This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: remarks or during the Q&A session are subject to inherent risks and uncertainties that are detailed in the company's filings with the Securities and Exchange Commission, except as otherwise required by federal securities laws, and are just disclaims any obligation or undertaking to publicly release updates or revisions to the forward-looking statements contained herein or elsewhere to reflect changes in expectations with regard to those events, conditions, and circumstances. Also, please note that during this call, Energist 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, CEO of Energist. Please go ahead, Steve.
spk05: Thanks, Mike. And welcome to the Energist third quarter conference call. Joining me today is Brian Cerretta, our Senior Vice President and Chief Financial Officer. Our agenda today includes a high-level overview of our third quarter performance, a review of our key growth strategies and the progress we achieved during the quarter, upcoming milestones we are driving toward, and our future outlook. Brian will then cover the third quarter financials in a more detailed review, followed by a Q&A session. Like most companies, our third quarter performance was adversely impacted by pandemic related headwinds. We also experienced a last minute shift in priorities for certain government business we were forecasting. Combined, these resulted in lower than anticipated top line growth for the third quarter. To be more specific, while internally the company has adapted well to the complexities and complications of the pandemic, We are being negatively impacted externally by the inability to interact directly with customers on site and a slowdown of product cycles by some customers who are dealing with their own pandemic issues. Finally, with respect to government business, we forecasted funding being made available to support a WPT project for which the energy technology was well suited. These funds were reallocated to another project based on a shift in government priorities. As we look ahead, we view this situation as temporary for a number of reasons, which I'll detail in a moment. Equally important, we remain confident and steadfast in our growth strategy. Here's why we're optimistic about the future. Interest in our charging technology continues to expand across a variety of vertical markets. Indicative of the progress is the recent announcement of the new hearing aid FCC certification. As a result of this certification, the first of the Primo W units are in the process of being made available to distributors, signaling the initial phase of general availability. Along these same lines, we anticipate at least two additional what-if enabled products will begin FCC certification process before the end of the quarter. Because of the holidays and the distractions associated with the change in Washington, We believe these certification processes may take longer than usual, but we will announce the successful certification following confirmation from the FCC. Further validations of the NRGIS contact-based technology taking hold are the anticipated announcements of two, possibly three, WattApp-enabled products being made available to end customers in the near future, possibly before the end of the year, with timing largely dependent on the pandemic issues mentioned earlier in the call. All three are in the final stages of product launch. As such, we believe the only question is timing. Two of these launches are in the medical sensor market, and one is a new hearing aid customer, which represents the third entrant into this very important market. The new hearing aid customer announcement will also represent the first product launch in Europe, expanding our customer product regulatory certifications internationally. Another meaningful validation point is today's announcement that POSCO, in conjunction with the partnership efforts of Bevex and SK Telesis and Energist, has successfully completed the field trial of a WADOP-enabled ultra-wideband industrial tracking device. This represents the first phase of a planned product launch, subject to regulatory certification, that could result in wide-scale deployment of the tracking technology. Beyond this specific opportunity, completing a successful field trial of a wirelessly powered tracking device has positive implications for WattUp and the emerging markets of tracking devices and sensors in retail, industrial, medical, and IoT devices. Besides the POSCO opportunity, Energist is engaged in a number of product cycles involving implanted sensors, rechargeable as well as continually charging medical, industrial, and IoT devices and tracking applications. These market opportunities are taking shape rapidly with many applications that are ideally suited to the RF-based what-app technology. These applications support high volumes for which the what-app technology has unique competitive advantages over other wirelessly charging technologies and are quickly emerging as meaningful opportunities for the company. Energist is also pleased to report that our partnership with GrayPAL, the Chinese battery manufacturer, is gaining traction. GrayPAL has significant market share and important target markets, including hearing aids, medical devices, and sensors. Our respective engineering teams are developing a common reference design that will combine both the battery and charging technology into a single, easy-to-integrate, cost-effective solution for a broad spectrum of applications. We hope for general availability of this advanced charging solution in the mid-2021 timeframe. While on the subject of partnerships, our relationship with Dialog remains strong. Dialog continues to support Energis' operations and sales functions, and we believe both companies are poised to benefit from the sale of Energis chipsets and the continued expansion of the WattUp technology. Regulatory certifications remain a top priority for the company. One of our customers in China is in the process of petitioning the Chinese regulatory agency, the MIIT, for certification of the first WattUp-enabled product in that country. Timing on successful completion of this process is difficult to estimate, but it represents a significant step in completing the cycle. We are employing the same strategy in Korea, where we are in discussions with customers potentially taking the lead role in petitioning the Korean regulatory officials to allow WPT access. We are encouraged by the fact that we have partners who are willing to assume this responsibility as this appears to be the fastest approach to gain certification in these two important jurisdictions. Further, The addition of Cheryl Wilkinson to our board of directors adds considerable expertise and experience in regulatory and government affairs to the company. Cheryl is a highly experienced federal government advisor and a formal legal advisor to the FCC chairman. Beyond her potential contributions, her direct involvement with NRGIS further expands the already considerable expertise of our board of directors. Related to regulatory and the issue of certifications is the issue of standardization. There is also positive movement along these lines to report. First, the FCC has launched an NPRM, or Notice of Proposed Rulemaking, which in this case represents an effort by the agency to gain industry feedback with the intent of formalizing wireless power transfer and its certification process as part of the FCC's Title 47 Code of Federal Regulations. Second, as announced last month, the Air Fuel Alliance, or AFA, is in the midst of establishing a standard for RF charging. A standard is a key element to foster broad adoption and development of ecosystems as products adhering to the standard will be able to coexist and interoperate with each other. Launching these efforts reflects the kind of traction RF charging is gaining in WPT. Energist will continue to support and contribute to this effort as part of our commitment to the AFA. Energist has assumed a leading role in both of these standards process. As noted earlier, part of our third quarter revenue delay was attributed to priority changes in one of our military opportunities. With the caveat that breaking into the federal government and military markets is typically a long and arduous process, these markets increasingly look to be strong opportunities for the energy wireless charging technology, both contact and distance. Military applications, like the Soldier of the Future initiative with the Army to arm and empower the next generation of field soldiers, are heavily dependent on rechargeable batteries and mobile power under extreme conditions. Both of these functional requirements are especially well-suited to the competitive advantages of ruggedized RF-based Energis wireless power. With our military applications partner, Zentris, Energis offers a broad spectrum of compelling wireless power solutions to the point where the efforts of the combined companies have collectively generated several proposals for a wide range of applications across a number of commands who have expressed interest in RF-based wireless charging. Separately, the larger overall federal government represents such a significant opportunity that we have made the decision to dedicate resource to capitalize on WPT initiatives that are being developed for wireless power, especially distance, for emergency responders, Homeland Security, and the Department of Energy, to name a few. We are pleased to report a significant number of technology validation points for our contact technology. Of special importance is the interest being generated by the first WADAP distance transmitter, the WADAP PowerHub. Because of its uniqueness and suitability for a broad spectrum of applications, the WADAP PowerHub has generated a lot of interest and has significantly increased our prospective customer funnel. The result of this interest in distance technology, coupled with a desire on part of several potential customers to bring the technology to market quickly because of its differentiation, is that we have multiple customer product cycles that are ramping faster than many of our contact-based opportunities. With respect to our goal of driving a top-tier opportunity to design in status before the end of the year, We have a number of engagements with top-tier companies defined as one of the top two or three participants in their respective markets, to the point where we expect at least one will make the decision to move forward with the what-up technology before the end of this year. We anticipate the positive momentum will continue into 2021 with the possibility of one to two additional favorable decisions in the first half of next year. It is important to note that all of these top tier prospects are highly qualified and have specific timeline product cycles associated with them, as well as specific product IDs. Given the product forecast associated with these top tier opportunities, coupled with the continuing flow of announcements we expect to make regarding smaller second and third tier opportunities, we expect to see tangible progress in terms of revenue and cash flows in the coming quarters. However, given the environment that we are in, our ability to predict timing and trajectory is limited and subject to fluctuation. Finally, IP continues to be an energy strength, a significant contributor to the core value of the company and a strategic barrier to potential competition with 227 awarded patents to date. Brian, I will now turn the call over to you.
spk01: Thanks, Steve. At the close of market today, we issued our Q3 earnings press release, announcing our operating and financial results for the third quarter of fiscal 2020, ended September 30. We recognized 61.5 thousand in revenues in the third quarter compared to the prior quarter's 114.4 thousand and 40.5 thousand in the same quarter of last year. Year to date, we have recognized approximately 237 thousand in revenue versus 155 thousand for the same period in 2019. Total gap expense for the second quarter was $7.6 million, approximately $0.7 million lower than the $8.3 million of total expense in the prior quarter, and a similar improvement, or $0.7 million lower than $8.3 million of total gap expense in the same quarter of last year. The decrease over prior quarters and prior years is a result of lower expenses in the area of engineering development costs and lower legal stock compensation and administrative costs. Chip development work over the last few years is ongoing. in gas and GAN technologies, which is lower in cost to tape out versus CMOS. We ended the quarter at 53 heads compared to 54 in the prior quarter and 56 in Q3 of last year. As I've mentioned on prior calls and in investor meetings, we continue to believe that our model is highly leverageable, and we don't expect a large increase in headcount-related expense, even as we expect to bring increasing number of customers to market headed into 2021. This is in part due to our partnership with Dialog and lower investment in the number of pure R&D projects versus the increasing number of customer projects. Compared to last year, R&D has dropped to approximately 53% of total gap spend versus 62% for the same period of last year. As I've also discussed previously, we could see increases if and when we plan for CMOS-based chip tapeouts, but again, overall spending will trend in this range with increases expected only for the CMOS chip tapeouts and other related development work. Year to date, our total gap spending is 24.7 million, 4.8 million lower than 29.5 million of year to date gaps expenses in fiscal 2019. Net loss for the third quarter on a gap basis was approximately 7.6 million or 18 cents per share on 41.9 million weighted average shares outstanding. This compares to an $8.2 million net loss in the prior quarter. or 20 cents loss per share and similar 8.2 million net loss or 27 cents loss per share in the third quarter of last year. Now I'd like to switch to a non-GAAP view of our numbers for the quarter and fiscal year as we believe adjusted or non-GAAP operating results provides a useful comparison for investors, especially for a company at our stage when used together with GAAP information. Excluding approximately 2 million of stock compensation and depreciation from our total Q3 GAAP expense of 7.6 million, Net non-GAAP operating expense totaled $5.6 million, down approximately $0.6 million over the prior quarter's non-GAAP expense of $6.2 million and $0.5 million below the $6.1 million of non-GAAP expense in Q3 of last year. Net of revenues are non-GAAP operating loss decreased in Q3 to $5.5 million, approximately $0.5 million lower than the prior quarter and similar improvement over the same period last year. Non-GAAP engineering expense of just over $3 million for Q3 was approximately $0.2 million lower than last quarter and $0.9 million lower than the same period last year. Non-GAAP SG&A for the quarter totaled approximately $2.5 million, approximately $0.3 million lower than the prior quarter, and approximately $0.4 million higher than the same period last year due to additional sales engineering headcount in response to increasing complexity and number of customer projects, along with increasing year-over-year public company costs in the area of audit, insurance, and legal. For fiscal 2020, we expect our cash outflows from operations to trend over 3 million lower compared to fiscal 2019. Total cash used during the quarter was approximately 6.1 million, with total ending cash of 20.5 million, including the 3.2 million of cash in transit from the sale of shares under our at-the-market facility at the end of last quarter. Other than lease liabilities related to our facilities, we remain debt-free. During the quarter, we entered into a new at-the-market facility to support our working capital requirements with the expectation for increasing customer engagements and additional customers announcing products featuring WattUp before the end of this year and in coming quarters. In summary, we expect our cash operating expense run rate to remain at the current levels underpinned by our dialogue partnership with minor upticks for CMOS chip cycles. In addition, as we head into fiscal 21, we do not anticipate the need for any major capital investments, having made all the necessary improvements to our facilities and labs necessary to sustain R&D regulatory work and business growth. As Steve highlighted, there is progress with the technology and a broadening of customer interest in RF charging solutions across many vertical markets. The progress is obviously slower than we'd like to report and impacted over the last several months with the overhang of COVID. heavily impacting our ability to work on-site with customers. But there is operational progress nonetheless, with expectations of additional customer launches and announcements in the coming quarters. With that, I'll now turn it back to Steve.
spk05: Thank you, Brian. A few closing comments before we turn the call over to the operator for questions. WPT is a difficult and complicated business that continues to hold great potential as well as significant obstacles. For the near term, the WADAV contact technology will form the basis of the company's customer wins and revenue generation, but distance technology clearly represents the real accelerator for Energis. It's unique. It's based on core technology that can be commercialized and certified, and it sets Energis apart from any first or second generation WPT competitors. The delays in revenue are unfortunate, but we believe they are temporary with expectations that a return to revenue growth is picking up momentum. We must emphasize that it is difficult to accurately predict the trajectory and magnitude of this ramp as many of the controlling elements are beyond our direct control. While in no way minimizing the delays in revenue, we believe there are a number of equally significant validation points in terms of customer acquisition, new and continuing partnerships, movements towards standardization, and regulatory certification that all point to the fact that Energis and the WattUp technology are gaining meaningful traction, ultimately leading to our long-term goal of building a relevant and valuable business, the proof of which we expect will become clear with each passing quarter. Operator, we will now take questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, just press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Suji Da Silva from Roth Capital. Go ahead. Hi, Stephen. Hi, Brian.
spk04: So the European customer, can you talk about how large that opportunity is relative to the hearing aid customers already have?
spk05: I'm sorry. You're breaking up there for a moment. You're asking about the European launch of the third hearing aid opportunity. Is that correct? Yes.
spk04: And how big that opportunity is relative to the ones you already have.
spk05: It is equivalent, potentially a little larger than the two initial announcements. This is from a European-based hearing aid manufacturer that has solid markets in Europe. And so, again, this represents, I think, a larger potential opportunity than either the Delight or the New Sound opportunity. And of course, it's especially important because Europe is obviously a very, very important market. And this does represent or will represent, I should say, not only the third hearing aid to come to market with the technology, but also the first with a European certification.
spk04: Okay, that's very helpful. And then maybe you could talk more broadly, Stephen, about where you are in Europe in terms of regulatory approvals versus, say, the U.S. and other geographies.
spk05: Well, the contact technology is approved generally in both the U.S. and Europe. We have EU certification. As with all devices, the fact that we have the general certification is points the way to certification of each device. However, each device has to go through its own regulatory process. And as in the case in Europe, we already have EU certification for the Energis WhatUp contact-based technology. It's now a matter of taking this specific device through its own EU certification. Of course, since we have it, everything else becomes by reference, so it's not as difficult as getting the first certification. But as in the U.S., every device has to go through the certification process, and that's something that will be beginning soon.
spk04: Okay. And then, Stephen, perhaps switching to some other segments, the industrial and government segments, can you talk about how long, how many quarters you think the pause there or delay might be in terms of? estimating when you could start seeing opportunities there come in?
spk05: Well, I think the government business is going to be very, very good for energists. There are a number of military initiatives that are currently underway that really speak to the whole idea of charging, of mobility, of distance, And also, interestingly enough, software control, all very strong competitive elements of the Energist technology. You know, we have our military partner with Zentris that is well positioned in these markets, and together we have put forth, as I mentioned in the call, a number of specific proposals. It does take time to work these through. And it's really difficult for me to give an indication of exact timing. I think that we'll see business in the military sector in 2021. And I think once we get the first business that we'll be able to point to a number of additional opportunities that are coming to fruition, it's always the most difficult to get that first one. But once that happens, then it begins to expand to then. The other element is the broader federal market. There is just a lot going on. And as a result, as I also mentioned in the call, there is so much activity that we now have dedicated federal resource that is focusing on the federal market. And this is combined with a separate resource that's focusing on the military market. We believe that it represents a significant opportunity to the point where we have multiple resources focused on the opportunity and will be a big part of our business ramping in 2021, but certainly a meaningful part of our business in 2022. Okay.
spk04: Thanks, Stephen. And then perhaps one last question for Brian. Brian, on the expenses, you talked about expenses being stable going forward. Can you help us understand how much to tape out in any given quarter between CMOS and GANGAS? could move the expense run rate from the typical level you'd expect?
spk01: Sure. Typical CMOS tape out is about anywhere from $400,000 to $500,000 all in. And that's tape out and that's some of the after tape out expenses as well. Gas scan is far less expensive. It's about a quarter of that. So you can tape out a gas scan chip and our engineers are going to cringe here, but I'd say it's anywhere between $75,000 to $100,000. So far less money. CMOS is a much more complex process, many more layers, much more advanced nodes. So it's much more expensive. But yeah, there's a significant difference. Fortunately for us, we're not expecting a lot of CMOS tape outs as we go into 2021. It'll be certainly less than five, maybe two, maybe two to three. A lot of our focus now is in higher efficiency gas scan technologies. Okay, great.
spk04: Steve and Brian, thanks for taking the question. All right, thank you.
spk00: Again, if you have a question, please press star, then 1. Our next question is from Patrick Deaver, private investor. Go ahead.
spk05: Yes, Steve, how are you today? Fine, thank you.
spk03: Steve, I'd like to get a handle where we are with Dialogues. I mean, we've been engaged with them for about four years now. And we've been told every quarter for four years that their customers or our customers, there's always 100 or so customers in the queue. And it's now four years, and the only customer I'm looking at is Delight, which is not the company that's putting $400 million a quarter into their account. So, you know, I'm trying to. figure out what we're doing here. I mean, you know, after four years of college, kids could have gotten us a contract by now. Could you explain, you know, what's going on? I mean, are they actually helping us or is it a recurring business?
spk05: Good question, and I appreciate that. First of all, let me say that Dialog is a great, great partner that we are fortunate and very, very fortunate to have. And as you know, Dialog supports us both on the on the back end or backroom element of the business and on the sales element. On the back end element, we speak about what it costs to tape out a chip, so on and so forth. But we don't have to speak about what it costs to qualify that chip, to inventory that chip, so on and so forth, because all of those costs are picked up by Dialog. On the sales side, Dialog has introduced us to a number, a significant number of opportunities. And they've done so in a very credible fashion. And they've also done so at a very, very high level, a much, much higher level than one would expect for a new technology and a new company like Energis. Having said that, the issue is really matching the opportunity with the technology. And I think that's been, we've talked about that, but that is really a key focus that has really impacted the race that this technology has been, is being adopted and has really come to fruition. As I mentioned in previous calls, but I think it's worth repeating, the first few years of our existence was really focused on understanding the technology. And that's a very, very complex and time-consuming and expensive element because you can't just simulate these technologies. There are so many complexities to them and there's so many ramifications in these decisions that you actually have to build them. And so we have a tremendous spectrum of technology within the company that ranges from 60 gigahertz down to 40 megahertz. And once we had that understanding, we then had to match that with regulatory. And as we've often said, what we can do with the technology and what regulatory will approve, especially on a global basis, because we're talking about approximately 117 different jurisdictions. And to get them aligned on a single technology, a single frequency, so on, so forth, has been extremely complex and difficult. And it also limits what we can bring to market. As I said, the technology has far more capabilities that we think will come to fruition in the future, but right now we need to break it down. And then once we align those two, we then had to identify markets that we could participate in. For a considerable period of time, we were excluded from these markets because of our relationship with the Tier 1 customers. Since those restrictions have been relaxed, we've now been able to identify markets and concentrate on markets where we have a play. And now that we have done that, or that third vector has been realized, we then have to deal with the product cycles of these customers themselves. And so all of this has come about. It's obviously taken more time than we had hoped. But this is really on us. This is not a dialogue issue. Dialogue has made very good offices and has been a tremendous partner for us. This is really all about aligning the technology with the regulatory, with the markets that make the most sense, and then expanding and driving those specific markets with product cycles and completing those product cycles. The good news is, is hopefully that we've been able to communicate that that this is now starting to take hold. Yes, we've had delight and we have new sound. We've got another hearing aid that's coming out. I think that we'll have a couple more sensor opportunities, hopefully before the end of the year. But given all of the uncertainties in this world that we live in now, we can't absolutely say that. But again, I think that's also reasonable to assume that you'll hear continuing momentum for FCC and European certifications, as well as additional products, excuse me, customer products coming to full commercialization and new markets being expanded and explored. And so we really are at an inflection point. And I understand that it's taken time, but we are confident and comfortable in the future of the business. And again, keeping in mind that what we're doing has never been done before. So there continue to be uncertainties and obstacles that come our way. But I think we have the collective experience and support of partnerships that we'll be able to address any obstacles and continue to build value leading to our goal of building a real and viable and self-sustaining business.
spk03: Okay. So are you saying that you have some design wins and now all we're doing is waiting for the product cycle to actually take hold?
spk05: I am saying that. Yes, I am saying that. I made that, I think, pretty clear that we have additional products that are in the final stages of productization and product rollout. We expect to announce one that will be available in Europe and two more that will be available in the United States. Again, timing is a little murky given all that's going on, but we're close. All three are in the product cycles. And then we have additional ones that are in follow-on stages. And so, as I said, I believe that we will be in a position to announce a continuing flow of products that are being made available to the consumer. I can't speak on specific timing, so on and so forth, because, again, there's so many elements that – that are beyond our control that impact this, but the product cycles are real. They're identifiable. Our technology is a good fit for them. Customers want to move forward with it, and it's a question of continuing to drive them through the cycles. Also keep in mind that these are not short product cycles. Typical product cycle for a commercialized opportunity is 18 to 24 months. Federal, it's longer than that. And so all of these cycles are significant, which means that we've been working with a number of these accounts for a considerable period of time as they're now starting to come to fruition.
spk03: Right. Now, excuse me if you already said this in the call. So are some of these design wins with Tier 1s and Tier 2s, any of them? So we expect that we will have a... Go ahead.
spk05: As I said in the call, that we are engaged with a number, a significant number of Tier 1 opportunities. And the way we define Tier 1 opportunities is for the opportunity in question to be in the top two or three market share in terms of market share in the respective markets they participate in. Um, that qualifies in our mind as a top tier. And of course, being in the, in the top tier like that, it represents, um, significant volumes, uh, in terms of, of chip sets and, and, and customer units. Um, we are in the, uh, in engaged with the number and it is our stated goal. And one that we believe we have a chance, um, to, uh, to achieve in getting it is getting a design win. in, excuse me, design in classification with a tier one opportunity before the end of this year. And that we believe that there's enough momentum that we would see additional tier one design in designations in the first half of next year. A lot is, you know, a lot of things have to happen and there's always the issue of caveat, but there is a There is a lot of interest there. There are a number of product cycles that we're engaged in. And as I also mentioned, the thing that is really interesting and exciting for us and is also taking a considerable amount of our resource is the fact that the power hub and the distance technology has really taken solid hold. And this is unique. This differentiates Energist from others. the other WPT competitors, both those that are engaged in distance and those that are engaged in contact, because as I've often said, Energist is uniquely positioned here, and we are the only company that has the ability to participate in both of these markets under a common and compatible umbrella. And the PowerHub technology is really gaining a substantial hold and is driving a number of these engagements. Now, how soon this all comes to play, I really don't want to comment now other than to say that it is ramping quickly, and in some cases, it's ramping faster than our contact-based customers.
spk00: This concludes our question and answer session. I would now like to turn the conference back over to Steve Rizzone for closing remarks.
spk05: All right. Thank you, everyone, for participating in our third quarter update. We look forward to additional announcements of the company's progress in the future and look forward to speaking to you again in three months. Thank you very much.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
spk04: Thank you. Thank you.
Disclaimer