Q3 2021 Enovix Corp Earnings Call

November 8, 2021

Yeah.

Operator: Good day, and thank you for standing by, and welcome to Enovix Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. As a reminder, this conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Charles Anderson, Vice President of Investor Relations. Please go ahead.

Good day, and thank you for standing by and welcome to email third quarter 2021.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

Ask a question during the session you will need to press star one on your telephone.

A reminder, this conference is being recorded.

Any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Charles Anderson, Vice President of Investor Relations. Please go ahead.

Charles Anderson: Thank you. Hello, everyone, and welcome to Enovix Corporation's Q3 2021 results conference call. With us today are President, Chief Executive Officer, and Co-founder, Harrold Rust, and Chief Financial Officer, Steffen Pietzke. Harrold and Steffen 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 you 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 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 third quarter 2021 results conference call with US today are president and Chief Executive Officer, and co founder Harold Ross.

And Chief Financial Officer, Stefan beat Scott.

Harold and Stefan will review, the operating and financial highlights and then we will take questions. After the Q&A session and we'll conclude the call before we continue let me kindly remind you that we released our shareholder letter after the market close today. It is available on our website at IR <unk> 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. 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 and nobody can give no assurance that these statements will prove to be correct and we do not intend and undertake.

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 Harrold to begin. Harrold?

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.

Our filings with the Securities and Exchange Commission I will now turn the call over to Harold to begin Harold.

Harrold Rust: Thanks, Charlie. Good afternoon, everyone. In our first conference call as a public company in August, we reported solid progress and laid out a detailed strategic plan to commercialize our novel battery cell architecture. Today, we are reporting meaningful progress in our Q1 as a publicly traded company. Our highest priority near-term milestones include shipping production quality customer qualification samples by the end of 2021 and generating first revenue from Fab 1 in Q2 of 2022. After today's market close, we published our Q3 shareholder letter, which summarizes our milestone progress and financial results. I will briefly discuss key highlights and then turn the call over to Stefan for a recap of our financials. First, and most importantly, Fab 1 in Fremont is equipped, and in September, we produced the first batteries from our first automated production line.

Thanks, Charlie good afternoon, everyone.

And our first conference call as a public company in August we reported solid progress and laid out a detailed strategic plan to commercialize our novel battery cell architecture. Today, we are reporting meaningful progress in our first quarter as a publicly traded company.

Our highest priority near term milestones include shipping production quality customer qualification samples by the end of 2021 and generating first revenue from <unk> in the second quarter of 2022.

After today's market close we published our third quarter shareholder letter, which summarizes our milestone progress and financial results.

I will briefly discuss key highlights and then turn the call over to Stephane for a recap of our financials.

First and most importantly fab one in Fremont is equipped and in September we produced our first batteries from our first automated production line. This.

Harrold Rust: This accomplishment marks a major milestone in the 14-year journey of Enovix, and highlights the resilience and innovation that are at the core of who we are as a company. Many in our team have worked together most of their careers and started Enovix with a dream to reinvent the basic way a battery is made, and in doing so, usher in a new level of cell performance. Early on, we realized the importance of developing not only our unique architecture, but also a manufacturing method that could be scaled to high volume. This differentiates us as an advanced battery company and is enabling us to commercialize our technology sooner than others. Producing our first battery from the automated line also marks the completion of a set of goals over the last few years we named the Big Three.

This accomplishment marks a major milestone in the 14 year journey of Endo and.

And highlights the resilience and innovation that are at the core of who we are as a company.

Many of our team have worked together most of their careers and started in <unk> with a dream to reinvent to basically a battery is made.

And in doing so usher in a new level of self performance.

Early on we realized the importance of developing not only our unique architecture, but also our manufacturing method that can be scaled to high volume.

This differentiates us as an advanced battery company and is enabling us to commercialize our technology sooner than others.

Producing our first battery from the automated line also marks the completion of a set of goals over the last few years, we named the big three.

Harrold Rust: The other goals were meeting all customer requirements for our first product and receiving our first purchase order for our cells. We celebrated the completion of the Big Three in September and paid out a company-wide performance-based bonus for this great achievement. With production line 1 well into its qualification phase, we are confident that we will start commercial production in early 2022. Equally important, we began installing a second production line at Fab 1. This is critical to our growth plan for 2023 and beyond. This line will initially focus on larger cells and production qualification samples to support programs in the mobile communications and laptop markets. On that note, we recently kicked off a new cell design for a market leader in mobile communications.

The other goals, we're meeting all customer requirements for our first product and receiving our first purchase order for ourselves.

We celebrated the completion of the big three in September and paid out a company wide performance based bonus for this great achievement.

With production line, one well into its qualification phase we are confident that we will start commercial production in early 2022.

Equally important we began installing a second production line at sub one this is critical to our growth plan for 2023 and beyond.

This line will initially focus on larger cells and manual production qualification samples to support programs in the mobile communications and laptop markets.

On that note, we recently kicked off a new cell design for a market leader in mobile communications the unique characteristics of our batteries will enable our customers to bring to market new form factors and functionalities.

Harrold Rust: The unique characteristics of our batteries will enable our customers to bring to market new form factors and functionalities previously unavailable due to the limitations of conventional cells. Another accomplishment in Q3 was the development of a new cell design for the augmented reality market. This market requires a high energy density in a very small form factor. We believe Enovix technology is well suited to serve this emerging market. During the quarter, we also shipped a unique pack design featuring multiple wearable class Enovix batteries to a strategic customer. We are targeting wearables, computing, and mobile communications as our initial applications where we can deliver meaningful value through high energy densities. These markets have attractive pricing because our batteries are a small fraction of the bill of materials of these products. The mobile electronic markets also feature shorter design and qualification cycles than electric vehicles.

Previously unavailable due to the limitations of conventional cells.

Another accomplishment in Q3 was the development of a new cell design for the augmented reality market. This market requires a high energy density and a very small form factor.

We believe <unk> technology is well suited to serve this emerging market.

During the quarter. We also shipped a unique pack designed featuring multiple wearable class <unk> batteries to a strategic customer.

We are targeting Wearables computing and mobile communications as our initial applications, where we can deliver meaningful value through high energy densities.

These markets have attractive pricing because our batteries are a small fraction of the bill of materials of these products.

The mobile electronics markets also feature shorter designing qualify shape qualification cycles.

Electric vehicles.

Harrold Rust: Customer demand within our initial target markets continues to be very high. At the end of Q3, the potential annual revenue of all programs, either in the active design or design win phase, reached $355 million. As a reminder, these are 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. In addition, our revenue funnel also includes $914 million of engaged opportunities, defined as the potential annual value of projects where the customer has decided our battery is a match for their product and is evaluating our technology. In total, the revenue funnel reached $1.27 billion at the end of the quarter.

Customer demand within our initial target markets continues to be very high.

At the end of Q3, the potential annual revenue of all programs either in the active design or design win phase reached $355 million.

As a reminder, these are programs that are through technology evaluation and design work has begun.

In the case of design wins, the customers funding Accustom battery design or qualifying one of our standard batteries for a formerly approved product in.

In addition, our revenue funnel also includes $914 million of engaged opportunities defined as a potential annual value of projects, where the customer has decided our batteries a match for their product and is evaluating our technology.

In total the revenue funnel reached 1.2 dollars 7 billion at the end of the quarter.

Harrold Rust: The speed by which we convert this funnel will be dictated by our ability to design, qualify, and ramp custom cells for multiple customers across our first two factories. As we prepare for commercial production in the next few months, we are scaling all aspects of operations, including talent. With the money raised from our business combination and PIPE, our financial position is strong, and we are well-positioned to add capacity and scale up operations. We are on track to generate first commercial revenue in 2022, the next step in our long-term financial plan to achieve over $1 billion of annualized revenue exiting 2025. Let me now turn the call over to Steffen, our CFO, who will discuss our financial results. Steffen?

The speed by which we convert this funnel will be dictated by our ability to design qualify and ramp custom cells for multiple customers across our first two factories.

As we prepare for commercial production in the next few months, we are scaling all aspects of operations, including talent.

With the money raised from our business combination and pipe our financial position is strong and we are well positioned to add capacity and scale up operations.

We are on track to generate first commercial revenue in 2022. The next step in our long term financial plan to achieve over $1 billion of annualized revenue exiting 2025.

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

Okay.

Steffen Pietzke: Thank you, Harold. Our detailed financials can be found in the shareholder letter, so I will spend my time covering a few high-level topics. Our business combination with Rodgers Silicon Valley Acquisition Corp. closed early in the quarter, and we ended our Q3 with a strong balance sheet, including cash of $339 million. We continue to believe this will allow us to fund the scale up of two advanced lithium-ion battery production facilities. Turning to the Q3 results, we did not recognize product revenue in the quarter consistent with our expectations. We continue to expect that we will begin recognizing product revenue from the sale of our batteries in Q2 2022. Our operating expenses in Q3 were $19.2 million.

Thank you Harold.

Our detailed financials can be found in the shareholder letter so I'll spend my time, covering a few high level topics.

Our business combination with Roger Silicon Valley acquisition call.

Early in the quarter and we ended our third quarter with a strong balance sheet, including cash of $339 million.

We continue to believe this will allow us to fund the Scaleup of two advanced lithium ion battery production facilities.

Turning to the third quarter results, we did not recognize product revenue in the quarter consistent with our expectations.

We continue to expect that we will begin recognizing product revenue from the sale of our batteries in the second quarter of 2022.

Our operating expenses in the third quarter were $19 2 million.

Steffen Pietzke: Excluding stock-based comp, our non-GAAP operating expenses in the quarter were $16.2 million, up from non-GAAP operating expenses of $12.1 million in Q2 2021, which also excludes stock-based comp. The sequential increase was primarily driven by our continued effort to scale up the business for manufacturing and commercialization to meet demand from our customers. We also recently instituted a company-wide performance-based bonus program, as Harold alluded to earlier. Through the end of Q3, we have used $66 million of free cash flow, $31.5 million of which was used for capital expenditures. For full year 2021, we continue to expect to use between $110 million and $120 million of free cash flow, of which roughly 50% will be CapEx.

Excluding stock based comp our non-GAAP operating expenses in the quarter were $16 2 million.

Up from non-GAAP operating expenses of $12 1 million in the second quarter of 2021.

Which also excludes stock based comp.

The sequential increase was primarily driven by our continued effort to scale up the business for manufacturing and commercialization to meet demand from our customers.

We also recently instituted a company wide performance based bonus program as Harold alluded to earlier.

Through the end of the third quarter, we have used $66 million.

Free cash flow.

31, 5 million of which was used for capital expenditures.

For full year 2021, we continue to expect to use between $110 million and $120 million of free cash flow.

Of which roughly 50% will be capex.

Steffen Pietzke: To summarize, we are heading to the final stretch of 2021 with a strong balance sheet, tremendous demand for our product, and an experienced team. We remain focused on executing our plan, which we believe will drive shareholder value. I will now turn it back to Harrold for closing remarks. Harrold?

To summarize.

We are heading to the final stretch of 2021 with a strong balance sheet tremendous demand for our product and an experienced team.

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

I will now turn it back to Howard for closing remarks.

Harrold Rust: Thanks, Steffen. To recap, we made considerable progress in Q3 of 2021, notably producing our first batteries from our automated production line at Fab One. We also started installing a second line to support customer qualification work on multiple large cell projects targeted for 2023. Our task now, as we close out the year, is to complete the validation of our line and deliver production qualification samples that will lead to deliveries and product revenue next year. I want to thank our entire team for their hard work towards our vision of manufacturing the world's highest energy density battery. While it has taken over a decade and hundreds of millions of dollars of investment to develop our technology and manufacturing processes, I believe we are just getting started in our mission for a better world through innovation and energy storage.

Thanks, Stefan to recap, we made considerable progress in the third quarter of 2021.

Notably producing our first batteries from our automated production line at Fab one.

We also started installing a second line to support customer qualification work on multiple large scale projects targeted for 2023.

Our task now as we close out the year is to complete the validation of our line and deliver production qualification samples that will lead to deliveries and product revenue next year.

I want to thank our entire team for their hard work towards our vision of manufacturing the world's highest energy density battery.

While it has taken over a decade and hundreds of millions of dollars of investment to develop our technology and manufacturing processes.

I believe we are just getting started and our mission for a better world through innovation and energy storage.

Harrold Rust: I would also like to welcome Pegah Ebrahimi to our board of directors, which we announced today. Pegah is a seasoned technology leader, having served in key leadership positions at both Morgan Stanley and Cisco Systems. Her experience helping technology companies scale will be extremely valued to us as we enter the next phase of our growth. To our shareholders, we appreciate your support, and we are dedicated to delivering shareholder value. With that, we are ready to take your questions. Operator?

I would also like to welcome.

<unk>.

Ebrahimi to our board of directors, which we announced today <unk> is a seasoned technology leader having served in key leadership positions at both Morgan Stanley and Cisco systems.

Her experience, helping technology company scale will be extremely value to us as we enter the next phase of our growth.

To our shareholders. We appreciate your support and we are dedicated to delivering shareholder value with that we are ready to take your questions operator.

Operator: Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Derek Soderberg with Colliers Securities. Your line is open.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from Derek Soderberg with Calia Securities. Your line is open.

Derek Soderberg: Hi, guys. Thanks for taking my questions and congrats on continuing to execute against the strategy. Harrold, now that you're starting to see more batteries come off the first production line at Fab One, curious how throughput and yield are tracking against your internal expectations. You guys have sort of been talking about 45 million battery cells annually from Fab One. Just looking at sort of that first line that's installed, do you feel like you're on track to hit that level of throughput for Fab One? Just generally, how are you feeling about the performance of the equipment installed?

Hi, guys. Thanks for taking my questions and congrats on continuing to execute against the strategy.

So Harold now that Youre, starting to see more batteries come off first production line in fab, one curious how throughput and yield are tracking against your internal expectations. You guys have sort of been talking about 45 battery cells annually from fab. One just looking at sort of that first line that's installed or do you feel like you're on track.

Hit that level throughput for fab, one and then just generally how are you feeling about that.

The performance of the.

The equipment installed.

Harrold Rust: Yeah. Thanks, Derek, for the question. I think overall, we're pleased with where we are. You know, it's still early up in terms of the bring up of the line. The focus right now is really on running the qualification experiments to make sure the line is really well characterized, and ready to deliver the qual samples by the end of this year. You know, that said, I think our progress is encouraging, and it's in line with our expectations. I think, you know, we're on the plan that we set out, and we feel pretty good about that.

Yes. Thanks for the question I think overall, we're pleased with where we are it's.

Still early up in terms of the bring up a line of focus.

Right now is really on running the qualification experiments to make sure. The line is really well characterized.

And ready to deliver the qual samples by the end of this year.

That said I think our progress is encouraging.

And that's in line with our expectations. So I think we're on the plan that we set out and we feel pretty good about that.

Derek Soderberg: Got it. Sort of related to that, in the shareholder letter, you guys were talking about investing in the next generation of manufacturing equipment. I was wondering if you could share some more detail on that. It sounds like you guys are finding ways to optimize the production process. I guess I'm wondering, you know, is the next generation a pretty substantial change from the equipment installed in Fab One today? You know, where is that new equipment gonna be installed? Just any color on the next generation would be great.

Got it and then.

Then sort of related to that in the shareholder letter you guys were talking about investing in the next generation of manufacturing equipment. I was wondering if you could share some more detail on that it sounds like you guys are finding ways to optimize the.

Production process.

But I guess I'm wondering is the next generation of pretty substantial change from the equipment installed in fab one today.

Where is that new equipment can be installed.

Just any color on the next generation will be great.

Harrold Rust: Yeah, sure. I think I would view, you know, first line is in the building. We're starting to run it now. As you'd expect, there's a lot of learning, right? This was. We went from our pilot line that was relatively manual to a fully automated line. As we made that learning, we've been making improvements even on the first line that's here, and we wanna basically take that learning and, you know, move it into subsequent lines. I would view it as probably more incremental in nature than, you know, it's still gonna look like a similar line, but it'll be better. It'll have better performance metrics. You know, over the next year or so, you know, we'll be adding capacity both here in Fremont, but also ordering lines for our second facility, Fab Two.

Yeah sure I think I would view first line is in the building we're starting to run it to now as you'd expect there's a lot of learning right. This was we went from a pilot line that was relatively manual to a fully automated line and so as we made that learning we've been making improvements even on the first line that's here.

And we want to basically take that learning and moving into subsequent lines. So I would view it as probably more incremental in nature than it's still going to look like a similar line, but it'll be better it will have better performance metrics.

<unk>.

Over the next year or so we'll be adding capacity both here in Fremont, but also ordering lines for our second facility fab two.

Harrold Rust: Both of those would have a manufacturing line that's improved upon what we have right now in the building.

Both of those would have a manufacturer online thats improved upon what we have right now in the building.

Derek Soderberg: Got it. Thank you.

Got it thank you.

Operator: Thank you. Our next question comes from Gus Richard with Northland. Your line is now open.

Thank you. Our next question comes from Gus Richard with Northland. Your line is now open.

Gus Richard: Yes, thanks for taking my question. I'm just curious, when you look at your pipeline, can you give us a sense as to, you know, how much of it's coming from, you know, mobile, compute and, you know, what they're calling metaverse these days?

Yes, thanks for taking my question.

I'm just curious when you look at your pipeline can you give us a sense as to.

How much was coming from mobile compute and what Theyre, calling meta versus these days.

Harrold Rust: Yeah, I would say, you know.

I would say.

Yeah, Hey, Wearables I would say, it's pretty broad across the whole spectrum of <unk>.

Gus Richard: Wearables, sorry.

Harrold Rust: Yeah, in wearables. I would say, Gus, it's pretty broad across the whole spectrum of product segments and market segments. I mean, that's one thing that I think has been pretty encouraging to us, given that was kind of our strategy from the get-go. You know, I wouldn't handicap maybe one versus the other. I do think, you know, some of these markets, like the AR market, is still kind of in its early stages. We think it's gonna be a very significant market for us, and we're well positioned. But at this stage, it's still in its formation changes. Some of the more kind of classical wearables and, you know, some of the mobile communication stuff are still the big markets today.

Product segments and market segments, I mean, thats, one thing that I think it's been pretty encouraging to us given that was kind of our strategy from the get go.

I wouldn't I wouldn't handicap, maybe one versus the other I do think some of these markets like the air market is still kind of in its early stages. We think it's going to be very significant market for us and we're well positioned.

But at this stage of Solas formation changes. So some of them are kind of classical wearables and <unk>.

Some of the mobile communication stuff are still the big.

<unk> markets today, but I think that that will change over time and I think we're doing all the groundwork to be prepared with customers to capitalize on all of those markets as they develop.

Harrold Rust: I think that will change over time, and I think we're doing all the groundwork to be prepared with customers to capitalize on all those markets as they develop.

Gus Richard: Got it. I've been talking to other battery manufacturers, and I'm just curious, in your perspective, I know you're doing some custom, you know, cell designs and packs for some of your customers. I'm just wondering, you know, when you think of the value you bring to the customers, you know, how much of it is in the energy density and how much is in the customization?

Got it and then.

We've been talking to other battery manufacturers and I'm just curious in your perspective, I know you're doing some custom.

Cell designs impacts for some of your customers.

And I'm just wondering.

When do you think of the value you bring to the customers.

Much of it is in the energy density and how much is in the customization.

Harrold Rust: You know, I think it depends. I think, you know, there's plenty of cases where even kind of standard designs we make really have a significant value to that customer. I think we realize that in terms of, you know, how we can price the product. It's not necessarily that, you know, custom things are more valuable. It just depends on the application. I think you'll see us having products out there of both kind of standard things and also custom stuff. I believe both of those could have pretty high value for our customers.

Yeah.

I think it depends I think.

There is plenty of cases, where even kind of standard designs. We may really have a significant value to that customer and so I think we'll realize that in terms of how we can price the product. So it's not necessarily that custom.

Some things are more valuable it just depends on the application and I think youll see youll see us having products out there of both kind of standard. Thanks, and also customer stuff and then I believe both of those could have pretty high value for our customers.

Gus Richard: Okay, the last one for me, just in the competitive landscape, you know, are you seeing anybody else, you know, with the silicon anode pop up in terms of, you know, just anything even in the ballpark of what you guys are doing?

Okay and then the last one for me just from the competitive landscape.

Are you seeing anybody else.

The silicon anode pop up in terms of.

If anything even in the ballpark of what you guys are doing.

Harrold Rust: I'd say yes and no, I think, to that question. I mean, there are definitely companies today that are starting to commercialize kinda low levels of silicon in the conventional graphite anode. We think that's great. Obviously, we're big fans of silicon, and we think it kind of validates kind of the mission we've been on for quite a while. I think that the differentiator is that if you look at what others are doing, most people are putting in small amounts of silicon mixed in with the graphite, whereas we're at 100% active silicon, and that really drives kind of the step change we can achieve in performance and energy density.

I would say, yes, and no I think to that question I mean, there are definitely companies today that are starting to commercialize.

Low levels of silicon in a conventional graphite anode.

We think that's great. Obviously, we're big fans of Silicon and we think it kind of validates kind of the mission we've been on for quite a while I think the differentiator is that if you look at if you look at what others are doing most people are putting in small amounts of silver again mixed in with the graphite, whereas where we are at 100% active silicon and that really drives kind of the <unk>.

Step change, we can achieve in performance and energy density.

Harrold Rust: you know, quite honestly, if you're only using a small fraction of silicon in your battery, you're really not harnessing silicon's full potential. We think it's actually great, and I think it just kind of validates the mission we're on, and we like where we stand in the silicon space.

And quite honestly, if youre only using a small fraction of silicon in Nevada, Youre really not harnessing silicon. This full potential. So we think it's actually great and they think it just kind of validate submission are on and we like we like where we stand in the silicon space.

Gus Richard: Got it. Okay, I'll pass it on. Thanks so much.

Got it Okay I'll pass it on thanks, so much.

Harrold Rust: Thank you.

Yeah.

Operator: Our next question comes from Colin Rusch. Your line is open. From Oppenheimer.

Our next question comes from Cowen Your line is open.

Okay.

Colin Rusch: Thanks so much, guys. You know, in this active designs and design wins bucket, can you give us a sense of how that breaks out and how many customers are in that, both on the active design and full design wins?

Thanks, so much guys.

Yes.

Active designs and design wins bucket can you give us a sense of how that breaks out how many customers are in that.

Both on the actual design and full timelines.

Harrold Rust: You know, Colin, we actually we've kind of shied away from kind of talking about specific customers in each of the parts of the funnel. Rather, we just look at kind of the funnel at large. You know, we had, I think, good improvement in terms of the funnel moving from, you know, if you look at the lower part, where we've got the active designs and design wins, we moved, you know, a decent amount of revenue into that category as well as expanding the overall funnel. For us, that's kind of the primary metric. I mean, as we talked about earlier, you know, we've got a pretty broad set of customers across all these market segments.

Colin we actually we have we've kind of shied away from kind of talking about specific customers in each of inertia of the parts of the funnel rather rather we just look at kind of the.

The funnel at large and we had I think.

We had good improvement in terms of the funnel moving from if you look at the lower part where you've got the active designs of design wins, we moved.

Some amount of revenue into that category as well as expanding overall funnel. So for us that's kind of the primary metric I mean, as we've talked about earlier, we've got a pretty broad set of customers across all of these market segments.

Harrold Rust: We are adding some new ones, but I think more importantly, is the overall size of the funnel increasing to support our growth plans.

And we are adding some new ones, but I think more importantly is the overall size of the final increasing to support our growth plans.

Colin Rusch: Excellent. In terms of the increments of capacity, you know, you guys have been, you know, looking at this for a little bit of time. As you have gotten deeper into that process of evaluating locations, can you give us a sense of, you know, how far down the road you are in terms of diligence on those potential facilities and, you know, how many options you may have that you're looking at right now?

Excellent.

And then in terms of the increments of capacity.

You guys have been.

Looking at this for a little bit of time, but as you got deeper into that process of evaluating locations can you give us a sense of.

How far down the road you are in terms of diligence on those those potential facilities.

How many options you may have.

Looking at right now.

Harrold Rust: Yeah, sure. Just maybe for everyone as a reminder, Fab Two is our second planned production facility. It's larger in terms of output and revenue than the current fab, Fab One, and it's key to reaching our billion-dollar revenue run rate by 2025. We're currently in, I would say, very active negotiations on several attractive options. This is a big focus of the company and me personally. You know, from a timing standpoint, you know, what I can say is that, you know, our plan contemplates that we've got first revenue from Fab Two by Q2 2023.

Yes, sure. So just maybe for everyone as a reminder.

<unk> is our second plant production facility.

It's larger in terms of output and revenue than the current fab fab, one and it's key to reaching our $1 billion revenue run rate by 2025.

We're currently in I would say very active negotiations on several attractive options.

This is a big focus of the company and me personally.

From a timing standpoint.

What I can say is that.

Our plan contemplates that we got first revenue from fab two by the second quarter of 2023.

Harrold Rust: If you just look at lead times of equipment being what they are, you know, that means we need to be likely ordering equipment by early next year, and that gives you kind of some sense for when we have to kind of make a finalization. I think we're on track to do that, and I think the options before us, you know, will hit the mark in terms of our ability to fund our capacity growth and hit our targets.

And if you just look at lead times of equipment being what they are.

That means we need to be likely ordering equipment by early next year and that gives you kind of some sensor and we have to kind of make a finalization and I think I think we're on track to do that.

And I think the options before us.

<unk> will hit the Mark in terms of our ability to to fund our capacity growth and hit our targets.

Colin Rusch: Okay, that's super helpful. Then just in terms of the qualification process, it's great to see you sending out samples already. You know, as you're qualifying these tools and looking at going from them operating to operating at the speed that you need them to, I guess, can you talk about any sort of surprises that you're seeing in that process? Or are you progressing according to plan? Are you ahead of plan with that qualification and the throughput on balancing the factory?

Okay. That's super helpful. And then just in terms of the qualification process that's.

It's great to see you.

Alrighty.

Youre qualified these tools I'm looking at.

Going from <unk>.

Operating to operating at the speed that you can use them to I guess can you talk about any sort of surprises.

Are you seeing in that process or are you progressing.

Crescent According to plan or ahead of plan with the qualification and the throughput on balance in the factory.

Harrold Rust: Yeah, I would say no surprises. I mean, our expectation is there'd be about 100 things we have to learn, you know, little things that don't work quite as you want or you have to tweak or, and then that's been kind of the story. We've actually tried to push the line pretty hard now and, you know, and really flush out all those issues and get them taken care of now, while we're doing kind of the qualification work ahead of when the factory needs to start kind of ramping to be a full volume factory as we go through all the next year, right? So I think my expectation is exactly what's been happening. We didn't think it was gonna be easy. You know, we kind of planned on that. There's just no shortcuts.

Yes, I would say no surprises I mean, our expectation that there'll be about 100 things we have to learn a little things that don't work quite as you want or you have to tweak or.

That's been kind of kind of the story, we've actually tried to push to align pretty hard now.

And really flush out all those issues and get them taken care of now.

While we're doing kind of a qualification work ahead of when the factory needs to start kind of ramping to be a full volume factory as we go through all of next year right. So I think my expectation is it's exactly what's been happening we didn't think it was going to be easy.

We kind of planned on that there's just there's no shortcuts, we're actually doing the hard work to test the equipment and run all the experiments to make sure that you've got a really solid process that you can build a good product for your customers and I would say that's exactly what we're what we're seeing today.

Harrold Rust: We're actually doing the hard work to test the equipment and run all the experiments to make sure that, you know, you've got a really solid process that you can build good product for your customers. I would say that's exactly what we're seeing today.

Colin Rusch: Excellent. Thanks so much, guys.

Excellent. Thanks, a lot guys.

Operator: Thank you. Our next question comes from Gabe Daoud with Cowen. Your line is now open.

Thank you and our next question comes from Gabe Daoud with Cowen. Your line is now open.

Gabe Daoud: Hey, good afternoon, everyone. Thanks for taking my questions. Harrold, maybe just curious, in the shareholder letter under the market expansion section, you mentioned continued progress on the electric vehicle program and evaluating the use of materials with your architecture. Could you maybe just give us a little more color on that and what you're seeing and just where you are currently with the technology and scaling that for EV applications?

Hey, good afternoon, everyone. Thanks for taking my questions.

Maybe I was just curious in the shareholder letter on the market expansion section you mentioned continued progress on it.

Electric vehicle program evaluating evaluating the use of <unk>.

Materials with the architecture could you maybe just give us a little more color on that and where you are what youre seeing and just where you are currently with the technology and scaling that for EV applications.

Harrold Rust: Sure. Yeah. We've got a couple of things going on there. You know, one, we mentioned the letter. We're in the middle of a three-year program funded by the Department of Energy, where we're essentially building cells of our architecture with the material sets that you'd find in electric vehicles, which tend to be different than consumer devices. That activity is going on well, and, you know, I think the results there will speak for themselves when we publish them. So that's one, the one angle. The other is that we've been pretty active in terms of sampling our cells to players within the EV space so they can get, you know, comfortable with our technology and validate its performance. I think that's had good traction.

Sure Yeah. So we've got a couple of things going on there.

One we mentioned in the letter we've been we're in the middle of.

Three year program funded by the Department of Energy, where we're essentially building sales of our architecture with the material sets that you'd find in electric vehicles, which tend to be different than consumer devices.

That activity is going on well.

And.

I think the results there will speak for themselves when we publish them.

So thats the one angle. The other is that we've been pretty active in terms of sampling ourselves two players within the <unk> space. So they can get comfortable with our technology and validated performance I think that's had good traction.

Harrold Rust: The third, we've started really strongly looking for some talent, both from a business standpoint, also from a technology standpoint, to really be at the foundation of the organization and the company that's gonna drive that. That's a big focus right now. As we, you know, have mentioned in the past, our goal is to push these engagements forward and the workforce such that we need to be positioned, you know, over the next several years to have a significant EV program that, you know, in the 2025 frame starts generating some incremental revenue on top of the plan.

And then third we've started really.

Strongly looking for some talent both from a business standpoint, and also from technology standpoint to really be at the foundation of the organization of the company that's going to drive that.

And so that's the big focus right now is we have.

I have mentioned in the past our goal is to push these engagements forward and it worked for us such that we A&P position.

Over the next several years to have a have a significant EV program that.

In the 2025 frames starts generating some some incremental revenue on top of the plan.

Gabe Daoud: Got it. Thanks, Harold. That's helpful. Then, maybe as a follow-up, just back to Fab Two and as you get closer to maybe nailing down location, could you just talk about what your initial expectations were in terms of initial size? I know Fab One is 45,000 cells annually, but what was your initial thoughts around capacity coming out of Fab Two? Then just given quicker qualification times for consumer electronics and wearables, et cetera, is there potential to accelerate and even increase potentially the size of Fab Two versus initial expectations just given strong demand that you're seeing?

Got it. Thanks, that's helpful. And then maybe as a follow up just back to fab two and as you get closer to may be nailing down location could you just talk about what your initial expectations were in terms of initial size I know that 1% to 45.

Sales annually, but what was your initial thoughts around capacity coming out of it.

That too and then just giving quicker qualification times for consumer electronics, and Wearables et cetera is there is there a potential to accelerate and even increase essentially the size of that too versus initial expectations, just given the strong demand that you're seeing.

Harrold Rust: Yeah, I mean, you know, what we planned on for Fab Two is that roughly it can make 89 million cells when fully fit out and ramped. That's about twice the capacity we're envisioning here in Fab One in Fremont. Fab Two likely will be targeted for larger cells disproportionately compared to here. If you look at the absolute, you know, revenue of Fab Two, it's more than twice the revenue of Fab One. I can't remember the exact number. Certainly, you know, we're very cognizant looking at the demand funnel about how we can have the capacity to grow the company quickly. That is a key factor when we look at, you know, what the alternatives are for Fab Two, right?

Yes.

What we what we planned on for Fab two is it roughly it can make 89 million cells when fully fit out and ramp that's about twice the capacity. We're envisioning here in fab one in Fremont.

Fab two likely will be targeted for.

Large yourselves disproportionally compared to here and so if you look at the absolute revenue of fab two it's it's more than twice the revenue fab one I cant remember exact number.

Certainly we're very cognizant looking at the demand funnel about how we can.

We have the capacity to grow the company quickly.

And that is a key factor when you look at what the alternatives are for fab two right. We wanted to be prepared to grow the company as quickly as possible and we that's one of a bunch of other factors that go into that decision process.

Harrold Rust: We wanna be prepared to grow the company as quickly as possible, and that's one of a bunch of other factors that go into that decision process.

Yeah.

Gabe Daoud: Got it. Thanks, Harrold. Just one last one. You know, Friday, the bipartisan infrastructure bill was passed and should be signed shortly. Could you maybe just talk about, you know, visibility to maybe continue with some grants for cell manufacturing here in the US?

Got it got it. Thanks, Thanks, Charles just one last one.

Friday.

Bipartisan infrastructure Bill.

Past and should be signed shortly.

Maybe just talk about this.

<unk> ability to maybe continue with some some grants for cell manufacturing here in the U S.

Harrold Rust: Yeah, you know, our view, if you look at kind of what the current administration is trying to do is, you know, foster manufacturing in the US and batteries is obviously one of the areas they've mentioned as being a key technology we wanna keep in the country. We think we're, you know, poster child for some of these initiatives, and we are in contact working with governmental agencies to look at those opportunities. Obviously we'd love to take advantage of those. It's a benefit to our shareholders. There's an active program going on there.

Yes R.

<unk>, if you look at kind of what.

The current administration is trying to do is.

Foster manufacturing in the U S. In batteries is obviously is one of the areas I mentioned as being a key technology, we want to keep in our country. We think we're <unk>.

Poster child for some of these initiatives and we are in we are in contact working with governmental agencies to look at those opportunities and obviously, we would love to take advantage of those it's a benefit to our shareholders. So there is an active program going on there.

Gabe Daoud: Great. Thanks, Harrold.

Great. Thanks Harold.

Operator: Thank you. As a reminder, that's star one to ask a question. Our next question comes from Sean Milligan with Williams Trading. Your line is open.

Thank you as a reminder, that star one to ask a question.

Next question comes from Sean Milligan with Williams trading your line is open.

Yeah.

Sean Milligan: Hi, guys. Thanks for taking my question.

Hi, guys. Thanks for taking my question.

Sean Milligan: When you look at the design wins and potential awards coming, can you talk a little bit about whether that's from new potential customers or you're expanding, you know, the opportunity set with existing customers that you have now, or existing customers in the pipeline?

When you when you look at the design wins and potential awards coming can you talk a little bit about whether that's from new potential customers or you're expanding the.

The opportunity set with existing customers that you have or existing.

Customers in the pipeline.

I think it's a combination of all of those things Shawn I think.

Harrold Rust: I think it's a combination of all those things, Sean. I think certainly we've seen cases where we're in discussions with customers now about additional products that we might not have been talking about before, which is obviously encouraging. That's kind of an additional validation point. We're also, you know, actively working with new customers going into the funnel as well, right? It's a combination of both. I think if you think about us as a company, there's literally no one that won't talk to us about our batteries because we have such a distinguished product, and that's resulted in the funnel growing kind of in all dimensions, I would say.

Certainly we've seen cases, where we're in discussions with customers now about additional products that we might not have been talking about before which is obviously encouraging that as kind of an additional validation point, but we're also we're also actively working with new customers going into the funnel as well right. So it's a combination of both.

If you think about us as a company.

There is literally no one that won't talk to us about our batteries because we have such a distinguished product and that's resulted in the funnel growing kind of in and various and all in all dimensions I would say.

Sean Milligan: Okay, great. We've seen, I guess, especially on the EV side, a move to more kind of localized battery production. Just curious what you're seeing from your customer base on the, you know, consumer technology side, if you're also seeing that want to move to more localized production.

Okay, great and we've seen.

I guess, especially on the EV side and move to a more localized battery production and just curious what you're seeing from your customer base on the <unk>.

The technology side, if youre also seeing that want to move to more localized production.

Harrold Rust: I think it's very customer dependent, you know, in the markets they serve. You know, we announced I think in the last quarter a program we're working that ends up with the department with the US Army, and certainly in that market in particular, there's a desire to have domestic manufacturing of those cells. That's something that certainly having this first fab in Fremont is something that we can exploit. There's other customers that have, you know, similar desires. We'll definitely try to capitalize those things and serve those markets out of the US to the extent we can.

I think it's very customer dependent and the markets they serve.

We announced I think in the last quarter our program are working.

That ends up with a department with a U S Army and certainly in that market in particular, there is a desire to have.

Domestic manufacturing of those cells and.

And so that's something that certainly having a this first fab in Fremont is something that we can exploit.

And there's other customers that have similar desires and so we would definitely try to capitalize those things and serve those markets out of the U S to the extent we can.

Sean Milligan: Great. One last question and kind of more of a, I guess, a clarification type of question. When you show the revenue funnel and the active design wins, and you show the $355 million for design wins, that's a potential run rate revenue case for those design wins. Is that correct?

Great.

One last question kind of more of a I guess, a clarification question, but when you show the revenue funnel.

Active design design win share.

The $355 million for design wins.

Potential run rate revenue case for those design wins.

Harrold Rust: Yes. It's an annualized revenue off of those opportunities.

And so if an annualized revenue of after those opportunities.

Sean Milligan: Okay. Is there a way to think about, I haven't seen you put this out there, but relative to the revenue forecast when you came public via the SPAC, you know what years that 355 would kind of slot into?

Okay and is there a way to think about.

I haven't seen you put this out there but relative to the revenue forecast when you can.

Came public via the snack.

What years that 55 would kind of slotting team.

Harrold Rust: Yeah. I think if you look at it, you know, the $355 million gives us opportunity to carry us for a couple of years at least, probably.

Yes, I think if you look at the $3 55.

Opportunity to carry us for a couple of years at least probably.

Sean Milligan: Okay, great. Thank you. Thank you for the time.

Okay, great. Thank you and thank you for the time.

Harrold Rust: My pleasure.

My pleasure.

Operator: Thank you. At this time, I'm currently showing no further questions. I'd like to hand the conference back to Mr. Harold Rust for any closing comments.

Thank you and at this time I'm currently showing no further questions I'd like to hand, the conference back to Mr. Harold Bevis for any closing comments.

Harrold Rust: Thank you. Thank you everyone for attending our earnings call today. We certainly appreciate your attendance. As we talked about, we're pretty singularly focused on bringing up our first of a kind automated battery line to satisfy our customers and the strong demand we're seeing. We're excited about the progress we're making towards our mission for a better world through innovation and energy storage. We're excited and happy to have you as investors. Thank you very much.

Thank you and thank you everyone for attending our earnings call today, we certainly appreciate your attendance.

As we talked about were pretty singularly focused on bringing up our first of a kind.

Animated battery line to satisfy our customers and the strong demand we're seeing.

We're excited about the progress, we're making towards our mission for a better world through innovation and energy storage.

We're.

I'm excited and happy to have you as investors. So thank you very much.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Okay.

[music].

Sure.

Okay.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Okay.

[music].

Q3 2021 Enovix Corp Earnings Call

Request a DemoDemo

ENVX

Enovix

Earnings