Energous Corporation (Nasdaq: WATT) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet figures are as of March 31, 2020. Energous develops WattUp radio-frequency wireless charging technology for consumer, IoT, and medical devices. Its commercialization remains early-stage: the company reported limited revenue, and described the market for its technology as nascent and unproven.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $61,475 | $66,500; down about 8% |
| Operating expenses | $8.72 million | $11.16 million; down about 22% |
| Operating loss | $8.65 million | $11.10 million |
| Net loss | $8.60 million | $11.02 million |
| Basic and diluted loss per share | $0.25 | $0.39 |
| Cash used in operating activities | $7.34 million | $7.37 million |
- Revenue was negligible relative to operating costs. Research and development expense was $4.58 million, sales and marketing $1.45 million, general and administrative $2.65 million, and cost of services revenue $39,544.
- The filing does not provide a clear consolidated gross-margin figure; cost of services revenue relates to Dialog contract services.
- Cash and cash equivalents were $19.96 million, down from $21.68 million at December 31, 2019. Current assets were $20.38 million and current liabilities $3.25 million.
- Total liabilities were $4.44 million, including $1.95 million in operating lease liabilities. The filing reports no borrowings or other financial debt.
- Q1 financing provided $5.62 million, principally from net ATM share-sale proceeds of $5.51 million. Shares outstanding rose to 37.95 million from 33.20 million at year-end; the company reported 41.32 million shares outstanding as of May 6.
Changes and management commentary
- Net loss improved by about 22% year over year, mainly as research and development spending fell $2.23 million. Management attributed the decrease largely to lower compensation and engineering development costs, partly offset by higher patent and intellectual-property legal fees.
- Sales and marketing expense declined $152,000 and general and administrative expense declined $110,000. Lower compensation was partly offset by higher professional services, consulting, and insurance costs.
- Operating cash use was broadly unchanged year over year despite the lower net loss. Cash balances declined during the quarter after operating cash use exceeded financing inflows.
- Management stated that March 31 cash, anticipated revenue, and potential financing were expected to fund operations into May 2021. It also said further financing would likely be pursued and may not be available on acceptable terms, or at all.
- In April 2020, after quarter-end, Energous raised $9.22 million net through its ATM offering.
- Management reported that COVID-19 delayed adoption by potential customers affected by shutdowns in China and delayed one product launch. Work-from-home policies and restrictions could also disrupt R&D and delay customer product launches; the ultimate effects on operations and liquidity were uncertain.
- The company said a first end-customer product entered the market in 2019 and expected additional partner products to be announced or launched in 2020. It also announced FCC certification in April 2020 for a new, lower-cost, smaller transmitter technology. These are company expectations and announcements, not evidence of material revenue generation.
Risks, commitments, and contingencies
- Key risks include continued losses and dependence on external financing; uncertain customer adoption and commercialization; technical, regulatory, and product-development hurdles; competition; reliance on strategic partner Dialog; and COVID-19-related disruption.
- Revenue was concentrated: two customers accounted for about 82% of Q1 2020 revenue. Two customers represented about 90% of receivables at March 31; Dialog’s receivable was $43,322.
- Future lease payments totaled approximately $2.05 million from Q2 2020 through Q3 2022. The company also had a hosted design-software agreement with quarterly payments of approximately $218,000 through March 2021.
- Management said ordinary-course disputes were not expected to have a material adverse effect; the company reported no pending legal proceeding it believed would materially adversely affect it. No off-balance-sheet transactions were reported.
Important facts for investors to verify
- Whether customer programs progress from development and evaluation into launched products, recurring royalties, and meaningful revenue—and whether COVID-related delays persist.
- Actual cash burn and runway, including the effect of the April ATM proceeds, future operating needs, and the availability and dilution of additional financing.
- Customer and Dialog concentration, royalty activity, and the timing and economics of the Dialog alliance.
- Progress on product performance, FCC or other regulatory approvals, and commercialization milestones versus management’s stated expectations.