Q2 2021 Enovix Corp Earnings Call

August 10, 2021

[music].

Operator: Thank you for standing by, and welcome to the Enovix Corporation Q2 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. As a reminder, today's program may be recorded. Now I'd like to introduce your host for today's program, Charles Anderson, Vice President of Investor Relations. Please go ahead, sir.

Thank you for standing by and welcome to the <unk> Corporation second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone as a reminder, today's program may be recorded.

And now I'd like to introduce your host for today's program Charles Anderson, Vice President of Investor Relations. Please go ahead Sir.

Charles Anderson: Thank you. Hello, everyone, and welcome to Enovix Corporation's Q2 2021 Results Conference Call. With us today are President, Chief Executive Officer, and Co-founder Harold Rust, and Chief Financial Officer Steffen Pietzke. Harold and Stefan will review the operating and financial highlights, and then we will take questions. After the Q&A session, we'll conclude the call. Before we continue, let me kindly remind that we released our shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this conference call will be available later today on the investor relations page of our website. Please note that our shareholder letter, press release, and this conference call can all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors.

Thank you Hello, everyone and welcome to <unk> Corporation's second quarter 2021 results conference call with US today are president and Chief Executive Officer, and co founder Harold Rust and Chief Financial Officer Stefan Pizza.

Harold and Stefan will review, the operating and financial highlights and then we'll take questions. After the Q&A session and we will conclude the call before we continue let me kindly reminded that we released our shareholder letter after the market closed today. It is available on our website at IR at <unk> Dot Com a replay of this conference call will be available later today on the Investor Relations page of our web.

Please note that our shareholder letter press release and this conference call can all contain forward looking statements that are subject to risks and uncertainties. These forward looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors.

Charles Anderson: Enovix 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. We will also discuss certain forward-looking non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. We urge you to review the discussion of our non-GAAP financial measures and the risks and uncertainties associated with our business that are described in the safe harbor provision for forward-looking statements in our shareholder letter and in our filings with the Securities and Exchange Commission. I will now turn the call over to Harold to begin. Harold.

<unk> 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. We will also discuss certain forward looking non-GAAP financial measures, which are not prepared in accordance with generally accounting accepted accounting principles. We urge you to review the discussion of our non-GAAP financial measures and the risks and uncertainties associated with our business that are described in the safe Harbor provision.

For forward looking statements in our shareholder letter and in our filings with the Securities and Exchange Commission.

I will now turn the call over to Harold to begin Harold.

Harrold Rust: Thank you, Charlie. I want to welcome everyone to our first results call as a public company. In mid-July, we completed our business combination with Rodgers Silicon Valley Acquisition Corp. This was a major development for us and for the whole lithium-ion battery industry. The net proceeds of $382 million from this transaction provides us with the capital to fund the scale-up of 2 advanced lithium-ion battery cell production facilities and commercialize our breakthrough 3D Silicon lithium-ion battery technology. I want to thank everyone involved for their intense effort over the past few months to get the deal done. I also want to highlight that on our first trading day, we hosted our advanced battery production showcase. Over 60 investors and analysts attended in person, and more than 300 joined the live webcast. Since then, over 2,000 have watched the webcast replay.

Thank you Charlie I want to welcome everyone to our first results call as a public company in mid July we completed our business combination with Rodgers Silicon Valley acquisition Corp.

This is a major development for us and for the whole lithium ion battery industry.

The net proceeds of $382 million from this transaction provides us with the capital to fund the scale up of 2 advanced lithium ion battery cell production facilities and commercialize our breakthrough <unk> silicon lithium ion battery technology.

I want to thank everyone involved for their intense effort over the past few months to get the deal done.

I also want to highlight that on our first trading day, we hosted our advanced battery production showcase.

Over 60 investors and analysts attended in person and more than 300 join the live webcast.

Since then over 2000 have watched the webcast replay we are humbled and excited by the interest in our story, which we think is 1 of the most compelling in our industry today.

Harrold Rust: We are humbled and excited by the interest in our story, which we think is one of the most compelling in our industry today. Now let's discuss our Q2 and touch on the highlights of our shareholder letter, which discusses in depth our results, strategy, progress around validation and production, and supply chain. After I am finished, Steffen will cover our financial performance and outlook. A key highlight is our go-to-market strategy. We remain committed to our strategy of initially focusing on the premium mobile computing battery market, which we forecast to be $13 billion by 2025. This market encompasses computing, mobile communications, and wearables, including smartwatches, headsets, and the emerging markets of augmented reality and virtual reality, also known as AR/VR. In the Q2, we began shipping technology qualification samples from our pilot line to our initial launch customers in these markets.

Now, let's discuss our second quarter and touch on the highlights of our shareholder letter, which discusses in depth our results strategy progress around validation and production and supply chain.

After I am finished Stefan who will cover our financial performance and outlook.

A key highlight is our go to market strategy, we remain committed to our strategy of initially focusing on the premium mobile computing battery market.

Which we forecast to be $13 billion by 2025.

This market encompasses computing mobile communications, and Wearables, including smart watches headsets and the emerging markets of augmented reality and virtual reality also known as <unk>.

In the second quarter, we began shipping technology qualification samples from our pilot line to our initial launch customers in these markets. Additionally, we have met key battery performance specifications for our initial customers.

Harrold Rust: Additionally, we have met key battery performance specifications for our initial customers. We anticipate shipping final customer qualification samples from our first production line by year-end, with production following in Q1 2022 and revenue in Q2 2022. Customer demand today remains very high for our products. At the end of Q2, the potential annual revenue of all programs, either in the active design or design win phase, reached $292 million. These represent programs that are through technology evaluation, and design work has begun. In the case of design wins, the customer is funding a custom battery design or qualifying one of our standard batteries for a formally approved product.

We anticipate shipping final customer qualification samples from our first production line by year end with production following in the first quarter of 2022 and revenue in the second quarter of 2022.

Customer demand today remains very high for our products.

At the end of Q2, the potential annual revenue of all programs either in the active design or design win phase reached $292 million.

These represent programs that are through technology evaluation and design work has begun.

In the case of design wins, the customers funding accustomed battery design are qualifying 1 of our standard batteries for a formally approved product.

Harrold Rust: We have also identified an incremental $881 million of engaged opportunities, which we define as the potential annualized value of projects where a customer has deemed our battery a match for their product and is evaluating our technology. Altogether, our revenue funnel is $1.17 billion. To meet this growing demand, we are accelerating efforts throughout the company to scale. For example, we have accelerated hiring. In H1, we grew our headcount by 43% to 184 employees, which included several key additions to the leadership team. Now I'd like to discuss our progress on our first production line.

We have also identified an incremental $881 million of engaged opportunities, which.

Which we define as a potential annualized value of projects, where a customer has deemed our battery a match for their product and is evaluating our technology.

Together, our revenue funnel is $1.1.7 billion.

To meet this growing demand we are accelerating efforts throughout the company to scale for.

For example, we have accelerated hiring in the first half of the year. We grew our head count by 43% to 184 employees, which included several key additions to the leadership team.

Now I'd like to discuss our progress on our first production line.

Harrold Rust: As many of you saw during our showcase last month, we are on track to start production at Fab-1 in Q1 2022, resulting in product revenue in Q2 2022. Last quarter, we were able to navigate the global supply chain constraints and receive all key equipment for our first production line. This required heroic efforts, including a critical decision to charter an Antonov An-124, one of the world's largest cargo planes, to fly over 60 tons of manufacturing equipment from Asia to San Francisco. We managed industry-wide supply chain challenges and installed and started qualifying our equipment in the midst of a global pandemic. Now let me turn the call over to Steffen, our CFO, who will discuss our financial results. Steffen?

As many of you saw during our showcase last month, we are on track to start production at fab 1 in the first quarter of 2022, resulting in product revenue in the second quarter of 2022.

Last quarter, we were able to navigate the global supply chain constraints and receive all key equipment for our first production line.

This required heroic efforts, including a critical decision to charter in <unk> and $1.24, 1 of the world's largest cargo plans to fly over 60 times of manufacturing equipment from Asia to San Francisco.

We manage industry wide supply chain challenges and installed and started qualifying our equipment in the midst of a global pandemic.

Now, let me turn the call over to Stefan our CFO, who will discuss our financial results Stephane.

Steffen Pietzke: Thank you, Harold. Our detailed financials can be found in our shareholder letter. I will focus on a few high-level topics. Before I do, I want to remind everyone that our business combination with Rodgers Silicon Valley Acquisition Corp closed on 14 July. As a result, our Q2 financials presented today do not include the updated cash position or share count reflecting the business combination. On cash, we raised net proceeds of $382 million from this transaction, which we received on 14 July. The same day, we repaid our $15 million bridge loan. Our balance sheet post-business combination is very strong and we believe allows us to fund the scale-up of two advanced lithium-ion battery production facilities. On share count, there were 145.2 million shares outstanding as of 14 July.

Thank you Harold.

Our detailed financials can be found in our shareholder letter.

I will focus on a few high level topics.

Before I do I want to remind everyone that our business combination with Roger Silicon Valley acquisition call closed on July 14th.

As a result, our second quarter financial presenter today do not include the updated cash position or sure collyn, reflecting the business combination.

On cash we raised.

Net proceeds of $382 million from this transaction, which we received on July 14th.

The same day, we repaid our $15 million bridge loan.

Our balance sheet post business combination is very strong.

And we believe allows us to fund the scale up of 2 advanced lithium ion battery production facilities.

On share count.

$145.2 million shares outstanding as of July 14th.

Steffen Pietzke: This does not include 17.5 million warrants with an exercise price of $11.50. Turning to Q2 results, we did not recognize product revenue in the quarter, but we do expect to begin recognizing product revenue from the sale of our batteries in Q2 of 2022. Our operating expenses in Q2 were $14.2 million. Excluding stock-based comp, our non-GAAP operating expenses in the quarter were $12.1 million, up from non-GAAP operating expenses of $9.8 million in Q1 of 2021, which also excludes stock-based comp. We are accelerating our efforts throughout the company to scale given the tremendous demand we are experiencing for our products.

This does not include $17.5 million borrowings as an exercise price of $11.50.

Turning to the second quarter results, we did not recognize product revenue in the quarter.

But we do expect to begin recognizing product revenue from the sale of our batteries in the second quarter of 2022.

Our operating expenses in the second quarter were $14.2 million.

Excluding stock based comp our non-GAAP operating expenses in the quarter were $12.1 million.

Up from non-GAAP operating expenses of $9.8 million in the first quarter of 2021, which also excludes stock based comp.

We are accelerating our efforts throughout the company to scale given the tremendous demand we're experiencing for our products.

Steffen Pietzke: Through June 30, we have used $35.7 million of free cash flow, $20.6 million of which was used for CapEx. For full year 2021, we expect to use between $110 million and $120 million of free cash flow, of which roughly half will be CapEx. Beyond hiring, we are also adding factory capacity, design capacity, investing in an intellectual property, and creating a global footprint to support our customers. To summarize, we enter the H2 2021 with a strong balance sheet, and we are investing to establish a leadership position in our industry. We are now focused on executing our plan, which we believe will drive shareholder value. I will now turn it back to Harold for closing remarks. Harold?

Through June 30th we have used $75.7 million of free cash flow $20.6 million of which was used for capex.

For full year 2021, we expect to use between $110 million and $120 million of free cash flow of which roughly half of the capex.

On hiring we are also adding factory capacity design capacity investing in intellectual property and creating a global footprint to support our customers.

To summarize.

We entered the second half of 2021 with a strong balance sheet and we are investing to establish a leadership position in our industry.

We are now focused on executing our plan, which we believe will drive shareholder value.

I'll now turn it back to Howard for closing remarks.

Okay.

Harrold Rust: Thanks, Steffen. To recap, we made considerable progress in H1 2021 equipping our first advanced 3D Silicon lithium-ion battery production facility. I want to thank our entire team for their dedication and effort. We are singularly focused in bringing our first of a kind manufacturing line to volume production. We enter H2 2021 with significant financial resources, strong customer demand, a world-class team, and a breakthrough technology in a critical market that impacts all of our lives every day and is strategically important to the global economy. I want to close by welcoming all our new shareholders. We appreciate your support and are dedicated to driving shareholder value. With that, we are ready to take your questions. Operator?

Thanks, Stefan to recap we made considerable progress in the first half of 2021 equipping our first advanced <unk> silicon lithium ion battery production facility.

Want to thank our entire team for their dedication and effort.

We are singularly focused in bringing our first of a kind manufacturing lines to volume production.

We entered the second half of 2021 with significant financial resources strong customer demand and a world class team and a breakthrough technology and a critical market that impacts all of our lives every day and are strategically important to the global economy.

I want to close by welcoming all of our new shareholders. We appreciate your support and our dedicated driving shareholder value.

With that we're ready to take your questions operator.

Operator: Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Colin Rusch from Oppenheimer. Your question please.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then 1 on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Colin Rusch from Oppenheimer. Your question. Please.

Colin Rusch: Thanks so much, guys. You know, I realize that you just finished installing all the equipment on Fab-1, but I'm curious about where you're at with Fab-2, if you can give us a sense of where you're at with site selection and any sort of deposits that you've been able to put down on long lead time items.

Thanks, so much guys.

I realize that you just finished installing equipment on fab 1 but.

I'm curious about what your outlets have to if you could give us a sense of where youre at with site selection and I'll. Just say then that will put down on long lead time items.

Harrold Rust: Yeah, Colin, this is Harrold. Thanks for that question. You know, as you know, we've gone through a down selection process over the last six months or so, and we're progressing in due diligence with some opportunities there that we think are good choices. I think those discussions are going quite well, and we believe that there's a deal to be had, that will be good for the company, good for our shareholders. You know, we need to be ordering equipment for that factory, in H1 of next year, and I would expect that, you know, sometime before then you'll see some public announcements about what that deal will look like.

Yes, Colin this is Harold thanks for that question. So as you know we've gone through down selection process over the last 6 months or so.

They're progressing and due diligence with some opportunities there that we think are good choices.

I think those discussions are going going quite well.

And we believe that there is a deal to be had.

That will be good for the company and good for our shareholders.

We need to be.

Ordering equipment for that factory and the first half of next year.

And I would expect that sometime before then youll see some public announcements about what that deal will look like.

Colin Rusch: Okay. That's helpful. In terms of the number of customers that are in that funnel that are testing cells at this point, can you give us a total number of customers and how many are testing at this point?

Okay. That's helpful. And then in terms of the number of customers that are in the funnel that are testing.

At this point can you give us a total number of customers and how many are testing at this point.

Harrold Rust: Yeah, I would say there's roughly 20 customers or so, maybe north of that we're actively engaged with right now. You know, we're actively sampling to additional customers beyond that. The funnel's pretty broad. We're not short at all for people that wanna test our cells, and we're actively trying to, you know, increase the diversity of that funnel, customers, and products.

Yes, I would say there is roughly 20 customers are so maybe north of that we're actively engaged with right now.

We're actively sampling to additional customers beyond the funnel is pretty broad we're not short at all for people that want to test ourselves and so we are actively trying to increase the diversity of that funnel and customers and products.

Colin Rusch: Just the final one around the customers, you know, getting reserving slots in the factory is actually a pretty big benchmark in our view. Can you give us a sense of how many other folks are looking at considering those sorts of commitments to you guys on the sales front?

And then just the final 1 around the customers getting.

Reserve and swaps in the factory is actually it's a pretty good benchmark in our view.

Can you give us a sense of how many of those folks are looking at considering those sorts of commitments to you guys on the sell side.

Harrold Rust: Well, you know, we made an announcement you probably saw today, with a customer in the wearable space that's put down a capacity reservation, that's worth up to about $20 million. You know, I think, you know, we're starting to have discussions with other customers as well. I don't think I can comment specifically about others that, you know, might be getting close or not close to that. I think certainly, you know, our view is we've got a technology and an energy density advantage that you can't find anywhere else. I think over time, you know, we may see people more motivated to try to lock up capacity because I do think we'll be a scarce commodity.

Well, we made an announcement you probably saw today with with a customer in the Wearables space, that's put down a capacity reservation, that's where it's up to about $20 million.

I think we're starting to have discussions with other customers as well.

I don't think I can comment specifically about others that might be getting close or not close to that.

Certainly.

Our view is we've got a technology and an energy density advantage that you can't find anywhere else and so I think over time, we may see people more motivated to try to lock up capacity because I do think some.

There will be a scarce commodity.

Colin Rusch: Great. Thanks so much, guys.

Great. Thanks, so much guys. Thanks.

Harrold Rust: Thanks, Colin.

Thanks Colin.

Operator: Thank you. Our next question comes from the line of Derek Soderberg from Cantor Fitzgerald. Your question please.

Thank you. Our next question comes from the line of Derek Soderberg from Securities. Your question. Please.

Derek Soderberg: Hi, guys. Thanks for taking my questions. I wanted to start with the qualification and the commentary around that. Looks like, you know, you guys have plans to ship production qualification samples in Q4. It sounds like we should expect that entire assembly line to be operational by then. Is that correct? You know, are the production qualification samples you expect to ship, are those gonna be based on production that's fully automated, or will you still sort of rely on quite a bit of manual labor there?

Hi, guys. Thanks for taking my questions.

I wanted to start with the qualification and the commentary around that.

It looks like.

You guys have plans to ship production qualification samples in Q4, so it sounds like we should expect that entire assembly line to be operational by then is that correct.

And are are the production qualification samples do you expect to ship are those can be based on production thats fully automated.

Or are we still sort of rely on quite a bit of manual labor there.

Harrold Rust: Yeah, thanks for the question. You're right. Q4 of this year is when we start delivering qualification samples. At that point, those products will be made in an entire automated fashion. You know, there will not be humans actually doing any of the processing. The line, you know, that we put together here is essentially set up that way. You know, what we'll be delivering to customers will be the same thing they'll be receiving next year when we're in volume production.

Yes, thanks for the thanks for the question so yeah.

You're right fourth quarter of this year is when we start delivering qualification samples.

At that point those products will be made in an entire automated fashion. So they will not be humans actually doing the processing.

The line.

Put together here is essentially set up that way so.

What we are delivering to customers will be the same thing that'll be receiving next year, where you are in volume production.

Yeah.

Derek Soderberg: Got it. It sounds like you guys haven't been able to do sort of a full dry run of production yet, but I guess you've probably been testing, you know, the individual steps on the production line. I guess as you look at the latest capacity test, you know, how is your proprietary equipment sort of stacking up against your expectations on capacity, you know, better or worse? Any detail around that would be great.

Got it so it sounds like you guys haven't been able to do sort of a full dry run of production yet but.

I guess youre, you've probably been testing the individual steps on the production line I guess as you look at the latest capacity test how is your proprietary equipment sort of stacking up against your expectations on capacity better worse any detail around that would be great.

Harrold Rust: Yeah. I think we're pleased overall, in terms of the equipment and its ability to do its intended function. You know, we actually started working on the equipment probably two years ago in some ways. You know, there's been a lot of work that's gone into this, a lot of proof of concept work, some pilot tools that we did. You know, we had pretty high confidence going in, and I think in general, the tools have performed to specifications. You know, we have a pretty rigorous set of both factory and site acceptance things we have to go through. You know, I would say there's no red flags there. We're pretty excited about the tools, being able to deliver to the intended specs.

Yes, I think I think we're pleased overall in terms of the equipment and its ability to do which intended function.

We actually started working on the equipment and probably 2 years ago in some ways and so there's been a lot of work that's gone into this a lot of proof of concept work. Some pilot tools that we did so.

We had pretty high confidence going in and I think in general the tools that perform to specifications. We have a pretty rigorous set of both factor inside acceptance things we have to go through and.

I would say there is no red flags there, we're pretty excited about the tools being able to deliver to the intended specs and it's a real significant improvement from as you mentioned stuff in R&D is a bit more manual in nature and I think the level of quality of the parts. We're going to make is going to be quite high out of this new lines. So we're pretty excited about it.

Harrold Rust: You know, it's a real significant improvement from, as you mentioned, you know, stuff in R&D is a bit more manual in nature, and I think the level of quality of the parts we're gonna make is gonna be quite high out of this new line. We're pretty excited about it.

Derek Soderberg: Awesome. Thanks.

Awesome. Thanks.

Operator: Thank you. Our next question comes from the line of Gus Richard from Northland. Your question please.

Thank you. Our next question comes from the line of Gus Richard from Northland. Your question. Please.

Gus Richard: Yes, thanks for taking the question. Just real quick on the sales funnel, you've got $292 million in active designs and design wins. Can you give us a sense of how much is active and how much is design wins?

Yes, thanks for taking the question just real quick on the <unk>.

Sales funnel, you've got $292 million.

In active designs and design wins can you give us a sense of how much is <unk> and how much is design wins.

Harrold Rust: You know, I don't have the breakout right in front of me. I think, you know, there's significant amounts in both of those sections. Obviously what, you know, we're trying to do is, you know, push those down from design wins to, you know, into actual purchase orders, and that's really the focus of the company. I think, you know, over the next six months, that's probably what you should look from us is as we convert these things into, you know, firm purchase orders, we'll make some announcements around that.

I don't I don't have the breakout right in front of me I think there is there is significant amounts in both of those sections and obviously, what we're trying to do is push those down.

From design wins to.

Into the into actual purchase orders and Thats really the focus of the company and I think.

Over the next 6 months, that's probably where you should look for <unk> as we convert these things center for purchase orders, we'll make some announcements around that.

Gus Richard: Got it. That makes sense. The 292 is above the rated capacity of Fab One. Will you need Fab Two to realize that revenue or can you get that out of Fab One?

Got it that makes sense and the 292 was above the rated capacity of fab 1.

We need SaaS to realize.

Realize that revenue or can you get that it's had 1.

Harrold Rust: Well, you know, Fab One and Fab Two both grow in size over time. I mean, the nameplate capacity of Fab One when it's fully ramped, I think is 228 million, something like that. In principle, we have more demand than we can satisfy. I would expect that some of that demand in that part of the funnel, you know, will come out of Fab Two, and that's why, you know, that project is super important and we're spending a lot of resource on it as well as Fab One.

Well.

Fab, 1 and fab 2 both.

Grow in size over time, I mean, the nameplate capacity of fab 1 when its slowly ramped I think is $228 million something like that so in principle, we have more demand than we can satisfy I would expect that some of that demand.

And that part of the funnel will come out of fab, 2 and Thats why that project is super important and we're spending a lot of resource on it as well as that 1.

Gus Richard: Got it. Then just in terms of Fab Two, you know, what we're seeing is people go to more regional supply chains because of pandemics, trade wars, and natural disasters. I was wondering if you're giving any consideration to, you know, how you set up your capacity globally. Do you need, you know, Fab Two? Is it more important for you to be in Asia? Or, you know, any color on that would be helpful.

Got it and then.

Just in terms of that too.

We're seeing as people go to.

Regional supply chain because of the pandemic and trade wars and natural disasters. I was wondering if you are giving any consideration to how you set up.

Your capacity globally.

<unk>.

Fab 2 is it more important for you to be in Asia.

Our.

Any color on that would be helpful.

Harrold Rust: Yeah, I mean, it's kind of a multidimensional problem, right? I mean, there's a bunch of considerations from, you know, cost of workforce to security of your intellectual property to, you know, trade issues. You know, one of the things that we've done for Fab-1, which might also help us in Fab-2, depending where we locate, is we've built a company with a foreign-trade zone. So essentially from a kind of tariff and duty standpoint, we're, you know, we're exempt from those to the extent those products leave the US and go back. That gives us a lot of flexibility in terms of where we locate Fab-2. You know, there's a matrix of parameters we're looking at in the final selection for Fab-2.

Yes, I mean, it's kind of a multi dimensional problem right I mean, there's a bunch of considerations from.

Cost of work for us to security of your intellectual property too.

Trade issues, 1 of the things that we've done for fab, 1 which might also help us in fab 2 depending relocated as we've we've built a company with a foreign trade zone. So essentially from a kind of a tariff and duty standpoint, where we're exempt from those to the extent those products with the U S and go back and so that gives us a lot of.

Flexibility in terms of where we locate fab 2.

But.

As a matrix of parameters, we're looking at in the final selection for fab 2.

Harrold Rust: You know, it's hard to handicap those 'cause each option has got different attributes. I think, you know, we're pretty firm in picking what we think is the best choice for the shareholders.

And and.

It's hard to handicap those because each each option is got different different attributes, but I think we're pretty firm and picking what we think is the best choice for the shareholders.

Gus Richard: Got it. Last one for me on the military work you're doing with the military. Can you give a little bit more color to that? You know, is this just investigating higher capacity batteries for military applications? You know, is there an expectation that that will ultimately lead to revenue down the road?

Got it and then last 1 from me on the work you're doing with the military.

Can you.

Give a little bit more color to that.

This is just.

Investigating higher capacity batteries for military applications and is there an expectation that that will ultimately lead to revenue down the road.

Harrold Rust: Yeah. I think we're pretty excited about that program. I mean, I think we kind of view that as a new market for us outside of our initial markets. You know, soldiers themselves carry about 15lbs of batteries each. There's kind of a standard building block battery. Obviously, having a battery with higher energy density allows them to carry, probably they'll carry the same weight, but they're gonna just have more time so that, you know, so much of what they do is their sensors and everything about them is electrified, so that's super critical. You know, we actually see this being a very important market for us going forward. You know, this is more than an evaluation.

Yes, I think we're pretty excited about that program I mean, I think we kind of view that is.

A new market for us outside of our initial markets.

Soldiers themselves carry about 15 pounds of batteries, each there's kind of a standard building block battery.

Obviously, having a battery of higher energy density allows them to carry probably they'll carry the same weight, but theyre going to have more time, so that so much of what they do is they are <unk>.

Sensors in there.

Everything about them is electrified so that supercritical.

We actually see this as being a very important market for us going forward.

And this is more than an evaluation. This is really delivering cells to them that.

Harrold Rust: This is really, you know, delivering cells to them that, you know, we hope will turn into, and we expect will turn into a significant amount of revenue for the company as we get into the middle years.

We hope will turn into and we expect will turn into a significant amount of revenue for the company as we get into the middle years.

Gus Richard: Okay. Remind me, how long is that contract you signed?

Okay, and remind me how long that contract you signed.

Harrold Rust: You know, I'll be honest, I don't recall the length of the contract. You know, there's some near-term deliverables over the next year we're gonna be building cells for them to try out. One other point I'll just mention, you know, obviously, if you're a soldier in the field and you're getting shot at, you know, the robustness of the batteries is also important. You know, one of the things you probably recall is our battery is encased in stainless steel. There's some advantages from a robustness standpoint as well that is very interesting to the Army, in addition to obviously just the energy density.

I'll be honest I don't recall.

The length of the contract, but there is some near term delivers over deliver barrels over the next year, we're going to be building sells for them to try out 1 other point I'll just mentioned, obviously, if you're a soldier in the field and Youre getting shot at.

The robustness of the batteries is also important and 1 of the things you probably recall is our batteries in case in stainless steel.

And so there are some advantages from a robustness standpoint as well, it's very interesting to the army and in addition to obviously just the energy density.

Gus Richard: Great. Thanks so much for taking the questions.

Great. Thanks, so much for taking my questions.

Harrold Rust: You're welcome.

Youre welcome.

Operator: Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star then one. Our next question comes from the line of Sean Milligan from Williams Trading. Your question please.

Thank you and ask you reminder, ladies and gentlemen, if you have a question at this time. Please press Star then 1 our next question comes from the line of Sean Milligan from Williams trading your question. Please.

Sean Milligan: Hey, thanks for taking the questions this afternoon. I think in the shareholder letter, you mentioned some advancements you've made on the EV front, and I was wondering if you could expand on that in terms of maybe a discussion about the types of partners that you're working with. Are they automakers or pack and module players? And how you see that progressing over the next several years.

Hey, Thanks for taking the questions. This afternoon.

I think in the shareholder letter you mentioned some advancements you've made on the EV front and I was wondering if you could expand on that.

In terms of maybe discussion about the types of partners that you're working with are the automakers or Pac.

<unk> module players and how you see that progressing over the next several years.

Harrold Rust: Yeah. Thanks for that question. You know, I think we've got a multi-pronged approach there. We are engaged with actual auto companies as well. We're also talking with component suppliers, pack suppliers, like you said, into that space. You know, it's, you know, there's multiple ways to enter that market, and we wanna basically engage with all those. We're sampling cells into various parties along those spaces to have them evaluate our technology. We're also in parallel executing a three-year program with the Department of Energy, which revolves around essentially building our cells with the more standard EV chemistries materials that are in their batteries to demonstrate the performance with the actual, you know, material set you'd use. We're pretty bullish and optimistic about that.

Yes. Thanks for thanks for that question I think we've got a multi pronged approach there.

We are.

Engaged with <unk>.

Actual auto companies as well, we're also talking with <unk>.

Component suppliers spec suppliers like you said into that space.

There's multiple ways to enter that market.

And we want to basically engage with all of those so we're sampling cells into various parties along those spaces to have them evaluate our technology.

Also in parallel executing a 3 year program with the department of energy, which revolves around essentially building ourselves with the more standard EV chemistries materials that are in their batteries.

To demonstrate the performance for the actual materials that you use and we're pretty bullish and optimistic about that.

Harrold Rust: You know, our view is that we'll push both these efforts, you know, over the next year. Our goal is that by, you know, sometime next year, we'll announce some, you know, development agreements with specific companies in those spaces. That leads to, you know, so obviously more serious engagements, and supporting us, you know, becoming a supplier into that space by 2025.

Our view is that we'll push both these efforts over the next year.

And our goal is that by sometime next year, we will announce some development agreements with specific companies in those spaces.

And that leads to.

Obviously more serious engagements and supporting us, becoming a supplier into that space by 2025.

Sean Milligan: Okay. Great. Also, if we spend a second talking about AR/VR, you have the customer that's, you know, trying to reserve or has reserved capacity in the plant. Just curious, within the 13 billion TAM, you know, what percentage of that is AR/VR? Just based on discussions you're having with, you know, people in that space, is there upside to that figure? Like, when do we start to realize the upside to that figure over the next couple years?

Okay great.

Also please spend a second talking about VR.

You have the customer Thats trying to reserve has reserve capacity in the plant.

And just curious within the $13 billion Tam.

What percentage of that is <unk> and <unk>.

Based on discussions you're having with <unk>.

People in that space is there upside to that 8 year like when do we start to realize the upside to that figure over the next couple of years.

Harrold Rust: Yeah. I would, you know, I would say the AR space is interesting, right? It's an early stage technology now, but one that kind of the mavens in consumer electronics believe could be huge and actually, you know, essentially almost be as ubiquitous as cell phones down the road. The timing of that, I think, is not completely certain, even from those mavens. What they're doing now is essentially the groundwork to build those development products and platforms. Batteries are super challenged in that area, and a number of players have said the only battery that they see that gets them to where they need to be is ours. We're super excited to, you know, be working with people in that space.

Yes, I would say that our space is interesting right.

It's an early stage technology now, but 1 that kind of the the mavens and in consumer electronics believes could be a huge and actually.

Essentially almost be is ubiquitous the cell phones down the road.

<unk> of that I think is not completely certain even even from those mavens and so.

What theyre doing now is essentially the groundwork to build those development products and platforms.

Batteries are Super challenge in that area and a number of players as said the only battery that they see that gets them to where they need to be as ours and so we're we're super excited to.

To be working with people in that space in terms of the $13 billion.

Harrold Rust: In terms of the, you know, the $13 billion, AR/VR is probably a pretty small portion of that. My guess is probably gonna end up being a lot higher. The question is, you know, how soon before 2025 does it happen? I think, you know, that's maybe anybody's call. I would say that, you know, these customers in these spaces are making some pretty big bets and investing lots and lots of money to make that happen. It's quite possible that could pull in and be a significant portion of the market and also a significant business for us in the years ahead.

<unk> is probably a pretty small portion of that my guess is probably going into being a lot higher. The question is how soon before 2025 does that happen and I think.

That's maybe anybody's call I would say that.

These customer in these spaces are making some pretty big bets in investing lots and lots of money to make that happen and so it's quite possible that could pull in and be a significant portion of.

Of the market and also a significant business for us in the years ahead.

Sean Milligan: Great. Just one more. Earlier you answered questions about, you know, timing of equipment for Fab-2 and when that needs to be ordered. In terms of the ramp that you're projecting on the raw material side, have you signed, you know, take-or-pay agreements with suppliers of raw materials? Or how should we think about that in terms of the supply chain?

Great.

1 more earlier to answer your questions about the timing of equipment for fab 2 and.

When that needs to be ordered.

In terms of the ramp that you are projecting on the raw materials side.

Have you signed.

Takeaway agreements with suppliers of raw materials, how should we think about that.

In terms of the supply chain, yes.

Harrold Rust: Yeah. We've been pretty active executing supply agreements this year. Our general philosophy is multiple supply agreements so that we've got, you know, some redundancy of supply on our critical materials. We've been pretty successful at that. You know, these are staggered over time in terms of how much material we need. You know, we're not a huge consumer in 2021. We get to be more significant, sorry, in 2022. You know, we're a bigger consumer in 2023. I don't foresee any issues, you know, getting access to those materials over that timeframe. Certainly, you know, we'll continue to negotiate those into bigger supply agreements as Fab-2 comes online. I think we're pretty happy with that.

Yes, so we've been we've been pretty active executing supply agreements this year.

Our general philosophy is multiple supply agreement so that we've got some redundancy of supply on our critical materials and so we've been pretty successful at that.

And these are staggered over time to in terms of how much material, we need we're not a huge consumer in 2021, and we get to be more significant sorry in 2022, where we're a bigger consumer in 'twenty 3.

I don't I don't foresee any issues getting access to those materials over that timeframe.

And certainly we'll continue to negotiate those into bigger supply agreements as fab II comes online I think.

We're pretty happy with that we've picked I think kind of industry leaders and we pick materials, which are very high volume runners. So we're trying to to some extent kind of REIT hotels, what the industry is using and not try to be trailblazing in that respect.

Harrold Rust: You know, we've picked, I think, kind of industry leaders, and we've picked materials which are very high raw volume runners. We're trying to some extent, kind of ride coattails of what the industry is using and not try to be trailblazing in that respect.

Sean Milligan: Great. Thank you for taking the questions.

Great great. Thank you for taking the questions.

Sean Milligan: Great. Thank you for taking the questions.

Harrold Rust: My pleasure.

My pleasure.

Operator: Thank you. Once again, if you have a question, please press star then one. I'm not showing any further questions in the queue at this time. I'd like to hand the program back to you, Harold Rust, for any further remarks.

Thank you once again, if you have a question. Please press Star then 1.

And I'm not showing any further questions in the queue at this time I'd like to hand, the program back to Harold rest for any further remarks.

Harrold Rust: Well, thank you for everyone attending our earnings call today. We appreciate your attendance. You know, we're super excited about the company, the direction we're heading and the progress we're making. We are singularly focused on bringing up this first of a kind battery line to satisfy our customer needs. We're, you know, excited to share with you all the progress towards that end as the year progresses and create shareholder value for everyone. Thanks again for your attendance.

Well. Thank you for everyone attending our earnings call today, we appreciate your attendance.

We're super excited about the company.

The direction, we're heading and the progress we're making.

We are singularly focused on bringing up this first of a kind battery line to satisfy our customer needs and we are excited to share with you all the progress towards that and as the year progresses and create shareholder value for for everyone. So thanks again for your attendance.

Operator: Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

Yeah.

Q2 2021 Enovix Corp Earnings Call

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