Q2 2023 Enovix Corporation Earnings Call

Any of 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. 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.

Thank you. Thank you Charlie and thank you everyone joining us today I'm going to kick off with a few high level remarks, and then I'm going to introduce our new CFO .

How much who will make a few comments.

After that.

A very special treat for you all today Oh, My daughter is in Asia today.

At our Gen two equipment vendors and they are hoping to get them to show you a video of our latest machines and how theyre progressing before our factory acceptance test next month.

After that I'll make some closing remarks, and then we'll take your questions.

No first.

We had a very productive second quarter that included some very key milestones along our journey to scale.

We produced 22502 batteries and fab one.

This is exceeding the forecast we made last quarter that we were going to make 18000 sales. This year. So we exceeded that.

We delivered on our commitment to secure the $70 million non dilutive financing funding, but in Malaysia as.

The result of that we're going to lower our capex guidance for the year, I'll say, a little bit more about that in a little bit.

Thirdly, I'm Super excited that we actually received a purchase order what are break floor enables cells, but the U S. Army now this is a great Testament to the quality of our product the reliability of the product and it's a critical step for us towards our basketball mass production in high volume production.

But I visited several customers in Asia in the last month I'm Super excited and really happy to report that we now have secured engagements with.

Some key smartphone manufacturers vivo Xiaomi Lenovo.

Three of them now Xiaomi and vivo are the top five global Oems.

Otherwise the Motorola brand and number three in the U S.

And <unk>.

And lastly, I do want to bring out that we have built out our leadership team tomorrow with a group of individuals that I worked closely in the past at at Micron, and Qualcomm and I'm Super excited to introduce them to you.

On the last note on that last night.

I'd like to let everyone know that al Schmidt sitting on stage here with me.

Has chosen to retire and he'll be leaving the company effective August 11, and now after our recent carrier a sea of multiple tech companies.

<unk> analytics is a great favor in revisiting his roots in sales and setting up the commercialization engine at <unk> over the last two years I want to thank Rob for all his support genetics.

In order to continue his work with record some world class talent to commercialize the commercial end product that our product organization. This includes a widespread trend of product management somewhere in a rocky.

Vice President of sales, Dave Chang, who recently joined us.

From Qualcomm.

He used to work together.

I'm going to let their I'll say a few words.

Thank you Raj.

I want to thank you Raj to T J and the board for having me as part of the leadership team for such an Amazing company Hi.

<unk> been lucky enough to work with T. J for over 15 years and been involved in ramping businesses with him, including Cypress in Sunpower and a few others.

But <unk> has been the most exciting business opportunity that I've had in my career and frankly have run some pretty interesting tech companies.

But.

I believe there's just amazing opportunity here the team that I've put together has positively I think impacted the long term prospects of the company but.

But I've never been involved in that business situation, where there is an insatiable demand for product that has a clear market leadership and we're engaged with every market leader in the consumer world. So for me it's a.

<unk> decision to leave but sometimes kind of life throws things your windows.

I sort of need to stop and prioritize my house at this point.

The go to market Stewart's that Raj mentioned, Dave and some mirror, our very experienced and talented I've known Dave for 20 years his business acumen and customer engagements are second to none.

It was not.

It's an honor to work closely Raj RJ and the entire executive team to progressive <unk> to the next stage essentially the second phase of the company. After the technology base was established by the founders.

Our companies that are our customers have validated the technology is sound and have audited actually our business in that it's scaling properly.

Basically due to the actions of the entire team. So it's been an honor to be a part of it and I'll continue to cheer from the sidelines. So thanks Raj.

Thank you Ralph.

Now for my remarks today, I'd like to spend a little bit of time.

Actually talks.

Talking about the index value proposition as it relates to the Mega trends, we are witnessing in the market today.

Now if it wasn't clear already.

And you mentioned the last few months and I was kind of.

Driven home the point that.

There's a ton of investment being made in directed towards AI occupation billions in AI.

I also learned in the past couple of months there are many many revolutionary computing platform that enabled by high performance cameras high performance memories image processors censors displays that marry all of this together along with AI.

But it's also kind of the meal. It also kind of revealed Adobe is a secret in our industry.

None of these new devices that are being launched will really deliver on the promise to an end consumer till they have a much better battery and I wanted to substantiate that today with a little bit more data on the kind of performance and battery that AI needs and this literally why why I joined enemies.

Now first let's talk about that a little bit deeper, but those of you who don't know I didn't let ph D. In computer vision and AI and I spent quite some time in that area I asked my team here too.

Test what the power budget, that's needed if you actually run a true generate your application.

On a battery operated device and smartphone or laptop.

What does running it on the cloud because a lot of people want to run. This device. These applications on their device natively because cloud costs, a lot of money and they can see issues and so on.

No, we don't and stable diffusion, which is a very popular tax to image and marketing program and.

And we found that.

In 68 minutes when we ran this program to produce images the lifestyle on the laptop died.

If you just rounded on the cloud.

You could you could Gulf of 11 hours, but it cost a lot of money to run it on the cloud subscription that privacy issues that is all you said is not high as you want you already paid for the extent of laptop you'd like to use it but the problem is you can't use the hardware very well because the battery goes down.

So AI at the edge is where the industry is going but the AI at the edge will not happen like how we all want it.

Breakthrough in the battery technology.

Trade and other application Pablo application in.

For photography and for image processing is Adobe lightroom.

Although we already had a great nice filter, where you take a picture and a low light.

Which happens to other times when you're shooting and then you try to filter the noise out.

Data standardized silver and a few months ago, Adobe released AR and AI powered nice filter I was actually amazed by how much better the AI powered nice furniture was in terms of cleaning up the nice.

But when we ran the agent is filter and we measured the battery draw.

That filter needed 30 times more battery.

It's actually pretty compelling why the world needs a much better battery.

To be able to realize these innovations that are coming.

There isn't a blog on this and you can look at it and that makes the dot com slash AI and I really encourage all of you to check it out so that you can see.

This data.

Now, let's talk about mixed reality and other application that's becoming very popular we had some great mixed reality products are announced and soon to be in the market now.

Now I go into much more details on this and other blog. That's also analytics dot com I'd like you to I'd like to encourage you delete it but at a very high level. We've now seen tremendous advances in processes tremendous advances in memory display sensors camera technologies.

That are enabling use cases, we always ramped up I mean, having a true mixed reality devices really amazing, but unfortunately, the battery has not kept pace.

Now this point.

He was further solidified to me recently when I am.

When I was in Asia, and I was visiting all of these customers and I wish for some other customers and I talked to them about analytics battery and asked that is that a way we can actually start working with them on this.

The interest level I saw from them for advanced battery was was amazing to see because they also know that most of the edge into phones into laptops into into wearable devices, you just need a better battery because the next generation use cases, it's very hard to support them with the current use cases.

Now I'll also visited a lot of investors in the last the last many months and one of the questions I get many times is Andrew.

Intermix business model.

Assumes that we will get a premium for our battery technology when we.

Provided this increased energy density to our customers.

The question I asked as well.

Why do you think you'll get back.

Actually I'm, even more convinced now with all these new devices that come out that are actually not delivering on their performance because of the battery.

When we deliver this battery and battery is no longer the barrier for the performance the supplier who makes the breakthrough in this is the one who has the right to command a premium price with strong margins and I truly believe that analytics is that opportunity.

Now this is not that different from what I've seen in my past life over my 30 year carrier in semiconductors, I watched the price up.

Processors that we sell into smart phones go from $15 to $65.

And they did that because they delivered a better user experience to the end user.

<unk> built in cameras <unk> could do video once could do.

GPS once could play audio and the processor that more and more value as it provided more end user experience.

I experienced the same thing with displays and cameras and memories at.

<unk>.

Similarly, as we increase our value and energy density in cycles and charge rate safety. Among other things our customers will be able to take that technology and deliver much more compelling products into the market with the end users will pay a premium for the performance, which is the premium we believe we will be able to realize.

Much like I've done throughout my career I spent a lot of time with customers understanding what their needs are understanding what are the key parameters are and.

Simply put.

When they win we win and we provide a better battery they can make a better product and we get the premium and they make they felt better.

As I mentioned before.

I was super excited by the.

By the fact that we're now able to start.

Programs with leading phone Oems.

While continuing.

To advance our design ins in variables and in Iot and computers.

This collaboration with establishing with the customers will actually help us understand.

All the different ways, we need to architect the battery to really Delaware the debt value.

With that I'd like to introduce our new CFO Stefan Ahmad.

Amit.

100, and as I say a few things.

Thanks Rod.

Thrilled to be here at <unk> and I would like to thank the entire <unk> for the warm welcome that I've received so far.

I was really attracted to analytics by its highly differentiated technology that delivers meeting energy density across the industry and a team that has a strong track record of operational excellence.

The addressable market opportunity here it is large.

Breakthrough innovation with silicon mindset can help deliver increasingly differentiated products.

Like Art said I also strongly believe that we can command a premium price and deliver strong margins.

Im looking forward to connecting with the investors and sharing dynamic story with all of you.

And I think it is highly compelling.

Raj will touch on the guidance, but at a high level I am for analytics to be a careful steward of shareholder cash.

And to make the investments to grow this into a grid business that delivers strong growth and attractive margin profile.

With that I'll turn it back to Roger.

Thank you Farha.

Could you again.

I mentioned earlier today in a day.

Joining us from Asia.

Joining us from Asia is going to give us a bit on our gen. Two other lines as it is getting ready for vaccine factory acceptance testing, we're actually going to stream. This from.

From Asia, and we'll see how that works, but a J.

Got it.

Thank you.

I Hope you guys can hear me okay.

It's a exciting time here.

Sitting here at what I've worked supplier.

As you can see in the background.

Equipment.

Wondering what does this equipment what does the boring.

Six in the morning.

And there's a lot of energy, but there's a reason for it.

Gen two equipment, which we had been working on.

I've heard reported you've made a lot of progress on the dental equipment I want to assure you personally what progress you've made on the line.

So you can see it for yourself and hopefully getting.

Did the same confidence that I have now.

Bill.

In terms of where we are right now okay. So let's first go three or four important steps in what I'm going to show you right now in the battery, making right. So what are the first steps is laser patterning, but that's done.

Other equipment there what we have is equipment, which speaks to the laser pattern rules.

It won't be what I call. The stacker, we have seven stack or if you're on the line five of them expecting Mitch that.

Electrodes.

Two of them doing the MCR. So all of these are in the Debug Board right now as we speak and we'll show you. The next important step. So you can see this machine is.

Becoming more and more real and.

Soon we will be in the Dubai Mall, you can see in between here.

So all of the overhead stuff the transportation.

Access from machine to machine. These machines are this equipment decline is made for a very high you pitch 13, 50 appears to be precise and has very little labor content in it.

Roughly.

25 people per ship running and making my bedroom in a year. That's the that's the kind of rate of speed that you're working on.

Each of these machines is built.

In line metrology.

Very little new ones that are making.

Making sure what we produce is at a very high yield, but Mexican quip Bret I wanted to show you here I think a glimpse of it.

It's in the debug mode.

In cycling as you can see the parts are moving this is really the AOR brim very important step.

Attaching aluminum oxide chill on the side of the cell rich basically insulates. The cathode anode. The next step is for measure the castle to add or.

Offset making sure that's it within the tolerance of the offer.

What we need this equipment right here.

It's called <unk>.

The ill or consider that so you can see that we are going to open. It again. It is cycling you can see it's in the Dubai Mall.

And again, all build with mirror mortar grant.

A block in line metrology very little human touch and very high you pitch and you can see the this is the in line baking.

During.

The next step I want to assure you.

Yeah.

Is the constraint attach.

Profit.

As you know the constraints in our battery are the most important.

<unk>.

Pieces of material basically that we get from our supplier which are.

Rich has a goof room attached to it and then discard it Scott right here rules docks into this machine and now you can see what's going on inside this machine. This is a constraint attach.

So on one side goes to the other side.

Second very highly accurate very highly precise besides.

Our placement and again in line metrology. So this is a computer that school and the last one I wanted to show you again. This is again very exciting for us.

There you can see the again the cycling going off on the other side of the of the machine, but the bus bar in search tool, which has been in Gen. One has been a problem you're learning from the Gen. One issue that we've had you know why we weren't able to do much higher feed. This basically takes care of that this is a bus.

Bar insert.

Which basically includes the Budweiser to very good high speed Lipsett and.

<unk> completed the sale.

Again. This all this equipment will show you in a panoramic view now it's ready for its completely in a debug warm and ready.

For what is called a factory acceptance that factory acceptance test is the most important.

Step in the in the equipment.

Procurement of equipment.

And after this it goes and chips to militia wherever you everyone else per day.

Our site.

In the benign clients Park.

The glimpse. This gives me the confidence that the equipment is real it's working for people who wanted to actually get this was a good idea for me to just come here since I'm spending the time here anyhow.

Purdue This life and show you, what's going on with Jetblue equipment. Okay. So order you Raj.

Okay.

I hope I hope that was useful for all of you and you share the excitement that we all have and you can see that segment and I guess first on the team faced there.

We've been working Super hard to actually build these machines and <unk> and.

And the last time I went up there a month ago I gave a small glimpse of it but now you can see the real billing them up in fact, the acceptance is on track. So we're super excited by that and looking forward to giving you more updates as we continue to make our journey to scale.

No.

Aren't you.

I talk about our outlook.

For the third quarter 2023, we're forecasting that.

That we will produce approximately 36000 units from our fab one our plan for the rest of the year is to make as many small cells as needed to support the commercial launches of the customers and also qualifications of the customers that have designed in our product from from Fab one, but we also wanted to focus on.

Higher value projects and higher volume.

Opportunities that we have recently come across that will come to us from building large yourself and with breakthrough technology, that's a very very important and provide safe batteries.

The U S Army and the other customers now we noted that the total size of the U S Army odder.

For preproduction stuff is a preproduction cells that theyre going to put into early prototypes of their best.

Is nearly $600000 for this year.

Nominally in Q4, but this is just the first step in what we hope will be a very significant business in the in the multiple tens of millions of dollars in the years to come and that's why we are Super Super excited about this opportunity and we are working on making these things happen and not traveling.

Now, let's talk about our cashiers what they are.

Full year of 'twenty three.

We're now going to lower our full year cash use guidance from the $240 million to 190 million. This is mainly because of lowering our capex forecast from $120 million to $70 million due to the militia transaction and Ibs.

And this is somewhat of a benefit of demolition of the Ibs transaction, we'll realize next year.

We've entered into a manufacturing agreement with Ibs.

And that our.

Assembly subcontractor at a high level, what ABS is financing $70 million towards the first Gen. Two auto line are the ones that I, just talked about and data with funding debt outstanding from the OCC Bank.

Now in clothing.

We are preparing for our high volume production in Malaysia.

As the federal organization, a fab two is underway.

Hired a lot a strong team in Malaysia and that team members have come here to fab, one and undergone training and equipment and three months.

Now we are really looking forward to updating you on the progress over the rest of the year.

Let me open up for any questions operator.

Yeah.

We will now begin the Q&A session. Please.

Please note that this policy will call.

Before we go to questions, we're going to lead the two most highly voted question submitted by shareholders. How did this whole thing all that disruption.

The first question.

Although the 180000 batteries being produced this year what percentage is a tough one and what percentage is more for MTS.

Yes, absolutely.

As I mentioned we.

Guiding to another 36000 batteries in the next quarter when we made these batteries.

These go into our customers, but they.

Basically testing and the new products that will come out next year. Some of them are used by our customers for our products. We expect to launch later part of the year and for those products that actually go to the later part of the year, we need to build some inventory to make sure that the customers are comfortable when they go to production that we have enough supply, it's really hard for us to say what percentage is actually for the customers go into production and what.

Recent ages for for testing.

You know honestly, if you had so much opportunities now coming our way, particularly with the new large sales opportunities.

That we are focusing some of our resources also on making sure that we can support that for the U S Army.

The second question is what will happen for qualifying customers to announce but that will be a lot more contracts to use an opex model.

Yeah actually Ralph do you want to take that and you are pretty close to that.

Thanks Raj.

So I think Raj described.

Well, how right now we're going to market with customers, where they are building some products early.

And we're expecting some releases of our lower volume products in the second half of this year based on the amount of products the amount of cells that we can produce more.

Most customers.

Oh, I should say some customers will allow us to announce.

Them using our batteries and some will not so it's it's.

Unclear exactly how many and what timeframe.

But they will not do that until they have these products available either publicly or available for sale.

And so that should be coming later this year.

Yeah.

Yeah.

We will now go to questions will be answered in the order. They have received please ask one question one follow up question that most people.

We will not pass along to assemble.

Our first question comes from Derek <unk> from harmful.

Yeah, Hey, guys. Thanks for taking my questions and Paragon Congrats on the new role.

Ajay I wanted to start with you.

How many proof of concepts do you have left to complete.

And then can you talk about some of the unique challenges that are associated with factory acceptance testing compared to the proof of concepts like what's what's sort of the rest of that parts of the equipment that past the proof of concepts do not meet the.

The requirements under the proper acceptance testing can you help us understand some of that.

Sure absolutely so we are actually.

Actually run more than 40, plus proofs of concepts on call. It 13 14 different.

Equipment.

All most of them pretty good.

Who is learning cycle.

Some of them do come back actually on their design and then get redesigned like there were a couple of examples which I looked at yesterday, which were in the redesign completed.

Do proofs of concepts.

I would say underpin our required actually further before the fact there.

Except that the complete.

And so yeah, that's where we are right now most of the important ones are completed and Acme ran through the expectation a.

One or two who came back.

We agreed with them.

Got it got it and then as my follow up Ralph <unk> go and best wishes to you, but wanted to ask a bit more about some of the AI applications.

Using a 30% to 50% in terms of battery capacity with some of these applications.

It seems like potentially you might need 567 or more large battery cells.

Is that the case for some of these applications and some of the inbound requests that you're getting.

And are some of these customers and laptops.

Saying that you guys are the only ones who can potentially enable some of these applications dresses.

Start with some of the <unk> stuff is not the case.

Thanks.

Yeah, I can take that so you know.

So I wanted to make well number one I think customers are now realizing that.

The applications that are coming in that people want.

So compelling that the current battery technology is not able to keep up.

I'll give an example, if you if you do the nice filter like using some lightroom and you use AI nice filter, it's almost impossible to go back to using a traditional ice sculpture.

There's no going back because you kind of see what's possible and by the way Lightroom also runs on smartphones. So you will see the same problem that when you start using it you get used to it there is no going back. So what this is doing is it's actually very early stages. I mean, this is probably the first time that actually.

Anybody has put a date out there that I know of what how much. The battery is consumed when you run an AI application.

So I think our customers are also realizing that I think it's going to be it's going to happen in one of two ways, either they're going to buy more batteries.

As you mentioned, but the problem is more batteries as a form factor gets destroyed.

It becomes bigger heavier fatter and so they don't want to do that so that's when we have an advantage that we can either provide increased.

And as you can see and keep the same form factor, but provide more energy on helping them reduce the form factor.

Provide them same energy so it's happening in one of two different ways, but it's hard to say exactly how many more batteries will be needed, but I can I can definitely say that.

It's going to be a lot more than what we expected just because of the applications that are coming down.

Got it thanks.

Our next question comes from Colin Walsh from Oppenheimer.

Thanks, so much guys.

Could you speak to the strategy around rolling out the standards. So the depth of customer interest and how that potentially impacts revenue ramp as some of your customers look at that standard cell getting out into the market.

Go ahead.

Yes, so we were trying to replicate what we see in some of the other battery segments in the marketplace today and that is in the pouch. So it's very unusual to see a standard so but we've had enough customer interest across many different Iot applications that we see that as a viable way to go to market.

Typically what you see when you do a general availability like that it's usually smaller customers that can't afford or be able to drive a custom cell size. So we're seeing quite a bit of uptake on this standard so that we're putting out there and you will see others in.

Our future that will be a different sizes et cetera.

Yeah, Okay, and then on the.

Alright.

Little bit more color, it's very similar to what I've seen when I was at Qualcomm.

The Iot business from electrical business when I go and when you go into something called horizontal business, where you don't really know the customer device through a distributor at the by a small number of units what happens is that a lot more willing to adjust the form factor.

To accommodate the standard salary have they tend to be high volume application like a smartphone I like that.

Like a wash you didn't want to put the perfect size battery to E. Mailed the maximum amount of LNG that can get out of that but I'm gonna see other large volume people are not going to be willing to make a custom sell for them. So what we did with general availability announcement is to support all those other smaller.

Volume per socket opportunity, but still give them. This higher energy. So that's kind of what the strategy was and I think it's a popular strategy in in semiconductors and people make DSP processors and so on.

It hasn't been done as much in batteries, but I really felt that we have a great product and we should try to get more people to use that and one thing I found as those customers may actually end up moving from there to a high volume opportunity as the products do well and they may come back to us and ask for more customers now.

Okay. Thanks, so much.

On the material supply chain, you know, we're seeing some dislocation whether it's on the capital side or even now with island gas and so on the Silicon side could you talk a little bit about how your customers are engaging with the supply chain and some of those material procurements and preparing for what it looks like a potentially steep ramp as you get through 'twenty 'twenty four 'twenty 'twenty five.

Okay.

You're talking about battery materials that youre talking about yes, exactly both anode and cathode materials.

Yeah, you know I was actually I've been fortunate to spend a lot of time with a lot of.

Battery material suppliers in the last month or two and what I found is that there's a lot of innovation going on in the <unk>.

<unk> of people, who are now coming out and saying, we got a better silicon anode.

A better capital and for US, it's a super exciting I mean, there's there's a lot of announcements coming up at the.

Company in Australia, I saw recently company in England recently, so the supply chain of the material production in both anodes and Kathryn is diversifying a little bit more and a lot more innovation going on there.

Of course.

Quite a bit because of the huge EV opportunity. There are a lot of people see but for us. It's tremendous because we are able to take advantage of all the investment that's going in into those spaces and use those anode and cathode which are best suited for us in our battery architecture and take advantage of that and provide much higher.

Energy density much better cycle life in a much better fast charge capability. So I think it's a really exciting time for us and that the diversity of the supply chain is also helping us because we are not able to work with multiple multiple suppliers and that helps us in our cost of goods too.

Okay I've got a couple of follow up questions, but I'll take them offline. Thanks guys.

Thank you Ken.

Hum.

From Bill Peterson from Jpmorgan.

Yeah, Hi, good afternoon, and nice to see things are on track with the SAB to foreign and welcome to the team and good luck in the role and Ralph Good luck in your retirement.

My first question is I wanted to.

Checking on the smartphone announcements like to get a better understanding by what you mean, but determined engagements.

Given these volume purchase agreements or is pricing said Mary.

Could this be for new form factors and I guess should we think of these large batteries for smartphones is custom parts or are you looking to standardize these parts.

Yeah, a lot of questions in that.

Actually you.

Most smartphone products will be custom products in the sense that.

Every smartphone makers batteries at specific sites now close enough, but the other ones but specific.

One of the key areas that we are seeing a lot of opportunity is actually in a.

In an area called <unk>.

Foldable phones and flip phones as you as you Mike.

Recall this is become a very popular category in our particularly in China.

Because it just provides a much larger display.

That you can use and at the advantages you can run multiple applications at the same time with five G. You can have different windows open running at the same time different AI applications in different one people love that people love their form factor not a flip gives you a smaller device that you can put in your pocket without compromising on display afford it gives you.

A regular size device, but with twice a display support the form factors are really popular.

The problem, though is that to support such a big display you need one battery on each side.

So flip typically needs one battery under back in one bed in the front end falls in the middle of Ford needs to batteries one on each side. The advantage we have with the intermix battery technology is or at least what the customers are telling me when I met them was hey, it's now possible to take one and it makes battery and replace two of those batteries. So now you can actually have a flip phone where the pop is really stable.

For example.

Now with Florida.

Further it is much smaller and much thinner or you can have affordable phone the problem with the Foldable phone today is that it's twice the thickness of a regular phone.

You can now put one battery are too thin or batteries from analytics that can actually make them affordable phone the same form factor as a regular phone. So that's one example of where customers are using.

In terms of the engagements are typically the way. This works is we had working on you know what is the form factor what timeframe and the launch what size battery to the need how do they charge. It how does the discharge yet which prostate does it connects to when do we need to give them samples when we do make the first demonstration. So it's kind of like an engagement that typically would happen with the process of it.

Memory, which I'm very familiar with over the last many many years, so super exciting and super exciting to see that they're all going down the same path of however, gone before and all of these customers to also make available. So the same battery technology can also be used in the variables and some of them also make notebooks. So it is that.

It's kind of a broad brush strokes opportunity for us across all of them.

Great nice to see.

Interest there.

Also you mentioned that about your I guess accomplished to get premium prices and you mentioned that there's a lot of investors are asking about your ability to achieve that another thing. We also hear from investors is how to think about your cost structure vis vis competitors in Asia. So I guess today, how should we think about the current gen. Two.

And with the current throughput the current cost structure around 50 million as well as the current material set how does that compare to high volume competitors today, and maybe more importantly, like what opportunities you have in terms of driving down line costs, increasing throughput and material optimization in order to close the gap with your high volume of competitors.

Yeah, absolutely. So I I've answered. This question in a couple of times on Investor calls that I'm happy to go through it again.

Really the cost in a battery, making is majority of the cost like 60% or even higher material costs and these are and are scattered.

Electrolyte separators and and so on.

Now currently our cost structure is clearly not where it should be and it probably wouldn't be where we want it to be even when we did like one line. So you have to get to scale build batteries in the tens of millions to really get this purchase agreements to the part where the material cost is.

Very competitive and we are finding that.

Now as we start building a factory Jay and his team he's got a terrific supply chain team and he has hired some very strong.

Supply chain and also.

Material procurement people that are getting those costs down.

And so in that sense the comment I want to make is as we ramp the volume the material costs will come down and we are seeing a lot more competition as I mentioned now in the in the in the whole material stack. So if we are able to do a solar side, even multi source in some of these to get the costs down.

The other one is a.

The cost of the machine itself.

And again this team has done a lot of work in.

Figuring out what aspects of the machinery, we can further cost figures, but example, when we talked about it as first line, which is the line where building is that you don't have a line in the sense that he can make batteries from very small.

Watch batteries too much bigger smartphone.

Laptop batteries, but as we are making progress in design wins with our customers, we will be able to optimize those lines. So that the line cost comes down but the variability of the battery side of it needs to make may not have to go all the way from very small to very big it could be a big battery, maybe 10% variation of that so we can support all of the smartphone.

For example on that line and then other line good run much higher throughput and so I bought the watch sales. So we are in the middle of that of how to optimize the lines in terms of line costs in line throughput and also in terms of how to get the material costs down I am very optimistic that long term, it's going to be very healthy healthy gross margin business as we get scale and as we get lines more of them are optimized.

<unk> products.

Yeah, Thanks for sharing insights and best wishes to Farhan and Ralph.

Thank you Bill.

Our next question comes from George <unk> from Canaccord.

Hey, everyone. Thanks for taking my questions first maybe to <unk>.

<unk> on anything new that have thats happening with the EV opportunity you specifically mentioned in the release.

Fast charging based on the structure of the batteries you're building so any update there would be appreciated. Thank you.

Yeah.

And we're making steady progress in that area would be now.

We're able to further quantify as.

As we fast charge what is the benefit of our architecture in terms of fast charging and.

As I mentioned last time, we are working with a couple of.

EV Oems in working with the material stacks that they would like and how we can put them in our architecture and get them some samples.

It's a it's moving and I don't have any new milestones to share today, but I am optimistic that.

We'll be able to give more data before the end of the year.

Yeah.

Thanks, and maybe as a follow up just to focus on the capital structure you lowered your.

Capital needs for this year can you just sort of remind us what 2024 looks like and what the requirements will be for you over the 12 months to 24 month period. Thank you.

Okay, I'm going to add 400 to call it as far as CFO .

So we're not guiding to capex needs for next year.

What I can tell you is that we have a lot of things going on Mexico.

We will be completing the gen. Two line. We also have the agility line also coming in.

So capex will be higher than this year.

But not guiding to.

Capex you have to wait till end of the year and then we will probably be able to share more.

Our next question comes from Al <unk> from Copel Formula.

Hey, Thanks, guys. So maybe just a quick follow up on that one I know maybe you can specify in terms of specific numbers here, but.

Maybe qualitatively I know that you're focused initially on the agility line.

And then getting the first lines up and running in Malaysia, but I'm wondering if you've begun sort.

Sort of contemplating when you will start building additional maybe dedicated high volume and customer specific lines in Malaysia, as well as how much those lines will cost.

Like I said I know you don't have to maybe put a fine point on exactly a dollar number there but are you at least having conversations with customers about when they can expect deliveries from custom lines like that and in your mind have you started thinking about what those costs and when you'll start building that's fine.

Yeah. So I think we talked about it before so mainly you know we.

<unk>.

Our customers are now in multiple form factors I mean, we have customers since my forms of customers in laptops and customers in watches and we have to optimize the lines, but each of those.

No again, we are in.

Now working at different models like when you talk about alliance the lineup multiple zones that the other thing you I remember some of the zones are laser machines, which maybe we can.

Optimized for multiple ones that some of the lines that are more as Ajay mentioned constrained stuff then the zones that are buffering.

And.

And.

Things like that on the back end. So we are now trying to figure out the right optimization, where we leave most amount of flexibility for us in terms of.

Satisfying all three of these markets, but at the same time, we are financially also optimal in terms of not making just universal lines for all of that.

So I think that's the way it is going I wish I had a more precise answer for you, but I think youll have bill have better visibility as the year goes along but rest assured we're having all those combinations you mentioned with our suppliers, which are the long lead 10 months, which when we get sooner and which when we get later and so on.

Yeah.

Okay, and then maybe just a follow up to that.

In terms of who will pay for these new lines and how those lines will be financed I know that there's sort of multiple different options.

You could get your customers to help pay for it there might be price concessions associated with that or dilution associated with that.

How far along are you in those discussions regarding how funding will be a range for these new lines beyond the initial.

Several lines that you already have planned.

Yeah. So so so I mentioned that I pass to go to the job that there are three options for for us in capital raise the first one clearly was that.

We are going into Asian countries, where people wanted us to be there and there is the ability to get there.

Favorable funding options because those countries wanted us to put our factories, there and bring the technology, there and provide jobs and and as you can see from the announcement today and we've been able to do it on that.

The second one I mentioned was that.

Whenever opportunity arises in the capital markets help us and we will we will work on raising capital and we've done that and we have capitalized the company with the with the convert earlier in the year. The third one I mentioned is that customers, who would like to find some of our lines and and as I mentioned.

That will come with some some.

I guess two things associated with it.

The margin and price and so on all three are open and honestly at this time, we don't have to make one of those decisions because we have capitalized the company and with the most recent announced at the Ibs, we have some more runway so far.

Quite honestly it now and he is going to figure out the right optimal pads to get the Capex for the next time.

Okay.

It sounds like a perfectly easy job. Thanks, thanks very much.

I'm looking forward to working with you.

Okay.

Hi, there.

As a reminder, if you have a question you may use the right temperature at the bottom I think Paul if you joined by phone you May dial star nine to Abraham Onstar folks for each one of them.

Our next question comes from Gabe Daoud from home.

Hey, thanks, everyone. Thanks for taking the time I was hoping.

Raj could you maybe give it.

As an update on the Mou that was announced last November for Smartwatch program, but is there any notable progress that you can comment on today.

Yeah.

Yeah, I guess, maybe Ralph can comment on that I think he was involved in the Mou.

Yes, so it wasn't necessarily specifically for smartwatch, but using our technology in multiple platforms moving forward and we have made progress there where the customers have been qualifying the product.

And it's just an ongoing process for us.

We should see some outcome of that either next year, most likely into 24 or 25 from a volume production perspective, but it's.

It's progressing along sort of as we expected it to.

Yes, one comment I'll make gave us a clearly that Mou is one thing that we talked about but coming back from Asia recently.

It's just a tremendous amount of.

Interest in our technology and products from many many customers.

Larger volume opportunities.

So we just have to.

Get the qualifications done and build our factories to satisfy the demand thats coming up.

Got it got it great. That's helpful. That's helpful. Thanks, guys and then just a quick follow up and I know this probably doesn't matter today, but if you ship 10000 cells and <unk> generated for 2000 and revenue it implies a little over 40 Bucks and in AFP versus.

Previously disclosed five bucks for the small cells I'm just curious what's the.

What's driving the Delta there.

I mentioned before.

Sell side going into customers that actually will will.

We are sampling, sometimes we don't guide for samples.

Because we'd like for them to use our products and and test and validate and and then and then.

Most of our work, sometimes they charge a lot for samples.

And so you can just multiply that revenue number take revenue number divided by the units and getting ASB. That's probably wouldn't give you an accurate answer. This is early stage production and this is really customer qualifications and so that's not a good time, that's not a good way to calculate asps, but I can tell you this much though okay.

We feel very good about our ASP is because of the value we provide and that's something I'm, even more encouraged now than ever before.

Yep understood. Thanks, guys.

Our next question comes from Ananda Baruah from loop capital markets.

Hey, guys, yeah. Thanks for taking the questions I appreciate it and.

Sarhan welcome looking forward to work maybe around sorry, sorry.

Sorry to see you go really enjoy working with yeah, Hey, Ron how are you.

Yes, just a couple just real quickly.

With regards to the basket again, killing getting it going.

We know and I guess as it rises it is it still April timeframe youre expecting to have Michelle production project product that is.

Should we expect from you.

Yes.

Based on certain milestone in between the earnings calls.

What might those sorts of things that we could expect to me. If there is anything and then I have a quick follow up.

Yeah absolutely.

Absolutely that there is still a until mid April to get samples from our Gen. Two line in Malaysia that we can send to our customers and.

The Big next milestone is a factory acceptance.

Next month end.

Jay feel confidence is out there and we hope to be able to give you an update on that when that's done then we have milestones and then the agility line comes in I think Youll see that and then we'll have milestones and when equipment goes into into our Malaysia facility and now that we've got the contract the contract done and we have a site and we have people and all that.

It would be really good to see.

Yeah, I think lots of lots of exciting news to report as the year goes by.

Alright, that's helpful. And then just a quick follow up.

How should we think about aspiration for E M O U S.

As you move through the year as this year is this year still or is that is that still a goal that you have in mind and you need to I know I think there's been a conversation about actually getting an EV battery.

Sample made also is that something that's necessary.

Thanks, Brad.

Okay. Thanks.

Yeah, I mean that is absolutely the goal I mean honestly I think the challenge right now is.

Number of opportunities. We have you know these army opportunity that came up on the EV opportunity that it's making good progress and then we announced the general availability of the south customers qualifying those things. The Menasha line coming up is just really a question of sequencing all of those things in the right time fashion. So that is the most profitable for the company.

That's absolutely the goal, but you kind of have to balance all of the stuff we've got going on now so.

Awesome. Thanks.

Helpful. Appreciate it thanks guys.

Yes.

Our next question comes from Sean Milligan from Journal.

So for some time.

Uh huh.

Uh huh.

Hey, guys. Thanks for taking my question.

I guess first question is how how can we think about.

Our fab to ramp in terms of once you get this first gen two auto lines in and running and start to see some production orders.

How do how should we think about the ability to add additional lines at a pace like is it one per quarter. One every six months worth of realistic pace for us to think about that.

Yeah.

25, I guess 26.

Yeah look I mean, we if you wanted to.

By we could build a four you don't have to lines and build them as quickly as we can but as I mentioned before that's not a very good strategy that we wanted to optimize the line for the customer.

And that's where we're spending all of their customer opportunity.

So that we get the most amount of margin for each product.

We are working feverishly on.

What are the long lead ball issues. So we can get working on those we are working on how to optimize the line even more so that each net subsequent behind cost lesser.

So those are all things we are working through and.

I hope to be able to give you more color as the year goes by.

On how we plan to do that in 'twenty, four and 'twenty five.

So at this point.

I don't have much more details than what I mentioned last time.

Yeah.

Okay, and then with them since the Y B S announcement it out.

All right.

The $100 million and that covers the.

Basically that facility plus the first line can you talk about how many lines do you think you can ultimately said in that facility.

Yes that facility itself has space for four lines.

The official date, we're making sure the facility can hold dumps have electricity dry room, and all that kind of stuff up to four lines and that is super exciting. So we got that worked out and we got the first line going and now we're just trying to figure out.

The sequencing of the next few lines.

As a as profitably as we can.

Okay, great. Thank you.

Yeah.

The next question comes from Gus Richard from Northland Capital markets.

That's the thing.

Yeah. Thanks for taking my question can.

Can you talk a little bit about where you are with commercial terms with <unk>.

Ips and have those been nailed down at this point.

Yeah, maybe if I can be.

Signed a manufacturing supply agreement. So I think it's nailed down and signed by a signed by them and and that that puts in all the terms there in terms of exactly what the uplift is in how it comes and so on so the terms of the nordson might be as I said.

Signed.

Okay.

I appreciate that and then.

I just want to make sure the until the line is still expected to be up and running.

In November of this year by by year end and be able to produce samples for customers.

Yes, that's still on track we believe by yearend, we will have that yes. So we are building on two lines really we're building the July launch it also building that.

Line, one of the gentlemen.

Yeah.

Right right and just one wanted to Gen. Two.

The.

Richard throughput 9 million units per year.

Nine many of the bigger batteries or $18 million of smaller batteries nine point, something but roughly round numbers here.

This Roger.

So.

Yeah, just to clarify that the.

The first line is a universal library.

We're up a little bit on that youll be a drop in my vision.

First.

Or what's the lag will build.

Sure.

Right.

Okay.

That's correct that's correct. Thank you for that okay. Thank you.

Yes.

Thanks for the clarification.

That's it for me.

Thank you guys.

Our next question comes from Chris.

Crystal this antiviral.

Hey, Thanks for taking my question here.

Maybe on the production from Fab one.

Came in ahead of the targeted in the second quarter carrying 36000 in the third quarter or are we still targeting 180000 for the full year or does the acceleration thats millwork or laptop or phone batteries change that target.

Just are there any specific things you would call out we would need over the next few months.

<unk> hundred 80000, Thats, who were still looking for and is there any significant expectation from the agility one.

This year.

Yeah, Great question, we absolutely with the way the manufacturing is going on Iga and his team have done a phenomenal job.

We can make those 180000 batteries if he if you wanted to at this point absolutely.

That's the goal.

But now that we have these opportunities for higher value.

From both these but these are larger cells for the army and for laptops and other areas and the question was asked why did we do about the EV stuff, we're getting a few other ones and we only have one fab here in agility line is coming so based on how quickly the agility line comes in and and how to optimize the ones the fab here.

We're going to update you on exactly what we wanted to do for the rest of the year, but it is.

It's a it's a good mix problem, we have that we have more opportunities to work on and we have to make sure we want to build the right ones.

Got it Okay makes sense and then on the customer side I appreciate the color on.

Some of them larger phone and laptop customer engagement.

If we go back to the customer funnel plan for 2023 that you provided on the January 3rd presentation. I just wanted to see how you think you're tracking as far as accounts moving towards some of those later stages.

The 10-K and any metrics you can provide breaking down the 737 million active design in design wins by where we are in some of those milestones.

Yeah, Ralph yes, so.

We haven't really shown that that graph again, but.

You memorize some other milestones very well so yes, we are moving customers from what was called kind of Q S 100, which is sort of very always sampling stages into that P. One K, which is the production 1000 units or more.

And that sort of.

<unk>.

The past till we get to you know real revenue in high volume, which again based on how many units where we're getting out of the fab happens later this year and then into next year as well. So we've got as Raj pointed out we've got plenty of opportunities stacked in that pipeline, it's a matter of.

As you know getting the right mix of the right amount of product, which is why youre seeing us not ship all of our units that we put together as we build up a little bit of inventory for some of these customer product launches moving forward, but the funnel is progressing well and even the front end of the funnel, which and honestly because we have so much opportunity we've spent less.

Time on we're getting.

A bunch of new customers coming in with new opportunities that keep increasing the funnel.

I appreciate the details.

Congrats.

On your retirement here. Thanks.

Thanks, guys. Thanks, Thank you.

Okay.

Our next question comes from Tim more from <unk>.

Suncorp wants one of them.

Finally equipment.

Video walk throughs Tonight was insightful.

My main question is you know you're clearly innovating.

Pushing the envelope on energy density.

Either way batteries, you know more than just the U S Army is and I appreciate that.

Are you seeing more customers or prospects maybe appreciates.

Roughly 50% lift.

And more amp hours I know, that's a wide range for capacity, but whenever it is compared to their technology that they previously been using I'm just wondering if the awareness by customers for the half hour with.

From from your offerings or even marketing accelerating by you.

It's starting to really shine through in the last couple of months.

Alright.

Yeah, I mean, absolutely the customers truly appreciate the fact that we are providing more energy density and again.

This is really driven by the new applications that they see coming that need much more battery I think that is.

Just a classic of whats happening.

I wrote in my blog, if you see for example, the new.

Then you are.

Apple mixed reality headset, you can see two hour battery life beautiful if you could get that to four hours six hours or eight hours. So we're seeing that across the board.

And and also as AI moves from the cloud into the edge, you just need more and more because of the immediately so the energy density is totally appreciate it.

I.

Think as our customer engagement is moving to the next level, where we have joint programs to them they are testing or batteries or putting them in the form factor. We're also gaining a lot more appreciation for the various Ah Ah.

I, obviously I say it.

Different parameters or which you have to optimize their use of our battery for example.

We need to provide energy didn't see but you also need to provide cycle life. We also need to provide the ability to charge really quickly. We also need to provide the ability to get into the heat fast.

Charge and discharge of different voltages. So we're just moving to the next level of the customer engagement, where we are really able to work closely with them on how the battery fits in the framework, how it interacts with the process or how it interacts dose is.

It's just a fascinating to see and we're able to roll that now back into our product Roadmaps on next generation batteries when they come out with their next generation technology there'll be even more optimized do all these different requirements. In addition to providing higher energy density is really that transition of the of the of the technology.

Just to add a little more.

I think.

I was just going to say.

We shouldn't lose sight of what was sort of announced and this is.

As far as this quarterly release goes with the.

With rises.

Involvement in some of these mobile phone customers, mostly out of China being much more aggressive and actually allowing us to talk about them as being you know customers and being involved they are the ones seeing the absolute need for this uplift because to the points that Raj has been making all day was.

They need to enable features and they just can't do it with the existing technology that exists out there. So they are pushing very hard and want to partner with us to make that a reality and mostly in mobile platforms. Today. Yeah. Thank you Don Thank you for that the highlight.

That's terrific color and I'll save my remaining questions for offline later today.

There are no further questions at this time I'd like to turn it over to Dr. <unk> for closing remarks.

Yeah. Thank you everybody for listening to us and thank you for all your questions really exciting times and great quarter looking forward to speaking with all of you again next quarter. Thank you.