Energous Corporation (Nasdaq: WATT) — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 12, 2019. Energous develops WattUp RF-based wireless charging technology and relies on development projects and royalties, with commercialization through partners including Dialog Semiconductor.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $40,500 | $228,000 | $154,500 | $458,773 |
| Research and development | $5.19 million | $8.44 million | $17.51 million | $24.80 million |
| Total operating expenses | $8.34 million | $12.88 million | $29.50 million | $38.86 million |
| Loss from operations | $(8.30) million | $(12.65) million | $(29.34) million | $(38.41) million |
| Net loss | $(8.18) million | $(12.65) million | $(29.01) million | $(38.39) million |
| Basic and diluted loss per share | $(0.27) | $(0.49) | $(0.98) | $(1.50) |
Revenue fell approximately 82% year over year in Q3 and 66% for the nine-month period. Net loss narrowed about 35% for both comparisons, alongside lower operating expenses. Management attributed expense reductions mainly to lower compensation and stock-based compensation, reduced engineering and chip-development spending, and project timing. No gross margin is reported in the supplied filing text.
For the first nine months, operating cash outflow was $20.97 million, compared with $24.40 million in 2018; investing cash outflow was $0.18 million, compared with $0.56 million. Financing provided $23.85 million, principally from a March 2019 offering. Cash and cash equivalents were $22.80 million at September 30, 2019, versus $20.11 million at December 31, 2018. Current assets were $23.48 million and current liabilities $3.59 million. The balance sheet reports no borrowings; lease liabilities totaled $2.29 million, including $0.68 million current and $1.61 million long term.
Stockholders’ equity was $21.28 million and accumulated deficit was $253.75 million. Shares issued and outstanding increased from 26.53 million at year-end 2018 to 30.84 million at September 30, 2019; the filing reports 31.50 million outstanding as of November 7, 2019.
Business developments, outlook and risks
- The company said its first customer product entered the market in 2019 and expected additional partner product announcements by year-end 2019 and during 2020. It was also in discussions about potential low-power distance-charging products that could reach market in late 2020.
- Management estimated that September 30 cash, anticipated revenue and expected financing would fund operations into the fourth quarter of 2020. This is an estimate, not assurance of funding or commercial success; the company said it expects to pursue further financing and cannot assure it will be available on acceptable terms, or at all.
- On October 11, 2019, Energous established an at-the-market sales facility permitting up to $20 million of gross common-stock sales. Use may dilute existing shareholders.
- Revenue remains small relative to operating costs and is concentrated: three customers generated all Q3 2019 revenue; three generated approximately 55% of nine-month revenue. Five customers represented all accounts receivable at September 30.
- Key risks include an unproven market and limited product revenue, customer adoption and product-launch timing, technical and regulatory approvals, reliance on Dialog and other partners, competition, intellectual-property protection, and the need for additional capital. The Dialog alliance has exclusivity provisions, with the company’s exclusivity requirement scheduled to end earlier of January 1, 2021 or specified events.
- The company reported no material adverse expected outcome from ordinary-course claims and litigation, no material changes in market-risk exposure, and no off-balance-sheet transactions. Disclosure controls were assessed as effective; no material change in internal control was reported.
Most important facts for investors to verify
- Whether the stated cash runway through Q4 2020 remains achievable, and the pace and terms of any additional financing or ATM share sales.
- Evidence of commercial adoption: customer launches, shipment volumes, royalty receipts, and whether anticipated partner products reached market.
- Revenue concentration and durability, including the identity and contribution of development-project and royalty customers.
- Operating cash burn and expense trends against the company’s commercialization plans.
- Potential dilution from the 2019 offering, warrants, equity compensation, and the $20 million ATM facility.
- Regulatory, technical, competitive, and Dialog-alliance developments that could affect product approvals, partner execution, or licensing opportunities.