Energous Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Energous is developing WattUp, an RF-based wireless-charging technology. The company described its target market as nascent and unproven; revenue remained primarily tied to customer development projects and milestones.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $250,000 | $1,003,973 | $1,124,874 | $1,322,155 |
| Operating expenses | $13.00 million | $11.13 million | $39.27 million | $32.54 million |
| Operating loss | $12.75 million | $10.13 million | $38.15 million | $31.22 million |
| Net loss | $12.75 million | $10.13 million | $38.14 million | $31.21 million |
| Basic and diluted loss per share | $0.58 | $0.57 | $1.81 | $1.83 |
| Operating cash used | Not presented by quarter | Not presented by quarter | $26.89 million | $24.44 million |
At September 30, cash and cash equivalents were $20.22 million, versus $31.26 million at December 31, 2016. Current assets were $21.28 million and current liabilities $3.86 million. Total assets were $23.11 million; stockholders’ equity was $19.25 million. No interest-bearing debt is shown on the balance sheet. The filing does not present gross profit or gross margin.
Cash from financing activities was $16.37 million for the first nine months, including $14.93 million net proceeds from a July private placement with Dialog. The company reported no off-balance-sheet transactions.
Changes versus comparable periods
- Q3 revenue fell about 75% year over year, which management attributed to the timing of development milestones. Nine-month revenue declined about 15%.
- Operating expenses rose about 17% in Q3 and 21% for the nine-month period. R&D, sales and marketing, and general and administrative expenses all increased.
- Net loss widened about 26% in Q3 and 22% for the nine months. Nine-month operating cash use increased from $24.44 million to $26.89 million.
- Stock-based compensation increased to $12.47 million for the nine months, from $5.41 million a year earlier. The increase was primarily associated with RSUs and was a significant contributor to higher reported expenses.
Outlook, risks and notable items
- Management expected September 30 cash, anticipated development-project payments and chip royalties, together with potential financing, to fund operations for at least one year from issuance of the financial statements. This expectation depends in part on payments, royalties and financing that are not assured.
- The company warned it may need additional financing, including equity, debt or co-development arrangements, and cannot assure funding will be available on favorable terms—or at all. It stated it had no committed source of financing and may never generate revenue sufficient to sustain operations or become profitable.
- Key risks include technical feasibility, FCC regulatory approval for power transmission at a distance, customer adoption and product implementation timing, competition, partner availability, and intellectual-property protection.
- Dialog is the exclusive supplier of specified IC products for the general market under a seven-year strategic alliance, subject to agreement terms and exceptions. Dialog held approximately 8.2% of outstanding shares and could own approximately 14.0% if it exercised all its warrants. Energous also paid Dialog $434,650 for chip-development costs during the nine-month period.
- Development-project revenue is milestone-dependent and may vary with achievement and customer acceptance. The filing described customer evaluations and reported component shipments to customers in Q4 2017, but did not provide quantified revenue guidance.
- Operating lease payments totaled $1.26 million in disclosed future minimum commitments. The company reported no pending legal proceeding believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether WattUp receives required regulatory approvals and progresses from prototypes and evaluations to commercial products and recurring revenue.
- Whether development milestones, anticipated customer payments and potential chip royalties materialize on the timing management expects.
- Cash-burn trends and the assumptions behind management’s one-year liquidity expectation, including the likelihood and dilution impact of additional financing.
- The effect of ongoing stock-based compensation, outstanding equity awards and warrants on future expenses and shareholder dilution.
- Dialog’s commercialization progress, exclusivity obligations, sales targets and related-party arrangements.