Enovix Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 13 speakers on the call.

Operator

Thank you for standing by, and welcome to the Enovix Corporation First Quarter twenty twenty five 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, Robert Leahy, Head of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Hello, everyone, and welcome to Innovix Corporation's first quarter twenty twenty five financial results conference call. With us today are President and Chief Executive Officer, Doctor. Raj Thluri Chief Financial Officer, Ryan Benton Chief Accounting Officer, Christina Trung and Chief Operating Officer, Ajay Murathi. Raj and Ryan 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 first quarter twenty twenty five shareholder letter after the market closed today. It's available on our website at ir.anovix.com. A replay of this video 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 those factors that could affect our future financial results and business, please refer to the disclosures in today's shareholder letter and our filings with the Securities and Exchange Commission. All of our statements are made as of today, 04/30/2025 based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not 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 principles.

Speaker 1

You can find a reconciliation of the GAAP financial measures to non GAAP financial measures in our shareholder letter, which is posted on the investor relations page of our website.

Speaker 2

K. Thank you, Rob. And, thanks to everyone for joining us, for our format today. I'll start with a recap of our recent results and the recent milestones, and then I'll turn it over to our new CFO, Ryan Benton, here with me, for a review of our financials and outlook. I'll have a few closing comments, and then, we'll take your questions.

Speaker 2

We feel great about our start to 2025. First, we are pleased to have Ryan Benton as our new CFO. Ryan brings deep financial leadership and experience, and we're excited to have him on board. Second, we exceeded the midpoint of our q one revenue guidance, delivering $5,100,000 in revenue and secured new defense bookings that support our growth into the second quarter. Third, we commenced the development of a custom smartphone cell with the exact dimensions required by our lead customer for their commercial product.

Speaker 2

Fourth, we made great strides in our operations. Fab two in Malaysia accelerated progress towards mass production readiness. We secured ISO 9,001 certification, completed the first formal customer audit, and made critical yield improvements. Fifth, in Korea, we made a strategic acquisition that expanded our manufacturing footprint. This acquisition will provide critical additional coating capacity needed in support of our fab two as well as our defense local defense customers.

Speaker 2

I'd like to briefly address recent developments in global trade environment. Like many global companies, we're following these developments closely. Our assessment is that there's no material impact to our near term outlook as most of our planned near term sales are concentrated within Asia. We also see strategic opportunities, though, as some of our target customers have initiated efforts to diversify supply chains towards Malaysia and South Korea where our factories are. Now, for a few more details on the acquisition.

Speaker 2

On April 1, we completed the acquisition of additional manufacturing assets adjacent to our existing South Korea facilities. This includes equipment that will augment the coating needed for our fab two in Malaysia as we ramp, as well as additional production for our Korean military programs and other industrial applications, that we are targeting. The facility also offers significant room for expansion, enhancing our strategic positioning as a global as the global supply chains continue to evolve rapidly. In smartphones, we reached a critical inflection point towards launching our first product in the market. Last week, we finalized an agreement with our lead customer on the electrochemistry we will deploy in the custom cell we're building for the upcoming product launch this year.

Speaker 2

We're now manufacturing custom cells for them to deliver qualification samples later this quarter to support integration and testing this summer. Our benchmarking confirms that we are meeting all key technical requirements, and the customer feedback has been very positive and constructive. They have been a great partner to us. We appreciate the attention and resources that they, as well as many of our other customers, have dedicated to help us pull forward. Now we are also actively engaged with other smartphone OEMs to ensure rapid ramp once we establish in the market.

Speaker 2

This progress strengthens not only our smartphone initiative, but also bolsters and accelerates our broader communications commercialization road map. Fab two in Malaysia is well positioned for scale, following ISO certification and our first completed customer audit. While we continue to make enhancements on yield and other operational metrics that will be critical once we are in mass production. We feel good about the state of our manufacturing readiness, and our focus this quarter is weighted heavily towards supporting custom cell developments for our marquee customers to solidify the demand in 2026. Our focus on smartphones is strategic and deliberate.

Speaker 2

This market highly values energy density, especially given the growing demands of AI enabled features and applications such as intelligent intelligent cameras and the proliferation of LLMs. The smartphone market represents the fastest path to fully utilizing Fab two while maintaining the opportunity to price on value. Meeting the stringent requirements of smartphones facilitates other business opportunities in adjacent markets. In q one, we delivered our first smart eyewear customer samples. We're also accelerating our expansion into handheld computer and scanner segments, where we've been engaged with the market leader in retail and logistics.

Speaker 2

Recent tariff developments have created new opportunities in this segment, prompting increased urgency and deeper collaboration from them. Finally, on the product front, I'm pleased to report that we recently completed benchmarking analysis of premium smartphone batteries launched in 2024 that indicates we hold a material lead in energy density, and we expect it to grow considerably with future generations. Last year, several conventional conventional architecture battery manufacturers developed a technique called silicon doping, where a small amount of silicon is added to graphite anodes to increase the battery capacity by a modest amount. Based on our firsthand experience and feedback from our smartphone customers, we believe that our competition will be capped from achieving meaningful energy density increments enhancements using these techniques within within their current architecture due to swelling and other trade offs they'll have to make. Our internal benchmarking analysis of premium smartphone batteries launched in 2024 indicates that InnoVex's unique architecture with a % active silicon anode will hold material lead in energy density, and we expect it to grow considerably with future generations.

Speaker 2

Our customers also validated that our architectural approach offers significant gains for four c build future by leveraging the full potential of % active silicon anodes. With that, I'll turn it over to Ryan for the financials. Ryan?

Speaker 3

Thanks, Raj. To all the shareholders and employees watching and listening, it's my honor and pleasure to be here. I feel equally excited and fortunate to have joined Innovix at such a pivotal time as we look to expand our commercial operations and scale our next generation battery technology. And I'd like to add a special thanks to Christina, our CAO. She's helped make my transition seamless.

Speaker 3

As I've only been on the job two weeks, I've asked her to join us on the call to ensure we can properly answer every question that arises. Before we get to the numbers, I wanna give some color on what attracted me to the company, which is the opportunity to help drive the next stage of growth, supported by an already strong foundation, a leading technology platform, a deep strategic customer engagements, a talented and dedicated workforce, and a solid capital base that is well positioned to support our growth plans. I look forward to doing my part to help execute on our strategy and create long term value. Now I'll provide a brief summary of the first quarter financials and an outlook into the second quarter. Further details are available on our website.

Speaker 3

For the February, as Raj noted, we delivered revenue of $5,100,000, exceeding the midpoint of our guidance. Adjusted EBITDA loss was $22,200,000, near the high end of our guidance range of a loss of 21,000,000 to $27,000,000. The sequential change from Q4 was driven in part by increased expenses to support the manufacturing scale up in Asia and a modest decline in gross profit. Non GAAP net loss per share attributable to Innovix came in at a loss of $0.15 at the high end of our guidance range of $0.15 to $0.21 Capital expenditures in the quarter were $6,300,000 and cash used in operations totaled $16,900,000 We ended the quarter with approximately $248,000,000 in cash, cash equivalents and marketable securities. We believe our current capital position provides flexibility to support our operations well into 2026 while maintaining optionality to fund additional expansion capacity at Fab two.

Speaker 3

Now for our guidance. For the second quarter of twenty twenty five, we forecast revenue of $4,500,000 to $6,500,000 non GAAP operating loss, which excludes certain items such as stock based compensation, in the range of $31,000,000 to $37,000,000 adjusted EBITDA loss, which further excludes certain items such as depreciation and amortization, in the range of 23,000,000 to $29,000,000 and finally, non GAAP net loss per share attributable to Novix of 15 to 21¢. 1 note. Going forward, we will no longer be providing guidance for GAAP EPS due to the difficulty to estimate or predict. However, we will continue to provide non GAAP EPS guidance, and we have supplemented this with an additional measure, non GAAP operating income loss.

Speaker 3

Furthermore, in the interest of transparency, we published a new financial supplement document that compiles historical financial information into a single, easy to access document. It's available on our website along with the shareholder letter. Over time, we plan to expand this resource by incorporating additional operating financial metrics and operating and financial metrics and additional data. And finally, at the risk of being redundant, I wanna say again how fortunate I feel to be part of the Inovix team. With that, I'll turn it back over to Raj.

Speaker 3

Raj?

Speaker 2

Yeah. Thank you, Ayan. It's great to have you on board. With that, we can now go to questions. Operator?

Operator

Thank you. We will now begin the Q and A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, can you share any updates on x three m in terms of energy density, release, or sampling time lines?

Speaker 2

Yeah. Thank you for the question. A question about EX three m. Yeah. We are we are very excited to have formalized the definition of EX three m, which is our next node, and we expect to sample that by end of this year.

Speaker 2

We've got the basic chemistry that we're going to use and the anodes and the cathodes are locked in terms and it'll and I think in the in the investor deck, we give you some indication of relative to EX one m and EX two m beta displaced. The actual energy density will be, as I mentioned, a combination of cycle life and also, you know, fast charge and a few other parameters.

Operator

Thank you. And our second question is, what is the status of the first major OEM cell phone development agreement announced 05/01/2024?

Speaker 2

Yeah. You know, so as as I mentioned before, we are working with two cell phone OEMs. One of them, we've received the actual cell dimensions, which is actually means this is a cell that's gonna be used in the phone that's gonna go to mass production at the end of this year. We retooled our factory to actually make that particular cell. And, Ajay, who's actually calling in from Malaysia, and his team have been working pretty hard on that.

Speaker 2

We finalized electrochemistry that'll go into that, and we presented that data to our customer. And they're, they're very pleased with the progress. And we will be making cells to that dimension, in, in this quarter and giving it to them, in the June time frame. The customer that the second customer is also super engaged with us. They gave us a lot of, requirements and feedback, and, and that'll be the next one that we'll address right after the sales go to the first customer.

Operator

Thank you. We will now go to the queue. If you would like to ask a question, please use the raise hand feature on your screen. If you have dialed in via phone, please use 9 to raise your hand and 6 to unmute yourself. Our first question comes from Jed Dorsheimer at William Blair.

Operator

Thank you, Jed. Please unmute your line and ask your question.

Speaker 4

Hi, team. You have Mark Schuter on for Jed. I was wondering a question about customer conversations. How have they developed since the tariffs have been implemented on April 2? Your top two Chinese customers, are are they concerned about working with a US company when they have so much, you know, internal battery supply?

Speaker 4

And on the flip side, are any US companies or consumer electronics companies more willing to engage rather than being, like, a fast follower?

Speaker 2

Yeah. Thanks, Mark. So yeah. No. No.

Speaker 2

We haven't seen any concerns from our current customers in in China. Again, I think the tariff situation is evolving and is dynamic, and it changes week to week. So far, you know, I think they love the technology we're able to provide, the energy density we're able to bring in. And, again, we make our batteries in in Asia, and we ship them to other factories in Asia. So we don't see any near term impact material interim impact on that front.

Speaker 2

We have seen more interest from many US customers, not just in smartphone, but other areas, in having wanting to have a US manufacturer who has got factories, you know, in, in Korea and in and in Malaysia. So that that has, you know, kind of been some tailwinds for us. So we are now, you know, get working on getting samples to them and so on.

Speaker 4

Thanks, Raj. I appreciate the color. As a follow-up here, I do the the slide that you provided with the updated baseline cells, so that's very helpful. And if I'm looking at the material set, the silicon, you know, carbon composites that that OEMs have been using in 2024, that's what you're now comparing against. And if I were to the same materials that you'd be using or similar materials that you'd using in e x two m.

Speaker 4

So the the direct compare, the way I'm looking at it is that the Innovix architecture allows more of that silicon com silicon carbon composite material in in the cell, and that can give you that 20% energy density boost. Am I thinking about that correctly?

Speaker 2

Yeah. Exactly. You know, what we have seen in the market is people predominantly are still using graphite anodes, but they've, as I you know, as we mentioned in the letter, dope it with some amount of silicon carbon or silicon some form of silicon compound, which gives them a a onetime which we did notice that it gives us a onetime improvement in energy density. By the way, we we as you know, with the RouteJet acquisition, we actually have we make silicon bat we make graphite batteries there. So we did that too.

Speaker 2

We actually added some amount of this kind of silicon compound material on top of that, and we saw a modest increase in energy density. But we also saw that, as we add more and more of that material, you know, the the the batteries swell, beyond the usable range, And they also have other issues like cycle life and cycle swelling and so on. Whereas in our architecture, we are able to use % active silicon of this material, which means there is actually no graphite in our battery right now. We just put all of this, this silicon material, and we're able to control the swelling because of our architecture. And that's what gives us energy density gains.

Speaker 2

Now we haven't fully taken advantage of everything that this the silicon architecture can provide. That's why you see us certain benefit in two m. But as you move forward in three m and four m, as we increase our, packaging efficiency, as we increase our various kinds of, constraints that we use in there and then different separators, cathode voltages. There's a bunch of stuff that we are working on changing. In addition to having % active silicon anodes, that's what gives us this road map of increased energy density while meeting all the other requirements.

Speaker 2

So it's just a better architecture to take advantage of the of the benefits of silicon anodes.

Speaker 4

That's great. Thank you, Raj.

Operator

Thank you so much. Our next question comes from Colin Rusch at Oppenheimer. Colin, please unmute your line and ask your question.

Speaker 5

Thanks so much, guys. You know, Rusch, can you talk about the importance of the coding line, that you're getting with the the SolarEdge acquisition to facilitating not only your ramp, but also some of the learning cycles for some of those newer chemistries and and being able to commercialize in an efficient way?

Speaker 2

Yeah. Yeah. Thank you, Colin, for that question. So so firstly, firstly, this has been a great acquisition for us, and we talked about the fact that we got quite a large footprint of the factory and a new coating line and also x capacity to produce more cells, you know, for a very reasonable price. So it was very fortuitous that we were able to do that.

Speaker 2

Look. I think what I've what we realized as we start building our batteries now, it is very important that we control the coating, and have enough of it because, that that the cells that we talked about, you know, when I first started a couple of years ago to now, you can see the cells that the customers want are getting larger and larger. Now we're talking over 7,000, and soon they'll probably be over 8,000, which means we need more and more coating capacity to support the ramp, which is why we we we felt it was a great opportunity for us to get that. And the second one is, we are now able to get these new materials. We already have, you know, existing coating in in in our Korea facility, but now we're able to get this mat new materials, quickly coat them, and see the advantages, optimize the coating, and figure out how to dice them on our our laser dicing process and get ahead in terms of building our road map.

Speaker 2

So it's a very key acquisition for us to actually optimize the coating and the dicing and the stacking that we do. But now we have two coating lines on which we can do that. So, so it was, very fortunate as we're able to get that.

Speaker 5

Excellent. And then from a materials perspective, obviously, there's an awful lot going on in terms of evolution of both anode and cathode materials. And and I guess I'm curious about the number of relationships, number of companies you're able to work with in terms of some of those advanced materials as you look at evolving the platform and being able to to, you know, kind of accelerate or at least, you know, execute against some of the the increased density that you guys are talking about here.

Speaker 2

I think, you know, it's been great because now we have our own we have these customers that we are working with in a smartphone. We've now gotten recommendations from our customers on different material suppliers we should be looking at, and they have talked to the material suppliers, and they're talking to us, which has been a a really good thing because now we have customers suggesting different materials that we could use. There's various kinds of silicon anodes that we use. They all come with slightly different advantages in terms of energy density, in terms of cycle life, in terms of fast charge, in terms of storage gassing, and so on. And also now there's different cathode materials that are coming in that can actually run at higher voltages.

Speaker 2

So what happens is when you drive the voltage of the cathode up, we are able to pack even more energy density. And if we, you know, kind of couple that with a with an anode, the silicon anode that can hold a lot more lithium, that gives us the advantage that we're now able to make higher energy density batteries. So it's been a very good thing for us. And the other thing is, I've mentioned this before, maybe not to to the clarity I needed to, is that we are material agnostic in the sense that the same laser dicing and stacking and formation machines we have can work with all these different kinds of materials as we optimize them in the sense that we don't have to buy brand new machines as we change the material stack. So so the cost of the machines we have bought get amortized over different material stocks.

Speaker 2

So as we increase energy density, we can use the same factories but change the materials and get that benefit. So it's been a very interesting journey to see that. And I actually think there'll be a lot more materials coming in, even separators. We are signing much better separators now coming in and so on.

Speaker 5

Excellent. Appreciate it, guys.

Operator

Our next question comes from George Gianarikas from Canaccord. George, please unmute your line and ask your question.

Speaker 6

Hi, everyone. Thank you for taking my questions. Maybe to start, can you share any of the financial metrics around your recent acquisition in South Korea, like revenue capacity, revenue expectations, margin profile, maybe a little bit more detail on the purchase price? Thank you.

Speaker 2

Yeah. I mean, I I maybe, maybe I'll pass it over to, Christina or Ryan to comment on that. But, essentially, what we got was it was an asset acquisition. So we essentially acquired the assets in the factory. I think, 330 square feet, of of of space.

Speaker 2

We had, like, 70,000 there before, so this will significantly add it to that. And, this has the capacity now to make, make our cells that we are selling it to military and also cells that can go into other markets. But maybe, Christina, you wanna comment more, Ryan?

Speaker 3

I mean, I'll just jump in it. It it the structure is an asset purchase. So it's a $10,000,000 purchase price, and we got facility and equipment. Yep.

Speaker 6

Thank you. And and maybe as a follow-up, you mentioned in the press release some momentum, some sampling momentum with additional end markets. I think a handheld computer was one of them. Can you you know, know that a lot has to go well for this to happen in 2026, but to the extent you could sort of think about a revenue profile of the firm in 2026, maybe into 2027, how many different end markets do you expect to serve at that time? Will you be strictly smartphone, or do you you know, more maybe more of a defense footing?

Speaker 6

Will you entertain niche markets like handheld computers or maybe some smartphones? I'm just kinda curious as

Speaker 2

to Yeah.

Speaker 6

You can break down that revenue profile. Thank you.

Speaker 2

Yeah. So let let me let me talk about the strategy before I talk about the revenue profile. So, you know, as I mentioned in the prepared remarks, the the most challenging battery to make is a smartphone battery, because it has high demands on energy density. It high demands on how fast you can charge. It has high demands on cycle life, how long it has to go.

Speaker 2

It has high demands on storage and different operating temperatures because phones get used in the cold and hot and so on. My we always felt when we target a market like that, a lot of the other markets would be much easier to address. Very similar to when I was at Qualcomm. You know, we used make Snapdragon that went into all the smartphones. We were then able to sell Snapdragon processors when I was running that division into handheld computers, into thermostats, into, I vacuum cleaners, many, many different opportunities.

Speaker 2

So a similar strategy here. We're aiming at the cell phone market, and we're getting requirements from customers to build this really tough battery. And our customers are really helping us with those requirements. As we build out that battery, we're now finding that the requirements in the other markets are actually less stringent, and we can address those much easier. So handheld computers is one such market.

Speaker 2

Scanners is one such market. ARVR happened to be a market that we got into. We also want to be really careful not to go into too many markets because each of these market needs a slightly different custom cell, the the shape of the cell. You know, our factory in Malaysia right now, as I mentioned, we're making the smartphone battery for our lead customer, another lead another smartphone customer right behind that that we've given samples, and they like the results and know that will become next. Meanwhile, we're we are supporting two AR glass customers with two different sized cells.

Speaker 2

We're also supporting this IoT customer that I mentioned last time, and then we have the different product that we're building. So the factory is pretty busy and full with all the custom cells we're making. As new opportunities come in, we we are looking at opportunities and looking at them not only in terms of our technology being able to meet them, but the financial returns on making a custom cell. Is opportunity large enough, is the margin profile there, are they big enough, and so on. And that is what is really how we are making this.

Speaker 2

So really excited by how how it's going, and we we will only see more and more opportunities for this type technology. And then we just have to be careful in picking the right ones as an early stage company, so we ramp with high volume, most profitable ones first.

Speaker 6

Thank you.

Operator

Thank you so much. Our next question comes from Ananda Baruah from Loop Capital. Ananda, please unmute your line and ask your question. Thank you.

Speaker 7

Yeah. Thanks, guys, for for taking the question. Really appreciate it. Good to see you guys. Ryan, good to good to meet you, I guess, on a one way screen here.

Speaker 3

My pleasure.

Speaker 7

Yeah. Definitely. I guess yeah. Just Raj, the first question is, I think I think you had mentioned earlier in the year and and this may be what you're referring to for with the first OEM, you know, sending cells to them this quarter. Is it this June through August time frame still, the work being done in there that will then put you guys in position to begin to understand, you know, what the programs with them in '26 could look like, which could then also inform the volumes of '26.

Speaker 7

Is that is that still a crucial crucial work getting done in that June to August time frame?

Speaker 2

Exactly. Exactly. It's it's a and it's on track. As I mentioned earlier in the year, we are on track, and we expect to get samples out in June. Cool.

Speaker 2

And then One thing one thing I will say is that we do have meetings with them every week. It's not like we said something and we'll go back in June and talk to them. So we've shown them the results. We've given them early cells of where we are. We talk to them about the modifications we are making to their electrochemistry to meet their different requirements, and they give us some feedback back.

Speaker 2

So it's a really close collaboration with both the cell phone OEMs. And so in that sense, we have a lot of visibility into how things are going. So when we, you know, do meet all the requirements, you know, we we feel more confident. Again, ultimately, we have to put all of this together in this one particular in the custom cell that they need, and they have retested in their phone. And that's when the testing will be complete.

Speaker 2

And that should happen, you know, from June to August time frame.

Speaker 7

You are you guys got it. And then should we should we develop an expectation that you guys can begin to, in the fall, share your initial view on program include SKU inclusion? And so I guess at least whatever SKU inclusion, like, sort of volume inclusion or at least volume TAM, you know, given the SKU inclusion? Will there be any of that provided in the fall?

Speaker 2

I mean, look. Ultimately, we can share as much as our customers allow us to share. Because, look, as a component supplier, usually, when you bring new technology in, customers are very careful about about saying what they're using and when. But as and when we get permission from them to share, we'll be happy to share that. Right?

Speaker 7

Okay. That's great. And then, I guess, just as a quick follow-up, and I I can see it before here. The silicon doping, you know, process technique that you had talked about, like, to like, how much silicon on the anode are they getting to, like, sort of at max that you guys have seen?

Speaker 2

The max we've seen in the market is in the 10% range.

Speaker 8

So low

Speaker 2

yeah. So it's very small.

Speaker 7

Got it.

Speaker 2

And we are we are using % of the material, by the way, just to contrast.

Speaker 7

Yeah. That's super helpful. Okay, guys. I appreciate it. Thanks so

Speaker 2

much. Thank

Operator

you so much. We have our next question from Derek Soderbergh from Cantor Fitzgerald. Derek, please unmute your line and ask your question.

Speaker 9

Yeah. Hey, guys. Thanks for taking the questions, and my congrats to Ryan on the new position. Wanted to follow-up on George's earlier question just around the revenue capacity following the acquisition of the SolarEdge facility. It sounded like 4x the square footage of the '23 acquisition.

Speaker 9

Is this an acquisition that maybe takes the RouteJade potential revenue from sort of $2,030,000,000 to a hundred million plus? You know, I understand that some of the electrodes will be used in EX batteries, but can you help us maybe quantify the potential revenue capacity or production capacity expansion with the newly expanded site?

Speaker 2

Yeah. I mean, I you know, look. I think it's a little too early to exactly comment on that. We do have the space. We have the equipment, but we will we will, you know, capitalize and expand that as a demand for those product materializes.

Speaker 2

We do see now a lot of requests coming in, you know, particularly with the whole tariff scenario that people would like, you know, products from from Korea. And we we see that, you know, like, every day, but we have to be careful to pick the right ones. And we are in the middle of that. It's probably a little early to comment on that, but I can tell you we are we think it's a great opportunity that we got these assets. Yeah.

Speaker 3

And I will chime in. It's again, I I think it is a little too early to quote a number, but it certainly does dramatically increase our capacity. And as as Raj said in the prepared remarks, it's really about two things. One is ensuring that surety of supply in terms of supporting fab two from a coating perspective, and we're seeing just this tremendous kind of uptick in terms of opportunities as it relates to the the local defense opportunities. So without without quoting a number, it's certainly it's a it was a tremendous opportunist deal, and I give Raj and the team credit for executing on that before I get here.

Speaker 3

But as you can see, it's in the same complex, so it it clearly is kinda part of the part of the strategic plan. So kudos to them to getting it done.

Speaker 9

Got it. That's helpful. And then as my follow-up for Ajay, wondering if you can share where the HVM line is today in terms of, you know, throughput relative to some of the UPH expectations you've put out in the past. Just wondering, you know, where throughput is at at this point, and have you sort of passed the 90% yield throughput yet? Can you just give us an update on how things are progressing?

Speaker 8

Sure. Yeah. Hey. Go ahead, Ajay.

Speaker 2

Go ahead.

Speaker 4

Hey. Go ahead.

Speaker 8

I hope you can you guys can hear me okay. I'm calling in from Malaysia. No. Fab two is progressing really well. We are making a lot of good progress on all fronts.

Speaker 8

HQM line right now is configured for the custom cell, as Raj alluded to, the custom cell for the first customer. And I'm talking about, you know, changing over the tooling, getting the first pipe cleaners through and, you know, starting the production, you know, for the cells that we are going to turn it over or hand over to the first customer. So that's all going really well. Yields are progressing. We have made a lot of good improvements on yields and definitely stand by our original statement that we made that we will be up on the yields as the ramp production ramp really begins to the world class levels.

Speaker 8

So that's all going on track. Yeah. And the the simultaneously, we are also working on other form factors for ARVR as Raj also talked about. And the UPH, I would say, is, like I said, you know, we the front end of the line, which is really the farm, the laser dicing farm, we are rig we are making sure that that process comes The line is itself is bought off at $13.50 UPH, as you know, for SAP.

Speaker 8

So everything seems to be on track. Yeah. And, you know, that's what I can share right now from here from Malaysia.

Speaker 2

I mean, judge, one I mean, so one other comment I'll make, you know, sorry, Derek, is that we right now, we are making many, many products in the same fab. So we have small cells. We have, you know, three different kind of small cells. We have an army cell. We have a a big cell that we're making an HPM line.

Speaker 2

So right now, we are really focused on executing in all these programs to get samples to our customers. Nothing we've seen here makes us concerned that when we're at high volume production, we can't get to the yields that we wanted to. But we don't need to run them at that speed right now because mostly we're making samples.

Speaker 9

That's helpful. Thanks, guys.

Operator

Thank you so much. Our next question comes from Bill Peterson from JPMorgan. Bill, please unmute your line and ask your question. Thank you.

Speaker 10

Yeah. Hi. Good afternoon, and thanks for taking the questions. And and also thanks for the details on the comp the competition. I guess for completeness on on these sort of leading edge, you know, competitive cells, are these in the 800 watt hour per liter range?

Speaker 10

We've also been getting sort of questions on cycle life. And I I know you're, you know, looking at, you know, achieving a thousand. I'm seeing some competitors are, you know, maybe even closer to 1,500. But, I guess, how did you know, just to benchmark where the current leading edge is, how do they compare in terms of cycle life? And, also, maybe some of these other factors you talked about, things like temperature window, fast charging, and so forth.

Speaker 2

Yeah. You know, I, you know, I get this question from this call usually, and and and, you know, the the the nuance of this is kind of very important. So, like, for example, when you talk about cycle life, a phone discharges a battery at different rates. Right? So for example, the phone is on standby.

Speaker 2

It's probably drawing, you know, at point one c or a point two c charge. But when you, you know, run a full game, it goes at, like, point seven c charge maybe. So cycle life varies based on how you charge. So it's hard to quote cycle life as one number. So what most customers do is they have a profile of how their phones actually operate, and they come up with a metric on a charge profile and a discharge profile, and they benchmark the cycle life based on that.

Speaker 2

So what I mean by that is you could take a particular phone and say this battery is thousand cycles. You can take another phone. The exact same battery may only run to, like, 600, seven hundred cycles. Depends on how they use. Right?

Speaker 2

So it's not a simple one number metric. It's a very customer dependent metric. But what I can tell you is that we feel our battery is extremely competitive, and that's why the trade off of cycle life versus energy density versus fast charge is is what our customers feel pretty good about where we are. And we are in continue to improve on all three for all three of them as we move forward. So it's hard to answer yours with one number because it's not very meaningful.

Speaker 2

You know? Depends on phone to phone, customer to customer.

Speaker 10

Okay. But what what about at least in terms of Is it just to so we understand, like, where you're coming from.

Speaker 2

Yeah. Clearly. I mean, we are in that we're in that they're all in the 800 plus range. So, absolutely, we're extremely competitive with all of them.

Speaker 10

Okay. And and then as a follow-up, I wanted to talk about your defense pipeline. You know, you've been talking about it a bit more even with the the older Rootshade acquisition. But are there additional orders forming in 2025? And it looks like your additional capacity can support that, you know, defense opportunities.

Speaker 10

Can you break down the interest you have by geography? I presume you you could be getting more in The US as for the reasons you said. But I just and maybe just around the opportunity itself, I think maybe two years back, the US military alone was around 350,000,000. So maybe updated thoughts on your opportunity.

Speaker 2

Yeah. We are we are getting a lot of interest, because of the, you know, as you can imagine, the entire tariff scenario. And but, again, we we've started shipping samples to the customers. So we've got sample purchase orders. And, and this takes time because once they get the sample purchase orders, they tested it, they like the performance, then there's they all want a custom spell that is very specific to that.

Speaker 2

And so the orders will take some time after the qualification period. That's just the nature of batteries. But we are getting more and more requests for samples, and we are shipping them now. And like you mentioned, the total opportunity is pretty big. So we are fairly optimistic that once we get these samples to pass qual, it'll be meaningful for us in time.

Speaker 10

Thanks, Raj.

Operator

Thank you. Our next question comes from Gus Richard from Northland Capital Markets. Gus, please unmute your line and ask your question. Thank you.

Speaker 11

For taking my question. I'm I'm just curious on the SolarEdge acquisition. You know, is there anything running through the factory at this point, or was it idle? And and sort of what is it gonna take to get it up and running and how long?

Speaker 2

Yeah. It's a it's a it's making cells for defense applications, and, it is also making some cells for, ESS applications. So it's a working factory, and, you know, we were able to acquire some people that are running the factory also along with and there's a coating line that also we got. So it's a working factory, and, you know, we're just augmenting to our capacity.

Speaker 11

Great. And then could you just walk through, sort of the milestones in front of you in terms of getting to, you know, out of fab two, you know, shipping production to customers? You know, what what milestones you have to hit for your, you know, lead customer, for example? Where are you in that, you know, milestones?

Speaker 2

Yeah. Sure. So, there's there's multiple customers we're supporting from Fab two. Right? There's as I mentioned, there's two ARVR customers.

Speaker 2

There's an IoT customer we are supporting, which actually is a large volume opportunity, and then there's defense, products that we're making there and the smartphone, which is a big cell that we're making in the HVM line. So we've sent we have sent samples to one of actually, two of their one of their, we are customers last quarter, and we are just getting ready to send to the second one. And we, of course, given samples to, you know, multiple smartphone customers. All our energy is now focused on making this one particular large cell, 7,000 plus milliampere cell, to our lead smartphone customer. And those samples, the milestone you should look for is, us delivering the samples in June time frame.

Speaker 2

And the next milestone is, you know, passing their qualification inside their phone because they do a lot of tests. They do drop test. They do short circuit test. They do energy density tests. They do cycle life tests.

Speaker 2

They do storage gassing tests. All that stuff goes through between between June and August time frame, and then we'll get some feedback on if, you know, that all goes well, then when we get the purchase order for the next one. On the ARVR glasses, we've actually sent the samples, and the customers have put them in the glasses now. And we can see now how that's going, and they're giving us feedback on that. Milestones from Fab two are basically delivering customer samples, getting the feedback from the customers, optimizing it, getting ready for full production.

Speaker 2

That's what you'll see us report on through the year.

Speaker 11

Got it. Thanks so much. Thank

Operator

you. Our next question comes from Ananda Baruah from Loop Capital. Ananda, please unmute your line and ask your question.

Speaker 7

Hey. Thanks, guys, for taking the follow-up. Hey, Raj. Can you remind us where PC calls again fall in in the timeline? And and, like, I guess yeah.

Speaker 7

I'll start there. When the PC calls fall on the timeline? I'll probably have to follow-up on that. Thanks.

Speaker 2

Yeah. You know, PCs take even longer than smartphones to call, you know, ironically. It's just a just a longer call process. But, know, like I said, we are just so busy with our current, factory so full with all these products. We feel we will once we get the smartphone, qualification underway, we should be able to give that cells, you know, that size cells, with that chemistry to the PC OEMs.

Speaker 2

Mhmm. And and like I said, the smartphones are the toughest batteries to make. So to me, once we make that you know, there are some nuances to the PC ones about temperature and cycle life and stuff like that. We can adjust on top of that with some of the electrochemistry. But those are the cells we'll start with, but they'll take another eighteen months from there.

Speaker 2

PC calls just take longer.

Speaker 7

I got it. So and, Raj, when you when you say take the smartphone calls and sort of the the jump off spot, the Launchpad for the PC calls, would that be these first two OEM calls that you're talking about? And so at some point so is it at some point I'm I'm not trying to pin you down, but just to visualize it. Some point by, let's say, mid twenty six, you can start that eighteen month clock. Is that a good way to think about it, or is it sorry about

Speaker 2

that background

Speaker 3

noise, guys.

Speaker 2

There's there's multiple stages of call. Right? So our plan is these samples that we're giving to our smartphone customers, you know, there'll be variation of that. We'll give it to the PC customers. They will start testing it.

Speaker 2

They'll give us some feedback. And just like it happened on smartphones, they'll give us some nuances that they like. They store it a little longer. They store it a slightly higher temperature. You know, they want cycle f to be a little more or less.

Speaker 2

You know? The fast charge, maybe not that much of a requirement for them because these are plugged on. So we'll need to make some adjustments to the electrolytes and so on, and then give them the right cell, and then they start, you know, the call. That's just how it moves. Right?

Speaker 7

That's how it goes.

Speaker 2

Very similar to how how it does move on the smartphone side.

Speaker 7

Got it. Okay. Great. Thanks a lot. Appreciate that.

Operator

Thank you so much. Our next question comes from Ryan Finch at B Riley. Ryan, please unmute your line and ask your question. Thank you.

Speaker 12

Yes. Hey, guys. Thanks for the time. I just wanted to jump in with one on the EV opportunity. In the release, you comment on the major charge time improvement by a leading battery supplier in Asia and validating your cooling architecture.

Speaker 12

Can you just dig in a bit there and provide, a little more color?

Speaker 2

Yeah. We we, we looked at that, that announcement, and what we find is that, you know, it's just another proof point that, yes, you can charge them really fast. But if you look at that announcement, the temperature does go up fast and ED is at stake. So materials are more expensive to do such a thing. So whereas if we did the similar stuff in our conventional in our architecture, where is the conventional architecture, we can get to similar rates but provide the advantages of of not swelling and provide the advantages of not getting so hot.

Speaker 2

So it's just another proof point of the value of our technology and even in the EV space. And we are making progress on that front. You know, as I as you guys know, we have two EV customers that are working with us, and we are in the middle of, you know, making samples for that. Also, from our Malaysia factory now, have a large dry room there that we build this now and so on. So stay tuned for updates on that.

Speaker 2

It just validates our proof our our argument that, you know, fast charge and not getting hot are the key requirements in EV space, and that's what we focused on.

Speaker 3

Understood. Appreciate it.

Operator

Thank you so much. Our next question comes from Jed Dorsheimer at William Blair. Thank you, Jed. Please unmute your line and ask your question.

Speaker 4

Hi, team. It's Mark again, but thank you for the follow-up. For the smart glasses market, in the in the charts that you provided, you you cite a a larger performance benefit than even in the smartphones. I'm wondering if you can give us some info of what about the smart glasses application gives a Novix architecture even more performance advantage. And if that is the case, are there any additional margin benefits that could come from that application?

Speaker 2

Yeah. Absolutely. So, you know, there's a there's a kind of a fundamental difference between how a smart glass works with a smartphone works. What I mean by that is when the smart glass is creating an augmented reality scenario, for example, you're visualizing something, what has to happen is the processor has to run full blast. And the the display, which is basically this you know, these new displays that have come up, you know, have to have to run.

Speaker 2

And then the cameras are all working because they have to figure out where you're looking because you have to do what is called 6DOF. You got to calculate the six degrees of freedom of where you're looking to create that projection. So in other words, the memory is the process displays. They're all running full blast to create that user experience. That draws tremendous amount of battery, even a lot more than what will happen in a smartphone.

Speaker 2

Because in a smartphone, typically, they're all not running at the same time full blast. Right? I mean, like, most of the phones on standby most of the time, every so often, it comes on. You do a video watching or something like that, but you're not blasting graphics, GPU, video, camera, audio, everything at one time. So the draw is much higher.

Speaker 2

And the other other interesting thing is the space of the battery in a smart glass is much smaller because it has to fit just in the temple of the of the of the glasses or in the back where it is. So the amount of energy density you have to pack in a small volume is much higher, and the discharge rate is higher. Both of those we can do really well in our architecture. That's the reason we're getting all this, you know, excitement from our customers for this product, and that's why we have two customers that have already prepaid for the for the volumes. So it's just a market that takes advantage of our technology much better.

Speaker 2

And we see a few other markets like that. So, typically, when there's space constraint, when there's a display, when there's a tremendous amount of draw due to either AI or processor or memory running fast, that's the market where we believe we have most advantage. And that does translate into ASP premiums, and we are seeing that in both those markets.

Operator

Thank you so much. Thank you. We have another question from George Gianarikas from Canaccord. George, please unmute your line and ask your question. Thank you.

Speaker 6

Thanks for taking my question. Curious if you could provide any update on the pricing dynamics you're seeing in the market, whether or not they continue to support this this margin target that you laid out a couple years ago. Thank you.

Speaker 2

Yeah. Absolutely. I mean, I you know, I we've we've recorded budgetary pricings, you know, to our smartphone customers, and and I think that, clearly, they see the value, and it's been really good. We closed the pricing on the, you know, the two AR, you know, glasses that I talked about, and those have been clearly validated. The ASP premiums we can combine when we provide value.

Speaker 2

I mean, like I said before, right, I think the number one thing you gotta remember is that in smartphones, in AR, VR glasses, in all these markets, the price of the battery as a percentage of the BOM is very small. Right? So if you look at a smartphone, $1,100,000 premium tier smartphone, $600 bit on bill of materials, the battery is between 10 to $15. Right? So there's still a long ways to go in terms of percentage of the bomb.

Speaker 2

But in terms of the value it provides, it unlocks the value of the processor. It unlocks the value of the display. It unlocks the value of the cameras. It unlocks the value of the memory. And if you look at smart smart purchases, know, the number one, and number two are, like, you know, battery life and, and the camera.

Speaker 2

So when you provide value, there's clearly ASP premium, and we are seeing that being validated. So we are quite comfortable with that.

Speaker 3

Thank you.

Operator

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

Speaker 2

Yeah. Thank you again for joining us today. We are very encouraged by the progress we've made, and we are even more excited by what's ahead. Now we remain focused on execution, deepening our customer relationships, unlocking the full potential of our technology and operations. Now we really appreciate your continued support, and, we look forward to updating you again next quarter.

Speaker 2

Thank you.

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Earnings Conference Call
Enovix Q1 2025
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