Energous Corporation (Nasdaq: WATT) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. Energous develops WattUp RF-based wireless charging technology and related systems; revenue remains limited and depends on customer development projects and production-level system sales.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $117,133 | $232,971 | $213,809 | $448,932 |
| Gross profit (loss) | $34,315 | $(38,413) | $(7,822) | $(25,701) |
| Gross margin | 29.3% | (16.5%) | (3.7%) | (5.7%) |
| Operating loss | $(6,128,182) | $(7,064,798) | $(12,422,241) | $(14,220,342) |
| Net loss | $(3,995,166) | $(7,017,749) | $(10,647,673) | $(14,170,467) |
| Loss per share | $(0.04) | $(0.09) | $(0.12) | $(0.18) |
- Revenue fell 50% in Q2 and 52% for the first half, primarily due to lower production-level system sales volume.
- Q2 operating expenses were $6.25 million, down from $7.30 million. First-half operating expenses were $12.64 million, down from $14.67 million, reflecting lower R&D and sales and marketing spending and lower severance expense.
- Q2 net loss included $1.897 million of noncash income from a reduction in the fair value of the 2023 warrant liability, plus $236,016 of interest income. The warrant gain improved reported net loss but did not represent operating cash generation.
- Cash and cash equivalents were $19.96 million at June 30, 2023, down from $26.29 million at year-end 2022. First-half operating cash use was $11.70 million, compared with $13.45 million a year earlier. Investing cash use was $50,954; financing provided $5.42 million.
- Current assets were $21.56 million and current liabilities $4.73 million. The company reported no conventional borrowings; liabilities included operating leases and a $1.238 million warrant liability. Total lease liabilities were $1.62 million.
Material changes and financing
- During the first half, Energous raised $2.67 million net through its ATM program and $2.68 million net in a March stock-and-warrant offering, in addition to ESPP proceeds. The offering issued 8.25 million common shares and warrants for up to 8.25 million additional shares at a $0.40 exercise price.
- Shares outstanding increased to 92.04 million at June 30 from 78.94 million at December 31, 2022. The 2023 warrants are liability-classified and remeasured each reporting period; their Level 3 fair value fell from $3.135 million at issuance to $1.238 million at quarter-end.
- Research and development expense declined to $2.88 million in Q2 and $5.96 million for the first half. Sales and marketing expense also declined; general and administrative expense was approximately flat for the first half.
Outlook, risks and unusual items
- Management expects June 30 cash, anticipated third-quarter 2023 ATM financing, expense reductions and anticipated revenue to fund operations through August 2024. This expectation is conditional; the company says additional financing may be needed and may not be available on acceptable terms or at all. No specific revenue or earnings guidance is provided.
- The company has an accumulated deficit of $373.3 million and states it has not generated meaningful product revenue or achieved profitability. Its target markets remain nascent and unproven; commercial success depends on technology development, customer adoption, regulatory approvals, partners and competition.
- Revenue is concentrated: two customers generated approximately 68% of Q2 revenue, and three generated 75% of first-half revenue. Three customers represented 81% of accounts receivable at quarter-end.
- Dialog/Renesas terminated the strategic alliance agreement; a wind-down period for certain existing customer relationships continues through September 2024. The company recorded no alliance revenue in the periods presented.
- Nasdaq granted an additional compliance period through January 16, 2024 to meet the $1.00 minimum bid requirement. The board intends to effect a reverse stock split, authorized by shareholders at a ratio not exceeding 1-for-20; compliance is not assured.
- After quarter-end, Acting CFO William Mannina announced his resignation effective August 16, 2023. The company expects to record approximately $257,000 in severance liability and expense.
- Management reported disclosure controls were effective as of June 30, 2023 and no material change in internal control over financial reporting during the quarter. Management said ordinary-course disputes are not expected to have a material adverse effect.
Important facts for investors to verify
- Whether third-quarter ATM financing and expense reductions occurred as assumed, and whether the stated cash runway through August 2024 remains supportable.
- Subsequent revenue, customer production volumes and customer concentration, given the year-over-year revenue decline and dependence on a small number of customers.
- Share dilution from equity financing and potential warrant exercises, plus the effect of recurring warrant fair-value changes on reported earnings.
- Progress toward Nasdaq’s January 16, 2024 bid-price deadline and the timing and terms of any reverse stock split.
- Continuity of leadership following the Acting CFO’s departure and any resulting severance costs.