Good day and welcome to the Energous Corporation Second Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Bishop with Investor Relations. Please go ahead.

Thank you, Brandon, and welcome everyone. Before we begin, I would like to remind participants 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 that 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 the 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, Energous 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 Energous. Please go ahead.

Thank you, Mike. Good afternoon and welcome to the Energous second quarter conference call and update. With me today is Brian Sereda, our Chief Financial Officer. I will begin the call commenting on the solid overall performance Energous achieved in the second quarter, including our first royalty payment from our partner dialogue for the sale of WattUp chipsets during the quarter. I will then turn the call over to Brian for the details on our financial performance. I will close with a comment of traction and momentum as the company continues to press forward with the launch of the Wireless Charging 2.0 ecosystem. We will then open the call to questions. As noted, Energous had a strong operational quarter. First, progress with our key strategic partner continued to advance towards an opportunity for commercialization of our technology in one or more of their product lines. During the quarter, we completed specific deliverables resulting in an increase in engineering services revenue and the likelihood of additional payments in the third and fourth quarters. Consistent with prior statements, there is no guarantee that this relationship will ever result in the WattUp technology being integrated into this partner’s consumer electronics products. However, our progress with this key account is significant and the relationship continues to move forward. Also, in the quarter, the first WattUp-enabled hearing aid product was announced by the Korean company, Delight, working in conjunction with our long-standing partner SK Telesys. General availability is expected within the next 90 days as the fully commercialized WattUp-enabled hearing aid winds its way through the regulatory approval process in target launch countries. We believe the Delight hearing aid is the first of a number of WattUp-enabled hearing aids that will come to market in the next few quarter along with a new product category…

Thanks, Steve. As you saw at the close of market today, we issued a press release announcing our operating and financial results for the second quarter of fiscal 2018 ended June 30. In the second quarter, revenue totaled $206,000 from a combination of engineering services and our first royalties from commercial shipments of chips through Dialog in the quarter. Although the chip volume was modest, we believe we are now seeing the beginning of the crossover from our first customers entering into the production and commercialization stage, and we anticipate that additional customers will also soon announce products incorporating WattUp technology, as we progress through the balance of the year. By comparison, the previous quarter's revenue of 25,000 was solely from engineering services as were revenues of $300,000 in Q2 of last year. As we have highlighted on previous calls, engineering services revenues generated from our long-term key partner belied the level of engineering effort and advancements made in the technology from where we were 3 plus years ago. One final comment on revenue, we currently have a mixture of both small and more substantial customers, all in different stages of productization. Early revenues will be inconsistent, but as we forecast, are anticipated to grow materially from where they are now as we enter into 2019, as customers of different scale begin shipping their finished products into their respective markets. Also, in some cases, regional regulatory requirements are pending final approval, which once settled will help us forecast revenue patterns and timing by customer and by region. Expenses, starting with our GAAP results for the second quarter, declined by approximately $1 million to $12.5 million, compared to approximately $13.5 million in the first quarter, and we are $0.7 million lower than total GAAP expenses of $13.2 million in Q2 of…

Thank you, Brian. Before we open the call for questions, I wanted to make one final comment. Last quarter, we identified 2018 as the year Energous gains operational traction. We believe we are on track to achieve this goal, and it bears repeating what we believe this will mean for our company and our investors. We believe all of the critical operational milestones are coming together in 2018, which will result in the launch of the WattUp ecosystem. This momentum will carry forward in the 2019 where Energous will be actively engaged with a broad spectrum of top tier customers, who either have or are in the final stages of integrating the WattUp technology into multiple applications across several vertical markets, including wearables, hearables, hearing aids, smart phones, medical, and industrial applications supported by an established supply chain through our partner Dialog, with global regulatory approval resulting in dynamic growth of the business, meaningful revenues, and market leadership in Wireless Charging 2.0. It really is all coming together. I want to thank you for your attention, and operator, we will now take questions.

Thank you. [Operator Instructions] Our first question comes from Andrew Uerkwitz with Oppenheimer. Please go ahead.

Hi, thanks gentlemen for taking my question. Just kind of looking ahead, thinking about some of your larger customers and targeting 2019 and 2020, what are some of the bigger challenges you are facing today, is it trying to get certain price points, certain efficiencies, certain size, design, could you talk a little bit about some of the challenges there?

Certainly. Hello, Andrew. This is Steve. I think that the challenges have morphed over a period of time. Initially, we had challenges I think with the technology. The element of footprint, the cost requirements that we felt where necessary to drive mass adoption in the consumer markets. These elements, I think required additional time and effort in order to get them to the point where they are today. Today, the technology is baked. It’s solid, it’s at a price point that is viable for mass adoption, it works across the number of verticals, it’s easily integrated. It’s been proven very, very reliable. So, I think we’ve passed that juncture. I think the next issue that comes to bear is really engaging with the customers. We are a bit surprised, but there is – I will tell you that there is a bad taste in the number of our customer's mouth as it relates to wireless power. As I mentioned, and I was very specific about this in the call that every one of our top tier customers either has, had a first-generation product or has attempted to release one. And they were not successful for one or more reasons. As an example, one-off our hearing-aid vendors recalled over 30,000 units, the entire first element of the shipment because of the position independence problems associated with the first-generation technology. So, we’ve had to overcome, I think some of the problems associated with the first-generation technology and this has resulted in very, very significant and extended testing times along with extended market research. I think we’re also coming to the end – if it hasn't ended that phase. Right now, the long pole in the tent quite frankly as regulatory. We – as we have engaged with the top tier consumer electronic companies, they are looking to launch on a global basis, and even if they launch regionally in one or more of the key regions they are looking to have assurances that they can launch on a global basis. And so, I think this is really the element that we’re focused on right now. And why I say that it’s all coming together we believe that late this year, early next year we would have paved the way for global launches across all of the major regions. We will certainly overcome, I think the additional testing and first-generation problems that we’ve had to deal with and as I said, the technology is baked. And so, it’s taken us a little longer than we anticipated, but I think we are converging on what we believe will be a very strong exit to the year and a real break-out year in 2019.

Steve, I really appreciate that color. That was a very good answer. Thanks for the extra time there. I guess one more, as you exit into 2019, and you see potential ramp in revenues, how should we think about the OpEx at that point? Is there a requirement for more customer support or more engineering or how should we think about that operating expense line? Thank you.

Andrew, this is Brian. I think first of all to support our revenue growth, we're going to leverage the relationship with Dialog on the operations side, the productization side, and global sales support. So, we’re not foreseeing to add a lot of overhead in those areas. As far as engineering goes, we’ve got a very stable engineering team that’s been able to produce and advance the technology to support our initial set of customers, will add as required, we're not going to try to get ahead of ourselves though. So, unless our roadmap dictates there is requirements on the technology side, we will hire ahead of that, but otherwise we believe that we’re going to remain pretty stable on the headcount side and add selectively as the technology dictates. So, in terms of total operating expense, I think we’re in a range right now, fluctuates with the development cycles, and we typically, every second or third quarter will have another wave of chip development as needed, depending on where our customers are, depending on what the demands are, depending how we see the technology evolving, but we don't see it rising dramatically. If you look back at some of our past quarters of where it peaked, I think we're going to bounce around between our – those peaks and pretty much where we are today.

Awesome. Thank you, thank you so much for that color, appreciate guys.

Okay.

Our next question comes from indiscernible with Ilya Grozovsky with National Securities. Please go ahead.

Great, thanks. Wanted to get kind of a – little bit of a better understanding, in the current quarter can you differentiate between the revenues from the chips versus the engineering offset?

Hi, Ilya it is Brian again. Right now, we're going to report combined engineering services and chip royalties. Depending on how the business grows and depending on the accounting requirements, we’re working closely with Dialog and how they are going to report, but right now we're going to report combined revenues in the foreseeable future.

Okay. And then just wanted to also touch on the pipeline. So, it sounds like you guys think that 2019 will be – will see some uptick and some more products out there, do you have any sense of right now kind of like what your pipeline looks like in terms of how many different customers do you think will contribute to chip sales in 2019 end user customers?

Well, I'm not sure I want to put an exact number on it. Our pipeline is well over 70 customers. We are focusing on a much smaller number than that right now. In order to get these first early adopters and these also critical top tier customers into the final stages and shipping product. I think that we will see an increasing rate of customer announcements as we progress through the year, but in terms of the number, I wouldn't want to try and put a specific number on it. I do think that we’ll see activity across a broad spectrum of verticals. The hearables and wearables and hearing aids, I have a lot of traction, but we’re also seeing a lot of traction right now in medical and in the whole medical arena. So, I think this will be a major contributor for us. Certainly, we're going to be in smart phones, we're going to be in Bluetooth speakers. And so, again there is a broad range of applications and spectrum of products that I think will converge in 2019. The ramp may be, I think slow at the beginning, but I think it will gain momentum as we progress through the year.

Okay. And then finally, any update on the other tier 1 partner that you guys announced a couple of quarters back?

So, progress continues with both tier 1 partners. As a matter of fact, I think that’s really a misnomer because as I mentioned in the conference, in the verticals that we’re engaged it, we are clearly engaged with the top customers in each of these – the market leaders in each of these verticals and so the number of top tier customers continues to evolve and expand. In terms of the top 10 in the world, certainly there are multiple customers that we are engaged with there and we continue to progress with these companies on a number of different product SKUs.

Okay, thank you.

Our next question comes from William Gibson with Roth Capital. Please go ahead.

Steve, you mentioned the new countries, including Thailand where you got regulatory approval, what countries are missing and as part of that question are you going through the process in China?

Certainly, China is an important market for us. Japan, Taiwan, Singapore, countries in South America, countries in – the countries of Israel and Russia. So, as I mentioned, we’re active in over 125 countries. We’re either working actively with the respective regulatory agencies and submitting information or products for testing, and so the scope is very, very broad. Certainly, the Pacific Rim is important to us and represents, I think some unique challenges in and of itself. China is very important. I don't think we’re being helped all that much by the geopolitical environment, but I think we’re comfortable in saying that for all of the countries that we are engaged in, the question is when? Not if. We have not seen a country or been engaged with a country where it has been flat out, it’s not going to be happen, there’s not a way, there is processes, some will take longer than others, but I think in all of the major countries we will be ultimately successful in carving out these initial presidents for the global approval of our technology.

Good. What about South Korea, do you have Near Field approval there?

No. We’re active with our key strategic partner with the South Korean regulatory group and certainly we believe that we will have regulatory approval in South Korea.

And on a different subject, everybody is asking about 2019, how about the same question at Christmas time? Would you think there would be six different products on the product market by Christmas or is that being too aggressive?

I want to hold back on that because I will tell you that it’s, I think the big dependency is going to be regulatory. Certainly, there’s six different products queued with top-tier companies, I think that there is a reluctance to pull the trigger in some instances until there is at least visibility to global approval. And as I mentioned earlier, I think regulatory really is the long pole in the tent for us right now that will have an impact on how the end of the year will play out. There is no shortage of customers that are in the final stages of integration that have given the go to launch, and I think the question for all of them as I said is when and how this will roll out, especially for our top tier companies that will look to launch. Even if they launch on a regional basis, they will want assurances that there is a path to global capability.

Okay. And just one last question. A vertical you haven't named in a while or talked about is toys, is there anything or is there any toy companies in that pipeline of 70 companies?

There are toy companies in the pipeline, but they are not a priority for us right now. I have mentioned the verticals that are our priority, and quite frankly I think that medical is going to really bump up there. We are seeing a lot of interest from medical companies in both the contact technology, as well as the distance technology.

Thank you.

[Operator Instructions] Our next question comes from [Matthew Winthrop] [ph] with Aegis. Please go ahead.

How are you?

Good.

I’m curious on the hearing-aid business because my father was an audiologist and he tells me that you need to keep your hearing aid next to you in a very closed environment that doesn't get any dust or particles. So, I don't understand why you would need a wireless charge system when you have two plug it in right next to your bed? I’m confused.

Well, perhaps I can help you. Since your father has had experience with the hearing-aid, I am sure you’ve also seen him go through the process of changing these batteries. He has probably dropped one on the floor on more than one occasion.

No, no. I understand, but they have chargeable systems now. You can buy them everywhere. So, I don't understand, you came out here, got everyone into this, and told us we were going to charge cell phones and Teslas, and now you're telling we're going to do hearing-aids, sorry I know you are the CEO, but you got the whole world watching. You did a couple of hundred thousand of revenue, you have been putting this of quarter-after-quarter, how can you look at people in the eye and say, we're going to be huge, you’re not. You are just coming up and dancing with new products. Show me something, one company, one contract, something I can hang my and on. I just don't understand what you’re doing.

Well, I respect your comments, but you’re wrong. And I think that the way you’re approaching this is incorrect also. I think you need to keep in mind the scope of what we’re looking to do. We are actively…

You have no revenues and it’s been quarter-after-quarter and you're not doing any business, so why don’t you just come out and say it’s not working?

Because that’s not the true statement. The fact is that it is working. And look, let me just try and nip this in the bud because – there's no arguing this, we’ve made it very clear the status of the company, we’ve made it very clear how we’re progressing, and there is one undeniable fact, one undeniable fact that I respond to when I use, when I get asked all of these questions from all of these non-believers. Let’s be real about our key strategic partner Dialog. We can talk about Dialog. Dialog is $1 billion semiconductor company. We’ve made it very clear and we can't lie about this. We have to sign off on this every quarter. We can't lie about this. We’ve made it very, very clear that Dialog has brought us into their key customers. Their top customers, and they are supporting us in every way. They have supported us in terms of our chips, and our sales organization. And a company like Dialog would no way do these things if what we were doing was not real. If we were not in fact adding value and if we were not on, in fact on a path to significant revenues. Now, I understand your point right now and I’ve been very candid that it’s taken us longer than we have anticipated in terms of accomplishing this, but you’re wrong to say that it’s not happening, you’re wrong to say that the technology is real, and you're wrong to say that we’ve been misstating or misleading. We have not. This company is coming together, it’s rolling. The launch of Wireless Charging 2.0 is real, it’s happening and there is nothing that’s going to stop it.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Rizzone, for any closing remarks.

Well, thanks. On that note, listen, I want to thank everybody for your continued support and your continued interest in our company. I was very, very serious when I said that the train has left the station for Wireless Charging 2.0. It’s a real, it’s happening. This ecosystem is going to build momentum and is going to come to fruition. And each subsequent quarter, I think we’re going to be able to report better and better performance. Thank you, and good afternoon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.