Energous Corporation (Nasdaq: WATT) — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Energous develops WattUp radio-frequency wireless charging technology and relies mainly on product-development milestones and royalties from Dialog Semiconductor. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $47,500 | $205,773 | $114,000 | $230,773 |
| Operating expenses | $9.99 million | $12.51 million | $21.16 million | $25.98 million |
| Loss from operations | $9.95 million | $12.30 million | $21.04 million | $25.75 million |
| Net loss | $9.80 million | $12.30 million | $20.82 million | $25.74 million |
| Loss per share, basic and diluted | $0.32 | $0.48 | $0.71 | $1.03 |
- Revenue fell about 77% year over year in Q2 and 51% in the first half. Two customers represented approximately 95% of Q2 revenue; three represented approximately 75% of first-half revenue.
- Operating expenses declined about 20% in Q2 and 19% in the first half. Management attributed reductions mainly to lower compensation and stock-based compensation, including lower department headcount; Q2 general and administrative expense rose modestly, primarily due to legal costs.
- Gross profit and gross margin are not separately presented; the filing does not provide a clear gross-margin value.
- Cash and cash equivalents were $29.21 million at June 30, 2019, versus $20.11 million at December 31, 2018. Current liabilities were $3.57 million; total liabilities shown were $3.57 million. The balance sheet reports no debt.
- First-half operating cash use was $14.42 million, compared with $15.37 million a year earlier. Investing cash use was $173,000. Financing provided $23.70 million, mainly from a March share-and-warrant offering that yielded $23.32 million net.
- Stockholders’ equity was $27.21 million, and accumulated deficit was $245.57 million. Shares outstanding rose to 30.60 million from 26.53 million at year-end; the March offering included 3.33 million shares and warrants to buy 1.67 million additional shares at $10 per share.
Changes, outlook and risks
- Net losses narrowed year over year, alongside lower operating expenses, but revenue also declined substantially and remained very small relative to expenses.
- Management said June-end cash, together with anticipated revenue, was expected to fund operations into the third quarter of 2020. The company expected it would likely seek additional financing; availability and acceptable terms were not assured.
- Management reported pre-production and initial-production activity with several consumer, medical-device and industrial companies for contact-based products intended for market in 2019, and discussions on low-power distance-charging applications. These are forward-looking expectations, not confirmed commercial-scale sales.
- Key risks include the nascent and unproven market, customer adoption and lengthy product-development cycles, technical and regulatory hurdles, competition, dependence on Dialog and other partners, customer concentration, and the need for further financing. The company reported 201 FCC approval for its first-generation Mid Field transmitter, but other products and applications may require approvals.
- A shareholder demand letter alleged that certain grants under the 2014 Non-Employee Equity Compensation Plan exceeded plan limits. In August 2019, three directors rescinded a total of 38,666 shares issued on settlement of RSUs; the filing states the rescissions were effective as of the grant dates.
- The company adopted lease accounting in 2019 and recorded right-of-use assets and lease liabilities. Subsequent to quarter-end, it signed new San Jose and Costa Mesa leases, with terms of three years and two years, respectively. Management reported no material pending litigation, no off-balance-sheet transactions, effective disclosure controls, and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether anticipated customer product launches and development milestones convert into recurring royalties or meaningful revenue, and on what timeline.
- How the company’s cash balance and operating cash use compare with its stated runway, and whether additional financing will be required.
- The status and commercial impact of regulatory approvals, customer concentration, and the strategic relationship and exclusivity arrangements with Dialog.
- The effect of the March 2019 offering, outstanding warrants and equity compensation on future share dilution, and the resolution of the RSU plan-limit matter.