Energous Corporation — Q3 2018 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2018. Energous is developing WattUp, an RF-based wireless charging technology, and relies on Dialog Semiconductor as the exclusive supplier of related IC products for the general market. The company reported early-adopter pre-production and initial-production activity; revenue remained limited.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $228,000 | $250,000 | $458,773 | $1,124,874 |
| Operating expenses | $12.88 million | $13.00 million | $38.86 million | $39.27 million |
| Loss from operations | $(12.65) million | $(12.75) million | $(38.41) million | $(38.15) million |
| Net loss | $(12.65) million | $(12.75) million | $(38.39) million | $(38.14) million |
| Basic and diluted loss per share | $(0.49) | $(0.58) | $(1.50) | $(1.81) |
| Operating cash flow | Not stated for quarter | $(24.40) million | $(26.89) million |
Margins and profitability. Gross profit and gross margin are not separately presented. The company remained loss-making, with operating expenses far exceeding revenue.
Balance sheet at September 30, 2018. Cash and cash equivalents were $28.55 million; current assets were $29.37 million and current liabilities $3.75 million. Total assets were $30.65 million and stockholders’ equity $26.89 million. The balance sheet lists no borrowings or debt. Cash increased $15.76 million from year-end 2017, principally reflecting equity financing.
Cash flows and financing. Nine-month investing cash use was $0.56 million, primarily for software and laboratory equipment. Financing provided $40.72 million, including $38.85 million net proceeds from an ATM stock offering, $1.32 million from stock-option exercises, and $0.55 million from the employee stock purchase plan. The ATM issuance comprised 2,221,455 shares, net of $1.15 million in issuance costs.
Material changes versus prior comparable periods
- Nine-month revenue fell to $0.46 million from $1.12 million; management attributed the decline to the number and value of development milestones achieved. Q3 revenue was $0.23 million versus $0.25 million.
- Nine-month operating expenses declined modestly, but the operating loss and net loss increased slightly. Q3 operating and net losses improved modestly year over year.
- Nine-month operating cash use decreased to $24.40 million from $26.89 million.
- Sales and marketing expense increased year over year, while research and development expense decreased. Stock-based compensation was $12.80 million for the nine months, compared with $12.47 million.
- Common shares outstanding rose to 26.06 million from 22.58 million at December 31, 2017, reflecting the ATM issuance, equity awards and exercises. The filing reports 26,094,600 shares outstanding as of November 5, 2018.
Outlook, risks and other notable items
- Management expected cash on hand at September 30, together with anticipated revenue, to fund operations into the fourth quarter of 2019. It cautioned that additional financing may be needed and may not be available on acceptable terms, or at all. An effective shelf registration filed in August 2018 permits up to $75 million of debt or equity securities.
- Key risks include the unproven market for the technology, continued development and commercialization challenges, regulatory approvals, customer acceptance, competition, and dependence on Dialog. One customer accounted for approximately 99% of Q3 revenue and 98% of nine-month revenue; it represented 96% of accounts receivable at quarter-end.
- Dialog-related revenue was $5,773 for the nine months. Dialog also received $43,700 for chip development costs, recorded in research and development expense.
- The company reported an accumulated deficit of $212.29 million and stated it had no history of meaningful product revenue and might never achieve profitability. No material off-balance-sheet transactions or material pending legal proceedings were reported.
- Management said disclosure controls were effective as of September 30, 2018, with no materially affecting change in internal control during the quarter. A November 7, 2018 amendment to the Performance Share Unit Plan expanded the performance metrics for earning units.
Important facts for investors to verify
- Whether WattUp achieves commercial launches, regulatory clearances for intended applications, and meaningful recurring revenue beyond development milestones.
- How much of the stated cash runway depends on anticipated customer payments, and whether additional capital will be required before meaningful revenue develops.
- Customer concentration, the status and terms of customer development agreements, and the commercial progress of the Dialog alliance.
- Potential dilution from future equity financing and outstanding equity awards; the filing excludes 6.84 million potentially dilutive securities from diluted loss per share as anti-dilutive.
- The timing and cost of technology development, regulatory approvals, and commercialization relative to available cash.