Enovix Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

Key Takeaways

  • The company reported Q2 revenue of $3.8 million, exceeding the midpoint of its guidance and expects significant revenue growth in H2.
  • Innovix secured key commercial deals, including an XR market agreement with a leading California tech firm, a Fortune 200 collaboration, and its second auto OEM partnership.
  • The new Malaysia facility is now operational on the agility line, with EX1M samples shipped to customers and the high-volume line installation nearly complete.
  • R&D headcount has increased by nearly 170% year-over-year, enabling early EX2M prototypes that validate next-generation high energy density chemistries.
  • For Q3, Innovix forecasts revenue of $3.5–$4.5 million, an adjusted EBITDA loss of $23–$29 million, and a non-GAAP EPS loss of $0.17–$0.23.
AI Generated. May Contain Errors.
Earnings Conference Call
Enovix Q2 2024
00:00 / 00:00

There are 13 speakers on the call.

Operator

To the Innovix Corporation Second Quarter 2024 Earnings Conference Call. Currently, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Charlie Anderson, Senior Vice President of Investor Relations and Corporate Strategy.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Hello, everyone, and welcome to Innovix Corporation's Q2 2024 Financial Results Conference Call. With us today are President and Chief Executive Officer, Doctor. Raj Dalluri Chief Financial Officer, Farhan Ahmad and Chief Operating Officer, Ajay Murate. Raj and Farhan will provide an overview, and then we'll take your questions.

Speaker 1

After the Q and A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our Q2 2024 shareholder letter after the market closed today. It's available on our website at ir.anovix.com. A replay of this video call will be available later today on the Investor Relations page of our website. Please note that the shareholder letter, press release and this conference call all contain forward looking statements that are subject to risks and uncertainties.

Speaker 1

These forward looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All of our statements are made as of today, July 31, 2024, based on information currently available to us. We can give no assurance that these statements will prove to be correct and we intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non GAAP financial measures, which are not prepared in accordance with generally accepted accounting find a reconciliation of the GAAP financial measures to the non GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website.

Speaker 1

I'll now turn the call over to Raj to begin. Raj?

Speaker 2

Thank you, Charlie, and thanks to everyone for joining us today. For our format today, I'm going to start with the recap of our recent results and some of our recent milestones before I turn it over to Farhan for the financials and the outlook. I'll have a few closing comments and then we'll take your questions. Now we had a very productive Q2. To recap some of our recent achievements, first, we delivered a Q2 revenue of $3,800,000 which was above the midpoint of our forecast.

Speaker 2

And we expect significant revenue growth in the second half of the year from the first half. 2nd, we had some very important commercial successes, starting with an agreement we announced in June with a leading California based technology company in the XR market. Then today, we're announcing a collaboration agreement with a Fortune 200 company and also our second deal with an auto OEM. And lastly, we moved into operational mode in Malaysia as we began building batteries on the agility line while ramping down our high cost manufacturing operation in the U. S.

Speaker 2

After this, we did it after completing the first batch of EX1M samples, which we have now sent to some of our customers. Now Malaysia has come along very nicely. To the extent we've taken a little bit longer than we planned, this has been due to our previously stated desire not to cut any corners and make sure all the equipment we're installing meets our rigorous specifications. We now have an agility line that has cleared the SAT or the site exception test and is producing fast runs of our EX1M batteries. Our high volume line is right behind it, having cleared the FAT of all the key modules and is the process of arriving and being installed at our site.

Speaker 2

We are super excited to show off this progress at our Malaysia grand opening next week. And many customers, including some big name customers with lots of revenue like including smartphone customers and some cloud OEMs have now begun scheduling visits to our facility and will be participating we'll be welcoming them next week to showcase our factory. We believe everyone who sees it will be amazed by the quality of the factory we've built and the quality of the team we have hired. Now speaking of customers, our engagement activity continues to strengthen. In the smartphone market, we work closely with the top 5 OEM we identified on our last call to clear the first two key milestones in the development agreement that we signed.

Speaker 2

As noted in the last call, we broadly engage with the leaders in this market and continue to discuss more formal agreements and arrangements like this similar to the one we announced in May. As we all saw over the course of the last quarter, leading OEMs are now starting to announce AI features which will become native and standard in the next generation smartphones. Clearly, we were early in pointing this out trend last year as we engage with the customers and saw where these product roadmaps were heading. As I sit here and observe what's happening, it's my belief that the 4000, 5000 milliamp hour battery in the smartphones in our pockets today will soon go to more than 6000 milliamp hours and beyond due to AI and other enhanced features. Now this is really good news for the battery industry broadly and especially for us at Innovix.

Speaker 2

That's because we offer the customers in our target markets. What we believe is the only path forward to fully replace graphite with silicon to boost energy density in order to keep up with this rapidly increasing power needs without unduly increasing the size of the battery. Now notably, we've already made early prototypes of our EX2M batteries here in Fremont, and we were able to validate the high energy density through the next generation chemistries that we've been working on. We are super excited by this result. We also see incremental growth opportunities for the conventional battery business we acquired last year in Korea, the company called RouteGen.

Speaker 2

Specifically, these batteries have very high rate capabilities. Now this high rate capabilities have proven very useful for the Korean military and also a number of industrial IoT applications. We see this also being applicable to other allied military forces including the U. S. And this high rate capability is also designed in other product categories such as power tools.

Speaker 2

It's important also to realize that we are investing heavily to support lasting technical leadership to build out a roadmap. For example, our core R and D headcount at the end of Q2 was nearly double that of a level ago double the level a year ago. And that's excluding the R and D team we added through the Routejet acquisition. Now if we include the Korea R and D team also, our R and D headcount is up nearly 170% year on year. And we intend to keep growing, for example, we now have a core R and D team in Malaysia that we now intend to double by the end of the year.

Speaker 2

Now we've done all this while in parallel taking actions to significantly reduce our fixed cost by exiting the expensive California manufacturing. We also topped up our strong balance sheet by the ATM. This gives us a strong runway and plenty of time to prove out our manufacturing along with our customer acceptance of our leading battery. With that, I'm going to turn it over to Farhan for the financials. Farhan?

Speaker 3

Thanks, Raj. All the relevant financials are in the quarterly report and the shareholder letter. I'll keep my comments relatively short. We delivered 2nd quarter revenue of $3,800,000 which was in the upper half of the guidance range. Non GAAP EBITDA was a net loss of $23,100,000 above our guidance of loss of $26,000,000 to 32,000,000 dollars And non GAAP EPS came in at a loss of $0.14 Also above our guidance of loss of $0.22 to $0.28 We ended the quarter with roughly $250,000,000 of cash and equivalents.

Speaker 3

And our balance sheet is very strong, and as Raj mentioned, provides us with strong liquidity. Now for the guidance. Turning to the Q3 of 2024, we forecast revenue in the range of $3,500,000 to $4,500,000 and adjusted EBITDA loss in the range of $23,000,000 to $29,000,000 and a non GAAP EPS loss in the range of $0.17 to 0.23 dollars per share. As Raj mentioned, we expect substantial revenue growth from the first half of twenty twenty four to the second half of twenty twenty four. With that, I'll turn it back to Raj to provide the closing comments.

Speaker 2

Yes. Thank you, Faran. As you can see, it's been a great quarter. We made substantial progress in many things, particularly Fab 2 went operational. We took very decisive actions to extend our runway.

Speaker 2

Now we are deeply engaged with leaders in the smartphone market. And as the industry hits the inflection point towards larger power requirements due to the AI features, this will really help us get our batteries into production in the smartphone space. In IoT and auto, we stuck 2 important agreements with market leaders. We also were able to prove out that we can make the EX2M batteries with the high energy density here in Fremont. These are early samples.

Speaker 2

We're excited by that results with the next generation chemistries. With that, we can now go to questions. Operator?

Operator

We will now begin the Q and A session. Please note that this call is being recorded. Before we go to live questions, we are going to read the 2 most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, what are some of the measures you have taken to prevent Chinese companies from pirating your technology? And if a new U.

Operator

S. Administration significantly increases tariffs against China, how will this play out for Innovix?

Speaker 2

Yes. Thank you for this question. Firstly, Innovix has been working on making high energy density silicon batteries for a long time, almost 16 years now. And we have a very, very strong patent portfolio on this technology that we've built both in the way to make batteries and manufacturing and so on. More importantly, we have tremendous amount of trade secrets of how to actually make these and we've been perfecting these for some time now.

Speaker 2

So I feel good about our intellectual property and our strong technology leadership. But this is a competitive space and we have to keep innovating and keeping moving forward to make sure that we have a lead in technology ahead of all our competitors, not just from China. As for the second comment on the tariffs, it's very difficult to for me to comment on the geopolitical landscape and how that's going to go. But I can tell you this, we are seeing a lot of interest from many customers now for a battery that's made by a North American battery company. And as you know, we are one of the few ones that can actually make high energy industry consumer electronics batteries and we are seeing a lot of interest for that nowadays.

Speaker 2

So we are very excited by the position we have there.

Operator

The second question is, what is the status of EX2M and EX3M in terms of time lines and their capacity in watt hours per liter and milliamp hours. What is the strategy with Elantec partnership? Is this only for battery pack or are we looking beyond that?

Speaker 2

Yes. On the first question on the roadmap, as I mentioned, we are super excited that we were able to create a few samples of the EX2M to prove out that we can make the energy density increases that we talked about. But as I mentioned before, most customers based on the market segment we are in, whether it's smartphones or IOTs or XR devices, optimize the batteries for not just energy density but energy density, the ability to charge fast, the ability to go for number cycles, the size of the battery, the shape of the battery and so on. So it's hard to compare battery just on one metric like ED, but we are very confident with what we've been able to do so far and with the next generation electrochemistries and next generation material coming, we have a strong roadmap of continuing to increase beyond the X2M into next generation batteries. As for the comment on Eventech, we I mentioned, I think, when we first made the Raujed acquisition that it was important for us to have the ability not only to own our own coating, but also customers actually want not just cells but batteries with the power battery management system and so on in a pack.

Speaker 2

We have some capability to make packs because of our jet acquisition, but the market is big and we need a lot of partners that have the capability to make packs to address various markets and the Allentech 1 is one step in the direction of actually building out our channel so we can address multiple markets, not just in smartphones, but IoT and industrial IoT and XR and other

Operator

please use the raise hand feature on your screen. If you have dialed in via phone, use star 9 to raise your hand. Our first question comes from Ananda Baruah of Loop Capital Markets.

Speaker 4

Hey, guys. Can you hear me?

Speaker 2

Yes.

Operator

Yes.

Speaker 2

Go ahead, Ananda.

Speaker 4

Okay. Awesome. Yes, yes. Thanks so much, guys. Yes, quick question and then I have just quick clarification as well.

Speaker 4

The question and congrats on the announced progress here. The question is, it seems like based on the announcements seemingly in the last 90 days that you guys are kind of widening your aperture of engagement or at least your aperture of progress. There's Raj, a couple of IoT announcements. You had in the shareholder letter a power tool something like a reference to power tools. You're sort of moving forward the phone OEM engagements.

Speaker 4

And then now you've announced the 2nd auto MOU this quarter. So I guess could you give us some context around what seems to be broadening engagement across verticals? And then also just with regards to kind of Farhan's comments, is there is it appropriate to view there being some revenue bridge potential as a result of this between now and whenever you might start shipping to the smartphone OEMs? And I have just a quick clarification after that. Thanks.

Speaker 2

Yes, sure. Thanks, Ananda. So, I've mentioned before, I think in the last call, one of the toughest batteries to make in the consumer electronic space is actually the battery for the smartphones, because it is the largest market, the demands are very high, it's got a big display, power hungry application processors, memories, the AI requirements are coming in strong. There is things like long cycle life. There's things like fast charge.

Speaker 2

There's things like energy density and there's space constrained. So that is the toughest space. And as we embark upon making batteries for that and as you can see from our comments, we're making steady progress there with the OEMs. That battery technology can now be parlayed into many other markets. For example, the XR market, for example, the other markets, other consumer electronic markets as we announced here.

Speaker 2

And the reason is when you can meet those requirements, the rest of the markets have actually requirements that are little bit less stringent. Now I saw this in my past life when I was at Qualcomm. We made apps processors that went into smartphones, but then that business quickly we were able to ramp it into the IoT markets and auto markets and so on, because the toughest one was the smartphone one. So in that sense, what you're seeing with the announcements we're making more recently is really the entitlement that the company deserves when we attack and try to make a battery for smartphone market. So, we are super excited by that, the branching out of it.

Speaker 2

Again, my goal and the company's goal is to go after large high volume verticals in this markets, but not go after many, many small ones because that kind of fractures the R and D and there's not as much return for a manufacturing company. On the auto side, that was actually super exciting development. I know last time we announced one auto OEM. The fact that we now have another auto OEM also validating the fact that we have this ability to stop the batteries from swelling too much and the ability to charge very quickly is of interest is very exciting. We are now working jointly with them to figure out how to get the technology to the next level.

Speaker 2

So, both of those are very positive and I feel entitlements to the technology that we have here. And

Speaker 3

then, Anandar, on your second question related to the revenue bridge, it will depend on the pace of ramp and pace of qualifications. But the IoT growth can be another vector for the revenue opportunity for the company. And it can be it just grows our opportunity and how fast we're going to be able to ramp the revenue.

Speaker 4

All right, great. Thanks guys. And then the quick clarification is, Raj, there was a mention in your prepared remarks of smartphone and cloud customers being in Malaysia next week, will they actually be at the event next week?

Speaker 2

Yeah. I mean, we can't exactly comment on when the customers would be there, but there are a number of customers coming to visit us next week and we can't obviously say who is what. But many customers want to come at the event and some customers want to come a little bit ahead, some customers want to come a little bit later. And I do expect that as we build these factories, we will have many customers that will plan their visits. And we are super excited with the list of customers that want to visit us next week.

Speaker 4

Okay, great. Thanks so much guys.

Operator

Our next question comes from Colin Rusch of Oppenheimer.

Speaker 5

Thanks so much, guys. Can you speak to any potential collaborations with semiconductor or chip companies that you're potentially working on to optimize device level performance?

Speaker 2

Yeah, absolutely. As you know, when you put batteries in this markets, I'll just maybe for the rest of the audience, the battery is performance of the battery is and the way the battery performs inside, for example, a smartphone is quite a bit in close collaboration with the processor and the power management system. Because, for example, in a phone when the 5 gs modem kicks on, it's going to draw power much harder. When it's on standby, it draws powerless. So there's many, many aspects of making sure that the battery actually fits well either in a smartphone or an IoT device based on what processor and what power management system is in there.

Speaker 2

As you know, I've spent a lot of time at Qualcomm and TI and other chip companies. So I'm quite familiar with that. One thing that is happening is that silicon batteries operate at a lower voltage, like for example, 2.7 volts because there's quite a bit of energy density you can get from the battery at a lower voltage. And a testament to the fact that the world is moving towards silicon batteries is the fact that now you see chip companies, Qualcomm's, MediaTek's, other companies, Samsungs and so on, making adjustments to the apps process plus power management system to connect the silicon batteries at 2.7 volts and so on. We are working with all of them.

Speaker 2

Thanks to our engagement with our customers and thanks to the deep connections we have in that ecosystem. So we are super excited by that and I think it's a really good thing because our comprehension of how the battery should be built and how the battery should operate and how the battery should actually be optimized for NAND device is getting stronger and stronger and that really helps us in making the right kind of next gen batteries.

Speaker 5

Thanks so much. And then as a follow-up, can you give us a sense of what you're anticipating as initial yields on Fab 2? And how we should be thinking about ramp and scrap expenses as we get to the balance of this year and the 1st part of 2025?

Speaker 2

Ajay is actually online from Malaysia. He is there at Fab 2. So I'll let Ajay talk about this.

Speaker 6

Sure. Yeah, the yields, we as Raj alluded in his starting comments, we took time a little bit to buy off the equipment in SAT, which is agility equipment, just because we wanted to make sure that there's no corners cut and those types of things. So yields, we will begin definitely where we left off in Fab 1 and then they will climb from there to the world class yields that we expect on both the lines.

Speaker 5

And then in terms of the ramp in scrap expense for the balance of this year, how should we be thinking about that from a modeling perspective?

Speaker 2

Yes. Let me take a shot at it and then Ajay, you can add color to it. So if you talk about ramp, as I mentioned, right, we are first focused very heavily on building cells out of our Agility line because that's the one that we need to sample to our customers. Because the high volume ramp, as I mentioned before, will happen in next year. So we just need to make sure that we are ready.

Speaker 2

But a lot of energy is now on getting the agility line to the right level so we can actually make the samples of EX1M, get it ready for EX2M and so on. And maybe there is a comment on scrap. Is that right?

Speaker 3

Yeah. The comment was on the, I guess, like, he wanted to know the modeling and how they should be modeling the cost. Should I take it? Sure. In?

Speaker 3

Sure. So it looked like there will be there are a lot of moving pieces on how you are thinking about the modeling. Our cost reductions that we have taken are going to be the predominant factor in terms of the overall cash burn and how that's going to be tracking in terms of the cash flow from operations. So Q3 should be better than Q2, and then Q4 should be better than Q3 overall. And that includes the expenses that are related to the scrap and the ramp of yield.

Speaker 3

Now through the year, like, you know, like our COGS will go up and the OpEx may come down. But in aggregate, like, you know, the overall cost comments that I have, will start.

Speaker 5

Thanks so much, guys.

Operator

Our next question comes from Bill Peterson of JPMorgan.

Speaker 7

Yes. Hi. Thanks for taking the questions. Just on the smartphone market, and you've given a lot of color in the last few calls. But assuming that you're looking to maybe ramp in the back half of next year and more meaningfully into 2026, trying to get a sense of the milestones between now and, let's say, a year from now, which presumably when at least some of the customers will qualify.

Speaker 7

So first of all, can you remind us of the sampling cadence? I guess, when will you be sampling EX1 across all the smartphone makers this year, early EX2M later this year and then more volume later this year and the next year? I mean, you also mentioned earlier in the call that you made more formal agreements. How should we think about that? Basically, what we're trying to get to is what should we be on the lookout for from a milestone perspective over the next year?

Speaker 2

Yeah, sure. Absolutely. So, let me just recap one more time. We made, we made some samples before we shut down the Fremont factory. And just to prove out that, you know, we can get the EX1M into the right form factor.

Speaker 2

We talked about that last time. We send those to some customers. But really the sampling, what most customers want is actually samples from our Malaysia factory, which is what where the production will be. And our target, as I mentioned last time, is to get those samples out in 3Q. And then once we get those out to the customers after doing some amount of testing on our side, we'll get to them and they will test them also and validate and make the right trade offs between energy density, cycle life, ability to fast charge and so on.

Speaker 2

And then they will give us during this period that we are working with them, the actual dimensions of the battery, know what shape it should be, how many milliamp hours and so on. Because the phone models next year will have different shaped batteries than the phone models this year. And we will get that feedback in the later part of the year. And then we will need to adjust our tooling to actually make those kind of batteries and get those to them next year. And they typically then put those in their phone models and when they're making a phone that they're going to launch next year and they're going to test one more time to make sure the batteries do what they're supposed to do in the phone, not because initial testing this year will be in isolation, not in the phone.

Speaker 2

And if everything goes well and things look good and the qualifications happen on time, they will place purchase orders and we'll need to ramp that to manufacturing. As I mentioned, we are working with multiple customers and many of them will get samples and we just continue to work through 1 at a time. Meanwhile, as I mentioned, we are working on agreements that will actually talk about formalizing this process that I just mentioned. We announced one of them last time and we're working on others to do something similar. And as for EX2M, our first focus is on getting EX1M.

Speaker 2

EX2M, we made early samples, as I mentioned, in Fremont. The next step is to perfect that and make those again in Malaysia and get that ready to production for 2026.

Speaker 7

Yes. Thanks, Raj. And on this newly announced IoT agreement with the Fortune 200, I guess, does this company make other form factors like smart phones? Is this something synergistic with what you're doing? Or is this for just small is this for small batteries or maybe large batteries?

Speaker 7

I'm trying to get a sense for the financial ramifications of this, the go to market timing, the economics, I mean, how milestone payments, just how to think about this agreement and how it should impact your financials?

Speaker 2

Yes. Great question. I mean, as you can imagine, Bill, we are a little as an early stage company that is working with big companies, We are little limited in what the companies allow us to say and allow us not to say, because they do have incumbent suppliers and so on. But I can tell you this much though, there's tremendous amount of interest in what we are able to build and they're not able to get that kind of battery that we are talking about from their current base. That's why they're working with us.

Speaker 2

I would say this, I think the press release said it. It's a product that's got a large installed base already of products in the market. So we'll be replacing the batteries in some of them. So in that sense, it's not a new category of product. It's a product that's out there.

Speaker 2

So that's one aspect of it is that it's an established market. The second one is, many of our engagements nowadays, we talk about milestone based payments because we will need to make custom sized batteries for these things and we'll need to put a bunch of our R and D resources on that. And there's opportunity cost of all of that. And the exciting thing is customers are willing to pay for that based on milestones. And that shows the value of the technology we bring and the differentiation we can offer to our customers.

Speaker 2

So I think that part is exciting. And we'll be absolutely, I understand where you're coming from and we'll try to provide as much color and detail as we can as our customers allow us to do.

Speaker 3

And the only other thing I would add and it was in the press release that the customers in this case do care about energy density and they are willing to pay a premium for the energy density as well over what's available more broadly in the market.

Speaker 7

Thanks, Raj and Varun.

Operator

Our next question comes from Jed Dorsheimer, William Blair.

Speaker 8

Hi. Thanks for taking my question and congrats on the fab. Looking forward to seeing things. I guess, you know, my first question is just around the commentary. I think Ajay mentioned that yields would be similar to Fremont.

Speaker 8

And I'm wondering, is that specific to Agility? Or is that because my understanding was that the high volume was going to be more in the 95 percent type range or is or is sort of the 60% Fremont kind of that the starting point and you're going to ramp towards? And then I have a follow-up.

Speaker 2

Yes. I mean, just I'll say a little bit about yields and then I'll let Ajay add colors. Look, essentially, this business makes sense when we get to very high 90 plus, 95 plus percent yields when we're in high volume manufacturing. And that has always been our goal and Ajay mentioned that before. That's where we will be and we aspire to be and we need to be when we get to high volume.

Speaker 2

The question is really about where we start and where we end up. Our goal has always been to looking at what we were able to do and where we ended in Fremont, we can start from there because we learned what needs to be done and then steadily increase them as we get to high volume. I think that's but Ajay go ahead if there's more color you want to add.

Speaker 6

Yeah, sure, Raj. Yes, so first of all, differentiating between agility and HVM is not necessarily the right thing to do or right thing to look at because both agility and HVM kernels are identical. So when we do the learnings on agility, we begin where Premod left off, as I said, and we quickly ramp it to the mid to high nineties, as we have always said, that will be immediately applicable to the HVM lines. HVM line is just slightly behind agility, as Raj mentioned. We have finished the FAT already for the HVM line.

Speaker 6

The footprint is already installed for the most part. There's some laggards coming in literally in the next couple of weeks. And we'll begin similar ramp as we are now doing on agility. So the focus is on agility now, get the yields up to where we need and where we desire and then carry the learnings immediately on the HVM line behind it.

Speaker 8

Got it. That's helpful. Thanks. And then Farhan, just as my follow-up, it seems like it's going to you've got a few different moving parts here. And so as you ramp IoT on agility, as you recognize those revenues, the costs are going to come.

Speaker 8

How are you thinking about the underutilization and allocating the costs is the high volume line ramps around samples. Does that trigger that recognition or would samples does that get put off until you're selling to the customers? Just the mechanics of that might be useful.

Speaker 3

So it'll the devil's in the detail, Jed, and it'll depend on the contracts that we have. And accounting policies are like very there's a lot of technical accounting on it. And so I would say that, look, ultimately, it's a non cash charge. It doesn't really matter on how you're thinking about the cash. The depreciation will start hitting as once the tool is recognized as being in production.

Speaker 3

And there are different ways in which you can depreciate it. And that part, so we have to finalize it in terms of how exactly we're going to be depreciating it. So I'll leave that question somewhat unanswered for you, Jed, right now, but it is a non cash item.

Speaker 8

Thanks. I'll jump back in the queue and look forward to next week. Thanks.

Speaker 3

Thanks, Jed.

Operator

Our next question is from Gabe Daoud of Cowen.

Speaker 9

Hey guys, sorry about that. I was on mute. Thanks for taking my questions. Was hoping we can maybe go back to Bill's question just around cadence. So if you ship sales from Fremont in May and call it 9 to 12 qualification 9 to 12 month qualification period, put you at next May, maybe next June.

Speaker 9

Should we is that maybe like when we could expect a first PO from a potential customer maybe for the second half of next year? Is that still the case?

Speaker 2

Yeah. I mean, again, it all depends upon when the customer finishes their qualification and I explained the process of how the qualification goes in terms of when we give the first samples, when they give the exact size of it, when we get it from Malaysia. So typically customer place orders when they feel the product is qualified in their phone and they're ready for us to make high volume products. So I would leave it as later half of next year is what we said before and we'll continue to say the same thing because it's once they get samples from Malaysia, they start testing them, that's when we'll know more.

Speaker 9

Okay. And that's still is it fair to then to assume that you're still thinking about multiple lines in 26?

Speaker 2

Yes. When we put more lines will depend upon again how many customers are ramping, how fast, whether we are in a very high volume product or whether we are in a lower volume product first and then the next product. So that depends upon the timing of the volumes. What we are doing is we do have a facility that can hold up to 4 lines and Ajay and his team have facilitated that and we are looking at all the long lean items and which ones we should get out more, get ahead of them, but clearly that is our goal that we'll have multiple lines in 26.

Speaker 9

Got it. Got it. Okay. Great. Thanks, Raj.

Speaker 9

And then just a follow-up. If we look at top spec Chinese mobile phones with maybe 800 or so watt hours per liter. Could you maybe quantify then what EX1M is relative to that figure and what EX2M is relative to that figure? You noted some of the prototypes of EX2M have encouragingly hit your energy density targets. So just curious if you could share those.

Speaker 9

Again, I recognize battery is all about trade offs, but just curious at least what the initial energy density number is. Thanks, guys.

Speaker 2

Yes. I think it's really not a fair representation. I've maintained this over the last many, many quarters. People like to describe batteries by one number and it's really hard. It's like describing an app's processor by megahertz or gigahertz.

Speaker 2

These are not that kind of products. It depends upon cycle life. It depends upon fast charge. If you actually take the batteries in all the smartphones out there and start looking at them, you will get a varied set of numbers. What's most important is the battery be competitive in energy density while satisfying all the other requirements to be in the phone.

Speaker 2

Customers are working with us because they see the energy density we provide and they see the roadmap that we have. And ultimately the trade offs they'll make and exactly where the ED will be, you will be able to once we are in production, once the phones are out, you'll be able to take out and measure them to see what exactly the trade offs the customers have made because we don't control all of that. The customers will decide to use them differently based on what phone they put in and which markets they're selling in and what features they tend to highlight.

Operator

Our next question is from Derek Soderbergh of Cantor.

Speaker 10

Yes. Hey, guys. Thanks for taking my questions. And I'm also looking forward to seeing the facility next week. Raj, you mentioned smartphone OEM that's cleared 2 key milestones.

Speaker 10

How should we think about those milestones in terms of that sort of 9 to 12 month qualification schedule? Does it speed up that schedule at all? Just wondering if you can kind of frame how we should interpret that commentary with milestones achieved as it relates to commercialization? And then I've got a follow-up.

Speaker 2

Yes. You should interpret that as things are on track. Is it like how we expected that we would do it? I mean, the contract specified, we need to do this by this time, we need to do this by this time, we need to do this by this time. As I mentioned, the process is we give samples, they test them, they do the safety testing, then they test the ED and so on.

Speaker 2

Then they give us the

Speaker 11

exact shape of the battery, then we make them and I mean, there's a whole bunch of stuff that's laid out in

Speaker 2

these contracts. And I hope everything goes smoothly and we'll get them to production as quickly as we can. I hope everything goes smoothly and we'll get them to production as quickly as we can.

Speaker 10

Got it. And then as my follow-up, in the shareholder letter, there was some wording around trends in diversity of suppliers in the industry. Raj, can you elaborate on that a bit? I'm curious, first, which end markets that applies to? Is it more smartphones?

Speaker 10

Is it broad based? And just generally, how does this diversification trend fit into the scale of strategy? Thanks.

Speaker 2

Yeah. It's a the comment is based on the fact, I think there is a question at the beginning of the conference of the call. We are seeing a lot of, I would say, customers preferring to go with North American battery manufacturers with all the geopolitical uncertainties and the tariffs and so on. And they're looking for different suppliers. And we are one of the few, if not the only, who can make batteries into consumer electronic devices, in this market.

Speaker 2

So I think we're getting good, I would say, tailwinds in that front and that's what that comment is meant to highlight.

Speaker 10

Got it. Thanks guys.

Operator

Our next question comes from George Genreques of Canaccord.

Speaker 12

Hey, everyone. Thank you for taking my questions. Maybe just to focus on the margin potential. As you continue to round out customers looking into 2025 and 2026, how do the recent discussions that you've had, particularly with the announcement you made today? And how do they inform your cash gross margin and overall margin targets over the next couple of years?

Speaker 12

Thank you.

Speaker 3

Yeah. The IoT customers that we have disclosed in our earlier arrangements, They have price points which, when the technology is at scale, will give us good margins when we are in scale with multiple lines. So the price point itself, there is a sufficient premium, and it can support very healthy level of margins and actually it validates our assumptions that we had in our long term model.

Speaker 12

Thank you. And maybe as a follow-up, I'm curious about the discussions that you've had with EV OEMs. And as you continue to kind of work through those, maybe 2 parts. 1st, to the extent you have visibility on this kind of stuff, given that it's very early stage, what sort of model years would we expect any sort of batteries to show up in EVs? And second, as you continue to contemplate which business model you'll deploy to enable EV batteries, where are you leaning towards in your thinking?

Speaker 12

Thank you.

Speaker 2

Yes. I'll take a stab at it and Farhan can handle some more on the model. I think these EVs take much longer to go to production as you guys know. I think what is exciting about this announcement is that we had always talked about the fact that our battery has a couple of key advantages in EV market. 1 is the ability to charge fast without heating up.

Speaker 2

And the second one is any kind of material that's trying to put high energy density is still swelling and we can control that. And those 2, we have presented to the EVMs and the EV auto EVMs, OEMs and they like it and they have signed agreements with us to jointly develop this technology to the point where it can be deployed in their cars. So that's where that is. It will take a couple more years for us to get to that stage. In terms of production, if you ask me today, I'd say we'd pursue less capital intensive licensing kind of model, because we are busy building factories for the consumer stuff.

Speaker 2

But I don't know, Faran, if you want anything more to add?

Operator

No, I

Speaker 3

think, yes, like that covers it, Raj. I think, overall, when I think about the EV market, the value proposition that we are bringing there is, hey, we have IP that has got value to this market. We don't want to commit a lot of capital. We are very limited in how much R and D we are spending. So the idea there is that we will have a limited amount of investment.

Speaker 3

We'll take our IP, and then we'll have our customers pay for a lot of the development expenses. And then as this technology ramps, we will try to keep it such that we also don't have to invest a lot of money in this market because we have other areas that we are investing like consumer electronics. So we will, of course, remain flexible. And if other business models make sense, we'll look at them. But right now, the focus would be to use some sort of a licensing royalty model and let our customers make the investment.

Speaker 3

But as I said, like the exact model, we will remain flexible. But as I sit here today, most likely, it seems like licensing royalty is kind of like the way that we want to quote.

Speaker 2

Yes. Just one other thing I'll add is the fact that we have now 2 EV OEMs doing it clearly validates the value proposition that we're talking about and that's really exciting. And of course we're continuing to figure out other people who want to do that too.

Speaker 7

Thank you.

Operator

Our next question comes from Bill Peterson of JPMorgan.

Speaker 7

Yes. Hi. Thanks for taking the follow on question. In the press release, you guided to a meaningful revenue growth in the second half relative to the first half. Can you speak to the various drivers between your conventional business acquired from RouteJade versus early IoT revenue and maybe any sort of revenue from sampling the customers?

Speaker 7

And then how should we assume the corresponding margin profile looks with this ramp again, presuming this is mix dependent?

Speaker 3

Yes. So in terms of the revenue ramp, like from q3 to q4, there's going to be a significant ramp. And it'll be driven by both Roojit and our batteries coming out of Malaysia and whatever we are getting from sampling some of those batteries and some service related item that are related to the milestones that we have. The growth though most I would say more driven by Raujid than the new stuff, but both will be contributors. In terms of the margins, there are a lot of moving pieces.

Speaker 3

It comes back to, hey, how the depreciation stuff hits in the q4. But, you know, on the gross margin front, probably q23q4, you will have a lower gross margin because you have some of the increased depreciation related costs probably hitting. But like exact I won't be able to give you a lot of specifics around it because of the technical accounting related questions that are some of which are still open.

Speaker 7

Thanks for taking the follow-up.

Operator

There are no further questions at this time. With that, I'd like to turn it over to Doctor. Raj Taluri for closing remarks.

Speaker 2

Yes. Thank you all for listening into the call. Been a really nice quarter and looking forward to talking to you guys next quarter. Thank you.

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