WATT - Energous May Need To Do A Reverse Split

Summary

• Energous received a notice about listing compliance from Nasdaq due to its share price closing below $1 for 30 consecutive trading days.
• It has until July to regain compliance.
• Energous is tracking to generate less than $1 million in revenues in 2022.
• It has reduced its cash burn through cost cutting to a bit over $5 million per quarter.
• It can probably avoid another equity raise (outside of its ATM program) until after 2023.

Energous ( WATT ) may end up requiring a reverse split to maintain its Nasdaq listing. It recently received a notice about listing compliance due to its share price closing below $1 for 30 consecutive trading days and has until July 2023 to regain compliance.

Energous's ability to generate revenues remains limited, as it is on track to generate less than $1 million revenues in 2022 and currently has a cost of revenues that is greater than its revenues (due to an inventory write-down). It has made more progress with cost cutting, but still has cash burn of over $5 million per quarter, which is over 20x the level of its revenues. With the cost cutting, its cash burn may end up being a bit better than I expected before, but its revenues are still below my modest expectations. Thus I believe it likely that Energous will need to do a reverse split later on.

Listing Compliance Issues

Energous received a written notice from Nasdaq on January 20 about its shares having a closing bid price of under $1.00 per share for 30 consecutive trading days. While this has no immediate effect on Energous, it now has 180 calendar days to regain compliance. To regain compliance, Energous must have a closing bid price of at least $1.00 for 10 consecutive trading days before July 19, 2023.

Energous can get another 180 calendar day compliance period after that, during which it would likely attempt to do a reverse split to regain compliance if its shares remained below $1.

Energous has traded at $1 for shorter periods before, so it is conceivable that its shares could bounce back above $1 on their own. However, investors have been getting tired of Energous's continued cash burn and limited revenues, so its press releases haven't had the same impact on its stock as they previously had.

Cash Position

Energous started 2022 with $49.1 million in cash, and is now down to $30.4 million in cash as of the end of Q3 2022. The $18.7 million in cash burn over the first three quarters of 2022 is tracking in-line with my expectations that it would end up with $25 million in cash burn for the full year.

Energous's cash burn was reduced to $5.3 million in Q3 2022 due to it reducing its headcount and otherwise trimming expenses. Thus it will probably actually end up with slightly under $25 million in cash burn for 2022.

Energous had $7.1 million remaining available for sale under its at-the-market equity program at the end of Q3 2022 and hadn't sold shares under that program since Q4 2021. However, it noted that it raised net proceeds of $0.453 million under the ATM program from October 1, 2022 to November 7, 2022 by selling 0.438 million shares, leaving $6.6 million remaining under that program.

If it completes its ATM program it may end up with around 85 to 86 million shares outstanding, along with approximately $32 million in cash on hand (at the end of 2022). This would be enough for approximately 6 quarters of runway at its current level of cash burn, so it could avoid another equity raise during 2023. In any case, Energous will have likely either done a reverse split or regained compliance by the time it needs to raise additional funds outside of its current ATM program.

Minimal Revenue Growth

While Energous has made some progress in reducing its cash burn through cutting costs, it has not been able to grow its revenues recently. It reported $0.22 million in revenues in Q3 2022, unchanged from the $0.22 million per quarter that it averaged in 1H 2022. It also reported $0.42 million in cost of revenues in Q3 2022, so the revenues it did generate had highly negative margins, attributed to an inventory write-down.

Due to the significant improvement in the savings interest rates, Energous is actually generating noticeable interest income now, at $0.14 million in Q3 2022. While this doesn't make a huge difference to Energous's cash burn, it is interesting to note that its interest income was over 60% of its total revenues of $0.22 million for the quarter.

Product Adoption

Energous had previously ( in November 2020 ) talked about how its commercialization and market ramp phase started in 2019. It did get its WattUp wireless charging technology incorporated into some consumer products, but the applications have been fairly niche and consumers do not appear to have embraced those products. For example, near-field WattUp technology was incorporated into Delight personal sound amplification products, but that never translated into meaningful revenue and the Delight products appear to be unavailable for sale now.

While consumer interest in WattUp-enabled products has been minimal so far, Energous may have more success with retail store deployments featuring Wiliot IoT Pixel tags that are wirelessly energized by WattUp PowerBridges. This still appears to be in the test phase though, with deployments in a couple retail stores before potential expansion.

Other Items

I don't believe that Energous's financial results will improve much over the next year, so it will likely need to attract more attention from retail investors/traders to avoid a reverse split in the future.

Energous used to (such as five years ago) attract a lot of speculation about potential big partnerships, and it once did over $1 billion in trading volumes in a single day back in late 2017. However the speculation never panned out, and investors appear to have largely lost interest in the company. The last time Energous's trading volumes exceeded $1 million in a day was back in August 2022.

Thus I view it as likely that Energous will ask sometime in 2023 to do a reverse split unless it can recapture investor interest in a way that it has not been able to do in a long time.

Conclusion

Energous's stock has stayed below $1 for a while as it continues to have trouble growing revenues. Energous's revenues in Q3 2022 was no different than its quarterly average during 1H 2022 and it had negative margins as well. Energous has made some progress cutting costs but is still burning over $5 million per quarter.

While Energous appears capable of avoiding further dilution (outside of its ATM program) during 2023, it seems likely to need to do a reverse split to regain compliance. Energous's results remain very weak, with its cash burn at over 20x the level of its revenue. Most investors/traders who paid attention to its years ago appear to have moved on as well. There are a couple test retail store deployments, but any progress on that may come too late to avoid the need for a reverse split.

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