Energous Corporation — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Energous is developing WattUp, a radio-frequency wire-free charging technology, with a stated goal of licensing it to commercial partners. The company reported early-stage development revenue and continued substantial operating losses.
Financial results and liquidity
- Revenue: $225,000 for Q2 and $425,000 for the first half of 2015, versus none in the comparable 2014 periods. Revenue arose from a funded development and licensing agreement with a consumer electronics company.
- Expenses and losses: Q2 operating expenses were $6.37 million and operating loss was $6.15 million; first-half operating expenses were $13.51 million and operating loss was $13.08 million. Net loss was $6.15 million for Q2 and $13.07 million for the first half. The company had no meaningful gross-margin disclosure; project costs are generally expensed in research and development.
- Per-share results: Basic and diluted loss per share was $0.48 for Q2 and $1.02 for the first half, compared with Q2 2014 income per share of $0.03 and first-half 2014 loss per share of $5.07.
- Cash flow: First-half operating cash use was $10.50 million, compared with $4.43 million in 2014; investing cash use was $513,000 versus $355,000. Financing provided $27,000, compared with $25.77 million in 2014, principally from the prior-year IPO.
- Cash and liquidity: Cash and equivalents were $20.51 million at June 30, down from $31.49 million at December 31, 2014. Current assets were $21.25 million and current liabilities $1.94 million. Management said cash on hand and anticipated revenue were expected to fund operations into the third quarter of 2016.
- Debt: No debt balance is reported on the June 30 balance sheet; convertible notes had been converted and extinguished in 2014. The company had a $75 million shelf registration statement available for possible future debt or equity sales.
Changes versus prior comparable periods
- Revenue began in 2015, but remained modest relative to the company’s spending and losses.
- Q2 operating expenses rose to $6.37 million from $3.50 million; first-half expenses rose to $13.51 million from $5.52 million. R&D growth reflected increased engineering headcount, compensation, and ASIC-related components and design work.
- First-half net loss was smaller than the prior-year $30.73 million loss, largely because 2014 included noncash derivative-liability revaluation and debt-related items. Operating loss, by contrast, increased from $5.52 million to $13.08 million.
- First-half operating cash use increased year over year, while 2014 financing included IPO proceeds. The 2015 cash decline primarily reflects ongoing operating and investment needs.
Outlook, risks, and notable items
- Management expected continued operating losses while developing the technology and stated that available resources might not be sufficient to complete development or achieve sustainable revenue. Additional financing could be needed; there was no committed financing source.
- The development and licensing agreement includes invention and development milestones over the next two years. Energous granted the customer a time-to-market advantage in specified licensed product categories through development and the customer’s first shipment. Milestone achievement and customer acceptance affect revenue recognition.
- Management described prototypes and laboratory validation, but commercialization depends on technical progress, regulatory approval, partner retention, market acceptance, and intellectual-property protection. The filing cites more than 150 pending U.S. patent and provisional applications and anticipated initial patent issuance in Q3 or Q4 2015.
- Stock-based compensation was $2.80 million for the first half, up from $913,000. The company granted 1.18 million PSUs tied to market-capitalization growth and service conditions, and reported substantial unamortized RSU and PSU compensation costs.
- Subsequent events included appointment of a CFO, a new Costa Mesa sublease, and appointment of a director. The filing reported no pending legal proceeding believed likely to have a material adverse effect and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether WattUp development and licensing milestones are achieved, accepted by the customer, and converted into recurring licensing or product revenue.
- Whether cash use remains consistent with management’s stated runway into Q3 2016, and whether additional financing is required or raised under the $75 million shelf.
- How engineering spending, operating losses, and stock-based compensation evolve relative to revenue growth.
- Progress on regulatory approval, patent issuance, and commercial adoption, including the risks associated with the technology’s stated charging range and performance.
- The potential dilution and expense impact of outstanding options, RSUs, PSUs, warrants, and any future securities issuance.