Energous Corporation (NASDAQ:WATT) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET
Company Participants
Matt Sullivan – Investor Relations
Cesar Johnston – Chief Executive Officer
Bill Mannina – Acting Chief Financial Officer
Conference Call Participants
Suji Desilva – ROTH Capital
Jon Hickman – Ladenburg Thalmann
Operator
Good day and welcome to the Energous Corporation Third Quarter 2022 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Sullivan, Investor Relations. Please go ahead.
Matt Sullivan
Thank you, Wisnabe 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 revision to the forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards 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’d 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 third quarter conference call. Joining me today is Bill Mannina, our acting Chief Financial Officer.
I am pleased to report that in the third quarter of 2022, Energous delivered just over 10% year-over-year quarterly revenue growth, while continuing to improve our bottom line, driven by the demand and fulfillment of orders for our WattUp PowerBridges. This is a strong indicator of the increasing demand for our wireless power network solutions as you will now hear.
In the third quarter 2022, we made substantial progress. Firstly, we announced the first two retail deployments of Energous WattUp PowerBridges through our partnership with Flagship and Wiliot. These retail deployments, both in Australia successfully demonstrate the installation of multiple WattUp PowerBridges in an active harvesting wireless power transfer network, safely energized in thousands of Wiliot IoT Pixels without the need of batteries and under the software control of Flagship. The installation provides retailers with in-store merchandise and customer dynamics tracking data. These installations perfectly showcase the suitability of the WattUp technology system capabilities for new potential adjacent markets, enabling energized rooms where power can be harvested by IoT devices, eliminating the need for batteries or power cables.
In the third quarter 2022, we also announced FCC approval for our 15 WattUp PowerBridge, increasing regulatory approved distance and power levels for wireless power transfer. In addition, we further announced regulatory approvals for our WattUp PowerBridge in Australia and New Zealand complementing our approvals in the U.S., Canada, EU, UK, India and China.
Our continued progress in the last 9 months time span highlights our strong technical and business leadership for IoT wireless power transfer at a distance. These regulatory achievements combined with an IP portfolio of over 200 granted patents position Energous as a leader in wireless power transfer. Energous remains committed to the global standardization of wireless power transfer. And we are pleased to note that in October, the United Nations International Telecommunications Union, ITU approved and recommended the 900 megahertz radiofrequency band for wireless power transfer, energizing the IoT ecosystem. The 900 megahertz band recommendation supports the choice of frequency that we made at Energous to develop our technologies. And we and our partners and customers believe it is the best option for overall safety and system performance, including transmission-rich, solution cost and technology footprint.
In a solution focused IoT market, forming the strategic partnerships is a fundamental importance to ensure the success of go-to-market and deployment. As such, over the last 12 months, Energous has formed the important strategic partnerships with key technology players to address each specific market focus where we intend to deploy our technology. This quarter, we announced a new Wireless Energy Harvesting Evaluation Kit, supporting IoT, industrial, retail and medical applications in partnerships with e-peas. This new kit in addition to our previously released Wireless Power Sensor Evaluation Kit, in partnership with Atmosic consists of a 1 watt WattUp PowerBridge and specific receivers that allows customers to evaluate our technology and systems capabilities and fit to their needs.
With international trade shows coming back from a positive to COVID-19, we are excited to be Exhibiting at Electronica in Munich, Germany from November 15 to the 18th. Electronica is one of the world’s leading tech conferences and we will be on hand demonstrating some of our very best latest technologies in conjunction with our partners and we welcome any of you present to visit our booth.
In summary, our progress in Active Energy Harvesting Wireless Power Technologies Regulatory certifications and standardization efforts, system deployments for power at a distance over the last three quarters, with numerous achievements during Q3, has clearly positioned Energous as a leader in unleashing the IoT market. It has also helped establish this industry as a recognized technology solution well-positioned to enable the current emergence of the IoT based fourth industrial revolution with their smarter IoT devices through its application of artificial intelligence.
Turning now to a general company update on the goals that we set out for 2022, our first short-term goal was to fulfill the commercial delivery of 1 watt WattUp PowerBridges orders. We noted on our earnings call for second quarter 2022 that this goal has been met and in Q3 we continued to ship against orders received. Our second near-term goal was to identify a beachhead RF-tag application and related addressable markets targeting our first production pilot deployment. We met this goal in Q3 and we announced our first two deployments of asset tracking devices with Wiliot and Flagship, the most recent at an academy of brand store in Australia.
Lastly, on our third stated near-term goal, we were to complete the development of an electronic shelf label end-to-end system and target our first pilot deployment. We continue to explore this market and potential partnerships opportunities. We would also like to reiterate our long-term goals and give an update on those. Our long-term goals are the following: support AirFuel Alliance efforts to develop a wireless power transfer standard. As a board member at the AirFuel Alliance, we are excited to see the progress the AirFuel Alliance is making towards finalizing the world’s power transfer standard. We will give further updates on this goal as the AirFuel Alliance progresses towards that standard.
Our second long-term goal was to lead the ITU recommendation to align 900-megahertz wireless power transfer spectrum as the first designated wireless power spectrum worldwide. As we reported in October of this year, the ITU approved and recommended 900-megahertz for wireless power transfer. This historic achievement has opened up a vast number of accessible markets for wireless power transfer using the 900-megahertz band.
Our third long-term goal is to certify high power greater than 1-watt conducted power, IoT wireless power network, PowerBridge transmitters in the U.S. and the EU without distance limitations. With a 15-watt WattUp PowerBridge FCC certification in the U.S. that we announced in August, along with our earlier EU greater than 1-watt certification, we have achieved these objectives.
Our goal number four was to identify potential applications of ESL vertical markets and target first pilot deployment. As I mentioned earlier, we continue to explore this market and potential partnerships opportunities. Our long-term goal number five was to identify a third vertical market and build an end-to-end system for customer technology demonstrations. We are in the process of completing this goal within identification of IoT sensors as our third vertical market with an end-to-end system currently under development. Finally and most important, our sixth stated goal is to deliver year-over-year revenue growth driven by expanding IoT wireless power network deployments. And I am happy to report that through the third quarter of 2022, we have delivered year-over-year quarterly revenue growth in each quarter of 2022 and achieved approximately 27% year-over-year revenue growth for the 9-month period ended September 30, 2022.
I will now turn this call over to Bill Mannina, our Acting CFO. Bill?
Bill Mannina
Thanks, Caesar. Earlier today, we issued our Q3 earnings press release announcing the operating and financial results for our fiscal 2022 third quarter ended September 30. For the third quarter, we recognized approximately $223,000 in revenue, a decrease of 4% compared to approximately $233,000 in the prior quarter and an 11% increase compared to approximately $201,000 in the same quarter of last year.
Cost of revenue for Q3 was approximately $420,000, an increase of $149,000 over the prior quarter, which was due to product sales making up a larger percentage of our revenue in Q3 and also an inventory write-down. We did not report any cost of revenue in Q3 of 2021. Total GAAP cost and expenses for the third quarter totaled $6.3 million, approximately $1 million lower than the total costs and expenses of last quarter, which was mainly due to an approximately $600,000 decrease in severance expense and a $300,000 decrease in R&D expense due mainly to decreases in recruiting expense and chip design expense.
Compared to the third quarter of last year, total GAAP cost and expenses was approximately $6.3 million lower, which was mainly due to a $4 million decrease in severance expense, a $1.9 million decrease in R&D due primarily to an approximately $900,000 decrease in stock comp expense, and a $450,000 decrease in payroll expense and also a decrease of approximately $800,000 in sales and marketing due primarily to an approximately $450,000 decrease in stock comp expense and a $200,000 decrease in payroll expense.
Year-to-date, our total GAAP cost and expenses was $21 million, approximately $11.5 million lower than the $32.5 million of Q3 year-to-date GAAP expense in fiscal 2021, a decrease of just under 36%. The decrease year-over-year was primarily due to an approximately $6.2 million decrease in stock comp expense, a $3.4 million decrease in severance, and a $1.9 million decrease in payroll expense, which are partially offset by a $900,000 increase in cost of revenue.
The net loss for the third quarter on a GAAP basis was $6 million or an $0.08 loss per share on 77.6 million weighted average shares outstanding. This compares to a $7 million net loss in Q2 or $0.09 per share and at $12.5 million net loss or $0.20 per share on 63 million weighted average shares outstanding in Q3 of 2021. The year-over-year increase in the share count was mainly due to shares added from our at-the-market offering or ATM facility in the fourth quarter of 2021, which raised an additional net $27 million of cash and added 12.2 million shares.
Now for a non-GAAP view of our numbers for the quarter, as we believe non-GAAP information provides a useful comparison for investors, especially for a company at our stage when used with GAAP information. Excluding approximately $698,000 of stock-based comp and approximately $74,000 of depreciation expense, from our total Q3 GAAP cost and expenses of $6.3 million, net non-GAAP cost and expenses totaled approximately $5.6 million, a decrease of approximately $470,000 compared to Q2 and a decrease of approximately $1.1 million compared to Q3 of last year. The decrease compared to Q2 was mainly due to decreases in recruiting and annual shareholder meeting costs partially offset by an increase in cost of revenue. The decrease compared to Q3 of 2021 was mainly due to reduced headcount in research and development and sales and marketing and also decrease in recruiting fees again partially offset by an increase in revenue – cost of revenue, sorry.
Our non-GAAP net loss for Q3 was approximately $5.2 million and approximately $560,000 lower loss compared to Q2 and an approximately $1.3 million lower loss compared to Q3 of last year. Non-GAAP research and development expense was $2.6 million and approximately $330,000 decrease versus the prior quarter and approximately $930,000 decrease compared to the same period last year. The decrease compared to Q2 was mainly due to decreases in recruiting and chip development costs. The decrease compared to Q3 of 2021 was mainly due to decreases in payroll expense, chip development costs and consulting costs.
Non-GAAP SG&A expense was $2.6 million, a decrease of approximately $300,000 versus the prior quarter and a decrease of approximately $600,000 compared to Q3 last year. The decrease compared to Q2 was mainly due to decreases in recruiting and annual shareholder meeting costs. The decrease compared to Q3 of 2021 was mainly due to decreases in recruiting and consulting costs.
Year-to-date, our total non-GAAP cost and expenses was $18.1 million, $1.9 million lower than the $20 million of Q3 year-to-date non-GAAP expense in fiscal 2021. The decrease was mainly due to an approximately $1.9 million decrease in payroll expense, a $500,000 decrease in legal expense, and a $500,000 decrease in chip development costs partially offset by an increase of approximately $900,000 in cost of revenue.
Turning to the balance sheet, we ended Q3 with $30.4 million in cash and remain debt free. We expect our GAAP and non-GAAP cash operating expenses for the full year to trend in the current range with our normal quarterly fluctuations. Also, as mentioned earlier, we continue to forecast year-over-year revenue growth.
I will now give the call back to the operator for the question-and-answer session.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Suji Desilva with ROTH Capital. Please go ahead.
Suji Desilva
Hi Cesar. Hi Bill. Congrats on the progress here. So, maybe we can talk about the geographies, you added Australia and now you have several geographies, which are the geographies, Cesar, are you most – have the best near-term opportunity and most excited about, top two or three out of those near-term?
Cesar Johnston
Sure. So, we have certifications in the U.S., EU, UK, India, China, Canada, and now New Zealand and Australia. Certainly, from what we have communicated so far, we have two deployments in Australia. So, that makes us very excited. And the reality is that we have made that very public now. As far as the market, certainly the U.S. and UK are large markets that we are looking into where there is definitely a lot of interest. We actually are one of those few companies, if not the only one to – that also owns certification in China. And China has opportunities to that we are looking into.
Suji Desilva
Okay. Cesar thanks. That’s helpful. And then now that you have some stores under your belt a couple of months with flagship in Australia. Can you talk about what you might – what might be the dollar content out there for Energous per store and how we should think about that as these pilot – these proof of concepts turn into pilots and then eventual production?
Cesar Johnston
So, we have not discussed any specific costs here. But what we can talk about is the fact that some of these stores are in the order of, let’s say, 15,000 square feet or so. And the capabilities of our devices are deployed somewhere between 10 meters to 15 meters, when you place those in the ceiling. And if there is a need to complement the coverage and penetration of the signals into lower levels of tracking, then we can also spread those transmitters around the store somewhere in shelves and other places, right. So, we are talking about tens of devices, right. So, you can do your math here, given the numbers that I have given you. So, you can place transmitters every 10 meters or so, right. So, I will leave that up to you. And then once you have that, what you have is you have thousands of really devices, IoT pixels, that you can actually now support. So, we have not commented on specific pricing on this, but be able just to give you a high level idea. We are not any more expensive than access points for WiFi, which are commercially available today. So, we are in that price range.
Suji Desilva
Okay. Very helpful. Okay. And then maybe for Bill, can you talk about the inventory write-down Bill? What was the nature of that? And what kind of products it was?
Bill Mannina
It wasn’t lower of cost of market adjustment, it’s just dealing with the products we are selling now with transmitters.
Suji Desilva
Okay. And then lastly, again, for Bill, the R&D came down sequentially. And you talked about it a little bit in the prepared remarks. But is the new sustainable sort of level the 3Q level or whether sort of chip tape-outs or things like that that might make the stay in the level higher than the 26 for the quarter non-GAAP?
Bill Mannina
Yes. There are fluctuations there. This just happened to be just a low quarter in terms of some activity and headcount. And we will still have variability there.
Suji Desilva
Okay. That was helpful. Thanks guys.
Bill Mannina
Thank you, Suji.
Operator
[Operator Instructions] The next question comes from Jon Hickman with Ladenburg Thalmann. Please go ahead.
Jon Hickman
Hi. Cesar, can you hear me? Okay.
Cesar Johnston
Yes. Hi Jon. How are you? Yes.
Jon Hickman
Hi. Could you elaborate a little bit like what’s going to happen with your, I guess the market development before we really start to see dozens of deployments where revenues could really take off, what’s the gating factor here?
Cesar Johnston
Sure. So, we have some revenue, though it’s not as large as we would like to have it at this point in time. But we are working on basically a process by which we will get to deployment. At this point in time, we are starting with engagements in the PoC level, proof of concept level. And as customers go and do that proof of concept, they will probably add more of those deployments in their different stores, right. And as they take time to evaluate, not just our technology, Energous technology, but also the software that comes in place. I would say, typically over perhaps nine months to a year, they should work on putting together a plan for further expansion and final deployment. At that point in time as these grows, there is also a number of other potential PoCs or potential customers that get our evaluation kits, right. And as they evaluate that, you will see a number of them in the queue and as that comes together, that’s when it will happen.
Jon Hickman
So, can you tell us how many people are the proof – how many accounts are proof-of-concept?
Cesar Johnston
At this point in time, we have been able to publicly release two retailers in Australia.
Jon Hickman
Oh, you consider those guys proof of concept?
Cesar Johnston
I would say further than proof of concept, I would say second level of proof concept, yes. The fact is that the system is being now deployed at least in one store. So, I would say, call it a close to a production level, but I would say they need to go and stop further and get this level of satisfaction that they would expect before they move any further.
Jon Hickman
Okay. Thanks.
Cesar Johnston
Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Cesar Johnston, CEO for any closing remarks.
End of Q&A
Cesar Johnston
Thank you. We are grateful for the continued support from our shareholders and the stakeholders. This quarter in particular, saw a substantial progress in many facets of our business, including regulatory certifications, partnership progress, technology deployments, and company of operational efficiency. Energous remains steadfast in its commitment to the development of wireless power networks for the IoT industry. In summary, we have achieved the majority of the short-term and long-term goals we have set out for 2022. And we have done that in only nine months, so crossing [ph] our expectations. On the next quarter call, we will detail our plans for 2023 including both short and long-term objectives with a keen focus on increasing deployments, which will in turn help to drive top line growth in the New Year. We thank you for your support and we look forward to updating you on the company’s progress on our next quarterly call.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.
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