similar improvement or point 7 million lower than 8.3 million of total GAAP expense in the same quarter of last year the.

The jury decrease over prior quarters in prior years as a result of lower expenses in the area of engineering development costs, and lower legal stock compensation and administrative costs chip.

Chip development work over the last few years is ongoing and gas and gas technologies, which is lowering cost to tape out versus Cmos.

We ended the quarter at 53 heads compared to 54 in the prior quarter and 56 in Q3 of last year.

As I've mentioned on prior calls and Investor meetings, we continue to believe that our model is highly leverageable and we don't expect a large increase in head count related expense, even as we expect to bring increasing customers.

Creasing number of customers to market headed into 21 2021.

This is in part due to our partnership with dialog and lower investment in the number of pure R&D projects versus the increasing number of customer projects compared.

Compared to last year R&D has dropped to approximately 53% of total GAAP spend.

62% for the same period of last year.

As Ive also discussed previously we could see increases if and when we plan for Cmos based chip tape outs, but again overall spending will trend in this range with increases expected only for the Cmos chip tape outs and other related development work.

Year to date, our total GAAP spending is 24.7 million 4.8 million lower than $29.5 million of year to date caps expenses in fiscal 2019.

Net loss for the third quarter on a GAAP basis was approximately $7.6 million or 18 cents per share on 41.9 million weighted average shares outstanding. This compares to an $8.2 million net loss in the prior quarter or 20 cents loss per share and similar $8.2 million net loss or 27 cents loss per share.

In the third quarter of last year.

Now I'd like to switch to a non-GAAP view of our numbers for the quarter and fiscal year as we believe adjusted or non-GAAP operating results provides a useful comparison for investors, especially for a company of our stage when used together with GAAP information.

Excluding approximately 2 million of stock compensation and depreciation for Merck total Q3, GAAP expense of 7.6 million.

Non-GAAP operating expense totaled $5.6 million down approximately 2.6 million over the prior quarter's non-GAAP expense of $6.2 million and point 5 million below the $6.1 million or not.