Q2 2023 Energous Corp Earnings Call
Participants
Cesar Johnston; President, CEO & Director; Energous Corporation
Susan Kim-van Dongen; Interim CFO & Principal Accounting Officer; Energous Corporation
Jon Robert Hickman; MD of Equity Research & Special Situations Analyst; Ladenburg Thalmann & Co. Inc., Research Division
Suji Desilva; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division
Craig MacPhail
Presentation
Operator
Good afternoon, and welcome to the Energous Corporation Second Quarter 2023 Financial Results Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Craig MacPhail of Investor Relations. Please go ahead.
Craig MacPhail
Thank you, 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. Reconciliation 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, Craig. Good afternoon, and welcome to the Energous' 2023 Second Quarter Conference Call. Joining me today is Susan Kim-van Dongen, our Interim Chief Financial Officer.
For those of you unfamiliar with our technology, Energous develops IoT wireless charging or wireless power networks through its advanced semiconductor and PowerBridge products based on its proprietary technologies. Our strategy is to energize IoT devices in RF tax, electronic shelf labels and sensor applications across the smart home, smart office, industrial, retail and health care markets.
Energous' power IoT devices operate without depending on large and costly replaceable batteries and the related operations replacement maintenance overhead. We aim to enable the smart IoT devices with placement freedom, mobility and lower installation costs by removing wires and electrical outlet requirements.
Additionally, wireless power networks provide energy and connectivity to smart IoT devices, enabling control, monitoring and tracking of the IoT device in this environment, for example, a warehouse or a shelf label or medical equipment in a hospital environment.
Since the beginning of 2022, Energous has focused on developing differentiated and optimized RF products to build IoT wireless power networks, and then to put the correct strategic partnerships in place, to create a cloud-enabled end-to-end smart IoT market ecosystem for our customers. We are focused on selected markets, namely IoT devices, in RF tax, electronic shelf labels and sensor applications across the smart home, smart office, industrial, retail and health care markets. We aim to work with leading customers or those emerging customers with the highest potential in these markets.
In a typical rollout of a wireless power network, our customers conduct a wireless power network technology evaluation and then a proof-of-concept installation or, POC, for their particular application. This is then followed by a proof of validation phase and a final production phase. Understanding how Energous is progressing with its current customers and the addition of new customers through this POC and POV implementation phases is, in our view, an important indicator of increased interest in Energous' technology and potential revenue in future quarters.
On that note, I am incredibly pleased to report that Energous continues progressing on a positive POC trend from when we first reported 2 POCs in the third quarter of 2022. This grew to 10 POCs in Q4 2022 and 14 POCs in the first quarter of 2023. And we are now glad to report that the total number of active POCs has grown to 20. We are in early discussions or early implementation phases with additional POCs. We have achieved 10x POC growth since we started our IoT wireless power efforts in Q3 2022.
From the 20 POCs, we have now 8 systems in the proof-of-validation phase, so remember, that's the second phase, or are waiting to move into this phase. We are also happy to report that one of the wireless power network installations have entered the production phase with a Fortune 100 company in partnership with Thinaer. We are proud of Energous' progress in developing cloud-enabled end-to-end smart IoT wireless power networks ecosystems.
Let me provide a live example of one of our customers to give you an appreciation of how the Energous technology is being deployed. In this example, our technologies are applied to the transportation and logistics supply chain markets. PowerBridges are installed in multiple areas, energizing warehouses as the PowerBridges are mounted on the ceiling in multiple corridor walls and inside merchandise shelves. PowerBridges energized BLE-based RF tax and collect digitized information from smart IoT devices, which are attached to the customers' products sitting at a warehouse.
As the customer products are moved inside and outside of the warehouse, the power bridges at the corridor walls or doors provide expanded coverage compared to old technologies and offer complete product mapping visibility as components enter or leave the storage area. As the customer products leave the storage area, forklifts can load the merchandise into trucks, which are also equipped with PowerBridges to track the products for distribution as trucks are loaded and unloaded.
Finally, in this example, using our system integration partner's cloud software, IoT devices with real-time visibility and transparency can now be analyzed using predictive capability for self-optimization, resulting in cost efficiency improvements and full automation. Energous' efforts in developing and identifying new POCs and technical collaboration with our customers in our focused applications and markets continue. As we identify and onboard new system integrators and distributors, we will continue to update you. Today, we stand at 14 technology partners, 2 distribution partners and 4 IoT system integrator partners, with more expected to be added in the second half of 2023.
Let's now move our discussion to update the first half of 2023 specific progress. Earlier this week, we announced the next phase of our partnership with WiGL, sponsored by the Air Force Research Lab at the U.S. Department of Defense, DoD. Energous' PowerBridges will continue to provide radio frequency-based wireless power of distance for WiGL's WPT networks in this second phase.
Also, as we close our first half of 2023, we would like to give an update of our 2023 goals as presented in our Q4 2022 earnings call.
First, maintain our technical and growing market leadership through innovative IoT WPN product development. In the first half of 2023, we completed the 1-watt PowerBridge certification in the world's largest markets, and we introduced our 2-watt PowerBridge. The new 2-watt power transmitter provides extended range, better coverage and RF signal penetration than the 1-watt PowerBridge transmitter. We also offer evaluation kits, featuring our technologies for RF sensors as well as connectivity and PMIC devices for our customers to evaluate our technologies.
Second, work closely with our PowerBridge production partners to optimize the cost and corresponding gross margin as we move to higher volume production. In the first half of 2023, we identified and enabled production lines with a well-known Asian-based contract manufacturer, supporting our PowerBridge assembly for low-cost and large volume execution.
Third, continue to identify key technology and systems partners to expand our potential markets and facilitate access to new potential customers through our industry-leading technologies. As of the end of Q2, we have 14 technology partners, 2 distribution partners and 4 systems integration partners. We continue our efforts to find new potential partners to support or develop new market applications.
Move our current and future customers steadily along the path to commercialization from POC to proof of validation and then to full production. As of first half 2023, we now have 20 POCs, 8 proof of validation and 1 customer at the production installation phase from just 2 POCs in third quarter 2022, a 10x increase since our first early installations.
And finally, support the rollout of PowerBridge production ramps with our key customers and partners and achieve expected annual revenue growth over 2022. As part of the POC efforts, we now have several IoT wireless power networks installed across multiple markets in the U.S., Europe and APAC regions. We expect POCs to result in production installations to bring revenue generation, with a target to achieve annual revenue growth over 2022. Given these assumptions, we currently anticipate year-over-year growth of 20% or more, which will be weighted towards the second half of the year.
On the financial side, we continue to make efficiency improvements and achieved a 7% reduction compared to Q2 2022 in our non-GAAP costs and expenses. We recognized revenue of $117,000 for Q2 2023, representing a growth of 21% over the prior quarter, in addition to adding 6 new proof of concept installations in this quarter.
The number of proof-of-concept customers moving along the path to final production has increased compared with the prior quarter, which we view as an important indicator of future revenue potential. We have made good progress in the last year with 20 POC installations as of today, and we're working to secure additional POC installations and higher production volumes in the future.
I will now turn the call to Susan.
Susan Kim-van Dongen
Thank you, Cesar. Earlier today, we issued our Q2 earnings press release, announcing the operation and financial results of our second quarter of fiscal year 2023, which ended June 30.
Revenue in the second quarter was approximately $117,000, as mentioned earlier by Cesar. This was a 21% increase from prior quarter and a 50% increase from $233,000 we reported in Q2 of 2022. Year-to-date revenue was about $214,000, as of June 30, a decrease of 52% compared to 2022. Cost of revenue was about $83,000 in Q2, a decrease of $56,000 compared to the prior quarter and a $189,000 decrease compared to Q2 of 2022.
For the second quarter, total GAAP costs and expenses increased by $145,000 compared to the prior quarter, down to $6.2 million. This is primarily due to a decrease of $210,000 of R&D and chip development costs and $100,000 in trade show expenses, offset by an increase of $208,000 in annual meeting expenses. Year-over-year, total GAAP costs and expenses for Q2 decreased by approximately $1.1 million compared to the same quarter last year. This was primarily due to a decrease of $543,000 in severance pay, $289,000 in recruiting expenses, $189,000 in cost of revenue and $125,000 in chip development and engineering supplies.
Net loss for the second quarter on GAAP basis was approximately $4.0 million or a $0.04 loss per share on approximately 91.2 million weighted average shares outstanding. This amount includes $1.9 million in our other income from a change in the fair value of our warrants. Q2 net loss compared to a $6.7 million net loss in prior quarter or an $0.08 per share on 81.4 million weighted average shares outstanding and a $7.0 million net loss or a $0.09 loss per share loss in Q2 of last year on a 77.1 million weighted average shares outstanding.
Our year-over-year net loss trending downwards is primarily due to our efforts in aligning our operations for the IoT vertical strategy and trimming access expenses from our legacy go-to-market strategy.
Well, let me now give you a non-GAAP view of our numbers for the second quarter as we believe our non-GAAP information provides a useful comparison for our investors, especially for a company at our stage, when used with GAAP numbers.
Non-GAAP costs and expenses for Q2 excludes approximately $504,000 of stock compensation, $45,000 of depreciation and amortization and $90,000 of severance expenses from our total Q2 GAAP costs and expenses of $6.2 million. Non-GAAP costs and expenses totaled approximately $5.6 million, which was approximately $216,000 less than the $5.8 million of total non-GAAP costs and expenses in Q2 and approximately $424,000 less compared to Q2 of 2022.
Our non-GAAP net loss for Q2 was $5.3 million or a $0.06 loss per share, which includes a non-GAAP adjustment for the $1.9 million of other income for the fair value adjustment of our warrants in Q2. This is a decrease in non-GAAP net loss of approximately $240,000 compared to the prior quarter and $498,000 compared to Q2 of 2022.
We saw a minor expense fluctuation across all areas, in line with our expectations. Notably, non-GAAP research and development expenses was $2.6 million, which was approximately a $199,000 decrease compared to the prior quarter and approximately a $258,000 decrease compared to Q2 of 2022.
On the balance sheet, we ended the quarter with approximately $20 million in cash and cash equivalents, and we still stay debt-free. As mentioned earlier, we realized $1.9 million change in fair value of our warrant liability, which was accounted for as other income in Q2 of this year.
To conclude, we expect our GAAP and non-GAAP cash operating expenses for the full year to trend downwards as we continue to find savings in costs and expenses to align our financial operations with our market strategy.
And I'll give the call back to the operator for a question-and-answer session. Thank you.
Question and Answer Session
Operator
(Operator Instructions) The first question comes from Suji Desilva with ROTH MKM.
Suji Desilva
So first of all, Cesar or Susan, on the POCs, 20 of them. I know you said one of them entered production. What portion of the remaining 20 do you think are relatively close to the validation, production stage versus maybe earlier, if you could kind of rank order those and maybe segregate them from which of the 20 might be kind of nearest or near to...
Cesar Johnston
Yes. So we reported 20 POCs. We went from 14 to 20, so 6 of them are kind of early. But if you recall during the conversation, the presentation, I mentioned there's 8 of them that are now in proof of validation. So we're already in the second stage. I would expect some of those, if not all of them, would eventually become production. And if you're going to ask me how it takes to production, it is dependent on the industry and the applications. Certainly, at least the 1 production that we have went pretty fast from a time perspective and went into production within, I would say, 6 to 9 months.
Suji Desilva
Okay. That helps. I didn't realize the 20 was inclusive of the validation and the production, and that absolutely helps more. So for the one that's in production, Cesar, how should we think about the ramp-up here? What kind of -- maybe what end market is it in? What's the opportunity here? And what's the timing? Is there an initial kind of ramp period? Or is it phased in by sites??
Cesar Johnston
Very good question, Suji. First of all, we're very glad, we're very happy, to report that, that one production is done with our partner, Thinaer, and that's already been deployed with a Fortune 100 company. Reality is that due to NDA constraints, we cannot, at this point in time, discuss who that Fortune 100 companies, okay? But what we can say about this company and what the deployment has been, which is in the hundreds of number of transmitters, is the fact that it is in the logistics area. It's in the warehousing area. And it's looking into components that are extremely expensive that need to be tracked and need to be stored and need to be known where they are at a given time.
And in those particular installations that we had in warehouses, and I want to stress this, when we deploy our wireless power networks, we deploy the networks on the ceiling, on the walls and, in many cases, inside the shelves, to provide more and more coverage. So having a very strong background on WiFi in my previous life before joining Energous, typically, in the case of WiFi, we have, let's say, 1 AP every 10 meters or so. But in certain applications that we've seen so far, in particular, in this one, in many cases, we see maybe up to 10x the number of transmitters that we actually provide to be able to cover 1 WiFi system. That gives you kind of an idea of where this technology is gearing towards, right?
Suji Desilva
No, that's very helpful, Cesar. I appreciate that color. Maybe my last question is on the calendar '23 outlook guidance. I think the revenue, I think you're saying up 20% year-over-year from last year, obviously, implies a ramp in the second half. Any sense of sort of how that plays out 3Q versus 4Q, just to understand at least qualitatively, perhaps? And what's your visibility into achieving that second half ramp?
Cesar Johnston
So we still are guiding in that direction. We are loaded towards the second half of the year. We have those proof of validation systems. Some of those are moving really, really well. So we will be updating you in the next quarter on where we are with those.
Suji Desilva
Okay. Can I just ask one last question then? Will there be more than 1 production system contributing to revenue in 4Q? Is that the expectation built into your guidance?
Cesar Johnston
That is the expectation based on what we have right now. And it's, at this point in time, a function of the customer's decision-making. And some of those are, by the way, related to the Fortune 100 company we've been working with.
Operator
Our next question comes from Jon Hickman with Ladenburg.
Jon Robert Hickman
Most of my questions were already asked and answered. But could you maybe speak to the fact that now you have 20 of these proof-of-concept programs and some are farther along than that, is it getting easier for the customers to do their validation because of previous work?
Cesar Johnston
Yes, definitely. We have way much more experience on the requirements and on the installations. We've done a number of them by now. So in many cases, we are able to go and set them up way much faster than we used to. We have situations where within 24 hours, 48 hours, we can actually set them up and show the capability and the feasibility of our technology, which, by the way, compared to other old technologies, it is far superior when it comes to visibility and coverage.
Jon Robert Hickman
And do you have the manpower? Like, proof of concept to double by the end of the year to 40, could you handle that?
Cesar Johnston
Yes, we can. In fact, as we pointed out, as we move forward, what we've done as part of the strategy is try to focus ourselves into a very limited number of products. And that includes our 1-watt, 2-watt systems. They're all the same. They're not changed pretty much. We just step and repeat that. And how we install and how we deploy the technology is something where we have developed internal tools that are unique to our industry and allow us to pretty much know what the best places and what the best locations are. And working with those customers, we have very, very clear technical guidelines that actually have saved us tremendous amounts of time. And yes, I mean, if we have to double, we are prepared for that. Yes.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Cesar Johnston for any closing remarks.
Cesar Johnston
Thank you. Energous continues progressing as we lead in the emergence of IoT wireless power networks and towards removing the need for batteries and cables. We continue to innovate in developing novel solutions used in our advanced technologies and robust intellectual property, resulting in this quarter in the 2-watt PowerBridge transmitter enhancements, which positions the company as a leader in power charging solutions.
Finally, I was pleased to see a 21% increase in revenue over the prior quarter and believe that a key progress indicator for potential revenue in future quarters as the number of IoT wireless power network proof-of-concept installations, which has grown by 43% over the past quarter, now totaling 20.
Thank you to all our shareholders, stakeholders and Energous team members, and we look forward to updating you on the company's progress again.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Cesar Johnston
Yes. Thank you.
Susan Kim-van Dongen
Thank you.
