Q4 2021 Enovix Corp Earnings Call

March 3, 2022

Okay.

Operator 3: Thank you for standing by, and welcome to Enovix Corporation's Q4 and Full Year 2021 Earnings Conference Call. Currently, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. As a reminder, today's program will be recorded. It is now my pleasure to introduce your host for today's program, Charles Anderson, Vice President of Investor Relations. Please go ahead, sir.

Operator: Thank you for standing by, and welcome to Enovix Corporation's Q4 and Full Year 2021 Earnings Conference Call. Currently, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. As a reminder, today's program will be recorded. It is now my pleasure 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 <unk> Corporation's fourth quarter and full year 'twenty 'twenty. One earnings conference call. Currently all participants are in a listen only mode.

The speaker's presentation there'll be a question and answer session.

Mind, you todays program will be recorded it is now my pleasure 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 Q4 and full year 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 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 Q4 and full year 2021 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 the shareholder letter, press release, and this conference call all contain forward-looking statements that are subject to risks and uncertainties.

Thank you Hello, everyone and welcome to <unk> Corporation's fourth quarter and full year 2021 results conference call with US today are president and Chief Executive Officer, and co founder Harold Rust and Chief Financial Officer, Steffen Pizza. Harold then Stefan will review the operating and financial highlights and then we will take questions.

After the Q&A session, we will conclude the call.

Before we continue let me kindly remind you that we released our Q4 and full year 2021 shareholder letter after the market close today.

It's available on our website at IR Delta Nobec's Dot Com a replay of this conference call will be available later today on the Investor Relations page of our website.

Please note that the shareholder letter press release, and this conference call. All contain forward looking statements that are subject to risks and uncertainties.

Charles Anderson: These forward-looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, 3 March 2022, based on the information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

These forward looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors for.

For a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission.

All our statements are made as of today March three 2022 based on the information currently available to US we can give no assurance that these statements will prove to be correct and we do not intend and undertake no duty to update these statements except as required by law. During this call. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

Charles Anderson: You can find a reconciliation of these non-GAAP financial measures to the GAAP financial measures in our shareholder letter, which is posted on the investor relations page of our website. I will now turn the call over to Harrold to begin. Harrold?

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

I'll now turn the call over to Harold to begin Harold.

Harrold Rust: Thank you, Charles. Good afternoon, everyone. We're looking forward to updating you on our progress today. We do so with a heavy heart, given the current situation in Ukraine. Our thoughts are with those affected by the ongoing conflict, including our employees from Ukraine and those with friends and family from the area. While Enovix does not currently have direct business ties to the region, today we are thinking of the people at Antonov Airlines, a Ukrainian airline who helped us deliver critical factory equipment from Asia to San Francisco in the spring of 2021 to mitigate supply chain disruptions. Without this hardworking crew from Ukraine, we would not be where we are today. We remain grateful for their assistance, and our thoughts are with them, their families, and their loved ones during this difficult time.

Thank you Charlie good afternoon, everyone. We're looking forward to updating you on our progress today.

We do so with a heavy heart given the current situation in Ukraine, our thoughts are with those affected by the ongoing conflict, including our employees from Ukraine, and those with friends and family from the area.

Well nobody does not currently have direct business types of the region. Today, we are thinking of the people at Antonov Airlines, our Ukrainian airline who helped us deliver critical factory equipment from Asia to San Francisco in the spring of 2021 to mitigate supply chain disruptions.

Without this hard working crew from Ukraine, we would not be where we are today, we remain grateful for their assistance and our thoughts are with them their families and their loved ones. During this difficult time.

Harrold Rust: 2021 was quite the year for Enovix, one that validated the technical and commercialization strategy we have pursued since our founding. We enter 2022 with ever-increasing demand for our batteries, which we believe offers the highest energy density for the mobile computing market. Most importantly, we are on track to begin commercializing in the coming months. Our shareholder letter posted on our website details our accomplishments in 2021 and our focus for 2022. Let me call out some of the highlights here, then Steffen will do a review of the financials. After that, we'll take your questions. In January, we began shipping production qualification samples from our automated production line at Fab-One in Fremont to customers. By doing so, we continue to expect recognizing first product revenue in Q2 of 2022.

2021 was quite a year for <unk>, one that validated the technical and commercialization strategy, we have pursued since our founding.

We enter 2022 with ever increasing demand for our batteries, which we believe offers the highest energy density for the mobile computing market.

Most importantly, we are on track to begin commercializing in the coming months.

Our shareholder letter posted on our website details our accomplishments in 2021 and our focus for 2022.

Let me call out some of the highlights here then Stefan will do a review of the financials.

After that we'll take your questions.

In January we began shipping production qualification samples from our automated production line of SAB, one in Fremont to customers.

By doing so we continue to expect recognizing first product revenue in the second quarter of 2022.

Harrold Rust: Hitting this significant milestone will distinguish us from competitors who claim technology breakthroughs but are years away from commercialization. I want to thank our entire team, and especially our operations group, for bringing up our first line at Fab-One. It was by no means an easy task. Indications of demand for our battery remain well above what we can supply for several years. Our revenue funnel increased by roughly $200 million sequentially in Q4 2021 to $1.5 billion. End markets and applications continue to be broad-based, but we would highlight incremental contribution to the revenue funnel from new industrial applications and new engagements in Asia as a result of additional resources we are devoting to the region. The speed by which we can capture this demand comes down to how fast we can qualify customers, improve our manufacturing process, and bring on capacity.

Hitting this significant milestone will distinguish us from our competitors, who claim technology breakthroughs, but are years away from commercialization.

I want to thank our entire team and especially our operations group for bringing up our first lineup fab one.

It was by no means an easy task.

Indications of demand for our battery remained well above what we can supply for several years, our revenue funnel increased by roughly $200 million sequentially in Q4, 2000 $21 billion to $1.5 billion.

End markets and applications continued to be broad based but we would highlight incremental contribution to the revenue funnel from new industrial applications and new engagements in Asia. As a result of additional resources redeployed, we are devoting to the region.

The speed by which we can capture this demand comes down to how fast we can qualify customers improve our manufacturing process and bring on capacity.

Harrold Rust: We have generated a tremendous amount of learning from bringing up our initial production line and immediately fed this into designs for our next generation equipment. These designs will enable lines that are faster, smaller, more energy efficient, and ultimately lower cost. First, in response to increased customer engagement and demand for custom cell designs, we will soon order a next generation pilot line based on these learnings in order to speed customer qualification. Second, we also plan to order in the coming months the first of our next generation production lines based on these same learnings. This line will allow us to bring additional capacity online for revenue by the middle of 2023. It has long been our view that the proper time to scale up is when we have optimized our manufacturing process and believe our next-gen lines give us the best opportunity to do just that.

We have generated a tremendous amount of learning from bringing up our initial production line and immediately fed this into designs for our next generation equipment.

These designs will enable lines that are faster smaller more energy efficient and ultimately lower cost.

First in response to increased customer engagement and demand for custom cell designs. We will soon order and next generation pilot line based on these learnings in order to speed customer qualification.

We also plan to order in the coming months. The first of our next generation production lines based on the same learnings.

This line will allow us to bring additional capacity online for revenue by the middle of 2023.

It has long been our view that the proper time to scale up is when we have optimized our manufacturing process and believe our nextgen lines give us the best opportunity to do just that.

Harrold Rust: Our shareholder letter also details important third-party validation. Notably, we were an Innovation Award honoree at the Consumer Electronics Show in January. Quite an achievement considering the 1,800 products evaluated by an elite panel of judges. We further strengthened our balance sheet with the redemption of our outstanding public warrants, which has added another $130 million. Last, I'm pleased to announce two recent data points that demonstrate our progress in commercializing our battery for the electric vehicle or EV market. Today, we are announcing the addition of Patrick Donnelly as Vice President of Strategic Business Development, focused on EVs. Pat joins us from Samsung SDI, where he led a commercial team that secured several multi-billion-dollar contracts for lithium-ion batteries with both established auto OEMs and emerging EV OEMs.

Our shareholder letter also details important third party validation.

Notably we were an innovation award honoree at the consumer Electronics show in January quite an achievement, considering the <unk> hundred products evaluated by an elite panel of judges.

We further strengthened our balance sheet with the redemption of our outstanding public warrants, which has added another $130 million.

Last I am pleased to announce two recent data points that demonstrate our progress in commercializing our battery electric vehicle or EV market.

Today, we are announcing the addition of Patrick Donnelly as Vice President of strategic business development focused on Evs.

<unk> joins us from Samsung SDI, where he led a commercial team that secured several multibillion dollar contracts for lithium ion batteries with both the established auto Oems and emerging EV Oems.

Harrold Rust: Also, today in our shareholder letter, we are showing updated progress on our Department of Energy program to demonstrate our 3D architecture and 100% active silicon anode with an EV class NMC cathode. As many of you know, low cycle life is one of the killer problems that has held back the adoption of 100% active silicon anodes. We believe the Enovix 3D architecture uniquely solves this problem, and we are happy to report that these cells are approaching 800 cycles and only have lost 4% of their capacity. These are very encouraging and exciting results, and we look forward to updating you as they progress. Please be sure to read our shareholder letter for more details on these significant achievements. Now, I will turn the call over to our CFO, Steffen, who will discuss our financials. Steffen?

Also today in our shareholder letter, we are showing updated progress under department of energy program to demonstrate our three D architecture, and 100% accurate silicon anode with an EV class NMC cathode.

As many of you know low cycle life is one of the killer problems that has held back the adoption of 100% active silicon anodes.

We believe the <unk> three D architecture uniquely solve this problem and we are happy to report that these cells are approaching 800 cycles and only have lost 4% of their capacity.

These are very encouraging and exciting results and we look forward to updating you as they progress.

Please be sure to read our shareholder letter for more details on these significant achievements now I will turn the call over to our CFO , Stefan who will discuss our financials Stephane.

Steffen Pietzke: Thank you, Harrold. Our detailed financials can be found in our shareholder letter. I will spend my time covering a few high-level topics. We closed Q1 2021 with net cash of $385.3 million, which does not include the incremental $52.8 million of cash we received in January from the remaining exercise of our public warrants. Turning to the Q4 results, we did not recognize product revenue in the quarter, consistent with our expectations. As Harrold mentioned, we continue to expect to begin recognizing product revenue for the sale of our batteries in Q2 2022, consistent with our previously reported goal. Our operating expenses in the first quarter were $24.8 million.

Thank you Harold.

Our detailed financials can be found in our shareholder letter.

So I will spend my time, covering a few high level topics.

We closed the fourth quarter of 2021 with net cash of $385 $3 million.

Which does not include the incremental $52 $8 million of cash we received in January from the remaining exercise of our public warrants.

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

As Harold mentioned, we continue to expect to begin recognizing product revenue for the sale of all batteries in the second quarter of 2022, consistent with our previously reported Golan.

Our operating expenses in the fourth quarter were $24 8 million.

Steffen Pietzke: Excluding stock-based comp, our non-GAAP operating expenses in the quarter were $20.8 million, up from non-GAAP operating expenses of $16.2 million in Q3 2021, which also excludes stock-based comp. The sequential increase was the result of our efforts to scale up the business for manufacturing and commercialization to meet demand from our customers. Turning to the full year 2021 results, we used $95.3 million of free cash flow, which included $43.6 million of capital expenditures. Cash use came in below our forecast of $110 million to $120 million due to timing of equipment payments, some of which slipped into early 2022. Now, let's discuss our expectations for 2022. As noted earlier, we expect to recognize our first product revenue in Q2 2022.

Excluding stock based comp.

Our non-GAAP operating expenses in the quarter were $28 million.

Up from non-GAAP operating expenses of $16 2 million in the third quarter of 2021, which also excludes stock based comp.

The sequential increase was the result of our efforts to scale up the business for manufacturing and commercialization to meet demand from our customers.

Turning to the full year 2021 results, we use $95 3 million of free cash flow.

Which included $43 6 million of capital expenditures.

Cashews came in below our forecast.

$110 million.

Two $120 million due to timing of equipment payments, some of which slipped into early 2022.

Now, let's discuss our expectations for 2022.

As noted earlier, we expect to recognize our first product revenue in Q2 2022.

Steffen Pietzke: For full year 2022, we expect to generate revenue between $6 million and $12 million. We expect that our revenue will consist of both product revenue and non-recurring engineering or NRE service revenue. Keep in mind that in addition to producing sales for product revenue, our alliance will also be heavily occupied this year producing qualification samples to support future revenue ramps. For full year 2022, we expect to use between $190 million and $210 million of cash, of which we expect roughly 55% will be CapEx. As Harrold mentioned earlier, we are bringing on a next-gen pilot line in 2022 to respond to the need for increased customer qualifications. We are also continuing to build our Fab 1 and will order our next generation production line.

For full year 2022, we expect to generate revenue between.

$6 million and $12 million.

We expect that our revenue will consist of both product revenue and nonrecurring engineering or in Aerie service revenue.

Keep in mind.

In addition to producing cells for product revenue our lines, but also be heavily occupied this year producing qualification samples to support future revenue ramps.

For full year 2022, we expect to use between $190 million and $210 million of cash.

Fitch, we expect roughly 55% will be capex.

As Harris mentioned earlier.

We are bringing on and Nextgen pilot line in 2022 to respond to the need for increased customer qualifications.

We are also continuing to build our fab, one and will order our next generation production line.

Steffen Pietzke: Not surprisingly, like the rest of the industry, we are not immune to the inflationary pressures impacting battery production equipment given the surge in demand for lithium-ion batteries. To summarize, we enter 2022 with a very strong balance sheet and are investing to commercialize our groundbreaking 3D battery architecture, which uses 100% active silicon anode.

Not surprisingly like the rest of the industry, we are not immune to the inflationary pressure is impacting battery production equipment, given the surge in demand for lithium ion batteries.

To summarize.

We enter 2022 with a very strong balance sheet.

And are investing to commercialize our ground breaking three D battery architecture, which uses a 100% active silicon anode.

Steffen Pietzke: We are focused on executing our plan, which we believe will drive shareholder value. I will now turn it back to Harrold for closing remarks. Harrold?

We are focused on executing our plan, which we believe will drive shareholder value either not turn it back to Howard for closing remarks, all right.

Harrold Rust: Thanks, Steffen. To recap, we made outstanding progress in 2021. We are now building and shipping batteries to tier one customers. In 2022, our priorities will be responding to a growing customer base, driving transformative product enhancements, and improving our manufacturing process based on the learnings from Fab One. With that, we are ready to take your questions. Operator?

Thanks, Stefan to recap we made outstanding progress in 2021, we are now building and shipping batteries to tier one customers in 2022, our priorities will be responding to a growing customer base.

Driving transformative product enhancements and improving our manufacturing process based on our learnings from fab one.

With that we're ready to take your questions.

Operator.

Operator 4: Thank you. As a reminder to ask a question, you'll need to press star one on your telephone. Before your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Colin Rusch with Oppenheimer. Your line is open.

Harrold Rust: Thank you. As a reminder to ask a question, you'll need to press star one on your telephone. Before your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Colin Rusch with Oppenheimer. Your line is open.

Please go ahead.

Yes.

Okay.

Go ahead.

Please.

Okay.

Q&A.

From Cowen.

Your line is open.

Colin Rusch: Thanks so much, guys. You know, can you talk a little bit about the number of customers you've gone through the full qualification on for, you know, moving into the design-in phase? I have a follow-up question around capacity expansion.

Thanks, So much guys can you talk a little bit about the number of customers you've gone through the full qualification.

Or.

Going into the pit designs in chains.

And then I have a follow up question around capacity expansion.

Harrold Rust: Yeah, Colin, thanks for that question. This is Harrold. You know, we've shipped our qualification samples for our first customer, and we're working on qualification samples for others right now. You know, as we've mentioned in the comments earlier, we expect to start recognizing revenue from one of those customers in Q2 2022.

Yes, Colin Thanks for that question this is Harold.

We shipped our qualification samples for our first customer and we're working on a qualification samples or others right now.

You know as we've mentioned in the.

And in the comments earlier, we expect to start recognizing revenue.

From the from one of those customers in the second quarter 'twenty two.

Colin Rusch: Okay. Then, you know, you talked about the capacity expansion, but clearly demand is running pretty at a pretty healthy clip. I'm curious about your thoughts on potentially doing a, you know, slightly larger facility as you decide on this next phase and, you know, how far along you are in terms of identifying the location and potentially entering into an agreement you can talk about.

Okay, and then you talked about the capacity expansion, but clearly demand is Brian partee.

At a pretty healthy clip.

Thoughts on potentially Julien yes.

Probably a larger facility as you decide on this next space.

How far along you are in terms of identifying that location.

Actually.

If you could talk about.

Harrold Rust: Yeah. Thanks for that comment. You know, as you mentioned, we're seeing an increasing and growing demand for our product, both across products and customers, and obviously we wanna translate that into revenues as fast as possible. You know, as we actually think of this, one of the things we're actually starting to think about is whether we need to establish an earlier global footprint for how we manufacture. We're basically, you know, right now we're evaluating both domestic and overseas locations to do that.

Yeah, yeah, thanks for that comment.

As you mentioned, we're seeing an increasing and growing demand for our product across products and customers and obviously, we want to translate that into revenues as fast as possible.

Do you think of this one of the things we're actually starting to think about is whether we need to establish an earlier global footprint for how we manufacture.

And so we're basically right now we're evaluating.

We're evaluating both domestic and overseas locations to do that.

Harrold Rust: You know, the other thing I would say is in addition, you know, we've had such valuable learning off our first production line, and that's really given us the opportunity to design a next generation line that is more efficient in terms of throughput, capital, and floor space. You know, we're really looking at what's the best way to move the company forward and how do we expand. Both of those, you know, have a factor on kind of what type of facility and where we wanna locate it. We remain, you know, actively engaged with one of the largest real estate firms that's out there.

The other thing I would say is in addition, you know we've had such a valuable learning off our first production line.

And that's really given us the opportunity to design US next generation line that is.

More efficient in terms of throughput and capital and floor space.

And we're really looking at what's the what's the best way to move the company forward and how do we expand and both of those you know have a factor on kind of what type of facility and wherever you want are located.

We remain actively engaged with one of the largest real estate firms.

That's out there.

Harrold Rust: They specialize in manufacturing sites and, you know, we've been working with them for quite a while, and we actually have submitted a couple LOIs on several candidate properties already. I think, stay tuned for that. You know, we expect to, you know, move forward soon with this first next gen line and then, after that, you know, announce a location for it.

Specialized manufacturing sites and we've been working for quite a while and we actually have submitted a couple of LOI signed several candidate properties already so I think stay tuned for that.

We expect to move forward soon witnessed first next Gen line and then <unk>.

After that you know are announcer location for it.

Colin Rusch: That's super helpful. Thanks so much, guys.

That's super helpful. Thanks, So much guys.

Operator 4: Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Your line is open.

Operator: Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Your line is open.

Thank you. Our next question comes from Anthony Stoss with Craig Hallum.

Yeah.

Anthony Stoss: Hey, guys. Harold, I'm curious, with the new process that you identified, you've talked about it being more efficient and faster, et cetera. Will that raise the potential revenue in Plant 1 when it's up and operational and cranking? And then follow-up question, you know, the 35 customers that you highlighted you sampled to, how much is that up from the last quarter? And can you give us a sense of kind of what markets, is there any new markets that you're sampling into?

Hey, guys.

I'm curious with the new process that you identified you've talked about it being more efficient and faster et cetera.

Will that raise the potential revenue in plant one when it's up and operational and cranking and then follow up question. The 35 customers that you highlighted you sample to how much is that up from the last quarter.

And can you give us a sense of kind of what markets is there any new markets that you're sampling into.

Harrold Rust: Yeah. Thanks for the question. Sorry, repeat.

Yeah. Thanks for the question so far.

First question was sorry.

Sorry.

Yes.

Anthony Stoss: That one, capacity.

One capacity biomarker path, yes, so I think certainly to the extent these new lines are more efficient from.

Harrold Rust: Line one, capacity. Yeah. I think certainly to the extent these new lines are more efficient from, you know, from a footprint, you know, utilization space, that gives us an opportunity to increase the capacity here, should we choose to. I think we're looking at, you know, where we put capacity a bit more broadly, you know, thinking about where our customers are. We may decide to add more capacity here. We might decide to add more capacity somewhere else. I think that's an active discussion we'll go through. Ultimately, I would just think about how do we install enough aggregate capacity, you know, in our locations to satisfy the customer demand, and I think we're gonna be flexible about that, and really look at what makes the most sense for the business and our customers.

From a.

Footprint utilization states that gets an opportunity to increase the capacity here should we choose to I think we're looking at where we put capacity a bit more broadly.

Thinking about where our customers are so.

We may decide to add more capacity here, we might decide to add more capacity somewhere else I think that's an active discussion will go through ultimately I would just think about how do we install enough aggregate capacity and our locations to satisfy the customer demand and I think we're going to be flexible about that Andrew.

When you look at what makes the most sense for the vessels on our customers.

Harrold Rust: Your second question, sorry, if you could repeat that, I'd appreciate it.

Your second question was sorry, if you could repeat that I'd appreciate it.

Harrold Rust: Your second question, sorry, if you could repeat that, I'd appreciate it.

Anthony Stoss: Yeah, the 35 customers that you sampled to

Yes, the 35 customers that you sample too.

Harrold Rust: Yeah.

Anthony Stoss: How many you guys have, how many you had last quarter, and if there's any new markets?

Alright, you guys have how many you had last quarter and if there's any new markets.

Harrold Rust: Yeah. I would say, you know, the funnel continues to grow impressively. It grew roughly $200 million during the quarter. I think growth is both broad across all the markets we've been targeting already. I think we've also seen some new interest in a couple segments. One is the industrial market, where, you know, energy density has a pretty high value prop as well. That's one area which I think is new relative to what we've been seeing in prior quarters.

Yes, so I would say that the funnel continues to grow impressively. It grew roughly $200 million during the quarter I think growth is both broad across all the markets we've been targeting already but I think we've also seen some.

New interest in a couple segments, one is the industrial market where.

Energy density has a pretty high value prop as well.

So that's one area, which I think is new relative to what we've been seeing in prayer prior quarters.

Anthony Stoss: If I could just sneak in one other quick one, just, again, on the new process. Is there brand new equipment that you haven't dealt with in the past, and is there any kind of material additional lead times? I'm curious when you think you can have everything in and qualified for the new process.

If I could just sneak in one other quick one just again on the new process is they're brand new equipment that you havent dealt with in the past and is there any kind of material additional lead times I'm curious when you think you can have everything in and qualified for the new new process, yes.

Harrold Rust: Yeah, I think it's a combination. I think in some cases, these are improvements on equipment with existing vendors, right? Where we've learned enough, we know we can make a much better request for a piece of equipment. In some cases, we're looking at some new vendors as well. We're pretty far along on those discussions. From a lead time standpoint, we have a good sense for what those are. We believe that we'll have that first next-generation line on the ground at a facility sometime in Q1 next year, and have it producing revenue in Q2, which is consistent with what we've been saying for the last several quarters.

Yes, I think it's a combination I think in some cases these are improvements on equipment with existing vendors right, where we've learned enough. We know we can make a much better at least a piece of equipment in some cases, we're looking at some some new vendors as well, we're pretty far along on those discussions so from a from a lead time standpoint, we haven't.

Good sense of what those are.

And we believe that we will have that first next generation line on the ground at a facility sometime in the first quarter next year and have it producing revenue in the second quarter, which is consistent what we've been saying for the last several quarters.

Anthony Stoss: Very good. Thanks, Harrold.

Very good thanks Carol.

Harrold Rust: Thank you.

Thank you.

Operator 3: Thank you. Our next question comes from Derek Soderberg with Colliers Securities. Your line is open.

Operator: Thank you. Our next question comes from Derek Soderberg with Colliers Securities. Your line is open.

Thank you. Our next question comes from Derek Soderberg with Colliers Securities. Your line is open.

Derek Soderberg: Hey, guys. Thanks for taking my questions. So just on the second production line at Fab One, you know, you guys started putting that in, I think, late in last quarter you were talking about it, so late in the year. I guess, what inning are we sort of at with that line? And do you expect that second line to be fully up and running, and ready to ship battery cells by the end of the year? Or what's sort of the timeline for that one? And will that second line be using the new manufacturing equipment, or not? And, you know, should that second line at Fab One be sort of the last line using the prior generation equipment?

Hey, guys. Thanks for taking my questions.

Just on the second production line at Fab one.

You guys started putting that in I think late.

Last quarter, you were talking about it so late in the year I guess, what inning are we sorted out with that line.

And do you expect that second line to be fully up and running and.

And ready to ship battery cells by the end of the year or what sort of the timeline for that one.

Will that one be using that second might be using the new manufacturing equipment.

Or not.

Should that second line of Fab one.

B sort of the last line using the prior generation equipment sorry.

Derek Soderberg: Sorry, that was kind of a lot there.

Kind of a lot there.

Harrold Rust: That's okay. You're right. We have, you know, two essential production lines here in the Fremont facility. One has been here longer. It's the one that has produced the qualification cells that we shipped in January, which will be in production in Q2. The second one is a bit behind time-wise. It landed later. And its big role this year, you know, if you think about kind of through the summer, is doing qualification work for some of the larger cell products. And we do expect that, towards the end of the year when that qualification work is done, you know, that line will be available for doing production deliveries.

Okay.

So you're right we've got we have not.

We have two essential production lines here and the Fremont facility. One is Dan here longer. It's the one that has produced the qualifications.

Cells that we shipped in in January which will be in production in the second quarter. The second one is a bit behind time wise. It landed later.

And it's big role this year.

If you think about kind of through the summer is doing qualification work for some of the larger cell products.

And we do expect that towards the end of the year when that qualification work is done that line will be available for doing production deliveries.

Harrold Rust: I would say that from a true revenue standpoint, most of the revenue work will be done on the first line 'cause it's the one that's actually producing the product we're qualifying right now with our customers. Your second question is line two kind of the last of the current generation? I would say the answer to that is yes. There is some additional equipment coming in to support that, but overall, I would say Gen One is kind of what we have, where there are a few more pieces showing up. We will, you know, what we've done is use all the learning on that, which has been super valuable.

But I would say that from a true revenue standpoint, most of the revenue work will be done on the first line because it's the one that's actually producing that product. We're qualifying right now with our customers and then your second question is is.

His line to kind of the last of the current generation I would say the answer to that is yes. There is some additional equipment coming in to support that but overall I would say January one it's kind of what we have where there were a few more pieces showing up.

We will we will you know we've done is use all the learning on that which has been super valuable in fact, I would say.

Harrold Rust: In fact, I would say we're more than pleased with all we've learned because it really helps us to design a next-generation line that is quite a bit better. We're excited to turn that into these next lines that we can really grow the company with.

We're more than pleased on all we've learned because it really helps us to design next generation line that is has quite a bit better and we're excited to turn that into these next lines that we can really grow the company with.

Derek Soderberg: Got it. As my follow-up, you guys spoke to sort of prioritizing customer qualifications and improving your manufacturing equipment, ahead of scaling capacity. You know, it doesn't sound like that priority is changing the timeline to Fab Two, timeline to revenue there. Just curious if that relates to, you know, that commentary is related to your JV licensing strategy and just trying to sort of bulk up the, you know, the throughput of the equipment. Is that a good way to think about some of that commentary?

Got it and then as my follow up you guys spoke to sort of prioritizing customer qualifications.

Improving your manufacturing equipment ahead.

Ahead of scaling capacity.

It doesn't sound like that priority is changing the timeline to fab two timeline.

Timeline to revenue there just curious if that relates to that commentary related to your JV licensing strategy and just trying to sort of bulk up the throughput.

The equipment is that a good way to think about some of that commentary.

Harrold Rust: Yeah. I would think a little bit about the partnership stuff as being on a parallel track, right? I mean, we're squarely focused on getting the production lines that we've built ourselves on our own to, you know, hit their goals and then, you know, working on a second-generation line. At the same time, obviously, we're talking on a somewhat regular basis with customers and potential partners for how we could grow faster. A key piece of that is our Fab Three strategy, which is what we talked about, you know, which is further out in time and geared maybe more towards the EV space, 'cause we feel that approach to JV or license is the right way to enter that market.

Yeah, I would think a little bit about the partnership Seth as being on a parallel tracks right. I mean, we're squarely focused on getting the production lines that we've built ourself on Mt.

Hit the hit their goals and then working on our second generation line.

At the same time, obviously, where we're talking we do talk on a somewhat regular basis with customers and potential partners for how we could grow faster.

Faster our.

A key piece of that is our fab three strategy, which is what we've talked about which is further out in time and geared maybe more towards the EV space, because we feel that approach to JV or licenses the right way to enter that market and so.

Harrold Rust: You know, with the addition of Patrick Donnelly we talked about, he'll be someone who's actually gonna be helping have some of those conversations with the players in that space to try to push those discussions forward.

With the addition of Patrick Donnelly, we've talked about.

He'll be someone who is actually going to be helping have some of those conversations with the players in that space to try to push those discussions forward.

Derek Soderberg: Perfect. Thanks, guys.

Perfect. Thanks, guys.

Operator 3: Thank you. Our next question comes from Gabe Daoud with Cowen. Your line is open.

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

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

Gabe Daoud: Hey, guys. Thanks for taking the questions. Maybe just back to the manufacturing capacity and capabilities. I think, Harold, initially, Fab One was expected at scale to deliver 45 million cells a year. Just curious, how many lines did that assume? You know, just 'cause it's just trying to get a sense of, like, how much product you could actually deliver today from the lines that you have today.

Hey, guys.

Thanks for taking the questions, maybe just back to the manufacturing capacity and capabilities I think Harold initially fab one was expected at scale.

To deliver 45 million cells, a year, just curious how many lines that that.

How many lines does that assume and then.

Just because it's just trying to get a sense of like how much product you could actually deliver today from from the lives that you have today.

Harrold Rust: Yeah. Thanks for the question, Gabe. You know, certainly we've talked about our ability to significantly ramp the capacity here. That's beyond the two lines that are in place, and that would be something we would do in the future. You know, certainly consistent with our strategy for these next-generation lines, maybe the generation beyond the ones we have right now. I would say that, you know, our decision to increase the capacity here, we'll judge over time as we look at how our Fab Two strategy rolls out, right? Whether it makes sense to do, you know, more here, less here, and more at some of these other locations.

Yeah. So thanks. Thanks for the question. So certainly we are.

We've talked about our ability to significantly ramp the capacity here.

That's beyond the two lines that are in place and that would be something we would do in the future.

You know certainly consistent with our strategy for these next generation lines, maybe the generation beyond the ones we have right now.

I would say that our decision to.

To increase the capacity here, we'll judge over time as we look at how our fab two strategy rolls out right and whether it makes sense to do you know more here last year and more at some of these other locations I think we want to be flexible on that with respect to where our customers are and what the opportunities are for these are these other locations.

Harrold Rust: I think we wanna be flexible on that with respect to where our customers are and what the opportunities are for these other locations. I think we'll adapt dynamically. I'm sure whatever we would say today is probably slightly different than we'll end up executing on. Ultimately, we just wanna make sure we can deliver the overall capacity to meet our customers' needs.

No.

I think we'll adapt dynamically and I'm sure whatever we would say today is probably slightly different that will end up executing on ultimately we just wanted to make sure. We can deliver the overall capacity to meet our customers' needs.

Gabe Daoud: Understood. Thanks, Harold. Maybe shifting gears a bit and just looking at some of the, you know, cycle life data you showed on the EV battery. Could you just talk about, you know, I know there's a target as part of the DOE program to get to, you know, watt-hours per liter of 700. Could you just talk about what the energy density is on those cells on a watt-hour per kilogram, and if EV partners are more interested in the gravimetric or the volumetric energy density?

Understood. Thanks, Harald and then maybe shifting gears a bit and just looking at some of the cycle life data you showed on the EV battery could you.

Just talk about.

I know theres, a target as part of the Doe program to get to that.

It was per leader a figure 700 could you just talk about what the energy density on those cells on a watt hours per kilogram and if EV partners are more interested in the gravimetric or the volumetric energy density.

Harrold Rust: Yeah, I would say there's interest in both. You know, from a customer standpoint, you know, it turns out that in cars today, in some ways the space is as valuable as the weight. You know, the specific cells that we've built now are not super aggressive from an energy density standpoint. That's somewhat on purpose, because the objective was to establish the long-term cycling capability of our unique, 100 percent active silicon anode and architecture. I think thus far, the data on that is pretty exciting. I would say that, you know, people would struggle to show active silicon stuff in the past that looks as good, so we're excited about that.

Yes, I would say theres interest in both.

From a from a from a customer standpoint, it turns out that in cars today and some in some ways. This spaces is as valuable as the weight.

The specific sales that we've built now we're not super aggressive from an energy density standpoint that somewhat on purpose because the objective was to was too.

Established a long term cycling capability of our unique 100% active silicon add on architecture, and I think thus far the data on that is pretty pretty exciting and I would say that you know people would people would struggle to show active silicon stuff in the past it looks as good. So we're excited about that.

Harrold Rust: You know, we do believe that if we were designing, you know, true high energy cells, you know, for that market, we could have a compelling product either from a volumetric or specific gravity standpoint. You know, we have some data out on our website that talks about what that might look like.

We do believe that if we were designing <unk> cells.

For that for that market, we could have a compelling product either from a volumetric or specific gravity standpoint.

We have some data out on our website that talks about what that might look like.

Gabe Daoud: Thanks, Harold. Just curious, as those cells have cycled now and hit close to 800 cycles, how much did they swell? Was it still like less than 5%? Thanks.

Thanks, Karl and then just curious as those cells of cycle now and hit close to 800 cycles, how much did they swell was it like less than 5%.

Thanks.

Harrold Rust: Yeah, I would say in general with the architecture and our unique 3D strength system, you know, we see very little actual swelling of the batteries.

Yeah, I would say in general where the architecture and our unique constraint system, we see very little we see very little actual swelling of the batteries.

Gabe Daoud: Got it. Thanks, Harrold.

Got it thanks Harold.

Operator 3: Thank you. As a reminder to ask a question, that's star one. Our next question comes from Sean Milligan with Williams Trading. Your line is open.

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

Thank you as a reminder to ask a question Thats Star One. Our next question comes from Sean Milligan with Williams trading your line is open.

Sean Milligan: Hey, guys. Thanks for taking my question. You know, as you look to build out the EV sales process, I know you're bringing on Patrick. Just curious if, you know, he's brought any with him, how that team is gonna build out over the next year or two.

Hey, guys. Thanks for taking my question.

As you look to build out the E V sales process.

Bringing on Patrick just curious if.

You know he's brought in with them how that team is going to build out over the next year or two.

Harrold Rust: I would say I don't know the answer to those questions yet. Patrick is just coming on board, and I'm sure he has some thoughts on how to build that stuff out. I would look for us to make some comments to kind of have that organization shape up, you know, over the next several quarters. To be honest, I don't have the actual answers to all those in front of me right now.

So.

I would say.

I don't know the answer to those questions yet Patrick is just coming on board and I am sure. He has some thoughts of how to build that stuff out.

I would look for us to make some comments I kind of have that Oregon shapes up over the next several quarters.

But to be honest I don't I don't have the actual answers to all those in front of me right now.

Sean Milligan: Okay. On the EV side, with the DOE program, I think you're, you know, you're testing NMC technology, if I'm correct. Have you know, sampled any cells with EV players with other technologies to this point?

Okay, and then on the EV side.

With the Doa program, I think you're testing and EMC technology, if I'm correct have you.

Sampled any cells with EV players with other technologies to this point.

Harrold Rust: Yeah. What we've done in the past, you know, is we have four kind of standard sizes of batteries today, which are kind of targeted more for the consumer electronics space, and we've sampled cells from those suite of batteries into the EV space already. Those tend to have a lithium cobalt oxide cathode as opposed to NMC. But it gives the customers in that space a good sense for what our technology is capable of and how it performs. That's something we've been doing over the last, you know, half year, if not longer.

Yes, so what we've done in the past.

We have a.

<unk> kind of standard sizes of batteries today, which are.

Kind of target and work for the consumer electronics space and so we've sampled cells from those suite of batteries into the EV space already those tend to have.

Lithium cobalt oxide cathode S M C.

But it gives it gives the customer in that space a good sense for what our technology is capable of and how it performs and so that's something we've been doing.

Over the last half year, if not longer.

Sean Milligan: Okay. You know, one last question, I guess, around the you mentioned 35 customers that you've sampled cells to. Just kind of curious if you're able to talk to a win rate that's in that product pipeline. Maybe, you know, how long you're seeing it take from sampling to first revenue.

Okay and then one last question I guess around the you mentioned 35 customers that you have sampled cells to just.

Just kind of curious if you're able to talk to a win rate that's in that product pipeline.

And then maybe you know how long youre seeing it take from sampling to first revenue.

Harrold Rust: I don't have the figures off the top of my head, and I don't think we've commented specifically on how many is in each part of the funnel. I would say that our ability to move people into the bottom of the part of the funnel is really more driven by our ability to engage with the kind of demand we're seeing. You know, one of the things that we're actually doing this year, which I think is a pretty big initiative, is we're spending some capital to put in place a whole next generation pilot line, which is roughly 10 times the throughput of the line we have right now. Obviously the raw horsepower to deliver samples to customers is much better.

I don't have the figures off the top of my head and I don't think I don't think we've commented specifically on how many of the niche part of the funnel I would say that.

Our ability to move people into the bar to the part of the funnel is really more driven by our ability to engage with the kind of demand we're seeing.

One of the things that we're actually doing this year, which I think is a pretty big initiative is where we're spending some capital to put in place a whole next generation pilot line, which.

Is roughly 10 times the throughput of the line we have right now so obviously the raw horsepower to deliver samples to customers is much better. It's also going to be highly flexible so our ability to deal with lots of custom designs is significantly better and then one thing. That's also super exciting about that is that it's really.

Harrold Rust: It's also gonna be highly flexible, so our ability to deal with lots of custom designs is significantly better. Then one thing that's also super exciting about that is that it's really designed around kind of the same production kernels as the next gen manufacturing line. The hope there is that we can cut some of the qualification time out with our customers by having something that really, you know, reflects what manufacturing looks like and not have to go through multi-step qualifications for products. We think all of those things will increase our ability to drive stuff to the bottom part of the funnel and also, you know, increase our, or reduce our time to market with some of these customers.

Designed around kind of the same production kernels as the new Gen next Gen manufacturing line.

And the hope there is that we can.

We can cut some of the qualification time out with our customers by having something that really reflects what manufacturing it looks like in and not have to go through a multi step qualifications for products. So we think all of those things will increase our ability to drive stuff to the bottom part of the funnel and also increase or reduce our time to market with some of these cuts.

Harrold Rust: That's a pretty big initiative, and we think it's a real critical thing the company is doing, which will give us an advantage going forward.

So that's a pretty big initiative, and we think it's a real critical thing that company is doing which will give us an advantage going forward.

Sean Milligan: The pilot line is midyear.

And the pilot line is mid year or.

Sean Milligan: The pilot line is midyear.

Harrold Rust: It's gonna-

Yes.

Sean Milligan: End of December?

Or.

Harrold Rust: It'll be coming in the end of this year, right. I would look at towards the end of this year, that's starting to have a significant effect on how fast we can engage with customers and move people down, and also give us the promise to be quicker in terms of, you know, converting opportunities into actual revenue.

It will be coming in the end of this year right. So I would look at towards the end of this year that is starting to have a significant effect on how how fast we can engage with customers and move people down.

And also gave us a promise to be quicker in terms of you know.

Converting opportunities into actual revenue.

Sean Milligan: Okay, great. Just one more, Harold. In terms of the early customers that you've had, and sort of the land-and-expand strategy, are you starting to see customers sample cells across different product lines? Or, you know, I know like maybe you would have sampled with one product initially and now they're starting to bring you into other products.

Okay, Great and then just one more out in terms of the early customers that you've had.

And sort of a land and expand strategy are you starting to see customers Sam.

Sample cells across different product lines or.

I know it sampled with one product initially and now theyre starting to bringing into other products.

Harrold Rust: Yeah, I would say in general, you know, we've had increase in terms of customer traction across multiple customers. Even within specific customers, we're starting to talk with customers about follow-on products to the initial products already. Those discussions are happening, which is, I think, a very encouraging sign for kind of their view of our relationship. You know, obviously one of our decision factors around customers, since we can't necessarily service everyone, is to pick customers where there is kind of that extending life and we can, you know, we can ride with these customers through multiple evolutions of products. We're starting to see that stuff materializing.

Yeah, I would say in general we've had increase in terms of customer traction across multiple customers, but even within specific customers. We are starting to talk with customers about follow on products to the initial products already so those discussions are happening, which is I think a very encouraging sign for kind of their view of our relationship.

And you know obviously one of our decision factors around customers, we can't necessarily service everyone has to pick customers, where there is kind of that extending life and we can we can ride with these customers through multiple evolutions of products and we're starting to see that that stuff materializing.

Sean Milligan: Okay, great. The cycle life on the EV, like, what's the target that we should look for? If you're approaching 800 now, what's the number of cycle lives that you need to get to?

Okay, great and the cycle life on the EV, what's the target date.

What's the target that we should look for if you're approaching 800 now what's the number of cycles that you need to get to yes.

Harrold Rust: Yeah. The stated goal that the DOE's set out in this program was 1,000 cycles. You know, right now we're just short of 1,000 cycles to 20% fade or 80% initial capacity. Right now we're sitting just short of 800, and we've got only about 4% capacity fade. We're pretty encouraged by those results and, you know, we think we'll have additional good news to report on that later.

Yes. So the stated the stated goal that the D O <unk>.

Set out on this program as 1000 cycles, you know right now we're just short of a thousand cycles tab.

20% fade or 80% initial capacity right now we're shooting sitting just short of 800, and we've got only about 4%.

<unk> side. So we're we're pretty encourage those results and we think we'll have additional good news to report on that later.

Sean Milligan: Great. Thank you for the time.

Great. Thank you for the time.

Harrold Rust: Thank you.

Thank you.

Operator 3: Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Rust for closing comments.

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

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

Harrold Rust: Thank you, everybody, for your time today and listening to our earnings call. We're super excited of where we're going and the progress we made this past year. You know, this has been a long journey for this company to really fundamentally change how batteries are made, and we think we've proven a lot of that. Shipping qualification samples out of our first production line is a huge milestone for us that we think differentiates us from many others in the battery space that talk about technologies but have yet to commercialize. We realize that reducing things to practice and making a product is ultimately what it's all about. You know, we've got a product that works. We've proven we can make it. We've got customers that are lined up to take it.

Thank you everybody for your time today and listening to our earnings call. We're Super excited of where we're going and the progress we've made this past year.

You know this has been a long journey for this company to really fundamentally change out batteries are made and we think.

We've proven a lot of that.

Shipping qualification samples out of our first production line is a huge milestone for us that we think differentiates us from many others in.

In the battery space that talk about technologies, but have yet to commercialize <unk>.

We realize that reducing things to practice and making our product because ultimately what it's all about we've got.

A product that works.

We've proven we can make it.

We've had customers that are lined up to take it and we think that's a great position to be and so we're very excited we look forward to informing you about our progress going forward. We have every every employee in the company runs around with their badge.

Harrold Rust: We think that's a great position to be in. We're very excited. We look forward to informing you about our progress going forward. You know, we have every employee in the company runs around with their badge with a list of our core values, but also the vision for this company. That vision is that every person is positively impacted by Enovix innovation every day. We're dead set to make that happen, and we're excited about the journey we're on and the progress we're making. We look forward to having you along for the ride.

With a list of.

Our core values, but also the vision for this company and that vision is that every person is positively impacted by an FX innovation every day and we're dead set to make that happen and we're excited about the journey, we're on and the progress, we're making and we look forward to.

Having you along for the ride.

Operator 3: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

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

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

Yes.

Hum.

[music].

Sure.

[music].

Hum.

<unk>.

[music].

Yes.

[music].

Boom.

[music].

Yeah.

Sure.

No.

[music] Roland.

Okay.

Sure.

Okay.

[music].

Q4 2021 Enovix Corp Earnings Call

Request a DemoDemo

ENVX

Enovix

Earnings