Q4 2022 Enovix Corp Earnings Call
Thank you for standing by and welcome to the Olympics Corporation fourth quarter 2022 earnings Conference call. Currently all participants in a listen only mode.
After the Speakers' presentation, there will be a question answer session. As a reminder, today's program will be recorded and now I'd like to introduce your host for today's program Charles Anderson Senior Vice President of Investor Relations. Please go ahead Sir.
Hello, everyone and welcome to <unk> Corporation's fourth quarter 2022 financial results conference call with US today are president and Chief Executive Officer Raj jewelry.
And Chief Financial Officer, Stefan Petsko will also be joined today by our Chief operating Officer, RJ, Marathi and our Chief Commercial Officer, Ralph Smith for the Q&A portion of our call.
Raj and Stefan will review, the operating and financial highlights and then we'll take questions. After the Q&A session. We will conclude our call.
Before we continue let me kindly remind you that we released our fourth quarter 2022 shareholder letter after the market close today.
It is available on our website at IR at <unk> Dot Com a replay of this video call will be available later today on the Investor Relations page of our website.
Please note that the shareholder letter press release and this call all contain forward looking statements that are subject to risks and uncertainties. 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 February 22023 based on information currently available to US we can give no assurance that these statements will prove to be correct Dominion do not intend to 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 prepared for not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to non-GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website.
I will now turn the call over to Raj to begin Raj.
Good afternoon. Thank you Charlie and thank you all for joining us today.
I'm really pleased to report a very strong fourth quarter for dynamic saturation.
We you are muted accomplished a number of frankly, they're a sounder high pressure.
<unk> improved our yields of the batteries that they are producing.
We made.
Record progress of customers progressing through our funnel.
And last time, the way, we work with our customers to get them samples of our batteries, which then that test and then put.
Put them in products that they're actually going to launch and move them, along the product foundation cycle and through that funnel.
We have got.
A lot of new customers and a lot of progress that we've made to date and that we will talk more about that.
And.
Just over $1 million in revenue ahead of the consensus for FY this quarter.
We ended the year with over.
Over $322 million in cash.
And more importantly, our fab, one which is our fab in Fremont is working and we are focused on rapidly increasing its output now.
Trajectory I see for analytics is incredibly promising in 'twenty three and beyond.
No.
Stephane talked about financials I wanted to spend a little bit of time.
Talking to all of you about me and my background why I joined dynamics and what are the near term actions that I'm taking to position the company for success.
Now for nearly 30 years I've been fortunate to have worked in and led teams in some of the best semiconductor companies in Nevada, Texas instruments, Qualcomm Micron and I worked on products that actually in evaluation.
Mobile device experience and these mobile devices are devices from.
Consumer electronic devices like digital cameras, MBT players DVD players smartphones tablets and so on.
The products I worked on integrated digital camera chipsets and pit replay of chipsets.
A map application processor, which is one of the very successful application processors in the industry at Texas instruments, but actually transformed.
Our phones from just calling devices through multimedia devices.
And from there on a giant Qualcomm, where I was fortunate to lead the team that did the snapdragon application processor, which actually powers majority of the Android cell phones today and it really I should add also the modern smartphone.
More recently, but over the last five years or so before I joined <unk>.
And micron and that was leaving the leading the mobile division.
It's a division.
That's actually one of the larger divisions at Micron and $7 billion of revenue in 2022 with over $2 billion of operating profit for that fiscal year.
No.
<unk> been in all these different companies I understand what it takes to launch products at scale the launch products at mobile devices to launch them at very high volume.
And it's giving me a unique insight about the customers care about the customers that care about with end users when they use these products now one important insight. It gave me is actually the importance of battery technology and portable devices.
No what became obvious to me.
But may not be obvious to all of the average person who actually buy this product is it the performance of these products, whether you bought a digital camera or whether you bought.
Smartphone or laptop the performance is actually product because of the constraints of the battery. This is something thats not as obvious to everybody.
For example.
If you take a smartphone and you run things like an Android band jumps on you get great performance numbers, but when you get those performance numbers the CPU GPU the camera at the memory, they're all running full speed to give you that benchmark number, but when you actually use the phone.
The process and the memories are not running at that speed because if they did they would consume the battery really really fast.
So in other words.
End users are not realizing the full potential of the devices that they bought.
Because the battery is limiting the performance. So the number one problem I believe to be solid now in the consumer electronic devices.
Is the portable battery.
Now this offer when this opportunity arose for me to actually lead. This team I did a lot of good aliens and different battery companies out there that would actually help solve these problems of the users can get great and products that they paid for and I felt.
<unk> is perfectly positioned to solve this problem and that is the reason I'm here.
Now I've been here for about a month.
It's been unbelievably impressed by the company and the talent and the resource. This year, it's really groundbreaking technology is a highly differentiated.
Across many many metrics in the battery these are metrics like a performance.
Energy density.
Capacity terminal performance.
Longevity of the battery how faster charges, how safe is the battery.
No.
I also found is a technology in this company that has been done by tremendous number of people working for over 16 years in this space.
We have significant technology in our laboratories theater.
That has a lot of headroom to even increase this performance metrics beyond there beyond what we are actually now able to sample.
So I see here the foundation for our high growth highly profitable business with differentiated products that I can spend the next part of my carrier scaling New Heights.
So as you get to know me better.
You'll actually see that I always start.
With the customer for us when I talk about the customer.
I talk about the customers will buy our products and also our customers customers, who actually enjoy these products and I think about the user experience those customers are having with these products and then I'll work backwards, what does that mean.
To imagine how is available advised us how is the smartphone being used what's the limiting the performance of our smartphone what's limiting the performance of our laptop.
What's limiting car from charging to full battery capacity very quickly.
Then it gives me clarity on what products, we should be working on for those things to happen.
Now.
We are underlying a transformational dynamics, we are an R&D focused company so far.
Ananda somewhat of R&D has gone in over the past many years to actually make this fantastic batteries sampling.
Now we need to transform this company into a customer focused organization that focuses on marching in tailoring. This great technology that we have.
Two high volume production very quickly and very profitably.
Now thankfully that is not the hard part of the job a lot of us that have giant genomics year know how to ramp products quickly to scale. The core technology development is behind us and really all of the founders of analytics, who actually worked tirelessly for a long time, a great debt of gratitude for getting us there.
No I do recognize.
That high volume production area that we are most approved we have not ramped as fast as as much as we would have liked due by now but my commitment my personal commitment to investors is I.
I will take you through the journey.
And I will be transparent about our progress on unit production.
Important milestones things like yields and also what we what we're doing to Derisk. Our Gen. Two line, which actually is that produced high volume batteries.
Scaling is hard I've done this many times in my career over the last 30 years and in large companies with very very complex products.
It won't be perfect it won't be like exactly how we want it but we know how to do it and we'll be clear about where we are and how we are doing it and where we're going.
I can tell you that what I see today is unbelievably promising.
Our new Chief operating officer, Ajay Marotta, He's got 38 years in the industry from some of the top companies and and he was most recently the CEO of <unk>, where that team has pulled off a tremendous job to make a huge amount of improvement in production.
And here is all his team has already made solid progress just in that short term that he has been here.
And we expect to make very strong gains quarter on quarter throughout this year.
No.
It's clear to me that we know how to make batteries in it.
We have factories right here I see the batteries coming off the line, we just need to do it faster.
And with Gen. Two line, we will make them faster and we will make them in high volume.
Now I want to close with a comment about funding and our capacity expansion.
We've had numerous conversations with our customers. The battery technology is so compelling the energy density we are able to provide and the quality will be able to provide is so compelling.
We are now finding many of our customers and also strategic and the government entities, where we're actually trying to that we are working with to build our gen. Two line are interested in using capital into the company to help us build our capacity now.
Now this is a common practice in the battery industry and given the advanced stage of our technology a lot of our partners see this as a fairly low risk for them to help us scale.
So we plan to explore all of these options and find out the most advantageous one to our shareholders.
Now I want to turn the call over to Stephen who will give you some feel on the guidance and then.
But then we'll take any questions you have.
Thank you Raj.
Our financials are available.
Our shareholder letter, which includes a GAAP to non-GAAP reconciliation. So I will focus my commentary on some high level guidance comments.
Or 23.
We are going to guide units produce as opposed to revenue guidance.
Our annual revenue.
Our highly influenced by the timing of our episodic service revenue.
And we don't believe that necessarily a strong read on our progress on a scale up.
As an example for Q1, we don't expect to recognize service revenue.
423 full year, we expect to produce 180000.
Revenue quality units in fab one.
And for Q1, we expect to produce 9000 units.
Our plan is.
At least double that production each quarter sequentially for failure.
For Capex for 2023, we expect to spend $120 million.
And three components of Capex are first Gen. Two line.
Facilitation for fab two in southeast Asia, and we're going to bring in an agility line, which is an automated R&D line two free months.
That line will help us foster qualifying customers and focus on custom cell development.
Additionally.
For 'twenty, three we expect to spend $120 million of cash operationally.
While we keep the operational spend opex flat.
We will shift more cost into cost of revenue as we support the increased production volume in half one.
In the later part of the year, we were staffed up to in Asia.
So for everyone that runs financial models.
I would like to give a couple of point us toward our model is one is we are anticipating here to increase.
Cash and noncash expenses.
Have you recognized in cost of goods sold.
Versus operating expenses.
Primarily as we shift the resources from R&D to manufacturing.
The shift in higher cost of revenue.
Will it take shape.
In Q1, and you can see here and expect.
Around $4 million of sequential increase in cost of revenue.
So only $2 million decrease in operating expenses.
Both on a non-GAAP basis.
Closing out with.
We have made really good progress on the manufacturing side, we have a strong balance sheet and our experienced team is really committed to the shareholder value with that operator, we can start the Q&A session.
We will now begin the Q&A portion.
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Now of course, a 91% for the kids.
Oh, that's great.
That's all right.
Thanks, Amit.
Good question.
Hey, Thanks, guys good afternoon.
It is good to hear from you and thanks for thanks for the remarks.
Yes, I guess, two if I could just piggybacking off of your Gen. Two remarks can you.
Can you remind us when we can first expect gen two revenue against.
Against your volume and what we might expect at.
At least the first the first couple of few quarters of that ramp to look like and then I have a quick follow up I appreciate it.
Absolutely the questions about Gen. Two thank you for the question we are now in the.
The process of completing the design of the Gen two and as as TJ mentioned last time.
As Youll see in our shareholder letter mid March is when we will accrue the design at the board meeting and we'll start collecting the appeals and the pieces of equipment will start coming in and and we expect the build out.
To start happening by early next year so in the.
Mid next year is probably when we'll start seeing revenue from some parts of agenda.
Got it got it very helpful and then.
Didn't hear EV mentioned, yet can you just give us a yes.
The thought process on what some of the milestones are for EV for this year.
With some of your EV investment.
Might be pointing to appreciate it yes.
Thanks for the question. The question about EV EV is as many of you know a very exciting market for our technology, a few things about economics battery technology, particularly for the EV market. In addition to the energy density, which we have it much better than our competition much higher than our competition.
I have some other advantages such as the how faster charges and also the amount of heat.
Battery exited dissipates.
You guys have a tesla car like that when you start charging them youll see that the batteries get hot in this in this environment or a battery because of the way. It's constructed mechanically has the ability to dissipate that much faster than our competition.
And we're also kind of material agnostic in the technology and EV will do slightly different materials.
What <unk> been talking to different companies in the in the automotive space. There's a lot of interest for our technology in that space and we are now.
Netting out the right strategy to partner to have a giant development agreement with multiple partners and as we make those milestones will absolutely come in to get to you, but we've given them some of our consumer batteries and actually all the company's outlook a lot of other companies a lot of what we can show.
Thanks, so much appreciate it.
Our next question is from Bill Peterson.
Yes, hi, sorry about that it was I think it was on mute.
Thanks for the overview, maybe there's I'm not sure. This one is for Raj.
But what I wanted to talk about how youre going to be progressing to I guess 180000 units.
For a presentation you talked about <unk>.
She around 60% yields I guess in the early part of this year how are those progressing and is that still the right way to think about yields as we exit Q4 of 2023.
Yeah, absolutely I'll I'll I'll.
Take a shot at the question.
Jay if you feel like.
There's something else you want to add on top of it. Please please jump in.
As we mentioned our yields are progressing nicely steadily improving from where we presented last time and we are on track to where we expect to be by end of the year we.
We are quite pleased with that.
We are as we said more than doubling the number of batteries that come out.
Every every quarter.
Again.
A lot of these batteries. So we feel very confident we're going to hit this 180000 number no issues there.
In fact, we produce more than that sometimes because we have two new batteries for qualification of our customers and so on these are revenue producing batteries that were talking about but yeah things look good there.
Okay. Thanks for that.
Yes.
Second question I have is it was sort of I guess sort of briefly mentioned by T. J in the last call you didn't speak to it here, but he alluded to.
I guess, one potential return to the swelling I wanted to clarify.
Truly an issue is it only one product that was was returned or if not or maybe with somebody else entirely just trying to get a feel for if that's something we should be on the lookout for.
Yeah, that's the only one.
Yeah go ahead.
Yes, I can.
Yes, there was one particular salvage getting back from our customer in fact.
We saw the pictures of it and concluded.
<unk> was due to the swing was due to the mechanical damage to the cell rich we were trying to understand where that's happened post shipments from <unk>.
But that's the only so that we have seen so far which is out there in the future.
Reported the swelling.
Youre doing a lot of warranty work.
I believe that they're seeing ourselves and.
I'm trying to find different causes of what could be problems, where you haven't seen the architecture is very robust.
We haven't seen anything like that.
Thanks.
Our next question.
With the pound.
Hey, good afternoon, everybody. Thanks for all the prepared remarks was hoping to maybe just go back to the tech side you'd mentioned the thousand watt hour per liter.
Battery scale through a mobile phone to wild type Sars, you just kind of optimizing for cycle life could you just remind us maybe where you are today on that tech roadmap and where do you have to get to.
Yeah, that's a that's actually a great question.
Came here in the last month, or so what kind of realize that.
We are clearly making.
We are where we thought we would be in terms of a cycle and.
And we have a lot of innovations along the way on materials on the baby.
Develop the technology to continue to increase that and and get ahead of time and energy density.
Ahead of the competition and also improve our cycle life.
The main important thing here is that.
What an energy density and cycles.
Some of them feel like people are characterizing batteries by just simple one number and.
And we are as we get into more advanced stages, where we actually have our batteries are our customers.
And I talked to many many of these customers what I find is that.
How are the battery is using the device and the use cases at the battery goes through is actually just as important for example, when you talk about the cycle of people talk about charging all the way to the peak and bringing it down but nobody actually does that I mean, if you have a mobile phone youll probably start charging it before everybody goes to zero and and and also if you think about energy density.
But it is fully charged is one thing, but the use cases of how our watches use what's the phone is use what's the laptop is used has a lot of bidding. So we are kind of evolved a little bit more in how we actually measure the value of the battery to our customers.
Two more than just those two numbers that's not to say, we're not making progress on those we're absolutely on track on that but what you'll find from US moving forward is actually talk more and more about the customer experience of using the battery then yes, why not the numbers because I don't think those numbers fully capture all the aspects of that differentiation that's built into our technology.
Thanks Raj that's Super helpful. And then maybe as a follow up we'll pivot back to <unk>. So I guess could you maybe shed a little color around how those conversations are progressing whether words, so manufacturers are or just.
Personal auto Oems like is there any concern I guess with performance, maybe not scaling to to any besides our capacity battery.
And then also form factor what are what are the thoughts on the latest thoughts are around form factor just given some of the headlines around potential Oems or Oems potentially going going towards cylindrical thanks guys.
Yeah, I mean, so first I want to make one general comment about form factor not just specific to Evs I something that I think if it is not clear to.
Everyone here, what I've learned over time here is that the form factor of the battery is different.
In watches was this.
In our digital cameras, what is this other iot devices versus smartphones versus laptops, because they're kind of.
Everyone needs the battery to be of a certain ship to fit in the cavity that's allocated to it after all the electronics and the displays have taken this space. Similarly in EV the different form factor our technology and now we are building manufacturing line that actually have the ability what we call agility lines to customize the battery or different form factors very quickly and our gen. Two line.
Have the ability to do that and produce at different contractors.
So that's something I just wanted to put it out there it's a core technology and our core competency. We are building and we will need to build to be successful and our architecture is very amenable to that now in terms of Evs are part of this is going really well.
Consumer of batteries that we have given them per test.
I really like it.
It's too early to tell how exactly the business model would be.
In terms of being manufactured there manufacturer, we do a joint development of a license that technology quite a few of those options are open and they are kind of early stage of development and also like you to comment on that as the year goes by.
Great. Thanks, a lot everyone.
Our next question comes from Colin.
Thanks Nathan.
Uh huh.
Sorry about that you guys are I think I'm good.
Wanted to just get a little bit more color in terms of the design activity and the design wins in terms of the target customer the process and how that how that's cycling in how quickly we're moving through those cycle times.
And with the design ends because that may be.
Would be very very crucial for some of our restaurants as we get into late 'twenty four 'twenty five.
Yeah, absolutely I'll add I'll say, a little bit at a general level and I'll ask without who actually do use it is everyday to comment a little bit more on that are designing activity that has been tremendously.
There's been so much better than what it was before the last quarter was actually fantastic. What we're finding is that as we are able to produce more cells in our fab. One we're able to give more samples to customers and that is helping them test our battery versus their current batteries that they're using and is really giving them the confidence that what we're talking about Israel and they're able to do.
It was tested in their own way and then of course, we understand how the past and we put those task back into our testing. The next time when we go to battery. It already meets the requirements. You know so in terms of samples we've given out in terms of customer pipeline I think that has some data in the in the shareholder letter that actually shows the progress but.
We're pleased with the progress so far and <unk> and many of them have actually progress from initial testing where they have samples and said he had this looks good to actually putting it in their own.
Factor and then testing and saying is much better. So now at this point, we actually know what products, we will go into but Ralph you want to add more color to that.
Thanks Raj yes.
You know everything Raj said is exactly on point.
As we showed you last time and T J 's presentation in January .
Now tracking needs to sell milestones and no sell milestones are showing that we increase sort of our active designs and design wins by about $200 million in this last quarter, which is by far the biggest jump and really shows that these customers are now fully in.
Gauged, because they've taken essentially the batteries off of our production line.
And have done their own full qualification. This is their tests in their products.
That's a very important milestone for us and just shows kind of the progression were making now.
Ah stay cautiously as I don't expect to see a $200 million improvement every quarter. It was because we've we've now shipped enough units thousands of units to these customers to be able to make.
Those progressions in the funnel, but we're right on track and Youll see the 24 revenue will grow fairly substantially based off of these early qualifications from from our customers on these existing sells out of fab one.
And as a follow up I don't want to hear a little bit more about the tool set that you guys are looking after the Gen. Two line. Obviously you are coming close to being finalized on that design, but curious about how many vendors.
Able to go to in terms of having backup vendors on some of these things.
And your ability to you know.
Access to what you need in terms of all the different pieces of equipment in a timely way given the relatively timeline you guys are looking at for this this ramp in the next factory.
Yes.
Great question. The question about gentlemen, I'll make a quick high level comment and then I'll, let Jay talk to you about Iga is actually in Asia right now as we speak talking to all the vendors. There. So that's why he's not here in person, but he can give you a life that live update and there is I think he is just tremendous yesterday to it it's going actually very well designs look very good.
We've done a lot of proof.
Proof of concept experiment to make sure that whatever issues we saw on.
<unk> actually resolved in Jan do so we know what we're going to get is going to be at the high throughput and I'd say you want to comment on vendors and specific smaller and more specific that you may do.
Sure absolutely thanks Raj.
Question.
Yes.
Zero.
Suppliers.
Sure.
And the whole supply chain of these gen two right.
No what we have learned through the through this last gen. One experience and Suzanne designing specific pools, which address the real problems that Gen. One showed us in the early early days.
You know Theres is battery companies and then there is semiconductor companies and semiconductor companies.
Architecture, which mechanical tolerances and placement.
Cigarette is lot more lending itself.
Going to semiconductor suppliers out there who are very very familiar with you know plus or minus five microns and micron placements you imagine the borger to rates.
Poses of bowls.
A year or a repackaged and doing something like that so we actually engaged with both guys are very early on.
<unk> been months ago.
And now you are seeing as proofs of concepts.
Coming through but then you also need to complement that factory experience as well right because it is very peculiar yourself, which is boring answer.
This particular group vendors have been working with.
Battery counterparts, which we brought together. So this is a big ecosystem and we want to make it hard.
I didn't get replicated the same just about anybody else, but at the same time you don't have a.
Good design.
All very encouraging results actually I was in Korea, a couple of days around here and in other parts of Southeast Asia.
In some cases triple rule.
You know certain areas, which are higher risk.
But we are coming down we're now working with one set of suppliers.
Suppliers, who are giving us tremendous confidence in the gen. Two.
The schedule.
Cost.
That's very helpful.
Sure. Thanks, so much guys.
And our next question comes from Alex Potter.
Perfect that's actually a really good segue into what I wanted to ask so you mentioned.
The cost.
I know that Gen two.
Some of the numbers that I was that I seem to recall was something in the neighborhood of $70 million of Capex per line and you were looking to put or lines or so.
In the first fab there in southeast Asia, I guess, the second half are those numbers all still ballpark.
In the neighborhood or have your conversations lead you to believe that those numbers should be revised it anyway.
Yeah.
Yeah go ahead.
And then second maybe I'll make a comment and then you can have it up on that so basically the way. This is working out is.
Hi, Jay and team are looking at making sure that we have the.
In our space.
So we can put four lines or even more as needed and so we're going to.
Make sure that we have enough capacity.
And what we're gonna do is.
We're going to start.
First with the.
And the ability to quickly make a.
So using the pieces of the line that we're going to use in gen. Two so just wanted to full automation, but all the all the same machines that will be the genco will come yet that will come earlier.
We call the agility line that'll give us lot of confidence that we can make a different custom sized cells. Then we will scale up the the line and yeah. I mean, we still believe that with the demand and the customer pipeline that we have we will need to get to at least four lines and maybe more in time, but we're going to do it in a staged manner, we're going to do it in a staged manner.
Because as Ralph mentioned different customers that are at different stages of qualification as those products get qualified we wanted to be able to scale quickly.
Also in sync with the passenger demand because what's going to happen is.
For example, a customer needs a smaller settlement qualify faster than it has when is the big toe or maybe a customer needs a big sell in a smartphone qualify sooner. So we need to make sure that the equipment. We are building is tightly in sync with that so we are kind of evolving that stage of capacity planning, which is matching the actual customer demanded that your supply.
And we are on track to do that.
Anything else you want to add on that.
Yes, just very quickly actually a law change no revisions to the original numbers.
Cost per line, which the Madras roughly in line with what we're seeing now.
As we do replicate second third fourth Atlanta et cetera.
Costs will obviously go down your economies of scale and our ability.
To negotiate better with the various supply chain members. So yes.
Not much change from the from the numbers. We are you already gave you.
Okay. That's perfect and then maybe one more financial oriented question.
Saying that flat generally flat Opex guide for 2023 I hear you on shifting some of the R&D cost in the cost of revenue.
Or towards production.
But was also somewhat surprised presumably youre going to need to be staffing up.
In Asia, and a lot of that would hit Opex in the G&A line. So maybe maybe that none of that hits in 2023, but at some point that would presumably be an upward inflection in that line.
Unless correct me if I'm wrong.
Yeah, So I'll take a shot at it and see if that Stefan maybe you can add a little bit more color. What I found when I came here is that we are actually fairly well staff on on Opex.
The company was a sub scale in manufacturing in terms of output. So that's one of the reasons why I feel like I can hold opex flat from last year. This year and there is a lot of expenses also have it.
Coming from back into the company and so on which are really one time last year and moving forward.
The mix of investments is changing from my perspective, I think we had investing a little bit more bringing in a lot of good talent actually in the electrochemistry side and in the manufacturing discipline in the mechanical engineering and so on but some of the other operating expenses that we had last year, but really some kind of one time, so we were able to reduce that.
Moving forward.
I feel.
You know, we will add more in Malaysia, but at the same time you have a lot of.
Cost in Fremont, which will actually slowly come down also because of our current manufacturing so in that sense.
It might actually balance out.
And you know are there any other.
For example, it could be any other Asian country that we look at.
Costs are actually much lower than we have seen so our goal is to actually.
Manage the transition to the Opex actually doesn't become too high.
Excellent let me.
At Alex a couple of like number of sponge for 'twenty, three and beyond for outer years in 'twenty three I mentioned.
<unk> hundred $20 million planned for cash on operational side, yes, our own 20 million of depreciation and amortization noncash so keeping opex flat at around 80 million Opex for 2023, and then on the cost of what sort of tried to throw on 60, 40 cash and 20 million is noncash.
And then in the outer years.
As Raj alluded to right the business model hasn't changed we still expect to have around 20% on operating expenses.
Run rate.
Beyond Mike 'twenty four 'twenty five.
Very good thanks, a lot guys.
Our next question comes from Gosh, where kit.
Yeah, Thanks for taking.
Thanks for taking the question.
Two new Rudolph.
Took an impairment charge for a piece of equipment and I'm, just wondering what was rationale and.
<unk>.
How is that related to the ultimate output of line one.
Yes, maybe Stefan can take them.
Thanks, Scott, Yes, so that $4 $8 million charge that we took is for a piece of the equipment.
That would be a six to develop it has a higher <unk> than the balance line has the line runs here in three months hundreds of ph and that equipment was the 600. So we don't develop that small portion we don't expect anything to reoccur.
Got it thanks and then.
Brian You mentioned in your prepared remarks, you had a number of customers that were interested in.
Theyre doing JV or building a factory together or what have you and I was just wondering.
As you will evaluate those opportunities.
What are your criteria.
Get that with us.
Purely economics, you know your percentage of output.
Are you thinking about those opportunities.
Yeah. So that's a very good question actually is the strategic decision of the company that my team and they're focused a lot on.
There is customers that has a different governments in Asia that were actually as we start by thinking about putting lines. There that are invested in and supporting us.
That whole and that's a model that they are quite familiar with with out there.
So we are evaluating in multiple countries and multiple customers.
Lately, we have to make the decision.
The partners are based on what is in line with the strategic direction of the company and the strategic direction of the company is.
For me the way, we think about it is we have now.
Two standard sized cells, which are small cell and the big cell that are going really into internet of things market and I think that is something that youll hear us talk more and more because they are in those markets. It's not as critical that you have the optimal size and shape and all of that.
Target is.
We think that variables is a big part of that market health monitoring and so on then there is smartphone vendors laptops, then there's EV and that's the direction and the order in which we feel our technology will scale. So when we pick our partners we wanted to pick them.
In that particular are.
In line with the strategy and not deviate from that that will take us away from what's core to us.
So that's kind of how we are looking at it.
And I think it's more about.
Making sure that technology is a good fit based on where our current technologies and it's a good fit for the markets, where we're going into.
Got it thank you.
Hello.
Our next question is from Deutsche Garner Okay.
Hi, good afternoon, Thanks for taking my question.
I'd like to add.
You've been now at the firm for a month or so.
Curious as to if you could share any detail on the things that you see.
Seen that you can improve upon or any processes.
Any methodologies that were implemented in the past that you're bringing a fresh eyes to who you experienced.
Yeah, absolutely I think the number firstly I'm actually unbelievably impressed with the technology and how differentiated the technology is.
It's not often you find the technology barrier that much better than the competition in terms of performance numbers and that much unique an architecture that is hard to replicate and it took us a long time to get to your almost 16 years and then it is taking US took us a lot of effort to actually get this mechanical constrains done so we have a.
Sustainable differentiation I feel and Theres a lot of stuff in the pipeline that will make the technology, even better in terms of we talked about energy density with Doctor what cycles and so on so that part has been very pleasantly surprising.
The part that I bring is really.
The external and the customer focus because I have my whole carrier has been working with.
Customers, who make varying kinds of products you know cameras MPT players DVD players smartphones Wearables Iot devices laptops cars, so I bring that customer first mindset and what I find is that when you're able to understand what the customer is trying to do with this technology.
It gives you a view of what exactly our product should look like if we can that product right now we're not making.
No <unk>.
That's not what we're making so we're not going to you said this business is not about making one size fits all batteries, but then we really have to have the structure and processes in place when there's so much interest from different customers, which ones do we pick which markets do we go after first which once we go after next how do we scale up how do we.
Build manufacturing capability, which is tightly matched to the supply and the demand we're getting that stay areas that I'm really focused on and that's where I feel the company really.
Needs a more strategic direction, particularly when the demand is a secular for batteries. It's important just as important what we don't do first is what we do for us.
Thanks, and as a follow up speaking of those customers as you engage with them further as you had conversations I'm sure with him before you got to notebooks, what are the competitive products, if any that youre bumping up against I mean is there anyone out there that offers anything close to what you're doing in the <unk> characteristics and potential to ramp.
Yeah, I mean, my what I've learned is pretty much we're competing with the.
Traditional battery technologies that exist today standard lithium ion batteries. There is no one that I have bumped into add that our customers have talked about that would use something like a silicon anode. For example that we're doing are the energy density that we are providing so it's very very unique in its capability. So most of the places.
We're actually trying to replace an incumbent that's the standard lithium ion battery that exist today, which we then went through some time back. So it's really the evolution in that sense, but we have to adapt our technology to that.
Our customer form fact that they get into production.
Our next question comes from Tony Stoss placed on mute my question.
Thank you.
Tiny stuff when you like please on mute by pressing star six.
We will move on to Derek sorry, the back please.
Ask your question.
Yeah, Hey, guys. Thanks for taking my questions.
Raj I wanted to touch on yield I think that number exiting the year was $42 nine.
Can you give us a yield number today.
On the January presentation, you talked about our yield sort of following the S curves and just looking at the yield today is it still on that curve as a tracking better or worse on any detail on how yield is tracking since January whether it would be helpful.
Yeah.
As we mentioned the yields are tracking down the eschar and absolutely. They are in line with where we expected it to be and we are steadily making progress in that front I'm pretty confident that.
At the rate at which we are making progress we will get to around 180000 batteries number clearly again.
I'm not going to break down yields at this factory this month and so on because a lot of factors involved in that but.
But really what I'm super excited by as we will be able to hit the number of cells, we want and the learning from that will actually make sure that the gen. Two rebuild will be at much much higher.
Right off the bat, which is really the number that matters, because that's where they really under a majority of our production, but so far I'm very happy with what I see <unk> done a really nice job.
Got it and then as my follow up on the shareholder letter there was some commentary around enhancing cycle life. I think you guys were up 500 cycles for the consumer applications batteries.
You talked about working with new Electra lights, and things like that I'm wondering how we should interpret that commentary is that something that your customers are asking for how should we think about that thanks.
Yeah, I, you know I think that different products need different cycle life like for example, battery and available needs second cycle life batteries in.
No.
As I as I come into this business.
To me, it's like a life.
And also like.
Energy density is kind of like asking what is the clock speed of your Snapdragon processor is just one number.
That doesn't really translate to how good is your camera for example.
Because you know nobody has the way everybody through cycles is to charge it fully to the top and take it all the way down and really to the top and nobody actually does that so if you actually only charged half there because most of us when you use a phone or a watch or whatever and when you see it running below the chart you start charging it.
And sometimes you cannot charge at all demand. So we do have to continue to improve the cycle of life and we are but more importantly to me. The exciting part is as we work with our customers they actually telling us how they use the battery and the test they're performing to make sure. The battery fix that application and we are customizing to meet that Martin requirement I think that is kind of the key.
Yeah.
We will now come back to timing stuff keep on me.
Okay.
Okay.
Sorry, all my questions have been answered thank you.
Yeah.
We will then move on to Mark please.
Yes. Thank you.
Thanks for taking my question.
He doesn't have any questions I guess I'll add a few.
First of all Ralph congratulations.
Youre going to become a very very very wealthy man over the next decade.
But my real question since it was such a big issue on teachers call about having a raise money.
Can you elaborate on interest from your partners and helping you build facilities and government so I assume.
It is over in Asia speaking with governments as well as customers and building. The facility can you get into a little more detail Raj about the interest of helping you fund that.
Yeah. Thank you. Thank you for your question and hunting.
Thank you for your comments.
It's a little early to precisely comment on that because you know we are in the middle of these negotiations and multiple ones and I really don't want to.
Get in the middle of that negotiation that Ajay is doing.
But I'll give you a couple of comments on how these things usually work with my past experience in building these kind of factories in Asia and so on.
Many governments actually like to help companies build out.
Manufacturing facility is there a thereby helping with the facility consolidation are paying for a line or two.
And because you always provide employment and Theyre also get great return on that investment later on.
So there's multiple opportunities for that.
And for the customer side typically what customers want is they like our technology in the field is very exciting, but they worry whether they'll be enough.
Volume for production when they go to high volume because somebody that high volume line and they'd like to reserve. Some capacity for example, and that's where they'd like to help us build but they want some reserved capacity. So those are the kind of the variables that we're looking at and that's why it's very important that we make this nation carefully because there's a lot of interest in the technology and we want to pick the right partners. So.
Hopefully I'll be able to comment on that more in time.
What do you think is behind that dynamic.
Of your design wins and your backlog going up.
With production being over below where initially it was stated it.
It seems like people are more excited than than less excited even as these push outs have occurred can you can you square that a little bit on what you see.
So absolutely it's actually very simple B. We had this company has had great technology and a few batteries that we were able to go and what everybody thought was super exciting and we gave like a you know a couple of US out here have done a delta somebody and there also we're happy but for them to really Hunt study design in a they need it.
<unk> thousands of cells, which we've never been able to do.
Now as I, Jay and his team and as all of our investments in pad one are starting to materialize available.
We were able to produce thousands of batteries, but now as he purchased thousands of batteries. The passengers are able to put them in their products and test them and that is increasing the design is really a question of just satisfying that early sample requirement that is helping us.
And you were able to satisfy everyone now.
Well I wouldn't say, everyone, but that has been.
It wouldn't be too happy about that everyone, but theres still a lot of demand, but definitely much better than me, but it was also like more happy customers then that he has done in a long time.
[laughter].
Okay. Thank you very much.
Yes, my pleasure.
Next up we have a question from Chris felt though.
Hey, guys. Thanks for taking my question here I'm, just curious for the 180000 batteries for revenue. This year can you give a split between.
Theyre going into kind of end products versus testing with different customers and just wanted to get a sense of what the full year demand is for the <unk>.
Testing, if you have any sense of that.
Yeah, I mean, we're not really breaking them exactly that way because all of them I can say this much all of them are actually products that customers are paying for.
Sometimes there'll be in high volume production sometime maybe in the early stage of production pre production lines and so on but those are basically production cells that if you want to comment on that.
Yeah, I think that's that's fairly accurate as you know we've got some products. We believe will launch. This this year and they are fairly lower volumes in the Grand scheme of things, but we've worked closely with customers to try to.
Say prime the pumps effectively so that we go into 'twenty, four and start really ramping into much higher volumes.
If I were to put a.
Put us a swag on it is probably about half the sales are going to at least going to be in some sort of products that you're hopefully going to be able to get in the market of course, it's always reliant on when a customer can can actually released those products.
Thank you.
Understood. That's helpful. And then maybe just last one in.
Whether you're talking about proof of concept demonstration.
Can you talk through confidence of the 13 had changes you highlighted on the January call I'm just curious if.
Yeah, there are any changes since.
That call to those different pieces that seem to be the higher risk areas.
What if anything do we really need to do to validate the plans between now and mid March.
Yeah, absolutely maybe I'd say you should you should take this one you're living in bidding exhibitor day.
Yes, absolutely. Good question again, Oh, Yes, you are.
Currently absolutely right on track for that.
Yes.
<unk> of UBS.
The equipment you know there were some high risk areas, which we had pointed out earlier.
Redoubled roof them in some cases, but most all of the Russo.
Proofs of concepts now are leading to believe that we are going to get that you.
<unk>.
That's great. Thanks.
Our next question comes from Sean Milligan.
Hey, guys. Thanks for taking my question.
Yes, Mark asked earlier about outside funding or funding from customers and governments.
I'm trying to understand here.
Obviously, you have a lot of confidence in the Gen. Two design.
With the idea that youre going to add additional lines next year. So.
How do you.
What are your customers or funding.
Parties need to see in terms of Gen. Two design to be willing to fund that they need to see the production coming off the line first or are they willing to do that ahead of time.
Yeah. So good question I think difference of funding partners are in different stages.
Stages of that.
So like I said in some cases, if it is kind of like government. Then there just wanted to know that we do have the demand and we will be successful with this or they want to invest ahead that okay. If it is more like customers than they'd like to see some pieces of equipment running or get some get some.
Samples from it and so on so different people in different stages of that and I really hope that they'll be able to communicate better next time mandate and kind of.
Cautiously trying not to say much about it because we are in the middle of these negotiations and it's never good to talk about it now.
Okay, great. Thank you.
And have a nice I have a question at this time with that I'd like to kind of I think caboshed for closing remarks.
Yeah, I mean, absolutely. Thank you all for this time and thank you for listening to us and your support of genomics Fantastic company Super excited to be here.
I want to.
You know take a few minutes to a few seconds to thank all the employees at analytics somebody said fantastic place to work it will come in regularly and worked really hard and long hours and and.
A big Shout out to the founders who built this company, but you'll hear more and more from me and every quarter and as I get to see you guys model as it travel. Thank you.
Goodbye.