Good afternoon and welcome to the Energous Corporation Second Quarter 2023 Financial Results Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Craig MacPhail of Investor Relations. Please go ahead.

Thank you 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 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 in expectations with regard 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. Reconciliation 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'd like to turn the call over to Cesar Johnston, CEO of Energous. Please go ahead, Cesar.

Thanks, Craig. Good afternoon and welcome to the Energous 2023 second quarter conference call. Joining me today is Susan Kim Van Dongen, our Interim Chief Financial Officer. For those of you unfamiliar with our technology, Energous develops IoT wireless charging or wireless power networks through its Advanced Semiconductor and PowerBridge products based on its proprietary technologies. Our strategy is to energize IoT devices in RF-tags, electronic shelf labels and sensor applications across the smart home, smart office, industrial, retail and healthcare markets. Energous power IoT devices operate without depending on large and costly replaceable batteries and the related operations replacement maintenance overhead. We aim to enable smart IoT devices with placement freedom, mobility and lower installation costs by removing wires and electrical outlet requirements. Additionally, wireless power networks provide energy and connectivity to smart IoT devices, enabling control, monitoring and tracking of the IoT device in its environment. For example, a warehouse or a shelf label or medical equipment in a hospital environment. Since the beginning of 2022, Energous has focused on developing, differentiated and optimized RF products to build IoT wireless power networks and then to put the correct strategic partnerships in place to create a cloud enabled end-to-end smart IoT market ecosystem for our customers. We are focused on selected markets, namely IoT devices in RF-tags, electronic shift labels and sensor applications across the smart home, smart office, industrial, retail and healthcare markets. We aim to work with leading customers or those emerging customers with the highest potential in these markets. In a typical rollout of a wireless power network, our customers conduct a wireless power network technology evaluation and then a proof-of-concept installation or POC for their particular application. This is then followed by a proof-of-validation phase and a final production phase. Understanding how Energous is progressing…

Thank you, Cesar. Earlier today, we issued our Q2 earnings press release, announcing the operation and financial results of our second quarter of fiscal year 2023, which ended June 30th. Revenue in the second quarter was approximately $117,000, as mentioned earlier by Cesar. This was a 21% increase from prior quarter and 50% increase from $233,000 we reported in Q2 of 2022. Year-to-date revenue was about $214,000, as of June 30th, a decrease of 52% compared to 2022. Cost of revenue was about $83,000 in Q2, a decrease of $56,000 compared to the prior quarter and a $189,000 decrease compared to Q2 of 2022. For the second quarter, total GAAP costs and expenses increased by $145,000 compared to the prior quarter, down to $6.2 million. This is primarily due to a decrease of $210,000 of R&D and chip development costs and $100,000 in trade show expenses, offset by an increase of $208,000 in annual meeting expenses. Year-over-year, total GAAP costs and expenses for Q2 decreased by approximately $1.1 million compared to the same quarter last year. This was primarily due to a decrease of $543,000 in severance pay, $289,000 in recruiting expenses, $189,000 in cost of revenue and $125,000 in chip development and engineering supplies. Net loss for the quarter -- second quarter on GAAP basis was approximately $4 million or a $0.04 loss per share on approximately 91.2 million weighted average shares outstanding. This amount includes $1.9 million in our other income from a change in the fair value of our warrants. Q2 net loss compared to a $6.7 million net loss in prior quarter or a $0.08 per share on 81.4 million weighted average shares outstanding, and a $7.0 million net loss or a $0.09 loss per share loss in Q2 of last year on a 77.1 million…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Suji Desilva with ROTH MKM. Please go ahead.

Hi, Cesar. Hi, Susan. Thanks for taking the question. So first of all, Cesar or Susan, on the POCs, 20 of them. I know like you said one of them is into production. What portion of the remaining 20 you think are relatively close to the validation production stage versus maybe earlier? If you could kind of rank order those and maybe segregate them from which are the 20 might be kind of nearest or near to it?

Yes. Hi, Suji. How are you?

Good. Thanks.

Yeah, so we reported 20 POCs. We went from 14 to 20. So 6 of them are kind of early. But if you recall during the conversation, the presentation, I mentioned there's 8 of them that are now in proof-of-validation. So we're already in the second stage. I would expect some of those, if not all of them, we eventually become production. And if you're going to ask me how it takes to production, it is dependent on the industry and the applications. Certainly, at least the one production that we have went pretty fast from a time perspective and went into production within, I would say, six to nine months.

Okay. That helps. I didn't realize the 20 was inclusive of the validation and the production, and that absolutely helps more. So for the one that's in production, Cesar, how should we think about the ramp-up here? What kind of what -- maybe what end market is it in? What's the opportunity here? And what's the timing? Is there an initial kind of ramp period? Or is it phase in by sites or it going to be emerged by that?

Very good question, Suji. First of all, we're very glad we're very happy to report that, that one production is done with our partner Thinaer and that's already been deployed with a Fortune 100 company. Reality is that due to NDA constraints, we cannot, at this point in time, discuss who the Fortune 100 companies, okay? But what we can say about that company and what the deployment has been, which is in the hundreds of number of transmitters, is the fact that it is in the logistics area. It's in the warehousing area. And it's looking into components that are extremely expensive that need to be tracked and they need to be stored and need to be known where they are at a given time. And in those particular installations that we had in warehouses. And I want to stress this, when we deploy our wireless power networks, we deploy the networks on the ceiling, on the walls and in many cases, inside the shelves, to provide more and more coverage. So having a very strong background on WiFi in my previous life before joining Energous. Typically, in the case of WiFi, we have, let's say, one AP every 10 meters or so. But in certain applications that we've seen so far, in particular, this one, in many cases, we see maybe up to 10 times the number of transmitters that we actually provide to be able to cover one WiFi system. That gives you kind of an idea of where this technology is gearing towards, right? I mean.

No, that's very helpful, Cesar. I appreciate that color. Maybe my last question is on the calendar '23 outlook guidance. I think at the revenue, I think you're saying up 20% year-over-year from last year, obviously, implies a ramp in the second half. Any sense of sort of how that plays out 3Q versus 4Q, just to understand at least qualitatively, perhaps? And what's your visibility into achieving that second half ramp?

So we still guide in that direction. We are loaded towards the second half of the year. We have those validation – proof-of-validation system. Some of those are moving really, really well. So we will be updating you in the next quarter on where we are with those.

Okay. Can I just ask my last question there. Will there be more than one production system contributing to revenue in 4Q? Is that the expectation built into your guidance?

That is the expectation based on what we have right now. And it's at this point in time, a function of the customer's decision-making. And some of those are, by the way, related to the Fortune 100 company we've been working with.

Okay. Very helpful, Cesar. Thank you, Cesar. Thank you, Susan.

Thank you. Thank you, Suji.

Our next question comes from Jon Hickman with Ladenburg. Please go ahead.

Most of my questions were already asked, but I do -- could you maybe speak to the fact that now you have 20 of these proof-of-concept programs in summer are farther along than that. Is it getting easier for the customers to do their validation because of previous work?

Yes, definitely. We are way much more experience on the requirements and on the installations. We've done a number of them by now. So in many cases, we are able to go and set them up way much faster than we usually. We have situations where within 24 hours, 48 hours, we can actually set them up and show the capability and the feasibility of our technology, which, by the way, compared to other old technologies, it is far superior when it comes to visibility and coverage.

And do you have the manpower for like a proof-of-concept to double by the end of the year to 40. Could you handle that?

Yes. Yes, we can. In fact, as you pointed out, as we move forward, what we've done as part of the strategy is try to focus ourselves into a very limited number of products, and that includes our one-watt, two-watt systems. They're all the same. They're not changed pretty much. We just step and repeat that. And how we install and how we deploy the technology is something where we have developed internal tools that are unique to our industry and allow us to pretty much know what the best places and what the best locations are. And working with those customers, we have very, very clear technical guidelines that actually have saved tremendous amounts of time. And yes, I mean, if we have to double, we are prepared for that. Yes.

Okay. Thank you.

Thank you, Jon. Appreciate it.

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

Thank you. Energous continues progressing as we lead in the emergence of IoT wireless power networks and towards removing the need for batteries and cables. We continue to innovate in developing novel solutions used in our advanced technologies and robust intellectual property, resulting in this quarter in the two-watt PowerBridge transmitter enhancements, which positions the company as a leader in power charging solutions.Finally, I was pleased to see a 21% increase in revenue over the prior quarter and believe that a key progress indicator for potential revenue in future quarters as the number of IoT wireless power network proof-of-concept installations, which has grown by 43% over the past quarter, now totaling 20. Thank you to all our shareholders, stakeholders and Energous' team members, and we look forward to updating you on the company's progress again.

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

Yes. Thank you.

Thank you.