Energous Corporation (Nasdaq: WATT) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company develops WattUp RF-based wireless charging technology and related chipsets, software, hardware and antennas. Its market remains nascent; revenue is generated from product-development projects and production-level systems.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $168,708 | $223,201 | $382,517 | $672,133 |
| Gross profit (loss) | $120,314 | ($196,859) | $112,492 | ($222,560) |
| Operating expenses, including cost of revenue | $5,250,147 | $6,330,916 | $17,886,197 | $21,000,190 |
| Operating loss | ($5,081,439) | ($6,107,715) | ($17,503,680) | ($20,328,057) |
| Net loss | ($4,114,594) | ($5,964,875) | ($14,762,267) | ($20,135,342) |
| Basic and diluted loss per share | ($0.86) | ($1.54) | ($3.30) | ($5.21) |
| Net cash used in operating activities | — | — | ($15,916,294) | ($18,838,453) |
Gross margin was approximately 71% in Q3 2023 and 29% for the first nine months, versus negative gross margins in both comparable 2022 periods. This reflects lower cost of revenue, including lower sales volume of higher-cost products and smaller inventory valuation adjustments; it should be considered alongside declining revenue.
Liquidity, capital and balance sheet
- Cash and cash equivalents were $16.58 million at September 30, 2023, down from $26.29 million at December 31, 2022. Total current assets were $17.79 million and current liabilities $3.82 million.
- Management expects cash on hand, anticipated Q4 2023 ATM financing, cost reductions and anticipated revenue to fund operations through November 2024. This is a forecast, not a guarantee; the company says it has no committed source of financing and may need further funding or expense reductions.
- Nine-month financing cash inflows were $6.30 million, including $3.56 million net ATM proceeds, $2.68 million net proceeds from common stock and warrants, and $70,162 from the employee stock purchase plan. The company reported $24.998 million remaining available under its ATM program at quarter-end.
- No borrowing debt is reported. Operating lease liabilities totaled $1.44 million ($696,573 current and $739,767 long-term); undiscounted future lease payments were $1.48 million. The company also had a hosted design-software agreement requiring quarterly payments of approximately $233,000 through Q2 2024.
- Common shares outstanding were 5,046,994 at quarter-end, following a 1-for-20 reverse stock split in August and equity issuances. The filing reports 5,210,361 shares outstanding as of November 9, 2023.
Changes, outlook and notable items
- Revenue declined 24% year over year in Q3 and 43% for the nine-month period, primarily because of lower production-level system sales volume.
- Operating expenses fell year over year in both periods, reflecting lower research and development, sales and marketing, and general and administrative costs. Q3 included $269,109 of severance expense, primarily related to the former Acting CFO; nine-month severance was $359,419, including departures of six other employees.
- Net loss narrowed, but results included noncash gains from remeasuring liability-classified warrants: $788,000 in Q3 and $2.685 million for nine months. Interest income also increased to $178,845 in Q3 and $648,083 for nine months. These items helped reduce reported net loss and are not measures of operating revenue.
- The March 2023 offering included 412,500 liability-classified warrants, all outstanding at quarter-end. Their exercise price had adjusted from $8.00 to $1.66; the $450,000 quarter-end liability is remeasured using Level 3 valuation inputs, causing potential earnings volatility and possible dilution.
- Management says the market for products using its technology is broad but nascent and unproven. Key uncertainties include customer adoption, commercialization and product feasibility, regulatory approvals, competition, complementary technologies and access to financing. The company expects to pursue additional cost reductions and may seek equity or debt financing, bank financing or commercial agreements; availability and terms are uncertain.
- Revenue is concentrated: three customers accounted for approximately 75% of Q3 revenue and 67% of nine-month revenue; three customers represented 93% of accounts receivable at quarter-end. The former Dialog strategic alliance is in a wind-down period through September 2024 for certain existing customer products.
- The company reported no pending legal proceedings it believes would have a material adverse effect. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting. Nasdaq notified the company in August 2023 that it had regained compliance with the minimum bid-price requirement after the reverse split.
- Subsequent event: on November 13, 2023, CEO Cesar Johnston purchased 52,000 shares at $1.82 per share.
Important facts for investors to verify
- Whether revenue and production-level sales can grow, and whether customer concentration declines.
- Actual cash burn, realized cost reductions and progress against the stated November 2024 cash runway, including ATM usage and any further financing needs or dilution.
- Commercial customer adoption, product milestones, regulatory approvals and the status of the Dialog wind-down and other development relationships.
- The warrant terms and subsequent fair-value changes, including the $1.66 adjusted exercise price, as these can affect dilution and reported earnings.
- Whether lease and hosted-software commitments, severance obligations and other operating costs remain consistent with liquidity plans.