Energous Corporation (Nasdaq: WATT) — Q2 2020 Form 10-Q
Business and period: The company develops WattUp radio-frequency wireless charging technology and earns limited revenue from product-development projects, royalties, and services. This unaudited report covers the quarter and six months ended June 30, 2020; comparisons are with the same periods in 2019.
Financial highlights
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $114,375 | $47,500 | $175,850 | $114,000 |
| Operating loss | $8.21 million | $9.95 million | $16.87 million | $21.04 million |
| Net loss | $8.20 million | $9.80 million | $16.80 million | $20.82 million |
| Loss per share, basic and diluted | $0.20 | $0.32 | $0.45 | $0.71 |
| Operating cash used | Not separately stated | Not separately stated | $13.22 million | $14.42 million |
- Q2 revenue increased by about 141% year over year, from a very small base; six-month revenue increased about 54%.
- Operating expenses were $8.33 million in Q2, down from $9.99 million. For the six months, expenses were $17.04 million, down from $21.16 million. Lower research and development and general and administrative costs were the main contributors; sales and marketing expense increased.
- Q2 service revenue from Dialog was $89,375, with related service costs of $86,995. The filing does not provide a clear consolidated gross-margin measure.
- At June 30, cash and cash equivalents were $23.41 million; current assets were $24.18 million and current liabilities $3.79 million. Total liabilities were $4.77 million, including $1.78 million of operating lease liabilities. The filing reports no borrowings or off-balance-sheet transactions.
- Cash increased $1.72 million during the first six months, as $14.94 million of financing cash inflow—principally ATM share sales—exceeded $13.22 million of operating cash use. There was no investing cash outflow in the period.
Changes, outlook, and risks
- Net loss narrowed about 16% in Q2 and 19% for the first six months year over year. The company attributed expense reductions primarily to lower headcount-related compensation, including stock-based compensation, and lower project-related R&D spending. Interest income also fell, reflecting lower rates and a lower average cash balance.
- Management expects June 30 cash, anticipated revenue, and potential financing to fund operations into August 2021. It expects to pursue additional financing; availability and acceptable terms are not assured. Reported six-month net proceeds from ATM offerings were $14.72 million, and common shares outstanding increased from 33.20 million at year-end to 41.69 million at June 30.
- Commercial adoption remains early: the company said its market is nascent and unproven, and customer product development and launch cycles can take more than a year. Management reported several partners in pre-production and expected additional partner product announcements or launches in 2020, but provided no quantified revenue guidance.
- COVID-19 had delayed potential customer adoption and at least one product launch. Restrictions and work-from-home arrangements could further affect R&D, supply chains, regulatory approvals, customer payments, and product launches; the duration and financial impact were uncertain.
- Revenue was highly concentrated: two customers represented approximately 96% of Q2 revenue; Dialog, a related party, represented about 85% of receivables at quarter-end. Dialog provided $89,375 of Q2 services revenue; no Q2 royalty revenue was recorded.
- On July 24, 2020, stockholders approved increasing authorized common shares from 50 million to 200 million. This creates capacity for future issuance and potential dilution. The company also increased share reserves under several equity plans in May.
- Key risks include continued losses and funding dependence, uncertain technical and market acceptance, regulatory approvals, competition, reliance on Dialog, intellectual-property protection, and COVID-related disruption. Management said disclosure controls were effective and reported no material change in internal control over financial reporting. No pending legal matter was identified as expected to have a material adverse effect.
Investor verification points
- Track whether customer products reach commercial launch and generate material recurring revenue, royalties, or licensing income.
- Verify cash burn, financing needs, ATM usage, share-count changes, and dilution against the August 2021 funding horizon stated by management.
- Monitor customer and receivables concentration, particularly dependence on Dialog and the terms and performance of the strategic alliance.
- Assess whether COVID-related delays, regulatory requirements, and product-development timelines affect commercialization expectations.
- Review the effect of the expanded authorized share count and outstanding equity awards on potential future dilution.