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Energous' (WATT) CEO Stephen Rizzone on Q2 2016 Results - Earnings Call Transcript

Energous Corporation (NASDAQ:WATT)

Q2 2016 Earnings Conference Call

August 9, 2016 4:30 PM ET

Executives

Laurie Berman - Investor Relations

Stephen Rizzone - President and Chief Executive Officer

Brian Sereda - Chief Financial Officer

Analysts

William Gibson - ROTH Capital Partners, LLC

Jon Hickman - Ladenburg Thalmann & Co.

Charles Gonzalez - Newbridge Securities

Scott Reed - Vict10n Capital Strategies, LLC.

Peter Ruggiere - Dawson James Securities, Inc.

Operator

Good afternoon and welcome to the Energous Second Quarter 2016 Earnings Call. All participants will be in listen mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note that this event is being recorded.

I would now like to turn the conference over to Laurie Berman. Please go ahead.

Laurie Berman

Thank you, Andria, and hello, everybody. I am Laurie Berman, Investor Relations for Energous. Joining me on today’s call are Stephen Rizzone, President and CEO; and Brian Sereda, CFO. After comments by Steve and Brian, we will open the call to your questions.

Before we begin, I would like to remind everyone that during today’s call the company will make forward-looking statements. These statements whether in prepared remarks or during the Q&A session are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission.

Except as otherwise required by federal securities laws, Energous disclaims any obligation or undertaking to publicly release updates or revisions to forward-looking statements contained herein or elsewhere to reflect changes and expectations with regards to those events, conditions, and circumstances.

Also please note that during this call the company will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today’s press release which is posted on the company’s website.

Now, I would like to turn the call over to Steve Rizzone. Go ahead, Steve.

Stephen Rizzone

Thank you, Laurie. I would like to welcome everyone to the Energous second quarter 2016 update call. As Laurie said, joining me today is Brian Sereda, our Chief Financial Officer. I will begin the call with some brief remarks on the $20 million private placement we just announced, followed by a review of the significant milestone achievements and progress the company has made since our last update.

I will then turn the call over to Brian, who will review the financial results for the second quarter. Following Brian, I will close with an update on the corporate goals the management team set for the year and then we will open the session to questions.

As you are aware, today we announced a private placement of $20 million from Malcolm Fairbairn and the principal of Ascend Capital LLC. Ascend is a multibillion-dollar hedge fund based in California. Malcolm and Ascend invested in Energous at its founding stage and have been valued long-term investors.

There are two important elements to discuss with respect to this investment. The first is the use of proceeds. We now have $20 million of additional cash in the bank and expect to see cash coming in from licensees and strategic partners in the last-half of the year in line with our earlier estimates of a range in the mid-seven figures.

As Brian will confirm in his remarks, last quarter appears to be the high-point of our spending for the foreseeable future. Due to the fact that during this period, we completed the development and tapeout of five separate ASICs. As a result, we expect to see our working capital requirements decline for the second-half of the year.

The additional cash infusion allows us to increase our engineering hiring plan for the year to support current and expected development requirements from both our strategic partner and new licensees, plus the additional cash insures us against potential macro events, so that we have sufficient capital to operate and expand the company until we crossover into cash flow breakeven territory.

The second consideration is the investor, receiving an investment of $20 million from a $3 billion hedge fund like Ascend is a strong validation point for Energous. Further, the stock issued in conjunction with the investment is in the hands of a supportive long-term investor. We are very pleased and fortunate that Ascend Capital has decided to make this investment and become a major shareholder in our company.

Moving on to the company’s significant achievements in the second quarter, starting with our strategic partner, as we have noted in earlier call, our progress with this relationship is largely based on successful performance against strategic milestones. Consistent with the planned schedule, I am very pleased to report that since our last call, a number of very significant technological milestones have been delivered to our strategic partner for testing and validation.

Once the testing and validation is complete, which should be in 30 to 60 days, we expect to see additional engineering services revenue from this partner. In summary, our relationship with our strategic partner continues to progress and while there is no guarantee that WattUp technology will be integrated into consumer devices from the strategic partner, the development against milestones leading to this objective remain on track.

Continuing progress with the milestones of our strategic partner are doubly important, since they represent both in past the very significant deployment of the WattUp technology, as well as continued acceleration of the overall commercialization effort of our Mini, Midsize and Full-size transmitter technology.

Further, the development of the WattUp technology has matured to the point, where Energous is now actively engaged with a broad spectrum of licensees across multiple markets. Since our last call, we have signed four new licensing agreements. Two of these agreements are for applications integrating our Miniature WattUp transmitter design and receiver solutions. The third agreement is for a Midsize transmitter and integrated WattUp receiver. While the fourth is focused solely on our WattUp receivers paired with our Full-size WattUp transmitters.

It is also important to note that in parallel with the increase in size in our licensee base, Energous has also been able to we expand the number of licensees paying for engineering services.

We now have three different partners generating engineering services revenue. On a side note, Energous retains the ownership of all IP developed by Energous engineering team in conjunction with these engineering services.

As further evidence of the maturity of the WattUp technology and the unique charging solutions the technology offers, the expansion of our licensee base is occurring at a faster pace than original projections of one per month.

In addition to the four new licensing agreements, we have signed two new agreements to specifically developed proof-of-concept prototypes or POCs for two Tier 1 companies. One is a leading computing and accessory OEM. The other is leaning wearable company.

POCs are a very production form of engagement, where potential licensees have decided to bypass any evaluation period and proceed directly to integration of the WattUp technology with their consumer devices, thus accelerating the path to adoption.

Finally, we’re sporting 15 other active evaluation agreements, spanning the full spectrum of WattUp transmitter and receiver technology. As we reported in the last call, we are focusing our attention on 30 active licensing prospects. We are also in the process of hiring additional application support engineers to expand our customer service engineering team to support an additional 50 potential licensees that we have in queue.

The ever-growing size prospect funnel spans a broad range of commercial and industrial markets and applications.

We are also reconfirming our projections that consumer products from our licensees of the Mini WattUp transmitter technology will be shipping late this year or early next year. The WattUp enabled Midsize transmitter applications will be shipping in late 2017 and the Full-size WattUp transmitters will be shipping in early 2018.

While, we expect continued to expansion of both our licensee-based and application served, common to all WattUp integrations is the element of compatibility. Simply stated, all WattUp receivers will accept charging from all WattUp transmitters. This is a key technological advantage and the core enabler of our build-out of the WattUp wire-free ecosystem.

As a fabless established semiconductor company, Energous continues to evolve and advance its technology. Energous now has a complete chipset that will be ready for mass production this quarter. The WattUp chipsets are already being sampled by multiple licensing partners. Based on this progress, we expect to see our first order for chipsets from partners in the final stages of integration late third quarter, early fourth quarter of this year.

While great progress has been made, the Energous management team strongly believes that the key to our continued market leadership is ongoing and increasing investment in advanced development and innovation. As part of this core focus for the company, last quarter the Energous development team completed the design and fabrication of the next generation of ICs with features like efficiencies of greater than 80%, small form-factor and a highly integrated bill of materials, resulting in both better price performance and better margin performance.

In less than two-and-a-half years since the company launched, we now have our first-generation of silicon chipsets in the final stages of qualification in anticipation to mass quantity shipments this year and a second generation of advanced silicon that offer even better performance and functionality in the bring-up stage in the Energous lab.

Going forward, we will refer to these developments as Gen 1, which will be integrated into our first licensing product cycle, and Gen 2, which will be available to licensees as qualified chipset in late 2017.

With all of our silicon development, the original building blocks or architecture has been retained, so that all of the chips that are used for all three transmitter reference design.

Of course, commercialization of wire-free charging technology involves both the development of the technology and the build out of the partner base, as well as regulatory approval. As we previously released in the press, Energous has received regulatory approval for its Mini WattUp transmitter design, clearing away for integration and shipment of this version of the Gen 1 WattUp technology to consumers late this year, early next year.

We also continue to...


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