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Q3 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

Hello. Good day, and welcome to the Energous Corporation Third Quarter 2023 Financial Results. (Operator Instructions) I would now like to turn the call over to Craig MacPhail, Investor Relations. Please go ahead.

Craig MacPhail

Thank you, Jeremy, 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'd like to turn the call over to Cesar Johnston, President and CEO of Energous Corporation. Please go ahead, Cesar.

Cesar Johnston

Thanks, Craig. Good afternoon. Thank you for joining today, and welcome to the Energous 2023 Third Quarter Conference Call. Joining me today is Susan Kim-van Dongen, our Interim Chief Financial Officer.
Let me start first with a short business update. Energous continues to successfully execute its smart IoT-centric strategy that we initiated in early 2022 when we reposition and we retargeted the company to develop IoT power charging products at a distance using the intellectual property, regulatory knowledge and the market experience that had been built by the company from the previous years of operation and which is backed by our 200-plus patent portfolio.
The new strategy has been focused on enabling new high-value IoT markets using Energous wireless power networks. These networks allow our customers greater placement freedom, mobility, security, and lower installation costs by removing the need for wires and batteries across RF tax, electronic smart labels and sensor applications typically within a cloud-enabled environment.
So how does the customer rollout of our technology happen? Typically, our customers initiate a wireless power network technology evaluation and then a POC, proof-of-concept, installation for their application. This is then followed by a proof of validation or POV phase, which can result in a high-volume installation and volume purchase of Energous products. Understanding how Energous is progressing with its current customers and its addition of new customers through these POCs and POV implementation phases is an important indicator of the global adoption of Energous technology and the timing of future revenue.
This is why we update you every quarter on the number of our POC customers. The Energous 1-watt PowerBridge product is the only advanced and regulatory certified product for wireless powered networking installations available on the market today. Last quarter, Q2 2023, we announced a 10x growth. Yes, x10 on our PowerBridge based wireless network POC installations with multiple POC customers across the world and across different markets since we started reporting on POCs in Q3 2022.
Let me mention again that we believe that the best indicators of increased interest in Energous technology has a potential revenue in the future quarters is our POC growth status. During this past quarter, Q3 2023, customer interest in our products accelerated. We believe that this was driven by a growing appreciation of the value proposition of wire-free charging and Energous wireless power networks, which help them to overcome their cost and operational bottlenecks.
As we continue to roll out POC deployments and gain experience and knowledge of the technology system capabilities of businesses in our target markets, we have improved the efficiency of our IoT wireless power network installations by learning from each POC deployment, we are able to leverage our experience to shorten the installation times. We have been reporting a steady growth in POC deployments over the past year. To remind everyone, we started with 2 POCs in Q3 2022, grew to 10, 14 and 20 from Q4 2022 through Q2 2023. Now I'm happy to report that we have 31 POCs across the U.S., Europe and Asia across multiple markets covering retail, industrial, medical and smart office, smart home represented a 15x increase in just one year.
As an additional note, I would like to mention that the majority of our customer trials are for real-time asset tracking for digitizing multiple retail or industrial products within large warehouses. While incumbent warehouses tracking technologies have been useful, they have seen little innovation in recent decades. We believe our POCs in these environments have generated efficiency and automation improvements that large-scale supply chains and logistics companies need nowadays. As a result, we're targeting large online suppliers and retail brands as our future customers.
In summary, Energous is well positioned as the leader to execute our proprietary smart IoT strategy across wireless-powered networks within our chosen segments. Our year-to-year growth expectation mentioned in past earnings call, a 20% revenue growth target for 2023, is now dependent on the POC conversion rate of determined 31 POCs as customers placed purchase orders into Q4 2023 and 2024. We will update you at our next earnings call.
Our product road map supports both 1-watt and 2-watt PowerBridges with a family of advanced EN4100, EN3210 and EN2223 semiconductor devices. Additionally, as we move forward, we will seek to evolve our road map to support the future fixed in watt regulatory certified market in the U.S., which could dramatically open up markets to our wireless power technology.
Strategic partnerships within the wireless power ecosystem play an important role in the deployment and today, we're working closely with 17 technology partners, 2 distribution partners and 4 IoT system integrator partners with more expected to be added in Q4 2023.
Now let's discuss our recent progress on this front and give you a real example. In September 2023, we announced our partnership with Veea to target real-time asset tracking and inventory control for industrial, logistics and retail applications. Veea product simplifies secured competing in a way that improves responsiveness and bandwidth cost while offloading central cloud dependency through a full range of connectivity options capable of bypassing current customer limited information infrastructure.
As part of the Veea partnership, the AT&T Mexico Innovation Lab combined the Energous wireless power and Veea edge computing products to deliver a POC trial installation for retail time asset tracking geared towards large customer applications. We continue working with Veea to enable and add new potential customers in this field.
In October, we attended the wireless IoT conference in Wiesbaden, Germany. This conference brought together key companies in the fields of IoT, RF tax and sensors among all others. At the conference, we launched our low maintenance wireless sensor for IoT industrial applications and a new partnership with InPlay, which was previously announced in September. InPlay is a fabless semiconductor company developing low-power communication technologies. Energous and InPlay demonstrated a temperature and humidity IoT sensor solution using the 1-watt PowerBridge on the transmit side and the InPlay 100 SoC low energy beacon capabilities on our battery-free IoT sensor receiver.
Finally, in late October, our team installed an important trial POC in Germany with our customer, [Ecobyte]. This critical trial brought together several companies and their products, demonstrating the Energous capabilities pre RF tax and sensors from wires and batteries in a real-time asset tracking logistics application using our wireless power network products.
The companies that were part of this important effort included Identiv, a global U.S.-based digital security and identification leader, Randon Group GmbH & Company, a parent company managing several logistics-related companies in Germany. Ecobyte , a digitization expert company, which is part of the Randon group, WBG Pooling GmbH & Company, a load carrier management company in Europe, also part of the Randon Group, Schmitz Cargobull AG, a German manufacturer of semitrailers, trailers and truck bodies and Gerolsteiner Brunnen GmbH, a German mineral water firm.
This important trial demonstrates the ability to integrate Energous technology into a broader system for real-time asset tracking in a logistics application across warehouses and trailers using digitized pallets and plastic containers. This is just one example of a POC that we were allowed to disclose. And as most of our customers prefer to keep such details under NDA making it possible for us to demonstrate our current capabilities and talk about 31 ongoing trials in detail. However, hopefully, this example gives you an appreciation of a POC application, our competitiveness and the type of customers we do business with.
To summarize, Energous has been executing and making significant progress as we reposition and retarget the company on the smart IoT applications. We are working towards enabling new smart IoT wireless power network markets.
Finally, on the financial side, I am pleased to report that in Q3 2023, we recognized revenue of approximately $169,000 representing a growth of 44% over the prior quarter. Additionally, we continue to manage our OpEx tightly, making efficiency improvements as we progress and align the company further to our strategy. This resulted in a 15% reduction in OpEx compared to Q3 2022 in our non-GAAP costs and expenses.
I will now turn the call over to Susan.

Susan Kim-van Dongen

Thank you, Cesar. Earlier today, we issued our earnings press release announcing the operating and financial results of our third quarter fiscal 2023, which ended September 30. The revenue in the third quarter was approximately $169,000 and as mentioned by Cesar, this was a 44% increase from the prior quarter. Compared to the third quarter of 2022, revenue declined by 24%. Revenue for the third quarter of 2022 was higher due to onetime bulk sale to a partner as we moved into the smart IoT-centric markets. The quarter-over-quarter increase compared to the second quarter of 2023 is mostly driven by the additional new proof-of-concept customers in Q3.
For the first 9 months of 2023, we achieved revenues of $383,000, a decrease of 43% compared to the same period in 2022. Cost of revenue was $48,000 in Q3, a decrease of $34,000 compared to the prior period and $372,000 decrease compared to Q3 of 2022. The significant decrease from the prior year is primarily due to a decrease in sale of higher-cost products to our partner, as mentioned earlier, and a decrease in the net realized value adjustments. For the third quarter, total GAAP costs and expenses, which include the cost of revenue were $5.3 million, a $1 million decrease compared to the prior quarter.
Aforementioned decrease in cost of revenue, we recorded a $420,000 reduction in R&D expenses, a $314,000 decrease in sales and marketing and a $406,000 decrease in G&A expenses compared to the prior quarter. This was offset by a [$117,000] increase in severance expense in Q3 compared to Q2 of 2023.
Total Q3 GAAP cost and expenses decreased by approximately $1.1 million compared to Q3 of 2022. The decrease was primarily due to the earlier mentioned significant reduction in cost of revenue, a $426,000 reduction in R&D expenses, a $319,000 reduction in sales and marketing, a $233,000 reduction in G&A expenses. This was offset by a $269,000 in severance expense in the quarter, with no severance expense in Q3 2022.
Looking at the first 9 months of the year, total cost and expenses have decreased by 14.8% compared to the first 9 months of 2022. Net loss for the third quarter on a GAAP basis was approximately $4.1 million or an $0.86 loss per share on approximately 4.8 million weighted average shares outstanding. All share and per share numbers provided on this call give effect to the [420] reverse stock split of our common stock that became effective on August 16, 2023.
From our continued efforts and cost containment and improving operational efficiencies, we were able to decrease our quarterly cash burn rate to $3.9 million for Q3 2023. Compared to the cash burns approximately -- cash burn of approximately $5.7 million one year ago, which is over 30% improvement over last year.
Our Q3 net loss of $4 million or $0.36 loss per share on 4.6 million weighted average shares outstanding compares to Q3 2022, the net loss of $6 million or a $1.54 loss per share on [33.9] million weighted average shares outstanding. The year-over-year increase in the share count was mainly due to the sale of the shares under at-the-market offering, or ATM facility and a public offering completed in Q1 of 2023.
In the fourth quarter of 2022 through the third quarter of 2023, we raised an additional $4.4 million of cash and added 658,000 shares. Our continued focus on aligning our operations with our IoT vertical strategy and trimming access expenses has resulted in a positive trend in declining year-over-year net losses.
Let me now give you a non-GAAP view of our numbers for the third quarter as we believe non-GAAP information provides a useful comparison for investors, especially for a company at our stage, when reviewed in conjunction with GAAP information. And non-GAAP results exclude approximately [$369,000] stock compensation, $47,000 depreciation and amortization, $269,000 of severance expense from our Q3 GAAP costs and expenses of $5.3 million.
As a result, adjusted net non-GAAP cost and expenses totaled $4.6 million. This is approximately $1 million less than $5.6 million of total non-GAAP costs and expenses in the second quarter of 2023 and approximately $994,000 less compared to Q3 of 2022.
Our non-GAAP net loss for Q3 was $4.2 million or an $0.89 loss per share, which includes a non-GAAP adjustment for $788,000 of other income for our warrant fair value adjustment in Q3. This is a decrease in net loss of approximately $1 million compared to the prior quarter and $976,000 decrease compared to Q3 2022.
On the balance sheet, we ended the quarter with approximately $16.6 million in cash and cash equivalents, and we still remain debt-free. We realized $788,000 reduction in fair value of our warrant liability, which was accounted for as other income in Q3 of 2023.
To close, we expect our GAAP and non-GAAP cash operating expenses for full year to trend downwards as we continue to find savings in costs and expenses to align our financial operations with our market strategy.
We'll now give the call back to operator for the question-and-answer session.

Question and Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Suji Desilva from ROTH Capital.

Suji Desilva

Congrats on the progress during the POCs. Cesar, of the POCs, the base of 31, just curious how many customers that across this Inc.? Are you seeing multiple POCs per customer? Or is it roughly 1 per -- is it more 1 per...

Cesar Johnston

No, it's not 1 per -- I mean there's a couple of those where actually customers might have larger than 3 or so. But in general, the majority at this point in time are single. Suji, I didn't forget to say hello.

Suji Desilva

And then the POCs, which end markets amongst the POCs are closest to ramp. I know they probably cover a whole bunch of different applications. So curious, which ones do you think are closest to sort of volume?

Cesar Johnston

Yes. So last quarter, when we talked about this, we -- I gave a very good example of logistics and real-time asset tracking as one of the possibilities on the POCs that I thought was important. I'm happy to report this quarter that I actually gave everyone a taste and a window of visibility of logistics and real-time asset tracking.
So what I'm trying to say is it will be along those lines, warehousing asset tracking applications, RF tag applications that we're seeing right now. And I cover a number of customers, if you noticed on the German POC that for the first time ever, we're at least able to give that visibility to our audience because it's always hard to talk about POCs as we have plenty of NDAs, and customers do not like to share that. So we're very thankful to [Ecobyte] for allowing us to share those names and for all those companies that are well-known companies and large companies in Germany and Europe to allow us to stay and they are the ones that actually publicize. I'm very happy with our progress.

Suji Desilva

Okay. And then my last question really is on the -- I think there was a partner that you worked wit, that you had a bulk sale. I was just curious on the mechanics of those and what causes those bulk sales to happen. Is that kind of preparing for a ramp or what the mechanics are there?

Cesar Johnston

Yes. So if you remember, we've only been focused on the Smart IoT strategy since early 2022. It's been less than 2 years. Certainly, we're getting closer to 2 years. It is unusual for a technology to get to this ramp as fast as we are. So I'm very, very happy to see products to see certification and so on.
So early last year, as part of our investment on growing this IoT market, we have a partner that -- a couple of partners that we work with and allow us to basically put together a number of eval kits and ways to actually get our technology out there, which, by the way, was a great investment, a onetime investment because as you can see, if it wasn't for that, I don't think it will be possible to have 32 POCs in no time. Typically, companies take over 2, 3 years to just get a technology that's brand new to this point. So we're very, very happy with what we see so far.

Operator

And our next question comes from the line of Jon Hickman from Ladenburg Thalmann.

Jon Robert Hickman

Cesar, I was wondering if you were still going to hold your guidance for year-over-year growth further this year in revenues?

Cesar Johnston

Yes. So as I mentioned on the call, I will give a final update next quarter. We're still looking into converted -- the conversion ratio of those POCs and those 31 convert into 2024. And the next quarter, we'll be able to update you on that. But right now, we are still moving forward with what's been said before yes.

Jon Robert Hickman

So my math says that you'll need revenues of like $400,000 to make that happen. Is that aligned with your math?

Cesar Johnston

Our math at the time when we started looking at this, look into basically the growth of the POCs and definitely, I mean, it really considers that. Otherwise, we would not have guided that way.

Operator

We have no further questions at this time. I'll turn it back over to the team at Energous for closing remarks.

Cesar Johnston

Great. Thank you. Energy's smart IoT strategy is showing very promising results and our customers see the value offered by our IoT wireless power networks and evidence of this is the fact (technical difficulty).

Operator

I believe we just lost you, if you're still there. Still can't hear you came in very briefly.

Cesar Johnston

Can you hear us now?

Operator

Yes, I can.

Cesar Johnston

Yes, I'm sorry, but Polycom here was not behaving properly. Okay. So Energous' Smart IoT strategy is showing very promising results and that our customers see the value offered by our IoT wireless power networks as evident by the 31 POC trial installations as of third quarter 2023. Of particular importance this quarter, we are glad to announce our partnership with [Ecobyte], which we believe provides visibility into the installation complexity and type of customers that we work with, which shows an important example of the type of real-time asset and logistics applications that we have been talking about in the recent earnings calls.
We continue to focus on increasing our revenue as these POC trials evolve while closely managing our OpEx spend. Thank you all, our shareholders, stakeholders and Energous team members, and we look forward to updating you on the company's progress again next quarter.

Operator

This concludes today's conference call. Thank you for attending.

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