Energous Corporation (Nasdaq: WATT) — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 13, 2020. The filing also provides unaudited quarterly results, including Q4 2019.
Business context
Energous develops WattUp, radio-frequency wireless charging technology, and relies on licensing, development projects and product royalties rather than operating a scaled product-manufacturing business. Dialog Semiconductor manufactures and exclusively distributes specified integrated-circuit products incorporating Energous designs and supports customer sales and logistics. The company said its first end-customer product entered the market in 2019; it expected additional partner products in 2020, but these were expectations, not reported outcomes.
Financial highlights
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $200,143 | $514,823 |
| Operating expenses | $39.0 million | $51.4 million |
| Operating loss | $38.8 million | $50.9 million |
| Net loss | $38.4 million | $50.8 million |
| Basic and diluted loss per share | $1.27 | $1.99 |
| Net cash used in operations | $26.6 million | $32.5 million |
Revenue fell $314,680, primarily due to lower engineering-services revenue. Research and development expense declined $9.6 million, mainly reflecting lower stock-based compensation, development costs and payroll. Operating expenses declined $12.4 million overall. No meaningful gross-margin figure is presented; given the very small revenue base and operating losses, margins are not a useful indicator of scaled commercial performance.
Q4 2019: Revenue was $45,643 and net loss was $9.4 million, versus revenue of $56,050 and net loss of $12.5 million in Q4 2018.
Cash, liquidity and obligations: Cash and cash equivalents were $21.7 million at year-end, compared with $20.1 million a year earlier. Financing activities provided $28.4 million in 2019, including $23.3 million net proceeds from a share-and-warrant offering and $4.6 million from at-the-market share sales. Management said available cash, anticipated revenue and expected financing would fund operations into March 2021; the estimate depends in part on financing that was not assured. The filing reports no conventional borrowings on the balance sheet, but operating-lease liabilities totaled $2.1 million ($722,291 current and $1.4 million long-term). Total liabilities were $5.9 million; total stockholders’ equity was $19.0 million.
Shares outstanding increased from 26.5 million at year-end 2018 to 33.2 million at year-end 2019, reflecting equity financing and other share issuances. The company reported an accumulated deficit of $263.1 million. It had $169.4 million in federal net operating loss carryforwards, but fully reserved its net deferred tax assets.
Changes, outlook and risks
- Losses narrowed year over year, but revenue remained very limited and declined. Operating cash use also decreased, while the company continued to depend on external capital.
- Management planned continued research and development, including work on higher-power and distance-charging applications. The market remained nascent and unproven; the filing gives no quantified revenue or earnings guidance.
- Management identified COVID-19-related disruption to Chinese manufacturing and supply chains as delaying customer adoption and, in one case, a product launch. The extent and duration of the impact were uncertain.
- Key risks include the ability to achieve commercial-scale adoption and revenue, ongoing financing needs and potential shareholder dilution, technical and regulatory hurdles, competition, customer concentration, and reliance on Dialog. Four customers accounted for about 52% of 2019 revenue; four customers represented nearly all year-end receivables.
- Dialog’s agreement includes exclusivity and revenue sharing; Energous’s exclusivity requirement was scheduled to end no later than January 1, 2021, subject to the agreement’s terms. Certain other customer agreements could also limit activity in some markets through December 2020.
- No pending legal proceeding was identified as likely to have a material adverse effect. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at December 31, 2019.
Investor verification priorities
- Confirm whether announced or expected partner products launched, achieved customer acceptance and generated material royalty or licensing revenue.
- Track cash burn, financing availability and dilution against the stated March 2021 liquidity runway.
- Review customer concentration, receivable collectability and the terms and practical effects of the Dialog alliance and other exclusivity restrictions.
- Assess evidence of technical performance, regulatory approvals, safety, manufacturability and competitive cost at commercial scale.
- Monitor COVID-19 and other supply-chain or product-launch delays, and whether they affect customer timelines or financing needs.