Energous Corporation — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The company develops WattUp RF-based wireless charging technology and relies on product-development milestones and royalties for revenue. Dialog Semiconductor manufactures and distributes its charging IC products and is the exclusive supplier for the general market.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $205,773 | $299,506 | $230,773 | $874,874 |
| Operating expenses | $12.51 million | $13.22 million | $25.98 million | $26.27 million |
| Operating loss | $12.30 million | $12.92 million | $25.75 million | $25.40 million |
| Net loss | $12.30 million | $12.92 million | $25.74 million | $25.39 million |
| Net loss per share | $0.48 | $0.63 | $1.03 | $1.23 |
| Cash used in operating activities | Not separately presented for the quarter | $15.37 million | $18.96 million |
- At June 30, cash and cash equivalents were $37.08 million; current assets were $37.95 million and current liabilities $4.22 million, implying working capital of approximately $33.73 million. Total liabilities were $4.22 million. The balance sheet reports no debt.
- Revenue and profitability margins are not meaningfully provided: the filing does not present cost of revenue or gross profit separately.
- Six-month financing cash flow was $40.20 million, principally from $38.85 million net ATM offering proceeds. Investing cash use was $0.55 million.
- Stock-based compensation was $8.95 million for the first half. Accumulated deficit was $199.64 million at June 30.
Material changes versus comparable periods
- Revenue fell 31% in Q2 and 74% in the first half, which management attributed to fewer or lower-value completed customer milestones.
- Q2 net loss narrowed by about 5%; first-half net loss increased slightly. First-half operating cash use declined about 19% year over year.
- First-half R&D expense declined 4%, largely from lower chip design, manufacturing and component costs, partly offset by higher stock compensation and regulatory fees. Sales and marketing expense rose 10%; general and administrative expense rose 2%.
- Cash increased from $12.80 million at year-end 2017 to $37.08 million, primarily due to the January 2018 ATM issuance. Common shares outstanding rose from 22.58 million to 25.56 million during the period.
Outlook, risks and notable items
- Management expected June 30 cash, together with anticipated revenue, to fund operations into the third quarter of 2019. It cautioned that additional financing may be needed to fully execute its plans; future financing availability and acceptable terms are not assured.
- The company reported FCC certification of its first-generation WattUp Mid-Field transmitter, described as capable of charging multiple devices at distances up to three feet. It said it was in pre-production and initial production with early adopters. Further commercialization, customer adoption and regulatory approvals remain uncertain.
- Key risks include the unproven market for the technology, continued losses and limited product revenue, technical and manufacturing challenges, regulatory approvals, competition, dependence on Dialog and customer concentration. One customer represented about 97% of first-half revenue and 97% of receivables at June 30.
- The Dialog alliance has a seven-year initial term and includes exclusivity provisions and sales targets. In July 2018, the company renewed a hosted design-software agreement for three years, with quarterly payments of approximately $218,000 through March 2021.
- Future minimum lease payments were $780,050. The filing reported no material pending legal proceedings, no material changes to contractual obligations outside the ordinary course, and no material subsequent events requiring disclosure.
Important facts for investors to verify
- Whether WattUp customer programs progress from development milestones to commercial shipments and recurring royalties, and whether revenue becomes less concentrated.
- Whether the stated cash runway through Q3 2019 remains achievable given operating cash use, development costs and the timing of customer payments.
- Whether additional capital is required and, if so, its terms and potential dilution; the January ATM raised $38.85 million net and increased share count.
- Progress on required regulatory approvals, product performance in real-world conditions, and Dialog’s commercialization and supply commitments.
- The effect of stock-based compensation and outstanding equity awards on future expenses and dilution. The filing excluded 7.40 million potentially dilutive securities from diluted loss per share because they were anti-dilutive.