Energous Corporation

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.

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.

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.